Fiscal Year 2011 Executive Budget | NYC Health + Hospitals

Fiscal Year 2011 Executive Budget

ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
FOR IMMEDIATE RELEASE
June 2, 2010

New York City Council
Fiscal Year 2011 Executive Budget Hearing

Committee on Finance, Committee on Health &
Committee on Mental Health, Mental Retardation, Alcoholism, Drug Abuse and Disability Services

Good morning Chairpersons Arroyo, Koppell, Recchia 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 2011 Executive Budget and HHC’s Financial Plan. In my testimony, I will also review the comprehensive restructuring plan that was announced last month.

HHC’s Financial Plan for Fiscal Year 2011 projects $6.69 billion in disbursements and $5.92 billion in receipts. Without taking any corrective actions, we face an operating budget deficit of more than $762 million. Unfortunately, our deficits will continue to worsen significantly in the out years if we do not take any actions to address the budget gaps. For example, our operating deficit is projected to be $1.25 billion in Fiscal Year 2012, and $1.3 billion in Fiscal Year 2013 and nearly $1.4 billion in Fiscal Year 2014.

As I discussed in greater detail at the Preliminary Budget Hearing, this deficit results from a combination of factors: the loss of the federal supplemental Medicaid funding in the form of Disproportionate Share Payments (DSH) and Upper Payment Limit (UPL) payments; continued reductions to already inadequate Medicaid reimbursements; steeply rising fringe benefit costs; and the cost of serving increasing numbers of uninsured patients.

In order to reduce our deficits this year and in the out-years, our budget has $600 million in cost containment and revenue enhancement initiatives. This amount is split evenly between $300 million in actions that we announced last year and $300 million in new actions that will be achieved by Fiscal Year 2014 through our restructuring initiative. The Mayor’s Executive Budget also provides a significant amount of support to HHC this fiscal year, specifically $349 million, and commits to provide the necessary local matching funds over the next four years to leverage additional federal supplemental Medicaid dollars. This additional support will help HHC avoid an imminent cash crisis this year, prevent the need for drastic service reductions and allow for a more gradual downsizing of our workforce. In sum, these combined actions will allow HHC to better manage our fiscal challenges over the next four years.

Our plan is not without risk and contains several financial assumptions. It is contingent on receiving necessary approvals from the Governor, State Legislature and the Federal Center for Medicare and Medicaid Services for additional supplemental Medicaid funding consisting of both DSH and UPL payments. It also does not address the impact of future state budget cuts. Given current and projected New York State budget deficits, it is fairly certain that funding from Medicaid will continue to be targeted for significant cuts.

The Assembly, Senate and Governor appear to be at least $3 billion apart in their current proposals to close the budget deficit. The anticipated impact to HHC is significant and could grow if additional cuts to healthcare funding are proposed. For example, just last week, we learned that an additional $775 million in healthcare cuts will need to be made. In its current form, the State’s Executive Budget would reduce Medicaid funding to HHC by almost $79 million in the State Fiscal Year 2010-2011 and by $100 million when fully annualized. The State’s Executive Budget proposal also did not include $300 million in Disproportionate Share Hospital (DSH) funding that we received during each of the last two federal fiscal years to help cover our rising indigent care costs.

In their respective one-house budget resolutions, both the State Assembly and State Senate scale back a portion of the proposed Executive Budget healthcare cuts that would affect HHC. Additionally, the Assembly proposal includes authorization for HHC to receive increased DSH funding. The Senate resolution, however, was silent on this provision. We have received verbal assurances though, that it is the intent of the Senate to authorize HHC to receive increased DSH funding. Even with these restorations, however, we still face tens of millions in cuts. This reduction would be in addition to the $240 million in State Medicaid cuts to HHC’s reimbursement that have been made over the last 3 years. Given our precarious financial situation, any additional cuts will require HHC to significantly reduce our current level of services and make further cuts to our workforce.

Executive Budget & Financial Plan

Turning to the City’s Executive Budget, it includes a “Program to Eliminate the Gap” (PEG) which required reductions in general support of 7.2% in Fiscal Years 2011-2014. Based on HHC’s PEGable base of $86 million in City support, the Corporation was given a reduction target of $6.2 million starting in Fiscal Year 2011. These targets were achieved by a reduction of the City funding for prisoner and uniform services, elimination of the contingency management program, and improved management of the use of outside counsel for medical malpractice cases. In addition, we will also be affected by pass-through cuts from the Department of Health and Mental Hygiene of approximately $1 million in total funds for Fiscal Year 2011. These combined PEG actions will result in a total reduction of approximately $4 million Fiscal Year 2011.

Turning to the Capital portion of our Financial Plan, HHC must modify, reduce or defer a number of planned projects in order to realize a 30%, or $234 million reduction in capital expenditures over the next three fiscal years. These reductions require us to prioritize and limit the number of capital projects to be completed or initiated in Fiscal Year 2011. Funding priority will be given to the completion of the Gouverneur Healthcare Services and Harlem Hospital Center major modernization projects and to those projects that address regulatory or life-safety requirements.

