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California Hospitals Struggle under Financial Burden of Seismic Retrofits
California hospitals are facing a fast-approaching seismic upgrade deadline that is causing many of them to wonder how to fund the mandate.
Under California law, thousands of buildings—including hospitals—must be brought up to seismic standards. “The skyrocketing price tag for compliance is more than $50 billion,” California Senator Dave Cox said in a press statement. “Hundreds of hospital buildings throughout California face the very real prospect of being shut down unless a more rational approach for meeting this worthy goal is enacted.”
Cox added: “California hospitals are facing an unprecedented state mandate to meet sweeping new earthquake safety standards – an enormous unfunded requirement,” Senator Cox said. “Current law requires all hospital buildings in California to meet one set of seismic standards by Jan. 1, 2008, or request an extension up to 2013. The same law also requires hospitals to meet even higher standards by 2030. If a hospital fails to meet either set of standards, it must close its doors and stop caring for patients.”
The initial upgrade deadline for hospitals has since been pushed back. Governor Schwarzenegger recently signed legislation granting hospitals that are in progress toward meeting the 2013 seismic upgrade deadline an additional two years to complete construction without being required to close their existing facilities.
The reprieve is much-needed, given the higher cost of healthcare construction. Hospitals are among the most expensive infrastructure projects. In California, the finished cost of a fully furnished and equipped new hospital building is about $1,000 per square foot—more than three times that of a new office building, according to a recent report by the RAND Corporation for the California HealthCare Foundation.
Larger hospitals are hit even harder by the seismic issue than their rural counterparts. Rural hospitals in California tend to be smaller, one-story buildings in valleys with relatively low earthquake risk. In contrast, multistory hospitals in urban Los Angeles or the Bay Area face much greater risks and higher rebuilding costs.
It’s difficult to predict exactly how many hospitals will need—and be able—to comply with the mandate because the state has not been collecting that information. However, RAND’s private research suggests that almost half of California hospitals will not meet seismic safety standards by the state’s 2013 deadline. “Many hospitals have no idea how they’re going to get this money,” Jan Emerson, spokeswoman for the California Healthcare Association, said in a February 2007 Health Facilities Management (HFM) article.
Among the organizations struggling with compliance is Daughters of Charity Health System of Los Altos Hills. The healthcare system runs six hospitals, two of which need extensive work—$50 million for one facility and $80 million for the other. Retrofitting doesn’t make sense because it would be good only for 17 years until 2030, when stricter rules apply that would require completely rebuilding, explains Robert Walter, the system’s director of facilities planning. “Rebuilding could be up around $700 million and that gets to be the difficulty,” Walter said in the February 2007 HFM article.
More than a dozen separate hospitals districts have appealed to voters for bond money since 2000 to fund, in part, seismic retrofits. The majority of those bond issues have passed, except in Oceanside in northern San Diego County. Voters there have twice declined bonds that would enable Tri-City Medical Center to be seismically upgraded and rebuilt to satisfy future demand. Hospital officials maintain they cannot continue to run the hospital without the funds and have asked state officials for an exception, given their lack of financial support for seismic retrofitting.
Industry leaders are baffled why the state hasn’t provided some form of financial help for rebuilding. The state should adopt a more holistic approach to helping ensure hospitals are safe in an earthquake, maintains Wanda Jones, who runs a San Francisco consulting firm, the New Century Healthcare Institute. “We’re on a train headed toward financial disaster,” she said in the HFM article. Half of the state’s hospitals are losing money in operations and making it up on nonoperating revenue, she added. “If they’ve got to contribute that toward capital…they won’t be able to meet their debt service requirements a decade from now,” she concluded.
However, some relief may be in store, as the state’s Office of Statewide Health Planning and Development (OSHPD)—which acts as the building and planning approval agency for hospitals in California—continues to address the issue. OSHPD is pondering the use of a new analysis tool, HAZUS, which could provide a more distinct view of structures at risk. Its employment could reduce the number of hospitals on the retrofit list, lessening demand for designers and contractors qualified to work on hospitals buildings.
Carl Scheuerman, senior planner for facility planning and development of Sutter Health System, Sacramento, would like OSHPD to shorten its approval process from 18 to nine months. Streamlining the process could benefit organizations like Sutter, which has 28 healthcare organizations in northern California and plans to spend $6.6 billion through 2017 to seismic retrofits and other renovations. “It would be nice to replace some facilities, but we simply can’t do it in this cycle,” Scheuerman told HFM.
Those who enter 2008 without the money it would take to rebuild will wait to see if OSHPD really does close them down after the deadline. “Something has to give,” Walter at Daughters of Charity stated in the HFM piece. “If it plays out the way it is now, then hospitals are going to close.”
This article was reproduced for educational purposes from the February 18, 2007 Health Facilities Management article entitled “California Hospitals Brace for Cost of Seismic Retrofits” by freelance writer Jan Greene.
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