CHOP begins big dig

by John George

The biggest excavation project in Philadelphia history is taking place in West Philadelphia.

The Children's Hospital of Philadelphia is spending $150 million preparing part of the old Civic Center site for an outpatient-care center that will sit on top of a five-story underground parking garage. The pediatric medical center’s expansion plans for ambulatory care, however, extend far beyond the city.

In an interview last week, CHOP President and CEO Dr. Steven Altschuler said in order to thrive under health-care reform, through which the government is shifting from a fee-for-service to risk-based model of paying providers, the hospital is planning to significantly enhance where and how it provides outpatient care.

CHOP’s board in September approved a $2 billion spending plan that includes, in addition to the 500,000-square-foot outpatient-care center at its main campus, a new ambulatory-care center in King of Prussia, where two existing care sites will be consolidated, and another in Central Jersey, where CHOP plans to open a facility on the campus of Princeton HealthCare System’s new $450 million hospital in Plainsboro.

The King of Prussia center will be part of the Village at Valley Forge, a new development on Swedesford Road near a new Pennsylvania Turnpike ramp at the Valley Forge exit. The facility will initially be about 100,000 square feet, and have the ability to expand based on demand.

The outpatient center at Princeton HealthCare’s new Plainsboro hospital will start out at 25,000 square feet and have the ability to expand to 100,000 square feet.

CHOP also plans to expand and renovate its existing specialty care and ambulatory surgery centers it operates in Voorhees, N.J., and Chalfont.

In addition, Altschuler said, consideration is being given to building another outpatient-care center along the Route 1 corridor south of Philadelphia or in northern Delaware.

“We are looking to enlarge our outpatient network in general,” he said. “Wherever possible, we want to move care from an inpatient setting to an outpatient setting. It’s socially responsible. It’s fiscally responsible. And it creates a better experience for patients and their families.”

Alan M. Zuckerman, president of Philadelphia health-care consulting firm Health Strategies & Consulting, said CHOP’s investment in ambulatory-care centers make sense.

“We are going to have a big shift from inpatient-oriented care to outpatient care, so you are going to see all children’s hospitals doing this,” Zuckerman said.

He said CHOP’s challenge is, as a specialty hospital, it has to cover a service area much larger than that of a general acute-care hospital. That means a larger investment in satellite campuses.

Altschuler said CHOP never considered any other site for its Philadelphia ambulatory-care center, set to open in phases starting in the spring of 2015, because the expectation is the facility will handle the most complex cases. The institution wanted the outpatient center — which will start with eight floors, but could grow to 16 depending on demand — to be on the main hospital campus where its specialists and researchers work.

“We want to be able to engage with multiple specialists at the same time” when providing care to patients admitted to the hospital and those being treated on an outpatient basis, he said.

CHOP’s other plans for the $2 billion spending package OK’d by its board include the $30 million Nicholas and Athena Karabots Primary Care Center at 48th and Market streets in West Philadelphia. Altschuler said other primary-care centers are under consideration.

The hospital is also allocating about $400 million for information technology expenditures across its network. CHOP entered into a deal last month to establish a joint genome center with BGI of China to conduct large-scale human genome sequencing and bioinformatics analysis in Philadelphia — with a goal of developing genomics-based personalized medicine for patients.

The hospital is also looking to expand partnerships with existing providers, such as the alliance it formed at the start of this year with Virtua, where it can bring its specialists out to other locations.

Altschuler, who came to CHOP in 2000, noted the hospital is able to focus on outpatient care now because the first part of his tenure was spent renovating its inpatient facilities and growing its research capabilities.

The hospital spent more than $2 billion over the past decade on projects that included adding 14 floors to its Abramson Pediatric Research Center, renovating and expand of its south and west patient-care towers, building a new façade for the hospital’s main entrance, and, last year, opening the $500 million Ruth and Tristram Colket Jr. Translational Research Building — a 12-story facility that houses pediatric research labs for cancer, diabetes, epilepsy, blindness and hemophilia.

In October, CHOP sold $270 million in tax-exempt bonds issued by the Hospitals and Higher Education Facilities Authority of Philadelphia to help fund the new ambulatory care center.

Moody’s Investors Services affirmed its Aa2 rating — its second-highest rating — on the hospital debt, totaling $795 million after the financing, that same month.

Lisa Martin, senior vice president for Moody’s public finance group, said the rating is based “on CHOP’s national prominence among children’s hospitals in terms of clinical strengths and research capabilities, leading market position in the greater Philadelphia region, exceptional patient demand with high occupancy levels and volume growth, very good investment position and strong operating margins.”

In fiscal 2011, the report notes, CHOP posted a 4 percent operating margin and 13 percent operating cash-flow margin. Moody’s also noted the hospital’s revenue growth has averaged 8 percent over the past five years. It revenues topped $1.8 billion in fiscal 2011.

Martin said CHOP’s challenges include the ambulatory-care center project that will elevate capital spending, growing its research subsidies and having a concentrated payor mix that is dependent upon Medicaid and large commercial payors (most notably Independence Blue Cross).

Altschuler said coping with spending in Medicaid reduction is a huge issue for all children’s hospitals now that more than half of the patients treated at such facilities are covered by some type of medical assistance program. At CHOP, 37 percent of the patients are coverage by Medicaid. The creation of its network of specialty care centers in the Philadelphia suburbs and South Jersey, he said, has helped CHOP improve its payor mix by bring in more patients covered by private insurance.

CHOP has taken other steps to diversify its revenue base.

It developed an international medical tourism business to attract patients from other countries. That business, Altschuler said, has grown to $60 million a year in revenues from $6 million two years ago.

The hospital also started a management consulting business to work with other children’s hospitals nationally and internationally. “We will not invest our own capital in facilities abroad,” Altschuler said, “But we think through partnerships we can increase our global footprint.”
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