N.Y. gains federal approval to move forward on revamp of care delivery system

After 18 months of negotiations with the federal government, New York state has received permission from regulators to implement a vast revamping of its healthcare delivery system in a bid to lower Medicaid costs.

Now the state is at the starting point of a complex overhaul effort that will involve hospitals, insurers, physicians and patients. Among its stated goals: cutting unnecessary hospital admissions for Medicaid patients by 25% after five years.

The New York hospital industry estimates that once the reform process is fully implemented, there will be a 5% overall drop in hospital admissions. With lower demand for inpatient care, the state’s hospitals inevitably must downsize.

The state is hoping that hospitals will collaborate with each other in deciding which institutions must slim down—a very different tactic than previous state-led efforts that forced providers to close, merge or downsize. Few players in the state’s healthcare system, however, are eager to put themselves on the chopping block.

To entice the healthcare industry to participate in the reform process, formally known as the Delivery System Reform Incentive Payment program, or DSRIP, New York has extended a very large carrot: $6.4 billion in federal Medicaid money will be made available to those providers that meet complex performance targets.