Grocery store, restaurants, maybe a hotel. Inside Valley Children’s ambitious retail plans

Months before elected officials in Fresno publicly criticized Valley Children’s executive compensation as excessive, the hospital announced plans to develop a shopping center on land it owns in a rapidly growing area of Madera County.

Early plans called for a grocery store, gym and restaurants on at least 40 acres that the hospital owns, CEO Todd Suntrapak told The Fresno Bee during an October interview. The hospital’s campus has more than tripled in size since 2017 and now spans nearly 500 acres off of Highway 41.

Suntrapak said last fall that the 40 acres zoned for commercial development could grow to 60 acres, if the hospital decides it’s a good idea to also build a hotel.

“The nice thing is we have a lot of flexibility,” he said

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The hospital says that developing retail space is part of its long-term sustainability plan. Two local elected officials have openly questioned why a nonprofit that cares for poor, sick children and raises money through local fundraisers would delve into mainstream retail development, instead of expanding its medical-related services. They point out that a majority of the patients at the hospital (more than 70%) are beneficiaries of Medi-Cal, the state’s insurance program for low-income people.

At least one expert in nonprofit hospital management told The Bee that such investments are relatively common, but that the nonprofit needs to make sure it’s transparent and can show that revenues raised from the development are used for the core mission of offering medical care for children.

On Thursday, Zara Arboleda, the hospital’s spokesperson, told The Bee it’s too early in Valley Children’s retail plans to comment on whether the hospital will publicly post finances related to the shopping center’s revenues. The realization of these plans is still several years away, she said.

In the past month, Suntrapak and members of Valley Children’s Hospital Board of Trustees have repeatedly declined interviews with The Bee, through Arboleda, about executive pay and other details in the hospital’s nonprofit federal tax filings. Those documents show that, in recent years, Suntrapak’s total compensation from the hospital has exceeded $5 million, a figure higher than it has been for CEOs of many of the nation’s largest children’s hospitals. Valley Children’s also gave Suntrapak a $5 million “loan for residence as a retention incentive in lieu of other compensation,” according to federal tax filings.

Last fall, Suntrapak said an alternative funding stream from land development was necessary for future hospital operations because of the growing gap between patient care revenues and costs. Contributing to the gap, he said, is the stagnation of Medi-Cal reimbursement rates as staff salaries that are competitive for the industry continue to rise.

“We need another revenue stream,” he said. “That’s where the retail strategy comes in.”

Suntrapak said in October that he envisions farm-to-table restaurants, dry cleaners, maybe a yoga studio and a grocery store to go up on 40 acres that sits between the hospital facility and the intersection of Highway 41 and Children’s Boulevard. Crews have worked on new roads in that open space, which the hospital added to its campus as part of a 121-acre land purchase in 2019.

Suntrapak said the businesses in the shopping center will be chosen with the hospital community – doctors, nurses and the families they serve – in mind: Restaurants would allow families with children staying at Valley Children’s an option other than the hospital cafeteria. A grocery store would allow staff finishing a 12-hour shift to pick up groceries before heading home.

The plans also run along the rise of the Rio Mesa area in southern Madera County, where master-planned communities Riverstone and Tesoro Viejo have already attracted thousands of new residents and where thousands more are expected to come. Those communities have their own long-term retail plans, but many residents still have to drive south to Fresno to do their shopping.

“We’ve got 30,000 rooftops going up a half a mile from here,” Suntrapak said in October, referring to the Rio Mesa area. “The neighbors will also be able to access the services, so it’s not just about Valley Children’s.”

Ge Bai, professor of health policy and management at Johns Hopkins University’s Bloomberg School of Public Health, said nonprofit hospitals are allowed to have for-profit wings. The most common alternative streams are grants, contributions and investments, but nonprofits’ revenues from their for-profit arms are often listed in the “other” revenue category in Form 990 nonprofit federal tax filings, she said.

“Generally speaking, it’s always to make more money,” Bai said of these endeavors. “This is fine, but the key is to make sure the money made from the for-profit activities are eventually used to advance their core mission.”

Bai, speaking generally, said more transparency is needed from nonprofits that generate revenue from for-profit operations.

“Ok, we bring in so much revenue from retail space,” Bai said, “but, did you do more for children or for people in need? That is the question. Hospitals are allowed to do what they need for financial stability, but at the end of the day, you have to contribute back to the community.”

Suntrapak said in October that the hospital plans to pay for the project using reserves and would own 51% of any new building in the retail space. The hospital has not spelled out how financial arrangements with retailers might work.

Last month, Fresno City Council members Miguel Arias and Garry Bredefeld, who often oppose each other ideologically, criticized Valley Children’s during a news conference and called for the state to investigate Valley Children’s finances. Arias questioned the hospital’s motivation “to develop a shopping center instead of expanding their health care facilities, recruiting more doctors and nurses.”

Like many other nonprofit hospitals, Valley Children’s already garners revenue from multiple streams not necessarily related to health care. One example is the $50,000 Suntrapak said Valley Children’s expected to make from its walnut groves east of Highway 41 last year. He said that revenue would be used “to heal kids,” and that the same will be true for any money the hospital gains from its commercial real estate operations.

“There’s not going to be any of it diverted anywhere else,” Suntrapak told The Bee last fall.

Using retail revenue to fund health care could look like recruiting more doctors and nurses that have a specialized training that Valley Children’s is missing, he said, or creating new treatment programs not currently available at the hospital.