Good afternoon Chairpersons Koppell, Rivera and Weprin, and 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 Executive Budget and provide an update on HHC’s Financial Plan.
At the preliminary budget hearing in March I spoke about the many accomplishments that HHC has achieved over the past year. I also highlighted the significant financial challenges that we face. In today’s testimony, I would like to focus on our budget and give you an update on our response to the H1N1 flu.
As New Yorkers have become concerned about the recent outbreak of H1N1 flu, and as many have experienced flu-like symptoms, thousands have come to our emergency departments (EDs) across the City seeking reassurance and treatment. From the beginning of the outbreak, HHC has served a critical role in the city’s coordinated emergency preparedness efforts and we took immediate action to ensure that patients were properly cared for, our own employees remained healthy, and facilities stayed fully staffed to accommodate the surges in patient volume in our emergency departments and clinics.
We continue to coordinate our response with local, state, and federal public health authorities, and have conducted briefing sessions with administrative and clinical leadership at each facility on a regular basis. At the very outset of the outbreak, we also arranged for the immediate purchase of supplemental infection control supplies, including surgical masks and gloves, and ready access to a stockpile of Tamiflu as needed.
Emergency department staff across HHC have been quick to adjust triage protocols, identifying patients with flu-like symptoms as soon as they arrived in emergency departments and prioritizing their examination based upon the severity of their symptoms. Although the initial spike in ED volume included a disproportionate number of asymptomatic “worried well”, over the last two weeks a greater number of pediatric and adult patients with mild flu symptoms have presented in our EDs.
Volume was heaviest at both of our Queens hospitals earlier this month, and while the emergency departments at Elmhurst Hospital and Queens Hospital remain much busier than normal for this time of year, the number of patients presenting with flu-like symptoms at both hospitals has been decreasing in recent days. At the present time, we are seeing sustained high volumes of patients with flu-like symptoms at most of our facilities, but especially in the Bronx, northern Manhattan, and northern and central Brooklyn.
Although there have been four reported flu-related deaths in New York City since the H1N1 outbreak began late last month, nearly all patients seen in our facilities have presented with mild symptoms that end in a few days. We continue to monitor the situation closely and are proud of the way in which our dedicated staff have handled, and continue to handle, the flu-related challenges over the last several weeks.
Now turning to the budget, as you know, in March I alerted the Council that we needed to implement $316 million in cost containment initiatives to address recent non-discretionary cost increases as well as revenue losses stemming from mid-year Medicaid cuts enacted by New York State. I also emphasized that we were facing significant out-year structural deficits that proposed State Medicaid cuts would exacerbate.
The first phase of our cost containment actions included $105 million in operating efficiencies, better coding and billing, spending reductions, and service consolidations. By the end of the current fiscal year, these actions will result in workforce reductions of 400; 270 through a continuing hiring freeze and 130 through layoffs. I have also asked our affiliation partners to reduce their contract costs by 3%. Additional actions to address the remaining $211 million budget gap are currently under review. Final decisions on these plans will be made in the coming weeks.
However, as I explained in March, the immediate $316 million budget gap only addresses a part of HHC’s longer term financial problems. Our Financial Plan had sought to address a further structural deficit through Federal and State actions of $514 million; $460 million of which consisted of a request to New York State to restore disproportionate share (DSH) Medicaid funding to HHC to the maximum level permitted by the Federal government. HHC had received maximum DSH funding in FY2006 and FY2007; however, provisions in State law making these maximum funds available sunset in FY2008.
Since the preliminary budget hearing, New York State enacted its final state budget. While the state budget contains many commendable health care initiatives such as expansions in public health insurance coverage and investments in primary care services, it also includes deep cuts that, unfortunately, disproportionately impact HHC. As a result: in FY2009 we will receive $45 million less in Medicaid funding; in FY 2010, we will receive $109 million less in Medicaid funding; and in FY2011 we will receive $150 million less in Medicaid funding. In addition, in response to our request that the State increase DSH payments to HHC to the maximum level of $460 million, New York State authorized $300 million for 2 years only. This additional DSH funding consists of $150 million in federal funds which must be matched by $150 million in city funds.
The bottom line is that the State used no state dollars and none of the increased FMAP funding, received as part of the federal stimulus package, to mitigate the deep reimbursement cuts to HHC.
To reverse these losses to HHC’s funding, the State would have to identify new funds and modify existing legislation. Over the coming months, we will be working with members of the State Assembly and Senate as well as the Governor’s Office to identify ways to mitigate the cuts to us and to ensure that we do not incur additional Medicaid cuts. We will share this information with the Council and ask that you advocate with your State colleagues towards these ends.
