Mitchell Katz had some good news about the long-troubled New York City Health + Hospitals unit he came from Los Angeles to resuscitate.

Health + Hospitals is on target to close the fiscal year with a balance exceeding $600 million, he told the City Council’s committees on finance and hospitals at a May 24 joint hearing.

“For the first time, H+H produced revenue in excess of its projections, and that makes this a successful course of how we’re going to go forward," he said in an interview afterward in the City Hall rotunda.

According to Brooklyn native Katz, H+H expects to generate $616 million through new revenue initiatives in fiscal 2018, including more than $150 million in revenue cycle improvements. It is also on track to trim $345 million in expenses.

Mitchell Katz took over as president and CEO of NYC Health + Hospitals in January 2018.
"The biggest challenges always remain at the federal level," said NYC Health + Hospitals CEO Mitchell Katz. NYC Health + Hospitals

“While this is very positive news, we still face significant long-term financial challenges," he said.

Health + Hospitals' expected $8 billion budget represents 9% of Mayor Bill de Blasio's $89 billion executive budget, which the council is considering.

Katz, 58, said these initiatives, some of which began under his predecessor, interim chief Stanley Brezenoff, have “well positioned” the city to take Mayor Bill de Blasio’s transformation plan to the next level. The mayor unveiled “One New York: Health Care for Our Neighborhoods," in 2016.

Katz, H+H president since January, must navigate the fiscal and political land mines that come with the job.

“Few people come to New York expecting an easy professional life, and Dr. Katz is a seasoned professional who knows the job will be tough,” said Mariana Alexander, a researcher for the watchdog Citizens Budget Commission.

H+H served more than 1 million New Yorkers in 2017, including 415,000 uninsured patients. Outpatient and emergency room visits exceeded 5 million and 1 million, respectively.

Its difficulties are many, even as de Blasio has increased his support for the city system from $1.4 billion in 2014 to an expected $2.2 billion in 2020. Federal funding questions continue to pose a shadow.

“The biggest challenges always remain at the federal level because healthcare dollars do largely stem, one way or another, from the federal government,” Katz said. “For example, even if the [Affordable Care Act] is not repealed, major cuts to Medicaid or Medicare or graduate medical education could have a huge impact for us.”

The federal delay of cuts to the Disproportionate Share Hospital payment program spared H+H roughly $700 million over two years. DSH and Upper Payment Limit, two forms of Medicaid supplemental funding initiatives, accounted for 28% of H+H's total projected revenue, said the New York City Independent Budget Office.

Changes to the city’s healthcare markets confront the department as well, according to IBO. They include revolving federal and state policies, new payment methods, medical advances and evolving patient preferences, all of which continue to favor primary and preventive care and shift treatments and services once considered exclusive to hospitals to outpatient settings or homes.

“These changes have resulted in fewer inpatient visits, an overall decline in the number of hospital beds and an increase in unused space,” said IBO.

Katz's strategies include improved billing, contracting, coding and documenting, as well as keeping more MetroPlus business inside H+H, which will collectively capture $630 million in annual revenue by fiscal 2022; investing in-patient and revenue growth by expanding well-reimbursed services and opening up hospital pharmacies to patients with insurance to generate $135 million in new annual revenue, also by FY22.

“You develop opportunities as you unpeel the onion,” he said.

He also intends to enroll more uninsured patients in affordable health plans through the city’s Get Covered NYC initiative and MetroPlus ongoing enrollment, which he expects to generate an estimated $80 million in annual revenue by FY2022; and reduce administrative expenses by building on $250 million in personnel savings already achieved, with targeted personnel savings, consultant reductions, and supply chain enhancements.

Eliminating consultant contracts and making targeted managerial reductions at the central office has produced $30 million in savings over four months, according to Katz.

Katz also wants his management team to exit all leases, on which the city spends about $7 million annually, and convert empty hospital space to office use.

“We want to get out of rental property,” he said.

As director of the Los Angeles County Health Agency, he turned a $226 million deficit into a surplus. He focused his turnaround on revenue generation rather than bare-bones cutting. “The good news was all on the revenue side,” said CBC’s Alexander.

At the Los Angeles Department of Health Services, which he oversaw before its merger into the county health agency, the largest source of revenue -- payments for services to patients -- rose nearly 40% over five years, to $2.2 billion from $1.6 billion.

“The primary reason for the gain in revenues was an improved payor mix," said Alexander, noting the source of payment for patients shifted to third parties that pay better rates.

Katz’s record in Los Angeles is encouraging in two notable ways, Alexander added. “First, Los Angeles shares many health market features with New York City, and, second, the financial performance of the public hospitals in Los Angeles improved markedly during his tenure.”

New York City and Los Angeles County have similarly sized, ethnically diverse populations with large undocumented populations, and roughly one in five residents have incomes below the federal poverty threshold.

Even amid praise, Katz got no free pass from council members upset that they received a less-than-two-page summary of the latest H+H accrual-based, cash-based financial plan only one day before their hearing, after the council postponed it from May 7.

Hospitals committee chairwoman Carlina Rivera upbraided Katz about the late information, prompting Katz to say he was “profoundly sorry.” Rivera’s comments echoed remarks by finance committee chairman Daniel Dromm to de Blasio budget director Melanie Hartzog about H+H earlier that day.

“It’s extremely difficult for me to prepare when I only get a report the day before,” Dromm told Hartzog.

“Not to be rude, but this happens every year with them. It does. And this is a major concern of the council that needs to be corrected because there’s no way that we can have proper oversight over the funding that we give them if they continuously do this.”

Katz called the hearing a positive overall.

“They are supportive of a plan where Health + Hospitals gets ourselves out of our financial problem and maintains all of our hospitals and clinics,” he said.

H+H’s challenges parallel those of many public health systems nationwide.

According to the Albany-based think tank Empire Center, government-owned hospitals nationally provide uncompensated care about two and one-half times the rate of private hospitals, both for-profit and not-for-profit.

In New York State, the gap in uncompensated care between government-owned hospitals and not-for-profit hospitals is a factor of more than six, Empire Center said in a report that called on New York State to reconsider its restrictive hospital ownership laws.

“One byproduct of the gaps in Medicaid care and uncompensated care is racial segregation in New York’s hospital system, because minority groups are more likely to be on Medicaid and more likely to be uninsured than whites,” the report said.

To maximize private investment, said Empire Center, the state could set guidelines giving preference to conversion proposals aimed at hospitals with low quality or weak finances.

“The state could be especially welcoming to companies that would invest in hospitals on the Health Department’s fiscal ‘watch list’ or those in underserved communities, including lower-income neighborhoods of New York City and rural areas of upstate.”

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