ALAN D. AVILES
HHC PRESIDENT AND CHIEF EXECUTIVE
REPORT TO THE BOARD OF DIRECTORS
SEPTEMBER 24, 2009

As you know, HHC is challenged by large projected financial deficits for next fiscal year and the years thereafter. In addition, all of the congressional proposals for national healthcare reform now under consideration threaten to dramatically reduce the federal funding that supports HHC and other public hospitals across the country. In light of these harsh realities, we have acted over the last year to contain costs, to generate additional revenue, and to advocate strenuously for HHC at all levels of government. However, it is clear that we must do more to safeguard HHC and its mission for the future.

For these reasons, we have, with your approval, engaged a consulting firm, Deloitte LLP, to help us analyze how we might restructure our service delivery for greater efficiency and effectiveness while preserving access to all needed services for our patients. Over the course of the next six months, a team from Deloitte will work closely with a Restructuring Steering Committee that comprises senior leaders from Central Office and our networks. I have created a Restructuring Management Office to support and facilitate the Deloitte engagement and the implementation of those restructuring recommendations that we choose to act upon. Frank Cirillo will lead this office in the role of Chief Restructuring Officer and Francis Pandolfi will assist him as the Restructuring Project Manager. Both are assuming these responsibilities on a full-time basis. We will also recruit incumbent HHC employees to serve as Borough Restructuring Project Managers. In addition, leadership from across our system and subject matter experts from many areas of the Corporation will be called upon to make contributions in both the initial analysis/development phase and the implementation phase.

Together, we will undertake an extensive analysis of opportunities for, among other things, consolidation of select clinical and administrative services. Deloitte's analysts will be reviewing data related to our operations and service delivery and will be meeting with individuals across HHC. Of course, we do not yet know the outcome of this process, but the end goal is to realize structural and service delivery changes that will maximize our efficiency and produce significant cost savings while preserving as much patient access to needed services as possible. We also have asked Deloitte to provide recommendations for the restructuring of Central Office to more effectively and efficiently support all HHC facilities.

The initial changes will happen quickly, but the profound organizational changes that lay ahead will take time to develop and be fully realized. None of this will be easy -- fundamental change never is -- but our extraordinary progress over the past 10 years clearly demonstrates that those who work for HHC believe deeply in our mission and are committed to positive transformation. I have confidence that together we now will build the extraordinary HHC of tomorrow.

On September 1st, I joined Mayor Michael R. Bloomberg and other City officials to announce the City's multi-pronged strategy to protect New Yorkers from H1N1 and seasonal flu this fall and winter. Numerous primary-care clinics, including some HHC facilities, will be designated as "flu centers" that can give flu immunization and information. The City will offer free flu mist and flu shots to elementary school students with parental consent. The City also discussed the lessons learned this past spring and the measures that would be taken to expand emergency department capacity, if necessary.

Additionally, this year the New York State Department of Health has legally mandated that flu vaccinations be given to healthcare workers, for both the seasonal and H1N1 viruses, as a condition of employment. Although many of our employees have voluntarily accepted flu vaccinations in past years, now vaccinations are required for nearly all HHC employees who work at an HHC hospital, D&TC, community-based health center, or for HHC Health and Home Care. We have instituted an internal communication campaign, through home mailings, payroll stuffers, workplace emails, posters and buttons to inform employees of the new requirement and the availability of free immunizations at their workplace. We started giving flu shots to employees earlier this month, and have the resources in place to immunize all employees for seasonal flu now and for H1N1 flu when that vaccine becomes available in mid-October.

On September 22, HHC staff saw the "Best of the Best" at HHC's 2009 Patient Safety and Quality Expo, hosted once more by Coler-Goldwater Specialty Hospital on Roosevelt Island. Each facility presented its top patient safety projects and competed with their colleagues for top prize awards. Our panel of distinguished judges consisted of HHC Chairman Dr. Michael Stocker, Executive Director of MetroPlus Health Plan Dr. Arnold Saperstein, and Mary Therriault, RN, MSN, Senior Director for Quality and Research for the Healthcare Association of New York State. Projects were judged on a variety of indicators, including their alignment with HHC's goals of quality, safety, transparency, efficiency and patient safety, their use of evidence-based knowledge or emerging best practices, and their measurable and sustained improvement in healthcare safety or quality.

