Why Scale is Quickly Becoming a Children’s Hospital Superpower

While COVID-19 accelerated the pressures children’s hospitals face, it also prompted leaders to strengthen their innovation muscles.

James E. Shmerling, DHA, FACHE, Bridgett Feagin, and Ian Stewart

Children’s hospitals have long been viewed as healthcare superheroes, places where the best minds in pediatric medicine perform miracles for children with complex health needs. In a post-COVID environment, leaders across healthcare are quickly finding that scale is becoming one of their most valuable superpowers.

For more than 150 years, independent children’s hospitals flourished in large urban and regional markets. On paper, children’s hospitals had healthy operating margins and strong market platform, according to Fitch Ratings. But there were signs that some legacy children’s hospitals could falter if the operating environment were to change.

High Medicaid exposure left hospitals vulnerable to government funding cuts, capital spending reached new levels, and competition from community hospitals and new entrants to the market increased. When COVID-19 emerged, the pandemic exposed these weak points as surgeries and emergency department (ED) volumes plummeted.

Yet, while COVID-19 accelerated the pressures children’s hospitals face, it also prompted leaders to strengthen their innovation muscles. Leading children’s hospitals are finding they can flourish through unique collaborations that enhance key capabilities and reduce inefficiencies, while drawing on their expertise in clinical care. It’s an approach that empowers children’s hospitals to fulfill their mission while bolstering their operating model for the future.

How Scale Sustains Children’s Hospitals

As children’s hospitals battle a new market, with new competitors, new payment arrangements, and new care delivery models, children’s health needs have suddenly become more complex.

During the pandemic:

  • More children face behavioral health challenges due to pandemic-related stress. Since April 2020, a month after the pandemic emerged in the US, the proportion of children being treated in the ED for mental health challenges has spiked, rising 24% year over year for children ages 5-11 and 31% for youths ages 12-17. At Connecticut Children’s Medical Center, the only health system in Connecticut dedicated to children’s care, 35 to 40 children a day are coming to our emergency department (ED) with behavioral health issues—twice as many as before the pandemic.

  • The acuity levels of children treated in children’s hospital EDs are higher. Connecticut Children’s is seeing children with eating disorders also diagnosed with other comorbidities—an indication that their eating disorder has led to other physical ailments during the pandemic. This is likely due to a combination of stress and reduced access to in-person care during the first months of the pandemic.

  • The payer mix for children’s hospitals has deteriorated. Children’s hospitals’ exposure to Medicaid and supplemental funding was already high before the pandemic. As parents lost their jobs during the pandemic, many of these patients have shifted from commercial insurance to Medicaid, driving the proportion of Medicaid payment for children’s hospitals even higher. When reimbursement from state Medicaid programs fails to increase in proportion to the growth in members treated, this puts even greater financial pressure on children’s hospitals at a time when elective admissions trail pre-pandemic levels.

Could legacy institutions have averted the shift in their financial and operating position by seeking new forms of scale and leverage sooner? That’s one of the biggest questions facing children’s hospital leaders.

Today, innovative leaders are taking steps to safeguard their legacy and endowment by developing new models for collaboration. These models empower leaders to share best practices and take advantage of shared resources, reducing costs while protecting quality of care.

For example, Children’s Health in Dallas partnered with 225 schools in the Dallas metro area to provide specialty care support in the schools—virtually. The health system also offers school families access to a 24-hour nurse hotline that families can call for answers to health questions and launched virtual behavioral health services that students may access at school or from home.

These initiatives help to eliminate gaps in care for vulnerable populations, a move that not only enhances children’s health outcomes, but also reduces the cost of care delivery. They also extend the reach of this children’s health system. In the area of behavioral health alone, the collaborative improved self-ratings for mental health among children and teens by 32%.

In Wilmington, Del., a partnership between Nemours Children’s Health System and Highmark Blue Cross Blue Shield Delaware is examining the impact of COVID-19 on preterm births, which have decreased during the pandemic. This unique provider-payer partnership could transform outcomes for infants by uncovering approaches to care that help prevent intellectual and developmental disabilities and stress to vital organs.

It also paves the way for more expansive provider-payer partnerships in the children’s health arena, elevating health outcomes while increasing care efficiency and improving the patient and family experience. One example: Cincinnati Children’s partnership with CareSource to improve care for 125,000 children covered by Medicaid in Southwest Ohio. The initiative, launched this past January, is designed to identify ways to improve clinical effectiveness for high-risk children and teens.

Partnerships with non-provider organizations are also emerging.

In July 2020, Connecticut Children’s partnered with Guidehouse to develop the Children’s Health Consortium, a national alliance of independent children’s hospitals and industry experts. Its focus: to strengthen revenue cycle operations in children’s hospitals, a move designed to reduce cost and increase efficiency while enabling hospitals to devote more time and resources toward clinical care and the patient and family experience.

For Connecticut Children’s, the ability to partner with other children’s hospitals that are owners of the consortium holds strong appeal. It furthers the ability of our organizations to remain focused on patient and family satisfaction and care quality, even as we seek to improve finances. Further, by easing oversight for administrative functions such as revenue cycle, children’s hospital leaders can center attention on initiatives that directly support our missions. We also gain a funding mechanism for advanced treatment and an avenue for redirecting scarce IT resources to meet clinical and operational needs.

Early wins from associated efforts include decreases in days in accounts receivable and a boost in cash collections—revenue that Connecticut Children’s reinvests in care delivery.

The New Imperative for Children’s Hospitals

Partnerships like these present new opportunities for children’s hospitals to navigate a rapidly evolving environment. They also offer a path for transformation in care delivery, increased efficiency, and new revenue generation. By building their innovation capabilities through out-of-the-box collaboration, children’s hospital leaders can safeguard their organization’s ability to deliver on their mission with compassion and conviction during the pandemic, and beyond.

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About the Authors

James E. Shmerling, DHA, FACHE, president and CEO, Connecticut Children’s Medical Center

Bridgett Feagin, senior vice president and CFO, Connecticut Children’s Medical Center

Ian Stewart, senior vice president for Managed Services, Guidehouse



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