ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
REPORT TO THE BOARD OF DIRECTORS
OCTOBER 30, 2008

As I reported last month, HHC received the John M. Eisenberg Patient Safety and Quality Innovation Award from the Joint Commission and National Quality Forum, in recognition of our work to make quality and safety data transparent to the public. It was an outstanding recognition that was commended in a special public statement of congratulations from Mayor Bloomberg.

Now I am proud to share the news that the Commonwealth Fund, the national private foundation that advocates for a high performance healthcare system, has published a comprehensive case study about HHC that praises the improvement initiatives we have undertaken in recent years. The report recognizes that HHC is becoming a "provider of choice" and is achieving higher levels of performance through our advanced use of clinical information systems, our work to improve chronic disease management, our collaborative team approach to identify and implement clinical best practices, our efforts to bolster our financial health, and our continued commitment to expand access and create a patient-centered healthcare system.

A copy of the executive summary of the case study is included in your Board packet. The complete 45-page report, titled The New York City Health and Hospitals Corporation: Transforming a Public Safety-Net Delivery System to Achieve Higher Performance, is available in the Innovations section of the Fund's website, www.commonwealthfund.org.

This vote of confidence, and the numerous other recognitions we have received over the last couple of years, are evidence that HHC is making continuous, effective performance improvement a deep and vital part of our mission and the fabric of our work. The increased awareness about our high performance in keeping New Yorkers healthy as well as in treating their disease and injuries puts us in a stronger position to face the imminent challenges posed by the spiraling economic downturn. I am more confident than ever that we will not be steered off the road we are navigating toward even higher performance which translates into more value for the healthcare dollar.

In light of the current financial uncertainty and reports in the news media, I want to summarize what we currently know about the potential impact of this crisis on HHC. To ensure the state's fiscal stability in response to the national economic turmoil and the subsequent loss of jobs and revenues from New York's financial industry, the State must close a large shortfall for the current fiscal year. The Governor has asked the Legislature to develop plans to cut $2 billion from the current fiscal year to bring spending in line with falling revenue collections. Legislative proposals are due by November 7th to allow time for review prior to a second economic special session the Governor has called for Tuesday November 18th. The Governor announced he would release his proposed Executive Budget one month early on December 16th. It is anticipated that one way the State will seek to achieve the necessary reductions is to reduce Medicaid funding, a major source of revenue for the Corporation.

In the early weeks of the credit crisis, HHC's Variable Rate Debt Obligations (VRDOs) traded at interest rates between 5% and 7%, which were in excess of budgeted levels of 3%. In the last three weeks, however, the bonds have traded between 1.5% and 2%. While HHC's interest expense for VRDOs has come in $100,000 more than budget, the rates have averaged below the fixed rate bonds, and HHC is fortunate to have gotten out of the Auction Rate Securities market in time.

Another area of concern for HHC is the city budget, which is dependent on personal income tax revenues that are likely to be reduced. HHC has already received a targeted reduction of $2.4 million for the current year and $4.7 million in the following year, which may represent the first installment, given the stated circumstances facing the City.

The final area that will affect HHC at some point in the future is the pension funds. HHC's employer contributions into pension funds is the difference between what the pension funds assets earn in the market and the actuarial expectation of the cost to provide defined benefits to future pensioners. The way those contributions are scheduled includes phasing in of losses, over many years.

I will continue to keep the Board informed about HHC's financial picture, as it develops.

In this time of an increasingly uncertain financial climate, the importance of our initiatives to reduce expenses and improve efficiency is clearer than ever. Over the past few years, and with considerable success, HHC has undertaken multiple initiatives and projects to improve our supply chain efficiency - ensuring we procure and obtain high-quality products, in a timely way, at the lowest possible cost. Those projects include:

• achieving multiple efficiencies in pharmaceutical procurement, resulting in pharmaceutical expenses staying flat from FY 2007- FY 2008, while others in the industry experienced double-digit inflation;

• engaging Cardinal Health as a Medical/Surgical product prime vendor/distributor, reducing our inventory down to just-in-time levels and dramatically reducing distribution expenses;

• optimizing pricing discounts by sourcing products through multiple Group Purchasing Organizations (GPOs) and using existing Federal, State, City, GPO, and regional contracts through our membership in various industry associations to mine for the lowest available pricing at any point in time;

• leveraging our purchasing volume and system size by adding that volume to other hospitals' and health systems' volume to achieve best tier pricing from major manufacturers; and

• developing market-share contracts with manufacturers and suppliers to achieve most-favored-nation discount pricing.

Last week we began another significant project in supply chain transformation -- the implementation of a new supply chain information technology system throughout HHC. This system will enable HHC to:

• standardize procurement data enterprise-wide;

• ensure contract term compliance and pricing validation;

• develop enterprise-wide data transparency;

• build and maintain an electronic item master catalog with standardized manufacturer and supplier contract and product data; and

• enable a more user-friendly requisitioning capability tied to our existing e-commerce and financial systems.

