ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
REPORT TO THE BOARD OF DIRECTORS
JANUARY 29, 2009

Yesterday, the House of Representatives voted by a margin of 244-188 to approve the long awaited economic stimulus bill, officially known as the "American Recovery and Reinvestment Act." The bill has a price tag of $819 billion. Despite President Barack Obama's courting of Congressional Republican leaders, not a single House Republican voted for the legislation.

Key provisions of the House stimulus bill that would have an impact on HHC include:

• A temporary increase in the Federal Medicaid Assistance Percentage (FMAP) for nine quarters, beginning on October 1, 2008. The FMAP is the federal contribution to a state's Medicaid Program. Currently New York receives the lowest possible FMAP -- 50%. The bill provides an FMAP increase of 4.9% for all states, with additional tiers for states in greater economic distress as measured by unemployment rates. New York would qualify for the first tier -- bumping the temporary increase to 7.9%. The State has estimated that this would provide at least $7.6 billion for New York, a third of which would go to localities including New York City. The City estimates that it would receive about $1.7 billion as its share. If the economic situation worsens, the State could qualify for the next tier, which would bump the temporary FMAP increase to 10.9%, and as much as $9.75 billion over the entire period.

• HHC has been extremely active in advocating that Disproportionate Share Hospital (DSH) funding be included in the stimulus bill. HHC is advocating for the temporary resurrection of the 175% Public Hospital Specific DSH Cap that was law in 2004 and 2005 and for the temporary FMAP increases to also apply to DSH payments. Key New York Congressional leaders, including Senator Charles Schumer, Ways & Means Chairman Charles Rangel and Senior Energy and Commerce Committee Member Elliot Engel, have been extremely helpful in supporting HHC. Unfortunately, the House bill contains only a small DSH increase in State allotments of 2.5%, worth perhaps $40 million in new federal funds to the State.

• The House bill extends moratoria on six harmful Medicaid regulations including the Public Provider and Graduate Medical Education (GME) regulations until July 1, 2009. Additionally, implementation of the Medicaid outpatient regulation, finalized in the waning days of the Bush Administration, will be stopped until June 30, 2009.

• The House bill includes $20 billion in funding for Health Information Technology. A total of $18 billion would be directed to providers through incentives. HHC facilities would receive some funding under these provisions, starting in 2011. Almost all of these funds, however, are for use of systems after they are installed.

• The House bill also provides 12 month COBRA subsidies of 65% for persons who lost their jobs between September 1, 2008 and December 31, 2009. Individuals 55 or older would also be able to continue COBRA -- but without a subsidy -- until they become Medicare eligible at age 65. State Medicaid programs would also be given an option until December 31, 2010, to cover unemployed persons and their families without health insurance who either: exhausted their unemployment benefits; receive food stamps; or have an income of less then 200% of Federal Poverty Level. The federal government would fund this provision at 100%. Another provision would extend the current law which allows persons leaving public assistance to retain Medicaid benefits for one year after they start working. This provision would be extended from June 30th 2009 until December 31st 2010.

The Senate Finance Committee marked up its version of the stimulus bill on Tuesday January 27th. A vote by the entire Senate is expected next week. The Senate bill, as it now stands differs in significant ways on issues relevant to HHC. First, the bill does not contain any provisions for Medicaid regulation moratoria. However, Senator Charles Schumer is expected to offer an amendment mirroring the house moratoria language which appears to have the support of Finance Chairman Senator Max Baucus (D-Montana). Also, the legislation does not include any across-the-board state DSH allotment increases. It does, however, include a provision, via an amendment sponsored by Senators Jeff Bingaman (D-New Mexico) and Blanche Lincoln (D-Arkansas) that would continue until the first quarter of 2011 a provision giving a 16% boost to several states with very low DSH state allotments.

The House has passed a bill reauthorizing the State Children's Health Insurance Program (SCHIP) which also expands coverage for an additional 4 million children by increasing eligibility to 300% of Federal Poverty Level (FPL). Additionally, this measure will eliminate a five-year waiting period before legal immigrants become eligible for coverage under Medicaid and SCHIP. Current law excludes immigrant children legally in the country less than five years from benefits. The Senate Finance Committee has also approved the bill, including the special provision for legal immigrant children. The immigrant provisions must withstand an expected Republican challenge on the Senate floor. This provision would save New York State $13 million, as the State currently provides SCHIP coverage for such children from state-only funds.

