Seismic Standars a Bitter Pill for Hospitals
A new state law requiring structural improvements to help older hospitals survive an earthquake could force the closure of Ojai’s only hospital and cost other local institutions millions of dollars over the next decade.
According to hospital industry projections, about half of the state’s 2,700 medical buildings at 450 hospital sites must be reinforced or rebuilt at a cost of $10 billion to meet stiff seismic standards imposed after the 1994 Northridge earthquake.
But so many hospitals make so little money--fewer than half make a profit on operations--that they may not be able to borrow the millions of dollars they need for the upgrades, which must be complete by 2008.
In Southern California alone, industry officials estimate that dozens of hospitals will close.
“I would bet a month’s wages that at least 50 will be closed in this region alone,” said James Lott, executive vice president of the Healthcare Assn. of Southern California. “That’s one in five closed because of the seismic retrofitting. And it could be one in three if you consider other factors too.”
At Ojai Valley Community Hospital, for example, Chief Executive Mark Turner hasn’t yet figured out how his small hospital chain can spend $3.3 million to strengthen a facility that barely breaks even.
If it closed, the nearest hospital for Ojai Valley’s 30,000 residents would be 30 minutes away in Ventura.
“It’s a question of how do we make this investment, or does it make any sense at all,” Turner said. “I don’t know at this point.”
Officials at Ventura County’s seven other general hospitals said the costs of earthquake improvements will not force them out of business, though two, Santa Paula Memorial and Ventura’s Community Memorial, are only marginally profitable and do not have the resources of large chains to fall back on.
So concerned is Community Memorial about a potential $35-million to $55-million retrofitting project that the venerable private hospital recently urged a merger with its public rival down the street, Ventura County Medical Center.
“We have two facilities spending $70 million or $80 million, or we can have one [joint] facility spending $50 million and giving the community what it really needs,” said Michael Bakst, chief administrator at Community. County hospital estimates don’t agree, projecting rebuilding costs as low as $2 million.
The county’s smallest hospital, 45-bed Santa Paula, has lost money for years and stays afloat on returns from investments. Because it is only one story tall, administrator William Greene said the hospital can be shored up for between $1 million and $2 million.
“At this point this would not be a knockout blow,” Greene said. “But anything in excess of $5 million and we’re in real trouble.”
Hospitals in Oxnard, Thousand Oaks, Simi Valley and Camarillo are backed by powerful chains, but retrofitting costs can test even their resources. Costs are expected to soar to at least $26 million at Simi Valley Hospital and Health Care Service and $18 million at St. John’s Pleasant Valley Hospital in Camarillo.
But the Conejo Valley’s only hospital, Los Robles Regional Medical Center, will spend just $6 million to $8 million on retrofitting, officials said. St. John’s in Oxnard was built in 1992 and requires no seismic reconstruction.
The situation is less encouraging across the rest of California.
Particularly hard hit will be underserved areas where patients count on nearby hospitals the most--in rural counties and inner city communities, said the hospital association’s Lott. “It’s Darwinian,” he said. “Only the strong will survive.”
That may not hurt the typical health-care consumer except in times of crisis, Lott said, because only half of California’s hospital beds are filled on the average day.
But to victims of accidents and violent crimes, hospital closures could delay treatment when ambulances are forced to travel farther.
“In many cases this is a life-and-death issue, especially as it relates to emergency services,” said Roger Richter, the hospital industry’s statewide point man on the new law. “There really is a crisis looming out there. And it’s a Catch 22 situation. Hospitals do want to be seismically safe, but they’ll put themselves out of business trying to do it.”
Spurred by the Northridge earthquake, the Legislature passed a 1994 seismic safety law requiring about 1,350 medical buildings constructed before 1973 to meet stiff earthquake standards from which they were previously exempt.
Sacramento lawmakers were struck by descriptions of the predawn chaos of Jan. 17, 1994, when nearly two dozen hospitals shut down temporarily, said Chris Lindstrom, legislative liaison for the state Seismic Safety Commission.