This web-based system, when fully implemented, will enable HHC to access enterprise-wide, complete, accurate, and standardized supply chain data upon which to make informed contracting and product standardization decisions. The ability to standardize products across all HHC facilities will enable HHC to reduce our supply expenses significantly. We expect to complete installation and training in mid-2009. I look forward to reporting to you in the months ahead about our progress in implementing this cost-saving system.

HHC announced this week that our hospitals and medical centers tested 160,900 New Yorkers for HIV in Fiscal Year 2008 -- exceeding our target of 150,000. The number achieved is a 20% percent increase from the previous year's total. This year, our testing identified 1,863 people with HIV -- a prevalence rate of 1.16%. Of those who tested positive, more than 60% were scheduled for and kept their first HIV primary care appointment within a month of their diagnosis, with most being connected to care within 48 hours.

We have steadily expanded the routine offering of rapid HIV tests to patients in emergency rooms, inpatient units, and clinics. Results for rapid tests are usually available within 30 minutes. Over the past four years, we have tested nearly 450,000 people. Testing is a critical first part of a comprehensive strategy to prevent and treat HIV. By making voluntary testing readily available as a routine part of medical care, we can help remove some of the barriers and stigma that keep people from learning their HIV status and taking care of themselves. Although there is no cure, early detection has been demonstrated to provide better treatment options and improved health outcomes. An estimated 20,000 New Yorkers -- one in five people living with HIV -- do not know they are infected. HHC currently serves 19,000 HIV/AIDS patients -- 20% of the nearly 100,000 people known to be living with HIV/AIDS in New York City.

The expansion of HHC's rapid HIV testing program has been supported by more than $14.5 million allocated by the New York City Council since FY05. In FY08 alone, the Council allocated $5.2 million to HHC facilities to expand rapid HIV testing.

Flu immunization of healthcare workers is an integral part of our patient safety campaign, since numerous studies have shown that it can prevent flu infection of patients, whose health is often fragile and who can suffer serious consequences from influenza. We already have begun offering this year's free flu shots to HHC employees at all of our facilities. As an incentive for early immunization, employees who receive their vaccinations by November 2nd will be entered into a lottery through which randomly selected vaccinated employees at each facility will receive a $100 gift card.

We have made great progress toward achieving our goal of 60% immunization rates for all employees and 70% for long term care employees. Last year our rates rose from 36% to 49%. These rates now exceed the national and city average for employee vaccinations; however we can and should do better. I look forward to reporting still greater progress on this campaign in the months to come.

HHC was awarded a three-year competitive grant for $30 million by the Centers for Disease Control and Prevention (CDC) to provide medical examinations, diagnostic testing, referral and treatment for residents, students, and others in the community that were directly affected by the events of 9/11. This is the first allocation of federal funds to support treatment of those adversely affected by the 9/11 attacks who were not rescue and recovery workers. The CDC grant funding will help expand services HHC has been providing at the WTC Environmental Health Center. Thanks to persistent advocacy of Senators Schumer and Clinton and the entire New York Congressional delegation, a portion of the $108 million that Congress appropriated this fiscal year for WTC health monitoring and treatment was specifically dedicated to non-responders.

On the same day we heard about the grant from the CDC, we learned that we would receive $23.2 million in grants under the Health Care Efficiency and Affordability Law (HEAL) to expand the availability of primary care services, cut duplicative services in hospitals, restructure nursing homes and consolidate services from healthcare providers. The grant funding, which is distributed among HHC hospitals, nursing homes and diagnostic and treatment centers, will include $2.65 million to increase capacity for dental services at our diagnostic and treatment centers; $6.3 million to enhance emergency room services at Coney Island Hospital; $3.8 million to expand ambulatory care capacity at Woodhull Hospital; and $9.5 million to create a master plan for restructuring long-term care services.

HHC and the HHC Foundation received a total of $1.4 million from the Avon Foundation this year, a $500,000 increase over last year's gift, for the expansion of breast cancer programs at Harlem Hospital Center, Metropolitan Hospital Center, Kings County Hospital Center and Jacobi Medical Center.

This year, the Avon Foundation Breast Care Fund project made the largest contribution ever provided to community-based breast cancer programs in nearly every state across the US awarding $6.0 million in grants to 143 community-based, non-profit organizations in the United States. I am especially pleased that our programs were recognized for their quality and so generously funded by the Avon Foundation.

The grant is extremely important for the health and well being of underinsured and underserved women. Disturbing statistics were released recently by the Department of Health showing that a decreasing number of women are receiving mammograms. The support of the Avon Foundation will help in many ways; including allowing our facilities to continue to screen more women each year, pay the salaries of bilingual Patient Navigators and make it possible to sustain current momentum by enhancing outreach efforts and refining diagnostic techniques.

