Quite the opposite, in fact. Indeed, Deloitte had every reason to power forward. Having bested its closest competitors in a series of presentations to senior HHC management in the spring of 2009, the firm was not just adding another client to its portfolio. It was also keeping a firm grasp on the latest holy grail of management consulting—the public sector and its money.
Moreover, because Deloitte was hired through an expedited negotiation acquisition process, with HHC arguing that there were only a limited number of firms capable of doing the work, it meant that it would be difficult for anyone, like the city comptroller or the unions representing HHC workers, to kick up a fuss. And while the amount of the contract, $3.85 million, was hardly a king's ransom, it was nothing to sneeze at—averaging out to a healthy $160,000 a week for six months of work.
Finally, one of the best reasons to work for HHC: The agency was taking the unusual step of revising its executive hierarchy to create a restructuring steering committee to oversee Deloitte's analysts as they gathered and collated data on the 38,000 employees and 1.3 million patients who make up one of the oldest and the largest public health care delivery systems in the U.S.—making the contract for HHC seem not only possible but eminently doable.
With HHC senior staffers working side by side with Deloitte consultants to monitor the data gathering, HHC was helping in two ways, guiding the intelligence gathering and cutting down on the possibility of any miscommunication between consulting firm and client.
In fact, once Deloitte was hired, the only truly politically sensitive issue was HHC's problem, not Deloitte's: letting the unions know about the reorg and weathering the inevitable storm of questions and criticism that would arise.
That would not be a pleasant task for HHC. So the corporation waited. And then waited some more. Finally, six weeks after Deloitte's official start date of Sept. 30, 2009 (and four days before the consulting firm submitted its first bill—for $787,500), HHC president Alan Aviles met with the hospital system's municipal labor committee on November 9 to announce the sweeping review of the system—its 11 hospitals, four nursing homes, six diagnostic and treatment centers, and 81 community clinics—that was already under way. It was no secret to anyone in that meeting that HHC was under the gun. With the corporation facing a projected budget deficit for FY 2011 of $1.2 billion, according to its own calculations—a deficit due to the combined result of cuts in Medicaid funding, a rise in uninsured patients and climbing pension and health care costs for HHC workers—time was of the essence in not just identifying the changes the hospital system needed to make but also making them.
But DC 37, the city's largest municipal union, was immediately on its guard with the news that it was Deloitte leading the reorganization. No one from the union was invited to sit on HHC's restructuring steering committee, according to Henry Garrido, assistant associate director of DC 37. The union was simply there, in effect, to be told what to do. Not that DC 37 didn't have ideas for how to reduce the fiscal pressure on HHC, and the city for that matter. Twice in the past decade, the union released white papers outlining ways the city could save money. In a 2002 white paper headlined "We Can Do the Work," DC 37 estimated the city could save $121 million if it contracted in more of its services—ending the widespread use of temporary clerical, secretarial and handyman workers across city agencies as well as cutting down on consultants in the Board of Education.
And in February of 2009, seven months before Deloitte came on board, the union released "Massive Waste in a Time of Need," calculating that New York City could save $130 million by ending the practice of hiring outside contractors and using city workers to do city work.
The union pointed proudly to the fact that after the release of the 2002 white paper, the Bloomberg Administration had actually cut back on outside contracts and saved the city $175 million in 2004 and 2005. But by 2009, the report noted, city spending on private contractors had climbed to $9.2 billion a year out of a total budget of $60 billion—a $3 billion increase over 2003.
The net result? That there was a "shadow government with a parallel workforce" now embedded into New York City, DC37 Executive Director Lillian Roberts wrote.
But for DC 37, the biggest issue it had going into the November 9 meeting with Aviles was not that Deloitte had been hired to assist with the hospital's reorganization: it was that plans for a major hospitalsystem-wide reorganization had already started, months before.
In a press release posted on HHC's website dated March 19, 2009, HHC listed the financial obstacles it was up against and the series of steps it was taking as a financial course correction: service reductions, layoffs, staff attrition and other efficiencies totaling $105 million. By July 1, HHC's workforce would be reduced by "approximately 400 positions," the press release stated.
Two months later, Aviles appeared before the City Council's finance and health committees to take up where the press release left off: that even after the cuts previewed in March, HHC had to find an additional $211 million in savings—and that was only to address the immediate budget gap. Going forward, HHC was looking at a combined structural deficit of $514 million over the next three years, owing to decreased Medicaid reimbursements from the state and feds. HHC needed help, Aviles told the City Council members; it needed members of the City Council to help the corporation lobby state legislators to stop the Medicaid cuts.
