Business & Tech

Children’s gets green light for hospital expansion, with conditions

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

Massachusetts health regulators said Friday that Boston Children’s Hospital should be allowed to go forward with a $1 billion expansion project, a recommendation that seeks to support one of the state’s premier hospitals without undermining efforts to control medical spending.

The staff at the Department of Public Health recommended approval of the plan to build an 11-story building in Longwood and an eight-story outpatient clinic in Brookline.

The expansion has sparked controversy over its potential to drive up health care costs. But the staff approval came with some of the toughest conditions proposed by the department, including fines of up to $27 million if the hospital doesn’t comply with its requirements.

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The project now goes before the Public Health Council, a body chaired by the commissioner of public health, which is scheduled to vote Oct. 20. The council generally backs the staff’s recommendations.

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Public health officials said the project would help modernize the Children’s campus and improve care by expanding capacity for oversubscribed services and allowing all patients to have private rooms. But in their 37-page report, they also noted concerns that the project could raise costs for consumers and insurers because Children’s has higher prices than its competitors.

“DPH seems to be trying to satisfy everyone here, including taxpayers, health insurers, [Children’s Hospital], and competing hospitals,” said David E. Williams, president of Health Business Group, a Boston consulting firm. “The conditions DPH lays out may help achieve these goals, but it is hard for a government agency to manage the hospital market so tightly.”

Children’s, which has the largest market share among pediatric hospitals in the state, has 404 beds on its Longwood campus and is looking to add 71.

Hospital officials say they’re seeing growing numbers of patients who require increasingly complex care. They say they need new facilities so patients have more privacy, doctors have more room to perform surgeries, and nurses have more room to care for newborns.

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Children’s, ranked among the best pediatric hospitals nationally, projects that its new patients will come from other states and from abroad. But the Health Policy Commission, a watchdog agency that monitors health costs, said this week that the expansion likely would draw local patients, increasing Children’s already significant market share and possibly damaging other hospitals’ bottom-lines.

The expansion has been criticized by hospitals that compete with Children’s and from activist groups that have been trying to preserve the Prouty Garden, a green space on the hospital campus where many patients, families, and hospital employees have found comfort. Children’s seeks to build over Prouty Garden but add new green spaces to its refurbished campus.

Concerns about the garden and the impact on competitors were largely out of the purview of public health officials, who were required to weigh the project on specific factors that evaluate whether the hospital has a need for additional space and services. They noted the emotional testimony they heard from garden advocates — many parents visited Prouty with their sick or dying children — but said the garden is not a clinical service and therefore out of their scope of review.

DPH staff had more to say on the issue of cost. The department earlier this year required Children’s to pay for an independent cost report on its project. That report concluded the project would not be a threat to local health spending.

In their recommendation, DPH staff said Children’s must not pass the costs of its project on to patients and insurers “in excess of the Commonwealth’s cost containment goals.” The state has a target of keeping health spending increases to 3.6 percent a year. Last year, overall medical spending increased 3.9 percent.

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DPH said Children’s must provide information annually that shows whether its projections for attracting out-of-state patients are being met. The hospital also must maintain care for children on Medicaid, the government insurance program for low-income families.

If Children’s fails to comply, the department said, it could limit the number of new beds allowed at the hospital, or — for the first time ever — impose fines of up to 2.5 percent of the total project cost.

Seven department staffers spent hundreds of hours reviewing the project since it was proposed in December.

“Following a thorough review, it’s been determined Children’s proposal meets the regulatory requirements and includes many positive aspects to improve care for the children and families the hospital serves,” DPH spokesman Tom Lyons said. “To ensure accountability and transparency, the department will also require on-going reporting by the hospital to verify assurances this project will not negatively impact the Commonwealth’s commitment to health care cost containment and strong remedies in the event the project increases Massachusetts health care spending.”

Children’s president Sandra L. Fenwick said she was pleased with the recommendation. “We agree with the conditions in principle but are still reviewing the precise language and may require clarification as to how the conditions will be implemented,” she said in a statement.

A taxpayer group that has been fighting to preserve the Prouty Garden immediately denounced the DPH staff recommendation, saying it lacked “any substantive or credible analysis of the consequences” and blamed the outcome on “political pressure.”

The group is already suing the hospital and indicated that if the project is approved next month, it would appeal the decision.

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.