July 1, 2019
Many of the country’s top children’s health systems are facing stronger industry headwinds, resulting from declining birth rates, clinician shortages, changing reimbursement models, and inconsistent federal and state funding. It has become more difficult for children’s health systems to sustain a “Switzerland-like” model where they are viewed in the market as the default provider of pediatric care. In addition to these macro-level changes, an increasing number of adult systems and physician groups, once serving as predictable referral sources to children’s health systems, are consolidating and beginning to offer more pediatric services in-house as they build up their integrated health networks.
While demand for pediatric sub-specialty volume remains stable in the majority of US metropolitan statistical areas (MSAs), changing market dynamics and increased competition have resulted in greater fragmentation of pediatric services and made it more difficult for children’s health systems to continue to provide high quality care to our nation’s youngest people.
Children’s health systems wanting to remain relevant and successful will need to take steps to continue to scale up, expand their care network, maintain strong sub-specialty service offerings, and ensure their core service offerings provide strong financial performance. It is our observation that children’s health systems best positioned to thrive in the new environment will maintain their focus on the following priorities — all requiring certain scale thresholds to be successful:
Priority #1: Physician Recruitment
While birth rates have continued to decline, there has been a steady increase in the number of children diagnosed with chronic disease in the United States – spanning conditions that vary from obesity to autism. This has created a significant increase in the demand for sub-specialty trained physicians who are devoted to caring for children. And yet, largely because of compensation differences compared to the adult specialties, many of the training programs for pediatric specialties across the country have gone unfilled as seen in Table 1 below:
Table 1: Pediatric Training Programs with Unfilled Positions by Specialty (2018)[i]
|Pediatric Training Program||# of Training Programs Nationally||Unfilled Programs (2018 Match)||% Unfilled|
|Child & Adolescent Psychiatry||112||55||49.1%|
|Developmental & Behavioral Peds||35||14||40.0%|
|Pediatric Critical Care Medicine||65||6||9.2%|
|Pediatric Emergency Medicine||77||2||2.6%|
|Pediatric Hospital Medicine||35||2||5.7%|
|Pediatric Infectious Diseases||52||25||48.1%|
|Pediatric Rehabilitation Med||18||1||5.6%|
|Pediatric Sports Medicine||18||0||0.0%|
This dynamic has exacerbated the shortage of pediatric specialists across the country. As today’s senior complement of pediatric specialists retire, there are insufficient numbers of new graduates to take their place. Trainees are far more likely to stay and practice at the place of their residency or fellowship, which would suggest that children’s health systems with their own training programs are the most successful at recruiting and retaining talent over time.
Unfortunately, children’s health systems receive little to no support from the traditional graduate medical education (GME) funding mechanism in this country because that funding is tied to Medicare volumes. The Children’s GME (CHGME) program was enacted in 1999 to address this disparity – but unlike traditional GME funding, Congress must regularly appropriate funding for the CHGME program, which creates more uncertainty regarding its sustainability and makes smaller children’s hospitals more reluctant to develop new training programs or expand existing ones. Children’s health systems need sufficient funding (generally coming from clinical operations and/or philanthropy) to support their training programs.
Feature #2: Physician Retention
Need for pediatric specialists exists across all specialties but is most acute in some of the behavioral health and cognitive specialties as shown in Table 2. And yet, given the complex nature of children’s illnesses, these are often the specialties that are most critical to developing a true multi-disciplinary program. Average wait times for many of these pediatric specialties across the country are in the months, not days – with the problem exacerbated in specialties at smaller children’s hospitals without the scale to keep more than 1 or 2 specialists busy.
Larger children’s health systems are more likely to have the resources to recruit and retain the subspecialty talent needed to provide niche service offerings and develop multi-disciplinary programs that provide best-in-class care for patients and families.
Table 2: Pediatrician Vacancies by Specialty as Reported by Hospitals[i]
Feature #3: Maintaining Quality through High Volume Service Offerings
Children’s health systems have historically discussed their value proposition in terms of quality (e.g., clinical outcomes, patient safety) and service (e.g., access to specialty care, wraparound programs).
Several studies have shown a direct correlation between clinical volumes and quality outcomes. The association between improved outcomes at sites that perform a procedure has often been the focus of payor-driven proposals to regionalize care to high-volume centers. And for a variety of reasons, the correlation between scale and outcomes disproportionately favors children’s health systems with the scale necessary to support larger clinical programs and services. Other benefits include:
- Sub-Specialty Physician Depth: Larger patient bases provide an economic justification to recruit more than one or two specialists in support of a given program. This both attracts better talent and provides the health system with continuity in the event of one physician departing/retiring, which supports more consistent clinical outcomes.
- Specialty Care Team: For specialty children’s programs, the capabilities of the care team are just as critical as the individual skill level of the physician. To ensure that pediatric anesthesia, imaging, nursing, etc. all have the competency to care for these very complex children, these professionals need to have regular exposure to a large volume of cases.
