Children’s acquisition of Franciscan makes sense

Risk of more consolidation offset by behavioral health needs

I WRITE TODAY not to bury the leaders of Boston Children’s Hospital, but to praise them.

Well, perhaps with some reservations.

My reason for saying something nice today about Boston Children’s Health System (hereafter Children’s)  stems from a determination of need posting from this past week in which the parent company of Children’s has proposed to acquire Brighton-based Franciscan Children’s Hospital and place it under the Children’s corporate umbrella as a sister company to its flagship hospital.

The posting is  an early step for Children’s to get on track in being a community-responsive provider, particularly for  behavioral health care. But first let me remind readers about some of the key cost challenges that accompany the actions of what is often referred to as the “greatest children’s hospital in the world.”

Children’s is an incredibly wealthy and expensive provider with the highest relative commercial and Medicaid managed care prices in the state.  The hospital also dominates pediatric services in Eastern Massachusetts.  While the hospital does serve a good number of Medicaid patients, its dominance is even greater in the high-priced commercially insured space where, statewide, it has about a 50 percent market share of all commercial pediatric discharges.  The hospital is also incredibly dominant in the specialty physician care realm and even in some community hospitals, where pediatric services are often staffed by Children’s pediatricians who can easily transfer or refer children back to the mothership hospital and specialists.

The Health Care Cost Institute, which analyzes self-insured data, estimates that the proportion of all commercial health spending that is spent on children nationally is just over 13 percent.  For 2021, Blue Cross Blue Shield of Massachusetts data show that about 18 percen- of total commercial spending in their Total Network HMO population is spent on children.     While insurance coverage mandates, higher newborn spending, and committed well child care efforts contribute some to our state likely having more proportional commercial pediatric spending, it seems overwhelmingly likely that this nearly 40 percent higher pediatric proportional spending in our state is largely driven by Children’s market share and the high prices they demand.  The Center for Health Information and Analysis has 2019 data showing that Children’s accounts for 7.3 percent of total state health care commercial spending, while having only 3 percent of the state’s commercial patient volume seems to confirm this worry about just how expensive Children’s is for premium payers.

In the Boston area academic pediatric community, the only true competitor left—though at less than 30 percent of Children’s patient activity — is Massachusetts General.  Boston Medical Center has a very small pediatric service of almost exclusively Medicaid or uninsured patients, and Tufts Children’s Hospital announced earlier this year it was abandoning the inpatient pediatric market and was arranging for its pediatric inpatients to all go to Children’s starting this July.

In 2016, the Health Policy Commission  predicted that the future of Tufts Children’s Hospital would be at risk from Children’s hospital expansion project, which was subsequently approved by the Department of Public Health  and is now leading to the addition of 71 new licensed ICU beds in its rebuilt hospital opening this summer. But even before the new building opens, Children’s market dominance has already led to Tufts needing to close its children’s hospital—making pediatric care in the state even more concentrated and expensive.

From a public policy perspective, it could even get worse in the near future.

Children’s is next up for a determination of need review of its over $400 million proposed ambulatory care expansion project in three Boston suburbs. There is a good deal to worry about with this proposal and its potential failure to demonstrably advance state cost containment goals. Admittedly, I am much more hopeful now after the Department of Public Health decided to reject the Mass General Brigham proposed ambulatory care expansion.

And with this renewed faith that our regulatory agencies can distinguish between good market expansion proposals from those that are bad, I now turn my attention to the Franciscan Hospital acquisition that just popped up last week on the determination of need website—and why I like it.

As our state’s only pediatric chronic disease and rehabilitation hospital, Franciscan Hospital has a special focus on providing hospital care, dental services, and schooling for medically complex children.  In addition, for over 60 years, it has provided an array of inpatient and outpatient behavioral health services for children, and has long-standing expertise in caring for children with severe co-occurring medical and psychiatric disorders.

The overall payor mix at Franciscan  across its array of patient services indicates that around 60 percent are Medicaid recipients.   With the hospital clearly in need of resources, this determination of need proposal calls for Children’s  to provide Franciscan $55 million upfront as well.  While the proposal doesn’t specify what the money is for, I think of it as some needed “walking around money” to help retain current staff, help fund some much needed new positions, and cushion any operating deficit challenges that could come their way over the next few years.

But if the commitment by Children’s ends with this—that would not be a victory for Franciscan Hospital or the people of the Commonwealth.  In fact, I view this proposed hospital acquisition and placing it under the Children’s umbrella as only a first step in making a sustained commitment, financial and otherwise, to children’s behavioral health and well-being.  What excites me most is what this project could and must lead to.

First, the Franciscan Hospital campus primarily carries out its patient care mission in buildings built in the late 1940s.  I have learned that for this acquisition to close Children’s must agree to a mutually approved site plan that will likely run $300 million plus in new buildings and campus improvements, including expansion of both rehabilitation and behavioral health beds and services—clearly a much needed capital investment in facilities and related services and programs that Franciscan provides to its primarily Medicaid population.  Children’s would gain by being able to offload high-needs chronic care patients and those with mental health challenges from its Longwood campus.

This sort of campus project will require its own future determination of need approval.   I have been told that the planned payor mix for use of the rebuilt campus site is not expected to change. With the acquisition by Children’s, the inpatient and outpatient services under Medicaid and private insurance at Franciscan will then be priced at Children’s prices and lead to more overall spending. But the behavioral health needs are so great that we should accept that reality so long as we are also getting more services as more dollars are spent—and not simply repriced services.

What I truly hope is the vision for this project goes well beyond even the rebuilt Franciscan campus and all the additional needed services to be provided in Brighton. What is really needed is an effort to liberate a significant amount of dollars in Children’s reserves, which have grown from $5.6 billion to over $8 billion over the course of the COVID pandemic.

The need is there. In its determinati0n of need application, Children’s notes how  the number of Emergency Department  boarding bed days during the COVID era have grown from about 4,000 annually to almost 12,000 in the most recent fiscal year; just one example of a statistic that clearly evidences just how bad behavioral health challenges have become during the COVID era for children.

Whether those billions are spent on integrating behavioral health into primary care, or on school and community based services in Boston and in communities like Brockton, Lawrence and Lowell; or are dedicated to subsidizing the education and training of a wide swath of behavioral health clinicians and caregivers at a variety of educational levels from psychiatrists, psychologists, social workers and behavioral health counselors and technicians—it is all terribly needed.  The mental health workforce shortage is incredible, and while Children’s can’t solve it alone, it ought to be a big contributor to this effort, including beefing up its own efforts to train more psychiatrists and/or behavioral pediatricians.

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No question there will need to be governmental policies and pressure from the executive branch and Legislature combined with professional and community advocacy to make sure this follow-through and additional resource commitment happens.  But this is the first time in memory that I have seen the leadership of Children’s propose an expansion of their footprint in a way that could show the world it is serious about wanting to help address the behavioral health crisis confronting children in Massachusetts.

Paul A. Hattis is a fellow at the Lown Institute.