With many Georgia hospitals struggling to turn a profit, the Scottish Rite and Egleston hospitals run by Children's Healthcare of Atlanta had their best financial results of the decade in 2010 and wound up among the strongest performers in Georgia, according to a review of financial reports by The Atlanta Journal-Constitution.
The system's highly regarded pediatric hospitals reported combined profits of more than $150 million last year, the AJC found.
Ron Frieson, senior vice president for Children’s Healthcare of Atlanta, acknowledged that “our numbers do look strong,” but he said the two hospitals are run efficiently and are often the only source in Georgia for specialized care for sick children.
"That is a huge responsibility," Frieson said. "Financially, we have to remain solid."
Perhaps the most important factor in Children's financial success lies in a strategic move made 13 years ago. Egleston and Scottish Rite decided then to merge instead of continuing to battle for patients. The new system consolidated management, stopped spending money on competing billboards and established expensive clinical programs at one hospital instead of both.
Its finances have steadily improved ever since.
The state reports for 2010 show that Scottish Rite had an 18 percent profit margin and Egleston a 20 percent margin. Statewide, about two in five hospitals reported losing money in 2010. Only a select group had margins greater than 15 percent, according to the state data.
Consolidations to come
That success may prove instructive in the years to come. As many general hospitals struggle financially, a similar consolidation is expected to occur throughout Atlanta's hospital market -- with a few health systems remaining that run multiple hospitals throughout town.
Economists say hospitals can become more efficient through consolidation, but the accompanying decrease in competition can also drive up health care pricing because large hospital systems have more leverage when negotiating with insurers. The specialized care at Children's Healthcare puts it in an especially powerful position, experts said.
"God forbid if something should happen to one's children or to a family member, you want to take them to the best place possible,” said Martin Gaynor, an expert on hospital finance at Carnegie Mellon University. “That can give a hospital a great deal of leverage in bargaining with health insurers."
Children's Healthcare may enjoy that sort of leverage in the marketplace, but it also is dealing with a heavy load of lower-income patients. Half of the system's patients are covered by Medicaid or by PeachCare for Kids, government programs for the poor.
But those payments don't even cover most hospitals' cost in providing treatment. As a result, to make profits and to cover gaps left by the government plans, all hospitals charge privately insured patients a premium. That cost-shifting is what keeps hospitals across the country afloat.
Insurance companies say cost-shifting is a heavy burden for private plans and that it’s important to ask questions about whether hospitals are operating as efficiently as they can – especially in marketplaces where there is little competition.
“There is a direct correlation between increases in hospital consolidation and higher prices being charged for these services and that results in high premiums for everybody with private coverage,” said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, a national trade group.
A long reach
The financial strength of the two Children's Healthcare hospitals, Frieson said, enables the nonprofit system to support a host of other services and projects, including the operations of the system's downtown Hughes Spalding location and the Marcus Autism Center.
The extra money also funds about $15 million in research projects every year, in conjunction with the Emory University School of Medicine, Georgia Tech and Morehouse School of Medicine. And Children's uses its money to keep children from entering the hospital in the first place with campaigns to improve public health. That includes its new effort to combat childhood obesity with a daring advertising campaign and a $10 million investment in a statewide program to teach families easy steps to improve their health.
"These are investments we're able to make because of our strong financial management," Frieson said.
Patricia Ketsche, a Georgia State University professor and health care expert, said the strong financial performance at Children's could be good if the system is not demanding unreasonable prices and is investing in improving quality and access to care for Atlanta's sick children.
"I'm not too worried about a hospital being too profitable, in general," Ketsche said. "There are a lot of hospitals that have been running negative margins for a long time and are barely surviving."
Frieson said specialty pediatric care requires lots of capital at a time when doctors are in short supply. But he said Children's Healthcare has focused on operating efficiently and has kept its costs per patient below the national rate of medical inflation of between 3 and 5 percent.
"We make decisions every day that help us stay not only financially solvent but successful," Frieson said. ". . . We must have a financially sound underpinning to ensure we're here for the children who need us."
A comfort to parents
Having top-ranked Children's Healthcare nearby is a comfort to parents around the state. The hospitals are prepared to offer advanced care whether the problem is a simple broken arm or chronic ear infection or something as life-changing as a heart defect or cancer.
Audrey DeShetler's family turned to Children's when the 6-year-old was diagnosed last year with neuroblastoma, a tumor of nerve tissue that most often develops in infants or young children. Audrey is nearing the end of a 14-month treatment protocol, which has required multiple surgeries, chemotherapy and radiation and two stem cell transplants.
"She is doing great," said her father, Dr. Ben DeShetler, who is a dentist. "They haven't declared her cancer free yet, but she has shown dramatic improvement."
Audrey's cancer is rare. That prompted the family to travel to the top-ranked Children's Hospital of Philadelphia so that a surgeon with extensive experience with her illness could handle the operation. The rest of her care has been at Children's Healthcare of Atlanta, where she was in the hospital last week for a therapy designed to help her immune system fight the disease.
Being able to access top-notch care close to home has helped the family, Audrey's dad said. Audrey's parents and grandparents can rotate through the hospital and keeps things as normal as possible for Audrey's 8-year-old brother. And when Audrey's not in the hospital, she goes to school and to the playground.
Ben DeShetler said the family has had a "really good experience" at both Scottish Rite and at Egleston. "It's never easy, though," he said. "And things never go according to plan with her kind of cancer."
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