War of the Wards

Page 4 of 5

An August 4 letter:

"In our March 11, 1999 response to your letter of January 29, 1999, we explained what was necessary for Phoenix Children's Hospital to qualify as a free-standing hospital. You never responded to that letter . . . This will notify you that by October 15, 1999, the Health Care Financing Administration must receive a complete outline of how Phoenix Children's Hospital intends to qualify for Medicare certification as a hospital. Your plan must include a reasonable time frame for accomplishing the project, as well as acceptable benchmarks for each step involved in order for us to approve it. If we cannot approve it, we will instruct Blue Cross of Arizona to cease payment for any services provided by your organization effective October 31, 1999. This action will be coordinated with AHCCCS, the Arizona Medicaid agency."

And from an August 31 note:

"The letter you sent on August 17, 1999 was a good beginning but is not detailed enough to be the acceptable plan we requested. As already mentioned, HCFA cannot permit the current situation to continue until 2001."

So what could HCFA have done? Some suggested it would levy a huge fine or shut the hospital down, but Caldwell, the HCFA administrator, says she didn't plan to do either. "My main interest is getting it straightened out," she says.

Another option would be to make Phoenix Children's pay back all the money it has improperly received from the government. One estimate of that amount -- dollars received in excess of what it would have had it not been reimbursed at higher children's hospital amounts -- places that figure at around $20 million a year.

But will Phoenix Children's officials be asked to cough up those dollars?

"Technically, they could, but who would be stupid enough to try and do that?" Caldwell asks. She explains that the money went to cover costs of health care services that have already been performed. "It's not like they put the money in a Swiss bank account."

Withholding Medicare funding (the federal government's health care program for those 65 and over) would affect only a handful of kidney dialysis patients at Phoenix Children's who are covered under a special section of that program, according to Stamp.

But Caldwell says if the Medicare funding goes, so will the AHCCCS funding. AHCCCS, the state's alternative to the federal Medicaid program for the poor, receives the largest chunk of its money from the federal government. And AHCCCS money makes up the largest part of the revenues received by Phoenix Children's. Stamp says about half its patients are covered by AHCCCS, making the hospital the largest provider of services to low-income children in the state.

While the worst-case scenario included HCFA withdrawing all federal funds, cutting deeply into Phoenix Children's revenue sources, HCFA envisioned a different resolution to the debate.

Before the compromise plan was adopted last week, the feds wanted Phoenix Children's to admit it is not a hospital but merely a department within Good Sam. With Samaritan Health System's recent merger with the Lutheran Health System network, Caldwell says, it might be an appropriate time to realign certain problem areas, including billing services and other shared departments.

But Green, the Samaritan vice president, says the merger has no bearing on his hospital's relationship with Phoenix Children's. And he says officials there see no reason to tamper with a system that has worked well, particularly when an independent hospital is on the horizon.

Phoenix Children's wasn't likely to happily downgrade to a department. Not only could that arrangement result in a cut in revenues, such a designation wouldn't play well in the fund-raising arena. Why should charitable types dole out for a mere pediatric department, when there are similar departments in other hospitals as well as nonpediatric departments that might also like some extra money?

Caldwell says while HCFA is working with Phoenix Children's, patients and their families shouldn't be alarmed. "As far as the public is concerned, it's business as usual."

While the mess gets untangled, some are concerned that the controversy might hurt the push for a children's hospital. Supporters are confident everything will be worked out painlessly.

"I've got to think it's a bureaucratic snafu of some sort," says Cloud. "I can't imagine that it would be anything to deliver a fatal blow to anyone."

Stamp says threats of withholding federal funding appear to have been abated. If Phoenix Children's doesn't meet the agreed-upon deadlines for steps toward construction of the new hospital, the money won't be cut off automatically, he says. Another meeting would be held with HCFA, he says. Stamp says Phoenix Children's will continue to work with HCFA to make sure solutions are found that don't detract from its mission of caring for kids and meeting increasing demands for service.

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Laura Laughlin
Contact: Laura Laughlin