Rethinking Children's Hospital Strategy: Key Decisions for Pediatric Leaders

Children’s hospital leaders face an urgent need to assess risk and determine next steps to protect their future.

By Leonard Feld, MD, PhD, Christine Dalton

While children’s hospitals have taken a financial blow during the COVID-19 pandemic, there were indications that many were struggling before it hit. Now, children’s hospital leaders face an urgent need to assess enterprise risk and determine next steps to protect their futures.

Today, acuity levels of children who visit the ED are higher, and more pediatric patients face behavioral health issues due to pandemic-related stressors.

Operating challenges for children’s hospitals have been building for three decades, as community health systems bolstered their pediatric service lines to capitalize on the advantages of operating a NICU. Additionally, the shift toward delivery of pediatric care in outpatient settings has tightened revenue-generating opportunities. Many markets have seen increased fragmentation of low-acute, commercially reimbursed services such as general surgery, orthopedics, plastics, and urology for children.

At the same time, new payment arrangements and care delivery models made the provision of pediatric hospital care more complex for legacy specialty pediatric providers. Meanwhile, delivery of pediatric care has been severely affected by the maldistribution of pediatric clinicians across specialties and regions. Further, if Medicaid funding were to be capped for children with special healthcare needs, such policies could have dire financial repercussions for children’s hospitals in some states.

Children’s hospitals are grappling with balancing their mission around what’s best for their patients with financial stewardship to ensure their asset is there to provide for their communities.

While the answer is complicated, the first step is to understand how many children, in terms of captured population, are required to sustain a full-service children’s hospital with a complete complement of subspecialty services. For many pediatric subspecialties, it takes a substantial number of dedicated pediatric lives to sustain a group of at least three to four subspecialists in a market, depending on the subspecialty. 

Additionally, there are key actions for children’s hospital leaders to take to determine the right path forward. Efforts to turn around a children’s hospital’s financial performance and reposition the organization for the future typically focus on five areas.

  1. Margin enhancement: Aligning quality metrics, financial incentives, and other components of value-based payment models across payers can accelerate the transition to value-based care.
  2. Volume growth: This is essential to support inpatient volumes in the tertiary and quaternary service areas.
  3. Patient and family experience: The ease with which patients and their families can access services and the quality of the experience they encounter are key factors in market-area loyalty.
  4. Clinical efficiency: Reducing clinical variation includes working toward achieving zero unnecessary readmissions, hospital-acquired infections, and medication errors.
  5. Innovative partnerships or acquisitions: These can involve organizations within the same geographic area or even in other states—and they aren’t limited to partnerships with other providers.

By reevaluating their operating model and repositioning for the future, children’s hospital leaders can protect their organization’s long-term health and remain a vital resource for the communities they serve.

Read more in the Rethinking Children’s Hospital Strategy report.

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