2000/05/15 – Keeping Hospitals, and Neighborhoods, Alive

CRAIN’S New York Business

May 15, 2000

Keeping Hospitals, and Neighborhoods, Alive By BARBARA BENSON

In August 1995, the Giuliani administration asked its commissioner of mental health, Dr. Luis R. Marcos, to become president of the New York City Health and Hospitals Corp. Dr. Marcos agreed, but with the stipulation that his title be acting president.

He wanted to be able to return to his old post in case things didn’t work out.

«I had a feeling this was an impossible job,» the psychiatrist recalls. «HHC was a demoralized agency with people in crisis.

Dr. Marcos never went back to being commissioner. He has spent the last few years turning around HHC’s fortunes by slashing labor costs and restructuring operations. In a surprising turn, the hospital system now operates in the black, without city subsidies.

But achieving self-sufficiency was beyond Dr. Marcos’ dreams back in 1995, when he had plenty of reasons to be skeptical about becoming the system’s president. Before becoming mental health commissioner in 1992, he had been a senior executive at HHC. He’d worked for 14 years in the Worth Street building that houses the headquarters of the municipal hospital system, and seen seven presidents come and go.

That history was a strong reminder to Dr. Marcos of the stormy relationship between New York City mayors and the leaders of one of the country’s oldest and largest public hospital systems. Now it was Dr. Marcos’ turn to take the hot seat.


His new job meant assuming the helm of an institution awash in red ink, and reporting to a mayor who didn’t believe in public hospitals. As part of his mayoral campaign, Rudy Giuliani had pledged to pare down the 11-hospital system. He had proposed that several hospitals be privatized, a suggestion that got him thoroughly lambasted by labor unions, public health advocates and HHC’s workers.

In attacking HHC, many felt, the mayor was jeopardizing the economic engine of some of the city’s poorest areas. Hospitals not only create direct jobs, but also fuel countless local small businesses, such as delis, bodegas and drugstores. In addition, HHC employs thousands of the city’s minorities and immigrants, and many people wanted to keep it that way.

«I met with the mayor years ago and he described his vision of a city without a municipal hospital system,» says David R. Jones, president of the Community Service Society of New York, an agency that advocates for services for the poor, and a former HHC board member. «We’ve been dealing with an ideological war, not a financial war.»

When Dr. Marcos arrived at HHC in September 1995, he had to first work to quell the «emotional turmoil»-many disgruntled senior HHC executives were actively hunting for jobs.Within two months, though, he faced a far more tangible crisis.

HHC, which needed $10 million a day to operate, didn’t have enough money to meet its November payroll. A multimillion-dollar Medicaid check from Albany was late, and only by dispatching an employee to Albany to pick up the check and deposit it directly in the bank did he avert disaster.

Dr. Marcos knew HHC had to stop getting by on a shoestring. «We were able to make it for the next few weeks, but it was clear we had to develop a plan,» he says.


The evidence was on the balance sheet. In fiscal 1996, HHC lost about $250 million in Medicaid revenue due to cutbacks. Discharges were down by 6%, and the system had 8% fewer emergency room visits. Three factors were threatening HHC’s finances, says Dr. Marcos. New York City businesses and the state were demanding lower health care costs. Managed care for the city’s Medicaid beneficiaries was about to be introduced, and Medicaid would no longer be the best, most reliable reimbursement for hospitals. Finally, HHC faced new competition for its Medicaid patients from the city’s private hospitals. The city’s poor now had health care options other than HHC.

The strategy Dr. Marcos devised changed the historic relationship between HHC and the city. The system had been receiving $250 million in city subsidies annually, and routinely relied on $10 million in short-term borrowing to get by. He wanted HHC to be self-sufficient for the first time in its history.

«Balancing the corporation’s budget was never part of HHC’s goals until this administration,» says Dr. Marcos.

The doctor, a disciplined marathon runner, took aim at the hospital system’s cost structure. He consolidated HHC facilities, restructured its affiliation contracts with teaching hospitals and implemented operational improvements that lowered costs. Mr. Giuliani never got away with privatizing HHC-a judge ruled against the city in a lawsuit brought by advocates to block the move.


«Each year, Dr. Marcos has shaped his own agenda. Some years it’s layoffs, other years restructuring management. But it seems that each year, HHC has taken some measured steps forward,» says James Tallon, president of the United Hospital Fund.

HHC’s biggest expenditure in April 1996-when it had nearly 38,000 workers-was labor. The workforce had been cut by 7,000 people since February 1994, but that wasn’t enough. By the time Dr. Marcos was done, the system had 11,379 fewer workers through layoffs, early retirement offers and attrition between February 1994 and September 1999.

«The reduction in staff is a very important ingredient when you talk about the turnaround of this organization,» says Dr. Marcos.

Ironically, the tremendous financial pressure HHC faced in 1996 set the stage for a turnaround in 1999. The hospital system today has a small surplus, at a time when many private hospitals in the city have multimillion-dollar losses.

«HHC has survived, to the credit of Dr. Marcos and his team,» says Mr. Jones, the ex-board member.

Dr. Marcos has succeeded in lasting much longer than his predecessors, continues Mr. Jones, because «he’s been both effective and accommodating to the mayor, which is an act of genius.»

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