Why NYC’s Safety-Net Provider Is Still Struggling After Billions in Federal Aid

July 14, 2023 - New York City Health and Hospitals Corporation (NYC Health + Hospitals) received one of the largest issuances of COVID-19 relief funds from the federal government compared to all other health systems during the pandemic. But three years later, administrators expect to run a negative operating balance of $144 million, worsening the health system’s already $2.9 billion deficit.

NYC Health + Hospitals is the biggest municipal health system in the US, serving more than 1 million patients in New York every year.

In 2020, NYC Health + Hospitals received $1 billion from the Provider Relief Fund (PRF) to manage expenses related to the COVID-19 pandemic. In the years following, the safety-net health system received additional PRF payments worth $197.3 million and FEMA grants worth $841 million for its COVID-19 response.

In total, NYC Health + Hospitals received roughly $2.1 billion from the federal government to cover losses and added expenses from the years-long pandemic.

However, system administrators continue to describe a bleak financial picture for the health system. Lingering effects from the pandemic, including staffing shortages and operational costs, are still impacting the health system’s financial standing, while insufficient reimbursement rates from the federal government, looming risks to Medicaid supplemental funding, and aging infrastructure are exacerbating financial challenges.

New York City and COVID-19

NYC Health + Hospitals employs 45,000 healthcare professionals across 11 hospitals and 70 patient care locations throughout the five boroughs of New York City. In 2019, uninsured and Medicaid-insured patients accounted for approximately 66% of inpatient discharges and outpatient visits across the system. During the pandemic, the organization was instrumental to New York’s COVID-19 response, and it has continued expanding its services to underserved populations across the metropolitan area.

NYC has recorded 3,109,202 coronavirus cases and was considered the disease’s epicenter early in the pandemic. Nationwide, the CDC attributes 1,130,000 deaths to the virus, 4% of which occurred in the city.

NYC Health + Hospitals instituted its COVID-19 Test and Trace program in 2020, providing 14 million tests, administering 580,000 vaccines, and housing 33,000 quarantined New Yorkers before terminating the project at the end of the 2022 fiscal year (FY).

FEMA granted the health system $383.1 million to run the program from June 2020 through June 2022. During that time, the organization received $571.4 million in patient revenue and $450 million in third-party payments from the project. It is estimated that NYC Health + Hospitals incurred $2.7 billion in expenses to provide test and trace services on behalf of the city.

Reimbursement for these costs has come mostly from grants, including $1.2 billion for Epidemiology and Laboratory Capacity, $1.1 billion in FEMA reimbursement, and $214 million in American Rescue Plan Act funds.

The health system also provided at least $139 million in pandemic-related healthcare services that were not reimbursed.

Upon receiving the last of its grant revenue, NYC Health + Hospitals managed to turn a profit from its Test and Trace program. However, other initiatives like providing emergency care to the sick and dying, building infrastructure to support patients, and paying for staff and equipment have negatively impacted the health system.

The Cost of Temporary Healthcare Staffing

According to a New York City Comptroller report, NYC Health + Hospitals hired thousands of specialists and nurses to manage staffing needs during the pandemic. The same report estimates total pandemic-related costs incurred by H+H to be at least $2 billion through 2022. In FY 2020 alone, these costs were $788 million.

The Comptroller report also showed that an NYC Health + Hospitals cost-saving initiative created in 2015 may have primed the health system to face worse staff challenges during the pandemic.

Via that initiative, administrators dropped 3,502 employees over a two-year period, including over 1,000 clinical roles. From 2018 to 2020, the health system readministered nearly 2,000 of the 3,500 full-time positions that were let go. The roles that were added back included 757 nurses, or 400 more than were initially fired.

However, during the first year of the pandemic (February 2020 to May 2021), the health system’s employment decreased again. This time, the health system lost 327 nurses, 104 licensed practical nurses, and 155 aides at a time when they were needed most.

As the pandemic continued, NYC Health + Hospitals procured 82 new service contracts, including staffing, hotels, medical equipment, supplies, and technology. These contracts comprised agreements with 30 agencies to secure 4,000 nurses, 500 medical providers, and more than 450 additional staff.

President and CEO of NYC Health + Hospitals Mitchell Katz testified at a May 16th city council meeting that the health system had spent $549 million to pay for roughly 2,000 of these temporary workers in 2022.

The sum is staggering, equating to almost half of all PRF received by NYC Health + Hospitals to deal with the pandemic. Katz shared that these payments would contribute to the organization’s $144 million operating deficit this fiscal year.

NYC Health + Hospitals has been unable to introduce bonuses to retain permanent staff despite an industry-wide push for better incentives to alleviate staffing shortages. Lacking the ability to entice staff to stay, the health system continues to rely on expensive temporary labor, which makes it even more difficult to reach the financial footing needed to retain permanent staff.

And despite the increased reliance on temporary staff, NYC Health + Hospitals’ cost for full-time personnel has also continued to grow.

Covered employee payroll, or the cost associated with full-time pensioned employees, has increased every year since the start of the pandemic. In 2022, the cost of these full-time employees was $2,548,754,000, representing a $200,000,000 increase compared to 2020.

Medicare and Medicaid Reimbursement

From June 2021 to June 2022, NYC Health + Hospitals’ ‘estimated pools receivable’ decreased by $581 million, almost entirely due to a drop in supplemental payments.

Supplemental payments, according to the Commonwealth Fund, are either disproportionate share hospital (DSH) payments or upper payment limit (UPL) payments. The federal government established these payment programs to stabilize funding for safety-net hospitals that treat a disproportionate share of Medicaid and uninsured patients, as well as to cover low Medicaid payments.

