State watchdog raises concerns on Children’s growth

A rendering of Boston Children’s Hospital proposed new building.Shepley Bulfinch

A state health care watchdog agency on Tuesday warned that medical costs in Massachusetts are likely to rise if Boston Children’s Hospital moves ahead with a controversial $1 billion expansion plan.

The Health Policy Commission cannot block the project, but its views will be considered by the state Department of Public Health, which has the final say. The commission’s warning comes on top of opposition from competing hospitals and activist groups and may complicate the chances of swift approval for facilities that Children’s says are urgently needed.

The commission found that adding beds and outpatient facilities at Children’s would be likely to draw patients from other Massachusetts health care providers, increasing spending by an estimated $8.5 million to $18.1 million a year for patients on commercial health insurance. That’s because Children’s has among the highest hospital prices in the state, the commission said.

The commission routinely studies hospital mergers, but this is the first time it has raised concerns about a hospital’s campus expansion project. Children’s strongly objected to the commission’s comments.

Commission chairman Stuart Altman said a bigger Children’s could eventually threaten to put other pediatric hospitals out of business. Children’s competes with MassGeneral Hospital for Children, Tufts Medical Center’s Floating Hospital for Children, and others.

“I don’t think we’re in the business of picking winners and losers,” Altman said of the commission. “I believe in markets . . . but we can’t rule out the implication that that would have on cost.”

The commission voted to send its objections in a seven-page letter to the Department of Public Health. The Children’s project is the biggest capital expense ever to come before public health officials. The department has been reviewing the plans for months, and a decision is expected in October.

Children’s, which has 404 beds, is the dominant pediatric hospital in Massachusetts and one of the largest in the country, with 46 percent of the statewide market for pediatric patients who have commercial insurance. It wants to construct an 11-story building and add 71 beds to its Longwood Medical Area campus and build an eight-story outpatient center in Brookline.

The expansion has the potential to boost Children’s share of the pediatric market.

The new facility at Children’s would eliminate the Prouty Garden (above).Jonathan Wiggs/Globe Staff/File

In disputing the commission’s analysis, hospital officials said they are taking aggressive steps to control costs. They note that a recent consultant’s report — required by public health officials — confirmed the expansion project would be consistent with the state’s goals for containing health care costs.

“The data used by HPC is flawed, misleading, and speculative,” Children’s spokesman Rob Graham said in a statement. “Even if HPC’s worst-case scenario plays out, the cost impact would equal a 0.033% increase in costs to Massachusetts consumers per HPC math.”

Children’s says it needs the new beds to accommodate a growing and increasingly complex patient population.

The recent analysis from Navigant Consulting, which analyzed data provided by Children’s, said the project would not increase health spending in Massachusetts because all the patient growth is expected to come from other states and countries.

But Altman questioned those projections.

“It’s conceivable, but very unlikely” that Children’s would be able to fill new beds without taking a greater share of local patients, he said.

The commission is charged with studying and commenting on the health care market but does not have regulatory powers. Its analyses have had an impact in the past, however. After the panel raised cost concerns about Partners HealthCare’s bid to acquire three community hospitals, a state judge last year rejected an agreement that would have allowed those deals, citing the commission’s studies in her decision.

Initially, commissioners were not unified on what to say about the Children’s project. They had planned to declare a “significant risk” that the project would lead to increased medical spending, but after much discussion Tuesday morning — in public and behind closed doors — they agreed to soften the language to suggest a “likelihood” of increased spending.

The project already faces strong opposition from people who are upset that the new hospital building would replace the Prouty Garden, a healing garden cherished by many patients, families, and hospital staff. A group of Prouty Garden supporters is suing the hospital. Leaders of MassGeneral and Tufts also have objected to the project.

Opponents of the Children’s project have been lobbying the commission to get involved in the debate, but Altman said that dispute had “very little” impact on the commission’s decision to comment.

Sharon Torgerson, a spokeswoman for the Executive Office of Health and Human Services, which includes the Department of Public Health, said the department had not received or reviewed the commission’s letter as of Tuesday afternoon.

“Their comments, along with others, including the Independent Cost Analysis conducted by Navigant, will become part of the official record,” she said in an e-mail.

“Evaluation of reasonableness and costs are one of the nine factors that guide the . . . process, and has been part of our review over the past several months.”