Children's Institute of Pittsburgh explores partnership
The board overseeing The Children's Institute of Pittsburgh is on the hunt for a potential merger partner as revenue to its hospital dwindles and the nonprofit's chief executive prepares for retirement.
President and CEO David Miles — who began working for the institute as a teacher at its special-needs school in 1977 — told the Tribune-Review he intends to step down around June or July, by which time efforts may have advanced toward a merger, acquisition or other type of strategic collaboration with another organization.
“We are at the point where we are thinking about how to cast a wide net to see who might be interested,” said Miles, who emphasized the strategy aims to improve the nonprofit's reach and efficiency and that the organization is not facing dire fiscal straits.
Internal Revenue Service records show that The Children's Institute finished its 2014-15 fiscal year with a $707,000 loss and $124 million in net assets, including a hefty investment fund it can draw down annually by a maximum of 3 percent to 5 percent.
“The Children's Institute is not going under, but I think they read the tea leaves like others,” observed Kate Dewey, president of The Forbes Funds, a nonprofit consulting arm that's observed a steady uptick in nonprofits pursing mergers in recent years. “We've got to figure out how to become more efficient and increase our impact.”
The institute's newly announced merger interest follows several months of slashing about $1 million in expenses through departmental cuts, reducing travel, not filling vacancies and layoffs. In late October, the institute laid off 14 people at its pediatric specialty rehabilitation hospital in Squirrel Hill.
The layoffs affected people in several hospital administrative and support services positions; the director of marketing and business development; and the chief medical officer, who lives in Boston. Miles said he intends to replace the CMO with an in-house doctor who will be promoted to the new position of senior medical director. Two laid-off employees were offered and accepted other positions at the company, Miles said.
“I know all these people, and they did really good work. We really valued them as employees,” said Miles.
He said the savings will help stem projected losses, with inpatient revenue in particular falling below expectations through the first half of the nonprofit's 2016-17 fiscal year.
The institute, whose roots date to 1902, employs more than 600 full- and part-time workers on an about $50 million operating budget, Miles said. About 90 percent of its revenue comes from government sources, the rest from foundation, corporate and individual contributions.
In addition to the hospital, the organization runs a state-funded private school for about 192 children with special needs, and — its smallest arm — an adoption and foster care center serving families in Allegheny, Beaver and Westmoreland counties.
“With the school, we generally know the budget, and it's a little bit easier to manage. With hospitals, you're dealing with so many variables and with all of the pressure on health care reimbursements these days,” said Miles. “There's a trend downward in our inpatient census, and we are dealing with decreased length of stays.”
This month, the nonprofit shut down temporarily one of its two main hospital wings to save on utility costs amid the intake lull.
One of 21 patients in the active wing, Carter Buscemi, 12, of New York state arrived at the hospital last week.
He and his mother, Tammy Buscemi, were told the institute could be the only place to help treat his newly diagnosed problem, amplified musculoskeletal pain syndrome — which makes Carter feel like he is in a lot of pain when there are no injuries or afflictions to make him feel that way. Carter said he has been hurting severely since Mother's Day.
“I used to be able to do tae kwon do, but now, I can't,” Carter said.
Almost half of the institute's hospital patients have been referred by UPMC Children's Hospital of Pittsburgh, said Miles.
Though some of their outpatient services such as physical and speech therapy overlap, UPMC looks to the institute for children needing inpatient pain, feeding and rehabilitation programs, as well as their “augmentative communication clinic,” according to Dr. Amit Sinha, assistant professor of physical medicine and rehabilitation and medical director of the Children's Hospital rehabilitation unit. The institute has a world-renowned program for treating the complex genetic syndrome known as Prader-Willi, Sinha said.
In terms of a partner, Miles said, board members are open to a variety of proposals for models in line with their mission and vision, which calls for improving the coordination of family-centered care for children and young adults with rehabilitation needs.
Potential partners could range from a small- to medium-sized nonprofit that does similar work, to a large nonprofit health care provider looking to enhance its offerings or reach a new population, said Dewey.
“The Children's Institute might want to build up their educational component, or build up their behavioral health component,” she said, “or even to be able to look at serving different audiences.”
Amid shifting demands by funders, the region can expect more merger pursuits — particularly in the human services, behavioral health and community-based medical care fields, Dewey said.
About three and a half years ago, The Children's Institute explored a merger with a Southeastern Pennsylvania group that Miles declined to name. He said talks ultimately fizzled because the proposed partner's vision and culture didn't mesh.
Unlike the purely for-profit world, nonprofit mergers are more like a “marriage” and “not about stock prices,” Dewey said. “It's very value-laden, and it's based on prior experience and trust.”
Natasha Lindstrom is a Tribune-Review staff writer. Reach her at 412-380-8514 or firstname.lastname@example.org.