Children’s Hospital Oakland Outlines 3 Year Restructuring Plan

Hurt by Low Reimbursements and Economic Downturn, Hospital Says It Must Cut Back, Reorganize Outpatient Services

March 25, 2010

Oakland, Calif.– More than $80 million in losses over the last four years has led Children’s Hospital & Research Center Oakland to restructure its services, develop new business opportunities, and actively negotiate higher private insurance and government reimbursements to cover patient care costs.

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

“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. I am confident we will overcome these financial challenges.”

Reimbursement is among the lowest in the nation

California’s unprecedentedly 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¢ to as low as 10¢ for each $1 of care provided by Children’s.

3 year restructuring plan annouced

His new senior management team, in consultation with Children’s staff members from across the organization and a consulting group, has developed a three-year restructuring plan.

Details of the plan 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.

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

Under consideration by Children's

• Partnering with community clinics—whose Federally Qualified Health Center (FQHC)
  status ensures dramatically higher reimbursements—to deliver some outpatient
  subspecialty care to children we now serve
• Supporting medical programs that generate income and contribute to the hospital's
  financial security
• Renegotiating contracts with public and private insurers to get higher rates, comparable
  to what other local medical centers receive
• Reducing our workforce, with as few layoffs as possible
• Reducing our annual costs by streamlining some service lines
• Seeking more state and federal funding

Lubin and Chief Medical Officer, Carol Brosgart, MD, traveled last week to Washington, D.C. and met with congressional leaders to request more government funding, which would help it continue being the major Northern California pediatric healthcare safety net.

About Children’s Hospital & Research Center Oakland
Children’s Hospital & Research Center Oakland is Northern California’s only independent not-for-profit regional medical center for children. Children’s Hospital Oakland is a national leader in many pediatric specialties and sub-specialties including hematology/oncology, neonatology, cardiology, orthopedics, sports medicine, and neurosurgery. The hospital is one of only two solely designated California Level 1 pediatric trauma centers with the largest pediatric inpatient critical care unit in the region. Children’s Hospital has 190 licensed beds, 201 hospital-based physicians in 30 specialties, more than 2,700 employees, and an annual operating budget of more than $350 million. Children’s is also a premier teaching hospital with an outstanding pediatric residency program and a number of unique Pediatric subspecialty fellowship programs.

Children’s research program, Children’s Hospital Oakland Research Institute (CHORI), is internationally renowned for taking state-of-the-art basic and clinical research and translating it into interventions for treating and preventing human diseases. CHORI has 300 members of its investigative staff, 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. For more information, go to www.childrenshospitaloakland.org and www.chori.org.

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