It’s hard to argue against Thomason Hospital’s plan to construct a $120 million children’s hospital on its campus on Alameda Avenue. Who wants to say anything against a project that will improve health care for El Paso children?

And James N. Valenti, who oversees Thomason as president and CEO of the El Paso County Hospital District, makes a pretty convincing case that the new 140-bed hospital will do exactly that.

“I’ve worked with pediatrics hospitals in St. Louis and it was exciting because pediatricians and pediatrics sub-specialists want to work in that type environment. It’s a different feel than what we have in this community,” Valenti said.

Valenti, along with Dennece Knight, director of Thomason Health Foundation and Children’s Hospital, and Phillip A. Rivera, Thomason CFO, have been spreading this word throughout El Paso as they solicit support for a $120 million bond issue to finance construction. It will appear on the ballot Nov. 6.

As a demonstration of how dramatically underserved El Paso children are by the medical profession, they cite a 2005 report issued by the American Academy of Pediatrics. Across the nation, there is one clinical pediatrician for every 1,769 children under the age of 18. In El Paso, there are 64 practicing pediatricians, one for every 3,532 children.

The Children’s Hospital, Valenti claims, will help address the pediatrician shortage. To staff the hospital, Thomason is dedicating $18 million over the next three years to work with the pediatrics department at the Texas Tech medical school to recruit and retain clinical experts in a number of pediatric specialties.

Because of that relationship with Texas Tech, specialists will be more willing to come to Thomason, Valenti said.

“Nationwide, there’s an evolution going on where there are fewer pediatrics units at private hospitals and they’re becoming more centralized in academic medical centers. That’s happening outside El Paso,” he said.

[The] dean of the medical school, “has already mentioned there are people waiting in the wings outside the state of Texas, asking him when the children’s hospital is coming about. With the magic that’s happening in our neighborhood, physicians are giving us a great look,” Valenti said.

Unfair advantage?

As promising as all that sounds, elements of the children’s hospital plan don’t look all that good to competing private hospitals in El Paso. For example, Providence Memorial Center operates The Children’s Hospital at Providence with 95 general pediatric beds and 11 (soon to be expanded to 20) beds in its pediatric intensive care unit. Providence has the largest share of the pediatrics market share in El Paso, more than 40 percent. Thomason pediatrics is second with 24 percent.

The concern is that Thomason’s new children’s hospital will unfairly use its public financing to take patients away from the private hospitals. And that fear is heightened by statements in the children’s hospital feasibility study conducted for Thomason by Kurt Salmon Associates and released in February.

“Shifting market share from other area hospitals to Thomason and eventually to the new children’s hospital is essential and it will be easier to accomplish the long term goal of 5,000 patients per year treated at the children’s hospital if the effort begins early in the planning process,” the study reads.

Competing private hospital executives also express serious reservations about the children’s hospital’s ability to attract specialists to its staff. One of the major problems in attracting specialists to El Paso is that the population base makes it certain they won’t earn much money.

El Paso has the dubious distinction of being the most uninsured city in the nation. More than one third of its citizens carry no health insurance. And that bodes poorly for medical incomes.

“El Paso’s high rate of uninsured dominates every facet of the health care market. Hospital financials are not likely to turn rosy considering the patient base of low-income and overwhelmingly uninsured, underinsured or Medicaid-recipient populations,” according to market report written last year by HealthLeaders-InterStudy.

Rather than inviting pediatrics physicians into an economically inhospitable climate, one hospital administrator suggests Thomason hold up its children’s hospital plans until the economy turns a corner and the community can better pay for health care.

“We’ve got to create a business-base with enough insured persons that can support health care. That’s what’s missing,” he said.

Conditions

The feasibility study commissioned by Thomason strongly indicates that establishment of a Children’s Hospital is not without risk. In fact, the study concludes that the project is feasible only if four conditions are met.

• The children’s hospital must become a distinct, separately licensed, exempt children’s hospital under Medicare regulations.

• It must participate in favorable reimbursement programs offered to separately licensed children’s hospitals by Medicare and Texas Medicaid.

• The hospital must successfully recruit pediatric specialists who will develop programs that encourage community physicians to refer and admit patients to the children’s hospital.

• It must meet projected patient admissions of at least 4,300.

The first step to the hospital becoming “separately licensed” is for it to have a hospital building.

After consideration of five separate locations, the Thomason Board of Managers decided to locate it atop a building yet to be constructed between the main hospital building and the parking lot.

The original expansion would have housed only the hospital’s new maternity ward. With the addition of four more floors, however, the building can accommodate the children’s hospital: 55 beds for the neonatal intensive care unit on the sixth floor; 30 pediatrics bed on the seventh; 18 more pediatrics beds and a 12-bed pediatrics intensive care unit on the eighth; and 30 more pediatrics bed on the ninth.

The additional four floors, plus equipment, is projected to cost $117.7 million.

And the financing is to be approved by voters in an upcoming bond election. Valenti said he will approach the El Paso Commissioners Court in August and ask to put the $120 million bond issue on the Nov. 6 ballot.

