The Virginia Commonwealth University Health System has put a new price on the effort to build an independent, free-standing children’s hospital — up to $1 billion in capital costs alone over a decade.
The analysis, produced by a consultant commissioned by VCU, does not reflect the additional costs of operating a 150-bed hospital that were part of an earlier, unreleased study that included operating expenses and the financial liabilities to the academic health system and other local hospitals that provide pediatric services.
“If you just deal with the construction costs, is it a big number for Richmond to swallow? Yes,” said John Duval, CEO of VCU Hospitals, in an interview Thursday.
But local philanthropist William H. Goodwin Jr., who with his wife, Alice, pledged $150 million to build the hospital, called the new VCU analysis “ridiculous” and inflated by expenses unrelated to the core issue of building a stand-alone children’s hospital.
“To me, the whole thing is misleading,” Goodwin said in an interview Friday.
This isn’t the first time VCU has said the proposed children’s hospital could cost more than $1 billion over 10 years. But the earlier estimate came from a study that assumed a $300 million price for construction, as well as the need for a substantial endowment to subsidize its operation and significant financial losses to hospital systems that already have big investments in children’s services.
VCU says it cannot release that study, in which three other unidentified entities participated, because of contractual legal and proprietary restrictions. “We don’t own it,” Duval said.
Instead, VCU hired CannonDesign, based in New York City, to produce a detailed estimate of the cost of building an independent hospital that is not part of a larger hospital or next to one on a medical campus.
The analysis also includes the cost of constructing a medical office building, faculty and research facilities, and support services for the children’s hospital — all of which Richmond Mayor Dwight C. Jones and other local leaders say should be developed on city-owned property along North Boulevard.
The analysis estimates the cost of the new hospital at nearly $347 million at $475 per square foot, with an additional $110 million for the medical office building and more than $140 million for other infrastructure, such as a 2,400-space parking deck, pedestrian bridges, and tunnels for support services.
Finally, CannonDesign adds $31.1 million for medical equipment and $268.5 million in “soft costs,” including telecommunications, furnishings, fixtures and equipment, and $107 million to adjust for inflation over 10 years.
Duval said the analysis shows the true cost of a stand-alone children’s hospital at much greater than the $150 million pledged by the Goodwins or the earlier estimate of $300 million.
“It’s a much bigger amount and duplicates infrastructure that’s already been built and already been paid for,” he said.
Goodwin dismisses the analysis as padded with unnecessary costs, such as $72 million for a parking deck he said the new facility would not need, and expenses for construction of necessary facilities, such as a medical office building, that are not directly related to the cost of a new hospital.
“More than half of the billion dollars here is really not relevant to the discussion,” he said.
In May, VCU and Bon Secours abruptly pulled out of discussions over an independent children’s hospital, citing the long-term costs to their health systems at a time when hospitals are under increasing financial stress, especially in states, such as Virginia, that have refused to expand their Medicaid programs to take advantage of billions of dollars in federal reimbursements under the Affordable Care Act.
“The time to escalate costs is not now,” VCU spokeswoman Pamela D. Lepley said last week.
The hospitals say a better use of their resources for children’s services would be prevention and outpatient care, which accounts for about 90 percent of pediatric care.
VCU is building a $200 million ambulatory care facility on its campus in downtown Richmond, where the health system is the city’s largest employer with more than 9,000 people on the payroll.
The medical center also is part of an academic enterprise that trains more than 5,300 students in medicine, nursing, pharmacy, dentistry and allied health professions, and serves as the state’s largest safety net provider of health care to uninsured and Medicaid patients.
“Richmond already has a children’s hospital — it’s the Children’s Hospital of Richmond” at VCU, Duval said.
But supporters of an independent hospital say that isn’t true, because the new VCU facility will not include operating rooms strictly for children and adolescents but instead rely on the larger, adult hospital for inpatient care.
“Consolidating the services and doing it in a single location that’s designated for children will give you better care for children,” Goodwin said.
VCU thinks a more sensible approach would be a “targeted investment in inpatient beds” within existing hospital facilities, as most children’s hospitals are structured, Lepley said.
Health system officials also are concerned about the potential effects on medical education and research by building an independent children’s hospital on a separate campus that, if located on the Boulevard, would be about 5 miles away from the downtown campus.
“A stand-alone facility miles away would necessitate expensive duplication of academic and research facilities,” Lepley said.
National accreditation standards require medical students to be exposed to pediatric services as part of their training.
“It’s not a discretionary item for us,” Duval said in a roundtable discussion with other VCU and Bon Secours officials last month. “We don’t have a school of medicine if you don’t have that exposure.”
Goodwin said he envisions a shared governance structure for the new hospital — with representation by VCU, Bon Secours, Pediatricians Associated to Care for Kids, and the Children’s Hospital Foundation.
He said clinical care would be provided by doctors employed by VCU, as well as physicians dedicated to the facility and from outside practices.
The disagreement over the children’s hospital has been difficult for Goodwin, who has been VCU’s largest individual benefactor.
He believes other academic medical centers, such as the University of Virginia and Johns Hopkins, would be willing to affiliate with an independent children’s hospital in Richmond, but he does not want to give up on VCU.
“I personally don’t want to face that decision,” he said. “I don’t like it. It’s not one I’m comfortable with.”