Good afternoon Chairperson Rivera, 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 2010 Preliminary Budget and HHC’s Financial Plan.
I would like to begin this afternoon with a review of the financial challenges we face and outline the series of cost containment actions that were announced last week.
As you unfortunately know all too well, the severe economic crisis that has engulfed our city, our state and our nation has caused wide-spread hardship. The near collapse of the credit and banking industries – and the subsequent downward spiral of the economy – have devastated city and state budgets.
For the first time in several years, the number of uninsured patients served by HHC facilities significantly increased. In calendar year 2008, HHC served nearly 450,000 uninsured patients – an 8% increase – from 413,000 in calendar year 2007. It costs nearly $850 million to provide care to this number of uninsured patients.
This fiscal year brought unexpected and additional expenses and funding losses that have created a $316 million budget shortfall that we must address. Specifically, collectively bargained labor and fringe benefit expenses rose by $160 million. Other Than Personal Services (OTPS) costs, including affiliation contract costs are projected to increase $75 million. Interest earnings have declined by $5 million. City Tax Levy funding has been reduced by $10 million; and State funding cut by $66 million.
Last year, even before the full-blown economic crisis unfolded, New York City directed city agencies to cut their budgets by 5%. With the economy worsening and tax revenues dwindling, the City then directed agencies to pare down by another 7%. As a result, our City Tax Levy funding will be reduced by about $14 million over the next 15 months. This proposed reduction comes on top of an $11.7 million cut in City Tax Levy last year. This funding had gone to support several Council initiatives.
While these reductions in city funding are significant, they are modest in comparison to the much larger reimbursement cuts in the State Medicaid program. Because HHC receives about 65% of its operating revenue from the Medicaid program, we are especially hard-hit by these cuts. In the current state fiscal year that ends next week, Medicaid reimbursement to HHC was cut on three different occasions – first in April, later in August and again last month. In total, HHC lost more than $66 million in Medicaid funding as a result of these cuts. These cuts are in addition to a $54 million Medicaid funding reduction to HHC that was part of the State’s fiscal year 2007-08 budget actions.
This does not take into account the reductions that will be made when an agreement on the state budget for State fiscal year 2009-10 is reached, possibly next week. If the proposed Executive Budget were to pass as proposed, it could reduce funding to HHC hospitals and nursing homes – again – by up to $300 million annually. We do expect the Legislature and Governor to agree to some restorations as the final budget is negotiated, however there will be cuts, and these additional cuts will deepen the challenges we face.
In previous years, we were able to absorb smaller reductions to Medicaid funding through cost containment measures and other efficiencies without significant programmatic impacts. However, HHC’s ability to absorb further cuts without service delivery impacts has now ended. We have no choice but to address our current projected budget shortfall through a combination of revenue and efficiency initiatives and targeted service reductions. I want to state clearly that we are working hard to limit the scope and impact of the necessary service reductions and to ensure that affected patients are linked to alternative services elsewhere within our system or through other community resources with available capacity. The categories of services that will be closed, reduced or consolidated include:
In the Bronx, we will be closing the Highbridge Health Center. Patients who currently go to the Highbridge clinic will be able to receive services at Lincoln Hospital or at one of our two nearby diagnostic and treatment centers, Segundo Ruiz Belvis or Morrisania. We are also reducing staff at our Tremont clinic to more closely match utilization levels. In addition, we will close a grant-funded Directly Observed Therapy TB program at Lincoln Hospital that has lost its grant-funding and has experienced significantly diminished utilization. The LEAP program will be closed. This program was previously grant-funded by the Council and fully-funded this year by HHC. A search for alternative funding to sustain this program has been unsuccessful. Finally, we will discontinue an HIV case management program at Jacobi Medical Center.
In Southern Brooklyn, we will close the Sheepshead Bay Clinic and four school-based mental health programs. Those patients will be able to receive services at Coney Island Hospital or at a community mental health agency in Southern Brooklyn.
