San Antonio's Children's Hospital Boom: How Alamo City Competitors Are Battling for Pediatric Patients

San Antonio is the seventh-largest U.S. city by population and second-largest in Texas. A year ago, it was one of the only large cities in the country without a freestanding children's hospital; New York City and San Jose, Calif., were the only larger cities without one. But, a flurry of activity from three major health systems has churned up three new plans for pediatric acute care — and is ramping up competition for those service lines.

Methodist Children's HospitalAlready, many San Antonio hospitals include dedicated children's wings or buildings, such as Methodist Children's Hospital located on the Methodist Hospital campus. But other hospitals think a freestanding hospital is a necessary credential to attract scarce pediatric subspecialists for the area's multiplying patients.

Out with the old

The eight-county San Antonio metropolitan area has averaged an annual population growth rate of 2.5 percent, or about 43,000 residents each year since 2000. And the area had the largest numeric growth in population of any of the nation's largest 10 cities between 2010 and 2011, according to the U.S. Census Bureau. As of last July, the area's population sits at around 2.23 million.

Noticing the city's patient base was growing, hospitals in the area began to explore expansion opportunities, including in pediatrics.

In December 2010, San Antonio-based Christus Santa Rosa Health System and University Health System, the Bexar County-owned hospital affiliate staffed by faculty physicians of the School of Medicine at The University of Texas Health Science Center in San Antonio, initiated discussions to partner with one another to build a new standalone children's hospital, which would have been the city's first.

Christus and University Health leaders hired a consulting group to help analyze a potential agreement, but the idea was abandoned in early 2012, says Francisco González-Scarano, MD, dean of medicine and vice president of medical affairs at the Health Science Center.

A major reason the plan was aborted was because the two systems couldn't agree on where to locate the children's hospital, Dr. Gonzalez says. Christus pushed to build it downtown near its existing adult hospital, Christus Santa Rosa Hospital, which housed its co-located Christus Santa Rosa Children's Hospital. University Health, on the other hand, wanted the new standalone children's hospital to complement the Health Science Center's medical school on its academic campus about 10 miles away. Twenty years before, Christus, Methodist and the Health Science Center had all explored partnerships with one another to build a standalone children's hospital, but ultimately abandoned those attempts over similar disagreements regarding location. That setback led Christus to add pediatric facilities to its downtown hospital some years later.

This time, Christus responded to the location dispute stalemate by boldly announcing it would decommission and gut its adult hospital downtown to renovate and convert it into a standalone children's hospital, known today as Children's Hospital of San Antonio.

Christus Santa Rosa CEO Patrick Carrier says the former downtown facility was overbedded, and the two-year, $135 million renovation was the more attractive option than the estimated $450 million the hospital would have spent to build a new hospital. Portions of the hospital closed and some services were relocated to Christus' three other adult facilities in San Antonio last July while some floors were renovated, although the facility has remained open throughout the updates. Currently, half of the hospital is delivering children's services while the other half is renovated. When the project is complete late next year, Children's Hospital of San Antonio will host 215 inpatient beds dedicated to pediatrics. 

Mr. Carrier says pediatric care quality at its adult downtown hospital was already strong, but market research showed San Antonio providers were losing many pediatric patients to outside the area, many to the highly specialized care offered at the prestigious Texas Children's Hospital in Houston, ranked fourth nationally in pediatrics by U.S. News & World Report this past year. "We didn't have the subspecialists to support it," Mr. Carrier says. "Good was getting in the way of great. We were offering good children's services. We had to take that next step."

Drawing in those subspecialists was one major reason Christus opted for a freestanding children's hospital over one on its adult campus. "You've got to have the talent, you've got to have the facility that attracts and supports the talent, and this is a goal in process in the sense that it takes years to develop to the point of, for example, Texas Children's. It's a journey," Mr. Carrier says.

That process has already made strides, as Christus has partnered with Texas Children's for clinical expertise and Baylor College of Medicine, which has a pediatrics department rated third in the nation by the National Institutes of Health, to provide physician staffing and training.

