Kerri Ruppert Schiller, senior vice president and CFO of the Children’s Hospital of Orange County (CHOC), admits to many sleepless nights as she and her team worked to pull off their $560 million vision to make Orange County, Calif., one of the safest, healthiest places in the nation for children, along with making CHOC a nationally recognized children’s hospital. Now, after a decade of work during one of the most economically uncertain times facing health care, the physical manifestation of that vision—a seven-story tower containing the region’s only emergency department, pediatric operating rooms, imaging, and laboratory dedicated solely to children—is set to open. “It’s been a great journey,” Schiller says.
hfm: With the turbulent economy and uncertainty in health care, how did you and the team craft a financial plan that would help CHOC accomplish everything it wanted and needed?
Schiller: It would not have been my first choice of times to roll out a project of this magnitude. But I will say turbulent times also create opportunity, so we took on some of those opportunities.
When this project was set to begin, our management team, board, and finance committee actually paused for a moment to evaluate whether moving forward during such a time of uncertainty was a sound decision. We reevaluated the project and actually cut about $88 million from the initiative. Our board looked at not only the need to move forward to support our mission, vision, and values, but also the cost to the organization of not moving forward. Board members believed there was greater risk in not moving forward with this initiative.
hfm: What were some of the opportunities you saw and the changes you made?
Schiller: The cost of construction, labor, and materials was lower during the recession. We undertook a number of different, innovative steps, such as buying steel and other large, expensive items in advance, so we could take advantage of lower costs. As for cuts, we delayed building out one of three floors in the tower and removed a few design features. The good news is that we were able to add those features back in as a result of the savings we achieved in other areas of the project.
hfm: Who were the key players on your team, and what did they provide during the process?
Schiller: The key is having the team in place in the right positions at the right time. We hired a vice president of facilities and construction who had built multiple facilities throughout California. He was able to organize, equip, and help to staff a very seasoned team to put an infrastructure in place. Putting together an initial project launch team is critical. We developed a separate board construction committee, with members from throughout the industry who helped us coordinate the right time to buy steel and who undertook project management. The architect was chosen based on the firm’s ability not only to articulate our vision, but also to design and create a healing atmosphere for patients and families.
We also partnered with a project management firm. We felt their expertise would really help us keep a handle on project coordination and costs, particularly in the turbulent economic times we were in. Our builder assisted us in going out to all of our subcontractors and rebidding those contracts. Such initiatives enabled us to achieve significant initial savings on this project.
In addition to having an internal management team, we asked an individual in our organization to leave her job as director of one of our patient care units and lead the project as executive director of transition planning. We needed a clinical leader who could help us understand the integration of the construction and timing with the actual patient care aspect of the job.
Our medical staff was involved from the beginning. Physicians met with our architects and helped to design their space—how it looked, how it flowed, the type of amenities that it would have, the equipment, and the IT system.
hfm: What were the key steps in financing such a huge project and keeping it moving forward?
Schiller: We created a long-range financial plan. Our project was funded from a number of different sources—some debt, and a portion of income from operations as well. We used Proposition 3 and 61 funds approved by California voters to provide capital for children’s hospitals. We also put out a comprehensive $125 million fundraising campaign to our community called “Change CHOC, Change the World.” We had tremendous support from the community, which has helped to make this possible.
hfm: How did you get the community to buy into the project and keep fundraising moving forward despite the economic downturn?
Schiller: We hired outside experts to help us determine the right size for the fundraising campaign, but we did not hire a firm to help raise the money. We believed we needed to have our CHOC employees tell our story and be the faces that share our successes with our community. We also have a number of volunteer guild members who support the hospital and share stories of their experiences with our community. And the support of our board members and the ways in which they were able to leverage their relationships with leaders and residents in our community also were key. Successful fundraising during an economic downturn is about making contacts with key leaders and individuals with high net worth and wealth and encouraging them to influence and give.
hfm: What steps worked for you that you would advise others to consider?
