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Partnerships Boost Stanford Children's and Community Hospitals

Analysis  |  By Philip Betbeze  
   April 14, 2016

By initiating partnerships to build 11 pediatric specialty centers throughout the Bay Area, Stanford Children's has not only protected its turf, but it has helped community hospitals and families keep more cases local.

Lucile Packard Children's Hospital is the most visible sign of the growth in children's healthcare in the Bay Area. It underwent a major internal renovation six years ago, and is on the cusp of the 2017 opening of a 520,000-square-foot addition to the main hospital on the Stanford campus. This will increase capacity to 360 beds and 13 operating suites.

But the really big changes are much less visible, at least on the home campus. Over the past six years, the big changes have taken place in 11 different locations across the Bay Area—some in close partnership with local community hospitals. The changes are transforming what was once a single, hospital-centric campus into one with nearly a dozen pediatric specialty centers throughout the broad Northern California marketplace.

President and CEO Chris Dawes says the transformation into Stanford Children's Health over the past few years, of which of Lucile Packard Children's Hospital is the anchor, has helped the organization navigate a challenging business environment for children's hospitals. Consolidation is happening throughout healthcare and children's healthcare is no exception, but Stanford's brand of consolidation, Dawes believes, will position it well as it partners with local community hospitals.

Children's hospitals are especially prone to consolidation, and the sector is arguably much further along in that sense than adult acute hospitals and health systems are. Part of that stems from necessity. Children make up less than a fourth of the population to begin with, and thankfully, most of that population is pretty healthy.

"So, in order for a place like ours to survive, we have to reach out to a much broader population than an adult organization already," Dawes says.

Children's hospitals are already predisposed to covering much bigger regions. For example, unlike adult services, where there are nearly 30 adult cardiac surgical programs in the greater Bay Area, there are only three locations that offer pediatric cardiac surgery. Stanford Children's operates two of them.

Also, unlike adult care, where there's an excess of specialists, in pediatrics, it's actually the opposite, says Dawes.

"There's an adequate number of primary care pediatric physicians in urban areas, however there's a national shortage on pediatric specialists," he says.

In part because of that shortage, children's hospitals have partnered with community hospitals to bring those services to those hospitals. It's a strategy Dawes has embraced wholeheartedly. It's a symbiotic relationship, because the Children's hospital is much better able to recruit and retain such physicians, while community hospitals want to try to keep as much care as possible local.

For Stanford Children's too, the strategy could be seen as a bit of a rear-guard action in the face of consolidation of healthcare in general. Stanford Children's strategy is a three-pronged approach, as Dawes describes it:

  1. One consists of a group of 11 subspecialty centers scattered throughout the Bay Area, located at or near a local community hospital.
  2. A second consists of creating Stanford Children's primary care network.
  3. The third consists of partnerships with a number of community-based hospitals all over Northern California, not just the Bay Area.

Ideally all three prongs of the strategy are employed. "Some of those relationships are joint ventures, where we put all pediatric services into an LLC and the host hospital is 50/50 owner," says Dawes.

Two such examples include partnerships with California Pacific Medical Center (part of Sutter Health) and John Muir Health, an independent community hospital.

"In both of those cases, we provide all the pediatric specialty care to those facilities, and we opened a pediatric ICU at John Muir," says Dawes.

The idea is that Stanford Children's can expand its footprint, and a hospital like John Muir, which suffers under a tough payer mix, according to Dawes, can be seen locally as a comprehensive healthcare provider that can serve the entire family.

"We brought our physicians, our expertise, and in some cases, our community-based physicians to them," Dawes says. "As a result of this three-pronged strategy, we've grown to 500,000 outpatient visits a year, one of the largest in Northern California."

Dawes says he follows this strategy because the alternative is troublesome, and most children's hospital execs are loath to follow it, for a variety of reasons: a merger with an adult-based health system.

On the national scale of children's hospital trends, it may be that you have to grow or be subsumed, Dawes believes.

"When [children's hospitals] become part of larger systems, invariably because the economics favor adult services, pediatric services become second class," he contends. "My own bias is that children's hospitals that continue to grow scale and create different campuses will succeed without that. We wanted to create more access and focus on the continuum of care, which is why we created this network of community partnerships, these specialty centers and why we got into primary care."

Another reason is that it's less expensive leveraging other people's assets, he admits, returning to the one-plus-one equals three math he says results from a collaboration with a hospital like John Muir.

"Since we've partnered, we've seen volumes triple and quadruple in that community by helping them become more of a full-service provider to the whole community."

He says large regional players are becoming larger. Many of the biggest: Texas Children's, Boston, Philadelphia, and Cincinnati Children's, are substantially bigger than they used to be and bring in more than $3 billion in annual revenue.

Stanford Children's, at about $1.5 billion, will cross $2 billion in the next four to five years, says Dawes.

"You're seeing regional children's hospitals become much more dominant in their regions," he says. "We're not looking to be the biggest, but we do want to be the provider of choice in our market and we do attract patients from every state in high specialty areas."

Philip Betbeze is the senior leadership editor at HealthLeaders.

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