In with the new

After University Health called off the potential partnership with Christus, the Children's Hospital of Philadelphia approached the Health Science Center's leaders to share its plans to expand in partnership with Nashville, Tenn.-based for-profit chain Vanguard Health Systems to capitalize on the area's population boom, says the Health Science Center's Dr. González, who used to work for the University of Pennsylvania School of Medicine, which is affiliated with CHOP.

The South Texas Medical Center, where the UT Health Science Center has its campus, has spare land where Health Science Center officials had hoped a children's hospital would be built where they could send medical students, Dr. González says. "Children's hospitals are special places, and [CHOP] has enormous expertise in building a network," Dr. González says. "The way we look at this [partnership] is not just having a hospital and medical center. The number of children who need to be taken care of as outpatients is much greater, and we want to be with a partner that can do this all over South Texas."

Vanguard, which is backed by private equity firm Blackstone Group, fits the bill. The three-way agreement involves CHOP, the pediatric powerhouse; Vanguard, which has the deep pockets to build the anticipated $350 million standalone children's hospital; and the Health Science Center, which would be the clinical affiliate and can help to broker a lease of the foundation-owned land near its campus where the new hospital would be built, Dr. González says. Construction on the hospital is slated to begin early next year and could be completed in 2016.

Grow from within

Methodist has had longstanding plans to expand and invest a "significant amount of money" in its children's hospital to create private beds and add capacity in specialty areas, says Gay Nord, CEO of the Medical Center Campus for Methodist Hospital and Methodist Children's Hospital. Methodist, like other local hospitals, had shown interest in a potential partnership with the Health Science Center and suspended its internal expansion plans while that option was being explored for more than a year, said JoAnn King, Methodist's director of public relations. So when the Health Science Center announced in September it had partnered with CHOP and Vanguard instead, Methodist resumed its internal expansion plans.

Still, Methodist is skeptical that patient volumes will grow as much as its competitors claim, Ms. Nord says. Citing some market share growth with Methodist Children's with a slight decline in the competing system, "our data does not indicate the demand to substantially increase inpatient beds," she says.

As a result, rather than build a new facility like its competitors, Methodist is opting to upgrade its children's hospital and continue to benefit from the clinical depth and breadth Methodist pediatric physicians feel is an important benefit to patients. Today the attached Methodist Children's Hospital hosts 120 inpatient beds and 32 pediatric treatment rooms in its children's emergency department, along with 78 NICU beds.

Advancing pediatrics

One common motivator behind Christus, the UT Health Science Center and Methodist's children's hospital strategies is the desire to attract more subspecialists to the region. Standalone children's facilities are central to Christus and the Health Science Center's tactics in hopes the appeal of fresh, up-to-date facilities will draw in pediatric specialists who before might have skipped over San Antonio when deciding where to practice.

Methodist, on the other hand, holds the philosophy that a freestanding children's hospital is not necessarily better — or more packed with patients. Instead, Ms. Nord hopes when it comes to recruiting much-needed specialists, it's what's inside the hospital that counts. "It's really not a question of whether there are enough beds to care for the children of San Antonio, but rather focusing our efforts and our resources on the subspecialties," Ms. Nord says.

Since the Baylor affiliation was announced, Mr. Carrier of Christus says the response from medical schools and prospective physicians has been astounding. They've already hired a number of subspecialists new to the region and expect another 40 in the next three to five years, he says.

"The children's healthcare world is small in terms of number of hospitals, so word gets around a lot," he adds. "One of the many reasons we decided to partner with Baylor and Texas Children's Hospital is they are world-recognized and [for] their ability to recruit. So far, early on in the process, that looks like it's coming to fruition. We're getting calls and inquiries from subspecialists interested in moving to San Antonio."

Three's a crowd

Leaders from the three systems acknowledged that despite the anticipated growth in the market, competition would be stiff and could drive some stakeholders out.

"Personally, I don't see how three children's hospitals will be successful," says Mr. Carrier of Christus. The ones that will thrive will be the most specialized in the region, he adds, making academic partnerships even more important.

"We can't control what everybody else does," Dr. González of the Health Science Center says. "We think at the end of the day, we'll have sufficient volume." Additionally, he says the CHOP-Vanguard initiative plans to expand all the way to Texas' southern border, making the alliance with the Health Science Center as strategically beneficial as it hopes to be financially beneficial.

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