The Grand Prize this year went to Bellevue Hospital for its HELPix initiative, a pictogram-based health literacy intervention to improve communication and decrease medication errors. First Prize in the Hospital category was awarded to Lincoln Medical and Mental Health Center for its study of the positive impacts made by implementation of the Surgical Safety Checklist. Cumberland Diagnostic and Treatment Center won First Prize in the category for Community-Based Services with its program to integrate its tobacco cessation program into the Culture of Safety. The First Prize in the Long Term Care category was tied between Coler-Goldwater, with its program for assessing and managing incontinence, and Gouverneur for its program to improve patient outcomes through enhanced communication between caregivers and families. The People's Choice award went to Metropolitan Hospital for its program to improve patient education in its anticoagulation clinic.

The Expo is a very important event in the life of HHC because it provides a Corporate venue for our facilities to showcase the many innovative, evidence-based patient safety and quality efforts that are taking place across our system. We have set a high bar for ourselves in our quest to become one of the safest healthcare systems in the country. This event helps us to see and celebrate how far we have come toward our goal. Congratulations to all the winners and thanks to staff throughout all our facilities for everything they do to create a safer, more effective HHC.

Congress reconvened on September 8th, after an August recess, during which members of both the House and Senate convened town hall meetings in their communities to interact with constituents on health care reform. In New York, most members have held health care related events that have not been particularly raucous; however, in some districts around the country, legislators have been greeted by individuals who are vehemently opposed to any change. Nevertheless, it seems that few members of either party have changed their positions much on Health reform.

Last week Senate Finance Chairman Max Baucus (D-MT) released the Chairman’s mark of his long anticipated health reform bill, with markup by the full Committee taking place this week.

We continue to have concerns over the inclusion of reductions to both Medicaid and Medicare Disproportionate Share Hospital (DSH) funding in health reform proposals in both houses. For HHC, more than $1.1 billion in DSH funding is in jeopardy. The House version includes $20 billion in DSH reductions, divided equally between Medicaid and Medicare, while the Senate version features a larger cut -- $47.8 billion -- with $24.9 billion coming from Medicaid DSH over 10 years. The Finance Committee DSH reductions closely mirror those in the agreement between the American Hospital Association (AHA) and Senate Finance a few months ago. The Medicaid DSH reductions would be triggered when a state had reduced its uninsured by 50% and the cuts could be as deep as 65% commensurate with the reduction in the percent uninsured in the state.

HHC, in coordination with our allies NAPH, GNYHA, HANYS and New York City, has been working with Senator Charles Schumer, who has submitted an important amendment to the finance bill that would limit the severity of Medicaid DSH reductions to those in the House Bill. The entire public hospital community is very grateful to Senator Schumer for his support. Also, yesterday HHC Senior Vice President LaRay Brown and her staff were in Washington in conjunction with NAPH’s semi-annual legislative day lobbying primarily on the DSH issue, including advocating for the Schumer amendment.

Regarding the New York State budget, Governor Paterson has been asking for months for the Legislature to return to session to close an estimated $2.1 to $3 billion budget shortfall in the current state fiscal year. Yesterday, the Governor convened a leaders meeting in Albany to discuss the shortfall in revenues that is mostly to blame and the need to close this gap as soon as possible to avoid cash-flow issues and the possibility of downgraded bonds. There was general consensus among the leaders that the y will have to come back before the end of the calendar year to close this gap. There was also general agreement to avoid imposing new taxes or fees to offset the revenue gap. Questions remain about the actual size of the gap and how the Legislature would be able to reach an agreement on spending reductions without jeopardizing vital services.