On November 7th, Lincoln Medical and Mental Health Center will be holding a ribbon-cutting ceremony to celebrate the opening of a two-story glass-faced clinical annex constructed at the front of the hospital at a cost of $7 million. Medicine clinics, currently located next to the existing emergency department, will be moved to the first floor. The second floor of the annex will be used for ambulatory surgery.

Upon occupancy of the new clinic building, renovation of the existing emergency department will begin. Once completed, the emergency department expansion will provide an elegant walk-in entrance for patients, a private vehicle drop-off, a separate area for ambulance traffic, and the latest medical technology. The new design provides greater efficiency, improved patient privacy, comfortable amenities in patient care areas and public spaces, children's play area, adequate bathroom facilities and comfortable seating. The renovation also will provide additional treatment space to accommodate the more than 145,000 patients that visit the busiest emergency department in New York City.

As part of HHC's Take Care New York October campaign to promote preventive health screenings this month, HHC hosted a screening and education pavilion at the annual WBLS Radio Circle of Sisters Expo for Women of Color at the Jacob Javits Center on October 11th and 12th. Our staff administered flu shots as well as depression screenings, and checked the blood pressure, BMI, and/or HIV status of more than 1,000 individuals. More than 7,500 received information and counseling about patient safety, controlling diabetes, cancer prevention and smoking cessation. Dozens of HHC staff from every facility, including MetroPlus and HHC's Health and Home Care, volunteered for the event. Health screening events will continue through tomorrow at HHC facilities.

Less than two weeks ago, on October 19th, HHC staffers with their friends and families went all out for the American Cancer Society's Making Strides Against Cancer walk at events in every borough. The final totals for HHC's sixth year as flagship sponsor won't be reported for several months, but preliminary numbers show that the Central Park walk alone saw more than 600 HHC walkers. Despite the difficult financial climate, our dedicated team leaders and fundraisers have already collected more than $200,000, with significantly more expected in the next few weeks, and it looks like we are poised to meet or exceed last year's totals for both walkers and dollars raised. Every facility brought great enthusiasm to the event, but special thanks this year should go to the dedicated striders at HHC Health and Home Care, Harlem, Elmhurst, Metropolitan, Bellevue, Gouverneur, and Coney Island hospitals.

Yesterday, the Robert Wood Johnson Foundation announced Maria Ramos, a longtime health literacy activist in New York City communities, and director of Lincoln Hospital's Community Health Education and Outreach, will receive the Community Health Leaders Award for 2008. Each award winner not only basks in national recognition, but also receives $125,000. Maria Ramos was one of ten award-winners selected from more than 800 nominations submitted from across the United States. The award honors leaders who conquer huge obstacles and take commanding action in local communities to tackle challenging health care problems. Maria Ramos was particularly recognized for her role as creator of Lincoln Hospital's Taxi and Limousine Drivers Health Initiative, which deploys health workers to 70 taxi dispatch locations and delivers crucial health services to hundreds of drivers, most of whom are uninsured. The program is a unique and creative solution for a difficult healthcare delivery problem. Congratulations to Maria Ramos for this well-deserved recognition.

• September 25 - The appointment by Mayor Bloomberg of Dr. Michael A. Stocker as the new chairman of our Board was noted by The New York Times and Crain's Health Pulse.

• September 25 - Metropolitan Hospital's Colors of Safety project, where standardized color-coded wrist bands for patients with high risk conditions was piloted by HHC, has been a great success and was covered by The New York Times, the NY Sun and WABC-TV News. The project will be in place system-wide this winter. The Eisenberg award, which HHC received last month for our commitment to transparency of quality and safety data, also received more coverage from pharmalive.com and dotmed.com. These safety initiatives forward our goal to be the safest hospital system in the country by 2010.

• October 2 - 8 - Several celebrations for openings and groundbreakings for our facilities received media attention. The New York Real Estate Journal and the Bronx Times Reporter wrote about Jacobi's Ambulatory Care Pavilion opening as a "celebration of life, light." The Downtown Express covered the Gouverneur groundbreaking for their $180 million expansion project and Harlem Hospital's groundbreaking for their new Patient Pavilion, part of the hospital's $319 million modernization project, appeared in the New York Beacon and positivecommunity.com. This brings public attention to our ambitious $1.3 billion 5-year capital campaign to upgrade the public hospitals.

• October 3 - Kings County Hospital Chief Information Officer Albert Porco was profiled in Smart Enterprise magazine in an article entitled "How Kings County Hospital's CIO Revitalized IT with Management Tools."

• October 20 - The AMA News and Crain's Health Pulse were among the publications that carried the announcement that Dr. Wafaa El Sadr, chief of the Division of Infectious Diseases at Harlem Hospital Center was named a 2008 MacArthur Fellow. The MacArthur Fellowship, also known as the "genius" award, includes an unrestricted grant of $500,000, and was awarded to Dr. El Sadr for her innovative work internationally in the areas of HIV / AIDS and tuberculosis care.