Richmond Childrens Hospital Deal Collapses

Did VCU's commitment to  its new $168 million childrens' pavilion kill plans for a consolidated Richmond regional childrens' hospital?
Did VCU’s commitment to its new $168 million childrens’ pavilion kill plans for a consolidated Richmond regional childrens’ hospital?

by James A. Bacon

To be sure, building a new, free-standing childrens’ hospital for the Richmond region would be an expensive proposition — on the order of $600 million. But when mega-philanthropists Alice and William H. Goodwin are willing to kick in $150 million, a fund-raising campaign has been organized to raise another $100 million to $150 million, and dozens of pediatric physicians in the region are backing the project, one would think that community leaders could find a way to make it happen.

But all bets are off now that two key participants, Virginia Commonwealth University and Bon Secours Richmond Health System announced yesterday that they had pulled out of the deal. Goodwin, who with his wife has worked on the idea for eight years, said he would be willing to resume talks if the hospitals were, but otherwise, “I don’t need another couple of years of discussions.”

The collapse of the Childrens’ Hospital in the Richmond region stands in stark contrast to the announcement in Febuary by Inova Health Systems in Fairfax County that it would purchase the old Exxon-Mobil headquarters facility, assessed at $193 million in value, in order to house a world-class facility dedicated to genomics and personalized medicine.  The big difference is that Inova did not have to balance competing interests in the same way that promoters of the Richmond childrens’ facility do.

The argument in favor of consolidating patient care for children in a single state-of-the-art facility is that a specialized facility can provide superior care and better medical outcomes for children than a system that is fragmented between three major health systems, VCU, Bons Secours and HCA. (For-profit HCA was not a party to the childrens’ hospital negotiations.) It is a truism of medical economics that the greater the number of medical procedures performed by a medical practice and its physicians, the more efficient the operations, the lower the cost and the better the outcomes. Another advantage of a dedicated childrens’ facility is that combining pediatric practices would create a larger volume that could support more specialties, saving many patients and their families from traveling outside the region for their medical care.

Against those advantages is the hard business reality that neither VCU nor Bon Secours is willing to give up their significant pediatric practices out of the goodness of their hearts. Both health systems would lose major revenue streams during a time of great uncertainty caused by the legal challenge to Obamacare subsidies, the refusal of the General Assembly to expand Virginia’s Medicaid program and federal funding issues regarding the training of new physicians.

“This particular model that was proposed was a free-standing hospital with no ownership by VCU or Bon Secours,” said Tony R. Ardabell, CEO of Bon Secours Richmond, as quoted in the Richmond Times-Dispatch. “That would have been a tremendous negative impact to the bottom line, and we were worried about the sustainability of our ministry at St. Mary’s Hospital for the whole population of Richmond.”

“As a safety-net hospital we are headed into a very, very serious set of storms that are not totally predictable but you can see them out into the future being difficult periods,” said VCU President Michael Rao.

Goodwin’s reaction: Those are short-term problems. He is looking at a 50-year time horizon.

While the financial environment for the health care industry undoubtedly is cloudy, Bon Secours and VCU are staggeringly profitable. At least they were in 2013, according to data reported to Virginia Health Information; it is possible that the Obamacare roll-out and other factors have impacted profits negatively since then. Here is the data:

Note: The Bon Secours data is a composite of the four Bon Secours hospitals in the Richmond region; it is not clear from the VHI profiles if Bon Secours Richmond regional administrative overhead is included. Also note: The definition of "operating income" is profit before interest and taxes.
Note: The Bon Secours data is a composite of the four Bon Secours hospitals in the Richmond region; it is not clear from the VHI profiles if Bon Secours Richmond regional administrative overhead is included. Also note: The definition of “operating income” is profit before interest and taxes.

For all the benefits it would offer the community, a new children’s hospital would create problems for VCU and Bon Secours, which would stand to lose tens of millions, perhaps hundreds of millions, of dollars of pediatric business, saddling them with tremendous stranded costs in existing facilities, staff and equipment. The problem would be all the more acute for VCU, which is building a $168 million Children’s Pavilion on Broad Street to consolidate pediatrics services across the downtown campus.

But questions arise about the responsibility that these two not-for-profit enterprises have toward the public good. One could argue that the primary responsibility of VCU and Bon Secours should be to the health of the community, not their highly profitable bottom lines. If a consolidated, state-of-the-art childrens’ facility would provide superior health care to the region’s young people, the VCU and Bon Secours boards of directors have some serious soul searching to do.

Share this article


(comments below)


(comments below)


  1. cbrown Avatar

    Perhaps the infighting going on to get this hospital built is more of a reflection of the true need of this hospital. We all want the best healthcare we can provide for all children, especially those who are very ill. And of course, there is the economic benefit of having state of the art hospital care for the citizenry. But my question is whether or not Richmond is the right place for a specialized hospital.

    Given the population of the Richmond region, the proximity to excellent pediatric health care anywhere from one to three hours away, the growing emphasis on general and specialized pediatric care in the region’s hospitals, the small percentage of children with serious health issues who need the kind of crossover medical care this hospital is to provide, I’ve never quite understood why we need this hospital.

    I know the financial stress a family endures when a child has a serious illness, and the reliance of time and resources on extended family and friends. I wish there were simple and easy answers to help them. But I wonder if a specialized hospital dedicated to this small percentage of the population is the answer.

    I’ve asked this question to those who should know, and the only answer I get are anecdotal responses – stories what one or two families are going through – and they are flying to Boston or NYC or Dallas anyway. Or I theoretical answers based on compassion and intuition, not based in facts.

    I also wonder about the independent fundraising in a region that is already demonstrating a saturation of capital campaigns and a limited donor base. It suggests to me that this entire venture was on shaky ground when the two largest ‘donors’ are, at the core, competitors. They were trying to fit a round peg into a square hole with their development/fundraising strategy. It’s been a long slog to raise the money. If they had presented a strong case – a clear and compelling need – it shouldn’t be as difficult as it’s been to get the funding.

    So, peeling back the ‘noise’ about the lack of cooperation between the hospital giants, and their lucrative financial position, the question for me is simply do we need to have another nonprofit entity that is carving out a niche the healthcare industry for a small constituency? Or is it redundancy potential donors recognize ?

    1. All really good questions. Unfortunately, local media hasn’t delved into them, so I have no answers.

  2. […] at Bacons Rebellion, where I also blog, Jim Bacon has an interesting argument questioning why two nonprofits — VCU […]

  3. larryg Avatar

    I’m of the same mind as Cbrown. Is this an expanding industry that is presenting opportunities for entrepreneurship or is this just slicing the same market pie differently ?

    I’m reminded of the certificate of need discussions here but I’m also reminded that the US has many, many more mri/cat imaging systems than Europe and Japan – AND yet we pay 3-5 times as much per scan.

  4. LifeOnTheFallLine Avatar

    I get the economies of centralization argument at play here, but Bon Secours’ biggest gripe per the article was that it wouldn’t have a controlling interest at all in the new hospital and VCU has an understandable hesitation to losing revenue streams, which would impact its ability to keep its balance sheet solid and tuition from ballooning further.

    What I don’t understand is why the Goodwins don’t take what they’ve raised so far and just open specialized wings at VCU Children’s Pavilion and St. Mary’s. Give one a childhood oncology department and the other a childhood cardiovascular team (for example) and call it a wash.

    1. larryg Avatar

      or create a foundation to help kids – no matter where they get help… which this is obviously not…

      1. LifeOnTheFallLine Avatar

        Right! I mean, the Goodwin can clearly spend their money however they see fit, but to pretend VCU has soul searching to do because they don’t want to risk their core mission is a bit too much.

  5. larryg Avatar

    The grocery stores where I live near Fredericksburg have started asking near the end of the transaction if I want to add something for the Children’s Miracle Network.

    ” To date, Children’s Miracle Network Hospitals claims to have raised more than $4.7 billion USD which is distributed directly to a network of 170 hospitals.”

    Charity Navigator gives them a high rating :

    so this is where some of my donations for kids goes…

    there are about 10 hospitals in the network in Virginia – including:

    Richmond, Virginia

    Children’s Hospital of Richmond at VCU (CHoR) is Central Virginia’s only comprehensive, full-service hospital dedicated to the care of children. CHoR has more pediatric specialists than all other health systems in the region combined, offering the widest range of children’s health services, including pediatric emergency services, primary care, specialty and subspecialty care, burn, trauma and transplant services, and long-term care.

    so that’s where my money goes…

    and one of my problems with charity and do-gooding in general is duplication of mission and services – rather than efficiency and cost effectiveness.

    Now I know this is a troublesome issue for some who like to toss the “liberal” label around but my view is that we have too many folks trying to re-invent the wheel – that does damage to the cause overall when we splinter and continue to create new entities with the same mission of existing entities rather than directing funds towards existing – highly rated and effective organizations.

    I really don’t care which hospital a child in need goes to – and if I have to choose between different organizations to help a child – it frustrates me and concerns me that by insisting on multiple different groups – we are actually not helping as many kids as we might because of multiple , duplicative administrative functions that siphon off money that could be spent on helping more kids.

    anyone else feel this way ? are you too a “liberal” who is concerned about cost-effectiveness and fiscal responsibility?

Leave a Reply