If approved, the children’s hospital bonds will increase property taxes on a $200,000 home by $4.76 a month or $57.12 a year in 2009. The tax will gradually become less expensive as the principal is paid off and by 2015 taxes for the hospital on the same home will cost $3.98 a month or $47.76 a month.

Assuming the bond issue passes in November, the children’s hospital would be ready for occupancy by the second quarter of 2011.

Even though it will occupy building space owned by the El Paso Hospital District, it must be governed by a separate board of directors than the one that oversees Thomason to qualify as “separately licensed.”

“Even though the children’s hospital is under our umbrella, it will be governed separately. There may be one or two members of the Thomason board of managers who sit on the children’s board but they won’t have controlling interest. There are very specific rules and laws on that for separately licensed children’s hospitals,” Valenti said.

“It will be a self perpetuating board with a nominating process within the structure,” he said.

The money

Why is it necessary that the children’s hospital have a separate board of directors, as well as separate administration and staff?

In a word, money.

When the children hospital’s governance becomes distinct from Thomason’s, it qualifies for preferential reimbursement from Medicare and the Texas Medicaid program.

Hospital officials estimate that designation will allow the children’s hospital to bring in an estimated $7.5 million in additional money.

The hospital will have to duplicate Thomason’s board, administrative officers and other services.

“But that’s a small price to pay for bringing in another $7.5 million. That’s a lot of money that isn’t here today to support pediatric care,” said Thomason CFO Rivera.

And that money is also essential for prodding a positive cash flow from the children’s hospital’s proposed finances.

Even with the additional Medicare and Medicaid reimbursements, the children’s hospitals net revenues are not projected to cover operating costs. During the hospital’s first year, for example, revenues will cover only 78 percent of the projected costs, according the Salmon study. That will result in a $5.7 million operating loss. After that, the deficit is projected to close by one percent per year.

The only thing that saves the hospital from being a perpetual money loser are “non-operating” revenues like distributions of property taxes and other taxpayer allocations that pay for indigent care.

Of the nearly $45 million Thomason receives each year in property taxes, $3.9 million will be earmarked for operation of the children’s hospital, which also will receive nearly $8 million in other “non-operating” revenues.

“With those two figures that the hospital district will appropriately allocate to this venture, the children’s hospital will run $4.2 million in the black its first year,” Rivera said.

So what will keep the cash flow positive is taxpayer support.

Recruitment

The other item essential to the children’s hospital’s success is the recruitment of medical personnel.

“Because the need for specialized clinical talent in the El Paso area is large, and the shortage in the country is even larger, it is imperative that Thomason Hospital develop and implement a recruitment strategy immediately and not wait until the proposed new children’s hospital is available to admit patients.

To that end, Thomason is lending the children’s hospital $18 million to finance a recruitment campaign over the next three years. (The money is to be repaid to Thomason during the children’s hospital’s first five years of operation.)

In addition, Valenti said the campaign will rely heavily on Texas Tech.

“The medical school we’re creating here will give preference to El Paso students so they can stay in the community. We’re getting more and more residents who see this vision of what we’re creating on Alameda and they’re excited,” Valenti said.

The hospital is already establishing its priorities in types of specialists it would like to attract. Oncology, critical-care intensivist, general surgery, anesthesiology, emergency medicine and pulmonary care are among the top priorities.

But specialists of that nature are already working in El Paso. The Children’s Hospital at Providence, for one, has access to them. And recruiting more will not be easy.

But Valenti is optimistic.

Increasing volume

The final ingredient necessary for success is that the children’s hospital must attract enough business. Currently, the pediatrics department at Thomason annually admits about 2,700 patients. That includes patients in both neonatal infant care and general pediatric beds.

The feasibility study suggests that Thomason aggressively recruit specialists who will strengthen demand for its pediatrics department and try to quickly increase admissions to by some 37 percent, to 4,300 per year, by the year 2011, which is when the children’s hospital opens.

“This volume (4,300 per year) would be sufficient to support a children’s hospital in the 95-bed range with some capacity for future expansion,” the Salmon report says.

Although the children’s hospital is a 140-bed facility, the top floor will be “shelled” for the first few years of operation, temporarily reducing its capacity to 110 beds.

Even so, the children’s hospital’s first year of operation in 2011 is projected to attract only 3,507 admissions, 793 fewer patients than the 4,300 needed to support a 95-bed hospital, according to the Salmon study.

According to Thomason projections, admissions won’t approach 4,300 until 2015.

Dennece Knight, the Thomason Health Foundation director, dismissed that observation as unimportant. “After the report was finished, we went to other experts,” she said.

Nonetheless, Valenti is positive the admissions projections are conservative. With the natural growth of El Paso, with the increase of troops at Fort Bliss and the increased employment at the medical school, he has little doubt the projections will be easily reached.

And he believes and that the children’s hospital will quickly become an integral piece of the medical campus on Alameda.

“Over the next year or two, we’ll be developing Thomason into a university hospital. That’s consistent with our planning from two and a half years ago, when I first came here. The first thing we had to do was stabilize the mother ship. Thomason has been in the black for 22 months now. Then we supported the medical school and new developments in our service lines, from cardiology to neurology. And now the children’s hospital. It’s a good story to tell,” Valenti said.