On January 9, Governor Paterson delivered his first State of the State message. The governor spoke of his support for the expansion of health coverage, both SCHIP for children and Family Health Plus for adults. He also supports streamlining enrollment requirements to make public insurance more widely available to eligible New Yorkers. The governor proposed an increase in the pool of funds that will partially subsidize care for low-income New Yorkers and supports a revision of the Medicaid reimbursement methodology to reduce inpatient rates and reallocate funds to increase reimbursement to ambulatory care settings.

HHC shares many of the healthcare goals expressed by the governor, but continues to advocate vigorously that these goals cannot be met at the cost of severe funding cuts to other services. We currently estimate that the proposed executive budget will cut funding to HHC hospitals and nursing homes by nearly $300 million annually. A portion of that could be offset by funding from a new indigent care pool, that will increase reimbursement to teaching hospitals providing care to uninsured patients, and which may bring up to $140 million to HHC. However, even with this proposed additional funding, HHC faces more than $158 million in reductions.

On January 22, Mayor Bloomberg appeared before the New York State Assembly Ways and Means Committee and State Senate Finance Committee to testify on the impact of the proposed State Budget on New York City. The Mayor stated his opposition to the proposed funding cuts to HHC, and pointed out that certain vital services, which HHC is required by state law to provide, could be put at risk by such a cut. He also pointed out that the expansion of Family Health Plus coverage, while an important goal, shouldn't be paid for by reducing funding for core healthcare services in public hospitals and nursing homes. The mayor supported other measures suggested in the Governor's budget and presented additional alternatives for bridging budget gaps, but urged the legislature to refrain from cuts that would dramatically reduce funding to hospitals, schools and public safety.

As most of you know, Jean Leon has announced her retirement as Senior Vice President of the Central Brooklyn Network and as Executive Director of Kings County Hospital Center, effective February 2, 2009. I want to take this moment to again share my sincere appreciation for her nearly 25 years of service. Jean has served the Corporation in many demanding roles with tireless dedication, keen intelligence, and heartfelt compassion. Under her administration these past fifteen years, Kings County Hospital and the Central Brooklyn Network have made significant progress in improving the health status of the Central Brooklyn community. She leaves Kings County a much stronger organization. Among her many accomplishments, Jean ensured that the hospital’s dramatic modernization of its physical plant -- one of the largest and most demanding capital program investments that HHC has ever undertaken -- has proceeded smoothly and successfully. Jean exemplifies unwavering commitment to our mission and stellar leadership. She retires as the longest-serving HHC Network Senior Vice President, and takes with her my respect, gratitude, and best wishes for a long and rewarding retirement.

Fortunately, HHC is able to draw from its own bench of experienced managers to fill this void. Pending Board approval, Antonio Martin will assume the role of Senior Vice President of the Central Brooklyn Network and Executive Director of Kings County Hospital Center, also effective February 2. Tony Martin has been an HHC employee for 23 years, in positions of increasing responsibility. After beginning his career in 1985 at Metropolitan Hospital Center, from 1986 to 1999, he was a senior administrator in the Central Brooklyn Network, serving as Executive Director of East New York Diagnostic & Treatment Center, and as Network Deputy Executive Director for Behavioral Health Services. For the past 6 1/2 years, he has served as Executive Director of Queens Hospital Center, and, in that role, has successfully overseen that facility's major modernization project while strengthening virtually all aspects of the hospital's service delivery to its community. Tony Martin is one of HHC's most innovative leaders, and I have great confidence in his ability to lead the continuing renaissance of Kings County and to work collaboratively with Kings County staff and community representatives to meet the healthcare needs of central Brooklyn.

Tony will be joined by another clinical leader of our own, Dr. Joseph P. Merlino, who will serve as Administrator of Kings County Behavioral Health Services. Dr. Merlino has practiced psychiatry at Queens Hospital Center since 2003 and has teaching faculty appointments at Mt. Sinai School of Medicine, Ross University School of Medicine, and New York Medical College. He also served as Director of Psychiatry at Queens Hospital Center and as Director of Ambulatory and Community Psychiatry at Bellevue Hospital. He is widely recognized as leader in community and administrative psychiatry and has published extensively on behavioral health issues.

Mr. Martin and Dr. Merlino will bring both deep experience in behavioral health and a powerful and energetic commitment to continuing the positive transformation of Kings County's Behavioral Health Services that is now under way.

