We are in the process of moving roughly seven miles from our current location to a former army hospital base east of downtown Denver. The University of Colorado Health Sciences Center is moving its medical school and research facilities, and the University of Colorado Hospital is also moving to the site. The former army base was Fitzsimons. On 160 acres of this site, the Fitzsimons Redevelopment Authority is developing a world-class bioscience park. It will bring together academics, bioscience, and clinical processes to bring new solutions to the healthcare field. It is very exciting.

The federal government also recently approved funding to plan for the ultimate move of the VA hospital to this site. All of the hospitals will be separate, but possibly will share some type of infrastructure. We plan to break ground this year, and move in as of 2007. We started to study the possibility of moving about four years ago.

Our current campus on the edge of downtown Denver is landlocked and there is no room for expansion. Many of our current buildings are almost 100 years old and are no longer well suited to today’s clinical processes. We asked ourselves, “What’s best for kids in the long run?” and this move was it.

We interviewed people from the community–community leaders, government officials, other hospitals–to get a sense of whether we had community support for this move. Almost everyone said, “Do the right thing for kids.” That’s practically our motto–we want to make sure we’re doing the right thing for kids through this process.

We need $450 million for this project. We have finalized a bond issue in the past few weeks. We borrowed $275 million, and we will retire $75 million of our current debt. The old debt was defeased with cash, and then we borrowed for the new project. Net, we end up with $200 million of new debt.

We actually did a forward swap. In May, when interest rates were almost at their lowest point, the hospital locked in a fixed interest rate on our bonds so that 70 percent of the total bond issue has a fixed rate of 3.30 percent, while 30 percent will remain in a variable rate mode. We said to ourselves, “Let’s not lose this opportunity.”

We’re working with the rating agencies as a way to improve our access to capital. We want to make sure they know who we are. We have not had a rating in the past, because our bond issues have been small, and we did traditional fixed-rate bonds with insurance, so there was no need to get a rating on our own. Although we will again have insurance on our new bond issue, building that connection with rating agencies and bond insurers has been very important.

We have strong philanthropic support in our community. When we began planning for our new facility, we wanted to make sure our own employees and executive group supported the project by pledging financially themselves. More than 75 percent of the employees have pledged money for the project already.

Our boards of directors for both the hospital and The Children’s Hospital Foundation have committed more than $50 million to building the new facility. The official announcement of a campaign will come later this year, and we will be able to show that our boards and staff are committed to the project.

Like most hospitals, we’re facing challenges with Medicaid. Almost every state, including Colorado, has cut Medicaid over the last couple of years because of state budget tightening. Between 35 to 40 percent of our patients are Medicaid beneficiaries, which is pretty typical of children’s hospitals. When you get no increase on 40 percent of your business, that’s pretty tough. In Colorado, the FY04 budget the governor submitted actually includes a small increase in Medicaid funding, but the number of Medicaid enrollees has been going up, so the dollars may be spread over a greater number of people, and we may see no real increase.

We have made efforts to advocate for kids with state officials to better fund the Medicaid program. Medicaid funding for kids is about 20 percent of the dollars and roughly 60 percent of the enrollees. Typically, nursing homes use the biggest amount of dollars from Medicaid but for a much smaller number of people. So we want the state to continue to put money into the Medicaid program so that there are sufficient dollars for children.

Whenever I talk with local businesspersons about health care, I make sure they understand the dilemma in the system. Fewer state and federal dollars in the system and more uninsured/underinsure force continued increases that exceed inflation for those paying for health care. This cost shifting will continue until more individuals have some form of health coverage and the coverage pays for the cost of care.

I don’t think we’ve seen the worst of the economics of health care. I expect that the number of uninsured will grow, and that the number of people qualifying for Medicaid will grow. These trends will force us to be more creative in our efforts to be as efficient as possible with our operations. Beyond efficiency, we will continually explore medical utilization, best outcomes, and program size.

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