Center for Studying Health System Change

Recent health system change is perceived to have had both positive and negative effects on the Newark metropolitan area. The most common concern is that the combined impact of hospital deregulation, increasing competition among plans and providers and reductions in state charity care funding will hurt inner city hospitals and reduce access to care for New Jersey’s poor, disenfranchised and uninsured residents, particularly minorities and the working poor. Some respondents believe that the introduction of mandatory Medicaid managed care may improve recipients’ access to primary care services, but others are concerned about the future availability of specialty care. In contrast, suburban residents now have more convenient access to high-technology tertiary care as suburban hospitals have gradually added new services.

New Jersey’s health care costs are still perceived as high, although some respondents believe that recent changes have put downward pressure on annual rates of growth in health benefits premiums. Many respondents are concerned that quality of care improvements in New Jersey have not benefited inner city and suburban residents uniformly. Some also believe that relaxation of CON regulations could diminish quality as specialized services such as cardiac catheterization are diffused across a broader range of providers.

There is much speculation about whether the growth of the large hospital systems that include urban and suburban providers will ultimately be a stabilizing factor for Newark’s health care system. To the extent that provider systems such as St. Barnabas make substantial investments in hospitals like Newark Beth Israel and develop models that encourage their medical staff to rotate through urban and suburban locations, both the quality of health care and the economic opportunities in Newark’s inner city neighborhoods could improve substantially. In contrast, if St. Barnabas substantially downsizes these institutions and transfers specialty services to suburban locations, the inner city will suffer.

The fate of the region’s growing number of financially distressed hospitals is also uncertain. Newark has excess beds, but a disproportionate number of its distressed hospitals are located in inner cities. The region’s hospital capacity may be reduced by "planned" private sector consolidations and by "unplanned" closure of distressed institutions. Based on recent experience with United Hospital, the Health Department is likely to play an active role if other important inner city institutions appear likely to close.

While the financial status of Newark’s provider organizations can be monitored closely, determining the impact of system change on access to care for the poor is more complex. Future tracking efforts in Newark should attempt to assess whether current disparities between Newark’s inner cities and suburban areas increase or are diminished. The state’s charity care policy is one important determinant of access to care for the poor in Newark. In particular, the state’s proposal to create a managed care charity care system could create strong incentives for hospitals to develop and expand outpatient service networks in areas with insufficient primary care capacity. Improved outpatient services for the poor should also be reinforced by the state’s move to mandatory Medicaid managed care.

Another question is whether HMO-style managed care will catch on among the Newark area’s commercial and Medicare populations. The region’s low HMO penetration rates and recent HMO regulations issued by the state reflect caution on the part of purchasers, consumers and regulators. However, health plans are responding to consumer preferences by providing broader networks and more flexible products for the commercial market. These changes could boost HMO enrollment if combined with sufficient price savings. In contrast, the decision to implement mandatory managed care for the AFDC population places a greater responsibility on the state to ensure that HMOs provide appropriate quality and access to care.

Finally, it is important to monitor the extent to which physicians align more closely with hospitals and health plans, and the mechanisms that are used to achieve this goal. Entry of national physician management companies into the Newark market could accelerate the pace of change beyond what is occurring at the hospital system level. In contrast, the pace of physician-hospital integration and alignment may be slowed if the use of global capitation remains low in the Newark market.

Regardless of the nature and pace of future health system change, the Newark market will continue to be shaped by a mix of market forces and public policy that is unique to New Jersey.