ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
REPORT TO THE BOARD OF DIRECTORS
November 30, 2006

A great deal has transpired in the last month to transform the political landscape in both Albany and Washington. With dramatic changes in the leadership majorities in both houses of Congress, the prospects have improved for sustaining funding levels for Medicaid, which will help to meet the challenges faced by HHC and other public hospitals. We are particularly heartened by Congressman Rangel’s ascension to chairman of the powerful House Ways and Means Committee. Congressman Rangel was involved directly in the formation of the National Association of Public Hospitals many years ago, and he has been a strong advocate for public hospitals and other safety net providers that serve low-income and uninsured patients.

In Albany, Governor-Elect Spitzer will be assembling his Cabinet and preparing the Executive Budget over the weeks ahead. He has moved quickly to assemble 13 different policy advisory groups to provide advice during the transition. I am one of three hospital system CEOs asked to serve on the Healthcare Policy Advisory Group, chaired by United Hospital Fund President Jim Tallon. The first meeting of the policy advisory group will take place in Albany on December 5. Last week, Marlene Zurack, LaRay Brown, and I met with members of the Governor-Elect’s transition staff to provide an overview of HHC and to discuss, among other things, some of the policies and issues around strengthening primary and preventive care services, and supporting more effective chronic disease management.

In addition to the recent changes in the political landscape, earlier this week the New York State Commission on Healthcare Facilities in the 21st Century issued its long-awaited report with recommendations for sweeping changes to New York State's healthcare system. The report recommends the closing of nine hospitals in New York State, including five hospitals in New York City. Those hospitals are Victory Memorial in Brooklyn, Cabrini and St. Vincent’s Midtown in Manhattan, Parkway in Queens, and Westchester Square in the Bronx. The Commission also has recommended the restructuring of 48 acute care facilities state-wide, including several significant restructurings within New York City. The only recommendation directly related to an HHC facility is the addition of 40 med-surg beds to Queens Hospital Center to help address the need for more inpatient capacity in South Eastern Queens in light of, among other things, the past closure of St. Joseph’s Hospital.

Despite the fears expressed by many, and the predictions expressed by some, our public hospitals were not targeted for closure or restructuring the Commission. I want to acknowledge the advocacy of many in our community, including our Community Advisory Boards, as well as our labor partners, who testified before the Regional Advisory Council in support of each of our hospitals as essential community institutions. That was important. But I want to note as well that there was every reason to believe that each of our public hospitals would fare well under the scoring criteria that the Commission said it would use. That criteria took into consideration, not only the fiscal viability of each hospital, but its role as a safety net institution to vulnerable populations, including the uninsured; the comprehensive nature of services rendered; and the quality of care as reflected, for example, in CMS quality performance indicators.

As a system that serves 1.3 million predominately low-income New Yorkers, including roughly 400,000 uninsured, HHC is the single most important safety net institution in the City. Our hospitals and their affiliated community-based sites account for an enormous portion of the institutional primary and specialty care outpatient capacity in the City with nearly 5 million outpatient visits annually. We provide a third of the City’s emergency services capacity and nearly 40% of the inpatient and hospital-based outpatient behavioral health services in this City.

We have linked more than 250,000 uninsured patients to a primary care provider and thereby have enabled them to establish a medical home, without which they would likely continue to access their primary care through a hospital emergency room. In asthma care, for example, we have seen reductions in pediatric emergency room encounters and pediatric hospital admissions that are a direct result of our robust primary care capacity and our focus on effective chronic disease management in primary care clinics.

The Commission report reflects a growing awareness that our assertive outreach and prevention programs around smoking cessation, early detection of cancer and heart disease, depression screening, expanded HIV testing, pediatric and adult immunizations, and so many more make a significant and measurable difference in both improving the health of our communities and reducing long-term healthcare costs.

And on the quality front, we now rank with the front, rather than the back of the pack based upon objective quality data. On the CMS quality indicators examined by the Commission, our system as a whole ranks above the state and city average across nearly every indicator, and the majority of our hospitals rank in the top 20% of all hospitals in NYC across one or more of the four major categories of comparative CMS quality measures.

In addition to all of these positives, under the Commission’s stated criteria, HHC, unlike some in the voluntary hospital sector, has taken the initiative over the course of the last decade to restructure itself repeatedly and often painfully for greater efficiency. As a result, we have reduced our acute care average length of stay by more than 40%, taken more than 2,400 beds out of service, and reduced our workforce correspondingly by more than 9,000 employees. Not surprisingly, in light of these past actions, our current average occupancy level across the system exceeds 85% and the majority of our hospitals hit or exceed a patient census of 100% at various points during the peak winter season. We fully intend to stay focused on the need to continually maximize efficiency, even as we press forward with a very ambitious and activist clinical agenda.

Finally, with regard to the repeated speculation that Metropolitan Hospital might appear on the Commission’s list of dispensable hospitals, I note the following. Not only did that speculation prove to be unwarranted, but Metropolitan has just been awarded $5 million by the New York State Department of Health under the most recent round of HEAL NY grant funding to support on-going service modifications to better meet community needs. These funds will be used to convert 23 inpatient med-surg beds to a 15-bed geriatric inpatient unit, create a geriatric outpatient clinic, and establish a new 6-bedded adult Comprehensive Psychiatric Emergency Program unit.

Turning to the Commission’s policy recommendations, we are encouraged by many of the points stressed in the report, including the need for investment to strengthen and expand the primary care infrastructure across the state, as well as reimbursement reform that will “encourage the provision of preventive [and] primary care services” and that will “strengthen the long-term viability of institutions that disproportionately serve vulnerable populations including the uninsured and low income patients.” The report also strongly endorses state efforts to broaden coverage of the uninsured and to lower administrative barriers in the enrollment process. While these and other policy recommendations are non-binding, they clearly strike many of the right notes and would strengthen critical aspects of our healthcare system.