But the state had actually already offered to provide a separate stream of money: $300 million in Disproportionate Share Hospital, or DSH, funding—money the federal government gives to the states each year to help cover the cost of serving the uninsured—provided the city came up with a matching $300 million. The question for HHC was, could it count on the city's support? In previous years, the city had stepped up to the plate, authorizing $500 million annually to assist HHC in closing its deficit. But Aviles told the Council that HHC wasn't taking any chances. It was going to identify targets for other cuts and bring in some outside advice. "My staff and I are in the process of identifying consulting firms with relevant expertise and a deep understanding of the New York City health care environment to assist us with the complex analysis that is required to develop a feasible restructuring implementation plan," Aviles said.
Deloitte was hired that fall. The following May, Aviles had good news: The mayor had pledged to provide HHC with the $300 million in matching funds it needed to qualify for the DSH dollars from the federal government. And on May 11, 2010, Aviles unveiled on HHC's website "Restructuring HHC: The Road Ahead," the Deloitte-inspired, multimillion- dollar reorganization plan that was going to save New York City's hospital system $300 million over the next four years.
Some observers believe the mayoral money was a reward to HHC for undertaking a consultant-led reorganization plan. It looked like the mayor agreed to "do the DSH matching and give HHC dollars—if they agreed to come up with a four-year plan to cut their budget by $300 million, and that led to layoffs and the like," observes Judy Wessler, director of the Commission on the Public's Health System, a 20-year- old coalition of community groups, health care activists and health care professionals that advocates for equal access to health care.
In an email, HHC spokeswoman Evelyn Hernandez emphatically denies the suggestion that Bloomberg and Aviles cut a deal: "Mayor Bloomberg was in no way involved in HHC's decision to hire an outside consultant."
But if HHC chief Aviles was testifying before the City Council in May 2009 that the corporation was embarking on cost containment actions, why then did the corporation have to hire Deloitte? According to Hernandez, while the need for cost containment actions had been identified as early as 2008, by the spring of 2009, "HHC senior leadership had determined that a broad, long-term plan" was needed to address the looming deficit.
The directive to Deloitte was clear, according to Hernandez: "Deloitte was asked to provide options for cost containment, restructuring of existing operations, consolidation of administrative services and opportunities for growth. The firm was told that the top priority for HHC leadership was to preserve the public hospital system's core mission to care for all New Yorkers regardless of their ability to pay or immigration status." Whether its recommendations—and HHC's reaction to them—actually preserve that core mission is a matter for debate.
Of the 100 recommendations that Deloitte ultimately made, HHC turned 61 down. Some of the recommendations HHC rejected included closing one-third of HHC's 81 community-based clinics, eliminating most outpatient specialty services and consolidating them into one facility (a move that would have netted HHC $179 million but would have had "high mission impact on HHC patients," wrote Deloitte) and eliminating nearly all long-term-care beds.
The rest of Deloitte's suggestions made it into the upbeat, "we're all in this together" HHC report, The Road Ahead. Among the announced changes was the consolidation of the Coler-Goldwater campuses on Roosevelt Island, with the closing of Goldwater (and the sale of its land) and staff reductions at Coler. There was also the planned elimination of 3,700 jobs, or 10 percent of HHC's workforce, through attrition and layoffs; the closure of six community-based clinics, including five pediatric clinics; and the outsourcing of HHC's 16.5 million-pound- a-year laundry system. They were sweeping cuts. By comparison, the expertise behind them sometimes seemed less than all-encompassing.
Deloitte acknowledged "potential weaknesses" in its analyses, among them that it wasn't clear what all the HHC job descriptions were and that collecting information on patients, surgeries and results was difficult because of "incomplete data." But perhaps the biggest stumbling block was the fact that there was no patient pool truly analogous to HHC's, at least none that Deloitte could find. "HHC's patient population is more diverse than national norms," Deloitte noted in its confidential report to HHC, which was released after a Freedom of Information Law request from City Limits.
Casting about for what both the consulting company and its client referred to as "national benchmarks," Deloitte finally settled on several national reports and sets of statistics. But there were caveats.
One important resource "lacks benchmarks for public hospitals," Deloitte noted. What's more, compared to other systems, "HHC physicians may spend more time in ambulatory settings," "patients may require additional time," and standard service-measuring tools "do not capture teaching activity." In short, HHC's doctors handled sicker and more diverse patients, who required more time than average patients, and who were often dealt with in a teaching-hospital setting. In sum, there was no real comparable benchmark to HHC across the U.S. Perhaps the closest would be the veterans' health care system. With the lack of a real benchmark came a lack of real understanding about the population that HHC serves, say critics of the restructuring.