In Manhattan, we will close three programs offered at Harlem Hospital: two adult mental health continuing day treatment programs and an HIV case management program. Two satellite outpatient pharmacies based in two small neighborhood clinics (Drew Hamilton and Grant Houses) will be closed. Patients who require prescription medication will be able to have their prescriptions filled at the Harlem Hospital pharmacy or, if they have health insurance, at a neighborhood pharmacy. At Metropolitan Hospital, we will consolidate two adult mental health continuing day treatment programs into one program.
In Queens, we will close the Springfield Clinic, the Charles R. Drew Clinic, and the Sunnyside Clinic. Patients who received services at the Charles R. Drew and Springfield Gardens sites will be able to go to the South Queens Multi-Service Center, Parsons Communicare Medical Center, or Queens Hospital (where the Charles R. Drew services will be relocated with most of the existing staff). Patients who previously used the pharmacy at Charles R. Drew will be able to have their prescriptions filled at the Queens Hospital pharmacy or, if they have health insurance, at a neighborhood pharmacy. Patients who received services at the Sunnyside Clinic will be able to go to Elmhurst Hospital or to one of our remaining neighborhood clinics in Western Queens. In addition, three child development programs will be consolidated into one program. Lastly, we are scaling back dialysis services at Elmhurst. The hospital will focus on acute dialysis services and patients requiring chronic dialysis treatment will be referred to providers in the community that will treat uninsured patients.
Achieving Cost Savings While Protecting Quality
Even as we struggle to make do with less, we are determined not to sacrifice the higher standard of quality and patient safety that we have achieved in recent years. Now, and in the coming months, our patients will need us and the care we provide more than ever. I know that maintaining our hard-earned gains will not be easy, but we will not allow the economic crisis to take us backward. That is why before we took actions to scale back services we began to prepare for the consequences of serious city and state budget deficits. Late in 2008 we restricted all non-essential expenditures and froze all non-critical hiring. We froze, as well, most promotions and raises, except for those cost-of-living increases to which we are committed under existing union contracts. We also began strategic planning for deeper, long-term cost-containment.
Against an uncertain financial landscape, the importance of our initiatives to further reduce expenses and improve efficiency is more clear than ever. Over the past few years, and with considerable success, HHC has aggressively undertaken multiple initiatives and projects to improve our supply-chain efficiency – ensuring that we procure and obtain high-quality products, in a timely way, at the lowest possible cost.
Those efforts include achieving broad efficiencies in pharmaceutical procurement, resulting in pharmaceutical expenses remaining flat from FY 2007 to 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 to just-in-time levels and, as a result, 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 search 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.
A little more than a year ago we embarked on Breakthrough, a system of principles and tools based on a process improvement philosophy known widely as “Lean,” which was first developed in the manufacturing industry and more recently adapted for healthcare. Through Breakthrough, we are training our staff in a performance improvement methodology and a framework for an organizational culture that systematically reduces waste and long-term costs, brings clinical services more efficiently and rapidly to the patient, and improves patient and staff satisfaction. With 10 facilities and our central corporate office actively engaged thus far, we have collectively conducted more than 100 Breakthrough improvement events in various venues and departments including emergency services, operating suites, materials management and human resources. We saved $2 million in calendar year 2008 through our initial learning phase and are on track to save $4.6 million this year. We also found $3.3 million in new revenues in calendar year 2008 and we expect this to grow to more than $12 million in calendar year 2009. We expect greater savings during the coming year as the number of discrete improvement events, as well as our mastery of the methodology, increase dramatically.
Turning to the Financial Plan, as I stated, the January Financial Plan included a 7% PEG program beginning in fiscal year 2010. HHC will achieve this target by reducing the subsidy for prisoners and uniformed services; reducing the subsidy for HHC’s Diagnostic & Treatment Centers; and by eliminating the subsidy for DCAS supplies. These subsidy reductions will yield PEG savings of approximately $5 million per year. In addition, we received a pass-through PEG of approximately $2.4 million from the City Department of Health and Mental Hygiene Services that includes a funding reduction for child health clinics and mental health/substance abuse programs. These combined PEG actions will result in a reduction of approximately $7.3 million in fiscal year 2010, and $8.8 million per year beginning in fiscal year 2011.
