Christine MalcolmIn this brave new world of American health care, children’s hospitals are especially challenged. They provide a wide range of services that are not well supported financially and that are unavailable anywhere else, especially for children in need. Many providers of care for adults are unaware of the unique challenges and opportunities involved in delivery of care to children.

There are several strategic implications of the commitment of children’s hospitals to services that are not well understood by payers, the state, or the public. Many important services are poorly compensated or uncompensated, yet children’s hospitals are required to care for frail and vulnerable children humanely and safely and thereby contribute to a healthy future for the nation.

We are participants in the national conversation regarding the role of specialized hospitals (both children’s hospitals and academic health centers) that has intensified with the passage of the ACA. We conducted a series of interviews with a national panel of three categories of children’s hospitals: freestanding children’s hospitals, academic medical center-based children’s hospitals, and community health system-based children’s hospitals. Our research focused on the challenges they face, and the strategic, operational, and organizational responses their leadership teams are pursuing to respond to these challenges. Here are some of the most salient findings.

Children’s hospitals have unique challenges in creating a strategic response to the ACA. The ACA’s design is largely silent on how financial support will be provided in the future for both children’s hospitals and their allied academic health centers or safety net institutions, which share with children’s hospitals a strong safety net role in addition to their strong research mission.

State budget crises are triggering Medicaid /MediCal reductions, as well as modifications in payment methodologies across the United States. Many state Medicaid programs are planning to remove special payment streams—with cuts to disproportionate share payments, graduate medical education, and supplemental payments for the care of special populations.

Children’s hospitals face increased competition from community health systems and large suburban hospitals, as well as from subspecialists in care for adults. Many are now questioning whether historical “Switzerland strategies” that children’s hospitals have relied upon can be sustained in the face of hyper-consolidation or whether they will be subsumed within large adult health systems.

The most forward-thinking children’s leaders are responding through four core strategies.

1. Sustaining their long held commitment to the advancement and provision of unique services. Today, almost every market nationally has an acute need for subspecialty pediatricians. Children’s hospitals have created communities of clinicians who are aligned across an array of specialties focused on healing the most vulnerable. Sustaining both unique clinical services and breakthrough research is critical in preserving their unique role in the community.

2. Redoubling philanthropic support and reminding the public of the unique role served by children’s hospitals in the community. The public, especially the philanthropic community, has come to understand the financial challenges of treating children in need and has been generous to children’s hospitals. This support must grow to cover both payment reductions and new shortfalls in funding by the National Institutes of Health funding. Lobbying and “telling the children’s story” is more essential than ever.

3. Managing costs through redesign and core process improvement. Children’s hospitals’ clinical, operations, and finance leaders have become sophisticated in cost management, and lead the “lean” movement in health care.

4. Creating children’s clinically integrated networks and accountable care organizations. Children’s hospitals are creating value-based care arrangements with community-based physicians and with state and commercial payers. Early initiatives range from the prevention of preterm birth and sequelae to the care of the complex chronically ill.

It’s clear that the future strategy for children’s hospitals must address the support of their unique role in the constrained economic environment ahead. It is unlikely that solutions will come from outside the children’s hospital community.

Christine is Managing Director, Navigant Healthcare, San Francisco. 

Publication Date: Thursday, January 03, 2013