updated 7/10/2009 1:40:41 PM ET 2009-07-10T17:40:41

The Shriners will continue treating children in all 22 cities where they operate hospitals, but some of the facilities may be downgraded to outpatient surgical centers and the sale or lease of real estate will be explored, the nonprofit's new CEO said Thursday.

"We've not changed who we are. We will always take care of children the best we can," said Douglas Maxwell, the newly elected CEO of Shriners Hospitals for Children.

But he said the 22-hospital system will need to be "right-sized," with some of its orthopedic facilities likely to be turned into outpatient surgical centers. Florida-based Shriners International also will explore selling or leasing some of its hospital real estate to reduce its $856 million operating budget, Maxwell said.

The 1,300 Shriners who are members of the hospitals' governing body rejected a proposal to close six facilities permanently, instead opting to explore downsizing the hospital system's operations and to accept insurance payments for the first time. The hospitals historically have provided care for free, without billing insurance, to any child they thought they could help.

It's unclear how much revenue insurance reimbursements will provide or how quickly the hospitals can establish systems to bill insurance providers. Maxwell said he hopes it will be within the year, but the organization has just begun exploring how it would need to change operations to accommodate insurance billing.

Regardless, Maxwell said children suffering from burns, orthopedic conditions, spinal cord injuries and cleft palates will continue to be treated without charge to their families.

No closings
The Shriners hospital system, which began in 1922 with a charity facility for children with polio, now includes hospitals in the United States, Canada and Mexico.

The Shriners had considered closing facilities in Shreveport, La.; Greenville, S.C.; Erie, Pa.; Spokane, Wash.; Springfield, Mass.; and Galveston, Texas, eliminating a total of 225 beds.

The Galveston facility was shuttered after Hurricane Ike last September, and the Shriners kept it closed while they considered what to do with it in the long term. Final renovations and inspections are necessary before it can reopen, which Maxwell said may occur in as little as a month if the hospital has the staff it needs.

Kathy Epperson, a nurse at the Galveston burn hospital for 15 years, said she and other advocates for the facility feel vindicated by the Shriners' decision and are eager to see it reopen.

"I can't wait to see the kids back in the hospital. It makes me want to cry," she said.

Despite an endowment that declined from $8 billion to $5 billion in less than a year because of the sputtering economy, Maxwell said he and other Shriners are confident the hospital system will be able to remain solvent in the long term.

The hospitals have been funded primarily through the endowment. A fraction of the operating budget, however, comes from donations.

In 2007, the Shriners were accused of using donations intended for hospitals to throw parties and of lax accounting that mingled hospital donations with club funds in some locations, claims the Shriners disputed.

Epperson said the threat of permanent hospital closures has helped motivate those affected to look for ways to aid the Shriners.

For 87 years, patients and employees relied on the group best known for its red fezzes to raise the necessary funds, but Epperson said the funding crisis will likely motivate everyone to look for ways to improve the hospital system.

"We're more acutely aware of what can happen if we don't do this right," she said.

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