- Support Staff: Larger children’s health systems tend to have greater ability to invest in quality improvement and monitoring programs, and have dedicated resources to staff, systems and programs that smaller facilities cannot justify. Medical directors, patient navigators, chart abstraction, quality analysts and other personnel are all more common in programs with larger platforms since their costs can be spread over a larger base of patients.
- Research Funding and Support: Pediatric clinical research funding (both NIH and industry) tends to go to clinical programs with a large patient base, since that ensures that there are enough enrolled participants to make the study statistically valid. And since the largest children’s health systems attract the most funding, they are on the cutting-edge of treatment, which in turn attracts the specialty talent necessary to drive the best clinical outcomes.
The reality is that for many pediatric specialty clinical programs, there just isn’t enough incidence of disease to justify multiple program offerings. For example, there are fewer than 2,000 hematopoietic cell transplantations (HCT) provided to children annually across the country – and yet there are more than 80 children’s programs vying for that volume.
Table 3: Number of Pediatric Hematopoietic Cell Transplantations from 2000 – 2016[i]
Based on the data, the average children’s HCT program does fewer than 30 transplants all year. And there is significant variability in the scale of these programs, with some children’s centers doing well over 100 annually, while many others performing fewer than 20 per year. Not surprisingly, the largest children’s centers tend to have superior outcomes.
Table 4: Pediatric HCT Programs by Case and Adjusted 1-Year Survival Rate[iv]
|Pediatric HCT Program||# of Cases (2014 + 2015)||Adjusted 1-Year Survival|
|Cincinnati Children’s (OH)||221||83.0%|
|Texas Children’s (TX)||194||80.1%|
|Children’s – Philadelphia (PA)||176||83.2%|
|Cohen Children’s (NY)||37||71.1%|
|Akron Children’s (OH)||24||64.3%|
|Children’s New Orleans (LA)||24||58.8%|
|A. I. duPont (DE)||20||72.0%|
This trend can also be found in congenital heart surgery, where many of the larger programs have adjusted mortality rates less than 3.5% while some smaller programs have adjusted mortality rates that are considerably higher.
Table 5: Select Congenital Heart Surgery Programs by Number of Cases and Adjusted Mortality Rates[v]
|Congenital Heart Surgery||# of Surgeons||# of Cases (2013 + 2016)||Adjusted Mortality Rate*|
|Boston Children’s (MA)||10||3,782||2.8%|
|Texas Children’s (TX)||6||2,646||1.7%|
|Children’s – Philadelphia (PA)||4||2,525||3.2%|
|Cincinnati Children’s (OH)||4||1,305||3.0%|
|Children’s Kings Daughter (VA)||4||315||6.0%|
|St. Christopher’s (PA)||3||301||4.7%|
|Maine Medical Center (ME)||1||177||9.1%|
At a macro-level, the largest children’s health systems tend to have the best scores when looking at overall hospital quality. The category “Outcomes and Experience” makes up 44.2% of the total scoring for the U.S. News & World Report Top Children’s Hospitals rankings. In each of the ten clinical specialties that U.S. News tracks, the best “outcomes and experience” scores are typically linked to the largest hospitals and health systems.
Table 6: Large, Freestanding Children’s Hospital Rankings in US News & World Report[vi]
|US News & World Report Clinical Specialties Evaluated||Number of Top 10 that are Standalone (Freestanding)|
|Pediatric Cardiology/Heart Surgery||9|
|Pediatric GI/GI Surgery||9|
Feature #4: Focus on Value and Cost Reduction
Top children’s health systems have historically focused on providing the highest quality care to patients and their families, while increasing access to specialty programs that aren’t available elsewhere in the region. But the value equation identifies three components of value – quality, service and cost. Value is only increased if children’s health systems can either increase quality and service at the same cost per case or provide the same level of quality and service at a reduced cost per case. With the recent emphasis on rising healthcare costs at both the federal and state levels, children’s health systems across the country are becoming much more deliberate in terms of their focus on costs.
Minimizing excess resource utilization while simultaneously allowing for economies of scale in both clinical care and back-office functions allow the larger children’s health systems to support more efficient cost structures, which in turn allows for greater investment in access, specialty programs and infrastructure that creates value for patients and their families.
Table 7: The Value Equation and Focus on Cost
Of course, there is a difference between cost and price, and one of the biggest arguments against health system scale/consolidation is that larger health systems do not pass on the value associated with economies of scale to the communities they serve, but instead use their leverage to extract higher reimbursement rates. But as markets continue to evolve towards value-based payment models and patients become increasingly responsible for a greater percentage of their healthcare dollars, health systems and insurers are taking additional steps to ensure value generated is getting passed to patients and families.
