Background: Weighing Special Needs of Children’s Hospitals Against Wider Industry Problems.
Children’s hospitals in California are feeling squeezed. Demand for their expensive specialty services is rising at a time when revenues that would help them expand and improve facilities and buy new medical equipment aren’t keeping pace.
Proposition 61, a $750 million bond measure on the November ballot, would finance some of those capital needs—everything from larger emergency departments, more operating rooms, and more bed capacity to new diagnostic imaging and catheterization gear. Amid a state fiscal crisis, the question is whether voters are willing to approve a hefty cash transfusion for a small though critical segment of California’s hospital industry.
Five children’s hospitals affiliated with the University of California would be eligible for $150 million in Prop. 61 funds and another eight independent, private, nonprofit facilities likely would be eligible for $600 million. There are about 450 public and private hospitals of all types in the state, many of which are also ailing financially.
“We’re just trying to make it—eke out a living—and remain state-of-the-art,” says Susan Maddox, a registered nurse who proposed the initiative as a private citizen and is president and CEO of the California Children’s Hospital Association. “To remain state-of-the-art is one thing. But we don’t even have enough room for the children who are coming our way. Our emergency rooms and clinics are flooded. We’re really having a difficult time.”
She and other Prop. 61 backers hope that providing more research and training opportunities through new technology investments may attract top-qualified physicians and nationally competitive foundation and grant support in California.
Minimal opposition to “motherhood and apple pie”
No organizations and only one individual have publicly opposed Prop. 61 so far. Attorney Gary B. Wesley of Mountain View argues on the ballot that California can ill afford to borrow $750 million and pay $756 million in bond interest for what he calls “motherhood and apple pie” projects like those at children’s hospitals.
A better way to alleviate the money crunch at California hospitals in general, he maintains, would be to eliminate uncompensated health care by establishing a single-payer insurance system. Wesley didn’t return numerous telephone calls for further comment. But records show that he has fought other, nonhealth-related initiatives on the state ballot, among them a $500,000 million bond measure in 2000 for long-term farm and home loans to California veterans.
Minimal opposition appears to be good news for proponents, which include the California Children’s Hospital Association (CCHA) and its member institutions. They have contributed between $8,000 and $468,125 each, or more than $2.6 million, to the initiative campaign for signature gathering, two television ads that will appear later this year, legal counsel, consulting fees, and other expenses. (See MoneyWatch for more details.)
Proponents hope the focus on children’s health care will be a persuasive factor for voters, especially given Prop. 61’s sharp contrast to two gaming initiatives on the crowded ballot. They are pleased the proposition will appear near the top of the ballot and ahead of four other health-related measures.
Tom Riley, CEO of Advocacy and Management Group, a consulting firm in Sacramento that has a number of health care clients, gives Prop. 61 a better-than-even chance of passing. His sense is that voters are more likely to approve a bond measure than a tax or fee increase because “it’s kind of a positive way for voters to solve a problem without having to dig into their own pockets.”
“Many people who live in California have had some kind of experience with a children’s hospital, whether it was their own child, a friend’s child, a brother, a sister, a grandchild,” says Charity Bracy, vice president for government relations, policy, and communications at the CCHA. “So they understand the importance of those facilities in their community.”
A Field Poll released August 15 showed 47 percent of respondents supported the initiative, 31 percent opposed it, and 22 percent were undecided. (See more at PollWatch.) In general, Democrats and nonpartisans were strongly supportive, while Republicans opposed it by a four-to-three margin.
Noteworthy absence of support
However, also noteworthy in this campaign is the absence of support thus far from major health care players. The California Healthcare Association, a trade group representing all California hospitals, voted to remain neutral on Prop. 61, as did the Alliance of Catholic Health Care, another umbrella group in the state. The California Association of Public Hospitals and Health Systems will remain on the sidelines, as well.
Such reluctance is understandable. Many hospitals in California share the financial pain that children’s hospitals bemoan, but will see no gain if the measure passes.
“To single out 13 hospitals in the entire state and say they are more deserving than any other hospitals was just something our board couldn’t do,” says Jan Emerson, spokesperson for the California Healthcare Association. “One thing voters need to understand is that this [need for capital funds] is not something limited to just children’s hospitals. The issues affect every hospital in the state.”
Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, says the organization “probably” won’t take a position on the measure either. The association, he noted, has opposed all bond measures in recent elections—not because of the projects they would fund, but because it believes additional indebtedness poses too much risk to California’s teetering finances.
The California Nurses Association, the California Medical Association, and other key organizations haven’t weighed in as yet. In late July, Prop. 61 had endorsements from the California PTA, 15 state legislators, and federal lawmakers including Democratic Senator Barbara Boxer, Republican Representative George Radanovich, and Democratic Representatives Adam Schiff and Anna Eshoo.
Proponents launched their signature drive after the failure of 2003 legislation (SB 953) by state Senator Joe Dunn (D-Santa Ana) that would have put the $750 million bond measure on the ballot. The red ink in Sacramento means public funds for children’s or other hospitals in California aren’t likely to be forthcoming any time soon.
Beginning last October, Prop. 61 supporters collected 563,407 signatures to qualify for the ballot; they needed at least 373,816.
Special burdens on children’s hospitals
Children’s hospitals bear a particularly large financial burden because they provide a high proportion of specialist care compared with community hospitals. Their specialists treat infants and children with serious and often complex injuries or diseases, such as leukemia, cancer, heart defects, AIDS, hemophilia, diabetes, and cystic fibrosis.