Schiller: Forming an initial project launch team and having the team meet regularly during the project planning, construction, and end phases of the project is essential. Developing a relationship with local licensing and state agencies that will oversee construction also is critical to ensuring that necessary approvals are provided expeditiously so that the project can be completed on time.
Other advice: Create a long-range financial plan and a financing plan and implement it. Know that you will have to make adjustments and corrections throughout the course of the project. When the recession really hit, we knew it was going to have an impact on our fundraising capabilities. As an organization and management team, we pulled together and agreed to divert more cash earned from operations into the building project than originally planned, with the understanding that fundraising would recover.
Having a flexible organization and management team that understood the priority of completing the building was key to our success over the long term. All managers should buy into the project and be prepared to make decisions quickly to keep the project on track.
hfm: When you look at all of the financing that went into this project, what approaches do you consider to be the most innovative and creative?
Schiller: We rolled out our perfect plan and established sources of funding, but given some of the economic realities we faced throughout the project, we had to make changes to the ways in which the project was funded. We decided to use a mix of borrowing, and when we got into the financial markets and saw what the markets were going to bear, we ended up refinancing existing debt as well as taking on new debt. We chose to use a mixture of fixed-rate and variable-rate bonds and entered into a leasing arrangement for a portion of the equipment costs as well.
hfm: What lessons did you learn through the project?
Schiller: The key is having careful budget estimates, being able to be nimble and make changes quickly when you need to make them, making compromises where necessary, and working together to achieve the best result. Hiring some of our key staff for this project early in the process and standing firm on managing changes requested by project owners throughout the initiative also supported the initiative’s success. For example, we had to hire a director of surgery, the first for our hospital. From concept to actual implementation, I would emphasize bringing such a leader into the organization early in a building project. You can’t underestimate the amount of time it takes to prepare for the operations aspects within a new facility.
Shore up your relationships with state departments of health, because they can create time delays when solid relationships do not exist, and time delays are costly in construction. We actually brought people on to help manage some of those relationships throughout the project.
hfm: If you had to do it again, would you handle the financing and planning process the same way?
Schiller: I would maintain some aspects of the financing and planning process we put in place, but I would start the fundraising portion of the project much sooner. I would definitely hire some department leaders sooner. I would have added costs to my project in lieu of hiring some of the consultants that were brought on board. Doing so would have streamlined some processes and some of the experiences that we had.
About Children’s Hospital of Orange County
Children’s Hospital of Orange County began as a wing in St. Joseph Hospital nearly 50 years ago. Now a 279-bed state-of-the-art hospital using the most advanced technology available, the 425,524 square feet of space and services in the new seven-story patient tower will make CHOC the region’s only freestanding children’s hospital.
The tower opens to surgeries and other services in March; the ED opens around April 1. The patient tower borrows concepts from aerospace, aviation, and manufacturing not only to promote safety but also to standardize design and function as other industries do.
The hospital’s relationship with St. Joseph remains strong, as CHOC recently opened a neonatal unit in St. Joseph. Affiliated with the University of California, Irvine, CHOC also has positioned itself to bring more of the world’s leading minds to Orange County to pioneer research and treatment for diseases targeting children. CHOC also offers a 54-bed hospital-within-a-hospital in Mission Viejo, Calif.
CHOC: Then and Now
- The 238-bed hospital hovered at the edge of capacity.
- Departments were shared with an adult hospital.
- Its neonatal intensive care unit (NICU) was cramped.
- Patient rooms came in various shapes, sizes, and configurations.
- The now-279-bed hospital has room for growth and features dedicated pediatric state-of-the art surgery suites and a dedicated pediatric laboratory and pathology lab.
- The hospital’s state-of-the-art emergency department has been designed to provide trauma services should CHOC become Orange County’s designated pediatric trauma center.
- Its state-of-the-art NICU has plenty of space. CHOC’s new NICU at St. Joseph Hospital further expands neonatal services into the community.
- Standardized patient rooms (all designed as same-handed rooms) reduce the risk of errors and increase efficiency.
Publication Date: Friday, March 01, 2013