CHKD parent organization in good health [Virginian – Pilot]

By Amy Jeter

The Virginian-Pilot

NORFOLK

Two years after the recession squeezed Children's Health System Inc., the nonprofit organization reported more stable operating results in 2011.

The Norfolk-based health system, parent to Children's Hospital of The King's Daughters, reported operating income of $16.9 million on operating revenues of $349.5 million in 2011, according to audited financial statements released by CHKD.

Its operating income dropped 40 percent from 2010, but it was three times higher than the $5.1 million it reported for 2009.

That year, children spent fewer days as inpatients at the hospital, and the organization saw its investments drop about $25 million in value as the markets faltered, said Dennis Ryan, the system's chief financial officer.

To avoid losing money on operations that year, the health system cut 137 positions, froze salaries and trimmed more than $8 million in expenses - reductions that continued in 2010 and pushed operating income to $27.9 million that year, Ryan said.

The rebound year helped, said Jim Dahling, Children Health's president and CEO, but the nonprofit never intended to maintain that level of austerity.

"We used that one good year to re-fund some of our foundation. We used that to restart some of the projects that we had held back," Dahling said. "Thank goodness we had it, but it's not anything we're expecting in the future. That's not sustainable."

In the year ended June 30, the system restored at least half of the jobs as clinical positions, gave salary increases and moved forward with renovation projects that had been delayed for budgetary reasons. It also bought a $1.6 million computed tomography scanner, expanded its outpatient programs and rounded out its pediatric cardiology program with a new surgeon.

Children's Health System employs about 3,300 people and includes CHKD, the state's only freestanding full-service children's hospital, three large physician practices, six outpatient centers and a foundation. CHKD also serves as a teaching hospital for Eastern Virginia Medical School.

The nonprofit system reported $327.6 million in net assets as of June 30, which was $55.9 million more than a year earlier. Most of the increase came from gains on its investment portfolio, which stood at $213.7 million as of June 30, Ryan said. Donations rose 1.9 percent to $9.2 million in 2011.

In 2011, the system's net revenue from patient services increased by 3.1 percent to $339.2 million. Its revenue from inpatients dropped, while outpatient revenue grew.

"We've moved more and more care to the outpatient setting from the inpatient setting," Dahling said. "It's good for the community, good for the parents, good for the cost of health care, but a change in what has been the mission of this hospital."

About $3.9 million, or 0.5 percent, of gross patient revenue was written off as charity care. Because most children qualify for public or private insurance, the nonprofit's charity care percentage is low compared with health providers that serve uninsured adults.

The system provided $50.2 million in community benefits in its 2010 fiscal year. That included health programs addressing community needs, subsidized health services and education of health professionals, system leaders said. It also included $10.3 million in charity care and losses from services not fully reimbursed by Medicaid.

About 57 percent of the system's care, based on patient days, is covered by Medicaid, which pays rates that are a little less than two-thirds of cost, Ryan said. However, Medicaid only accounts for about 40 percent of the system's net patient revenue.

CHKD officials continue to worry about potential cuts that would eat further into Medicaid rates and related reimbursement funds.

"CHKD eclipses everybody else in the commonwealth in terms of having Medicaid as a percent of the business," Dahling said. "That's key for what our mission is, but it creates a high degree of vulnerability for us."

Amy Jeter, (757) 446-2730, amy.jeter@pilotonline.com

the nonprofit

Children's Health System includes CHKD, three large physician practices, six outpatient centers and a foundation. CHKD also serves as a teaching hospital for Eastern Virginia Medical School.