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March 28, 2011

New York City Council Fiscal Year 2012 Preliminary Budget Hearing

Committee on Health
Alan D. Aviles
New York City Health and Hospitals Corporation

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 2012 Preliminary Budget and HHC’s Financial Plan. This afternoon, I will review our budget and HHC’s financial challenges, discuss the actions we are taking to address them and highlight some initiatives we have worked on over the past year.

As we have stated in our testimony over the past several years, the ongoing effects of the recession combined with four straight years of state budget cuts totaling more than $330 million (with more on the way), rising numbers of uninsured patients, fluctuations in Federal funding and significant growth in expenses beyond our control have led to substantial recurring budget gaps for HHC. These gaps - and a changing health care landscape - required us to develop a $300 million cost containment plan in 2009 and a comprehensive four-year restructuring plan last year designed to save an additional $300 million. Despite these challenges, we have remained true to our mission of serving all New Yorkers regardless of their ability to pay.

For example, last year HHC facilities served approximately 1.3 million people. Of these patients, 452,576 were uninsured, which is a 14% increase over the last 4 years. We admitted about 225,000 patients into our hospitals. We provided outpatient care to another one million patients, who made approximately 5 million visits. 23,000 babies were delivered at HHC’s hospitals. Our long term care facilities provided one million patient days of skilled nursing facility care. For many New Yorkers, HHC is their health lifeline. Providing all of this care is extremely expensive; it costs us roughly $6.5 billion.

Preliminary Budget & Financial Plan

The City, in order to close the Preliminary Budget gap, included a “Program to Eliminate the Gap” (PEG) which required a City Tax Levy reduction target to HHC of 5.4%, or $4.6 million in Fiscal Year 2011 (of which $3.38 million was accepted) and 8%, or $8.8 million, in Fiscal Year 2012. We plan to achieve this Fiscal Year’s target through a reduction of costs associated with outside legal expenses and a reduction in our City subsidy. To meet our PEG target in FY 2012, we will continue the FY 2011 PEG plan and also eliminate City funding for the Sexual Assault Response Team program.

In addition, we will also be affected by pass-through PEGs from the Department of Health and Mental Hygiene of approximately $4.16 million in Fiscal Year 2012. These funding reductions will affect both health and Behavioral Health programs including: HHC’s child health clinics, HIV Services, support for HHC’s 16 outpatient pharmacies, chemical dependency programs, the Morrisania Developmental Evaluation Clinic and general funding support for our mental health programs.

These combined PEG actions will result in a total reduction in City funding of $5.7 million in Fiscal Year 2011 and $12.9 million for Fiscal Year 2012.

We have been very fortunate to receive significant funding support from the City Council in prior years for the operation of our child health clinics, expanded HIV testing and for behavioral health programs. As in prior years though, this funding was not baselined. Unless this funding is restored, we will have $8.2 million less in City Tax Levy funding for FY 2012:

  • This would include $5 million less for the operation of child health clinics. These clinics provided primary care services to more than 30,000 patients who made approximately 84,000 visits in FY 10. In FY 2012, the child health clinic’s operating expenditures are projected to be approximately $17.7 million. Despite almost $4 million in total funds received through the City, and an estimated $4.7 million in patient revenue, the child health clinics will have an operating deficit of slightly more than $9 million in FY 2012. 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.
  • Without restoration, we would also have $2.0 million less for our HIV testing initiative. More than 188,000 patients were tested in FY 2010. Of those tested, more than 1,750 patients tested positive. However, we may be unable to sustain this significant level of HIV testing throughout our facilities without the Council funding.
  • And finally, we would have $1.2 million less in Mental Retardation and Developmental Disabilities (MRDD) funding which supports our developmental evaluation clinics. We currently operate these 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, the January Preliminary Budget included funding reductions from the Department of Health and Mental Hygiene for the child health clinics of $448,000 and approximately $617,000 for the Morrisania MRDD Clinic starting in FY 2012. 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 FY 2012, we project $6.25 billion of receipts and $6.67 billion of disbursements. Therefore, we are facing an operating budget deficit of more than $425 million for the Fiscal Year. Our financial outlook does not improve in the outyears. Beginning with FY 2013, the Financial Plan anticipates operating deficits of $551 million growing to $857 million by FY 2015. These deficits are attributable to a combination of factors: the loss of the federal supplemental Medicaid funding in the form of DSH and UPL payments; continued reductions to already inadequate Medicaid reimbursements; steeply rising fringe benefit costs, (primarily pension and health benefits), and the cost of serving increasing numbers of uninsured patients.

As large as these outyear gaps are now, I want to point out that they do not include the impact of proposed state budget cuts. As it stands now, we estimate that we will see a reduction of approximately $118 to $140 million annually in Medicaid reimbursement. This reduction in reimbursement will necessitate additional actions above and beyond of the gap closing program that we had undertaken in 2009 and the restructuring plan we embarked upon last year.

Let me briefly reiterate the details of those initiatives. The $300 million cost-containment plan of 2009 included reductions to discretionary spending, improvements in revenue collection so that we receive every dollar owed to us for the services that we provide and it included a commitment to reduce staffing levels through attrition. We have reached our annual target of $275 million and are on track to reduce our budget gap by about $300 million. With large outyear gaps of more than $1 billion being projected, these measures were helpful, but still fell well short.

As I mentioned at the Executive Budget Briefing last year, we developed a comprehensive plan to further reduce our budget gap without compromising our ability to meet the essential needs of the communities we serve. This restructuring program consists of 39 projects that we will complete over the next four years. To fully implement the plan, we must consolidate some programs, right-size some of our operations, contract for targeted support and technical services, redesign the processes for admissions to and discharge from our long-term care facilities and modernize and restructure operations at our largest skilled nursing facility, Coler Goldwater. The entire plan, when implemented, will reduce our budget gap by another $300 million.

