Children’s Hospital Oakland Starts Restructuring Plan

Hurt by Low Reimbursements and Economic Downturn, Hospital Cuts Expenditures, Lays off 17 Employees

April 20, 2010

Oakland, Calif.– Children’s Hospital today announced it will cut expenditures, improve business practices and lay off 17 staff members (less than 1 % of its staff) as part of a plan to reduce a projected loss of $26 million.

“We are making these changes now to ensure we are fiscally sound and able to carry out our mission to provide the highest quality pediatric care to all children, now and in the future,” said Dr. Bertram Lubin, who took over as President and CEO of the medical center in August 2009.

On March 25, the hospital announced a three year plan to restructure services, develop new business opportunities, and actively negotiate higher private insurance and government reimbursements to cover patient care costs and enable it to address capital needs.

The not-for-profit regional pediatric medical center said its financial challenges are a result of a poor economy, low government and private commercial insurance reimbursement rates, increasing healthcare costs and a diminishing number and relative lack of pediatric inpatient beds in Northern and Central California public hospitals.

Over the past four years the hospital lost $80 million. In 2009 alone, Children’s Hospital lost $26 million. In January, it lost $3 million. Today’s announcement is targeted to reduce this year’s projected deficit from $26 million to $16 million. The restructuring will have no impact on inpatient, emergency room and critical care services at the hospital, which employs 2,700 staff.

Lubin said two more phases of restructuring will occur this year. The second phase, involving primarily outpatient care services, will be completed midsummer. The hospital expects by then to have partnered with community clinics in a pilot program to provide some subspecialty outpatient care to children using the hospital’s healthcare specialists and physicians. This effort would provide integrated care for patients and improve finances for the hospital and clinics.

Equally important, Lubin said this change will streamline and improve outpatient scheduling and referrals allowing the hospital to be more responsive to the needs of referring physicians and families so that consultations can occur in an expedited and efficient fashion. Additional layoffs may be necessary at that time.

Lastly, in fall, the hospital will review the progress of the first two phases of restructuring and determine what adjustments, if any, are necessary. “Despite the hard decisions being made now and in the future, over the long run we will become a stronger, more efficient hospital,” Lubin said.

Children’s Hospital Oakland’s financial strains have been caused by a number of factors, including low insurance reimbursement rates from government and private commercial insurers and the economic downturn that has affected families’ ability to afford healthcare coverage.

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 an all-time high of 71 percent by the end of 2009. The year 2010 has brought a further increase in Medi-Cal, in some months as high as 73.5%.

Medi-Cal’s reimbursement in California is among the lowest in the nation, with California ranking number 49 out of the 50 States. 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 the cost of the care provided by Children’s. Medi-Cal reimbursement rates are significantly below both private insurance reimbursement rates and below Medicare rates.

“The pediatric healthcare reimbursement system is broken and rather than being rewarded for our commitment to children, we are being financially penalized,” Lubin said.

The hospital is actively and aggressively renegotiating all of its commercial private insurance contracts because the reimbursal rates don’t compensate the hospital for its work.

Lubin and Chief Medical Officer, Dr. Carol L. Brosgart, met with California Congressional leaders in Washington, D.C. last month, to request more government funding to help the hospital continue as the major Northern California pediatric healthcare safety net. They are working closely with the Bay Area delegation and with the federal health agencies to seek appropriate and constructive financial remedies so that Children’s Hospital can continue to provide the necessary primary, secondary, tertiary and quaternary care to the region.

The hospital is actively working to address the insufficient reimbursements that have contributed to the current economic situation,” Lubin added. He said as part of its plans, the hospital will be growing and developing innovative medical programs that advance pediatric health, generate income and contribute to the hospital's financial security.

Lubin said hospital officials will work to generate more private commercially insured patients to help the hospital improve its finances.

Lubin, Brosgart and other senior hospital officials are making ‘house calls’ to private pediatricians, community health centers, and public health agency officials to gather their input for sustaining and growing the hospital’s healthcare services and financial stability in the future.

CONTACT:
Sam Singer
510-428-3120
singer@singersf.com

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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