Financial Jolt
Hospitals struggle to comply with costly retrofitting requirements

By John Leighty
April 19, 2004

Ruthie Gonsoski, RN, was the charge nurse during an unusually busy night on the fifth-floor labor and delivery unit at Northridge Hospital Medical Center when the lights went out, the floor rolled, ceiling tiles began falling and a window imploded, scattering glass throughout one room.

Although it only took a few minutes for power to be restored, it “seemed like years” recalls Gonsoski, whose first concern was patient safety when the 6.7 earthquake struck at 4:31 a.m. Jan. 17, 1994.

“We organized the patients,” Gonsoski said. “The moms were the calmest; the fathers were more hysterical.” Assessing the situation—the smell of smoke, leaking water, falling tiles—she decided not to wait for help and the delivery team nurses took the families down a staircase with cracked walls to safety.

Gonsoski later learned that the hospital was at the epicenter of the earthquake. In the first 48 hours after the temblor, the hospital staff treated more than 1,000 walk-ins while caring for the existing patients. The labor room nurses set up shop at the front of the building and triaged and discharged women and their newborns. They also commandeered an ER space and delivered four more babies as the sun rose over the San Fernando Valley.

“Even though we had an earthquake, there were 20 deliveries that day,” said Gonsoski, who is now a perinatal educator. She added that eight hours after the big shake, the nurses were able to safely return to the fifth-floor department. “The staff really pulled together. If there’s one thing I’ve learned, it’s that we’re ready for anything.”

Sound structures

Considered a moderate temblor, the Northridge earthquake caused 23 California hospitals to suspend some or all of their services and resulted in more than $3 billion in hospital-related damage, according to the California Healthcare Association. In its aftermath, the state Legislature passed SB 1953, which requires all acute care inpatient hospitals in the state to either be retrofitted or rebuilt by 2008 to survive earthquakes without collapsing or posing the threat of significant loss of lifeby 2013 if the buildings are expected to remain in use 30 years from now. The law further mandates that by 2030, all hospitals must be seismically strong enough to withstand a quake and be reasonably capable of providing services afterward.

The California Seismic Safety Commission said hospitals built in accordance with the Alfred E. Alquist Hospital Seismic Safety Act of 1973 were successful in avoiding structural damage during the Northridge quake; however, nonstructural damage to plumbing and ceiling systems was extensive.

The CHA said that although California hospitals support seismic safety, the price tag for construction costs alone under SB 1953 is estimated at $24 billion, putting financial strains on many hospitals, particularly those in rural areas of the state struggling to survive. A report by the RAND Corp. puts the costs even higher—at $41 billion—when adding the expenses of architects, engineers, land purchases and other factors.

“We support the goal of the law,” CHA Vice President Jan Emerson said. “Our biggest issue is the cost. This is a completely unfunded mandate.” She said the 2008 date was also arbitrary and that many of the 2,700 inpatient buildings affected by the law at about 471 acute care hospitals could be phased out as their 40- to 50-year life cycles expire during the next decade.

Emerson said only about 40 percent of the buildings were identified by the California Office of Statewide Health Planning and Development as being in the highest danger of collapse during a quake, and most of them were in high-risk quake zone areas. Rebuilding is a decision that takes time and money, and the location and structural integrity of the building should be factors in setting seismic standard deadlines, she said.

Emerson also said 51 percent of the state’s hospitals are losing money and that 50 or 60 hospitals—many rural—eventually could be forced to close because of the high cost, complexities and deadlines for seismic compliance. Even the lesser $24 billion estimate is equivalent to the total combined, undepreciated assets of all California hospitals, she said.

To ease the pressure on hospitals, extensions of up to five years for the 2008 deadline can be granted by the state planning office. So far, about 150 hospitals have applied for extensions under the “diminished capacity” category and most of the requests are being granted. To qualify, the hospital must demonstrate that:

“Compliance [to the Jan. 1, 2008 deadline] will result in diminished health care capacity which cannot be provided by other general acute care hospitals within a reasonable proximity.”

At the 156-bed St. Rose Hospital, about two miles from the active Hayward fault on the east side of the San Francisco Bay, CEO Mike Mahoney has been granted an extension to the 2008 deadline and said the extra time will enable him to figure out ways to fund about $25 million in upgrades and new construction. He said St. Rose’s situation was unique because it has a lot of land that will allow the hospital to expand horizontally instead of vertically.

“I’m very confident we’ll be able to finance the project with retained earnings and some borrowing,” said Mahoney, who was chief operating officer at Dominican Hospital in Santa Cruz during the magnitude-7.1 Loma Prieta quake in 1989. Although no structural problems were found at Dominican Hospital, about $1 million in damage occurred because equipment and fixtures such as filing cabinets, bookcases and water coolers weren’t bolted to the walls.