Our current City Tax Levy funding for fiscal year 2010 for Council funded initiatives is approximately $14.9 million less than in previous years. This is due to reductions in funding for the operation of child health clinics, behavioral health programs, HIV testing expansion, our simultaneous interpretation program, and the pharmacy fee waiver program. Unless this funding is restored in fiscal year 2010 we will receive:
We would also note that for fiscal year 2009, only $7 million in City Tax Levy was restored from a base funding reduction of $18.7 million.
The HHC Financial Plan for fiscal year 2010 includes $6.4 billion in expenditures and $5.3 billion in baseline revenues. Therefore, we are facing an above the line gap of more than $1.1 billion in fiscal year 2010. This gap is largely due to the loss of revenue from several sources that are not in the current baseline.
Over the past several years, we have received large payments from retroactive Disproportionate Share (DSH) payments and Upper Payment Limit (UPL) payments that will not reoccur in future years. Due to pending federal regulations, the availability of additional UPL funds of $238 million is at risk for fiscal year 2010 while $304 million is at risk for future years; therefore this revenue is shown below the line. Additionally, $460 million in payments from DSH maximization are shown below the line as we work to seek State and Federal approval of this initiative. Also, in fiscal year 2009, HHC anticipates $150 million for outstanding retroactive Medicare appeals dating back to 1992. We do not anticipate significant additional recoveries from appeals in future years.
Based on the current collective bargaining pattern, the Financial Plan assumes that personal services will increase by 4 percent in FY 10 and 2 percent annually thereafter. In addition, the Financial Plan reflects a significant increase of $45 million in fringe benefits in fiscal year 2010. This is predominately due to the continuing increases in both pension and health benefits costs. The Financial Plan forecasts increases in other than personal services (OTPS) of about 3 percent per annum over the life of the Financial Plan. To sustain this level of modest growth of OTPS expenses, We need to continue to focus on efficiency and to leverage our volume to find strategic purchasing opportunities, as I mentioned earlier. Finally, we anticipate that our contracts with affiliate organizations providing physician and other clinical services will grow at an average rate of 4 percent for FY2010 and 3 percent per annum over the remainder of the Financial Plan.
Despite the daunting financial climate, HHC has garnered significant national recognition in 2008. We received the prestigious John M. Eisenberg Patient Safety and Quality Award from the National Quality Forum and The Joint Commission for our efforts in promoting unprecedented transparency around quality and patient safety.
In October 2008, the Commonwealth Fund, a national private foundation that advocates for a high performing healthcare system, published a comprehensive case study about HHC that praised the improvement initiatives we have undertaken in recent years. The report noted that we are becoming a “provider of choice” and are 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.
All four of our long-term care facilities were rated at or above the national average by the federal Centers for Medicare & Medicaid (CMS) under its recently launched rating system for nursing homes. Two of our facilities, Gouverneur Healthcare Services on the Lower East Side and Sea View Hospital Rehabilitation Center and Home on Staten Island, received the highest rating available – five stars – which was achieved by only 12% of the 15,800 nursing homes rated nationally.
During the course of the past year, The Joint Commission conducted accreditation surveys of five of our hospitals — Bellevue, Harlem, North Central Bronx, Queens and Woodhull — and our long-term care facility at Coler-Goldwater. All achieved successful survey results and unconditional accreditation. The Joint Commission survey team leader summarized our 2008 surveys by stating that “HHC was among … the best healthcare organizations reviewed by The Joint Commission.” Last week Coney Island Hospital was the first HHC facility to undergo a Joint Commission survey in 2009. The hospital achieved excellent results and full accreditation.
