The decision of St. Vincent Catholic Medical Centers to seek protection from its creditors under Chapter 11 of the Bankruptcy Code can serve as a wake-up call to legislators in Albany in respect of the crisis in health care in New York. As this hospital system works to solve its financial problems, let the legislators take care that the bankruptcy doesn’t become a trend.

St. Vincent, a not-for-profit organization, operates seven hospitals in the New York metro area, as well as four nursing homes, a hospice, a home-care service, and a network of outpatient facilities. It was formed in 2000 in an effort to save three Catholic medical systems that had previously operated independently, but it has never achieved the economies of scale it had hoped it would. Since then, its leaders have already closed one hospital and announced plans to close another.

The idea of Chapter 11 bankruptcy is to provide an opportunity to solve problems and come back in self-sustainable shape, and maybe St. Vincent’s will be successful in doing this, though it is $1.1 billion in debt and, in 2004, showed an operating loss of $153 million.

What’s particularly important in this case is the broader question: Is bankruptcy court really the best venue in which to solve the problems with New York’s hospitals? Regardless of St. Vincent’s ultimate fate, state lawmakers are going to have a hard time dodging deeper, systemic problems.

One is that private, not-for-profit hospitals in New York are forced to compete on an unfair playing field with public hospitals. The government can draw on its taxing power to subsidize the public hospitals by, for example, issuing tax-free bonds to fund capital improvements. This is similar, albeit not perfectly analogous, to the dynamic that has forced the closure of a string of Catholic schools in the city recently.

In education, private schools with a mission to serve poor students have to keep tuition affordable while competing against a government system that can marshal upward of $20,000 a student. Catholic hospitals at least have the “luxury” of receiving Medicare and Medicaid reimbursements, but must compete for doctors and better-insured patients with public hospitals that can summon forth additional government expenditures seemingly at will.

In contrast, the St. Vincent system and other private not-for-profit hospitals must rely in large part on philanthropic giving to sustain themselves. St. Vincent itself might not be completely blameless; it may yet turn out that a string of minor management missteps over time snowballed into the current crisis. The system hired consulting firm Speltz & Weis in April 2004 to help it shape up; the firm specializes in fixing struggling hospitals.

Smart public policy might have nipped this problem in the bud. New York State law bars shareholder-owned for-profit hospitals from operating in the state. Yet in at least 28 other states, such medical centers have had a salutary effect on neighboring institutions, creating competitive pressures to control costs and manage wisely, a point these columns made in our editorial, “Health Care We Can Profit From,” which was issued on June 1.

To the extent that small mistakes over time are found to have contributed to St. Vincent’s current difficulties, competition from for-profits might have forced managers to identify and correct problems much earlier, before they compounded and forced a trip to bankruptcy court. St. Vincent Catholic Medical Centers itself will continue to operate during the reorganization, although it’s too soon to say whether the fate of any individual hospitals or outpatient facilities could be in question. But this bankruptcy sends to Albany more proof that the state’s healthcare system is in trouble.