Good morning Chairpersons Arroyo, Koppell, Recchia, Wills and members of the Health Committee, Finance Committee and Mental Health, Mental Retardation, Alcoholism, Drug Abuse and Disability Services Committee. 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 2013 Executive Budget and HHC’s Financial Plan. This morning, I will begin by discussing HHC’s Financial Plan, review actions taken to reduce our budget gap and finally provide an update on several capital projects.
I will start with the good news: there were no new cuts to HHC in the 2012-2013 state budget. Similarly, there were no new PEG’s (Program to Eliminate the Gap) in the City’s fiscal year 2013 Executive Budget. Also, to allay the concerns expressed by several members of the Council at our preliminary budget hearing, I am happy to announce that $1.3 million in funding for the Sexual Assault Response Team was included in the Executive Budget for fiscal year 2013. Unfortunately, this is the point at which the good news, in terms of our budget, ends.
We are projecting a $566 million gap in fiscal year 2013, which we anticipate closing by using cash balances from fiscal year 2012, achieving $169 million in savings initiatives and realizing an additional $125 million from State and Federal actions. The cash balance from fiscal year 2012 was generated as a result of retroactive Federal supplemental Medicaid payments that we received. Moving forward, we will no longer have these resources at our disposal.
Our financial outlook worsens considerably in the outyears with gaps that grow from $785 million in fiscal year 2014 to $1 billion in fiscal year 2016. We are doing everything possible to identify potential new State and Federal actions to offset some of this gap; however, we must also continue to consider another reduction program that may necessitate targeted layoffs.
HHC’s fiscal year 2013 City Tax Levy budget does reflect the PEG required of City agencies in November 2011. This PEG results in an annual reduction in City Tax Levy support of HHC’s operations by 6%, or $4.3 million, beginning in fiscal year 2013. We will achieve the $4.3 million reduction by increasing our attrition target of 500 full time equivalent positions for this fiscal year by another 50 positions.
I want to again thank the Council for identifying the resources to restore the $1 million PEG to HHC’s unrestricted subsidy in the most recent budget modification. We have been very fortunate to receive significant expense funding support from the City Council in prior years for many programs, including child health clinics, expanded HIV testing and behavioral health programs. The Council has also provided generous capital funding for medical equipment and facility improvements.
As in prior years, the expense funding for the programs I just mentioned was not baselined in the Preliminary Budget. Unless this funding is restored, we will have $8.9 million less in fiscal year 2013 City Tax Levy funding. Specifically:
I would like to thank the Council for restoring funds for its initiatives in previous years and ask the Council to do the same in fiscal year 2013.
As I mentioned at the beginning of my remarks, while there were no new cuts in Medicaid funding this year, the Medicaid program rate cuts and reforms adopted last year reduced our reimbursement by more than $174 million for state fiscal years 2011-12 and 2012-13. Moreover, state budget cuts made over the past 5 years have resulted in a loss of funding on an annualized basis of $500 million.
Since the State now operates under a global Medicaid spending cap, HHC and other healthcare providers continue to be at risk for new spending cuts. The Commissioner of the New York State Department of Health can levy across the board or targeted reductions if spending pierces the global cap. Last month, the State announced that it ended its 2011-2012 fiscal year $14 million below the global cap. While this is an encouraging sign that the trend lines are moving in the right direction, I would point out that $14 million is less than 0.1% out of the total $15 billion New York State Medicaid budget.
Little has changed in Washington D.C. to improve our position since I last testified before the Council. We still face significant reductions to Medicaid Disproportionate Share Hospital (DSH) funding beginning with a 5% cut included in the Affordable Care Act beginning in Federal fiscal year 2014, which starts on October 1, 2013. The Medicaid DSH cuts currently in law through 2021 will result in an estimated total loss of $2.3 billion to HHC. Still more Medicare and Medicaid cuts have been proposed in Congress and by President Obama and may be enacted later this year.
I would be remiss if I didn’t mention that the $566 million deficit in fiscal year 2013 that I noted earlier is attributable to a combination of factors that are outside of our control: the loss of the federal Medicaid and Medicare Disproportionate Share Funding; continued reductions to already inadequate Medicaid reimbursements; and steeply rising fringe benefit, pension and health insurance costs. HHC facilities also continue to serve increasing numbers of uninsured patients. In calendar year 2011, HHC facilities treated 477,957 uninsured patients – a 20% increase since 2006 – representing more than one-third of our total patient population.
