Hospitals Face Huge Refit Costs

A fiscal temblor is rattling the state hospital community, which this year begins to confront a series of state deadlines mandating billions of dollars in earthquake preparedness upgrades by 2030.

One example is UCI Medical Center in Orange, where all eight operating rooms, the intensive care units and more than half its 382 beds are in a building that must be shut or completely retrofitted to meet the first major retrofit deadline in 2008.

UCI hospital officials have decided it is more cost effective to raze the 1960-era main hospital building than meet the 2008 safety standard, which calls for upgrading hospital buildings that pose a risk of death due to collapse in a major temblor.

The new facility, now being planned, will cost more than $300 million, said chief operating officer Maureen Zehntner. There is one problem: The medical center can’t pay for it.

“We are assuming somehow we are going to find the funding,” she said, adding that the alternative is closing a hospital that is one of the main primary care facilities for the poor.

“Hospitals don’t make that kind of money anymore,” Zehntner said. “What is the bottom line? What if hospitals say we just don’t have it? Where do we go from there? What do we do about our patients?”

Statewide, more than 2,600 buildings at 473 hospitals must be evaluated and possibly upgraded under the 1994 Hospitals Facilities Seismic Safety Act, passed after the devastating Jan. 17, 1994, Northridge temblor, which shut services temporarily at 28 Southern California hospitals and forced three to close.

The California Healthcare Assn., the trade group for hospitals, estimates it could cost $10 billion to meet the 2008 standards, which require upgrades to prevent a potentially fatal structural collapse. Another $14 billion would be needed to meet the 2030 deadline, which requires hospitals not only to withstand a quake but also to be able to keep operating.

Because meeting the full seismic safety standards is so costly, hospital leaders are parading to Washington and Sacramento seeking government assistance.

“The cost of repair exceeds the value of all existing state hospitals,” said C. Duane Dauner, head of the trade group.

Particularly hard hit would be rural and inner city hospitals that provide health care to underserved populations and often lose money doing so. These hospitals commonly are least able to pay or get loans to finance rebuilding.

The California Hospital Medical Center in downtown Los Angeles this month began tearing down the oldest of its four buildings as part of a $30-million to $50-million retrofit and construction program that still isn’t fully funded, President and CEO Melinda Beswick said.

Built in 1926, the 11-story building was damaged in the 1994 Northridge quake. A second 1964 building that now has 55 acute care beds will become a support-services building rather than be retrofitted to meet the 2008 deadline. And a 1972 building will be upgraded and remain an acute care facility.

But whether the hospital can proceed with the complete project, which includes a new two-story building specializing in women’s diagnostic services and obstetrical care, depends on fund-raising and hospital revenues.

The hospital makes a critical difference in its community. It has one of the busiest emergency rooms in the county, treating 47,000 patients last year. And 57% of the people living in its service area are uninsured, Beswick said.

Despite an $11-million grant from FEMA after the 1994 quake, the nonprofit hospital operated by the Catholic Healthcare West chain is having trouble finding the money.

“Borrowing is not where we want to go,” said Beswick, whose hospital has launched a $10 million fund drive for the earthquake work. Officials also will try to generate funds through cost-cutting and efficiencies. Beswick remains hopeful.

“I will be blunt: It is iffy,” she said. “My payer mix is largely Medi-Cal and low-income, and it is a stretch.”

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Reacting to the trade group’s lobbying campaign, the state Senate last week voted 39-0 to support three bills dealing with the problem. One would drop the 2008 deadline for hospitals that agree to meet the tougher 2030 standards by 2013. Another would extend the deadlines for hospitals in less seismically active areas. A third would authorize fact-finding that could lead to state assistance.

The $24-billion cost to meet the 2008 and 2030 deadlines is in dispute--some state seismic officials say it may be inflated by as much as 25%, and includes capital construction costs hospitals would have spent anyway.

But some seismic experts and government officials worry that extending the deadlines could threaten lives, turning buildings that have structural problems into quake disaster areas instead of a refuge for the injured. Some point out that hospitals have had years to comply with the law.

“The 1994 law set time frames that were very fair,” said Chris Tokas, a structural engineer and the seismic expert for the Office of Statewide Health Planning and Development, which oversees the standards. “I take great exception when hospitals say they didn’t have the time.”

So far, Gov. Gray Davis has taken no position on the measures, though his budget does propose $600 million in revenue bonds to pay for seismic projects at UC teaching hospitals, such as UCI Medical Center.

The expense of the seismic program already is boosting the cost of health care, and bringing added revenue to hospitals. CALPERS, the giant state employee pension system, last month cited the “cost pressure” from earthquake retrofit capital expenditures as one factor in its decision to increase health insurance rates for next year by 9%.

