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CHILDREN'S TO RECEIVE PACKAGE OF AID
HOSPITAL WILL GET BULK OF $27 MILLION DUE KALEIDA

In a much-needed boost for Women and Children's Hospital, Kaleida Health is expected to announce today that it will finally receive $27 million in long-awaited financial help.

"This is significant for us," said William McGuire, president and chief executive officer. "We wouldn't have money at Women and Children's for capital projects otherwise."

Three years ago, Gov. George E. Pataki and a bevy of other leaders arranged with great fanfare a deal to keep Women and Children's a free-standing hospital on Bryant Street.

The centerpiece of the deal was a promise by Pataki to help Kaleida Health obtain $30.8 million, two-thirds of it for critical improvements at the unprofitable pediatric facility.

But the governor never offered state funds. He agreed to help speed resolution of Kaleida's claim for the money from the federal government in a matter related to the merger that created the hospital system.

It was a nice-sounding plan that didn't pan out.

The federal government denied the claim in 2002, and Kaleida Health lost an appeal.

Medicare, the federal health program for the elderly, used to reimburse hospitals for so-called "loss-on-sale" claims resulting from mergers. But Congress ended the policy in a cost-cutting move as hospital mergers mushroomed in the 1990s.

Kaleida Health was created in 1997 from the merger of Buffalo General, Millard Fillmore, Millard Fillmore Suburban, DeGraff Memorial and Women and Children's hospitals. The hospital network argued unsuccessfully that the sale creating the merged organization occurred before the federal deadline for loss-on-sale claims.

There was talk of a lawsuit, but Kaleida Health decided to attempt a settlement instead.

"Litigation would have been difficult," said Rep. Thomas M. Reynolds, R-Clarence, who played a key role in reaching the settlement.

Recently, federal officials agreed to settle several dozen similar cases. No institution would receive more than 50 percent or less than 30 percent of its loss-on-sale claim, according to McGuire.

Kaleida Health received $14.2 million, or 46 percent.

"We worked hard on this and got a satisfactory resolution. It was an uphill fight to get any money," Reynolds said.

Hospital officials then lobbied Pataki in the last few weeks to fill in the rest.

They had the help of Dennis Rivera, president of Local 1199 of the Service Employees International Union, the influential health-care workers organization. Rivera played a key role in the deal that settled the battle over whether to move Women and Children's Hospital.

The State Legislature included $5 million for Kaleida Health from a Medicaid loss-on-sale claim in the state budget that passed last week. He also pledged to provide around $7.4 million from a variety of other sources.

"We're reasonably confident the money will be there if the budget goes through as it now stands," said McGuire.

Under the agreement reached to prevent the move of Women and Children's into one of Kaleida's adult hospitals, two-thirds of the federal money was to be used to build an outpatient center for the pediatric facility. Kaleida also agreed to absorb $17 million in losses at Women and Children's through 2004, according to McGuire.

The rest of the funds were earmarked for other Kaleida hospitals, and McGuire said he will invest this share in the underfunded employee pension plan.

He said it may make sense to reconsider the plans for an outpatient center, acknowledging that some pediatricians will oppose his suggestion. He expressed hope that the pediatric hospital's advisory council will take up the issue.

"We decided on an ambulatory center without any study. It's a different time. We should see what's best now. We may get a developer to help finance doctors' offices," he said.

McGuire said it may be wiser to spend money on the hospital's outdated mechanical systems and place a portion of it into investments for future use.

"There's not a lot of enthusiasm for this idea, but I hope it catches on," he said.

Kaleida Health, which lost $125 million in its first five years, posted surpluses of $7.5 million in 2004 and $2.2 million in 2003. But Women and Children's continued to lose money -- $17 million in 2002, $8 million in 2003 and $11 million in 2004, according to McGuire.

He said losses so high are not sustainable long-term. But he voiced confidence that with time and improvements, the losses could be reduced to a more acceptable $3 million to $4 million a year.

The challenges facing Women and Children's remain the same as when consultants made the recommendation to move it.

It provides almost all of the pediatric specialty care in the Buffalo area, so there's no chance of increasing revenue by attracting more young patients. Meanwhile, the region is experiencing a decline in the number of women of childbearing age.

"I can't grow myself out of the problem," McGuire said.

Women and Children's also lost profitable baby deliveries, as the population shifted to the suburbs. Obstetrician-gynecologists left, citing such problems as getting consultations with specialists for female patients.

Kaleida has tried to enhance women's services but with only limited success fo far.

Despite the challenges, McGuire said he remains committed to a free-standing pediatric hospital. "This CEO will fight to keep it," he said.

e-mail: hdavis@buffnews.com

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