Executive Budget & Financial Plan
Turning to the City Budget, the Executive Budget includes a new, 4 percent PEG that is valued at $3.5 million, based on the $89 million City Tax Levy portion of our budget. We will achieve this new target by reducing the subsidies for HHC’s Diagnostic & Treatment Centers, our Sexual Assault Response Teams (SART) program, and our Medical Malpractice Unit, as well as our non-cash subsidy and our unrestricted city subsidy. Additionally, we will increase our reimbursement to the City for agency-wide allocated overhead costs. These reductions will yield the City PEG savings of approximately $3.5 million in FY 2010 and $2.4 million per year beginning in FY 2011. In addition, we received a cut of $1.5 million from the Department of Health and Mental Hygiene for child health clinics and mental retardation and developmental disability programs. The combined PEG actions and cuts will result in a reduction of approximately $5 million in FY 2010. In the aggregate, the PEGS from the November, January, and Executive plans, eliminate $19.1 million in funding for HHC for FY2010, of which $3.8 million (with state matching funds) is for behavioral health programs.
Our current City Tax Levy funding for FY 2010 for Council-funded initiatives is $7 million less than it was in FY2009. In the FY 2009 adopted budget many of the Council initiatives cut were not restored. Notably, we lost $6.2 million in mental health and substance abuse program funding and $2.4 million in funding to support prescription drug subsidies for the uninsured. Since then, we have had to close those mental health and substance abuse programs for which funding was not restored. Patients who were enrolled in those programs were placed into alternative treatment programs, although in the case of the substance abuse programs, the enhanced vocational support that patients received through these programs is no longer available. We have continued to provide prescription drugs to our uninsured patients despite the deep deficits we incur because providing this service is intrinsic to our core mission.
Unless the $7 million in Council funding is restored in FY 2010 we will receive:
I would like to thank the Council for restoring funds for its initiatives in prior years and urge the Council to again make restorations this year for these vital child health, HIV and prescription drug programs.
Our Financial Plan for FY 2010 projects $6.7 billion in disbursements and $7 billion in receipts. A significant portion of the $7 billion in cash receipts, approximately $1.6 billion, is non-recurring. It consists of:
As of today, we are still awaiting Federal approvals for these payments. Accordingly, we are facing a potential cash-flow crisis this summer. Even if these payments are received as planned, we can only sustain reasonable cash balance levels through the end of FY2010 and the initial months of FY2011.
In FY 2011 and beyond, we are projecting a $1 billion above-the-line budget gap. This structural deficit is the result of three years of Medicaid reimbursement cuts, increasing labor and fringe benefit costs, inadequate Medicaid reimbursement for outpatient services (that continues to be well below actual costs), increasing numbers of uninsured patients, and the unstable nature of the DSH and UPL funding. Our gap closing program relies on the cost-containment actions we are currently implementing as well as pursuit of additional Federal and State funding.
DSH and UPL funding has become a lifeline for HHC and supports our ability to provide open access to uninsured patients. The troubled economy continues to drive more people into our system. In 2008, we served nearly 450,000 uninsured patients – an 8% increase from 2007 – at an estimated cost of $850 million.
DSH and UPL funding also supports Medicaid shortfalls. As you know, our facilities operate an expansive ambulatory care network which supports the City’s primary and preventive health agenda. Our facilities provide nearly 5 million outpatient visits a year. However, these services cost us $900 million more than the reimbursements we receive from insurers, principally Medicaid. While the recently adopted State budget increased Medicaid reimbursement for outpatient care, the decrease in HHC’s Medicaid reimbursement for inpatient services was far greater than the increase in its outpatient rates in the aggregate. And the increased outpatient rates still do not cover HHC’s cost of providing outpatient care.
We will continue to identify further cost containment measures that can be achieved in the near-term, and some will necessarily entail further service and workforce reductions. However the cuts resulting from the State budget on top of our structural deficit require that we consider a fundamental restructuring of our system to achieve the magnitude of expense reduction required over the next two years. Unless we re-think our delivery of services and, for example, find ways to thoughtfully re-organize and consolidate aspects of core service delivery to achieve greater efficiency, we risk great damage to our ability to sustain our mission.
My senior staff and I are in the process of identifying consulting firms with relevant expertise and a deep understanding of the New York City health care environment to assist us with the complex analyses that is required to develop a feasible restructuring implementation plan. I commit to the Council that our focus will be on devising a restructuring plan that achieves substantial cost savings and efficiency gains while remaining faithful to our mission, preserving the access required to meet the needs of our patients, and sustaining our hard-earned quality and patient safety advances.