Services for Staten Island Residents
In 2008, HHC continued to expand primary care services for low-income, uninsured residents of Staten Island. We added adult primary care services to the Mariner’s Harbor Family Health Center and anticipate approval shortly from the State to add adult services at the Stapleton Family Health Center. For the past year, we have continued to provide significant financial support and technical assistance to the non-profit Community Health Center of Richmond. The Center’s volume has roughly tripled since opening in mid-2006, providing 18,800 visits in 2008. We have also funded renovations that have just been completed which will double the Center’s current capacity.
For almost three years, HHC has supported the Staten Island Health Access Program (SIHA), a temporary initiative to expand access to primary care services for low-income uninsured patients through contractual arrangements with local community physicians, as more permanent solutions were put in place. Scheduled to expire on December 31, 2008, the SIHA program was extended by three months to next week – March 31, 2009 – to ensure a smooth transition for all program participants to a new medical home.
Program participants now have the option of choosing to receive care at the Mariner’s Harbor and Stapleton Family Health Centers, the Community Health Center of Richmond, and from our new state-of-the-art mobile medical office, or HHC Connection. The mobile medical office is outfitted like any small doctor’s office, with two exam rooms and computer connectivity for electronic medical records within our South Brooklyn/Staten Island Network. The mobile medical office will deliver care at five locations across Staten Island, and is expected to accommodate roughly 4,000 primary care visits annually. Uninsured patients who use HHC’s Staten Island facilities and the mobile medical office will have access to affordable medications through their HHC providers.
There is growing need for ambulatory care services in Staten Island, and HHC is committed to continue working with all Staten Island stakeholders to increase service capacity and improve access. Therefore, we are developing two Diagnostic & Treatment Centers (D&TCs) in high-need areas; these sites are expected to be on line in 2012 and will provide primary and specialty care, as well as imaging and dental services.
Patient Safety Initiatives
As you may recall, HHC has committed to becoming one of the safest healthcare systems in the nation by the end of the year 2010. Last year, we continued to make steady progress toward that goal. During 2008, six of our hospitals piloted the use of surgical safety checklists in our operating rooms as recommended by the World Health Organization to foster better surgical team communication and reduce the risks of complications and death in surgery. Effective this month, HHC has now implemented the surgical safety checklist across all of its operating rooms and becomes the first hospital system in New York City, and among the first in the nation, to do so.
In 2008, we also began to implement the Colors of Safety program in our hospitals and long-term care facilities, which uses standardized color-coded wristbands to quickly communicate patients’ high-alert medical conditions and help prevent medication errors, allergic reactions, and falls. Nine of our facilities have now adopted the Colors of Safety and full implementation will be completed system-wide by the end of this year.
This past year we also continued our system-wide efforts to aggressively reduce hospital-acquired infections, achieving reductions in central line bloodstream infections and ventilator-associated pneumonia for the third straight year. From 2005 through 2008, we have achieved a 65 percent reduction in the rate of central line bloodstream infections and a 90 percent reduction in the rate of ventilator-associated pneumonia among adult patients in our intensive care units. It is important to note that these hard-won performance improvements translate into significantly enhanced health outcomes and money saved. The decline in hospital-acquired infection rates represent more than 1,000 infections prevented and nearly $16 million in healthcare costs averted.
Transforming and Reforming Behavioral Health
Turning to the behavioral health area, HHC provides more than one-third of hospital-based inpatient and outpatient mental health services in New York City. For this reason and because we run the majority of our City’s Comprehensive Psychiatric Emergency Programs (CPEPs), we care for the majority of New Yorkers with the most serious and persistent mental health conditions.
Earlier this month, we opened the new 300,000 square foot behavioral health pavilion at Kings County Hospital Center, after completing its construction late last year on time and on budget. The new seven-story building features 230 private and semi-private inpatient beds, a new psychiatric emergency center with double the space of the previous one, and a wide range of outpatient and day treatment programs. This modern, efficient space is long overdue and allows us to consolidate services that were provided in seven antiquated buildings spread across the hospital campus.
