Children’s Hospital of Philadelphia is ‘essentially full,’ so it’s pumping $3.4B into expansion

Children’s Hospital of Philadelphia, bursting at the seams on its University City campus, has unleashed a $3.4 billion building boom.

Planned new construction includes a new inpatient tower that will solidify the nonprofit’s status as one of the largest children’s hospitals in the nation and add to the billions that CHOP and the University of Pennsylvania have already poured into that section of the city.

The existing Children’s Hospital, with 560 beds, draws patients from far and wide and is frequently nearly full, said chief operating officer Doug Hock. When it opens, the new, 22-story tower will have 300 beds — with space for 200 more — all in private rooms, which is important, given the types of patients who spend time in the hospital now.

“Because we’ve done so much to keep kids out of the hospital, the ones that come here are really sick,” Hock said. Private rooms are not just more pleasant for patients and their families, he said, they also reduce infection risk and have more space for the additional equipment needed to care for sicker patients.

With the new inpatient tower, there will be a total of 700 beds after double rooms in the older building are converted into private rooms.

Besides the additional capacity, the multi-billion-dollar expansion in Philadelphia underscores a priority under CHOP CEO Madeline Bell, who has shifted away from lending expertise to start children’s hospitals in other parts of the country and the world, as previous leaders had done.

“Our most precious resources are very specialized physician scientists,” Bell said. “If we’re exporting them to too many places, I think we won’t be able to meet all of the goals that we have set on our main campus.”

In a testament to CHOP’s financial resources, it won’t need to borrow money to pay for the new patient tower, which is expected to open in 2027 and cost $1.9 billion, and three additional buildings, Hock said. Instead, the nonprofit, which employs about 14,000 people, most of them on its main campus, will rely on financial reserves, profits, and philanthropy.

Philadelphia-based health-care consultant Dan Grauman said CHOP has “extraordinary” financial strength that comes from consistently ranking in the top three in major specialties. That means its services are in strong demand from patients and it can get good rates from insurers, he said.

Among the nation’s largest children’s health systems, CHOP is not just the busiest, but also one of the most profitable, an Inquirer analysis of financial statements found. CHOP’s fiscal 2019 annual revenue of $3.06 billion ranked second to the $4.2 billion at Texas Children’s, in Houston.

A key component of CHOP’s financial strength is its low debt load relative to its size, said Stephen Infranco, a municipal bond analyst with credit rating agency Standard & Poor’s. That means management could easily tap the bond market if it wanted.

“They also generate a significant amount of cash flow and have a great fund-raising effort. so they have a lot of levers they can pull to help them pay for these projects,” Infranco said.

Before this new round of construction, CHOP had already sunk $1.5 billion into the site of the former Philadelphia Convention Hall and Civic Center, which was demolished in 2005 and has been steadily developed by the University of Pennsylvania Health System and CHOP.

Soon after the Civic Center came down, Penn started building and has spent $2.8 billion in the Civic Center Boulevard corridor, not counting the $1.5 billion patient pavilion now under construction on the site of the demolished Penn Tower Hotel. It is expected to open next year. Penn has also spent $206 million on facilities at the nearby Penn Presbyterian Medical Center.

When the current projects are done, CHOP and Penn will have developed the equivalent of four Comcast Technology Centers on Civic Center Boulevard — a total of 7.1 million square feet of building space, not counting a large parking garage by Penn.

Work is already underway on two of CHOP’s new buildings, one of them in the suburbs.

A 52-bed hospital in King of Prussia, with a cost of $289 million, is expected to open next year. “We do think it will alleviate congestion and then get care closer to where kids live," said Hock, a Mount Airy native who came to CHOP in 2016 after working at children’s hospitals in Texas for nearly 30 years. The King of Prussia facility could expand to 108 beds.

Groundwork has already started on an office building called the Hub for Clinical Collaboration adjacent to the Buerger Center for Advanced Pediatric Care, which opened in 2015. The price tag for the new 17-story building, where close to 2,000 people will work, is $492 million, including the expansion of a utility plant that will serve the entire expanded campus.

Outside of University City, CHOP’s plans include a second research tower across the Schuylkill River on land where the Roberts Center for Pediatric Research opened in 2017 and is home to 1,048 researchers. The second building there, slated to open in 2024 at a cost of $600 million, will expand CHOP’s capacity for traditional, or “wet-lab," research.

A few miles west of its main campus, at 63rd and Market Streets, CHOP is planning an $80 million facility to house supply-chain, procurement and other services that are now scattered around the University City complex. “This is another thing that helps position us for growth,” Hock said of the center, which is supposed to open in 2022 and will support the entire CHOP system.

CHOP, with 91 percent of its beds occupied on an average day, is desperate for more patient rooms. “They’re essentially full,” Infranco, the S&P analyst said. An occupancy rate in the high 80s or 90s makes it “much more difficult to manage your flow of patients,” he said.

The hospital has long used color codes — green, yellow, and red — to create awareness among staff and management about how busy the hospital is. In recent years, it added two new codes, orange and purple, the highest level, which signifies that the hospital is at greater than 103 percent of capacity.

Hospital officials are well into the planning for a new inpatient tower, which will rise where the Wood Center now stands. As is the case with Penn’s new patient pavilion, it will take years to complete. Hock called the $1.9 billion price tag conceptual. “It’s one that we’ll obviously refine as we go deeper into the planning,” he said.

The cost is higher than the $1.5 billion that Penn is spending on its new tower, which has risen behind the Penn Museum and is expected to open next year, because it is all-encompassing, including the cost of renovating the main hospital building, Hock said.

Bell, CHOP’s chief executive since July 2015, said the hospital has achieved success and will continue to do so by “hiring top talent who are physician scientists interested in solving the most complex issues and translating that to the bedside." Such treatments are “attracting patients from around the country and around the world,” she said.

That said, local doctors should provide most care, Bell said, “but if we’re the experts and have the know-how when the child does need to come to a specialized place like CHOP, they’ll think of us and send the children to us.”