March 15, 2005
Health and Hospitals Corporation Faces Large Budget Gaps
The New York City Health and Hospitals Corporation (HHC) is making progress on closing a projected cash deficit of more than $600 million for FY 2006, but the budgets proposed by the Governor and the President could set back those efforts, according to a comprehensive analysis of HHC’s finances by State Comptroller Alan G. Hevesi.
HHC’s primary mission is to provide comprehensive medical and mental health services to patients regardless of their ability to pay. While there has been a reduction in the number of uninsured served by HHC due to an expansion of public health insurance programs, HHC is serving a greater share of the City’s uninsured.
“The health care environment has become highly competitive and HHC has to compete with other healthcare providers for paying customers,” Hevesi said.
HHC must be given credit for having taken a number of significant and important steps to reduce costs, increase revenues, and improve services over the past decade in an effort to improve its bottom line. Nonetheless, HHC’s cash position has been eroding since FY 2000 due to a loss of market share; outdated reimbursement formulae, a shift to outpatient services, and rising pension contributions. Third party revenues from private insurers, Medicaid and others cover only 75 percent of HHC’s expenses in FY 2005 compared with 89 percent in FY 1999.
HHC projects a cash deficit of $612 million for FY 2006, which represents 14.8 percent of revenues, and deficits that average $568 million in subsequent years. The report identifies budget risks of $374 million in FY 2006, which could widen the deficit to nearly $1 billion if they materialize. The largest budget risk facing HHC is the potential impact of the Governor’s proposed budget.
The Governor has proposed a number of cost-containment and other actions in an effort to reduce the financial burden Medicaid imposes on the State and its localities. The State Division of the Budget estimates that these measures could widen HHC’s FY 2006 budget gap by $200 million, and HHC estimates that the impact could be as high as $275 million. The Governor’s Working Group on Health Care Reform recommended that the State reallocate certain subsidies to hospitals, such as HHC, that have increased the care they provide to the uninsured and underinsured.
HHC is making progress on a number of cost-reduction and revenue-enhancement initiatives to close the budget gap projected for FY 2006. These include retroactive rate appeals, staff reductions, and additional federal and State aid. The budgets proposed by the Governor and the President, however, include cuts that could adversely affect the HHC. The City recently increased its subsidy to HHC by $150 million and, unless HHC’s gap-closing efforts are successful, the City could be called upon to provide additional assistance.
“HHC has done a lot to reduce costs, increase revenues, and improve efficiencies. Unfortunately, it has to do more,” Hevesi said.
As part of the Comptroller’s continuing efforts to improve the financial reporting and transparency of public authorities, HHC has agreed to prepare its four-year financial plan on both an accrual and cash basis, and to reconcile the differences so that a more complete picture of HHC’s finances can be obtained. Although the Governmental Accounting Standards Board (GASB) requires HHC to have its independently audited financial statements prepared on an accrual basis in accordance with generally accepted accounting principles (GAAP), HHC’s four-year financial plan is currently prepared only on a cash basis.
The report also found that: