War of the Wards

What calls itself a hospital, has acted like a hospital since its formation 16 years ago, is licensed as a general hospital in the state of Arizona, but isn't really a hospital?

According to federal authorities, the answer is: Phoenix Children's Hospital.

In a development that surprised those who have supported the state's only children's hospital since its early days, Phoenix Children's has been told by the federal Health Care Financing Administration (HCFA) that the feds never approved the facility as a hospital and don't consider it one now.

The government has been asking Phoenix Children's to prove that it is a hospital, as defined under federal law. If it couldn't, HCFA threatened to yank federal funding on October 31, which could have added up to tens of millions of dollars -- about half the hospital's revenue.

But now it looks like Phoenix Children's has won a reprieve. Hospital officials met with HCFA authorities in San Francisco for the first time last week, and reached a compromise. The facility will be allowed to continue to operate as it always has, providing it meets key deadlines toward opening a long-talked-about freestanding hospital, about two years away.

"We were very pleased and very appreciative of HCFA working with us as we develop the new hospital," says Phoenix Children's president and chief executive officer Burl Stamp.

An HCFA official refused to confirm Stamp's version of the agreement reached last week, saying authorities were making no comments to the press.

Janice Caldwell, an administrator at the regional HCFA office in San Francisco, says she first learned about the hospital when a complaint against its license was forwarded to her office last year. A check of the agency's records yielded no evidence that Phoenix Children's even existed, she says.

And so, at a time when Phoenix Children's wanted to be concentrating on moving out of its "hospital within a hospital" setting at Good Samaritan Regional Medical Center and moving toward its longtime goal of building a freestanding hospital, it was quietly fighting not only HCFA, but a vicious local rumor mill.

Some of what HCFA was demanding as proof that Phoenix Children's is a hospital -- a separate entrance, a dedicated physical location, independent billing and other departments -- can't be accomplished in the short term. Phoenix Children's officials hoped the feds would bear with them for two years until an independent hospital opens. The hospital has been on and off the drawing board for decades, but now officials say it could open by 2001.

"The freestanding hospital will meet any of the questions that HCFA has," Stamp says.

But before last Thursday's meeting, Caldwell wasn't willing to let Phoenix Children's maintain the status quo while the new hospital is in development.

"That's not okay," she said then.

Stamp says Phoenix Children's officials were able to convince the feds that changing things now to meet their requirements would be costly, diverting money away from the new hospital plans.

When Phoenix Children's Hospital first opened in 1983, it was heralded as a creative way to address the problem of unused adult hospital beds in existing Phoenix hospitals while answering the need for a children's hospital. Good Sam could shift some of its unused beds to the new children's facility.

A citizens' committee selected Good Sam as the home for the fledgling hospital, much to the chagrin of its rival, St. Joseph's Hospital and Medical Center.

Stamp, who has only been at Phoenix Children's since August 1998, says state and federal regulations were followed at the time. "We were licensed as a hospital within a hospital by the state," he says. "And this arrangement was blessed by HCFA at that time. We were supported by the community and DHS [Arizona's Department of Health Services] and by the state Legislature as a way to develop a children's hospital for Arizona."

Dr. Daniel Cloud, Phoenix Children's founding president, says he was startled to hear rumblings about current troubles with the hospital's status.

"We met to the last letter what was necessary according to state law and what was requested of us. . . . Phoenix Children's Hospital has been properly accredited and licensed from day one, from the minute it started," he says.

Stamp says the hospital originally asked HCFA for its own Medicare certification number, which was required to receive federal Medicare payments and has since become tied to state Medicaid payments issued through Arizona Health Care Cost Containment System (AHCCCS). But because Phoenix Children's did not meet federal requirements to qualify as its own hospital for Medicare purposes, it decided to share a Medicare number with Good Sam, meaning its costs would be reported jointly and Good Sam would then pay Phoenix Children's its share of the federal money. Phoenix Children's officials say there was nothing sinister or secretive about this setup.