Numerous pediatric hospitals, like many of the adult ones, face sharply declining revenues and extra expenses.
This article was first published on Tuesday, May 19, 2020 in Kaiser Health News.
Children have largely escaped the ravages of COVID-19, but children's hospitals have not eluded the financial pain the pandemic has wrought on health care providers.
Pediatric hospitals offered themselves as backups to their adult counterparts in case of a surge of coronavirus patients. They suspended nonemergency surgeries and stockpiled protective gear and virus test kits, according to hospital executives and financial analysts.
But, in many regions, the surge was smaller than anticipated – or hasn't materialized. And children's hospitals that have offered to take sick kids off the hands of adult hospitals, or extend the age of people they admit, have not seen an influx of patients to fill the beds they emptied. As a result, numerous pediatric facilities, like many of the adult ones, face sharply declining revenues and extra expenses.
"We turned off a significant volume of our activity for a surge that isn't going to occur. And since we've had continuing expenses, it's been pretty devastating," said Paul A. King, CEO of Stanford Children's Health, which runs Lucile Packard Children's Hospital in Palo Alto, California.
King said he expected annual net revenue for the hospital and its affiliated clinics to drop about 10%. Lucile Packard's net revenue in 2019 was about $1.7 billion, according to data from California's Office of Statewide Health Planning and Development.
Other children's hospitals have given similarly downbeat assessments.
Robin Leffert, a registered nurse at UCSF Benioff's hospital in Oakland, California, said she's seen a "huge drop-off" in patients. Many staffers have been temporarily cut, requiring the nurses who are still working to perform extra tasks. "The physical environment feels different," she said. "There's an eerie, empty quality to it. But that doesn't decrease the tension we are feeling."
Stay-at-home orders have reduced car accidents, injuries and illnesses that would normally bring kids to the ERs of children's hospitals, while parents' fear of exposing their families to the COVID-19 virus has exacerbated the trend.
In early February, Jennifer Griffin, a 44-year-old mother of two boys, decided against taking her 9-year-old for adenoid removal surgery at Renown Children's Hospital in Reno, Nevada, where they live.
"We were not comfortable with what was going on with COVID and didn't know what the exposure was going to be like," Griffin said.
Renown, like many other children's hospitals, has begun to resume some of the nonemergency surgeries it halted as the COVID pandemic spread. Griffin is still not convinced it's safe to bring in her son, however.
"If people continue to not abide by the distancing guidelines and isolation guidelines, I might wait," she said.
Nicholas Holmes, chief operating officer of Rady Children's Hospital in San Diego, said his facility faces similar parent concerns and is making a push — via social media and in collaboration with local pediatricians — to "make sure families know it is safe to come to the campus."
For all their current problems, however, pediatric hospitals were generally in a stronger financial position than adult facilities before the pandemic, so many of them "are absolutely well positioned to weather the storm," said Kevin Holloran, a senior director at Fitch Ratings.
A 2019 Fitch report based on 2018 hospital audits showed the aggregate operating profit margin of a representative sample of not-for-profit children's hospitals was nearly triple that of nonprofit adult hospitals. The pediatric facilities had enough cash on hand to last 1.6 times longer than the adult hospitals.
In California, the average operating profit margin of children's hospitals was almost three times that of non-children's facilities last year — though individual results ranged widely, from an extremely profitable 25.38% for Rady to operating losses for UCSF Benioff's Oakland hospital (-0.78%) and Lucile Packard (-2.53%), according to the Office of Statewide Health Planning and Development.
Holloran and others say children's hospitals typically benefit from strong philanthropic and public support, and their specialization in complex acute cases results in higher prices while often affording them a commanding pediatric market share.
In 2018, California voters approved $1.5 billion in state bonds to help children's hospitals with capital expenses including equipment, construction and seismic retrofitting. That means they can save some of the dollars they would have spent on such projects.
So far, however, just 9% of that money — $142.1 million — has been distributed, and to only three hospitals, according to Frank Moore, executive director of the California Health Facilities Financing Authority.
Children's hospitals across the U.S. have reported declines in surgery and outpatient procedures of 60% to 80%, with inpatient admissions cut by nearly half as of the end of April, said Amy Knight, chief operating officer of the Children's Hospital Association in Washington, D.C.
At Children's Hospital New Orleans, ER visits plummeted from 4,000 in February to 1,700 in April, said Matt Schaefer, the chief operating officer. Outpatient visits dropped from 1,100 to about 400 over the same period. The hospital, like others around the country, has managed to offset some of the loss in outpatient volume with telehealth.
When COVID-19 was wreaking havoc in southeastern Louisiana, the children's hospital offered to take pediatric patients from adult hospitals and admit patients up to age 30, said George Bisset, the chief medical officer. "But we didn't get a lot of takers."
Children's facilities received virtually none of the first $30 billion in federal relief money intended for hospitals and other providers, though they have received some of a subsequent $20 billion tranche.
Children's hospitals that are part of larger health systems may also benefit from the aid received by affiliated adult hospitals. And belonging to a hospital chain can allow for greater operational flexibility, industry executives say.
Cohen Children's Medical Center in Queens, New York, part of the $13.5 billion, 23-hospital Northwell Health system, redeployed numerous staff members to the adult hospitals that were struggling to cope with an onslaught of COVID-19 cases, said Dr. Charles Schleien, Cohen's vice president for pediatric services.
Cohen also turned over more than half its beds to Long Island Jewish Medical Center, an adult hospital connected to Cohen by a hallway, and converted virtually every available space to more adult beds, Schleien said.
But filling beds with COVID patients doesn't offset the lost revenue from suspending profitable elective surgeries anyway, Schleien said. "The economics of it are brutal, because when you lose elective surgeries, that's where your margin is."
Even though children's hospitals have begun to resume nonemergency surgeries, they will likely continue to face financial challenges.
"If we enter into a recession, and particularly if it is prolonged, that will have an effect on hospitals, including children's hospitals, because people won't have jobs and may be uninsured, or more may be on Medicaid, which doesn't pay as well," said Lisa Martin, a senior vice president on the not-for-profit health care ratings team at Moody's Investors Service.
In California, nearly 60% of children's hospital charges are tied to Medicaid, more than double the proportion for adult hospitals, according to OSHPD data. At some pediatric facilities in the U.S., that figure is well above 70%.
After spending staggering sums to mitigate the consequences of the pandemic, Congress will be looking for programs to prune, said Knight, of the Children's Hospital Association. "One with a target on its back is Medicaid."
Jordan Rau, a senior correspondent for Kaiser Health News, contributed to this report.
“We turned off a significant volume of our activity for a surge that isn't going to occur. And since we've had continuing expenses, it's been pretty devastating. ”
Paul A. King, CEO, Stanford Children's Health
Kaiser Health News is a national health policy news service that is part of the nonpartisan Henry J. Kaiser Family Foundation.
Pediatric hospitals offered themselves as backups to their adult counterparts in case of a surge of coronavirus patients.
They suspended nonemergency surgeries and stockpiled protective gear and virus test kits, according to hospital executives and financial analysts.
In many regions, the surge was smaller than anticipated – or hasn't materialized.
Children's hospitals that have offered to take sick kids off the hands of adult hospitals have not seen an influx of patients to fill the beds they emptied.