Fiscal Year 2019: Executive Budget Hearing

Good afternoon Chairperson Dromm, Chairperson Rivera and members of the Committee on Finance and Committee on Hospital Systems. I am Mitch Katz, M.D., President and Chief Executive Officer of the NYC Health + Hospitals (“Health + Hospitals”). Thank you for the opportunity to review the Fiscal Year 2019 Executive Budget.

Each and every day the dedicated staff of Health + Hospitals deliver on our mission to provide quality, affordable, culturally responsive health care to New Yorkers. As the Council knows, we are the safety net provider for all New Yorkers. In the face of challenges over the past year, our commitment to the patients and communities we serve did not waiver. We provided care for more than 1 million New Yorkers, of which approximately 415,000 were uninsured. We had more than 5 million outpatient visits and 1 million emergency room visits. There were more than 190,000 patient discharges and 17,000 births at Health + Hospitals last year.

I have visited our facilities and talked with our staff over the past four months, and my interactions confirmed what I knew to be true – Health + Hospitals is filled with mission driven doctors, nurses, social workers, pharmacist and other professionals. I was charged by the Mayor to take the work on transformation to another level – to turbocharge it – in order to ensure long term stability and quality. Our doctors, nurses, social workers, pharmacists and other professionals are committed to Transformation and I want to work with all of you here to make the “system” as good as the people working in it.

We have many significant opportunities to improve our system and the executive budget is a key step in focusing our resources on those opportunities. Before I address the specifics of the budget, I will take a moment to outline some of the major issues I’ve come across in my first four months that this budget tries to address.

One major challenge in our system is access if you are not critically ill. Access problems like long appointment wait times, long wait times at the clinic, and uneven customer service compound our financial problems because they discourage paying patients from seeking our care. When members of our own health plan are not able to get timely appointments we lose business to competing hospital systems. When we have an operating team ready to perform surgery but we cancel the surgery because we are short one surgical tech, we lose money.

Another major challenge is that we often don’t function as a truly integrated health system. We are a large system with major trauma centers like Bellevue and Elmhurst and community hospitals like Coney Island and North Central Bronx. We need to make sure we can seamlessly move patients from our smaller hospitals to our larger hospitals and that we have the right mix of services so each hospital does what it does best. We need to make it easy for our doctors in our outpatient clinics to quickly get the opinion of one our specialists and to get their patients a timely appointment if it’s needed.

One final challenge is that we do not yet have a modern IT and financial infrastructure. We are moving to a single electronic health record and a single financial and billing system. This will help us correctly document the care we deliver, correctly bill insurers, and – most importantly – it will improve patient care. We need to build upon those technology investments by continuing to improve our revenue cycle processes so that we can collect the money we need to take care of patients. And we need to make IT easy for clinicians to use so that they can focus on what’s most important – taking care of their patients.

With the Mayor’s leadership we have made tremendous financial progress over the past year. Beginning under Stan Brezenoff, Health + Hospitals has been successful in increasing revenue and reducing expenses to the point where we are well positioned to take the Transformation Plan to the next level. We are on track to achieve $616 million through our revenue generating initiatives in FY 2018, including over $150 million in revenue cycle improvements. We are also on track to achieve $345 million in expense reductions. As a result, we are on target to close the fiscal year with a balance of over $600 million. The delay of Federal Disproportionate Share Hospital payment cuts was also very significant – increasing revenue by a projected $700 million over the next two years.

While this is very positive news, we still face significant long term financial challenges. If we want to return our system to a predictable, sustainable city subsidy, maintain safe and high quality patient care, and improve the patient experience, we must continue to find savings by getting more efficient and we must make targeted investments to grow revenue. The seven point financial plan we discussed at prior hearings is a path to achieve these goals. We must:

• Reduce administrative expenses
• Bill insurance for insured patients and contract effectively with managed care plans
• Code and document effectively so that we can receive the payment we deserve
• Stop sending away paying patients
• Invest resources into hiring positions that are revenue generating
• Start providing those specialized services that are well reimbursed
• Convert uninsured people who qualify for insurance to be insured

Our executive budget submission sets ambitious but attainable targets for these efforts. As I mentioned at the prior hearing, some initiatives will advance more than one item in the seven point financial plan but there are several key efforts to call your attention to.

