Good afternoon Chairperson Johnson and members of the Health Committee. I am Alan Aviles, President of the New York City Health and Hospitals Corporation (HHC). I am joined this afternoon by Marlene Zurack, HHC’s Senior Vice President and Chief Financial Officer and LaRay Brown, HHC’s Senior Vice President for Strategic Planning, Community Health and Intergovernmental Relations. Thank you for the opportunity to discuss the Fiscal Year 2015 Preliminary Budget and HHC’s Financial Plan.
I will begin this morning by providing context regarding our budget, a review of our financial plan, outlining some risks to the financial plan and highlighting where we see new opportunities for funding. I will also share information concerning capital programs. Some of what I will say today is similar to my testimony last month, however since our financial challenge is so great, it bears repeating.
The safety-net role of our public hospital system has made HHC especially vulnerable to deep cuts to Medicaid, the cost of serving a rising tide of uninsured patients, and the erosion of federal funding. Our system served nearly 1.4 million patients last year, and almost 500,000 of these patients had no health insurance coverage. In total, approximately 80% of HHC’s patients are either Medicaid or Medicaid Managed Care beneficiaries or are uninsured.
HHC provides much of the care received by uninsured New Yorkers. In 2012, HHC provided 70% of the clinic visits received by uninsured patients in all hospitals in New York City; 43% of the emergency room visits; and 34% of the inpatient care. In some boroughs, our services to uninsured New Yorkers is even greater. For example, in Manhattan we provided 78% of the clinic visits made by uninsured patients; and in Queens that percent is 87%.
Given this role, HHC has often had to tackle extreme financial challenges. Now is one of those times. By implementing significant restructuring, cost-containment and revenue optimization actions over the last several years, we were able to close a $1.2 billion budget gap that was projected for Fiscal Year 2014. We are now projecting a $430 million gap in Fiscal Year 2015. This gap grows considerably each year to nearly $1.4 billion in Fiscal Year 2018. The reasons for these gaps are many, but the major drivers are the following:
We are striving to close this gap in several ways: through ongoing savings from many of the cost containment and restructuring plan actions that I reviewed with you last month, through anticipated state and federal actions that will bring in additional funding, as well as through ongoing City support to match federal Disproportionate Share Hospital (DSH) payments. Even with our best efforts, the size of the gaps we face will likely result in the need for additional cost containment actions or significant increases in City support in order for HHC to balance its budget.
There are risks that could deepen the deficits forecast in our plan. The Financial Plan contains no funding for retroactive labor agreements. The retroactive cost of the two outstanding contracts for employees represented by 1199 and the New York State Nurses Association could be as high as $350 million through 2014 and an additional $87 million per year going forward. In addition, all of our other labor contracts are expired and need to be settled. Beginning in Fiscal Year 2014, the plan includes 1.25% annually for collective bargaining. However, for each 1% increase above that threshold, it would cost HHC $30 million.
Further, the projected budget gap does not include budget and reimbursement proposals that are currently being discussed in Albany or Washington. There are proposals under consideration in the New York State 2014-2015 budget that may reduce funding to HHC by more than $8 million per year. HHC staff are working with members of the State Legislature and their staffs to modify these proposals in ways that could eliminate or reduce these Medicaid funding cuts.
There are scores of federal budget reduction and regulatory proposals that would reduce already inadequate Medicare and Medicaid funding even further. Some areas that would have multi-million dollar impacts on HHC include reimbursement reductions for observation services, outpatient services, graduate medical education and dramatic decreases in Supplemental Medicaid funding for public hospitals.
The most significant are cuts to Disproportionate Share Hospital (DSH) funding. The DSH program provides federal Medicaid matching dollars to states to make payments to hospitals that treat a disproportionate share of uninsured and Medicaid patients. The DSH funding that HHC receives is critical to supporting our mission and allowing us to serve low-income and uninsured patients. Under current Federal law, our DSH cut starts at $174 million in Federal Fiscal Year 2016 and grows to $352 million in Federal Fiscal Year 2023. By Federal Fiscal Year 2023, these cuts will result in an estimated total loss of $2.4 billion in federal funds to HHC.
In our Financial Plan we forecast new revenue from two sources. One source is the Medicaid 1115 waiver that New York State is negotiating with the Federal government. This waiver is expected to bring in $8 billion statewide over 5 years. These dollars are to be used to support delivery system reforms throughout the healthcare sector that will reduce the need for emergency room visits and inpatient admissions.
HHC will be eligible to apply for waiver funds. These are not grant funds; waiver funds will flow after specific performance thresholds are achieved. HHC and other providers will have to work hard over the next 5 years to meet the performance targets that will be negotiated with the Federal government. Waiver funding will be helpful in mitigating our financial challenges, but it is not free money that can be used just as a gap closer. Much of the waiver funding will need to be invested to improve access, care management and care coordination consistent with the delivery system transformation goals set forth in the waiver.
