Good morning Chairpersons Arroyo, Koppell and 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 review with you the proposed Fiscal Year 2012 Executive Budget and update you on HHC’s Financial Plan.
I would like to begin this morning by addressing recent news accounts of the wait times for mammography at HHC’s facilities. Then I will update you on the proposals in the State budget that were adopted by the Governor and State Legislature as well as review the budget discussions that are ongoing in Washington D.C. and then conclude with a review of our Financial Plan.
As many of you know, the Comptroller’s Office recently issued an audit on wait times for mammograms at HHC’s facilities. The data for this audit was from FY 2009 which included the second half of calendar year 2008 and the first half of calendar year 2009. What the audit did not report on – and what I want to clarify this morning – is what the wait times are right now. There are no delays if a physician or medical provider determines that a diagnostic mammogram is needed immediately. Patients who present with a lump or other negative finding can receive a diagnostic mammogram on the same day or within 72 hours. For screening mammograms, at least 7 of our hospitals have either same day or next day appointments available. The national standard for wait times for a screening mammogram is 30 days. HHC has an internal target of 14 days for a screening mammogram. Currently, 10 of 13 HHC facilities are meeting this 14-day target.
It continues to be our policy to extensively promote the early detection and treatment of breast cancer and to this end we will again perform nearly 100,000 mammograms this year. HHC closely monitors the availability of mammogram services and the utilization of such services in women who are at the most risk of breast cancer. HHC’s clinicians screen for breast cancer through clinical breast examinations and mammograms for women aged 40 and older, regardless of their ability to pay. HHC facilities use state-of-the-art digital mammography systems that produce superior image resolution and allow for faster readings than the traditional x-ray film systems. I would like to thank both current and past members of the City Council who provided funding for some of our digital mammography systems in prior years.
Moving to the budget portion of my testimony, when I last testified before you in March on the Preliminary Budget, the State Budget was nearly complete and we had estimated the impact of the changes being proposed by the State’s Medicaid Redesign Team (MRT), to be $118 million to $140 million. At the end of February, the MRT approved 79 proposals that included a number of service delivery and payment reforms aimed at reducing the State’s Medicaid spending by nearly $2.4 billion per year.
Currently, we estimate that HHC’s facilities, health plan and home care agency will experience an overall reduction of $174.5 million in Medicaid reimbursement. Rate reductions account for $141.7 million of this amount. I want to point out that, even prior to this reduction, the Medicaid rates that we have received for the care provided to our patients had not fully covered our costs. These new cuts will increase that gap further.
Unfortunately, this $174.5 million estimate could grow in the coming months for several reasons. For example, of the nearly $2.4 billion in state Medicaid spending reductions, $640 million in savings has to be further defined. How the State plans to address this $640 million is dependent on the actual outcomes of industry-led cost containment actions and, further, the State’s success in obtaining additional federal funding through Medicaid waivers and other initiatives. On top of the spending reductions, a $15.3 billion global Medicaid spending cap was imposed for this state fiscal year and a $15.9 billion cap was imposed for next state fiscal year. However, if the State determines that Medicaid spending will exceed these caps, the State’s Health Commissioner is authorized to make further reductions to bring spending below the cap. Lastly, there remain programmatic changes that were adopted in the state budget for which the fiscal impact cannot be determined at this time.
I’m not going to list all of the MRT proposals in my testimony today. However, I want to identify those that have the largest impact on HHC. They include:
I do want to point out that while a $174.5 million reduction is a very significant loss of funding – and one that we cannot simply absorb without there being an impact on services – there were initial MRT proposals which could have resulted in considerably larger cuts to HHC, especially considering that the State had to close a $10 billion budget gap. The next phase of the MRT’s work may also bring new risk to HHC’s financial plan. The MRT will resume deliberations soon to develop further proposals by November 1st.
Moving from Albany to Washington D.C., I want to spend a few moments discussing the budgetary risks we face when federal actions are implemented. In addition to the estimated $110 million in reduced Disproportionate Share Funding for HHC scheduled to begin in 2014 as part of federal health reform implementation, there are new proposals concerning Medicaid and Medicare spending being debated that could reduce our federal funding even further.
For example, In President Obama’s plan to reduce the deficit, spending would be cut by $4 trillion over the next decade. The President’s plan includes $480 billion in Medicare and Medicaid spending reductions. The budget proposal put forth by the House of Representative’s Budget Committee Chairman, Congressman Paul Ryan, would cut spending by $4.3 trillion over 10 years. Approximately half of this amount, $2 trillion, would be achieved through reductions to the Medicare and Medicaid programs. Beyond these two plans, the negotiations concerning the nation’s debt ceiling will likely result in additional spending cuts. It is fair to assume there will be new reductions put in place that will affect HHC but without a formal set of proposals on which to base estimates, I can not give you a range today of what that impact will be.
Budget & Financial Plan
Moving now to HHC’s budget, as you know the City issued a new “Program to Eliminate the Gap” (PEG) to City agencies which required a reduction in general City support to HHC of 4%, or $3.2 million, annually beginning in Fiscal Year 2012. These targets will be achieved by a reduction of the City Subsidy which helps support the operations of the Corporation. The combination of PEG actions from the January Preliminary Budget along with the Executive Budget, which includes pass-through PEGS from the Department of Health and Mental Hygiene, will result in a total reduction of more than $16 million for Fiscal Year 2012.
The pass-through PEGs from the Department of Health and Mental Hygiene contained in the January Preliminary Budget are 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, chemical dependency programs, the Morrisania Developmental Evaluation Clinic, support for HHC’s outpatient pharmacies and general funding support for our mental health programs.
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:
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 $6.45 billion of receipts and $6.59 billion of disbursements. Therefore, we are facing an operating budget deficit of approximately $140 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 $587 million growing to $902 million by FY 2015. These deficits are attributable to a combination of factors: the loss of the federal Medicaid and Medicare Disproportionate Share Finding funding; 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.
These contributing factors are outside of HHC’s control. For example, we anticipate receiving new pension payment information from the City Actuary sometime this fall. These calculations could require HHC to contribute $50 to $100 million more. Additionally, more than $100 million of supplemental Medicaid funding for HHC’s MetroPlus enrolled patients is at risk due to changes in managed care plan rate calculations made by the State’s Health Department.
In relation to our Capital program, there have been no significant changes in our capital budget since I testified before you in March. As I mentioned at that hearing on the preliminary budget, over the last 2 years HHC has had to initiate both a cost-containment and restructuring program to close a $1 billion dollar gap. In 2009, we announced a $300 million cost-containment plan that included program and service reductions, discretionary spending cuts and improvements to revenue collections. It also 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 annually.
In May of 2010, we announced a comprehensive plan to lessen 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 three years. To implement the plan fully, we must continue to consolidate 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. Restructuring savings in 2011 totaled $43 million, which is on target with our four-year plan.
In summary, after developing a $600 million cost containment target that is more than half implemented, we face new state Medicaid cuts of $174 million, a risk of $50 million to $100 million in increased pension costs and the certainty that Federal funding will decrease. Given this reality, we must begin planning in FY 2012 for a new gap closing program in the $250 million range that would most likely be implemented in FY 2013.
Before I conclude, I want to again express our appreciation for the generous financial support provided to HHC by the City Council and the Mayor. We fully appreciate that this support comes at a time when State and Federal funding for the City has been reduced dramatically. This concludes my written testimony. I now look forward to listening to your comments and answering your questions.