Children's Hospital makes a case for expansion

Children's Hospital's new $30 million Karabots primary care center at 48th and Market Streets in West Philadelphia.
Children's Hospital's new $30 million Karabots primary care center at 48th and Market Streets in West Philadelphia. (TOM GRALISH / Staff Photographer)
Posted: August 05, 2013

Steven Altschuler, chief executive of Children's Hospital of Philadelphia, has made a compelling case that the hospital must expand outside the region to remain successful, calling the tristate area a "no-growth pediatric market."

Among the possibilities was a partnership in a new $350 million children's hospital in San Antonio, where Children's would try to replicate the powerful pediatric network it has here.

But last week, Children's backed out of that deal because one of its partners, publicly traded Vanguard Health Systems, agreed to sell out to Tenet Healthcare Corp., which owns St. Christopher's Hospital for Children, a hometown competitor of Children's.

"It wouldn't be an appropriate relationship for us," Altschuler said in an interview Thursday. The third partner was the University of Texas Health Science Center at San Antonio.

San Antonio was just one front for Children's.

For example, in Beijing it is consulting with the state-owned asset management company on the construction of a 300-bed women's and children's hospital. Children's is considering becoming a part owner of the facility.

"We view ourselves as a national and international provider of health care," Altschuler said. Children's has to expand so it can "invest in science and innovation," he said.

The push for national and international expansion by Children's, already the nation's largest children's hospital by patient revenue, highlights what some see as an appetite for growth that puts it in league with for-profit firms like Wawa, which started opening stores in Florida to escape the Mid-Atlantic's slow economy.

Going to San Antonio would not contradict the nonprofit mission of Children's, said Laura Otten, executive director of the Nonprofit Center at La Salle University. But Otten wonders: "Have they really done everything they can to service this population before they're running off worrying about growth markets elsewhere?"

Others attributed the Children's expansion drive to a long-term demographic shift in the country.

"Dallas, Texas, is doubling the number of kids every 10 years. They don't really need to look very far outside Dallas" and its Children's Medical Center, said Mark Wietecha, president and CEO of the Children's Hospital Association.

"For children's hospitals in flat markets, there is a need for them to look around a little more broadly," Wietecha said. "Now, whether you need to look to China or not, I think is another dimension, but certainly we see a lot of outreach."

Children's is in a small group of health-care providers that can even entertain thoughts of national and international expansion, said Kaveh Safavi, who leads Accenture's North American health-care consulting practice.

"There aren't that many institutions that have a true health-care brand," Safavi said.

Besides Children's Hospital, Safavi would include in that group the Mayo Clinic; the Joslin Diabetes Center; the Cleveland Clinic; and the MD Anderson Cancer Center, which in June announced a partnership with Cooper University Health Care in Camden.

Complicating large-scale expansions in a new region, like the planned hospital in San Antonio, can be the need for for-profit partners that have access to capital, such as the stock market and private equity, which are off-limits to nonprofits

But there is a risk to "not-for-profits trying to use for-profit partners. You just don't know how long your partner will be around," said Wietecha, head of the children's hospital trade association.

Children's witnessed that firsthand in San Antonio, where the deep pockets - Vanguard Health Systems - agreed to a $4.13 billion buyout by Tenet six weeks after a site for the hospital was selected.

San Antonio was attractive because 20 percent of all births in the United States in the next 20 years are expected to be in south Texas, said Altschuler, who left the door open to a partnership there.

If the University of Texas Health Science Center at San Antonio "should decide to go in a different direction that didn't involve Tenet, CHOP could potentially be part of such an initiative in the future," Altschuler said.

Meanwhile, Children's is continuing its international expansion; it received its 1,000th international patient Thursday, Altschuler said. That business is approaching $100 million in annual revenue and is more profitable than domestic business, he said.

It had $1.9 billion in total revenue in the year ended June 30, 2012.

In addition to Beijing, Children's is consulting on a women's and children's hospital in Saudi Arabia. Both consulting relationships are paying dividends.

"As we've set up consulting arrangements where we go in and help them build internal capacity, they actually send us more patients," Altschuler said. Those are typically the "very complex, high-end type patients" that the hospital wants, he said.

Closer to home, Children's sees "opportunities potentially in and around New York City," which has no independent children's hospital, Altschuler said.

Other possibilities include franchising certain types of care, such as cancer treatment, or developing partnerships with smaller children's hospitals. None of it is a matter of growth for growth's sake, Altschuler said.

"One of our major functions is to change the way that pediatric health care is practiced," he said. "That's what we use our growth and our clinical revenue for."


Contact Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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