Turning the Council’s attention to our Capital program, work on HHC’s healthcare infrastructure continues, but moving forward, projects at every facility will be modified, reduced or eliminated in order to meet the required 30% reduction in capital expenditures. For FY 2010-2019, we must identify a total of $234 million in capital project savings to meet the 30% mandated target. $185 million will come directly from HHC and $49 million will affect FDNY-EMS ambulances.
In particular, the recently mandated 30% reduction in capital expenditures will severely limit our ability to continue with certain outfitting and renovation work which were to be the final stages of our major modernization projects at both Harlem Hospital Center and Gouverneur Healthcare Services.
At Harlem, we are proceeding with a new main hospital building which will house new diagnostic suites, emergency departments, operating rooms and critical care units that will serve as the centerpiece of the campus-wide modernization. However, a $47 million shortfall now exists for the proposed renovation of the Martin Luther King (MLK) pavilion. The MLK pavilion has not undergone a major modernization since it was first constructed in 1969. In addition to undergoing a much needed upgrade of its mechanical, electrical, HVAC and other critical systems, the major modernization was to result in the conversion of the existing six-bedded, ward-type patient rooms into semi-private, one and two-bedded rooms with private bathrooms. The MLK modernization project would also have integrated certain clinical service operations for greater efficiencies.
Elimination of this phase of the modernization project will have an adverse effect on our expense budget, as we will be limited to conducting repairs, maintenance and upgrades of MLK on an as-needed basis. I understand that hospital leadership has submitted to Council Member Dickens a $5.6 million capital funding request for some MLK system upgrades and a limited number of equipment projects. We are appreciative of the Council Member’s consideration of this funding request. However, assistance in obtaining federal stimulus infrastructure funds from New York State to complete the MLK modernization is critically needed.
Our effort to maintain the scope of the Gouverneur Healthcare Services Modernization faces similar challenges. This project is slated for an $11.1 million reduction. This reduction will limit spending significantly for the necessary outfitting (i.e. fixtures, furniture and equipment) of the new facility. Similar to Harlem Hospital, Gouverneur has not undergone a major modernization since its inception in 1972. Unless these funds are identified for the later years of the project, the facility will face challenges in its ability to deliver the services that were intended in its original design.
Individual HHC facility leadership have made other specific capital funding requests of their Council representatives or their borough delegations. For example:
Gouverneur has submitted requests totaling $8.3 million for various upgrades to its telecommunications infrastructure, medical equipment purchases and program areas’ outfitting in the Diagnostic and Treatment Center and for a glass wall curtain as part of the construction project for the nursing home.
Coney Island Hospital has asked for $3.3 million for various diagnostic equipment upgrades and improvements to radiography rooms in the Emergency Department. Kings County Hospital leadership has conferred with Council Members Eugene and Stewart about the need for $1.5 million in Council funds for the purchase and installation of monitoring equipment in the hospitals intensive care units.
To respond to the continuing growth in outpatient services demand at Elmhurst Hospital, the facility leadership has requested additional capital funding for the planned Women’s Health Center. The Council has already provided $5.7 million in capital funds. However, we cannot complete this important project unless we can obtain the full amount of funding that is necessary.
Capital funding is also sought to facilitate our restructuring and cost containment efforts. Specifically, $2.4 million and $1 million, respectively, are needed for the relocations and renovation to new space for the Sydenham Health Center in Manhattan and the Recovery and Treatment Center in the South Bronx.
Also, Coler Goldwater Specialty Hospital and Nursing Facility is seeking $480,000 in capital funding to purchase a new, digital mammography unit to better serve the residents at all levels of mobility within the long term care facility.
In addition, in order for us to provide effective and rehabilitation-focused psychiatric emergency services we are in need of capital funding for the expansion of three comprehensive psychiatric emergency programs (CPEPs) at Jacobi ($7 million), Woodhull ($1.2 million) and Bellevue ($900,000) hospitals.
As we work through these difficult financial times, HHC will advocate strongly on all levels of government for an infusion of financial support to continue our mission as the City’s critical safety net provider for all New Yorkers. We have consistently enjoyed strong support for our mission from the Mayor and our elected officials here in New York City, in Albany and in Washington D.C. I would like to thank the Council for the support and assistance you have provided HHC in the past, and I look forward to working with you as we steer our public hospital system through these challenging times.
This concludes my written testimony. I now look forward to listening to your comments and answering your questions.