The New York City Health and Hospitals Corporation (HHC) is a public benefit corporation created in 1969 to manage public hospitals and other health facilities more efficiently. Currently more than one million patients annually receive care at HHC facilities, and 413,900 are enrolled in MetroPlus, the managed care insurance plan HHC launched in 1985. As a vital component of the safety net for the city’s poor, HHC faces two challenges in coming years:

Containing costs to close operating deficits. HHC’s financial plan indicates a fiscal year 2015 budget gap of $700 million, which is projected to grow to $1.7 billion by fiscal year 2018.

Adapting to significant state and federal policy changes that require alterations to its business model. The effects of state and federal changes to the Medicaid program are still unclear, but they threaten some of HHC’s revenues and require changes to its financial practices.

Looming Deficits

HHC’s budgeted expenses for fiscal year 2015 are $8.9 billion. Almost half that total is for the salaries and fringe benefits of personnel directly employed by HHC. Another 37 percent is for other costs related to running its facilities, such as energy and nonmedical services. The other major expenditures are affiliation contracts with medical schools and physician groups, malpractice claims and depreciation.

HHC revenues are projected to total $8.2 billion in fiscal year 2015. The majority—62 percent, or $5 billion— are payments for the provision of specific services, primarily from the state for people enrolled in Medicaid, but also from the federal Medicare program and other insurers. About one-third, or $2.7 billion, is composed of premium payments for MetroPlus. MetroPlus revenues increased from $485 million in fiscal year 2005, largely due to growing enrollment. Grants and an appropriation from the city comprise the remaining 5 percent of revenue.

This year’s $700 million budget gap is projected to grow to $1.7 billion in fiscal year 2018. Expenditures are projected to grow 5 percent annually, due largely to increasing employee compensation. By contrast, revenue growth will average just 1.9 percent annually. While MetroPlus enrollment and revenues are expected to continue to grow substantially, declines in fee-for-service payments and other revenue shifts darken the picture.

To narrow these budget gaps, HHC plans a $200 million cost containment program, with the savings projected to grow to $400 million by fiscal year 2018. Its leaders have yet to identify how they will achieve these targets, however, and seeking even greater efficiencies will be necessary to sustain the agency’s operations.

Adapting to Healthcare Reforms

Policy changes at the state and federal levels are contributing to HHC’s uncertain financial future. HHC’s dependence on Medicaid makes it especially vulnerable to these shifts. More than half of HHC’s revenue—60 percent—is from Medicaid, including fee-for-service payments, premiums for MetroPlus, and Disproportionate Share Hospital (DSH) supplemental payments.

On the federal level, the Affordable Care Act (ACA) will reduce DSH payments beginning in 2017. These payments will be reduced with the expectation that New York’s population of uninsured patients will decrease as more individuals are covered under the ACA. HHC expects reductions in DSH payments to total $2.6 billion from 2017 to 2024. At full ACA implementation an estimated one million people will remain uninsured in New York City, many of whom will continue to depend on HHC facilities for care.

On the state level, New York’s Medicaid program is entering its fourth year of major reform following the work of the Medicaid Redesign Team (MRT). One goal is to move all Medicaid beneficiaries into managed care plans, almost entirely eliminating fee-for-service Medicaid payments. MRT rate cuts for Medicaid and limits on personal care services and certain therapies have reduced patient volume at HHC for these services, also decreasing revenue.

The state is also in the first year of a special program that waives certain Medicaid requirements and allows the state to invest $8 billion in federal funds over five years to improve patient care. The majority of the funds, about $6 billion, will be directed to Delivery System Reform Incentive Payments (DSRIP) to networks of providers that reduce avoidable hospitalizations among Medicaid patients. Seven HHC hospitals have been identified as lead organizations for DSRIP networks being developed. HHC hopes to draw heavily on DSRIP funds, and its financial plan assumes $1.6 billion in additional federal aid from the program during fiscal years 2015 to 2018. HHC’s participation in DSRIP has the potential to provide a much needed influx of funding; in order to earn the money, however, HHC must meet stringent performance targets.

If HHC is unable to control expenditures and respond to the changing healthcare landscape with a revised business plan, it will incur growing deficits. This would either force a reduction in the services HHC provides New Yorkers or require substantial added subsidies to the organization from municipal taxes.

Fiscal Year 2013

Elizabeth Wyner is a health policy associate with the Citizens Budget Commission.