Prevention, Screening, and Chronic Disease Management
To fundamentally improve the health of the communities we serve, we continue to promote broadly accessible and robust primary and preventive care. Our system-wide efforts to promote smoking cessation, cancer screening and routine HIV testing have produced significant and measurable benefits for our patients.
Over the past three years, we helped more than 25,000 patients to quit smoking successfully. Research suggests that at least one-third of these patients, or about 8,000 former smokers, will avoid smoking-related disease and premature death as a result.
We also continue to focus heavily on cancer screening, performing more than 90,000 mammograms and 165,000 cervical cancer screenings last year. We performed more than 20,000 colonoscopies during 2008, almost twice the number performed just five years before.
The incidence of diabetes in New York City has doubled over the past ten years and is still growing. HHC has more than 50,000 patients with diabetes who are receiving primary care at our facilities. Our web-based electronic diabetes registry has been an effective tool in helping us to better manage the health of our diabetic patients and during 2008 we achieved improvements in the percentage of our diabetic patients with well-controlled blood sugar, blood pressure and cholesterol levels. After twenty years of battling HIV/AIDS, it may be surprising to some that New York City remains the epicenter of the continuing HIV/AIDS epidemic, and that fighting the disease is still a core component of HHC’s healthcare mission. Among New Yorkers under 65, HIV is the third-leading cause of death. Alarmingly, an estimated 20,000 New Yorkers – nearly 1 of every 5 people living with HIV – do not know they are infected, and 1,000 New Yorkers each year first learn they have HIV when they are already sick with AIDS.
HHC continues to work to make rapid HIV testing a routine part of medical care. This effort has been supported by Council funding and we appreciate Speaker Quinn’s leadership in this area. During fiscal year 2008, HHC facilities tested more than 160,000 patients across inpatient, outpatient and emergency department settings, a near three-fold increase from four years ago and a 20% increase from fiscal year 2007. Our testing efforts identified more than 1,800 HIV positive patients in 2008. Most of those who tested positive were unaware of their HIV status and most are now connected to potentially life-saving care at one of our Designated AIDS Centers.
Expanding Services to World Trade Center Victims
Last year, HHC’s World Trade Center (WTC) Environmental Health Center expanded from its hub site at Bellevue Hospital to two new locations: Gouverneur Healthcare Services in Lower Manhattan and Elmhurst Hospital Center in Queens. More than 3,000 individuals are under care for 9/11-related illness at these sites. Evaluation, comprehensive medical treatment and medications for 9/11-related illnesses are provided at no cost to those who qualify.
The Centers for Disease Control and Prevention (CDC) awarded HHC a three-year, $10 million per year grant in 2008 to provide medical examinations, diagnostic testing, referral and treatment for residents, students and others in the community that were directly affected by the dust and debris from 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.
Last fall, in an effort to promote greater awareness of the WTC Environmental Health Center, we worked closely with consumers, community based organizations and 9/11 health advocates to design outreach strategies and develop materials about the services. Ten (10) community-based organizations received $2.1 million in grants to conduct outreach to hard-to-reach groups, host educational forums, conduct health fairs, and provide patient navigation services to improve patient’s access to care.
Capital Investments that Support Better Healthcare
Moving to the capital portion of the budget, HHC has accomplished a great deal to ensure that our public hospital system is positioned to serve future generations of New Yorkers. To date, we have systematically rebuilt much of our aging infrastructure, creating therapeutic environments that better support the practice of modern medicine and foster the use of technology that improves patient outcomes.
Last calendar year, we completed work on a new ambulatory care pavilion at Jacobi Medical Center; and a new ambulatory care extension at Lincoln Medical & Mental Health Center. This was the first phase of our project to expand and renovate the Emergency Department at Lincoln. This year we also moved into our new cancer care facility — the Hope Pavilion — at Elmhurst Hospital Center, which was constructed with significant financial support from Council Member Helen Sears and members of the Queens delegation.
