OAKLAND — Children's Hospital Oakland, which treats the region's most severely ill young people, is planning cutbacks and a major restructuring of its outpatient services after losing $80 million over the past four years.

The hospital will move quickly to obtain $15 million in cost reductions and increased revenue for 2010, said Dr. Bertram Lubin, president and chief executive.

The belt-tightening will include an as-yet-undetermined number of layoffs, Lubin said this week, although he hopes to keep those to a minimum.

"We have been losing money at an unsustainable rate," he said.

Last year alone, Children's lost $26 million.

Lubin stressed that the hospital will remain open and will continue to serve children throughout Northern California.

The plan is to leave the emergency room, inpatient and critical care services largely untouched by the restructuring.

The hospital's research arm, with a $50 million budget largely funded by grants, also will be unaffected.

"I'm passionate about this hospital," Lubin said during an interview in his office. "I know the strengths that we have, and we're going to get through this."

The 190-bed hospital has a $350 million annual operating budget with more than 2,600 employees, including 200 hospital-based physicians in 30 specialties.

Lubin blamed the financial problems on the struggling economy, low reimbursement rates from private and public insurance, rising health care costs, and a lack of pediatric beds at other East Bay hospitals.


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The sweeping health care reform bill signed by President Barack Obama this week will do little to improve the financial picture for struggling pediatric hospitals, he said.

Unlike many other hospitals, less than 1 percent of Children's patients are uninsured.

Instead, the hospital has been coping with rising numbers of patients on Medi-Cal, California's version of the federal Medicaid program for low-income families.

The state's high unemployment rate means more families are losing coverage and turning to such government-assistance programs.

Lubin noted that Medi-Cal reimbursement rates are among the lowest in the nation.

He estimated that Medi-Cal reimburses the hospital between 10 cents and 30 cents for each dollar of care provided.

The number of Medi-Cal patients seen by the hospital has jumped dramatically in recent years. In 2008, 60 percent of Children's patients were on Medi-Cal. In 2009, that share soared to a record 71 percent.

For each 1 percent increase, Lubin said, the hospital loses an additional $1 million.

"The pediatric health care reimbursement system is broken, and rather than being rewarded for our commitment to children, we are being financially penalized," he said.

Lubin, who has led the hospital since August, said he and his managers are working on a three-year restructuring plan they will release in late April or May.

The goal is to achieve $15 million in cost reductions and revenue increases for this year to reduce hospital losses, then break even in 2011 and return to solvency in 2012.

Many of the changes will be focused on the hospital's outpatient services, which have been losing about $40 million a year, Lubin said.

Hospital leaders will consider reducing these services and partnering with community clinics to help deliver some of the specialty care now provided.

Lubin noted that federally recognized health centers — including La Clinica de La Raza, which serves Alameda, Contra Costa and Solano counties — have significantly higher Medi-Cal reimbursement rates than Children's.

So the goal would be to reduce services at Children's outpatient facilities and send the specialists to provide part-time care at the community clinics.

Jane Garcia, La Clinica's chief executive officer, has had preliminary discussions with Lubin about the idea.

"This offers the opportunity for a win-win because it keeps the services in the community and brings them closer to people," she said.

Details about how Children's would be compensated for such services, including the volume of patients needed to make it financially viable, have yet to be worked out.

"We want to help in any way that we can to make sure they survive and they thrive," Garcia said. "Their scope and the services they provide to children are not easily replicable. If we were to lose them, it would be a huge loss."

Lubin said it is too early to say whether any of the outpatient facilities will be closed. The Modesto center is losing the most money, he said. Other outpatient centers are in Brentwood, Pleasanton, Walnut Creek and Larkspur.

The Walnut Creek center will probably be expanded rather than scaled back, Lubin said. It serves an area where many people have private insurance, which offers higher reimbursement rates than Medi-Cal. He plans to meet with pediatricians in the area to find out what type of additional services they would like to see at the site.

"Our goal is to bring in more patients that have insurance, without compromising our mission," Lubin said. He added that the hospital will look at expanding programs that generate income.

Last week, Lubin and Chief Medical Officer Dr. Carol Brosgart went to Washington, D.C., to ask congressional leaders for more government funding. They also hope to get the hospital's outpatient facilities declared a federally qualified health center to receive the higher Medi-Cal reimbursement rate. One of the hospital's Oakland clinics already has this designation.

The restructuring plan will include negotiating for higher reimbursement rates from private insurers such as Blue Cross and Blue Shield.

"We are a regional safety net hospital and it's necessary for us to stay here," Lubin said. "We're going to make it."

Contact Sandy Kleffman at 925-943-8249.

Children's Hospital Oakland
annual losses
  • 2010 -- $16 million (Projected*)
  • 2009 -- $26 million
  • 2008 -- $29 million
  • 2007-- $ 3 million
  • 2006 -- $22 million
    * The hospital estimates a $31 million loss if no cuts are made.