New York City Council
Fiscal Year 2011 Preliminary Budget Hearing
Committee on Health
Good afternoon Chairperson Arroyo, members of the Health Committee and other distinguished members of the New York City Council. I am Alan Aviles, President of the New York City Health and Hospitals Corporation (HHC). Thank you for the opportunity to discuss the fiscal year 2011 Preliminary Budget and HHC’s Financial Plan.
I would like to begin this afternoon with a review of the financial challenges we face, discuss the actions we are taking to address them and highlight some of our recent accomplishments and major initiatives.
As you know, the economic downturn has increased dramatically the number of uninsured patients seeking our services. During 2009, the uninsured who sought services at HHC hospitals and health centers increased to nearly 453,000 - a 14 percent increase from calendar year 2006, when HHC served some 396,000 patients without health insurance.
The demand for HHC’s services from a growing number of uninsured patients comes at a time when our hospitals, community clinics, nursing homes and home care services now receive more than $240 million less in Medicaid revenue annually than was received in 2006 as a result of three successive years of State budget Medicaid cuts. To make matters worse, the proposed State Executive Budget would cut HHC's Medicaid funding by another $70 million in the state fiscal year 2010-2011 and by $100 million when fully annualized in the years ahead. As if that were not enough bad news, the proposed State Executive Budget also left unclear whether HHC will continue to be granted access to an additional – and critically needed – $300 million in Disproportionate Share Hospital (DSH) funding that we received during each of the last two federal fiscal years to help cover our rising indigent care costs.
At the same time that the state has reduced Medicaid funding to help address its projected budget deficits, federal supplemental Medicaid funding for safety net providers like HHC has also eroded substantially. For the last four years (from fiscal year 2007 to fiscal year 2010), the two sources of such supplemental federal funding - DSH and Upper Payment Limit (UPL) funding - have averaged $1.4 billion annually. Starting next year, the combined baseline funding from these two federal programs will drop by $500 million in fiscal year 2011 if the state budget does not ultimately grant us continued access to the additional $300 million in DSH funding.
Added to these extraordinarily adverse shifts in our funding is an exponential growth in fringe benefit costs for our workforce. Pension costs have risen from just under $50 million in fiscal year 2004 to a projected $333 million for fiscal year 2011 – a more than 650 percent increase. We have also experienced a near doubling of health insurance costs for our employees during this time, adding another $190 million to our expenses.
As a result of these and other factors, our total projected expenses for next fiscal year, beginning July 1, 2010, will exceed our total projected revenue by more than $1.15 billion. And this extraordinary budget deficit -- which amounts to more than 17 percent of the total operating budget of our entire healthcare delivery system -- will continue to increase in the coming years.
Preliminary Budget & Financial Plan
The City’s Preliminary Budget included a “Program to Eliminate the Gap” (PEG) which required reductions in general support of 4% in fiscal year 2010 and 8% in fiscal year’s 2011 - 2014. Based on HHC’s PEGable base of $86 million in City support, the Corporation was given a reduction target of $3.4 million in FY 2010 and $6.8 million annually thereafter. These targets were achieved by increasing HHC’s debt service contributions in the financial plan.
In addition, we will also be affected by pass-through cuts from the Department of Health and Mental Hygiene of approximately $1.24 million in total funds for fiscal year 2010 and $1.28 million in total funds for fiscal year 2011. These combined PEG actions will result in a total reduction of $4.67 million in fiscal year 2010 and $9.48 million in our City funding for fiscal year 2011 and the out years.
City Council expense funding to HHC in Fiscal year 2010 totals $9.6 million. The Fiscal year 2011 Preliminary Budget includes reductions in funding for City Council initiatives in the amount of $7.8 million. Unless the $7.8 million in Council funding is restored:
- We will receive $5 million less for the operation of child health clinics. These clinics provided primary care services to nearly 33,000 patients who made 84,000 visits last year. In fiscal year 2010, the child health clinic’s operating expenditures are projected to be $20.5 million. Despite $11.5 million in total funds received through the City, and an estimated $5.5 million in patient revenue, the child health clinics will have an operating deficit of roughly $3.5 million in fiscal year 2010. Without a restoration of funds by the Council to offset the deficit, we will not be able to maintain the current number of clinics and levels of service.
- We will receive $2.0 million less for our HIV testing expansion. More than 190,000 patients were tested in fiscal year 2009, a 17% increase above the number tested in fiscal year 2008. Of those tested, more than 1,800 patients tested positive and most were linked to treatment. However, we may be unable to sustain the level of HIV testing throughout our facilities without the Council funding.
- We will receive $800,000 less in Mental Retardation and Developmental Disabilities (MRDD) funding which supports our developmental evaluation clinics. We currently operate four such clinics at the following HHC facilities: Morrisania Diagnostic &Treatment Center, Renaissance Diagnostic & Treatment Center, Kings County Hospital Center and Queens Hospital Center.