As I mentioned at the Preliminary Budget hearing, City Council expense funding to HHC in Fiscal Year 2010 totals $9.6 million. The Fiscal Year 2011 Executive Budget includes reductions in funding for City Council initiatives in the amount of $8.2 million. Unless the $8.2 million in Council funding is restored:

  • We will receive $5 million less for the operation of child health clinics. These clinics provided primary care services to nearly 33,000 patients who made 84,000 visits last year. In Fiscal Year 2011, the current child health clinic’s operating expenditures are projected to be $24.1 million. Despite an estimated $4.7 million in patient revenue and $11.6 million in grant funding, including the Council’s $5 million appropriation, the existing child health clinics would still have an operating deficit of roughly $7.8 million in Fiscal Year 2011. As I will mention later in the testimony, we plan to close five child health clinics in Fiscal Year 2011. Even with these closures and the City Council’s $5 million appropriation, the remaining child health clinics will accrue a $2.6 million deficit in Fiscal Year 2011.
  • We will receive $2.0 million less for our HIV testing expansion. More than 190,000 patients were tested in Fiscal Year 2009, a 17% increase above the number tested in Fiscal Year 2008 and a nearly 200% increase since the inception of our initiative in 2006. Of those tested in Fiscal Year 2010, more than 1,800 patients tested positive and most were linked to treatment. Unfortunately, we will be unable to sustain this level of HIV testing throughout our facilities without the Council funding.
  • We will receive $1.2 million less in Mental Retardation and Developmental Disabilities (MRDD) funding which supports our developmental evaluation clinics. We currently operate four such clinics at the following HHC facilities: Morrisania Diagnostic &Treatment Center, Renaissance Diagnostic & Treatment Center, Kings County Hospital Center and Queens Hospital Center. Without restoration of the funding for the Brooklyn, Manhattan and Queens clinics, the entire HHC system will have only one clinic that provides evaluation and treatment services for youth with developmental disabilities. There is little opportunity for this vulnerable population’s needs to be absorbed by existing providers in the communities that HHC serves.
    Additionally, HHC received reductions in funding that flows through the Department of Health and Mental Hygiene of nearly $1 million ($700,000 in city tax levy funds) for Fiscal Year 2011. In Fiscal Year 2011, the Department’s PEG includes a funding cut of $533,000 to a Bellevue HIV satellite clinic and AIDS assessment programs at other facilities; as well as $349,000 in cuts to chemical dependency treatment programs.

In previous years, the Council has restored funding for many of these programs and we have appreciated your support.

Last month, HHC announced a comprehensive restructuring plan that was the result of a six-month strategic review process assisted by Deloitte Consulting. This review focused on opportunities to consolidate and reposition services, identify administrative and other non-patient care operational savings, and align clinical affiliation contracts with the Corporation’s service delivery mission. This process was guided by a set of core principles that were to be followed so that the end product would allow HHC to:

  • remain faithful to HHC’s mission;
  • not significantly impair access to core patient care services including preventive and primary care services;
  • build on gains achieved in quality of care and patient safety;
  • make changes that would enhance HHC’s capacity to function as a more unified, integrated delivery system; and
  • further leverage MetroPlus, HHC’s health plan.

Before I provide details on our restructuring plan, I want to assure the Council that our commitment to serving the uninsured, undocumented immigrants and the most vulnerable New Yorkers will remain intact.

The restructuring and cost-containment plan will be phased in over four years, and once fully implemented, will save HHC $300 million annually — $93 million in FY 2011, $136 million in FY 2012, $261 million in FY 2013, and $304 million in FY 2014. Most of the savings will be generated through changes to a broad range of support and administrative operations, by contracting for services formerly done in-house, and by more effectively aligning clinical resources with patient volume and community needs. The plan encompasses nearly all aspects of HHC’s operations, while limiting adverse impact on direct patient care and our overall capacity to meet patient needs. The initiatives are grouped into five categories:

  • Administrative/Shared Services
  • Long Term Care Realignment
  • Affiliation Physician Services Realignment
  • Acute Care Realignment
  • Ambulatory Care Realignment

In the area of Administrative/Shared Services for example, we will enter into management contracts for select non-patient care functions such as Environmental Services and Plant Maintenance. When measured against the spending for such services by similarly sized hospital systems, HHC’s costs were considerably greater. Management contracts and the implementation of labor-saving technology will enable our facilities to realize savings while maintaining necessary levels of services. In addition, we will enter into a contract for laboratory services and institute a standard Stat Lab model across the system.

Over the last 10 years, HHC conducted a significant modernization/capital program. However, our capital program has been reduced by 30%. Therefore, we must realign the size of the current workforce of nearly 1,200 electricians, carpenters, painter, plumbers, metal workers and other workers in the construction and plant maintenance trades to better reflect a more limited capital program. We will also downsize HHC’s corporate office and decrease spending related to outside legal, financial and accounting services. We have budgeted savings of $141 million for these initiatives.