Lt. Governor Richard Ravitch will be convening sessions with the fiscal staffs from the Assembly, Senate and Budget Office to review ideas and potential solutions. Mr. Ravitch has asked the state Budget Office to begin issuing to him weekly revenue reports to help inform these discussions. Legislators also discussed the potential to convene hearings on the budget to gather input from the public and also to consider holding budget conference committee sessions in the next few weeks to openly debate options. HHC staff will continue to work with our legislators to impress upon them the need to help HHC in the budget, and not cut funding any more than they have over the past 18 months. I have met personally with leadership in the Assembly and the Senate to impress upon them the difficult fiscal challenges that HHC already faces, the consequences to any futher cuts to our funding, and the support that HHC needs from our elected officials in Albany. Further meetings for this purpose are being scheduled.

In response to recommendations from our auditors, as well as new regulatory requirements and guidelines from the State Office of the Medicaid Inspector General, HHC has been re-examining its corporate compliance program and policies, and has started to make changes to ensure that the Corporation’s compliance program policies and structure best enable the prevention, detection and correction of any departure from the Corporation’s legal obligations related to, among other things, billing, coding, documentation, and financial transactions. A report from our Audit Committee Chair later in our agenda today will provide you with more information about HHC's Corporate Compliance Program, and the changes that are now being made and reflected in a revised Operating Procedure to be formally issued shortly.

I am pleased to announce that HHC has signed multi-year agreements with two major commercial health insurance providers: UnitedHealthcare (a UnitedHealth Group company which includes Oxford Health Plans and AmeriChoice), and with Aetna Health Inc. These are two dominant health insurance companies in the New York City market, and the new partnerships will offer many more New Yorkers access to care at HHC hospitals, community-based health centers, and home care services.

HHC has had a limited relationship with United Healthcare since 2004 at Elmhurst Hospital and Queens Hospital Center, and with Oxford Health Plans at Coney Island Hospital, Elmhurst Hospital and Queens Hospital Center since 2002. Through this significant expansion, which was effective August 27, 2009, all of our facilities will contract with United Healthcare and its affiliates for commercial, Medicare, Medicaid, Family Health Plus, and Child Health Plus insurance products.

Our agreement with Aetna, which became effective September 21, also involves all of our hospitals, health centers and nursing homes and will cover all of their commercial and Medicare products. HHC will also be participating in Aetna’s NYC Community Plan product, a health plan for businesses with 2 to 50 eligible employees.

Our entry into this vast network of commercial health insurance underscores our competitive, quality services and our recent significant achievements at the leading edge of patient safety, health information technology and chronic disease management. These new partnerships also support our work to further diversify our patient base and attract more referrals from the thousands of community physicians with whom we have forged relationships.

On August 24th HHC deployed the PeopleSoft Human Capital Management System at Jacobi, North Central Bronx Hospital, Central Office and Health & Home Care. The system will provide us with the electronic capture and tracking of health insurance benefit eligibility information for employees and their dependents; online recruiting and applicant tracking; and grievance and disciplinary actions. The system also maintains performance evaluations and core and job-specific competency assessments as part of the employee record. It includes an Electronic Learning Management System (ELM) of employees, linking course completion with satisfaction of competency requirements. The second deployment is scheduled in January 2010 at the Queens and North Brooklyn Networks. The system is expected to be fully implemented by the end of 2011.

Harlem Hospital held a celebration on September 17 to mark the steel topping of its new 150,000 square-foot patient pavilion. This event marks an important milestone in the $272 million city-funded renovation and expansion of a vital community institution. Harlem is in the second year of a five-year modernization plan that involves demolishing antiquated buildings, renovating 183,000 square feet of space, and building a new patient pavilion.

The modernization project demonstrates Harlem's Hospital Center’s anticipation of future health issues. Plans include a new Emergency Department, state-of-the-art critical care and diagnostic units, and new, fully equipped operating rooms. The modernization will connect the Martin Luther King, Jr. Pavilion and the Ronald H. Brown Pavilion, parking garage and EMS Stations, creating one large modern healthcare complex for the Harlem community.