As I mentioned, HHC received reductions in funding that flows through the Department of Health and Mental Hygiene of $1.24 million ($964,000 of which are city tax levy funds) in this fiscal year and $1.28 million ($1.09 million in city tax levy funds) for next fiscal year. In fiscal year 2010, the Department’s PEG reduces funding for our child health clinics by $481,000 and our HIV testing initiative by $125,000. The Department PEG also implements program re-estimates which reduce funding to HHC by $642,000. In fiscal year 2011, the Department’s PEG includes funding cuts to our child health clinics in the amount of $337,536; a reduction of $211,000 to a Bellevue HIV satellite clinic and AIDS assessment programs at other facilities; as well as $739,237 in cuts to our mental health outreach services, chemical dependency treatment programs, and a developmental evaluation clinic.
I would like to thank the Council for restoring funds for its initiatives in previous years and urge the Council to again make restorations to these vital child health, HIV and behavioral health programs.
Turning to the Financial Plan for fiscal year 2011, we project $6.68 billion in disbursements and $5.52 billion in receipts. Therefore, we are facing an operating budget deficit of more than $1.15 billion. As discussed, this deficit results from a combination of factors: the loss of the federal supplemental Medicaid funding in the form of DSH and Upper Payment Limit (UPL) payments; continued reductions to already inadequate Medicaid reimbursements; steeply rising fringe benefit costs; and the cost of serving increasing numbers of uninsured patients. Our financial outlook does not improve in the out years. In fiscal year 2012, our operating deficit is projected to be $1.25 billion. This deficit grows to an estimated $1.51 billion in fiscal year 2014.
We have no intention of passively watching this evolving budget crisis unfold. We will do everything in our power to address this daunting budget deficit without abandoning our mission or diminishing the quality and safety of the care we provide. Our gap closing program partly relies on our pursuit of additional federal and state funding, but it also calls for the implementation of broad efficiency improvements, significant cost-containment actions, and the restructuring of aspects of our healthcare delivery system.
We are highly dependent on Medicaid UPL and DSH funding, the levels of which vary greatly from year to year. Receipt of these funds requires state processing and federal approval, actions that have involved persistent delays. The variability and delays create significant problems for HHC’s budget planning and cash management. For example, in fiscal year 2010, we are awaiting payments from as far back as fiscal year 2005. In total, the fiscal year 2010 budget includes $1.6 billion in retroactive payments.
As of this hearing, we are still awaiting approvals. As a result, we are fast depleting our cash reserves. The state and federal governments have been working to advance these approvals to avert a cash crisis. While the status of these payments changes daily, we have been assured that the state will be able to process payments sufficient to avoid HHC having a serious cash shortfall through June 2010.
We also continue to advocate aggressively against further Medicaid funding cuts in the state budget; and, of paramount importance, there is a crucial need for a permanent extension by the State Legislature of at least the $300 million in additional DSH funding authorized in last year’s state budget. We ask that members of the Council continue to make your voices heard in Albany concerning the need to provide funding to sustain our critical safety net healthcare system.
Advocacy with our federal, state and city governments - given their own budget deficit struggles - will not result in the elimination of our structural budget deficit. Therefore, over the last two years, staff across our system have been intensely engaged in identifying ways to reduce our expenses. We project that these measures, which include a hiring freeze (now entering its second year), significant cuts to other-than-personnel-spending (OTPS), a radical curtailing of our capital program, and a limited number of targeted program closures, will save more than $200 million this fiscal year and approximately $300 million next fiscal year.
We have also adopted an approach to performance improvement, widely known as Lean, which was developed for manufacturing environments and has recently been modified for healthcare. The approach, which we call Breakthrough, engages all levels of staff and focuses on reducing waste and long term costs, optimizing revenue collections, and increasing patient and staff satisfaction. The first phase of our Breakthrough work has produced more than $34 million in cost savings and improved revenue collections. We anticipate that Breakthrough efforts will yield more than $100 million in combined savings and revenue in the coming year. Despite our Breakthrough work and other actions taken to achieve significant reductions in operating expenses, more must be done.
We have already reduced our workforce by more than 1,000, through attrition and the hiring freeze. By the end of the fiscal year, we project that we will have approximately 1,300 fewer full-time positions. But unfortunately, because the cost of personnel constitutes roughly 70 percent of our budget, it will simply not be possible to reduce expenses by hundreds of millions of dollars more without reducing our payroll. That means that more reductions to our workforce will be necessary, and it is my clear expectation that we will need to reduce our workforce by roughly 2,600 in the coming fiscal year.