Feature #5: Maximizing Philanthropic Giving
As the evolving healthcare paradigm continues to put downward reimbursement pressure on health systems, it has become increasingly important for children’s health systems to diversify their sources of funding. One key area of focus has been a commitment to philanthropy. In 2016, American individuals, estates, foundations and corporations contributed nearly $400B to US causes[i]. Health organizations represent the fifth largest recipient of annual philanthropic funding (after religion, education, human services and foundations), with total giving exceeding $30B. Children’s care and cancer care are traditionally the largest drivers of philanthropic funding in the healthcare sector.
From 2016 to mid-2018, there were 18 donations of $5M or more to children’s healthcare, almost all of which went to leading, freestanding children’s health systems.
Table 8: Select Pediatric Giving by Year, Donor, Recipient, and Gift
|2018||Bruce Leven||Seattle Children’s||$60,000,000|
|2018||Robert Hale Jr. and Karen Hale||Boston Children’s Hospital||$50,000,000|
|2017||Gordon and Betty Moore||Lucile Packard Children’s Hospital||$50,000,000|
|2016||Brian L. and Aileen Roberts||Children’s Hospital of Philadelphia||$25,000,000|
|2018||Tad Taube||Lucile Packard Children’s Hospital Stanford||$20,000,000|
|2018||William and Nancy Thompson Family||Children’s Hospital of Orange County||$20,000,000|
|2016||Nancy Blackburn Hamon||Children’s Medical Center Foundation (Dallas)||$15,000,000|
|2016||Ann Wolfe||Nationwide Children’s Hospital||$15,000,000|
|2017||Anonymous||Ann and Robert H. Lurie Children’s||$12,000,000|
|2016||Pogue Family Foundation||Children’s Medical Center Foundation (Dallas)||$10,000,000|
|2016||Joe F. & Kathy Sanderson||Children’s of Mississippi (Jackson)||$10,000,000|
|2017||David and Julia Koch||Lucile Packard Children’s Hospital Stanford (Calif.)||$10,000,000|
|2016||Joseph Clayes III Charitable Trust||Rady Children’s Hospital-San Diego||$10,000,000|
|2017||Charif Souki||Texas Children’s Hospital (Houston)||$10,000,000|
|2018||Willard and Pat Walker Foundation||Arkansas Children’s Hospital (Little Rock)||$8,000,000|
|2017||John and Susan Herma||Children’s Hospital of Wisconsin (Milwaukee)||$8,000,000|
|2017||T. Denny Sanford||Nicklaus Children’s Hospital (Miami)||$7,000,000|
|2017||Norman and Irma Braman||Children’s Hospital of Philadelphia||$5,000,000|
This type of philanthropic support just doesn’t happen. A strong children’s foundation needs to be put in place with a compelling vision of institutional priorities across missions and a clear strategy outlining focused campaign efforts designed to connect with the donor community. Larger children’s health systems tend to have the resources to secure these larger philanthropic donations.
Feature #6: Maintaining a Strong Academic Affiliation
Unlike adult specialists, where there is a far greater percentage practicing in the community hospital setting, pediatric specialists tend to continue to practice at institutions with an academic mission; however, the academic mission priorities are often subsidized by clinical operations. Those children’s health systems tending to have the greater NIH funding also tend to be the biggest in size:
Table 9: Pediatric NIH Fundingviii
|Children’s Hospital||Beds||NIH Funding (2017 Total Awards)|
|Boston Children’s Hospital||415||$157,591,678|
|Children’s Hospital of Philadelphia||520||$126,040,263|
|Cincinnati Children’s Hospital||609||$121,343,846|
|St. Jude’s Children’s Research Hospital (Cancer Only)||68||$76,186,324|
|Seattle Children’s Hospital||316||$43,676,764|
|Nationwide Children’s Hospital||616||$34,664,371|
|National Children’s Research Institute||313||$31,174,832|
|Children’s Hospital of Los Angeles||357||$21,868,818|
The highest ranked pediatric residency training programs also tend to be highly correlated with the larger children’s hospitals and their affiliated universities.
Table 10: Pediatric Training Programsix
|Pediatric Training Programs||Ranking||Core Residency Positions|
|Harvard / Boston Children’s Hospital||1||124|
|Univ. of Penn / Children’s Hospital of Philadelphia||2||140|
|UC / Cincinnati Children’s Hospital||3||125|
|Univ. of Colorado / Colorado Children’s||4||96|
|Univ. of Pitt / UPMC||7||100|
|Univ. of Washington / Seattle Children’s||8||121|
|Stanford / Lucy Packard||9||95|
|Baylor / Texas Children’s||10||159|
As the healthcare industry evolves, children’s health systems having the highest probability of success will be those with sufficient scale to effectively recruit and retain sub-specialty talent across all pediatric services and programs. In turn, these health systems will be able to provide higher quality outcomes and do so at more competitive prices. In addition, these children’s health systems will be positioned to better connect with their donor communities, which will accelerate the implementation of key strategic initiatives. Finally, these children’s health systems will be better suited to focus on building stronger academic partnerships to support cutting-edge research and train the next generation of pediatric sub-specialty talent.