Good afternoon Chairperson Arroyo and members of the Health 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 2014 Preliminary Budget and HHC’s Financial Plan.
I will begin on a positive note. While for Fiscal Year 2014 we received a $216,000 PEG to our substance abuse program funded through DOHMH, there were no new direct PEG’s to HHC in the City’s Preliminary Budget. In light of our dire fiscal situation, made worse by Hurricane Sandy, HHC was largely exempted from new PEGs. HHC very much appreciates the New York City Council’s actions last fiscal year to restore vital funding for our child health clinics, HIV testing program, and behavioral health programs. However, as in prior years, the expense funding for these programs has not been baselined in the Preliminary Budget. Unless this funding is restored, we will have $8.5 million less in Fiscal Year 2014 City Tax Levy funding. Specifically:
In HHC’s Financial Plan, we are projecting a $673 million gap in Fiscal Year 2014. We are planning to close this gap in several ways: through ongoing savings from our four-year cost containment and restructuring plan, by anticipated state and federal actions, as well as through ongoing City support to match Disproportionate Share Hospital (DSH) payments. We will also roll our cash balance from Fiscal Year 2013.
Specifically, our four-year cost containment and restructuring plan sought to close our budget gap by $600 million and reduce the size of our workforce by 3,700 FTEs, while retaining most of our service capacity. At this point – more than two and one-half years into our four year plan – we have reduced our workforce by more than 3,600 FTEs, and we project that we will have achieved $567 million of our targeted $600 million budget gap reduction by July 1, 2013.
I do not want to convey the sense that these remaining gap closing tasks will solve our fiscal dilemma. The road ahead is a difficult one. We face some of the most formidable challenges to our financial plan that HHC has seen in recent years. For example, our financial outlook worsens considerably in the outyears with gaps that grow from $925 million in Fiscal Year 2015 to $1.3 billion in Fiscal Year 2017.
These gaps do not include cuts that are being discussed now in Albany or in Washington. In the State’s capital, the budget proposals that are on the table would reduce Medicaid funding for HHC by more than $51 million. This estimate had been higher and I appreciate that there were changes made in the Governor’s 30 day budget amendments in which $25 million in Disproportionate Share Hospital, or DSH, funding was restored to HHC. As you know, DSH funding is a critical patient revenue source in our budget that partially offsets losses we incur from serving uninsured patients and shortfalls in Medicaid reimbursement.
Given our projected funding gap, I ask that the Council contact your colleagues in Albany and urge them to make complete restorations – and – support rate enhancements for HHC as deliberations on the State Budget continue over the next two weeks. We appreciate the efforts the State Legislature has made in the past to scale back cuts initially proposed in Executive budgets. However, over the past 5 years, HHC has lost more than $500 million in Medicaid funding as a result of State budget actions.
Switching to our nation’s capital in Washington D.C., the situation is grim. While there are various spending reduction proposals under consideration that would cut the Medicaid and Medicare programs by billions of dollars, we must contend with significant reductions to Medicaid DSH funding that have already been enacted. Specifically, beginning on October 1, 2013, our plan assumes we will experience a 5% cut, or $56 million, to our current level of DSH funding. As you know DSH cuts are hard-wired in the Affordable Care Act. This cut increases to $576 million in Federal Fiscal Year (FFY) 2019 before decreasing slightly to a $471 million reduction each year in FFY’s 2020-2022. The Medicaid DSH cuts currently in law through FFY 2022, if proportionately imposed on HHC, will result in an estimated total loss of $2.7 billion to HHC.
As we have all seen over the last few days, the Budget Control Act, which mandated the sequester, is now underway. Budget cuts will begin on April 1st and apply to reimbursement for services provided in March. Medicare provider payments will see a 2% cut. For HHC, we estimate that this will amount to an $18 million cut to Medicare rates in the 1st year. We also anticipate a loss of $2 million for federal grant funded programs. On top of this, still more Medicare and Medicaid cuts have been proposed by Congress and the President which could reduce funding to HHC by millions more per year as part of the seemingly endless debate over federal spending.
