• Are children’s hospitals another cost problem?

    Kaiser Health News has up what I’m told is the first in a three-day series on children’s hospitals and costs. Today’s focuses on their growth, increasing wealth, and potentially questionable spending. It’s not pretty:

    The billions of dollars flowing through children’s hospitals every year pay for care for tens of thousands of kids, many of them extremely sick or suffering from chronic conditions requiring a lifetime of treatment. Hospital officials say costs are high because the care is complicated and the technology expensive. In addition, the hospitals help fund research into the causes and treatment of diseases.

    But the surge in spending is also helping to fuel a multibillion-dollar building boom as hospitals add towers and beds.  That in turn is spurring more spending on staff and technology, even as Washington, the states and employers grapple with budget-busting increases in health care spending. While children’s hospitals represent a small slice of the nation’s health care bill, they offer a case study of the expansive ambitions of hospital leaders and the faltering efforts of government to control spiraling costs.

    It’s hard for me not to sympathize with the first paragraph. I’m a pediatrician who is closely affiliated with a Children’s Hospital, who does a lot of research, and complains regularly about the relatively small amount of spending that goes to children. And yet, as my hospital completes its latest “tower”, it’s hard for me not to see the second paragraph is true as well.

    KHN reports that children’s hospitals earn a lot of money:

    The big, freestanding children’s hospitals generally have a huge advantage in the marketplace: They face little competition and provide an essential service, giving them leverage to negotiate favorable prices with health insurers. At some, charges have risen sharply, increasing two to three times inflation, records and interviews show. That has encouraged aggressive expansion and spending on new facilities, costly technology and executive pay…

    In 2009, the elite children’s hospitals reported $1.5 billion in profits – what nonprofits call surpluses. The top 10 alone earned more than $800 million in profits. Children’s Hospital of Philadelphia reported a $197 million surplus and paid its CEO nearly $2.1 million.

    Yet, when it comes to those who can’t pay, these hospitals seem to provide very little in the way of charity care:

    The 39 largest hospitals, KHN found, had accumulated $21 billion in stocks, bonds, real estate and other investments as of 2010 – more than enough to provide an entire year’s worth of medical care for free They had net assets – the equivalent of net worth for nonprofits – of $23 billion.

    Children’s Hospital of Boston, arguably the nation’s best known hospital for children, listed $2.6 billion in stocks and other investments in bond filings.

    Last year, the 400-bed hospital was cited as having some of the highest charges in Massachusetts in a report critical of hospital charges filed by State Attorney General Martha Coakley.  Hospital officials declined numerous requests for an interview, but noted on their website that they have lowered the rate of their increases.

    Even with their tax breaks and wealth, top children’s hospitals provide relatively little charity care. On average, about 2 percent of what children’s hospitals spend is for free medical care, according to the National Association of Children’s Hospitals and Related Institutions (NACHRI), an industry group. Some of the largest and richest children’s hospitals spend less than one percent.

    I wish there were more on-the-record comments in this piece, because I’m sure that the children’s hospitals will feel that some of the charges leveled are unfair. I’m sure they feel they take a hit on providing Medicaid care to children, as about one-third of kids are on some sort of government insurance, which traditionally reimburses on the lower side. Still, though, there are many questions in this piece that need answering.

    I’m curious to see how the rest of the media picks up on this. It’s a pretty damaging piece in terms of finances and priorities. Spending on kids sometimes gets a pass, though. Regardless, I’m very much looking forward to the next two parts of the series.

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    • Just a great post and thanks for the link.

      The media will not pick up this story; it involves a more complex message than they want to present and it may offend some pretty powerful people and criticizing children’s health care is just not done, even if it is the economics of children’s health care and not the care itself.

      As a consultant, in some cases to non-profits I always tell them the first rule of operating a non-for-profit company is to make a profit. Looks like Children’s Hospitals already know that, maybe too well.

    • Not that I’m trying to give hospitals that are wasteful a pass, but my impression is that most non-profit hospitals don’t actually devote a significant amount of money to charity care. Furthermore, for most non-profit hospitals, my impression is that the quantifiable value of the community benefits they provide (charity care, Medicaid shortfall, unreimbursed costs of graduate medical education and research, free programs for the poor being the main categories) is less than the estimated values of the property taxes they’d otherwise incur.

    • “No margin, no mission” is the rule of thumb for even the most idealistic non-profits, but you do want to make sure that the profits (and big executive salaries) aren’t coming at the expense of the hospital’s mission (of which charity care should be an important part).

    • How difficult would it be for a general hospital to create a children’s unit within the hospital that could offer the same quality of care, including the type of environment that seriously ill children find supportive, that could compete with tat provided by specialty hospital?

      • Pretty difficult. Pediatric specialists want to work at pediatric hospitals. You need a critical volume of patients to support those services, which most general hospitals will not have.

        Steve