Children have largely escaped the ravages of COVID-19, but children’s hospitals have not eluded the financial pain the pandemic has wrought on health care providers.
Pediatric hospitals offered themselves as backups to their adult counterparts in case of a surge of coronavirus patients. They suspended nonemergency surgeries and stockpiled protective gear and virus test kits, according to hospital executives and financial analysts.
But, in many regions, the surge was smaller than anticipated – or hasn’t materialized. And children’s hospitals that have offered to take sick kids off the hands of adult hospitals, or extend the age of people they admit, have not seen an influx of patients to fill the beds they emptied. As a result, numerous pediatric facilities, like many of the adult ones, face sharply declining revenues and extra expenses.
“We turned off a significant volume of our activity for a surge that isn’t going to occur. And since we’ve had continuing expenses, it’s been pretty devastating,” said Paul A. King, CEO of Stanford Children’s Health, which runs Lucile Packard Children’s Hospital in Palo Alto.
King said he expected annual net revenue for the hospital and its affiliated clinics to drop about 10 percent. Lucile Packard’s net revenue in 2019 was about $1.7 billion, according to data from California’s Office of Statewide Health Planning and Development.
Other children’s hospitals have given similarly downbeat assessments.
Many of them—including Lucile Packard and UCSF Benioff Children’s Hospital—have furloughed staff members, required them to use paid vacation time, or cut hours or pay.
Robin Leffert, a registered nurse at UCSF Benioff’s hospital in Oakland, said she’s seen a “huge drop-off” in patients. Many staffers have been temporarily cut, requiring the nurses who are still working to perform extra tasks. “The physical environment feels different,” she said. “There’s an eerie, empty quality to it. But that doesn’t decrease the tension we are feeling.”
Stay-at-home orders have reduced car accidents, injuries and illnesses that would normally bring kids to the ERs of children’s hospitals, while parents’ fear of exposing their families to the COVID-19 virus has exacerbated the trend.
Nicholas Holmes, chief operating officer of Rady Children’s Hospital in San Diego, said his facility faces similar parent concerns and is making a push—via social media and in collaboration with local pediatricians—to “make sure families know it is safe to come to the campus.”
For all their current problems, however, pediatric hospitals were generally in a stronger financial position than adult facilities before the pandemic, so many of them “are absolutely well positioned to weather the storm,” said Kevin Holloran, a senior director at Fitch Ratings.
A 2019 Fitch report based on 2018 hospital audits showed the aggregate operating profit margin of a representative sample of not-for-profit children’s hospitals was nearly triple that of nonprofit adult hospitals. The pediatric facilities had enough cash on hand to last 1.6 times longer than the adult hospitals.
In California, the average operating profit margin of children’s hospitals was almost three times that of non-children’s facilities last year — though individual results ranged widely, from an extremely profitable 25.38 percent for Rady to operating losses for UCSF Benioff’s Oakland hospital (-0.78 percent) and Lucile Packard (-2.53 percent), according to the Office of Statewide Health Planning and Development.
Holloran and others say children’s hospitals typically benefit from strong philanthropic and public support, and their specialization in complex acute cases results in higher prices while often affording them a commanding pediatric market share.
In 2018, California voters approved $1.5 billion in state bonds to help children’s hospitals with capital expenses including equipment, construction and seismic retrofitting. That means they can save some of the dollars they would have spent on such projects.
So far, however, just 9 percent of that money — $142.1 million — has been distributed, and to only three hospitals, according to Frank Moore, executive director of the California Health Facilities Financing Authority.
Children’s facilities received virtually none of the first $30 billion in federal relief money intended for hospitals and other providers, though they have received some of a subsequent $20 billion tranche.
Children’s hospitals that are part of larger health systems may also benefit from the aid received by affiliated adult hospitals. And belonging to a hospital chain can allow for greater operational flexibility, industry executives say.
Even though children’s hospitals have begun to resume nonemergency surgeries, they will likely continue to face financial challenges.
“If we enter into a recession, and particularly if it is prolonged, that will have an effect on hospitals, including children’s hospitals, because people won’t have jobs and may be uninsured, or more may be on Medicaid, which doesn’t pay as well,” said Lisa Martin, a senior vice president on the not-for-profit health care ratings team at Moody’s Investors Service.
In California, nearly 60 percent of children’s hospital charges are tied to Medicaid, more than double the proportion for adult hospitals, according to OSHPD data. At some pediatric facilities in the U.S., that figure is well above 70 percent.
After spending staggering sums to mitigate the consequences of the pandemic, Congress will be looking for programs to prune, said Knight, of the Children’s Hospital Association. “One with a target on its back is Medicaid.”
Kaiser Health News senior correspondent Jordan Rau contributed to this report.