Not that the consultant didn't point to inefficiencies that needed to be addressed: The intake data collected on patients across HHC was uniformly acknowledged to be uneven, and a flawed billing system cost HHC untold amounts in Medicaid reimbursements. The lack of software compatibility across the sprawling system also made data-crunching enormously difficult and hampered HHC's ability to find better ways to provide service at lower cost to the hospitals.
Then too there was the imbalance in HHC's contracts with outside physician groups, known as affiliation agreements, which Deloitte suggested be renegotiated to save the hospital money. These deals cost HHC dearly not once but twice—once in fees to the outside doctors, and again when those doctors sent the patients to non-HHC facilities for follow-up treatment. With Deloitte's recommendation in hand, HHC says it saved $18.5 million last year by renegotiating those affiliation deals.
But for Wessler, other recommendations that HHC was looking to implement were terrible, such as the shuttering of pediatric clinics, following on the heels of HHC's decision to close four school-based mental health clinics —a decision she determined "appalling." And while Aviles told the City Council that HHC needed to find savings in its central staff and administration, DC 37 says the cuts and layoffs listed in the Deloitte plan fell disproportionately on the lower levels of HHC's workforce—secretaries, janitors, laundry workers, nurse's aides and people like Patsy Carter, who for 24 years has worked at Brooklyn Central Laundry, or BCL.
From 1962 until this summer, workers at BCL on Kingston Avenue in Crown heights handled most or all of the 16.5 million pounds of laundry done yearly for the hospital system. Carter worked there for two decades, making lasting friendships, buying a house and raising three children on her salary, currently about $34,000 a year.
Among the pounding rollers, soaking bed sheets and clanging dryers, a sense of kinship and chivalry was almost literally built into BCL's brickwork, former workers say. After the laundry was delivered, the heaviest and most dangerous work, sorting stained sheets and then loading them into washers, was handled by the men on the third floor. Then the laundry was moved to the dryers on the second floor and down to female workers on the first floor who fed the seemingly never- ending stream of sheets, pads, towels, blankets, scrubs and washcloths through industrial folding machines lined row upon row like hulking metal sentries along the facility's cavernous first floor—eight hours a day, six days a week.
The work was hot, repetitive and hard on the feet and back. The rollers were loud, the sheets were heavy, and in the summer, the temperature could quickly surpass 100 degrees. But for the Brooklyn Central Laundry workers, once 300 strong, toiling and sweating at the laundry facility was akin to living in one big, noisy family for years and years.
The family had been under strain for some time—at least since 1998, when HHC first proposed to privatize its laundry services as a way to save money. Ultimately, a deal was reached with the workers at BCL: In exchange for new machines and the completion of a cost-savings analysis to determine whether it really was cheaper to outsource the linen services, the workers agreed to the redeployment of 63 of their 300 jobs and an outsourcing of a third of the laundry.
HHC in turn signed a contract with the Angelica Textile Services in Edison, N.J., starting in 2000, sending almost 6 million pounds of laundry out of state to be washed, ironed and shipped back.
For the next nine years, HHC's linen service was divvied up between Brooklyn Central Laundry workers and Angelica, with Angelica racking up lawsuits from a subcontractor who sued the New Jersey company for failing to pay for supplies—and won. According to DC37, the cost-comparison study, done in 2001, proved that it was cheaper to do it at Brooklyn Central Laundry – "not by much, but it was cheaper," according to Garrido. HHC maintained it could not find a copy of the survey.
In 2004, wanting to privatize again, this time in the area of food service, HHC went back to the unions and offered a trade: The contract with Angelica would be phased out over time and the 6 million pounds of laundry would come back to Brooklyn Central Laundry if, in return, the union would allow HHC to outsource meal preparation: the food giant Sodexo would prepare the food to be served in all 11 hospitals and four nursing homes and union employees would simply thaw the food, cook it all the way and serve it.
The union agreed. The food deal was done. But the laundry never came back.
(When the Angelica contract ended in 2010, a company called Superior Linen took over.) And when HHC released The Road Ahead in 2010, with the news that the laundry was going to be shut for good, the decision left many reeling.
"From the bottom of my heart, this is one of the most deceptive things that HHC has done," says Carmen Charles, president of Local 420, which represents 9,500 of HHC's 38,000 employees. "The deal was, they were going to bring the laundry back. The deal was, they were going to renovate [Brooklyn Central Laundry]. HHC deliberately did not put any money into the laundry so they could make the argument that they couldn't keep it open because it's old, it's decaying."
"If that was the decision, why did they pay $4 million to Deloitte to tell them this?" she asks. "Deloitte never once set foot in Brooklyn Central Laundry." In July, HHC awarded the new laundry contract to a familiar face, Sodexo, this time leading a consortium of companies including Unitex, a linen and uniform rental company, and Nexera, a management company associated with the Greater New York Hospital Association.
