Good morning Chairpersons Ferreras, Johnson and Cohen and members of the Health, Finance and Mental Health Committees. I am Dr. Ram Raju, President and CEO of the New York City Health and Hospitals Corporation (HHC) – your public healthcare system. I am joined at the table by Ms. Marlene Zurack, our Senior Vice President and Chief Financial Officer and Ms. LaRay Brown, Senior Vice President for Strategic Planning, Community Health and Intergovernmental Relations. Thank you for the opportunity to discuss the Financial Year (FY) 2016 Executive Budget, our Financial Plan and key programmatic initiatives. I will begin by focusing on the number one priority that I have for HHC – improving the patient experience. Last month, I set forth a new vision for HHC in an address I gave to our staff, our union leadership and key stakeholders. The linchpin of HHC’s 2020 Vision is to make the patient experience the best that it can be. We must recognize that the value of an excellent patient experience is a critical part of the formula for us to compete in a dynamic marketplace.
A diverse group of 200 including our staff, affiliate staff, Community Advisory Board members, labor representatives and consumers has begun the process of developing strategies to turn this vision into reality. By this autumn, they will develop a plan of action. Regardless of title, every employee can contribute and make a difference.
Improving the patient experience will have several benefits. It will lead to higher patient satisfaction scores which will increasingly impact what payors pay health care providers, higher patient retention rates and an increase in the number of new patients. Together, these outcomes will also lead to a healthier bottom line. By 2020, we aim to:
At our last Health Committee hearing, I outlined the main points on our agenda to position HHC in a position so we can both preserve our mission and compete in a demanding, ever-changing healthcare marketplace. For the benefit of the members of the Finance and Mental Health Committee, I will briefly summarize these points. They center on:
HHC has excelled in expanding preventive and primary care services over the past decade. We have also improved the quality of care we provide and strengthened patient safety programs. Now we need to expand access to care so that our patients can get an appointment more quickly.
We have expanded hours on nights and weekends in every borough so that our patients have a wider range of appointment times. We are also working to reduce the time it takes for patients to come in for their appointment, see their doctors and finish their visit. By becoming more efficient, we can create additional capacity and be more respectful of our patients’ time. I don’t know any patient who likes sitting around in a waiting room while they wait to see the doctor.
Our efforts to expand access to care will be needed as we work to increase our market share. Today, we serve roughly one out of every six New Yorkers. I want this number to grow over the next five years so that we serve one out of every four New Yorkers. Our health plan, MetroPlus, is key to this initiative. MetroPlus is one of the highest performing Medicaid managed care plans in terms of customer satisfaction and quality in New York State. Our health plan now has more than 473,000 members. My goal is for this number to grow to 1 million by the end of 2020. This is ambitious, but if you don’t have high expectations, you’ll never know what you can truly achieve.
As we increase our market share, we will strengthen our finances in order to sustain our mission to serve all New Yorkers. New patients will lead to increased patient revenue. That said, because most of our patients are insured through Medicaid and Medicare, payments are not sufficient to cover our costs. In order to stabilize our finances, we are also working to control costs, find new sources of revenue and manage our resources more effectively. I will speak more about this when I review our financial plan.
The next strategic priority is workforce development. When I spoke last month, I said that a positive patient experience is not possible without a positive employee experience. Our workforce is our greatest asset. We have a mission-driven, diverse and culturally competent staff. We look like our patients and our patients look like us. We can’t lose sight of this. We will be investing in new programs to benefit our employees. We will also continue to talk – and listen – to our labor partners on ways we can continue to collaborate together.
As I mentioned at the last hearing, HHC has to constantly identify new ways to reduce and eliminate our budget gaps since the reimbursement we receive does not cover our costs. It is not easy, but through support from the City and our ongoing restructuring, cost-containment and revenue optimization, we’ve managed to balance our budget.
For FY 2016, our operating expenses are projected to be $7.18 billion and revenue is projected at $6.56 billion. This leaves a gap of $618 million. Our corrective action plan is projected to garner $475 million in a combination of savings and new revenue. After we apply the $496 million ending cash balance projected for our current fiscal year, this leaves us with a projected closing cash balance of $352 million in FY 2016. Over the life of the plan, we project a $914 million gap in FY 2017, $1.3 billion in FY 18 and $1.48 billion in FY 19. As with all of our financial plans, we are developing corrective actions to address these gaps.
The major components of our cost containment plan for FY 16 include $75 million dollars savings through supply chain efficiencies. We have been re-designing our supply chain services to improve quality and save costs. We have renegotiated existing contracts, applied standardization to reduce cost and waste, and are fully utilizing discounted pharmaceutical programs for government and safety net hospitals.
Through increased revenue collection, we will see $72 million in FY 2016. This is a combination of better documentation and coding for chronic and secondary diagnoses along with decreasing the amount of payer denials. Further, we estimate an additional $30 million per year in enhanced federal reimbursement as a result of the approval for federally qualified health center status for our diagnostic and treatment centers.
Adjustments to the 2016 Financial Plan include recent budget actions in Albany and Washington. The 2015-2016 State Budget included two proposals that will benefit us by about $7.5 million; it eliminates both a readmissions penalty that will save us $3.5 million and an across-the-board rate reduction on inpatient OB services, which will increase reimbursement for those services by approximately $4 million. It also includes new funding for a quality improvement program. We do not have an estimate for how much funding we will receive but expect it will be modest.
