Jackie Judd talks with Gil Gaul about his series, Building Ambitions, which looks at the big money world of children’s hospitals in the United States. Gaul discusses his series and says big costs, amassed wealth and children’s hospitals’ unique place in health care in America make it a growing power player in providing health care in America.

Listen to the interview.

JACKIE JUDD: Good day, I’m Jackie Judd. This week, Kaiser Health News launched an important new series on a part of the health care industry that typically gets very little attention: children’s hospitals. Reporter Gil Gaul spent months looking at the finances of the largest and wealthiest children’s hospitals, which are considered the elite providers of care for children. Gil is with us to share some of what he learned. Welcome.

GIL GAUL: Hi, thank you.

JACKIE JUDD: This is a relatively small percentage of the health care sector, of health care spending. Why focus on it?

GIL GAUL: Well, it’s true, it’s only about 5 percent of the overall health care sector, but it’s an important piece of that sector. Not only because these are the elite children’s hospitals, the care they provide, the wealth they managed to accumulate over time. They reflect a lot of the same pressure points that we see in the overall health care system. We at Kaiser are interested in the issue of cost, certainly we want to look at that. And finally I’d say that, the world of children’s hospitals, while they have been able to amass a fairly surprising amount of wealth over the last decade, is beginning to change, just as it is for adult hospitals.

JACKIE JUDD: But one of the things you did find was that for a period of time at least, some of the pressing financial issues in many hospitals didn’t affect children’s hospitals quite as much. How and why?

GIL GAUL: Well, for a variety of reasons: Children’s hospitals are unique in a lot of different ways and financially they are certainly unique. For one thing, all children, or nearly all children are covered by one type of insurance or another. So you don’t have the levels of uncompensated care, of underinsured patients that you see in the adult system. They’re able to raise funds and raise money much more easily than adult hospitals because we all like kids and we’re all more willing to open our pocketbooks for them. So I looked at children’s hospitals over a decade using bond documents, tax returns and audited financial statements. And I looked at the elite, top providers because they were the easiest ones to be able to get this information for. Lots of other children’s hospitals are part of adult systems and they don’t break out their information. But over that decade, really until the last year or two, with this great recession that we’re going through, still going through, they enjoyed a kind of market power that many adult systems didn’t have, a unique ability to raise their rates and raise money.

JACKIE JUDD: And why?

GIL GAUL: Because in most regions you really only have one large regional children’s hospital. There may be two in a few markets. Because they are what we call “must-have” hospitals, that is, you know, you need some place for this kind of this sophisticated, highly technical care at many children’s hospitals. You don’t have a lot of alternatives. Where are you going to take your child if you need that kind of cancer care or open-heart surgery or something like that? Because they are a “must-have” hospital, that again gives them unique power over insurers when it comes to negotiating rates and leveraging that power in negotiating rates. So they haven’t had the same kind of economic and financial pressures for the most part during this decade that you’ve seen at some of the other hospitals.

JACKIE JUDD: Were you able to document whether rates at children’s hospitals, bills at children’s hospitals rose at a faster clip than at other hospitals?

GIL GAUL: Well, that gets to an interesting question of transparency; I mean, for the most part, rates of all hospitals, you can’t really get at. It’s not as if they publicize their rates. And also the way rates are counted by hospitals varies from hospital to hospital: Some hospitals use one system, some hospitals use another. So it’s not always apples to oranges, but, you know, I know enough about reading a financial statement and footnotes and bond documents that I was able to see for specific hospitals, because they would frankly boast about it, that they were able to raise their rates at levels that I found were two to three times inflation over periods of time. And that’s pretty hefty increase.

JACKIE JUDD: And in the third part of the series, Gil, you share a telling anecdote that reflects how times are changing even for these children’s hospitals. Tell us what happened.

GIL GAUL: Well, so about a year ago there was a meeting in Philadelphia at a hotel at which many of the CEOs of these large children’s hospitals attended. And the point was there were various panels and sessions and they were talking about the changes that are beginning to affect children’s hospitals. Everything from “Will there be pediatric ACOs in the future,” to cuts in Medicaid, state budgets, all the pressure points that are beginning to affect children’s hospitals and their economics going forward. I interviewed a physician who is also a consultant for children’s hospitals a couple of times and he said something pretty interesting to me, he said, “You know, in the past you’d come to these meetings and there was actually a level of arrogance in the room,” maybe arrogance is too strong a word, certainly, confidence, a lot of confidence in the room about children’s hospitals, their futures and their economics. He said, “You know I walked into this session, and what I saw was there was just far less arrogance in the room than in prior years.” And it was almost as if there was a humbling element going on that the CEOs were recognizing that, “You know, the world really is beginning to change for us too. And it’s going to change pretty quickly.”

JACKIE JUDD: And what might that change mean? Not only for the industry, but for the people these hospitals serve?

GIL GAUL: For the industry, it’s probably just going to mean, boiled down, fewer dollars. Or if not fewer dollars, certainly slower rates of increases in those dollars.

JACKIE JUDD: Or a slowdown in the building boom maybe?

GIL GAUL: Well it could be a slowdown in the building boom. There’s been a tremendous building boom of children’s hospitals in the last decade. It’s, again, there’s no one data source, but on my own I tracked at least $15 billion plus in new construction, including one alone that’s $915 million dollars. And, yeah, that’s already begun to slow down. There are a couple cases where people have pulled back from that. So you have that. I think everyone’s worried about what’s going to happen at the state level and that’s primarily with Medicaid and SCHIP. What kind of dollars are going to be available? Are those things going to be cut back? You have the tension between larger numbers of uninsured, even children, coming forward versus what kind of money is going to be available for that. Now, the advocates, children’s advocates will tell you, “We’re really worried about this. We’re worried about everything from ‘Will they be able to get access to a pediatrician?’ to ‘Will we have enough doctors to get trained if those dollars get cut too?’ ‘Will they be able to get access to more sophisticated care at the hospital level?'” So to sum it up, those are the kinds of fears they are looking at.

JACKIE JUDD: OK. Thank you so much. Good work.

GIL GAUL: You’re welcome. Thank you.

JACKIE JUDD: Gil Gaul, author of “Building Ambitions.”

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