I also want to extend my deep gratitude to Dr. Ann Sullivan, who, at my request, has served the past 7 months as interim Behavioral Health Administrator at Kings County. Ann will return to her post as Senior Vice President of the Queens Health Network and to also serve as Acting Executive Director of Queens Hospital Center. During the past arduous months, Dr. Sullivan has helped steer Kings County through innumerable surveys, audits and investigations that followed the tragic death of Esmin Green in June, while simultaneously guiding the initial phase of fundamental reform of the County's behavioral health services programs. She has worked endless hours at great personal sacrifice to lead Kings County Behavioral Health Services through a period of profound instability and great peril. Behavioral Health Services at Kings County is stronger today as a result of Dr. Sullivan's leadership during this critical time. She has earned the admiration of staff at Kings County by dint of her good will, her courage to do the right thing, and her astute appreciation for the challenging work of front-line staff. Please join me in thanking Dr. Ann Sullivan for her extraordinary work these past months and for her deep devotion to HHC's mission and our patients.

Earlier this week Peter Wolf resigned his position as Senior Vice President of the Southern Brooklyn/Staten Island Network and Executive Director of Coney Island Hospital. Mr. Wolf has served in various roles at HHC for the past 29 years and, for the past three-and-one-half years, he served Coney Island and the Southern Brooklyn community well by leading efforts to improve patient safety, expanding palliative care for patients at the end of life, and overseeing the first modernization of Coney Island Hospital in more than 50 years. I thank Peter Wolf for his service and commitment; he leaves Coney Island Hospital and all the other network facilities with a firm foundation of quality, compassionate, and patient-centered care.

I have asked Arthur Wagner, Executive Director of the North Central Bronx Hospital, to serve as Acting Senior Vice President of the Southern Brooklyn/Staten Island Network. An experienced and respected hospital administrator, Mr. Wagner has worked at HHC for nearly 26 years in a number of leadership roles, including chief operating officer and director of adult medical services, operations, diagnostic services, and pharmacy. I am confident that, during this transition, Mr. Wagner will provide strong and effective leadership for the Network's patients, staff, and communities.

TKings County hosted a community open house to showcase the new $153 million Behavioral Health Pavilion last week. Hundreds of community members, staff and elected officials who attended were given tours of the soon-to-be-occupied emergency, outpatient and inpatient units. As you may know, this seven-story building has been nearly six years in the making. It features 230 private and semi-private inpatient beds, a new psychiatric emergency center with double the space of the current one, and a wide range of outpatient and day treatment programs. The modern, efficient space will replace and consolidate services now provided in seven older buildings. This impressive, state-of-the-art facility will be a very visible sign of a new era of behavioral health services at Kings County Hospital and will serve as a fitting backdrop to the more significant transformation of the programmatic redesign of service delivery that is underway. Thanks to board member Josephine Bolus, who attended the open house.

Two HHC facilities, Gouverneur Healthcare Services and Sea View Hospital, received the highest rating available -- five-stars -- when the federal Centers for Medicare & Medicaid Services (CMS) launched a new quality rating system for nursing homes on December 18th. Only 12% of the 15,800 nursing homes rated nationally received the top rating. The CMS rating system is based on three areas: health inspection surveys, quality measures, and staffing information. Congratulations to Executive Directors Mendel Hagler and Angelo Mascia and their staffs for the hard work that went into earning these outstanding ratings.

In February we will update and expand the HHC In Focus section of our web site to publish more statistical indicators of the quality of our patient care. The data will show improvements in our system-wide mortality and hospital-acquired infection rates, as well as indicators that show gains in the health management of the nearly 57,000 diabetic patients in our care. The next expansion in our transparency web site will be published later this year, and will include behavioral health, perinatal care and surgical care indicators. Patient Satisfaction data will also be published later this year.

During these fiscally challenging times, high performance and public accountability are more essential than ever to remaining competitive. We remain committed to sharing meaningful clinical data with the public, because it builds trust with our communities and helps us to drive performance improvement.

A little more than one year ago, with your approval, we embarked on Breakthrough, a system of principles and tools based on an improvement philosophy known widely as "Lean." Our intention was to capitalize on the momentum created by successful change activities and boost the impact and spread of clinical, operational and financial improvements across the corporation. Today we know that we have made good on our commitment to more than pay for the cost of engaging a firm to teach us about this improvement system. However, at least as important, we are also seeing a growing enthusiasm for change and improvement in the processes of our daily work. This is essential to a modern, forward-thinking organization.