These funding reductions are occurring at the same time that the imperative to deliver better patient care with better outcomes at lower costs has escalated. As I have said at previous hearings, we have endeavored to avoid implementing budget reduction strategies that negatively affect our mission or undermine the measurable improvements we have made in patient safety and quality of care.
We have been very fortunate to receive significant expense funding support from the City Council in previous years. The Council has also provided generous capital funding for medical equipment and facility improvements. Turning now to a brief update on our Capital Program, I am pleased to report that we are at or near completion on several major modernization projects.
Our work at Harlem Hospital on the main phase of the new Mural Pavilion is complete. This project features expanded primary care and specialty care suites, new intensive care and burn units and preservation of the hospital’s historic WPA murals. We expect work to be complete on the hospital’s new Emergency Department later this summer.
Gouverneur Healthcare Services completed the first phase of its major modernization at the end of 2011. This encompassed the construction of 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 next year in the spring of 2014.
At Lincoln Hospital Center, the final phase of the Emergency Department renovation began last year. We estimate that the expansion and modernization of this high volume Emergency Department will be completed by the end of the year.
We remain firmly committed to build a $23 million state-of-the-art Diagnostic & Treatment Center in Staten Island at 155 Vanderbilt Avenue. The project will go to bid this May and construction will begin this fall. This new 21,000 square feet facility will be completed in 2015. Pediatric and adult primary care and specialty services, as well as mental health services, will be provided at the new center.
The Henry J. Carter Specialty Hospital and Nursing Facility, located on Madison Avenue and 122nd Street, will be the new home of the Goldwater Specialty Hospital and Nursing Facility currently located on Roosevelt Island. This new Harlem-based long-term care hospital and skilled nursing facility, consisting of nearly 400,000 square feet of combined new and renovated space, will be completed in fall of this year.
Before I conclude, let me update you on the efforts to restore services at Bellevue and Coney Island Hospitals after Hurricane Sandy as well as the status of our post-storm repairs at Coler Specialty Hospital and Nursing Facility.
Bellevue fully re-opened on February 7, 2013 and has resumed its Level 1 Trauma Center status. Coney began to accept inpatients in the middle of January and has now restored most of its services; however, its Emergency Department capacity remains limited as work continues to rebuild much of its damaged Emergency Department. Coney Island has also been operating a fleet of mobile medical vans providing primary care services and immunizations in parts of southern Brooklyn and Staten Island that were affected by Sandy.
The Coler campus continues to operate on temporary electrical switchgear and emergency generators. The permanent repairs necessary for restoration of Con Ed electrical services at Coler are on track to be completed ahead of the air conditioning season. Steam distribution from the local co-generation plant has been restored and has now replaced the temporary boilers.
Although we have completed the first phase of our recovery from the storm damage by reopening our most heavily damaged facilities, there is still much work to be done to complete permanent repairs and to harden the facilities against any future storms of this magnitude. We are grateful that the City has appropriated $710 million in capital funds as an advance against anticipated FEMA reimbursements for repair, restoration and risk mitigation efforts related to HHC facilities.
We remain very concerned, however, about the roughly $180 million in revenue losses incurred during the full or partial closure of our Bellevue and Coney Island facilities, as these losses are not FEMA-reimbursable. If not addressed, this revenue loss will severely destabilize our finances going into next fiscal year. It is essential that a portion of the several billion dollars appropriated by Congress for Sandy related Community Development Block Grant funds be tapped to cover these losses.
In the months leading up to the next hurricane season, we will continue to reposition critical systems within our vulnerable facilities to higher elevations and take other steps to better protect those facilities from any similar storm surge. However, some of the mitigation efforts, especially at Coney Island Hospital, which remains vulnerable to a re-flooding of its first floor, will be longer term projects of significant cost. These will require confirmation of FEMA reimbursement eligibility or will require commitment of other capital funds.
This concludes my written testimony. I now look forward to listening to your comments and answering your questions.