These reductions will be painful, and will further stress existing staff, who can absorb only so much additional work without the overload beginning to adversely affect quality and patient safety. Therefore, later this year, we will have to begin taking action to restructure our system to allow us to deliver some services with fewer staff. We have engaged Deloitte Consulting, LLC to help us analyze the potential opportunities for shedding expenses while retaining as much service capacity as possible. Deloitte’s recommendations will inform a restructuring plan that, when implemented, will result in the consolidation of some services currently available at multiple HHC facilities to fewer locations, changes in affiliation contracts, and regionalization of certain non-patient care services.
I know that the Council will be concerned about the impact that these types of fundamental changes will have on the communities that we serve. As we take these unavoidable actions, we will strive to be as fair as possible to all communities and facilities. We will also strive to ensure that the full range of healthcare services our patients require continue to be available within the HHC system, even if these services are no longer located in their immediate neighborhoods. And whatever else may change, we will remain firmly committed to HHC’s mission to serve all without regard to their lack of insurance or immigration status.
Turning the Council’s attention to our capital program, over the past three years, we have completed major modernization projects at five facilities. These projects represent an investment of more than $300 million. However, moving forward, projects at every facility have been modified, reduced or eliminated in order to meet the City’s required 30% reduction, or $234 million, in capital expenditures. In particular, we will be unable to complete on schedule certain outfitting and renovation work that comprised the final stages of the major modernization projects at Harlem Hospital Center and Gouverneur Healthcare Services.
At Harlem Hospital, we are proceeding with the new patient pavilion that will house diagnostic suites, emergency services, operating rooms and critical care units. I would like to thank Council Member Inez Dickens and the Manhattan delegation for contributing $2 million in capital funds last year for the Harlem Hospital Center modernization program, specifically to support the cost of elevator upgrades in the Martin Luther King (MLK) building.
Unfortunately, a $17 million shortfall exists for the necessary outfitting (which includes furniture, fixtures and equipment) of the new patient pavilion; and an additional $78 million is needed to complete the renovation and infrastructure improvements in the MLK building, to construct a new parking garage and to demolish the Women’s Pavilion. The MLK building, constructed in 1969, was to receive a much needed upgrade of its mechanical, electrical, HVAC and other critical systems. Conversion of the existing six-bedded patient rooms into semi-private rooms with private bathrooms was also part of the modernization project.
Gouverneur Healthcare Services’ major modernization project, the most significant upgrade to this facility since it was originally built, faces an $8.1 million shortfall of which $5 million is needed for the purchase of furniture, fixtures and equipment.
Even as we face these daunting financial challenges, our system continues to make progress on many important fronts and I would like to take this opportunity to briefly review some of our recent accomplishments and initiatives.
A few years ago when I was appointed as President of HHC, I set an ambitious agenda to move HHC to the forefront of patient safety as one of the safest healthcare systems in the county by the end of 2010. The year is here, and I believe that we have made extraordinary progress.
Nearly three years ago, HHC became the first hospital system in New York State to make information public on our system-wide and hospital-specific performance data related to quality of care and patient safety. This past year we have continued to expand the type of quality data that we share publicly on our internet site.
For example, last year we posted on our web site for the first time the results of federally-mandated patient satisfaction surveys at each of our hospitals. The results for HHC hospitals are encouraging, with our average patient satisfaction scores exceeding the scores of most of New York City's voluntary hospitals. In many parts of our city, HHC hospitals outscored the vast majority of local non-public hospitals in overall patient satisfaction.
We also posted data on our web site last year that reflects the quality of our maternity and infant care services, an especially important area of focus for us because our hospitals deliver nearly one out of every four babies in New York City -- about 23,000 deliveries a year. Our data shows that delivery is very safe in our facilities, despite the fact that we handle a disproportionate number of all high-risk deliveries in the City.
Last year, HHC also laid the groundwork to become a national leader in the field of medical simulation. In November, I was joined by Mayor Bloomberg to mark the start of construction for HHC's Institute of Medical Simulation and Advanced Learning at Jacobi Medical Center to train teams of healthcare providers. We are the first public hospital system in the nation to offer such training, which will improve the skills and teamwork of our clinical staff so that they may render increasingly complex patient care more safely. We expect to train more than 14,000 physicians, nurses and other HHC clinical staff during the Institute’s first three years of operation. The opening of the Institute is expected to occur this fall.
Our ambitious safety agenda and achievements are getting national recognition and our efforts have allowed us to make competitive inroads in the marketplace. Last year, HHC reached agreements with both Aetna and United Health to offer members of both insurance plans access to our hospitals, diagnostic and treatment centers, and skilled nursing facilities. Our entry into the extensive networks of both of these commercial health insurers underscores the extent to which our work focused on patient safety, effective evidenced-based care, and patient satisfaction has made us more competitive. These new contractual relationships also support our work to diversify our patient base further and attract more referrals from the thousands of community physicians with whom we have forged relationships.