With 10 facilities and central office actively engaged thus far, we have collectively run more than 80 rapid improvement events, or RIEs. On average, more than 15 teams of local experts are gathering each month for a week at a time to address specific concerns about flow, efficiency, revenue and cost. With work being conducted in 28 value streams, including emergency departments, operating suites, materials management and human resources, we saved $3.2 million in 2008, project annualized savings of $9 million and found just under $2 million in new, recurring revenues. While our goals for Breakthrough go far beyond financial benefits, at this time of severe financial stress, we are heartened that we are developing significant expertise across the corporation in the use of this powerful set of tools.

On January 13th and 14th, The Joint Commission conducted a survey of the Methadone Maintenance Program at Metropolitan Hospital Center. This was the first Joint Commission survey at an HHC facility in 2009. I am pleased to report that the surveyor was very impressed with and complimentary of Metropolitan’s program. We will have the final survey results shortly.

On Tuesday January 27th, a Corporate Orientation Program was conducted for Ms. Suzanne G. Brauer, RN, our 2009 Joint Commission Survey Team Leader. The Orientation typically signals the beginning of The Joint Commission survey activities for the year. During the Orientation my senior leadership and I described the centralized structures and processes across HHC that support patient care quality and safety and how we support facility compliance with The Joint Commission standards. It also provided an opportunity for Ms. Bauer to educate HHC leadership on some of the 2009 changes to The Joint Commission survey process.

This year, Coney Island, Kings County, Lincoln and Sea View are scheduled for a Joint Commission survey.

The latest results reported on the employee flu immunization campaign show that eight of our facilities have reached or exceeded this year's goal of 60% immunization rates for all employees and 70% for long term care employees. While other facilities have not yet reached this goal, several of them show rates that have increased from last year. There are still three months remaining in this year's flu season, and we urge all HHC employees to take advantage of the free flu shots that are available at their facilities, to protect them, their families and their patients. Flu immunization of healthcare workers remains an integral part of our patient safety campaign, since it can prevent flu infection of patients in fragile health. HHC rates now exceed the national and city averages for employee vaccinations; however we can and should do better.

As I reported to you in September, HHC is on track to becoming the first hospital system in New York City and among the first in the nation to implement a surgical safety checklist in its operating rooms to reduce the risks of complications and death in surgery. The checklist has been heavily promoted by the World Health Organization. After it was successfully piloted in six of our hospitals, a system-wide rollout was set in motion. To introduce the checklist to surgeons, anesthesiologists and nursing staff, an HHC Surgical Safety Checklist training video was created and made available to all facilities. With full implementation to be completed at all facilities within the next couple of weeks, HHC will become the first local hospital system to adopt the Surgical Safety Checklist across all of its operating rooms.

Bellevue Hospital's WTC Environmental Health Center featured on NY1 News 12/18/08

Importance of Blood Donation segment on WNBC-TV, 1/4/09, featuring Jacobi Medical Center.

Latina Suicide Prevention Campaign launched at Woodhull Medical and Mental Health Center discussed on WNBC-TV 1/10/09

Transparency as a Pillar of Quality and Safety Culture: The Experience of the New York City Health and Hospitals Corporation, The Joint Commission Journal on Quality and Patient Safety 12/08. HHC President Alan D. Aviles is quoted.

The HHC health system is featured in an article about a new era for leadership of quality and safety, Modern Healthcare 1/16/09.

Prospect of big bucks for health IT draws cheers from many, Government Health IT, 1/15/09. HHC President Alan D. Aviles is quoted.

US health coalition calls for health information technology to be included in economic stimulus package, The British Journal of Healthcare Computing & Information Management 1/22/09. HHC President Alan D. Aviles is quoted.

Sea View Hospital's five-star rating from CMS is mentioned in story about Staten Island nursing home ratings, Staten Island Advance 12/18/08.

Surviving the Recession, Advance for Nurses 1/4/09. Interviews with seven nurse leaders from HHC hospitals and central office.

City Tech, Woodhull Open Radiology Lab, Brooklyn Daily Eagle 12/28/08

New York's New Year's babies: Where are they now?, New York Daily News, 1/1/09. Features children born at Elmhurst and Woodhull.