Predictions that a major earthquake could occur along the Hayward fault don’t worry Mahoney, who drives across the zone every day going to and from work and to meetings. “I think about meeting the seismic standards requirements,” he said. “I don’t think about the fault next door.”

Time and money

Mahoney and other hospital officials are worried, however, about long delays in getting inspections, permits and approvals from the state planning office and other agencies that could deter them from meeting compliance deadlines. If the deadlines aren’t met, the State Department of Health Services could shut them down.

Emerson said the CHA is spearheading efforts to fill 44 staff vacancies at the state office that would clear the approval logjam without costing the state extra money because hospitals pay 1.6 percent of the estimated cost of each seismic upgrade project to support the agency.

The problem, she said, has been a hiring freeze imposed on all state agencies because of the state budget crisis, regardless of how they’re funded. A CHA-sponsored bill to exempt the office from the freeze failed to make its way through the Legislature last year. This year’s proposed budget includes an item supported by the hospital industry to add the 44 positions.

“A hospital can’t move one piece of dirt without approval by OSHPD,” said Emerson, adding that delays usually result in additional expenses.

Earthquakes are also a danger in other parts of the United States, including the Western coast states, the mid-Central region and New York. A magnitude-5.0 quake rolled through Indiana a couple years ago and fault zones crisscross several Eastern states. However, California is the only state to mandate tough seismic standards specifically for hospitals.

California’s major hospital networks—Kaiser Permanente, Catholic Healthcare West and Sutter Health—are spending substantial amounts to meet the standards, but are large enough systems to absorb the costs. Even so, Tenet Healthcare announced in January that it was putting 19 California hospitals up for sale, partly because of the expense of seismic upgrades.

Tenet President Trevor Fetter said weak performance from the hospitals makes “it impossible for Tenet to justify the $1.6 billion investment we now estimate these hospitals require to comply with the state’s seismic standards.” He estimated costs of less than $300 million to meet seismic standards for the remaining 17 California hospitals the company will continue to operate.

Kaiser estimates that it will spend more than $4 billion during the next 10 years on seismic upgrading, said Kaiser spokesman Mike Rossiter. The majority of this cost will be funded by Kaiser Permanente directly, with about $227 million funded through the Federal Emergency Management Agency’s Seismic Mitigation Program.

Kaiser also plans to have its hospitals prepared to offer service after earthquakes by the year 2013. This deadline would meet the functionality standard 17 years in advance of requirements set by SB 1953, according to a report from the Earthquake Engineering Research Institute.

Colleen McLaughlin, MSN, RN, managing director of hospital strategy and implementation for Kaiser’s Southern California region, said seismic upgrades and new construction projects “give us the opportunity to build what we call ‘hospitals of the future.’ ” Kaiser is building four hospitals this year and plans to begin construction on seven more in 2005.

After demolishing old buildings and replacing them at the Kaiser Permanente Los Angeles Medical Center, for example, new technologies will be used to make the replacement buildings easier to navigate, McLaughlin said.

“We’re also emphasizing a healthy healing environment—bringing light into buildings, planting trees and opening up previously enclosed staff spaces,” McLaughlin said. “The hospitals will be more safe seismically and they’ll also be up to date on the safest things we can do for patients.”

Catholic Healthcare West-owned Northridge Hospital, where Gonsoski and other nurses worked heroically during the 1994 quake, sustained $83 million in damage without any collapsed buildings. Since then, four patient care towers have been replaced, with 90 percent of the costs being reimbursed by FEMA, said Ron Rozanski, senior vice president of professional, ancillary and facility services.

In inspecting the work, cracks were found in the columns of some buildings, resulting in an additional $9 million in repairs, with FEMA again contributing 90 percent. FEMA’s hazardous mitigation program also paid 75 percent of the $1.8 million spent to secure equipment within buildings, Rozanski said.

Northridge still needs to bring two towers up to code. One will house the ER, surgery, radiology, a GI lab and a pharmacy that will be upgraded at a cost of $19 million, and $100 million will be spent on a replacement tower that will handle the inpatient bed capacity of two older towers. These will be completed by 2013 with a five-year extension granted by OSHPD for the buildings that needed to be able to withstand a major quake by 2008. With the extension, the finished projects are required to meet the 2030 codes.

In 1994, Rozanski recalls his house shaking violently in the early-morning quake, knocking over a 400-pound armoire “like a toothpick” and causing $130,000 worth of damage. When he got to the hospital, the buildings were still standing, patients were being treated and there were no major injuries. “It was a miracle, being on the epicenter,” he said.

That’s why all the construction work—with the noise, shrouded buildings and landscape disfigurement—although frustrating for patients and staff, is worth the end result of having a safer, quake-resistant medical center, Rozanski said.

Contact John Leighty at johnsan@aol.com.