“Workers were carrying patients out of the hospitals at the same time they were being greeted by new patients coming in with cuts and bruises and broken bones,” he said.
State officials who helped craft the law acknowledge that small, independent hospitals with limited resources are most financially vulnerable.
“Some unsafe hospitals will be closed,” Lindstrom said.
“But it’s good in terms of safety. This was not seismic safety at any cost. We tried to be reasonable.”
Nor does he accept the hospital industry’s dire projections.
“I think this is an instance where the hospitals may be using information to their benefit,” Lindstrom said.
Kurt Schaefer, head of facilities development at the Office of Statewide Health Plan and Development, the state agency overseeing the retrofitting, said he was surprised by industry forecasts.
“I’ve never heard those kinds of numbers before,” he said. The new requirements are “reasonable and doable. But it is a challenge.”
Indeed, a hospital industry task force expects to complete a study this fall on the costs of earthquake retrofitting. Then they will take their case to the Legislature to argue for construction loans and changes that would allow more flexibility in the use of old buildings.
“We don’t want to cry wolf,” said the hospital industry’s Richter. “But when you’re talking about spending $10 billion in 10 years, that makes us nervous.”
Some hospital executives say the new earthquake law is a good thing--costly but necessary.
“The bottom line here is that I believe hospitals should be built to a tough standard . . . as safe as reasonable and possible,” said Alan Rice, president of the Simi Valley hospital.
Only a few miles from the Northridge epicenter, Rice was jolted from his sleep when that powerful temblor struck nearly five years ago. At work by 5:30 a.m., he found walls cracked and operating rooms in shambles.
“We did not go out of commission, but it required some major heroic steps to bring some of the surgery suites back up,” he said. “We cared for 400 to 500 people that first 24 hours in the emergency room and the parking lot.”
Now, the Simi Valley hospital is preparing to spend at least twice the $13 million federal emergency grant it received after the Northridge quake. Buildings on three of its four campuses--including the main hospital on Sycamore Drive--were constructed before 1970. Some will be torn down, others rebuilt, and new ones will be constructed, Rice said.
“But we’re part of Adventist Health with 20-plus hospitals in the western states,” Rice said. And the Adventist chain has a construction budget that can absorb part of the cost. The hospital also is gearing up for a major fund-raising campaign.
“This community is very giving,” Rice said. “They’ll step up and help.”
Kaiser Permanente, the nation’s largest health maintenance organization, has already spent $300 million on earthquake improvements statewide, and it will pay $1 billion more to upgrade or replace old hospitals by 2008, spokesman Kip Edwards said.
“It’s not a major shock to our system, because we’ve had a voluntary seismic safety program in place since 1990,” said Edwards, chief of support services for Kaiser’s 26 California hospitals.
Even without the cost of earthquake retrofitting, more than 115 California hospitals have closed or consolidated this decade, according to the California Healthcare Assn.
That is because of sharp cuts in government and managed care payments, and a trend toward outpatient treatment, officials say. Even some surgeries once considered major are done without overnight hospital care.
Now comes seismic retrofitting.
Industry officials estimate the cost at $10 billion over the next decade and another $14 billion by 2030, when hospitals must be replaced altogether or retrofitted to such a degree that they not only stand during earthquakes, but stay in operation. The $10 billion amounts to about $20 million for each hospital in the state.
Those are staggering figures for an industry already struggling for profits, say hospital executives.
Costs depend on size, age, height and type of construction. Some hospitals would cost so much to fix they have already opted for new construction.
At Los Angeles County-USC Medical Center, officials will apply a $468-million federal grant toward replacing the Depression-era structure with a smaller one costing $900 million.
Hospitals with lots of money and strong support, in fact, see seismic retrofitting as an opportunity to replace hulking facilities fast becoming obsolete with smaller ones that fit today’s needs.