Our ongoing work to close our budget gaps continues. We remain on target with our restructuring and cost containment plans that will ultimately reduce $600 million in spending from our budget and thereby lessen our remaining deficit. So far, we are on target and have achieved more than $480 million of that goal. Our workforce now includes 2,681 fewer full-time employees than it did three years ago. Targeted attrition accounts for most of that reduction and has not significantly involved direct patient care positions. To the credit of our dedicated employees, we have maintained virtually the same service capacity across all care settings despite having trimmed our workforce by more than 6%.
Let me stress that the leadership at HHC is looking at every conceivable way to close our budget gaps in ways that do not affect our capacity to serve our communities, negatively affect access to care or diminish the stellar gains in safety and quality that we have made. That said, given the looming reductions in federal DSH funding that begin next year, it will be considerably harder to maintain these aims.
As you know, some of our restructuring initiatives have involved contracting for certain non-direct patient care services. However, one of the initiatives that was included in the restructuring plan we announced in 2010 is the development of a contract for the provision of dialysis services.
I want to assure the Council that HHC’s practice of guaranteeing access to dialysis services for all of our patients – regardless of their insurance or immigration status – will continue under this proposed contract. Also, no HHC employee will lose employment at HHC as a result of this contract. An HHC physician will oversee the provision of dialysis services at each site and our doctors will continue to manage the overall health care of our patients undergoing dialysis. We will rigorously monitor the provision of services and associated quality indicators to ensure that the quality of care continues to be as good, or better, than what we currently provide. In addition, the vendor will also be responsible for the purchase and installation of new dialysis equipment. We estimate that by contracting for this service, we can save more than $100 million over a 9 year contract period. Most hospitals across the country, and here in New York City, do not provide dialysis services directly, they contract with companies whose expertise is the administration and management of dialysis service. By engaging a vendor for the provision of dialysis, HHC will be adopting an industry standard.
I’d like to now provide a brief update on our Capital Program. I am pleased to report that we are nearing completion on several major modernization projects. At the end of this summer, our work at Harlem Hospital will be substantially complete. This project features a new inpatient care pavilion and preservation of the hospital’s historic WPA murals. We expect work to be complete on a new Emergency Department in the spring of 2013.
This past November, Gouverneur Healthcare Services completed the first phase of its major modernization, which includes a new ambulatory care pavilion. The balance of the project, which includes a renovated, state-of-the-art skilled nursing facility with an additional 85 beds, will be completed in 2014.
At Lincoln Hospital Center, the final phase of Lincoln’s emergency department renovation will be undertaken this year. We anticipate completion of an expanded and modernized emergency department one year from now in May 2013.
Work also continues at the former North General Hospital site where will relocate the operations of the Goldwater Specialty Hospital and Nursing Facility by December 2013. The new hospital and skilled nursing facility will provide more program space and and greater privacy for patients and residents. Goldwater North will have 164 skilled nursing facility beds and 201 acute long-term acute care hospital beds.
We are actively engaged in identifying community-based housing resources and support services for Coler-Goldwater skilled nursing facility (SNF) residents for whom non-institutional long-term health services are appropriate. There are more than 300 SNF residents, all of whom are Medicaid beneficiaries, who could live in the community with health care and other supports if affordable housing options were available to them. Their average lengths of stay at Coler-Goldwater exceed 4 years. We are partnering with seasoned housing providers and developers to secure housing options for these individuals over the next 18 months.
Finally, while it’s not the bricks and mortar type of infrastructure upgrade, we are poised to select a vendor to build our new electronic medical record (EMR) system. HHC was an early adopter of electronic medical record technology and our system was designed more than 30 years ago. In this time, we have been leaders in the use of information technology to make improvements in care. But it is now time to embark on the complex multi-year move to a new EMR so that we can build upon our successes with a new, more effective health information infrastructure.
As I conclude, I want to thank Mayor Bloomberg for his leadership and support and also thank the City Council. The support you provide to New York’s public health care system is greatly appreciated. I also want to thank the employees of HHC, who believe in our mission and who work hard day in and day out providing the best possible care for patients. This concludes my written testimony. I now look forward to listening to your comments and answering your questions.