This year, we are continuing construction on several other significant projects, including the modernization of Harlem Hospital Center. At Harlem Hospital, foundation work is underway for the new patient pavilion which is the centerpiece of the campus-wide rebuilding.
Foundation work is also underway for the modernization and expansion of the Diagnostic & Treatment Center and the long-term care facilities at Gouverneur Healthcare Services in Lower Manhattan.
The cancer care center project at Kings County Hospital, for which $5 million was provided by Council Member Kendall Stewart and the Brooklyn delegation, is currently in construction. This center will be completed by the end of this year.
In recognition of the special needs of seniors, we opened a comprehensive geriatric center at Metropolitan Hospital this past year. Its outpatient center offers “one-stop” patient services with easy access to the onsite pharmacy and transportation services. Wheelchair accessible exam rooms have motorized tables and extra space to accommodate caregivers who often accompany elderly patients. Metropolitan projects the center will provide more than 16,000 outpatient visits this year.
As we reported last year, as part of the Mayor’s Center for Economic Opportunity (CEO) initiative, HHC received funding that will be used to provide scholarships to community residents for a Registered Nurse Training Program. Training at Kings County Hospital will take place through HHC’s existing agreement with the Long Island University School of Nursing. The Mayor’s Office has also provided $7.5 million to construct the training space, which will be used for the nursing program on the facility’s campus. Construction for this project is scheduled for completion this fall.
In addition to these projects, there are others that are on the drawing board or in the early stages of development that will be affected by capital funding reductions. Recently, OMB issued the fiscal year 2010 Ten-Year Strategy which requires a 30% reduction in the HHC capital commitment plan for fiscal years 2010 – 2019. The target reduction over the ten years is $234 million, which includes $185 million for HHC and $49 million for FDNY-EMS ambulances. To achieve this target, we will need to reduce capital spending, primarily for future infrastructure projects. Some of our planned projects for patient services facilities will be affected as well, including the renovation components of the Harlem Hospital Center Major Modernization and the Gouverneur Healthcare Services Major Modernization. We are hopeful that some of these cuts can be mitigated through pending allocations from the American Recovery and Reinvestment Act.
Fulfilling our Mission in Times of Uncertainty
With increasing operating expenses, a surge in uninsured patients and mounting cuts to our Medicaid reimbursement, there is no doubt that our public hospital system faces difficult challenges. If the economic crisis is prolonged and the budget woes of the New York State and the City deepen, HHC, like every other public institution will be profoundly affected.
However, we face these daunting challenges stronger than we have been in the past. The recent case study of HHC by the Commonwealth Fund acknowledged our demonstrated resilience as an organization and our notable success in adapting to meet the challenges of [our] external environment, while also maintaining [a] core commitment to provide broad access to care without regard to patients’ ability to pay or their immigration status.” That vote of confidence is welcome, as is the Fund’s acknowledgement that we are transforming our organizational culture, systems, and care processes “to achieve essential attributes of a high-performing integrated delivery system.” We are determined to maintain and build upon these hard-earned gains in the safety, efficiency and quality of the care that we render to patients.
In this past year, our Board, senior leaders across our system, labor partners, volunteers and auxiliaries, Community Advisory Boards, Mayor Bloomberg, and New York’s elected officials have given HHC and its patients strong support. Such critical support will be more essential than ever as we strive to meet growing patient needs with scarcer resources and as we face the uncertainties of the coming year and beyond.
Despite the challenges ahead, I know that I speak for all of HHC’s dedicated men and women – those who work on the front lines of healthcare everyday – when I say that we will continue to do everything possible to ensure that we carry out our fundamental mission as our City’s primary healthcare safety net.
This concludes my written testimony. I now look forward to listening to your comments and answering your questions.