One of the most important items for us in this year’s Executive Budget was the three-year extension of the State’s charity care laws and discussion of Disproportionate Share Hospital (DSH) funding. To remind the Committees, the DSH program provides federal Medicaid matching dollars to states to make payments to hospitals that treat a disproportionately high share of uninsured and Medicaid patients. The DSH funding that we receive is critical to supporting our mission and allowing us to serve low-income and uninsured patients.
We believe that the State’s policy should be changed so that DSH funds follow the patients and is directly targeted to hospitals that serve disproportionately high numbers of uninsured patients and Medicaid members. We advocated for a distribution methodology to allow the funding go to the hospitals who serve the target population. We are concerned that without changes to the present methodology of distribution of DSH funds, we will absorb all of the initial federal DSH cuts.
While we were not successful in our efforts to secure flexibility for the New York State Health Department to revise DSH funding formulas without having to seek further legislative approval when Federal DSH cuts begin, the start date of the cuts was recently delayed. This delay will give us two more state budget cycles during which we will seek changes to protect our corporation from absorbing a disproportionate amount of the cuts.
Another important change in the State Budget this year was an amendment that modified how Medicaid Upper Payment Limit funds are distributed. This technical change was made to address new federal requirements. UPL funds supplement Medicaid funding and these funds make up a significant part of our budget.
Separately, there is a change to the methodology on how UPL funding is calculated by the Centers for Medicare and Medicaid Services (CMS) and this change, combined with the ongoing transition to Medicaid managed care, puts our share of funding at risk. We submitted a comprehensive and innovative proposal to the State to protect our UPL funds from drastic reductions. We will continue our efforts to maximize the amount of UPL funding that is due to us so that we have sufficient resources to serve our patients.
There was positive news that came from Washington recently. With the passage of the Medicare Access and CHIP Reauthorization Act – the “Doc Fix” or Sustainable Growth Rate (SGR) bill – this means that HHC and the hospital community will not be at risk of the annual ritual with Congress having to come up with budget offsets that reduce funding to hospitals to avoid significant cuts in physician payments.
In addition, this legislation postponed the Medicaid DSH cuts I mentioned, until Federal Fiscal Year (FFY) 2018. This is a short term reprieve from the onset of significant projected DSH cuts to New York State and HHC. However, while we will benefit from the delay initially, this will be offset in the long term since Congress added another year of DSH cuts extending them to FFY 2025. The magnitude of these cuts was increased as well beginning in FFY 2022.
In the City Budget, we were pleased that as part of the Executive Budget, we received an additional $17 million in funding for collective bargaining agreements for FY 15 which increases to $28 million in FY19. We also will receive new funding for an initiative to provide mental health services in the City’s Family Justice Centers. $2 million was allocated for FY16 and this grows to $3.3 million in FY17. This is an important initiative and we look forward to working with the Mayor’s Office to Combat Domestic Violence to individuals and families seeking help.
One final area where we expect to receive new funding before the close of this fiscal year is from New York State’s Delivery System Reform Incentive Payment Program or DSRIP. As I mentioned in March, our DSRIP initiatives will further increase access to care, develop care coordination programs, develop primary care and behavioral health integration initiatives and develop IT initiatives to link these programs on a population-health improvement based platform. We have budgeted $60 million in FY 2015. This grows to $335 million in FY 18. Allow me to re-emphasize that these funds are not grant funds and should not be considered as a solution to our budget deficits.
There is a second component to DSRIP funding which is for capital projects. These funds are intended to support sustainability of DSRIP transformation efforts. We submitted an application for HHC specific projects totaling $463 million. These projects are critical to achieving the important goals of improving access, care coordination and sharing information with our partners which include many community based organizations.
Turning now to our own Capital Program, $11.1 million in new funding was provided to Elmhurst Hospital in Queens to expand the hospitals’ Emergency Department. This is an important project that we are undertaking to address the growth in volume that the hospital has seen over the past several years. I want to thank Council Member’s Ferreras, Dromm and members of the Queens delegation for contributing to this project. We also thank Borough President Melinda Katz and former Borough President Helen Marshall for providing capital funding.
In terms of recent updates, work has been completed or is underway on several major projects.
As a follow up to a hearing the Council held in 2013 on access to healthcare services for women with disabilities, the Council appropriated $2.5 million in Capital funding in FY 2014 to make improvements at our facilities. These funds will be used to make renovations and purchase equipment to make exam rooms and bathrooms optimally accessible for persons with disabilities. The first phase of our preliminary design work including cost estimates is complete and construction will begin later this year at four of our sites. We are very appreciative for this investment and your recommendation in the Council’s Budget Response of an additional $15 million in new funds to expand this important work.
Before I conclude, I will share with you the details of our recently announced FEMA award to rectify the damage caused by Hurricane Sandy. As you know, our corporation suffered serious losses as a result of Hurricane Sandy. We experienced physical damage to four of our facilities and nearly $250 million in losses due to the closures of Bellevue and Coney Island hospitals. I was extremely pleased to stand with Mayor de Blasio and Senator Schumer last fall when they announced an award of $1.723 billion to complete repair and protect our hospitals that were damaged. We are working closely with the Mayor’s Office of Recovery and Resiliency on these projects. I am very thankful for all the support and advocacy we received from the Council which helped us immensely with this award.
The award includes:
We appreciate the Council’s support for HHC. This concludes my testimony. I now look forward to listening to your comments and answering your questions.