Reducing administrative expenses: In recent years, we have reduced personnel expenses by over $250 million. In my first four months we have already achieved $30 million in additional savings by eliminating consultant contracts and making targeted managerial reductions at our central office. We’ve identified additional areas where we save money by analyzing our supply chain from beginning to end. Through ongoing standardization of goods and services that we purchase, the budget projects we can decrease costs by approximately $155 million by FY 2022. While I believe there are still opportunities for savings, I do not believe that additional large scale personnel reductions through attrition are the best strategy. Attrition has been a critical tool to stabilize our system financially, but we now need to use that tool more strategically and begin making select investments – in doctors, nurses, social workers, and other revenue generating staff – to make sure our system can sustain itself.

Billing, contracting, coding, and documenting effectively: By making improvements to our revenue cycle we expect to generate $150 million in new revenue this year. On a near daily basis, we continue to find opportunities to improving billing, more effectively reduce managed care denials and improve our ability to capture revenue. The budget projects $300 million in revenue capture in FY 2022. We will grow this revenue by continuing to improve our billing, coding and collection systems on both the inpatient and outpatient side. We will improve our ability to prevent – and fight back against – managed care companies who refuse to pay for care we deliver, and we will improve the rates and terms we receive from managed care plans which is worth $175 million in revenue annually from FY 2021. Our work on coding, documentation, and overall revenue cycle improvement will also result in new revenue through our health plan Metroplus. The plan shows that we expect to achieve $135 million in revenue in Metroplus surplus and related revenue annually from FY 2021.

Investing in Patient and Revenue Growth: The third, fourth and fifth items in our seven point plan all rely on making targeted investments to keep our existing patients and generate additional revenue per patient. Currently, nearly two thirds of MetroPlus’ medical spending – over $ 1 billion per year – goes outside our system. We are working closely together to improve access at our facilities, reduce wait times, and improve our referral processes so that we can keep more of these MetroPlus members. Similarly, we need to invest in clinical staff and new services so that we can meet community demand. For instance, several of our hospitals offer diagnostic cardiac catheterization, but do not offer interventional services like angioplasty. Not only is angioplasty a well reimbursed service that we could deliver well, but ambulances will not bring patients with chest pain to your hospital without the service.

We can also generate new revenue through our pharmacies. Currently, the majority of our pharmacies fill prescriptions only for our uninsured patients. I am changing this. All of our patients should be able to fill their prescriptions at our pharmacies. It’s more convenient for the patient and can generate significant revenue. Additionally, if they use our pharmacy we will know that they’ve filled their prescription, which will allow us to improve medication adherence and health outcomes.

The budget projects that by investing in these types of services as well as other fundamental growth engines like primary care, we will generate additional revenue from FY 2019, growing to $135 million in FY 2022.

Enrolling the Uninsured: Through the City’s Get Covered initiative and MetroPlus’ ongoing enrollment efforts there has been great progress in reducing the uninsured rate. However, based on demographic information, evidence of past insurance coverage, and other factors, we believe that approximately half of the 415,000 uninsured patients we saw last year may be eligible for coverage. By making some basic workflow changes, we have already seen a 20% year over year increase in the number of insurance applications submitted at our hospitals. By increasing our efforts to enroll these patients and making it easier to enroll through the NY State of Health than to simply enroll in our discount program we can achieve two positive outcomes. First, we can stop undermining the ACA by getting more eligible consumers enrolled in free or low cost coverage. And second, we can generate an estimated $80 million in annual revenue by FY 2021.

Beyond our seven point financial plan, there is one other key element of the budget to highlight: DSH. This year’s two year delay of DSH cuts did not eliminate the threat of these potentially devastating cuts to our system. In fact it made the potential cuts worse in the future. Our budget assumes that the DSH cuts go into effect beginning in FY 2020. The budget also assumes that, should the cuts take place, Health + Hospitals, the City, and the State will work to develop a more fair methodology for allocating those cuts, reducing Health + Hospital’s losses by over $250 million over three years.

I am confident that through our actions, Health + Hospitals will be a healthier, more resilient and balanced organization that will care for New Yorkers far into the future.

This concludes my testimony. I look forward to hearing your comments, answering your questions, and partnering with you to improve Health + Hospitals for all the people of New York.