HHC would like these dollars to be distributed equitably and that we receive our fair share. At the moment, this may not be the case. We would posit that HHC is the largest safety net system in the state and accounts for roughly 30% of the Medicaid spend in New York City. Moreover, 70% of uninsured New Yorkers who access hospital-based ambulatory care services in the City obtain those services through HHC’s vast ambulatory care network. If two of the primary goals of the 1115 waiver are to first, transform the delivery system so that expensive inpatient utilization is reduced and second, to shore up the fiscally imperiled health care safety net in the State, then securing equitable funding for HHC through the waiver is critical. Since HHC provides more than 75% of all the Medicaid services rendered by all public hospitals in the State, it should receive a percentage of the funding allocated to the public sector that is consistent with its Medicaid footprint. This would amount to $2 billion over the 5 year lifespan of the waiver.
The second source of new revenue is HHC’s health plan, MetroPlus. MetroPlus has enrolled more than 20,000 individuals through New York’s health insurance marketplace. It is anticipated that the premiums received for these 20,000 individuals will generate increased net revenue for HHC. As some of our previously uninsured patients gain coverage, we expect to see a decline in the number of uninsured patients we serve. That said, because so many of our uninsured patients are undocumented individuals not covered by the Affordable Care Act, we anticipate that we will continue to serve vast numbers of uninsured patients even as our Federal DSH funding declines precipitously.
Turning now to our Capital Program, work has been completed or is near completion on several major projects. The new $285 million Henry J. Carter Specialty Hospital and Nursing Facility, a long term care hospital and skilled nursing facility constructed on the grounds of the former North General Hospital in Harlem, was completed in November 2013.
At Harlem Hospital, construction of the new Emergency Department (ED) is completed and will be operational imminently. Similarly, the renovation and expansion of the ED at Lincoln Medical and Mental Health Center is also completed and will begin operations by early April 2014.
Gouverneur Healthcare Services in lower Manhattan is completing the second phase of its major modernization which includes a renovated, state-of-the-art skilled nursing facility with an additional 85 beds. The project will be completed in the spring of 2014.
At Bellevue Hospital Center, a new 15-bed inpatient psychiatric unit for adolescents was completed in October 2013. This new unit enables the facility to address the growing need for inpatient mental health services for children and adolescents. In December 2013, Lincoln Medical & Mental Health Center also opened a new 30-bed inpatient psychiatric unit, nearly doubling its psychiatric inpatient capacity.
North Central Bronx Hospital (NCB) completed the construction of the hospital’s renovated and greatly expanded Psychiatric ED in November 2013. Last year, NCB’s Psychiatric ED evaluated and treated nearly 3,400 patients. The new Psychiatric ED nearly triples the clinical space available for these services; and this will significantly expand NCB’s capacity to serve community residents who require emergency psychiatric care.
On Staten Island, we appreciate that the Council allocated $7 million for the Diagnostic & Treatment Center that will be constructed at 155 Vanderbilt Avenue. The project will go to bid this spring and construction will begin by the end of this summer. This state-of-the-art 21,000 square foot facility will be completed in 2016. Pediatric and adult primary care and specialty services, as well as mental health services, will be provided at the new center.
The City Council appropriated $5 million in Capital funding split evenly between Fiscal Years 2014 and 2015 to improve access to services for women with disabilities. These funds will be used to make renovations and purchase equipment to make exam rooms and bathrooms optimally accessible for persons with disabilities in our hospitals, diagnostic and treatment centers and long term care facilities. The first phase of our preliminary design work including cost estimates will be done later this year in June and construction will begin afterward.
We are very appreciative of the Council for this investment. In particular I would like to thank Council Member Maria Del Carmen Arroyo and Council Member Julissa Ferreras for their leadership and dedication on this issue. This work would not have been possible without the Council’s support, the hard work and expertise of the Independence Care System (ICS) and through the advocacy of the New York Lawyers for the Public Interest who has been a leader in breaking down barriers to make care more accessible.
This is one of three components of the work we are doing to improve access to healthcare services for persons with disabilities. In conjunction with ICS, we are also conducting an environmental survey of accessibility at our facilities to identify areas we can make improvements. Additionally, in recognition of how important staff training is to a successful program, we applied for and were awarded a $135,000 grant by the New York Community Trust so that in partnership with ICS, we can develop a curriculum to train staff on ways to properly work with patients with disabilities.
Before I conclude, let me provide a brief update on the impact of Hurricane Sandy. As you know, HHC suffered serious losses as a result of Hurricane Sandy. We experienced nearly $250 losses due to the closures of Bellevue and Coney Island hospitals. In addition, we will continue to need capital funding to prevent future storm-related closures and damages. We have submitted multiple applications to the Federal Emergency Management Agency (FEMA) for relief.
We are seeking $137.5 million in reimbursement of emergency expenses incurred to restore operations as quickly as possible at Bellevue, Coney Island and Coler – our facilities most severely impacted by Hurricane Sandy. In February 2013, the City advanced $65 million of the $137.5 million; and the City also provided $87 million in capital funds for expenses related to the storm. We continue to work with FEMA to resolve outstanding issues that have impeded our receipt of these funds which were intended for emergency stabilization and restoration of services.
In addition, we are seeking funding under the FEMA 406 Hazard Mitigation Program to improve the resiliency of our facilities that are most at risk of future storms. Specifically, we are seeking:
This concludes my written testimony. I now look forward to listening to your comments and answering your questions.