In Thousand Oaks, Columbia/HCA Healthcare Corp., the nation’s largest chain with more than 300 hospitals, is in the midst of a major upgrade at Los Robles hospital. Seismic strengthening is part of it.
Administrators consider themselves fortunate. Los Robles was built in 1968 in such a way that it is easier than many hospitals to reinforce: It is only four stories tall, its concrete support columns can be wrapped in super-strong carbon fiber to hold them together, and its rectangular design allows main walls to be shored up from the outside without disrupting activities inside.
The Los Robles retrofit will cost up to $8 million, about $35 a square foot, said John Masek, who designed the project. That compares to $200 a square foot for some pricey retrofits, he said.
Even some big hospital chains say seismic laws have forced them to rethink how they are going to do business for decades to come.
“We’ve been taken aback by the huge financial implication of this,” said J. Michael Gallagher, who oversees system development for 46-hospital Catholic Healthcare West. “The closure of some facilities will be seriously considered.”
About half the chain’s hospitals are losing money, including two large medical centers that serve poor communities--St. Vincent Medical Center in Los Angeles and Robert F. Kennedy Medical Center in Hawthorne.
Catholic Healthcare expects to spend more than $200 million on 30 of the older hospitals, Gallagher said. “We think a lot of buildings can be converted to other uses or sold,” he said.
Locally, St. John’s and Pleasant Valley hospitals are part of the Catholic chain.
Seismic safety was one consideration in 1992 when St. John’s replaced its old gray hospital near downtown Oxnard with a modern $110-million tower amid the fields of the Oxnard Plain.
Bill Clearwater, administrator at Pleasant Valley, said Camarillo’s hospital was never considered for closure despite an $18-million reconstruction cost.
“The retrofit involves major demolition of parts of the walls,” Clearwater said. “So we decided what better time to improve things to make it a much nicer facility after we’re all done.”
About $13 million of the cost is covered by a federal earthquake grant, and the hospital will ask residents of Camarillo for donations too, he said.
Yet Catholic Healthcare’s Gallagher thinks the seismic safety bill goes too far and should be amended so hospitals don’t close just because of it.
“People have to remember that no one was killed in a hospital in the Northridge earthquake,” he said, “but billions of dollars are going to be spent on this.
“We support the intent of the law,” he said. “But the Legislature has to come to grips with the reality of what this could mean as far as closures.”
Ojai Valley’s Turner doesn’t want his hospital to be one of them. Built in 1960, the hospital sees 550 patients a month at a 24-hour emergency room, delivers about 180 babies a year, uses 23 doctors and is the third-largest employer in the valley with 270 workers.
“This is a critical issue for this community,” Turner said. “You’re talking about people having to seek emergency services in Ventura. And the road was closed twice last winter because of rain.”
Buttressed by its 66-bed skilled nursing unit, the hospital makes just $300,000 to $400,000 a year on a budget of $15 million, Turner said.
“We’re evaluating right now whether it’s sufficient to make this retrofit,” he said. “It’s all in the walls and the roof structure, so it’s not going to make it look nicer, or better or bigger.”
Ojai Community is operated by a small Tennessee-based firm, Province Healthcare, the hospital’s fourth owner since 1987.
Throughout the state, hospital executives are generally reluctant to talk in detail about their retrofitting projects. They won’t say which of their hospitals might close. But several major chains said some will.
Santa Barbara-based Tenet HealthCare Corp., the nation’s second-largest hospital chain, expects to spend up to $500 million on its 40 California hospitals. But four or five may not make the cut, said construction and design vice president Bill Loorz.
John Gillengerten, who helped draft the new seismic rules while in government and now implements them as a private engineer, said industry concerns are well founded.
A state inventory of hospital buildings several years ago found that 21% were potentially dangerous, he said. And another 25% first thought to be passable are turning out to be far more risky than originally assumed.
“The first thing I hear out of the mouths of the administrators is, ‘What is it going to cost?’ ” Gillengerten said. “And there’s a significant population of buildings out there that are not going to make the cut.”