The Diagnosis 

Four more issues to consider in the children’s hospital debate.

Where to build it?

Where the new hospital would be built is, well, critical. Several sites have been mentioned -- Short Pump, West Creek Business Park and the Brook Road location of the existing Children’s Hospital of Richmond at VCU, among them. Building in the suburbs would be more convenient to the vast majority of children in the region, but it also could be less accessible to inner-city children, the vast majority of whom visit VCU Medical Center. “We are always concerned about access to care – for all children and their families,” writes Anne Buckley, director of university public affairs for VCU and the VCU Medical Center.

But it’s not necessarily a forgone conclusion. Pediatricians Associated to Care for Kids says the location of the hospital isn’t a major issue. Enough acreage can be cobbled together around the existing Richmond Children’s Hospital off Brook Road, sources say, to allow for a 200-bed facility. “Brook Road would be a great site,” says Dr. Melissa Nelson, chair of the public relations committee for PACKids. “Brook Road would be fine if they allowed it to be independent. That’s the issue. You still want it financially independent. You don’t want revenue going back to VCU unless it’s supporting pediatric academics, pediatric research. That’s the whole rub.”

Still, it’s hard to argue that the children’s hospital, if built in either Henrico or Chesterfield counties, wouldn’t be more accessible to the majority of region’s children.

Will it pass anti-trust hurdles?

HCA Healthcare’s Mark Foust, vice president of communications, says the new children’s hospital would have to clear “significant antitrust hurdles because it requires existing providers to forgo some or all of their pediatric services.” This, coupled with the fact that HCA contends that there is no “strong evidence” that a consolidation of pediatric services would improve care, has led HCA’s lawyers to conclude that the anti-trust issues are a real problem. Indeed, according to the model being proposed by the consultants and PACKids, HCA, Bon Secours and VCU Medical Center would all have to agree to give up pediatric beds.

“There is a misconception in the study that … we were demanding that all beds had to be donated,” says Dr. Ted Abernathy, chairman of PACKids. “In other words, they are going to just give up pediatrics.”

Style: That’s not true?

“No. It’s true in the fact that the study made that assumption. But they all agreed to that assumption, and the reason they agreed to that assumption, and the reason we made that assumption, is because we wanted this study to determine the feasibility of the hospital, and the sustainability. And if you got into how much a bed costs … they wanted to avoid that argument because they were just trying to say, is this hospital even feasible? Will it work? Is it a good business case? Can we prove the business case? And [consultants] did.”Still, one lawyer who has reviewed the proposal for PACKids, says the new hospital should clear the anti-trust hurdles, and would “probably be pro-competitive if anything.”

“It’s not clear to me that HCA and VCU and Bon Secours truly compete for all pediatric services today, so this will not result in a lessening of services,” says Eric Berman, partner and co-chair of the anti-trust group at Williams Mullen law firm in Washington. “I wouldn’t focus on HCA’s complaint. The issue is ‘How does this affect patients and the community?’ Based on what I know today, I think the anti-trust risk is relatively low.”

Is a freestanding, independent hospital really better?

The Children’s Hospital of Richmond at VCU claims it isn’t. In a letter published in the Richmond Times-Dispatch in early February, VCU claims that “Less than a quarter of children’s hospital nationally are freestanding, and with good reason -- virtually all of the top 10 children’s hospitals in the U.S. are affiliated with an academic medical center like VCU Medical Center.”

Yes, it’s true that most children’s hospitals aren’t independently run and free-standing, but the best ones are. Just look at the top five children’s hospitals as ranked by U.S. News & World Report -- all are affiliated with academic institutions. But they are also independently run, and free-standing.

The reason, proponents say, is simple: Children’s hospitals that are independently run have only one mission -- to take care of kids. Children’s hospitals run by adult hospital systems often are left fighting for resources because pediatrics represents only a small fraction of their overall revenues, explains Farzan Bharucha, a partner with Kurt Salmon, the consulting firm hired to study the feasibility of building a new hospital.

“It is interesting when you start to look at all of the nationally ranked children’s hospitals in the country,” Bharucha explains during a town-hall style meeting at St. Paul’s Episcopal Church in early February. “They are all affiliated with academic medical centers, that part is absolutely true. But if you go through the Top 10 children’s hospitals … if you think about Children’s Hospital of Philadelphia, or Boston Children’s, or Cincinnati Children’s, or Texas Children’s, or Seattle Children’s, typically all in the top five, they are all independent, free-standing entities.”

Will health care reform threaten to derail it?

VCU contends children’s hospitals face an uncertain economic future. A university official points to a series of reports outlining the grim outlook of pediatric hospitals, and the “reality that federal-state health plans account for about half of children’s hospitals’ revenues, and state funding for these programs is not trending upward.”

Nonprofit children’s hospitals and safety-net hospitals such as VCU Medical Center that serve a large number of uninsured patients receive funding through the Medicaid and Medicare Disproportionate Share Hospital programs to help offset the costs. The assumption is that the number of uninsured patients will fall dramatically as the Affordable Care Act is implemented, leading to a decrease in funding through those reimbursement programs.

The funding is significant. In the most recent feasibility study completed by Kurt Salmon, the consultants forecast that the new hospital would receive $15 million a year through the disproportionate share programs, which has a significant impact on profitability. By year eight, for example, without the state and federal funding the hospital would generate $25.5 million in profit, or a 6.9 percent margin; with the funding the hospital would bring in $41 million, an 11 percent margin.

So it’s nothing to sneeze at. Proponents of the new hospital, however, say it’s all a wash anyhow. Reimbursements for all hospitals are decreasing, not just for children’s hospitals, so it’s a moot point.

“If there is a large change to reimbursement because of the [Affordability Care Act] it will impact every provider of children’s health care,” Bharucha says, adding that children, in fact, are the least affected by health care reform. “There are not that many kids that are not insured. It’s more likely to affect the adult hospital.”

He also points out that children’s hospitals are far better at fundraising. And the economies of scale created by consolidating care at one hospital would help offset the declining state and federal funds.

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