In Deloitte's confidential report to HHC, the savings anticipated by closing the laundry and outsourcing all its services were estimated at $6.1 million a year. In addition, Deloitte wrote, "Decommissioning operations at Brooklyn Central Laundry will eliminate the need for significant capital improvements" to the facility's roof and equipment, "a savings of $1.2 million" a projection that was increased to $2 million in The Road Ahead. But there were risks to this plan, Deloitte warned: "The quality of customer service may be impacted."
Looking at the fine-print of Sodexo's offer raises some doubts about the projected cost savings. In its 100-page response to HHC's laundry service request for proposals, Sodexo said it would be able to reduce HHC laundry costs by $65 million over the span of the nine-year contract. Sodexo said it could pick up, transport, wash, dry, fold, pack, transport and deliver (along with its consortium mates Unitex and Nexera) the 16.5 million pounds of laundry the HHC system produces annually for 61 cents a pound, compared to the union's calculated costs of 70 to 79 cents a pound, and HHC management's calculations of $1.30 per pound. But it turns out the relatively cheap cost of the contract covered only the price of cleaning the sheets, towels and blankets. Separate costs, such as cleaning scrubs and lab coats and cubical curtains, are extra costs under the deal (so is hanging the lab coats on hangers). In case of emergencies, Sodexo could guarantee only that needed sheets and scrubs would be available within a four-hour window, and in such a situation the price of getting the needed linens would rise past the $0.61 per pound initial cost.
Also in the Sodexo RFP was an endorsement from former HHC Chief Operating Officer Frank Cirillo— signer of the checks totaling $3.85 million to Deloitte over the six-month period it worked for HHC. Regarding the complete outsourcing of HHC's laundry services, Cirillo wrote, "Every so-call[ed] expert we talked to said it would take three years to implement this model at HHC. I didn't have that kind of time. I told the Consortium we had eighteen months and they beat that target!"
Reached by email, Cirillo, who retired from HHC in January 2011 to start Cirillo Consulting Group LLC—along with former HHC executive Stanley J. Pruszynski, HHC's former corporate compliance officer—refused to comment.
For its part HHC vigorously defends the awarding of the laundry service contract to Sodexo. "I can tell you that the HHC contract with the consortium, a joint venture, to meet HHC's laundry needs for a term of nine years will generate a total savings to HHC of $72 million," Hernandez writes. Not only is this a money saving deal for HHC, "most other hospitals in the city outsource their laundry operations," she notes. It'll be years before the claims of cost savings can be tested. But already, the outcomes of the privatization have come under fire, at least from former Brooklyn Central Laundry workers, now assigned to new jobs throughout the HHC system.
According to Carmen Charles, this fall the management at Lincoln Hospital in the Bronx sent out a notice to its cleaning crew in the hospital that the new private laundry service was having difficulty getting the laundry distributed around the hospital in a timely manner and former BCLers were being asked to pitch in to assist. Charles was incensed: "They take this work away from us, they give it to someone else who is supposed to know how to do it, and do it for less, and then they want my workers to do the work? No way."
Asked about reports of problems in getting the laundry distributed at Lincoln Hospital, a spokesman for Sodexo says that HHC had not complained of any problems to Sodexo. "HHC is pleased with the way things are going," says the spokesman.
Failing to get bed linens and towels to patients in one hospital during a major transfer of operational reins is hardly sufficient reason to condemn the whole privatization process. But critics say Sodexo is a company that needs to be watched—and carefully. In 2010 the company was forced to pay a $20 million fine, the largest settlement negotiated by then-Attorney General Andrew Cuomo under the New York False Claims Act, for failing to pass on rebate savings to 21 New York school districts and the SUNY college system. The failure to pass on the rebate was a "clerical error, which was found and fixed," says the Sodexo spokesman.
The closure of the Brooklyn Central Laundry is only one part of the Deloitte-endorsed HHC-restructuring plan. But in a sprawling system that deals with the complexities of modern health care, it offers a single and simple example of what a $3.85 million restructuring strategy can lead to—recommendations based on educated guesses about how a system works, savings projections with loopholes big enough to drive a laundry truck through, a contractor with a spotty record. Like the rest of The Road Ahead, the laundry plan could, indeed, end up saving HHC money. But there is reason to reserve judgment.
So, too, on the human impact of the plan. What will the closure of Goldwater and the consolidation of Coler really mean? What has been the effect of the closure of the clinics? City Limits asked HHC for usage statistics on the clinics that have remained open, but HHC has not provided the data.