We are still analyzing the potential impact of all of the Commission's recommendations, and will determine any steps that we must take to meet the needs of the communities impacted by any contraction of local resources. Complete copies of the Commission’s report are available for any Board members who wish to review it.

Last month HHC’s chronic disease management teams met in another system-wide collaborative learning session that reviewed and summarized the significant gains that the teams have made in crafting more effective care for our diabetic patients. Teams have shown a great ability to test new ideas and to think “outside the box” when guiding patient care. Roughly 12,000 diabetic patients have been receiving care from clinical teams trained on evidenced-based clinical guidelines, patient self-management engagement strategies, and the use of our electronic chronic disease registry. These patients show significant improvements in blood sugar, cholesterol, and blood pressure levels.

Our focus now turns to maintaining the progress made with team patients, ensuring that key treatment guidelines are well integrated into broader clinical care, and effectively applying the use of the electronic registry to the roughly 50,000 adult diabetics under routine care across our system.

In the past several years, HHC has developed new models for chronic care management that have been very successful in improving patient outcomes. Using these models, we have been able to reduce inpatient stays and avoid hospitalizations. This model of care is not consistent with the fee-for-service reimbursement that we receive from insurers, who typically offer the highest payment for the most intensive services.

HHC has developed contracts with a number of Medicaid managed care plans that are consistent with our evolving proactive care model and which pay our facilities a fee in advance to care for the entire medical needs of their members. Under this model - called the "full risk" model - the provider is rewarded for improving and maintaining the health of their patients, but also assumes the risk if patients become sicker than expected. To ensure that performance under such a risk arrangement is the product of the effectiveness of care management, rather than variations in the risk profile of relatively small numbers of patients, actuaries have concluded that these risk contracts should only be arranged with insurers for patient pools in excess of 25,000 individuals.

Consequently, HHC is in the process of ending its "risk" arrangements that do not meet this threshold. We are also reducing, through terminations, the number of Medicaid managed care contracts, which will minimize administrative costs incurred by dealing with multiple plans that have differing requirements. The only exceptions will be those plans that will also bring us new commercial patients. We will continue our very successful arrangements with MetroPlus and HealthFirst, who currently insure 240,000 and 50,000 of our patients, respectively. We are also expanding and improving our commercial contracts to attract community physicians and new patients. We are confident that this strategy will support better disease management and the Corporation's financial stability.

On November 14, I convened a Forum for senior administrative and clinical leadership to continue charting the course for achieving our stated goal of becoming one of the safest healthcare systems in the nation by the end of the decade. Reaching this radical goal will require fundamental changes in the way that we work, support, and empower our healthcare teams to provide care that is truly patient-centered and safe. We should all be extremely proud of the many patient safety initiatives launched and remarkable achievements in patient outcomes achieved over the last few years. However, we have the ability, and therefore the moral responsibility, to do more to hardwire our systems, communications, and work flows for maximum patient safety.

I have asked HHC leadership to engage staff across our system on the crafting of our action plan and development of metrics toward achieving this ambitious goal. Over the next several weeks, they will obtain input from all levels of staff about what it will take to create and sustain an organization-wide culture that is just, fair and relentlessly dedicated to increasing patient safety. I will re-convene the leadership in February to move this critical agenda forward and will keep you informed of our progress.

The most effective and proven way to prevent hospital-acquired infections is simple handwashing; yet one of the most common Joint Commission survey findings in hospitals across the country is a failure by staff to consistently follow recommended hand hygiene. HHC facilities have long emphasized the importance of excellent hand hygiene among our staff as an essential infection control practice. In fact, during a recent review, a Joint Commission survey team praised Kings County Hospital ICU staff for their consistent and flawless compliance with hand hygiene recommendations.

Next week, HHC will be stepping up its handwashing education efforts for all employees and patients with a week-long campaign in recognition of National Handwashing Awareness Week, December 3 to 9. This campaign will use a fitting slogan: "Prevent Infections. Good Health is in Your Hands." We will set up handwashing and patient safety information centers at every facility. Employees will receive daily hand hygiene facts by email. Patients and their families will learn about the importance of handwashing during follow-up care at home. And Handwashing Ambassadors appointed at each facility will reinforce optimal handwashing technique.

Last week the American College of Medical Genetics (ACMG) co-sponsored with Jacobi Medical Center a conference where researchers, clinicians, and other health professionals convened with community leaders to discuss issues related to genetic carrier screening and its potential impact on the diverse communities served by HHC. Huge strides in genetic science are now affecting healthcare, yet there exists no coherent policy to address the implementation of genetic testing, despite the significant implications for individuals and healthcare systems. This event enabled ACMG, a leader in developing practice guidelines, to learn more about HHC’s patient communities affected by this emerging area of practice. It was also an opportunity to showcase Jacobi's in-house molecular testing laboratory, which is available to support sophisticated biotechnical genetic testing research.

As you are aware from prior Board action, HHC has agreed to alter its fiscal and managerial arrangements with the City of New York related to medical malpractice litigation to gain better control over expenses and the disposition of cases. That agreement included the phased transfer of HHC's medical malpractice defense function from the city's Law Department to HHC’s Office of Legal Affairs. The Memorandum of Understanding that transferred the function from the City of New York to the Corporation was signed effective August 1, 2006.

On today’s agenda, and related to this transfer of responsibility and control, is a resolution authorizing the execution of contracts with ten law firms to represent HHC and its facilities in medical malpractice defense litigation. Janice Kabel, the attorney from Legal Affairs who will be managing the new Litigation Unit, will give you more details about the transfer, and the reasons for the transfer, when the resolution is presented for your approval later in the meeting.