When a multibillion-dollar corporation barely breaks even, it's not unusual for top executives to get the ax.
But if the corporation is responsible for keeping afloat the nation's largest municipal hospital system, any margin, apparently, is cause for celebration.
Early last month, with the pomp and circumstance of a mayoral address, the $4.5 billion New York City Health and Hospitals Corp. ticked off the financial and operational watermarks of what it called a "dramatic turnaround." Speaking to a packed room at Bellevue Hospital Center, Mayor Rudolph Giuliani, one of the corporation's top critics, said HHC's progress "really is a great story of success."
The corporation has, in fact, made some important strides:
In fiscal 1996, HHC recorded 1.8 million primary-care visits, a 19.7% gain from three years ago. Over the same period, emergency room visits declined 7.1% to 805,532 last year.
Since fiscal 1994, each of HHC's 11 acute-care hospitals has received three-year accreditation from the Joint Commission on Accreditation of Healthcare Organizations. In the prior three-year period, the corporation struggled to make the grade. Six hospitals received delayed or conditional approvals.
HHC is holding its medical school and teaching hospital affiliates more accountable for the services they provide and saving money at the same time. In fiscal 1995, it paid affiliates $534 million for a variety of physician services. But under a new set of performance-based contracts, HHC's physician costs will tumble to $481.4 million this year and $400 million by 2000.
A campaign to shrink corporate bureaucracy has reduced total head count throughout HHC by 24%. Its roster of central office employees is 60.5% smaller.
But a closer look at the accomplishments shows the party may have been a bit premature.
HHC claims to be in the black for the first time ever. For the fiscal year ended June 30, 1996, the corporation posted net income of $143.4 million, for a total margin of 3%. In previous years, it ended with net losses in the hundreds of millions. Fiscal 1995's net loss topped $147 million.
But if you look carefully, those numbers are less sensational than implied. HHC's profitable year can be traced to a one-time, $359 million Medicaid settlement from the state and savings from personnel reductions.
"I think the real story is.*.*.*the city continues to squeeze them somewhat," says Martin Arrick, a director with Standard & Poor's Corp., a New York-based bond-rating agency.
The city pays HHC for services provided to prisoners, members of the uniformed services, the uninsured and certain corporation expenses. But over the past five years, the subsidy has been squeezed dramatically.
In fiscal 1992, the hospital corporation received $281 million from the city, representing 9% of total revenues. Last year, though, HHC paid the city $145 million as reimbursement for certain appropriations made from 1983 to 1990. HHC squared up with the city after settling longstanding Medicaid rate appeals with the state.
In fiscal 1997, the city's subsidy is projected to be less than 2% of HHC's total revenues. In the following year, the city will end its reimbursement of HHC's bad-debt and charity-care costs, which will be supported through payments from a state pool designated for those purposes.
To its credit, HHC reported positive net income in fiscal 1996 despite write-offs of suspended capital proj-ects. In fiscal 1996, the corporation took a $56.9 million charge against current operations. That included a $56.5 million write-off for planning and development costs associated with the construction of a replacement facility for Kings County Hospital Center in Brooklyn.
The reconstruction of Kings County, HHC's largest hospital, began in 1989. But after running $424 million over a $500 million budget, the proj-ect was placed on ice. Under a new plan, HHC is exploring development of a new hospital consolidating the inpatient services of Kings County and neighboring University Hospital of Brooklyn-State University of New York Health Science Center. But according to HHC's bond documents, such a project can only be funded with the state's participation and financial support.
HHC continues to fund only the most pressing capital needs. According to a 1996 report by the City Hospital Visiting Committee, a voluntary watchdog organization, HHC's "major capital projects came to a virtual standstill." It's vital, the committee report states, that city hospitals "have a budget for a reasonable level of infrastructure upgrading every year, which will save money over time."
Days after the mayor's press conference, HHC sold $320 million of variable-rate debt backed by letters of credit. The corporation said bond proceeds will fund ongoing capital needs, including renovations and equipment purchases. Based on its current capital plan, the corporation expects to spend $380 million during the next four years. In fiscal 1994 through 1996, the corporation spent about $419 million on capital requirements.
Because of a legal structure that holds the city responsible for HHC's debt, the corporation maintains a BBB- rating-the lowest investment-grade rating possible-on $229 million in outstanding long-term debt.
But according to Standard & Poor's Arrick, HHC is no more creditworthy now than it was several years ago. "I think the fundamental underpinnings of the credit remain the same," he says.
As the safety net for New York City's poor and uninsured, HHC operates under extraordinarily difficult circumstances. Because most of its revenues come from government payers, the corporation is more vulnerable to legislative changes affecting payment levels than many providers.
It also depends heavily on payments from the state's bad-debt and charity-care pools to offset unreimbursed care. In fiscal 1996, the corporation estimates it spent $284.8 million to provide charity care.
HHC draws about 60% of its revenues from Medicaid and serves about 40% of the city's 1.7 million Medicaid eligibles. As the city's largest Medicaid provider, HHC says it is "striving to retain its Medicaid patient and revenue base by increasing enrollment in MetroPlus," its managed-care plan. But MetroPlus trails two competing HMOs-Health Insurance Plan of Greater New York and Oxford Health Plans-and is losing ground. As of February, HHC had enrolled 42,100 recipients, down 10% from September 1996.
At the press conference, Luis Marcos, M.D., HHC's president, acknowledged that plenty of work lies ahead for the system. But he says HHC is moving in the right direction. "I think this is a process," he says.