A proposal to allow for-profit investment in two hospitals in New York State has been dropped from the budget, an unexpected setback to a push to open health care systems to private investors for the first time.
One of the leading proponents of the change, Stephen Berger, an investment banker who has long advised the state on health care, said the State Assembly leadership had balked at allowing the two demonstration projects, one planned for Brooklyn and the other upstate, which were included in Gov. Andrew M. Cuomo's proposed budget.
"It doesn't mean we're not going to find a way to work around it," he added in an interview on Tuesday, saying he was very disappointed. "But this will make it much harder."
On the other side of the debate, Jill Furillo, executive director of the New York State Nurses Association, hailed the elimination of the pilot projects from the final version of the budget, calling it a victory for the nurses' union and patients. Busloads of nurses went to Albany to tell lawmakers why they wanted New York to remain the rare state that prevents large companies and their stockholders from owning hospitals.
"For-profit health care does not work," she said. "People in the Assembly listened to us, and so did Gov. Andrew Cuomo."
Mr. Berger scoffed at that idea and said the governor's office pushed hard for the measure, dropping it only when the chairman of the Assembly's Health Committee, Richard N. Gottfried, a Democrat from Manhattan, would not budge.
Assemblyman Gottfried did not respond to a request for comment on Tuesday; a staff member said he was traveling from Albany to New York for Passover.
Richard Azzopardi, a spokesman for the governor, said, "We continue to have an interest in exploring this and any other option that will promote access to capital for the improvement of health care facilities."
The two major hospital associations in the state were internally divided on the legislation, Mr. Berger added, but did not oppose it, a change from past battles.
Mr. Berger was chairman in 2011 of a state-appointed committee on reorganizing the failing system of health care in Brooklyn. That committee recommended changes in law that could open hospitals and physicians' practices to investment by large private companies. With many hospitals that serve poor patients in Brooklyn facing bankruptcy or closing, Mr. Berger says the need for private capital is urgent.
Mr. Gottfried's counterpart in the State Senate, Kemp Hannon, Republican from Nassau County, had proposed expanding the pilot to 10 hospitals, from 2. He then agreed to cut it back to five, leaving the executive budget's two-hospital pilot as a likely compromise. Instead, Mr. Berger said, "Dick Gottfried killed it. He dug in his heels. I don't know why."
The measure dropped from the final version of the state budget would have authorized the establishment of "no more than two business corporations formed under the business corporation law, one of which shall be the operator of a hospital or hospitals in Kings County and one shall be elsewhere in the state." The corporations would have been allowed to affiliate with at least one academic medical institution.
Advocates for public health have argued that for-profit operations would mainly benefit stockholders and investors by cherry-picking patients and procedures, sending the poorest and uninsured patients to other overwhelmed hospitals, and shredding a frayed safety net.
"We thank all of them for listening to front-line caregivers," Anne Bové, a registered nurse at Bellevue Hospital and one of the elected leaders of the New York State Nurses Association, said in a statement. "Nurses, caregivers and patients should be the ones making decisions about patient care — not hedge funds and private equity investors."
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