California children's hospital outlines restructuring plan

More than $80 million in losses over the last four years has led Children's Hospital & Research Center of Oakland, Calif., to develop a three-year plan to restructure its services.

Children's lost $26 million last year alone. The not-for-profit regional pediatric medical center said its financial challenges are a result of the poor economy, low government and private reimbursement rates, increasing healthcare costs and a lack of public hospitals with pediatric inpatient beds.

"We provide world-class healthcare to the sickest children in the region. But we have been losing money at an unsustainable rate," said Bertram Lubin, MD, president and CEO of the medical center since August 2009. "The pediatric healthcare reimbursement system is broken and rather than being rewarded for our commitment to children, we are being financially penalized."

Lubin said California's high unemployment rate has increased the number of families covered by Medi-Cal and other government-assisted programs. From 2008 to 2009, the proportion of Children's Hospital patients covered by Medi-Cal increased from about 60 percent to its current all-time high of 71 percent.

Medi-Cal's reimbursement in California is among the lowest in the nation. It doesn't cover the cost of services provided. For example, Lubin said reimbursement to the hospital ranges from 30 cents to as low as 10 cents for each dollar of care provided.

Children's senior management team has developed a three-year restructuring plan, Lubin said, the details of which will be finalized and implemented by late April or May. A key component is to increase revenue and decrease costs so that the losses in 2010 will be $15 million less than previously projected.

The hospital's plan calls for it to break even in 2011 and return to the black in 2012.

According to Lubin, inpatient, emergency room and critical care services will not be impacted by the restructuring. However, outpatient services will be restructured to ensure they are economically sustainable.

Changes under consideration include:

• Partnering with community clinics – whose federally qualified health center status ensures dramatically higher reimbursements – to deliver some outpatient subspecialty care.
• Supporting medical programs that generate income.
• Renegotiating contracts with public and private insurers to get higher rates, comparable to other local medical centers.
• Reducing workforce.
• Streamlining some service lines.
• Seeking more state and federal funding.

Children's Hospital & Research Center Oakland has 190 licensed beds, more than 2,600 employees and an annual operating budget of more than $350 million.

The hospital's research arm, Children's Hospital Oakland Research Institute, has a budget of about $50 million and is ranked among the nation's top 10 research centers in National Institutes of Health funding to children's hospitals.