Hospital leaders also propose to tap the Federal Emergency Management Agency (FEMA). The argument being pushed in Washington is that it makes more sense for the agency, which normally provides assistance after disasters hit, to invest a fraction of that money now to avoid larger post-quake costs.

Dauner and others have in the past month spoken to Sen. Dianne Feinstein on the issue, and since January they have approached nearly every member in the California delegation. They’ve also spoken with FEMA administrators.

“We are not asking for tens of billions of dollars from the federal government--that would fall on deaf ears,” said Anne Nicoll, Washington lobbyist for the California hospital association. “What we are asking for is structuring a program from $1 billion to $2 billion to $3 billion . . . to match [hoped for] state-sponsored funds.”

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So far, Feinstein has said she would be ready to seek FEMA assistance, once the state has provided some funding, Feinstein aide Anne Hearst said. In the meantime, the senator has drafted--though not yet filed--a bill that would shorten to five years the tax depreciation for retrofits done by for-profit hospitals and offer seismic grants to nonprofits, Hearst said.

Under the 1994 law, there are four major deadlines for hospitals that cover all inpatient, acute care buildings.

* Jan. 1, 2001: Submit seismic evaluations and compliance plans to the Office of Statewide Health Planning and Development for every hospital building. These will provide the first definitive construction costs;

* Jan. 1, 2002: Anchor and brace critical nonstructural systems--bulk medical gas, key communications systems, fire alarms, emergency power and lighting;

* Jan. 1, 2008: Retrofit buildings to ensure against structural collapse in a major earthquake and harden nonstructural systems to ensure interim operations in critical care areas so patients do not die from interruptions in service in surgery, intensive care, emergency rooms and post operative care areas. This standard--called the “life-safety standard”--ensures an orderly evacuation of impacted hospitals.

* Jan. 1, 2030: Retrofit or rebuild to maintain all services and continue to function in a major quake.

The seismic act largely affects facilities built before 1973, when improved seismic standards were written in response to the 1971 Sylmar quake, in which two hospitals collapsed, killing three people at Los Angeles County’s Olive View Hospital. Fifteen other hospitals suffered major damage or were destroyed. Some facilities built between 1973 and 1983 may also need upgrade to meet 2030 standards.

Seismic expert and structural engineer Trailer Martin, chairman of state Hospital Building Safety Board, said the dangers are real, and the financial challenges daunting.

A lot of hospitals have ignored the mandates, hoping they would go away, he said, pointing out that he was not speaking for the safety board.

“There is absolute danger out there,’ Martin said, adding that he has inspected some buildings he wouldn’t identify “that should be arrested for vagrancy because they have no visible means of support.”

Martin cautioned that extending the 2008 deadline for earthquake retrofitting “is a trade-off. . . . You are certainly increasing the window of potential damage.”

Both legislators and hospital lobbyists say state funding proposals will not come until next year, when the statewide planning office will have specific data from hospitals showing how many buildings are affected and what work needs to be done. Assistance could be in the form of grants, loan guarantees or state bonding.

And any funding package likely would be based on need and the impact on hospitals in underserved areas. It would also distinguish among hospitals based on their public, nonprofit and for-profit status, said Assemblyman Martin Gallegos (D-Baldwin Park), who chairs the Assembly Health Committee.

Gallegos suggested the Legislature might even consider lowering the seismic standards as one way to bring down the costs.

“Are we maybe buying too much safety?” he said.

Some in the health care community want to give public hospitals the first crack at aid and require that the others--even the nonprofits--open up their books to demonstrate need.

Jim Ryder of the California Nurses Assn. suggested that for-profit hospitals, particularly the large chains, should have earning restrictions to qualify for aid.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bracing for Disaster

To meet state mandated earthquake preparedness requirements, California hospitals are preparing to undergo significant and costly upgrades such as external bracing.

KEY DATES: All deadlines fall on January 1 of each year:

*2001: Submit seismic evaluations and compliance plans for every acute care in-patient hospital building. These will provide the first definitive construction costs;

*2002: Anchor and brace critical non-structural systems needed for safe operations--bulk medical gas, fire alarms, key communications, emergency power and lighting;

*2008: Retrofit buildings to ensure against structural collapse in a major earthquake and harden nonstructural systems to ensure interim operations in critical care areas so patients do not die from interruptions in service in surgery, intensive care, emergency rooms and post operative care areas. This standard ensures an orderly evacuation of impacted hospitals.

*2030: Retrofit or build hospitals that will maintain function in a major quake.