Children's Hospital & Research Center Oakland has initiated its restructuring plan, laying off 17 staff members this week in the first phase of a program to reduce a projected loss of $26 million.
"We are making these changes now to ensure we are fiscally sound and able to carry out our mission," said Bertram Lubin, MD, who took over as president and CEO of the 190-bed medical center in August 2009.
The hospital is northern California's only independent not-for-profit regional medical center for children, with an annual operating budget of more than $350 million.
On March 25, the hospital announced a three-year plan to restructure services, develop new business opportunities and negotiate higher private insurance and government reimbursements to cover patient care costs and address capital needs.
Officials at the not-for-profit regional pediatric medical center said its financial challenges are a result of a poor economy, low government and private commercial insurance reimbursement rates, increasing healthcare costs and a diminishing number and relative lack of pediatric inpatient beds in northern and central California public hospitals.
Over the past four years the hospital lost $80 million. In 2009 alone, the hospital lost $26 million, and in January 2010 it lost $3 million. Lubin said the first restructuring phase is targeted to reduce the 2010 projected deficit from $26 million to $16 million and would have no impact on inpatient, emergency room and critical care services at the hospital, which employs 2,700 staff.
Lubin said two more phases would occur this year. The second phase, involving primarily outpatient care services, will be completed mid-summer. Hospital officials expect by then to have partnered with community clinics in a pilot program to provide some subspecialty outpatient care to children using the hospital's healthcare specialists and physicians.
This effort would provide integrated care for patients and improve finances for the hospital and clinics. Equally important, Lubin said, the change would streamline and improve outpatient scheduling and referrals, allowing the hospital to be more responsive to the needs of referring physicians and families so that consultations can occur in an expedited and efficient fashion.
Lubin cautioned that additional layoffs might be necessary at that time. This fall, hospital leadership will review the progress of the first two phases of restructuring and determine what adjustments, if any, are necessary.
"Despite the hard decisions being made now and in the future, over the long run we will become a stronger, more efficient hospital," Lubin said.
Children's Hospital Oakland's financial strains have been caused by a number of factors, Lubin noted, including low insurance reimbursement rates from government and private commercial insurers and the economic downturn that has affected families' ability to afford healthcare coverage.
California's high unemployment rate has increased the number of families covered by Medi-Cal and other government assisted programs. From 2008 to 2009, the proportion of Children's Hospital patients covered by Medi-Cal increased from about 60 percent to an all-time high of 71 percent. This year has brought a further increase in Medi-Cal, in some months as high as 73.5 percent.
Medi-Cal's reimbursement in California is among the lowest in the nation, with California ranking 49th. Lubin said reimbursement to the hospital ranges from 30 cents to as low as 10 cents for each dollar of the cost of the care provided by the hospital. The hospital is renegotiating all commercial private insurance contracts because the reimbursal rates don't compensate the hospital for its work, he said.
"The hospital is actively working to address the insufficient reimbursements that have contributed to the current economic situation," he said. He added that hospital officials are working to generate more private commercially insured patients to help the hospital improve its finances.