Building the CHOP brand abroad

As the Children’s Hospital of Philadelphia spends billions of dollars on building projects in and around the city, the pediatric medical center’s CEO is dreaming globally.

“I’ll give you my grand vision,” said Dr. Steven M. Altschuler, CEO of the West Philadelphia pediatric medical center for the past 14 years. “My vision is there will be CHOP-branded facilities around the world so every patient could get to one of them within a six-hour flight.”

CHOP’s effort to build its brand globally will take a major step forward June 1 when the Beijing Aiyuhua Hospital for Women and Children opens for business in China.

The 300-bed medical center was developed by the Beijing Guotongxintai Investment Co., a state-owned asset management company, in a partnership with CHOP, which served as the adviser on the design and development of the facility and its infrastructure. CHOP also provided staff education and training and will provide management services once it opens.

“We started with them early on, helping them with everything they needed to do to create a CHOP-like hospital,” said Altschuler.

The CHOP brand will be used in the name and marketing of the new hospital. Guotongxintai Investment is paying CHOP a fee for using its brand and an annual, performance-based management fee. CHOP declined proving specific financial terms of the deal for competitive reasons.

“We are talking about millions of dollars,” Altschuler said.

Altschuler said the process for building and operating a hospital in China, differs from what goes on in the United States.

“Many of the government entities have their own investment fund,” he said, noting that Guotongxintai has $48 billion under its management. “China is going through its own period of health-care reform. Traditionally, they have had government-sponsored health care. As economic conditions have improved, there are many more people that would like to have access to Western-style health care.”

Chinese medicine changing

He pointed to the existing children's hospital in Beijing as an example. With 1,000 beds it will see about 10,000 patients a day.

The result, he said, is an environment where people have to take a number and wait their turn. With China relaxing its one-child-per-family rules, the demand for women and children’s health services in China is expected to surge.

“We know if this new hospital is successful, Beijing will need another five of these,” Altschuler said. “Beijing has 26 million people.”

CHOP’s other targets for children’s hospital partnership span the globe. It has responded to a request for proposals for a children’s hospital from one of the United Arab Emirates, had preliminary discussions with a wealthy family in India that is in the real estate business and wants to develop a children’s hospital, and continues to explore opportunities for additional hospitals in China.

“All of those are in the early stages,” he said. “There are a lot of potential partners out there.”

Altschuler said achieving his vision of a network of branded hospitals within a six-hour flight of anywhere — a plan he projects would take at least 10 years to accomplish — would also involve pursing partnerships in places such as Latin America, Africa and the Middle East.

“Each market is different and it takes a lot of due diligence just to get in there and find the right partners,” he said.

Exporting expertise

Mitch Morris, the U.S. leader for the health-care provider practice at Deloitte, said a small group of nonprofit health-care providers have embarked on efforts to take their brand to other parts of the country and overseas — partly because of their mission, and partly to diversify their revenue streams.

That list would include places like MD Anderson Cancer Center, which last year’s opened a hospital in Camden with Cooper Healthcare, and Cleveland Clinic, which has a partnership with Chester County Hospital in West Chester.

“These providers believe they take wonderful care of their patients and families and want to raise the bar in other locations,” Morris. “They feel like they have the secret sauce and want to share it with others. So part of the reason is mission-oriented and part of it is financial. As hospitals continue to have the screws applied to them around reimbursement, and margins are challenged, foreign revenues are a source of funds to help maintain the mission back home.”

Morris noted expanding overseas does create challenges, such as dealing with countries that have national insurance plans and different regulations governing the roles of doctors, nurses, pharmacists and other providers.

CHOP has long held a reputation as one of the top children’s hospitals in the United States, and is typically at or near the top of national rankings of pediatric-care providers. For decades it attracted a small number of patients from other parts of the world.

Alschuler said CHOP began paying more attention to expanding its volume of international referrals around seven years ago.

“If you think back to 2007, 2008, things were going really well for us — then we had the great recession,” he said. “That impacted all parts of the economy including health care. That was also about the time President Obama was elected and started talking about a pretty significant transformation of the country’s health-care system. I made a conscious decision that we had to look at ways to diversify the revenues that traditionally supported this institution.”

That meant creating revenue streams beyond traditional sources such as clinical revenues from U.S. patients and research funding from the National Institutes of Health.

CHOP has responded by making an major investment in genomics and forming a partnership with BGI in China to create a massive library of DNA samples that can be used by researchers studying genetic diseases. It also got in the venture capital business, aligning with Philadelphia-based Osage University Partners to launch and invest in new companies being spun out of universities and research centers.

CHOP’s expanded medical tourism efforts began in earnest in 2009 when it decided to break away from Philadelphia International Medicine (PIM), a regional consortium of area hospitals that work together to attract patients from other countries, to pursue its own international patient referral program.

Importing patients

Since then, Altschuler said CHOP’s international patient referral program has consistently grown by 30 to 40 percent per year.

Families of international patients who travel to Philadelphia for care tend to be more affluent and typically pay full charges for the services provided. Those payments, Altschuler said, can be as much as twice what the hospital gets from U.S. patients with commercial insurance.

In the current fiscal year, international patient revenues are accounting for 3.8 percent of the hospital’s total revenues — which last year topped $2.2 billion.

“As we started developing relationships (in foreign countries), we started getting asked to help them build competencies and design hospitals and care systems. Basically, we were asked to take the CHOP model and figure out how it could be exported to other parts of the world.”

An example is National Guard Hospital in Riyadh, Saudi Arabia, where CHOP has spent the past four years helping improve the pediatric care delivered at the medical center.

Altschuler said at National Guard Hospital, the number of patient referrals to CHOP actually increased. “I think the reason is they got comfortable with us and realized we are only interested in the patients that are appropriate to be transferred,” he said.

CHOP’s effort to build its brand globally has not occurred without criticism from some who believe the nonprofit pediatric medical center should spend more on addressing the needs of children in Philadelphia.

Altschuler said CHOP is not ignoring the city’s pediatric health needs.

“Just because you take on an international strategy, it doesn’t mean you abandon what you do locally,” he said. “Over the next seven years we’re going to invest $2.4 billion in the city” on clinical care and research buildings.

He noted the hospital last year opened the $27 million Karabots Primary Care Center, a 52,000-square-foot facility at 48th and Market streets in West Philadelphia that provides pediatric care and community programs to children and families in the surrounding neighborhoods. CHOP is also working with city health officials on initiatives aimed at addressing health issues such as obesity and domestic violence.

Altschuler said CHOP’s future growth will also involve pursuing partnership opportunities elsewhere in the United States.

“What scares me more than anything else is, if you look over the next 20 to 30 years there is no projected growth in the pediatric population for this region,” he said, explaining the need to look elsewhere for revenue growth.

Early last year, CHOP formed a partnership with Vanguard Health System and the University of Texas Health Science Center at San Antonio to build a children’s hospital in San Antonio. The relationship fell apart after Tenet entered into a deal to acquire Vanguard for $4.3 billion. Because CHOP competes with Tenet in Philadelphia, where the Dallas-based hospital management group owns and operates St. Christopher’s Hospital for Children, CHOP withdrew from the project last August citing “ethical and practical obstacles.”

Altschuler said CHOP may pursue a project in San Antonio with a different partner.

“The reasons we liked San Antonio still exist. We love the demographics there. We are still trying to figure out a way to do a project there.”

Other markets with projected growths in pediatric populations that interest CHOP include New Jersey, northern Maryland and Chicago.

“These markets look good; the question is how easy is it to get in them,” Altschuler said. “That’s what we are figuring out now.”

Source: Philadelphia Business Journal