Our restructuring plan includes several initiatives related to our Long Term Care facilities. HHC’s Long Term Care facilities play a critical role in reducing extended lengths-of-stays of patients in our acute care hospitals. Such extended stays restrict needed acute care revenue generating capacity. Therefore, we must ensure the financial viability of our long term care facilities through optimizing reimbursement by fully documenting all service resources provided to long term care residents; developing more cost-efficient staffing models; creating more effective discharge and admission processes between our acute care hospitals and long term care facilities; and consolidating underutilized units. Additionally, there are many residents in our long term care facilities who no longer require skilled nursing care. Many need affordable, supportive housing. As part of our restructuring plan, we will endeavor to partner with community-based housing providers, to develop alternative placements for these residents and build supportive housing on unused parcels on facilities’ grounds. This will enable us to reduce bed capacity for which we get insufficient reimbursement. All of these actions are expected to generate $47 million in revenues and savings.

We will reduce the cost of our affiliation contracts and realign physician services based on patient volume and increase physician productivity. As you know, HHC has contracts for physician and some allied health professional services through affiliation contracts with medical schools and large medical groups organized as professional corporations. These affiliation contracts in Fiscal Year 2011 are projected to cost approximately $857 million. Based upon three independent benchmark physician productivity models, we determined that there were opportunities to right-size the physician workforce in select areas, and reduce related administrative positions without compromising patient care, quality or safety. We will generate $51 million in savings from this initiative.

We are also taking actions to optimize revenues and reduce expenses in the delivery of acute care services. We intend to implement operational improvements in Operating Room scheduling and referral processes, to increase surgical volume, reduce cancellation rates and improve start times. There are high-end, costly, orthopedic surgical services offered at multiple HHC hospitals. Some of these services are low-volume. We will consolidate these low-volume surgical services to one Center of Excellence in each borough. This will not only reduce our expenses but also help to ensure high quality and the best outcomes for our patients.

HHC has made great strides in reducing the length of stays at our acute care hospitals to a current average of 4.7 days. However, there are specific categories of diagnoses for which we have a high volume, that when benchmarked against other similar hospital systems or even HHC’s own best performers’ length-of-stays could be lowered. To do this, we will standardize our care management, as well as our admission and discharge practices. We will save $23 million and generate $3 million in revenue as a result of these initiatives.

The fifth category of restructuring initiatives centers around our ambulatory care services. Through our 11 hospitals, 6 Diagnostic and Treatment Centers and 81 community clinics, HHC provides 5 million outpatient visits a year. Nearly 2 million of those are primary care visits. HHC’s hospitals provide fully one-half of New York City’s hospital-based clinic visits; and a significant 66% of all hospital-based clinic visits made by uninsured New Yorkers. While HHC will continue to be committed to ensuring New Yorkers access to quality outpatient care, HHC experiences significant losses on outpatient Medicaid reimbursement and from providing care to uninsured patients.

Specifically, our D&TCs have operating deficits totaling $70 million. Of this $70 million, $45 million is the result of the providing care to large numbers of uninsured patients. Uninsured patients account for at least 29% of more than 800,000 visits provided at HHC D&TCs. Therefore, a major component of our restructuring plan is the development of an application to the federal Health Resources Services Administration for designation of our six Diagnostic and Treatment Centers (D&TCs) as Federally Qualified Health Centers (FQHC). FQHC designation would result in higher reimbursement rates for our D&TCs. This additional revenue, estimated to be $25 million annually, will better enable HHC to maintain the levels of primary care services rendered in the communities that these D&TCs serve.

However, there are a handful of community based clinics that we have identified for closure. The basis for this determination includes longstanding low utilization, poor physical conditions, increasing lease costs, and the availability of other clinics in close proximity. Specifically, out of its 81 community sites, HHC will close the following dental clinic and five (5) child health clinics:

  • Williamsburg Dental Clinic
  • Glebe Child Health Clinic
  • Wyckoff Child Health Clinic
  • Fifth Avenue Child Health Clinic
  • Howard Houses Child Health Clinic
  • Astoria Child Health Clinic

We will ensure that all affected patients are notified and engaged in selecting alternative primary care providers who work at a nearby HHC facility, or assist them with their transfer to another provider of their choice.

When the four-year restructuring and cost containment plan is fully implemented in Fiscal Year 2014, the HHC workforce, which exceeded 38,700 employees in early Fiscal Year 2009, will be reduced by nearly 10% percent to approximately 35,000 employees. Nearly all of HHC’s employees are represented by organized labor. The workforce reduction initiatives will follow a process that is consistent with the City’s collective bargaining agreements and relevant laws.

Before I conclude, I want to acknowledge the strong support that the Mayor and Council have consistently provided to HHC. Given the challenges we face, I ask for your continued support so that we may continue to provide the best care possible to our patients. This concludes my testimony. I now look forward to listening to your comments and answering your questions.

WE ALWAYS PUT PATIENTS FIRST