Lurie Children’s Hospital has long been recognized as one of the best pediatric hospitals in the country, in part because of its laser focus on treating kids. But that focus is making it harder for Lurie, the area’s dominant pediatric provider, to weather COVID-19.
Patient volumes are down sharply as families fearing infection delay medical care and kids spend more time at home, avoiding many of the childhood ailments and injuries that would bring them to Lurie. Unlike general acute care hospitals, pediatric facilities can’t offset such declines with large numbers of COVID-19 cases. The virus isn’t as prevalent in children, and only a small number of kids that become infected require hospitalization.
“It’s a good thing for pediatric health care, but it makes it a challenge in terms of balancing our revenue and expenses,” says Dr. Tom Shanley, Lurie’s CEO.
While no pediatric provider is immune to COVID’s financial effects, the pandemic has been harder on Lurie than its top local rivals. At Advocate Aurora Health’s Advocate Children’s Hospital and University of Chicago Medicine’s Comer Children’s Hospital, which are part of larger health care chains, costs are spread out and large numbers of COVID patients ease the impact of dwindling pediatric procedures.
COVID struck at a bad time for Lurie, which added 100 beds and 750 faculty and staff in a major expansion last year. With hospitalizations plunging 15 percent, the 364-bed hospital has reversed course. Lurie imposed temporary pay cuts and unpaid furloughs, froze hiring and suspended capital projects.
Shanley won’t disclose which projects are on hold, but he says Lurie is still investing in clinical care and programs for kids in underserved areas.
Spending cuts have “substantially” buffered Lurie’s bottom line against COVID, Shanley says. Still, austerity measures could slow the Streeterville hospital’s growth, giving competitors a chance to gain ground.
“There are a lot of things working against (stand-alone children’s hospitals) if they don’t have a network as strong as the University of Chicago, as strong as Advocate, as strong as some of the other children’s hospitals,” says Brian Sanderson, managing principal of Crowe’s health care services group.
Big, independent children’s hospitals—there are about 40 nationwide, including Lurie—are seeing revenue declines of around $250,000 a day, according to the Children’s Hospital Association, which represents more than 220 children’s hospitals.
Lurie’s revenue declined $105 million between March and November, compared with the same period in 2019, says Lurie CFO Ron Blaustein. Operating income plummeted 97 percent to $1.7 million in the fiscal year ended Aug. 31 due to the revenue shortfall and higher costs associated with the 2019 expansion.
In revealing the vulnerability that comes with Lurie’s narrow focus on pediatric care, the pandemic could prompt the hospital to seek a merger partner that would give it access to the diverse revenue streams its local competitors have. Sanderson figures all independent children’s hospitals are “considering how they can become part of a stronger balance sheet network.”
“Lurie Children’s is committed to being an independent children’s hospital for the foreseeable future,” spokeswoman Kary McIlwain said in a statement.
Being part of a large system has helped prop up Advocate Children’s during the pandemic, says President Mike Farrell.
“There’s one bottom line for Advocate Aurora Health,” Farrell says. “I have financial goals for my business unit, and the person running (Advocate Christ Medical Center in Oak Lawn) has financial goals for his respective unit. But while my labor cost may be going up because I don’t have the patient volumes, I’m shifting some of that labor cost to him to help with the volumes he’s got.”
Children’s hospitals that are part of broader systems also have a financial cushion in the form of big pots of CARES Act funding. The federal program aimed at helping health care providers survive the pandemic largely relied on Medicare payments to allocate the funds early on, bypassing pediatric providers that mostly treat Medicaid and commercially insured patients.
Lurie got around $43 million in federal provider relief funds, while the University of Chicago Medical Center got about $160 million and 26-hospital Advocate Aurora Health got more than $315 million.
Even before COVID, children’s hospitals were dealing with many of the same pressures facing the broader health care industry, including the need to become more efficient and rein in medical costs.
Advocate Children’s, UChicago’s Comer Children’s and NorthShore University HealthSystem’s pediatric division, which collaborate to promote access to specialized services and better attract younger patients in the area, have worked together during the pandemic to implement hospital protocols.
Meanwhile, in fiscal year 2019, Lurie opened new outpatient facilities to meet the growing demand for services closer to patients’ homes. It also added more than 100 inpatient beds at its Streeterville campus.
Financial constraints could, for a time, hinder Lurie’s growth. Instead of opening additional outpatient centers, it might look to forge partnerships with hospitals and pediatric practices. It already has more than a dozen hospital partners, including Northwestern Medicine’s expansive network.
“Integrated networks, particularly those that invest in technology, actually provide for a better continuum of care for communities,” Sanderson says. “But when it’s financial hardship-driven, sometimes those are mixed marriages.”
Shanley says the widespread adoption of telehealth during the pandemic will help Lurie, which has advanced virtual capabilities, better reach patients outside its existing service areas. And as the hospital takes steps to mitigate the financial impact of COVID-19, it will rely heavily on philanthropy—particularly as it prepares to treat sicker kids in the future as a result of delayed care and missed vaccinations.
This story first appeared in our sister publication, Crain’s Chicago Business.