We continue to make significant progress in transforming our behavioral health services to be more patient-centered and outcome driven. HHC facilities provide nearly 40 percent of inpatient psychiatric services in the city. We also serve a disproportionate share of New Yorkers with serious and persistent mental illness. Many of whom have co-occurring chemical dependencies, are homeless or are involved with the criminal justice system. In other words, our behavioral health patients are vulnerable and have complex physical health, mental health and social service needs.
One of the most striking demonstrations of our progress has occurred at Kings County Hospital, where the new $153 million Behavioral Health Pavilion opened last year. Within the Pavilion, staff is successfully implementing a comprehensive plan to radically change the patient experience for the roughly 10,000 behavioral health patients of all ages seen at Kings County Hospital annually. The vastly improved physical environment, together with new leadership, has helped foster an altered culture of more patient- centered care, anchored in compassion and respect, with an emphasis on sustainable recovery and re-integration into the community.
We have made additional enhancements to our behavioral health services throughout our system. All HHC facilities have implemented evidence-based models of care that improve the treatment of depression and reduce the use of restraints and seclusion. Facilities have also developed specialized treatment plans for patients at risk of violence in order to reduce patient and staff injuries and improve treatment outcomes.
Each year when I testify before the Council, I am proud to emphasize the robust preventive and primary care services that HHC offers to the 1.3 million New Yorkers that we serve. Our system-wide efforts on smoking cessation, cancer screening, and routine HIV testing services have produced significant and measurable benefits for our patients.
Last year, despite controversial recommendations made by the U.S. Preventive Services Task Force, we did not change our practice of encouraging women to undergo an annual mammogram after the age of 40. I applaud the Council for holding a hearing on this topic last year. As we discussed at that hearing, HHC has made it a priority to expand access to cancer screening to low-income and uninsured women. Over the past five years, we have provided more than 500,000 mammograms and conducted more than 700,000 cervical cancer screenings.
And, significantly, we have continued to expand the use of clinical information technology to advance safe, effective care. As we have already done with diabetes, we launched a Cardiovascular Risk Registry -- an electronic disease tracking program that significantly improves a clinical team's ability to monitor and manage cardiovascular disease among patients. The registry has identified more than 49,000 patients with high blood pressure and 31,500 patients with high cholesterol whose treatment is being closely monitored and better managed.
As the data posted to our public web site attests, we succeeded in improving the health status of our adult diabetic patients again this past year, with a greater percentage reflecting healthy blood sugar levels. To further assist our diabetic patients, we also launched an online Diabetes Wellness Center -- www.nyc.gov/hhcdiabetes -- a new web site designed to help patients manage their diabetes at home and become more active participants in their care. The HHC Diabetes Wellness Center is available in multiple languages, and features advice from HHC doctors, nurses and nutritionists, patient success stories, healthy eating and exercise tips, access to free blood monitors, and a comprehensive list of support groups and diabetes wellness classes that are available at HHC hospitals.
HHC is committed to increasing the services we provide to a growing low-income and uninsured population on Staten Island. Last year we launched the HHC Health Connection Mobile Medical Office (MMO). The MMO is staffed and outfitted like any other physician’s office. The care team is comprised of a physician, a registered nurse, a patient care associate, and a financial counselor. The MMO has a patient reception area, two exam rooms, an electronic medical records system, and modern diagnostic equipment. The MMO offers adult primary care services five days a week in five Staten Island communities -- New Brighton, Tottenville, Midland Beach, Concord, and Park Hill. At each of these locations, we have partnered with local community-based organizations that offer additional social and other support services.
We also added adult primary care capacity at both the Mariner's Harbor Family Health Center and Stapleton Family Health Center. Since these service expansions, we have provided more than 1,800 adult primary care visits at these two HHC facilities.
With $1.6 million in renovations funded by HHC and completed last year, the Community Health Center of Richmond was able to double its capacity to provide primary care services to adults and children. In addition to our capital investments, HHC has provided more than $7.8 million in funding to subsidize the Center's operations since its inception in 2006. HHC staff continue to provide extensive technical assistance to the Center's Board and administrative staff.
Before I conclude, I want to acknowledge the collaboration, support and advocacy provided by our Community Advisory Boards and our labor partners; the contributions of our volunteers and auxiliaries; the steadfast support of Mayor Bloomberg, the City Council and other elected officials; and, of course, the hard work, compassion and commitment of the men and women who staff our nursing homes, health centers, home care agency and hospitals throughout the city.
This coming year will be one filled with considerable challenges. The restructuring of an enterprise as large and as complex as HHC is a formidable task, but one that must be undertaken if we are to preserve our mission, continue to meet the needs of our patients and support our workforce. This concludes my written testimony. I now look forward to listening to your comments and answering your questions.