Statewide, these regional facilities handle 87 percent of all inpatient care for kids who need heart surgery, 64 percent of care for children with cancer, 92 percent of care for those who undergo organ transplants, and more than 70 percent of pediatric intensive care. In addition, the facilities educate 68 percent of pediatricians, pediatric subspecialists, nurses, and other health professionals.
The specialized care they provide can be very expensive. Those costs combined with stagnant government reimbursements mean little money is left over for capital improvements.
The bill for a critically ill newborn or child who receives high-tech treatment or surgery may be five to six times higher than that for an average patient at a community hospital. At one children’s facility this year, says Maddox, two cases of botulism treated with serum cost $90,000. Another hospital “wiped out its whole bottom line because of two children who had hemophilia,” she says.
Complicating matters is the fact that many patients come from low-income families and some may not have health insurance, in which case children’s hospitals pick up the tab (nearly 1.3 million children in the state are uninsured). More than half of children treated there are covered by Medi-Cal, California’s Medicaid program.
Yet Medi-Cal reimbursements to children’s hospitals—like reimbursements to many hospitals—often are much lower than the actual cost of care. The per diem rate is the same regardless of how complex a patient’s case might be. In one instance, removal of a brain tumor cost $15,000, but Medi-Cal reimbursed only $4,000.
Hospitals that serve broader populations, such as community hospitals, can fill the payment gap by adjusting their mix of patients: Revenues from privately insured patients help offset low government reimbursements for those who are publicly insured or uninsured. But children’s hospitals can’t adjust that mix as easily, given their mission as “safety net” providers of care for all kids, regardless of ability to pay.
The National Association of Children’s Hospitals and Related Institutions estimates that in fiscal 2002, children’s hospitals around the country received an average 75 cents in Medicaid reimbursement for each dollar they spent on Medicaid-covered kids. Even with supplemental funds these facilities receive for treating a disproportionate share of low-income patients, total Medicaid payments averaged only about 84 cents of every dollar.
That’s partly a fallout of new rules from the Centers for Medicare & Medicaid Services in early 2002. CMS greatly reduced the upper payment limit to safety net hospitals around the country, a move that translates into a $1 billion loss for those in California.
The total shortfall in Medi-Cal payments to children’s hospitals ranges between $100 million and $200 million each year. Senator Dunn cited $150 million annually when he introduced his bill last year. Some of the Medi-Cal shortfall is money the children’s facilities might otherwise set aside for capital projects to meet the rising demand for their services as California’s population swells.
Capital projects
Children’s Hospital and Health Center in San Diego assumed it would stay well ahead of that demand in the early 1990s when it built a new emergency room to accommodate 25,000 annual patient visits, more than triple the old capacity. Such visits now number around 70,000.
Consequently, some patients must wait up to eight hours for emergency care, says Barbara Ryan, vice president for government affairs at the 248-bed facility, built in 1954. Prop. 61 funds would pay for expanding the emergency room, remodeling the orthopedic clinic, adding 39 beds and six operating rooms to the current 12, rebuilding the state’s only pediatric convalescent facility, and other projects.
Times also have changed at Children’s Hospital Central California, the newest pediatric hospital in the country, since it opened just six years ago north of Fresno. When the 255-bed medical center was designed in the early 1990s, experts assured everyone that HMOs would flex their gatekeeping muscle to reduce demand on costly emergency room care.
“They couldn’t have been more wrong,” says Diana Dooley, CHCC general counsel and vice president for government relations, noting that their ED director describes the situation this way: “We have enough patients for a Boeing 747 and we’re trying to put them in a DC-10.”
Exacerbating that demand, according to Dooley, is that fewer primary care physicians are willing to treat Medi-Cal patients, due to low reimbursements. Many patients visit the ED instead.
If Prop. 61 funds become available, the medical center would expand its emergency and diagnostic-imaging facilities. “The pressure on us to support the physicians who provide the kind of specialty care that’s required in children’s hospitals has left us with no margin” for these kinds of capital improvements, Dooley says.
Meanwhile, some institutions are raising private money to help pay for their brick-and-mortar projects. A capital campaign at Children’s Hospital Los Angeles, for example, has garnered more than $380 million so far for a new hospital, an undertaking that will go forward regardless of whether Prop. 61 passes.
Seismic factor looms
Another issue looming over children’s and many other California hospitals is a 1994 state law requiring them to meet stringent earthquake-resilience standards by 2008 and even stricter standards by 2030, or face the risk of closure. Retrofitting, and in some cases replacing, old buildings will cost many millions of dollars, but public funds for that purpose are lacking. Prop. 61 would enable some children’s hospitals to upgrade seismically in the course of expanding or remodeling.
Absent financial relief from the legislature, these seismic-safety requirements will prompt closures and reductions in capacity at a number of hospitals in 2008, according to a five-year forecast by the California Healthcare Association. Many children’s and other hospitals have received a five-year extension on the 2008 deadline from the Office of Statewide Health Planning and Development.
Children’s hospitals aren’t predicting a meltdown if voters nix Prop. 61. They don’t intend to turn away patients even if their capacity is strained to the limit.
But they do say that, among other impacts, capital improvements will likely be delayed for years, waiting times for emergency and other services could increase, and outpatient clinics may have to close or curtail their hours of operation.
In November, voters will decide if California can afford to avert that predicament.
Paul Engstrom did the reporting and writing for this article.
