Crain's New York Business
March 9, 2014
Birthing Biz Booms for Hospitals
Maternity care is suddenly lucrative, thanks to richer payouts and older mothers.
For years, many hospitals throughout New York state lost money on maternity care. The costs of providing an increasingly high-tech service prompted some health systems to consolidate or close their labor and delivery services.
Now, however, maternity care is delivering for hospitals. Higher payments from insurers and New York's Medicaid program—as well as a rise in cases involving high-risk mothers or fragile newborns who need costly medical interventions—have lured some hospitals back into the baby business.
"A couple of years ago, obstetrics services were closing down," said Dr. Robert Kelly, president of New York-Presbyterian Hospital. "Everyone was losing a lot, and we were, too."
Not anymore. Between 2009 and 2013, reimbursements for 11 specific maternity and newborn services in New York state increased at least 16% and as much as 36%, according to Washington, D.C.-based Truven Health Analytics, which crunched the numbers for Crain's.
Payments to hospitals for an uncomplicated delivery rose, on average, to nearly $7,400 per discharged patient from about $5,600. At the high end of the scale, payment for an uncomplicated cesarean-section delivery leaped to more than $14,100 from about $10,800. Caring for newborns went up to $2,800 from $2,100.
After consolidating and closing maternity wards, hospitals are again expanding. But they are doing so more efficiently by offering comprehensive services at one high-volume location that wrings the most out of investments in staff and equipment.
North Shore-LIJ ended maternity care at its Plainview Hospital in 2013 and trimmed maternity beds systemwide to 302 from 328 a decade ago. But the system recently added 35 beds at the $250 million Katz Women's Hospital at Long Island Jewish Medical Center in New Hyde Park, L.I., a hotel-like complex that reflects maternity care's changing fortunes.
"Hospitals are investing in cosmetic upgrades, so patients get private baths and a new level of comfort," said Elizabeth Sellman, vice president for women and children's services at the North Shore-LIJ Health System.
New York-Presbyterian also plans to convert all maternity care at Morgan Stanley Children's Hospital, located at Columbia University Medical Center, to single-bedded rooms. The hospital recently outlined a proposal to spend $11.5 million to expand and renovate the maternity service at Morgan Stanley, according to its application to the state Department of Health. If state health officials approve the new unit, a profit of $5.4 million is projected by the third year of operation.
In the past, hospitals were willing to lose money on baby delivery because they felt they would win a family's loyalty for life.
That may no longer be the case, as patients are shopping around for the best care for a particular condition, and it may spell the end of maternity care as a loss leader. Health systems realized they were being shortchanged on maternity care and, as a result, were beginning to refuse to provide it.
"That's not a healthy dynamic, especially when you want more comprehensive services from any given provider," said Dan Mendelson, the founder and chief executive of Avalere Health, a Washington, D.C., consulting firm.
Insurers and Medicaid have started paying more. In New York state, complex care for premature infants rose to $41,600 in 2013, compared with $35,800 in 2009, according to Truven. More important, the frequency of complex care appears to have shot up.
"Maternity care is not a large source of revenue for hospitals, but hospitals make money on neonatal intensive care," said Dr. Michael Udwin, an obstetrician and national medical director at Truven.
More high-risk deliveries
New York-Presbyterian, for example, says that about one in four babies born in 2012 at Morgan Stanley were high-risk, a nearly 19% increase in five years, even though there were only nine more births there in 2012—5,010—than in 2007.
It's the same at North Shore-LIJ. "We are seeing a population of women who are older, who tend to have more high-risk deliveries and need more complicated care," said Ms. Sellman.
Citywide births by cesarean section—a general indication that mothers, babies or both are at high risk—are commonplace. According to New York City's official health statistics, such deliveries made up almost a third of births in 2012 and nearly half of births to mothers 40 and older.
Another factor that makes births more complicated is maternal obesity. Citywide, nearly 40% of women who gave birth were overweight or obese, including more than half of black women and Hispanic women.
The increase in high-risk births has made insurers willing to pay more to hospitals with the expertise and equipment to handle them, said Mr. Mendelson.
"Health plans are being increasingly selective in their contracting," he said. "They expect hospitals to offer a full continuum of services and will contract with hospitals that show superior outcomes."
Malpractice insurance claims remain a concern, but richer reimbursements for hospitals that are better equipped to handle high-risk births have kept fears about runaway costs in check.
And while hospitals are investing in posh new maternity wards, they are unlikely to get too carried away with the amenities, New York-Presbyterian's Dr. Kelly said.
"If patients want to go have Champagne and lobster, they can find it elsewhere in Manhattan."