Work on these initiatives is currently underway. Last year, we reduced our workforce through layoffs at HHC’s central office, as well as some construction and plant maintenance staff. We also closed several small clinics. In accordance with State requirements, we reached out to all the patients served by these clinics to link them to alternative care either at another HHC facility or with available community providers, if that was the patient’s preference.

It is unfortunate - and I regret - that layoffs have become necessary to help address our budget deficit, especially during a tough job market. But, these are the difficult choices we have to make to protect our core patient care programs and prevent the need for a more drastic reduction or elimination of services.

Even after taking these painful actions, we still fall short of a balanced budget by hundreds of millions of dollars. Fortunately, our goal to stabilize HHC’s finances was aided greatly by significant additional financial assistance in the amount of $350 million authorized by the Mayor and the City Council last year. We are grateful for this critical financial support, especially at a time when the City is struggling with a budget deficit of its own and has very limited flexibility. Without this City support, however, we would not have had the ability to target and phase-in the planned reductions and restructuring over a four-year period to minimize disruptions to the delivery of care.

The gap closing actions on our part – both those already taken and those planned – will ultimately address only about $600 million of our initially projected $1.2 billion budget deficit. However, in addition to the $350 million in immediate financial support, the City had included in its financial plan an average of almost $300 million a year over the next several years which could be equally matched by federal funds under the supplemental Medicaid program. We are working very closely with the State to obtain final federal approval of this additional funding. With this combined funding, we will have achieved a less precarious fiscal footing for the next several years. We appreciate the strong support of our safety net mission from all three levels of government. However, there are still threats to our budget when, as part of federal health reform implementation, Disproportionate Share Funding reductions begin in 2014 and steadily increase to 2019. We estimate the reductions to HHC could be as high as $110 million in 2014 if the reductions are left unchanged.

Turning the Council’s attention to our capital program, I am happy to announce that new funding to cover shortfalls at our two major modernization projects at Harlem Hospital Center and Gouverneur Healthcare Services was included in the City’s Preliminary Budget.

At Harlem Hospital, we are proceeding with the new patient pavilion that will house diagnostic suites, emergency services, operating rooms and critical care units. With an additional $26 million in new Capital funding, we will be able to complete this project in FY 2012. Once complete, the new pavilion will connect the Martin Luther King Jr. and Ron Brown pavilions.

Work on Gouverneur Healthcare Services’ major modernization is proceeding on schedule. We received $12 million in new funding to fully cover the projects costs. This project entails a significant renovation of the existing building and construction of a new addition for ambulatory services. When the project is completed in FY 2014, Gouverneur will not only offer expanded comprehensive primary and specialty care services but it will also provide residents of the skilled nursing facility with state-of-the-art services in as home-like an environment as possible.

In addition to these two major modernization projects, planning for a third project is now underway. HHC had been planning a major modernization and consolidation at our Coler Goldwater facilities on Roosevelt Island. When the closing of North General Hospital was announced last year, HHC immediately began working with the City, the State, North General Hospital leadership and other stakeholders to develop an alternative proposal. This would include the relocation of the services from our Goldwater campus, which was built in the 1930s, of both long-term acute care beds and skilled nursing facility beds, to the North General site. This alternate plan, which also includes a modest upgrade of the Coler facility, reduces the cost of our original modernization plan by more than $200 million. It also enables us to create a state-of-the-art replacement facility and preserve the North General campus as an important health care resource for the Harlem community. The New York State Department of Health approved the Certificates of Need for this project late last year and we are now proceeding with the design phase of this project.

While we received new funding for these three projects, HHC, like other City agencies, submitted a plan to the Office of Management and Budget to reduce Capital spending in compliance with the goal of reducing overall City capital spending. We have targeted these reductions in a way that we can continue to maintain and upgrade our infrastructure where essential, while still achieving necessary savings.

Before I conclude, I would like to take this opportunity to brief the Council on our efforts to improve the health of our communities through obtaining patient centered medical home designation at all of our primary care clinics. This patient centered medical home designation is granted by the National Committee for Quality Assurance (NCQA). Most of our facilities applied for certification as a patient-centered medical home last year. To date, 18 HHC facility applications that were reviewed by NCQA have been certified at Level 3, the highest level. We expect the review of the remaining applications to be completed shortly.

The federal healthcare reform act and New York State ambulatory care reform initiatives provide funding incentives and create an imperative to deliver comprehensive primary care, to enhance coordination of care and to ensure the provision of more effective chronic disease management. Designation of our facilities as patient centered medical homes is an important ingredient of readiness for health reform and success in competing effectively in an increasingly managed care environment. Not only does the medical home designation establish that we are delivering primary care in the way that is designed to improve the health of our patients, but, importantly, achieving this designation for all of our primary care sites will increase our Medicaid reimbursement by roughly $15 million annually.

HHC is well positioned for these opportunities because we have invested heavily in comprehensive primary care services, including smoking cessation services, routine HIV testing, and the use of advanced information technology tools to help patients better manage their asthma, diabetes, hypertension, and depression. It is gratifying that the federal government is finally looking to better align the reimbursement system to recognize the value of, and pay for, the health promotion and disease management activities that can lower long-term healthcare costs and that have been a central focus of our work in recent years.

Lastly, I want to acknowledge the support provided by Mayor Bloomberg and the City Council to HHC. This ongoing support has been instrumental in our ability to navigate around obstacles and to mitigate others. This concludes my written testimony. I now look forward to listening to your comments and answering your questions.



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