As a safety-net health system, NYC Health + Hospitals relies immensely on supplemental payments and other forms of safety-net funding. However, DHS payments dropped in 2022, according to financial statements. Meanwhile, the health system brought in over $600 million in UPL payments.

The health system worried in its financial statement that cuts to the DSH required by law may extensively damage finances in the near future. Hospitals and health systems across the country share the same concern, but lawmakers have delayed the planned DSH cut for nearly a decade, and they may postpone the cuts indefinitely thanks to intense lobbying from healthcare groups.

NYC Health + Hospitals also claimed that insufficient Medicare and Medicaid reimbursement rates negatively impacted the system’s finances and jeopardized its ability to provide patient care. AHA data estimates that the disparity was large in 2019, with Medicare and Medicaid reimbursement rates amounting to 87 and 90 cents per dollar spent, respectively.

According to financial filings, NYC Health + Hospitals received $1.1 billion more Medicaid payments in 2022 compared to 2021. Meanwhile, it reported $100 million fewer Medicare dollars that year.

This considerable reduction in Medicare payments can be partially explained by a drop in COVID-19 patients for which hospitals like those run by NYC Health + Hospitals received enhanced Medicare rates.

During the pandemic, NYC Health + Hospitals also significantly increased its total revenue from patient services. This follows a longstanding trend that saw patient service revenue rise drastically from $5.6 billion in 2017 to $7.8 billion in 2022.

If all goes according to plan, NYC Health + Hospitals will garner $622 million in 2023 from supplemental Medicaid payments. On top of this, the organization’s significant 340B Drug Discount Program payments will return to normal after the Supreme Court deemed cuts to the program unlawful.

H+H’s Physical and Digital Infrastructure

Projects to upgrade the health system’s facilities and information technology assets have created significant costs for NYC Health + Hospitals and the city.

Among the physical infrastructure improvements are three new build projects that have an estimated budget of $662.5 million. These include Bellevue Hospital Center, Woodhull, and North Central Bronx. The funding for these buildings will come primarily from the city capital. During FY 2022, the health system freed up $36.6 million for these projects’ construction.

In response to Hurricane Sandy, NYC Health + Hospitals is still repairing and improving Bellevue and Metropolitan Hospital Center in Manhattan, Coler Rehabilitation and Nursing Care Facility on Roosevelt Island, and Coney Island Hospital in Brooklyn. Last year, the health system spent $7.6 million on the buildings utilizing FEMA funds.

NYC Health + Hospitals also recently leveraged $137 million in city funding to build projects in three locations for patients affected by COVID-19. The comprehensive facilities are located in neighborhoods most impacted by the pandemic and include specialized capabilities. The facilities bear a total estimated cost of $141.0 million as of June 30, 2023.

The final significant facilities upgrade is NYC Health + Hospitals’ energy efficiency project which cost $32.3 million in 2022 and has a budget of $271 million.

Additionally, NYC Health + Hospitals is in the middle of a massive EHR implementation called H2O Epic. The endeavor has a budget of approximately $764.0 million for the clinical portion and $289.1 million for the revenue cycle portion.

This is considered one of the largest EHR projects in the country. In FY 2022, the health system spent $14.5 million building the EHR system.

In addition to the EHR, NYC Health + Hospitals used $33.7 million in FY 2022 to upgrade the system-wide network infrastructure.

Altogether, NYC Health + Hospitals has an outstanding liability of $359,341,000 to the city of New York. The health system expects to spend $619 million in 2023 on continued upgrades and rehabilitation projects.

Healthcare Spending Going Forward

NYC Health + Hospitals is the lynchpin that provides underserved New York City residents access to care. Federal and local funds have helped to keep the health system’s doors open across the city, but NYC Health + Hospitals is still facing a serious budget shortfall in 2023.

The most pressing challenge for the health system is its spending on staff. NYC Health + Hospitals is currently spending hundreds of millions of dollars on temporary nurses, and the organization’s nurse vacancy rate is still at 15% as of May 2023.

Recently NYC Health + Hospitals implemented incentives, including student loan relief, retention bonuses, and a clinical ladder program to alleviate some staffing problems. However, the State’s Comptroller expects the reliance on temporary staff to continue through 2024.

In addition to its difficulties with maintaining staff, NYC Health + Hospitals is also channeling capital into critical infrastructure during a period of inflation that has affected construction materials. This may have a negative impact on infrastructure spending in the future.

At the same time, NYC Health + Hospitals is increasingly dependent on city government capital to accomplish its goals while tax revenues drop precipitously post-pandemic.

Internal projections expect the healthcare system to achieve a positive operating margin of $78 million in 2025. The corporation will aggressively pursue insurance plan negotiations and other savings to achieve its goal. This will be dependent on substantially increasing enrollment in NYC Health + Hospitals’ MetroPlus health plan, leveraging more federal reimbursement or higher rates, and overhauling the current staffing plan.

Despite challenges, NYC Health + Hospitals is actively addressing its financial future. By implementing incentives and pushing the MetroPlus plan, NYC Health + Hospitals is committed to reducing reliance on temporary staff and improving reimbursement rates. The onus is now on the organization’s payer and government partners to guarantee profitable arrangements that secure the system’s future.

Still, NYC Health + Hospitals is the largest safety net provider in the country, and if it is experiencing financial difficulties, it could mean that other safety net providers are also struggling. As pandemic Medicaid coverage unwinds in the coming months, regulators should pay close attention to the effects on underserved populations and their providers and be prepared to act if needed.