We also celebrated a steel topping on September 21, for Gouverneur Healthcare Services' new 108,000 square-foot addition to the hospital. The event marked an important phase of the $182 million renovation to an institution that has served the diverse population of the Lower East Side for more than a century. The modernization of Gouverneur will create a state-of-the-art residential home for older community residents, as well as a newly designed and outfitted ambulatory care center with a full range of primary and specialty care services.

On September 8, 2009, the first class of 29 students began their two-year clinical course of study at the newly opened LIU School of Nursing at Kings County Hospital Center (LIU/KCHC), the historical site of Kings County Hospital's first nursing school. The 14,000 square-foot renovation, funded by the Mayor's Center for Economic Opportunity (CEO), provides a home for students studying to become Registered Nurses in a creative collaboration between CEO, HHC, and Long Island University. Students completed pre-clinical courses at City University of New York (CUNY) and other institutions and have been admitted for the final two clinical years of study at LIU/KCHC, leading to Registered Nurse (RN) and Bachelor’s of Science in Nursing (BSN) degrees with a commitment to work at an HHC facility for four years. Developing RNs through this innovative program offers economic opportunity to highly motivated city residents at the same time as it helps address a projected shortage of registered nurses in the years ahead. There are 29 RN students in the inaugural class -- 20 are from CEO and nine from LIU. The initial target enrollment is 60 students per year.

New York City Health and Hospitals Corporation and The Long Island University have had a nursing affiliation relationship for many years. Kings County Hospital nurses have participated in the RN to BSN program at LIU for more than 50 years. Therefore, it was a natural progression to establish this educational program at Kings County Hospital Center. The Center for Economic Opportunity was created to provide permanent pathways out of poverty for New Yorkers. The CEO also funds the Department of Education’s Licensed Practical Nurse Program (LPN) at HHC's Coler-Goldwater Specialty Hospital.

The HHC Foundation has received funding from The Fan Fox and Leslie Samuels Foundation in support of Metropolitan and Elmhurst Hospitals' Palliative Care Programs. The $199,000 grant for Metropolitan's Emergency Department Palliative Care Screening Initiative is the second grant the Samuels Foundation has given to the hospital in support of its palliative care program. Elmhurst Hospital will receive $200,000 from the Foundation for an initiative to expand its palliative care program. Last year, in addition to a $200,000 grant to Metropolitan's palliative medicine initiative, the Samuels Foundation also awarded $300,000 to Woodhull Hospital through the HHC Foundation in support of its geriatric mental health services. HHC is very grateful to the Samuels Foundation for its continued support of these important initiatives.

• Reach Out & Read Program, WABC-TV, 8/11/09
• WeCOACH Graduation at Jacobi Medical Center, News 12 the Bronx-TV, 8/6/09
• New Asthma Initiative-Jacobi Medical Center, News 12 the Bronx-TV, 8/5/09
• Back to School Healthy Lunches, News 12 the Bronx-TV, 9/1/09
• Hip Hop Stroke program and the Healthy Living Initiative, The Barry Z Show, 8/31/09
• Hospital CEOs manage staff time, inventory to cut costs, USA Today, 9/10/09
• Drs. Union, HHC Differ On 'ObamaCare' Impact, The Chief, 9/15/09
• N.Y. Hospitals Named Surgical Safety Checklist Mentors, Nursing Spectrum, 8/10/09
• New York Yankees, Lincoln Hospital host health fair for kids, New York Amsterdam News, 8/20/09
• Hospitals Making Headlines, Nursing Spectrum, 9/8/09
• Lincoln Hospital uno de los más seguros de NY (Lincoln Hospital one of the safest in NY), El Diario, 8/28/09
• A commitment to quality health care and patient safety, New York Beacon, 8/13/09
• Jacobi Medical Center Remembers 9-11 Victims, Yournabe, 9/17/09
• Farmers market yields healthy food choices, Queens Chronicle, 7/30/09