The Wealth Of Children’s Hospital

Children’s Hospital of Wisconsin and Froedtert. File photo by Aalvarez89 / (CC BY-SA)

On May 18-19, this Thursday and Friday, the 25th annual WKLH Miracle Marathon will raise money for Children’s Wisconsin, the Milwaukee hospital with a growing statewide profile. “You’ll hear parents, patients, and care providers share remarkable stories of hope and healing live on Milwaukee’s Hometown Rock 96.5 WKLH and wklh.com to help raise critical funds for Children’s Wisconsin.” the station notes.

“Thanks to generous 96.5 WKLH listeners and donors throughout our community, Miracle Marathon has raised more than $27 million for Children’s programs and services” over the past 25 years, Children’s Wisconsin’s website tallies.

The list of sponsors who contribute money to this drive is long, including several foundations and more than a dozen companies, including Kohl’s, Johnson Controls and North Shore Bank.

And the annual drive is just one of the many ways Children’s raises charitable dollars. For decades Al’s run raised money. There’s the Celebrity Golf Invitational in July. Wealthy individuals are urged to “Give an estate, stock or endowment gift.”

And groups are urged to “plan a fundraising event” for Children’s. “Each year, many of our generous friends and partners hold fundraisers of their own, raising more than $1 million to support Children’s Wisconsin,” its website declares.

Children’s also garnered donations toward the latest, $385 million expansion of its facility in Wauwatosa, including $4 million donated by the Ladish Co. Foundation and $1 million from the Jendusa family.

In 2021, Children’s “raised more than $57 million from donations by individuals, foundations, corporations and organizations,” its website reveals. Small wonder the organization has suspended Al’s Run, which earned a tiny amount of money compared to these other efforts.

But where is all this money going? The foundation’s most recent federal 990 tax form, for 2021, says it gave grants of $9.7 million for various programs, including “health education, child abuse prevention… school based health centers in Milwaukee schools” and “primary care clinics in underserved areas.” But the rest of the foundation’s spending was for operations and research at the hospital.

Children’s website also says it invested “more than $103 million in community programs and services to keep kids healthy, happy and safe,” in the last year, but does not list the names of any programs or amounts of grants.

Andrew Brodzeller, external communications director for Children’s Hospital, says the charitable donations help pay for services not covered by private or public insurance, including child-life therapy, educational support for kids with serious or chronic illness, pediatric-specific mental health, wraparound community services and research into rare pediatric disease. “Philanthropy also supports critical programs like violence and injury prevention, school nursing, car seat safety, school mental health therapists, and child advocacy centers” and “expanded and transformed mental health care,” he noted.

But even while spending on these programs, Children’s has amassed a fortune in investments that has been exploding in value. The hospital has $1.8 billion in total assets, which includes $441 million in investments in publicly traded securities, up from $216 million in 2016.

But that’s small potatoes compared to the wealth held by its affiliated Children’s Hospital of Wisconsin Foundation, whose assets have grown from $782 million in 2018 to $1.38 billion in 2021, nearly doubling in value in just three years. Most of that is investments in publicly traded securities, which grew from $585 million in 2018 to $1.06 billion in 2021.

Together the two nonprofit entities hold 1.5 billion in publicly traded securities, plus another $130 million in cash, savings and temporary investments. Some $10.4 million of the hospital’s budget went to salaries for its top leaders in 2019, led by its CEO Margaret Troy, who earned $3.8 million in compensation.

But Brodzellersays the nonprofit seeks to maintain the best credit rating in order to borrow money for construction projects at the best interest rate, and for that a business or organization needs to maintain enough in assets to equal a year of expenses. By that standard the hospital is very well positioned, with net assets of $1.8 billion and total expenses of $747 million according to its 2021 federal tax form.

Nor has Children’s had to spend much on charity care. The annual report on uncompensated health care by the Wisconsin Hospitals Association (WHA) for 2021 found that Children’s Wisconsin was tied with OakLeaf Surgical Hospital of Altoona for the lowest amount spent on uncompensated care as a percent of gross patient revenue — just 0.5%. That compares to as high as 6.4% for the most generous provider, Aspirus Merrill Hospital.

The ranking for all hospitals includes both charity care and “bad debt.” Counting both categories, Children’s provided just $7.3 million in uncompensated care that year.

The prior year’s report by the WHA, for 2020, found that Children’s just missed being ranked among the five lowest hospitals, with its spending on uncompensated care at just 0.7% of its gross patient revenue. Children’s provided just $8.3 million in uncompensated care that year.

Brodzeller, however, says the WHA rating is misleading because children are far less likely than adults to lack government or private insurance and to need charity care. Medicaid, he notes, covers children from families that are up to 300% of the federal poverty line and more than more 50% of patients treated by Children’s are on Medicaid. The vast majority of “kids in the state have some kind of coverage” from public or private sources, he says. A 2022 report by the Georgetown University Center for Children and Families found only 4% of children in Wisconsin lacked some kind of health coverage, but the figure was higher (6.7%) for children from the poorest families.

Children’s, like all nonprofit hospitals, also benefits by being exempt from federal, state and local taxes. As a study by the Kaiser Family Foundation found, the total estimated value of tax exemption for all the nation’s nonprofit hospitals (about $28 billion) exceeded total estimated charity care costs ($16 billion) for these hospitals. In short, the average hospital provides less in charity care than the value of its tax exemptions. And Children’s Hospital spends far less than the average hospital on charity care.

The extraordinary growth of Children’s Wisconsin reflects a national trend noted by Kaiser Health News in a 2011 article: “From their humble origins more than a century ago, many of the nation’s biggest and best known children’s hospitals today are health care juggernauts with sprawling medical centers and suburban satellites, extensive real estate holdings and thousands of well-paid employees and millionaire CEOs…they offer a case study of the expansive ambitions of hospital leaders and the faltering efforts of government to control spiraling costs.”

Children’s Wisconsin might well see Children’s Boston as a model for for how to grow: by 2011 it was “one of the largest and wealthiest children’s hospitals in the world,” Kaiser Health News reported, “with $1.3 billion in annual revenue in 2009, $2.6 billion in stocks, real estate and other investments, and a 125-employee fundraising unit that raises about $90 million a year.” Yet it spent “about $8 million annually on free medical care, less than 1 percent of its annual expenditures.”

As Fitch Ratings has found, children’s hospitals are reliable money makers with “robust liquidity, solid operating profitability, unique market positions, strong philanthropic support and highly specialized clinical services.”

That strong philanthropic support comes because “they tug on the heartstrings,” as Sandy Melzer, executive vice president of Seattle Children’s Hospital, told Health Care Finance News. “What’s not to like about healthy children, especially as folks get older and they have grandchildren?… There’s a sense that it’s not somebody else’s issue. They can kind of connect with that.”