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.


(page 3 of 5)

Photo by D. Ross Cameron

Dr. Caroline Hastings says it feels as if Children’s is “cutting off [its] ankles at this point.”

The scenario is reminiscent of another merger that happened in the Bay Area. Back in 1997, UCSF and Stanford Medical Centers decided to merge and consolidate expenses because of declines in Medicare reimbursements and increased concessions to private insurers.

Dr. Ward Hagar, who was an assistant professor in medicine at Stanford at the time (and is the husband of Dr. Hastings), described an atmosphere of confusion among the staff about the merger and how it would work. “Nobody quite knew what was happening,” he said. “They kept trying to figure out how to reorganize the faculty. Nobody was ever completely clear on where the whole thing was going at the end of the day.”

As with the Children’s-UCSF affiliation, the UCSF-Stanford merger showed a surplus in its balance sheet in its first year. But by the end of the second fiscal year, there were losses totaling $86 million. A few months later, the merger was declared dead. Ultimately, the failed transition ended up costing tens of millions of dollars for both Stanford and UCSF, according to the San Francisco Business Times.

Hagar said there was a culture clash between the two institutions: The much larger UCSF had a more hierarchical and bureaucratic structure, while Stanford was smaller and more nimble. “It was much more collegial than competitive,” he said of Stanford.

Now, Hagar is the director of the adult sickle cell service at Children’s Hospital Oakland. He sees parallels with what happened 20 years ago with what’s occurring now with the Children’s Hospital-UCSF affiliation, primarily in the confusion among the staff about what’s happening and why. But unlike Stanford, Children’s Hospital Oakland doesn’t have the resources to survive a failed integration. “It’s important to them what happens,” he said, “because it’s not like they can afford to make a mistake.”

That’s not to say the UCSF affiliation will follow the same path. But some of the Oakland hospital’s most valued programs might be impacted anyway.

Michael Anderson called the hospital’s outpatient clinic on Claremont Avenue the “crown jewel of the Oakland campus.” More than 90 percent of its patients are on Medi-Cal, and many have chronic health conditions. A federally qualified health center, or FQHC, it plays a critical role in providing care for medically underserved populations. (Clinics at McClymonds and Castlemont high schools are also part of the hospital’s FQHC services.)

Nancy Netherland said she took both her daughters to the Claremont Avenue clinic because of its reputation for caring for foster children with exposure-related health issues. Her older daughter was infected with Hepatitis C by her birth mother, while her younger daughter was born prematurely and has a rare autoinflammatory illness. Both were also born addicted to opiates. Netherland said the doctors at the primary care clinic went “above and beyond” with her children’s care, educating themselves about their conditions, helping her older daughter get admitted to a clinical trial at UCSF (she has since been cured), and getting both of them the necessary referrals for the various tests they needed.

“It’s a rigorous process,” said Netherland, who also works in health care. The primary care doctors “have to file authorization work and referrals. It’s extra work, but the doctors at the Claremont clinic were willing to do that. … They had a smooth system for getting those referrals out.”

As a foster mom of children with complex medical needs, Netherland said she also appreciated the clinic’s inclusive, nonjudgmental culture, especially when her youngest daughter was having withdrawal symptoms. “It was the cultural competency of all the providers—from the front desk to the doctors at the Claremont clinic—that was really profound in making that a comfortable experience,” she said. “I knew I’d be unlikely to find a private practice doctor who could walk me through that as a mom.”

Netherland is one of many East Bay parents who say the clinic has been invaluable to their child’s care. But now Children’s is exploring the idea of having a separate community health organization take over or help run the clinic.

According to hospital representatives, the clinic incurs additional costs because it’s under the hospital’s license, while similar FQHCs in the community don’t have this burden. Oakland is also one of the few children’s hospitals in the nation to administer a FQHC. Durand said any partnership would probably still involve the hospital. “Regardless of the business arrangement, there’s likely to be very tight clinical coordination.”

Still, the initial news of potential changes to the FQHC caused panic in the community. Lackman said she and many other community physicians feared the hospital wouldn’t find a partner and would close the clinic instead, which is why they launched the petition. “The concern was that they were not going to be able to find somebody to take this over,” she said. “Nobody knew. This wasn’t really communicated to the community.”

Physicians say if the FQHC closes, the impact would be devastating. Vichinsky said there isn’t another medical facility that provides such comprehensive services for children experiencing homelessness, abuse, and other issues. And he doesn’t think transferring the programs to another health care provider is a viable solution. “There isn’t an existing entity that could absorb that right now,” he said.

Netherland said she is preparing to take her kids elsewhere if the clinic closes, but admits she’s not sure where they’ll go. “I’ve been talking to doctors in San Francisco that take Medicaid, but most of their practices are full,” she said. “I’m on their waiting list.” While she could take them to an East Bay community health center, she said these don’t have the same linkages to specialty care as the Children’s clinic. “I think that linkage has really saved my kids,” she said.

When interviewed in late May, Anderson insisted that shutting down the clinic was never an option. And he said he’s not in a rush to find a partner because the clinic staff is doing a good job of improving operations and becoming more efficient.

Vichinsky believes the hospital is rethinking its plan after the petition and ensuing backlash from the community. He said the clinic could be sustainable if it were better managed. “I think Dr. Anderson is an ethical person,” Vichinsky said, “but the financial administrative leadership wants to get rid of the program because it’s not a moneymaker.”

Even if the hospital finds a partner to take over the clinic, there’s a question about how the new arrangement would impact the hospital’s residency program, because the residents get much of their outpatient primary care training there.

The hospital has already made some cuts to its graduate medical education program, reducing the number of incoming pediatric residents by two slots. Hospital communications director Melinda Krigel said no decisions have been made about further cuts beyond this incoming class.

But Hastings, who is also the fellowship director in the hematology oncology department and a member of the hospital’s graduate medical education committee, rebutted that. She said the cuts of two slots per year are carrying forward for the next three years. The program currently trains 84 residents per year, and by 2019 this number will be reduced to 78, she said.

Reductions in the residency program are detrimental to the hospital, Hastings added. “Residents provide a vital service for care,” she said, noting that they train in primary care and rotate among the subspecialties, as well as offer a cheaper source of labor than physicians. 

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