New York City’s Department of Health + Hospitals dodged a bullet when Congress delayed by two years the implementation of federal cuts to Disproportionate Share Hospital funding of hospitals that serve a large number of Medicaid and uninsured individuals.
While only pushing out the problem two years – after which the DSH cuts could be even more steep – the reprieve could buy one of the city’s most financially troubled units time to clean up internally, said its new president, Mitchell Katz.
“It’s a critical two years,” said Katz. “And I think we could together use those two years to really bring Health + Hospitals into solvency.”
That’s a tall order for Katz, a Brooklyn native who ran health systems in Los Angeles and San Francisco for a combined 20 years. As director of the Los Angeles County Health Agency, he turned a $226 million deficit into a surplus.
Appearing before the New York City Council's hospitals committee on Thursday -- his second appearance before the panel in two weeks -- Katz said Health + Hospitals is on track to close fiscal 2018 with a projected $250 million balance. Over the past year, he said, H+H has cut costs by $387 million and raised revenue by $820 million to meet a $1.2 billion turnaround target.
"We still must take action to address our core fiscal challenges and out-year risks," he said.
H+H -- long a city problem unit where internal mismanagement and union headwinds have impeded efficiency – has struggled even more over the past decade as changes in the healthcare dynamic have challenged the viability of safety-net hospitals.
“It’s inefficiently run,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “They’re spending more than they're getting. They have to figure out a way to lower their costs so their reimbursements to match their expenses.”
The agency, a public benefit corporation and the nation’s largest municipal health system, serves more than 1.2 billion New Yorkers annually. It operates 11 acute-care hospitals, five long-term care facilities, a certified home health agency and a network of federally qualified health center clinics including six diagnostic and treatment facilities.
Its system treats patients regardless of ability to pay, and it continues to treat large numbers of undocumented immigrants ineligible for Medicaid or insurance through state healthcare exchanges.
“In effect, Health + Hospitals is the default system of care for Medicaid patients, the uninsured and other vulnerable populations, and is integral to our system of safety-net hospitals,” said Carlina Rivera, who chairs the council's hospitals committee.
Moody’s Investors Service called the congressional reprieve on DSH cuts, as well as the extension of funding for the Children’s Health Insurance Program, a credit positive for H+H-type safety-net hospitals.
Moody’s cited New York as an example of a local government that benefits from the delayed DSH cuts.
“Given rising healthcare costs and its challenging payor mix, with about 25% of its patients uninsured, [H&H] already requires ongoing subsidies from the city,” said Moody’s. “The loss of DSH funding has exacerbated the agency’s financial challenges and would have required larger subsidies from the city or other funding from the state to maintain services.”
The city values the delay in DSH cuts at $300 million and $400 million for fiscal 2018 and 2019, respectively.
Any changes to the Affordable Care Act, Medicaid and Medicare could make it harder for H+H to balance its books. “Any such changes could well require increased funding by the city,” said the nonprofit watchdog Independent Budget Office.
Projections for federal and state funding to plummet by nearly $1 billion -- from $2.2 billion in fiscal 2016 to $1.4 billion in fiscal 2020 – add a sense of urgency.
Considering all sources, said IBO, the city provides nearly $2 billion annually to H+H.
Katz has focused his council testimony primarily on how H+H can improve from within.
H+H has already decreased administrative positions to save $62 million, said Katz, with further reductions expected in the coming months. He credited Stanley Brezenoff, the interim chief after Ram Raju resigned last year, for giving him a running start. Brezenoff also ran the system, then Health & Hospitals Corp., from 1981 to 1984.
Katz wants to reduce administrative expenses; bill insurance for insured patients; code and document effectively to expedite payments; stop sending away paying patients; hire for revenue-generating positions; provide specialized services that are well reimbursed; and convert uninsured people who qualify for insurance.
The system, he said, is losing roughly $190 million annually for unbilled services to insured patients. Record-coding fixes, he added, can make a difference between fair payment from insurance companies and tens of millions of dollars in underpayments.
“There’s nothing wrong with running systems like a business, if by a business we don’t mean profit. We don’t mean sending people away. We mean looking for opportunities where we, Health + Hospitals, can take on things so that we actually can generate revenue and that revenue can cross-subsidize for the care of uninsured people.”
In recent months, H+H has saved an estimated $16 million by eliminating several consultant contracts, an easy initial step that he said would set a tone.
“You cannot fix public systems with outside consultants. It does not work,” he said. “We should use consultants to answer specific highly specialized questions. Otherwise we need people who live and breathe the Health + Hospitals mission.”
In addition, Katz wants to get out of rental leases and move offices into empty hospital space. “I love having administrators in hospital space. You always want to connect administrators to your critical mission.”
He also intends to bolster the municipal healthcare provider MetroPlus. While the city owns it, 55% of patients in the program get primary care from doctors outside the system.
“We’re sending people out,” he said. “That has to change.”
Mayor Bill de Blasio in April 2016 launched “One New York: Health Care for Our Neighborhoods,” an initiative designed to turn around H+H. Its intention was to reduce an anticipated budget deficit of $1.8 billion in fiscal 2020.
Labor-union clout could make cost containment a heavy lift, according to Cure.
“I still believe that they have too many hospitals, too many workers. I think it’s very politically difficult to close some of the facilities or scale back,” said Cure. “These are savvy political unions that work in Health + Hospitals units."
“The state has been fairly successful in getting some of their costs down, particularly for Medicaid."
New York State’s Medicaid redesign team, which Gov. Andrew Cuomo formed in 2011 and consisted of healthcare industry leaders, helped secure federal approval of an $8 billion state reinvestment of savings incurred by team initiatives.
“I think it’s harder for the city to do that," Cure said. "And other than having an honest assessment about having too many beds in the city, I’m not sure what they can do other than really take a dramatic approach to cutting costs other than personnel.”
Katz said he built a surplus in his seven years in Los Angeles while adding 1,500 public-sector jobs.
“I’m a public-sector guy,” he told council members. “You can grow out of financial problems sometimes more easily than you can shrink out of financial problems.”
Scandals and fiascoes have ensnared H+H over the years.
Mayor Ed Koch’s protégé, Victor Botnick, oversaw the hospital system in 1986 at age 31, then resigned six months into his tenure after admitting he lied about having a college degree. Botnick died in 2002 while facing federal charges that he stole $200,000 from New Jersey's Cathedral Healthcare System.
A 1987 audit by state Comptroller Edward Regan found that H+H routinely ignored its travel-expense policy and kept inaccurate records.
In 2015, three top H+H officials were forced out amid a city Technology Development Corp. investigation of improper billing for a $764 million overhaul of its records system.