Children’s Hospital’s Uncertain Future
Three years ago, Children’s Hospital Oakland merged with UC San Francisco and received $50 million from Marc Benioff. Yet now it’s facing major budget cuts.
Photo by D. Ross Cameron
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On the outside, Children’s Hospital Oakland appears to be thriving. The hospital at the corner of 52nd Street and Martin Luther King Jr. Way is in the first phase of a $500-million, 10-year expansion project to seismically retrofit and modernize its facilities. When completed, it will include a new six-story outpatient clinic, new surgical recovery, diagnostic, and treatment rooms, and new support services and clinics.
In 2014, the private, not-for-profit hospital also raised its profile by affiliating with UCSF Benioff Children’s Hospital. The merged entity instantly became one the top 10 largest children’s health care centers in the country. That same year, SalesForce.com founder Marc Benioff and his wife, Lynne, donated $100 million to the two hospitals.
UCSF Benioff Children’s Hospital Oakland, as the East Bay hospital is now called, is also one of only five American College of Surgeons Level One pediatric trauma centers in the state. Together with its San Francisco counterpart, the medical center is ranked by U.S. News & World Report as among the nation’s premier children’s hospitals in 10 pediatric specialties.
Although Children’s Hospital Oakland has long struggled financially, affiliating with UCSF was expected to stabilize its finances. “Our donors will no longer have to worry if we’re going to be here in 10 years,” then-Children’s Hospital Oakland president and CEO Bertram H. Lubin told the East Bay Times in 2014. “We will be.”
But three years later, the outlook is less certain. In February, the hospital announced it needed to cut $40 million in operating expenses, or 6.5 percent of its budget, while UCSF was seeking $80 million in cuts. For Oakland, this followed a $72.7 million net loss in fiscal year 2016.
While Children’s Hospital Oakland has long operated at a deficit, the challenges it faces now are unprecedented. Despite the affiliation with UCSF and the donation from the Benioffs, hospital administrators say shifting market trends—including lower Medi-Cal reimbursement rates, higher drug and labor costs, and decreased demand for inpatient services—are straining finances more than ever.
The hospital is also contending with increased competition from Stanford, which opened a pediatric clinic in Emeryville in 2013 that is siphoning off privately insured patients, on whom Children’s Hospital Oakland has historically relied to help offset the cost of treating its large Medi-Cal population. “There’s always been fiscal issues,” said Michael Anderson, the new president of the UCSF Benioff Children’s Hospitals. “The good news is the previous leadership here, Dr. Bert Lubin and others, have done a great job of patching together funding streams to get through—always at a loss, but to get through. Now that expenses are outpacing our revenue, that’s not sustainable.”
Yet while acknowledging the larger forces at play, some physicians at Children’s question the decision-making of the hospital’s new leadership. And they say that instead of helping the hospital save money and strengthen its position in the marketplace, the affiliation with UCSF has appeared to do the opposite.
“Periodically, we’re given a financial assessment on the state of the hospital, and it’s almost always bad news,” said Dr. Caroline Hastings, a pediatric hematologist oncologist who has been at Children’s Hospital Oakland since the early 1990s. “And then to follow that with, ‘Well, we’re going to cut this program, or we’re going to cut these people.’ We’ve been on a trimming process for a decade. It feels like we’re cutting off our ankles at this point. We’re not going to be able to stand up much longer.”
Among the areas being considered for the budget chopping block are research, education, and the hospital’s federally qualified health center, which provides much of the primary care to indigent and chronically ill patients. The Children’s Hospital Oakland Research Institute, or CHORI, is one of the nation’s top 10 research centers for National Institutes of Health funding to independent children’s hospitals. And the Graduate Medical Education program trains pediatric residents and pediatric subspecialty fellows and educates numerous health care professionals annually.
Physicians say cuts to these programs could undermine the hospital’s core mission, leaving some of the most vulnerable kids without vital care.
An online petition launched in early March by the medical staff, community physicians, residents, and alumni of the hospital in protest of possible cuts to the hospital’s outpatient clinic on Claremont Avenue gathered nearly 900 signatures in just five days. The petitioners expressed concern that the proposed cutbacks “are contrary to the Board’s responsibility to the mission of the hospital, are based on incomplete data, and raise questions about the management of the hospital.” It blamed “chronic poor management” and a “reactive” leadership for leaving the hospital “with options that are not sustainable.”
“The concern was that it appeared that all of the focus was on cuts and not on increasing revenue,” said Margery Lackman, a community physician who is an active staff member and former resident at the hospital and a petition organizer.
The petitioners demanded more time to consider the cuts, increased transparency about the financial situation of the programs, “clear, reliable data” about costs and revenue, as well as more information about how the cuts will impact the residency program, because the residents get the bulk of their primary care training at the clinic. They also demanded to know where the patients who use these critical programs would go for care if the clinic closes.
That includes Nancy Netherland, a Berkeley mom of two adopted girls who have significant health issues. She signed the petition, writing that her daughters were “quite literally saved by pediatricians at the CHO Claremont clinic.”
“I don’t know where my family would go,” she said in an interview. “And I say that as someone who has a lot of resources.”
The petitioners were successful in getting the attention of hospital leadership. Lackman said she and other community physicians were invited to meet with Anderson, who said he wanted regular input from them through quarterly meetings. “I am pleased that someone seemed to listen to what we have to say and that things didn’t just happen in a vacuum,” she said.
Still, it’s unclear just what will happen next. And many physicians and their patients are worried.
Financial pressures are nothing new for Children’s Hospital Oakland. They began more than a century ago, when a nurse named Bertha Wright, a social worker named Mabel Weed, and a group of other civic-minded women decided to create a hospital specifically for babies in the East Bay. According to The Hospital Women Built for Children by Murray Morgan, Wright and others saw a need for a centrally located hospital to be available to all children in Alameda County, regardless of their ability to pay.
The women formed an association and began raising funds to purchase an old estate at 51st and Dover streets in North Oakland. According to Morgan, they paid for it using proceeds from “card parties,” the performance of a play, and contributions from the nine members of the all-male board.
But in September 1914, almost immediately after the Baby Hospital—as it was first known—began operation, it was running a deficit. Although there was no shortage of patients, the hospital had trouble making enough money to cover its costs. So the association created “Branches” whose members began fundraising: holding bridge parties, rummage sales, and dances.
Over the years, the hospital continued to grow and expand its services, while a gap remained between the money received in fees and the amount spent on patient care. Often, it was the efforts of the Branches—through fundraising drives, thrift shops, and the like—that helped keep the hospital alive.
But times have changed.