Why the Economics are Bad for a Children's Hospital

A lack of Medicaid expansion could be issue.

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There's a valid argument that economics are strongly against building an independent children’s hospital in Richmond.

What’s more, the General Assembly’s stubborn refusal to expand Medicaid coverage to 400,000 Virginians may be a factor in why VCU Medical Center and Bon Secours Richmond Health System pulled out of planning for a regional children’s hospital May 21.

“One of the challenges for Richmond is that the market is not large enough for high-end, duplicative services,” says Christine Dalton, a Chicago-based health analyst at Navigant Healthcare.

Dalton is co-author of a report published two years ago noting the economic shifts in children’s hospitals.

She says that at least 50 percent of payments paid for treatment at children’s hospitals come from Medicaid. She says that “Medicaid is a very large portion of payments at any children’s hospital,” and that the 50 percent level “is probably conservative.”

Another problem is how the relatively new Affordable Care Act (Obamacare) pays for children with problems. Dalton’s report cited uncertainties with the ACA in her two-year-old report. She said some of them had been worked out.

She agrees with the points made by VCU and Bon Secours that the market economics for children’s hospitals has been shifting. Her report describes such hospitals as “struggling with the strategic issues of responding to Medicaid, reform and competition.”

In Richmond, some advocacy groups, such as the Pediatricians Associated to Care for Kids (PACKids), insist that a standalone children’s hospital is needed. Local philanthropists Bill and Alice Goodwin had pledged $150 million for the effort, although Pam Lepley of VCU says that a lot more money would be needed for the project.

For now, VCU and Bon Secours say they're trying to better coordinate pediatric care in Greater Richmond. Dalton says that approach is consistent with what's happening throughout the country. There's a strong trend toward outpatient and preventive medical service, she notes.

Over at Bacons Rebellion, where I also blog, Jim Bacon has an interesting argument questioning why two nonprofits -- VCU and Bon Secours -- are so concerned about the possible competition from a standalone children’s hospital.

He notes that other big medical expansions are happening in the state -- such as INOVA’s plan to turn the old corporate headquarters of Exxon/Mobil into a facility to research genomes.

Style visited the market-demand issue for a children’s hospital a few years ago. I quote:

“With the closest children's hospitals in Washington and Hampton Roads, a new one in Richmond likely would attract patients from across Central Virginia and elsewhere. Two feasibility studies by Atlanta-based Kurt Salmon in 2008 and 2012 find that the metro Richmond market has approximately 250,000 children. Within an hour's drive of the city, the market expands to 360,000 children. The conclusion is that the market is more than large enough to sustain a new children's hospital.”

Of course, reporter Scott Bass noted, that would involve shutting down many pediatric facilities at other area hospitals.

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