For Cincinnati Children’s, Feds’ Budget Cuts Will Sting
Source: Business Courier – November 11, 2011
By: James Ritchie, Staff Reporter
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Until recently, pediatric hospitals ‘did not feel the impact’
Cincinnati Children’s Hospital Medical Center, and similar institutions nationwide, are facing an economic environment where nothing is sacred – not even funding for pediatric hospitals.
With much of their revenue coming from state and federal sources, children’s hospitals serve as a case study of governments’ ineffectiveness at controlling medical costs, according to a recent report by the nonprofit Kaiser Health News. Frequently enjoying nonprofit status and limited local competition, the business is in the midst of a multibillion-dollar building boom nationwide, with many hospitals, including Cincinnati Children’s, earning millions in profits.
But in coming years, Cincinnati Children’s and other pediatric facilities will have to learn to live on less as they face the fallout of the weak economy and as Medicaid increasingly becomes a target for budget-cutting state legislators, experts say. That could put the brakes on growth, especially large construction campaigns.
Medicaid load gets bigger
Cincinnati Children’s posted fiscal 2010 operating revenue of $1.6 billion, which exceeded operating expenses by more than $60 million. Revenue, though not necessarily profit, has risen over the last few years. In 2007, Cincinnati Children’s had operating revenue of $1.2 billion, nearly $72 million higher than expenses.
The hospital is feeling the pinch from Medicaid, said Scott Hamlin, chief financial officer for the hospital. And the poor economy means that Medicaid, which reimburses less than the full cost of care, makes up an increasing portion of Cincinnati Children’s business.
The hospital is trying to become more efficient through quality improvement, capacity management and population health strategies, Hamlin said.
In reality, though, most children’s hospitals are unprepared for funding cuts, said Ron Wince, CEO of the Mesa, Ariz.-based consulting firm Guidon Performance Solutions, which works with both adult and pediatric hospitals on business process improvement.
“There is a tremendous amount of waste in all hospitals, but until recently, most children’s hospitals did not feel the impact,” he said. “The immediate reaction from at least two of our clients was to double their philanthropic efforts to keep the spigot open. On a very limited basis they began to look at their cost base.”
But Hamlin is concerned by trends in Medicaid, which funds care for low-income families. Such cases account for 44 percent of the total patient revenues of Cincinnati Children’s, up from a historical rate of 40 percent, he said.
Payment changes by the state will reduce payments to Cincinnati Children’s for outlier cases, which are Medicaid children with unusually high cost of care, he said. Other changes, such as reductions to outpatient payments for selected services, Hamlin said, will affect the hospital’s finances as well.
He could not provide a figure for how deep the impact on Cincinnati Children’s might be. Early estimates from the Governor’s Office of Health Transformation had pegged the effect on Cincinnati Children’s at $15 million and the impact on Ohio’s six pediatric hospitals, in total, at $28 million.
Medicaid reform was a cornerstone of Ohio Gov. John Kasich’s efforts to close an $8 billion budget shortfall. The Medicaid budget achieves $1.4 billion in savings over the biennium, he has said.
What to cut?
In Florida, California and elsewhere across the country, it’s the same story, according to Kaiser.
Hospitals such as Cincinnati Children’s “may have to take a close look at productivity, cut materials costs, cut programs, reduce the hours for non-emergent services and reorganize to become more efficient,” said Lucas Higman, vice president at St. Petersburg, Fla.-based Soyring, a hospital management consulting firm.
Cincinnati Children’ officials said in January they had shelved plans they once had for a new clinical building on their main campus, largely because they found a more efficient way to schedule surgical procedures.
“We believe we can still make significant additional strides with these efforts,” Hamlin said. “Even with that, it is possible the growth in demand for these (our) unique and highly specialized programs will cause us to consider some physical expansion, or at least renovation, of our inpatient facilities and our supportive research/science enterprise.”
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