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Friday, Jan 27, 2023
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Shaky Finances Hurting Hospitals’ Seismic Compliance

Deteriorating revenues and staggering financial losses as a result of the economic recession, decreasing reimbursements from state and federal programs and the ongoing credit crisis, have many hospitals in California saying it will be financially impossible to comply with state mandated deadlines for seismic retrofitting. In reports to the Office of Statewide Health Planning and Development (OSHPD), published September 16 on the department’s web site, several San Fernando Valley Hospitals site difficulty complying with the law that requires all acute care hospitals be capable of withstanding an earthquake by 2013, with extensions granted in some cases to 2015. “Given the severe economic downturn and its impact on the current credit environment, access to adequate capital at affordable rates is almost impossible to obtain,” said Arnold Schaffer, Vice President, Chief Executive of Providence Health & Services for the California region, and Chair of the Board of the California Hospital Association (CHA). Providence Health & Services joined eight other major hospital systems in the state in an effort to explore possible relaxation of the deadlines. “The whole financial underpinning of the hospital industry is a disaster right now, and this is just exacerbating it,” said Schaffer during an interview at his office in Providence Saint Joseph Medical Center. With more than half of the state’s 430 hospitals currently operating in the red, and several hospitals on the brink of bankruptcy, it’s estimated that 64 percent of California hospitals will not be able to access the financial capital necessary to comply with the 2013/2015 deadlines, according to a CHA survey. Even if hospitals are able to access affordable capital, moving forward with retrofit projects could adversely impact the hospital’s ability to offer services to the community, said Schaffer, as needed capital will be diverted away from things like new equipment, and improving patient care. Furthermore, hospitals which have indicated they will not be able to comply with the mandate fear investors will be hesitant to buy bonds (hurting their ability to raise funds) when they know a state law threatens to shut them down in the near future, he added. To make matters worse, “there are some in the hospital industry who claim bond holders can say that hospitals are out of compliance with bond covenants and demand immediate repayment based on the fact that hospitals are counting buildings as equity that they won’t be able to use in the future,” said Schaffer. “This is a terrible vicious circle caused by state rules that were well intended but na & #271;ve,” he said. According to CHA estimates, 900 acute-care hospital buildings, out of a total of 2,700 structures, face closure if they cannot meet the 2013/2015 deadlines. “We certainly understand in the last 12 months there have been credit availability issues and that the national economy has been in the tank,” said Robert David, Chief Deputy Director for OSHPD, adding that the department wants to work with hospitals to make sure they can provide the best care for patients in buildings that are safe. Nonetheless, David pointed out that hospitals have had 15 years to comply with the law passed in 1994 in response to the Northridge earthquake. “Right now the only hammer we have is closure of the hospital and that is something nobody wants to do,” he said. Moving forward, and as the deadlines approach, David said he expects the State Legislature will address significant accountability issues for those who will not comply and possibly consider instituting penalties and fines. “We don’t want to create a situation where we disincentivize hospitals from following the law, especially putting those that have made the investment and acquired the debt, at a competitive disadvantage,” he said. Among the factors impacting operating margins at hospitals today is a significant increase in the number of uninsured patients seeking care in emergency rooms as unemployment rises. Decreasing numbers of elective surgeries as individuals put off care for fear of losing their jobs and increased demands for capital to meet other looming deadlines such as the mandates for electronic medical records are also contributing to the budget crunch. In a letter to OSHPD, David Jarrett, System Director Design and Construction for Catholic Healthcare West, a hospital group that operates Glendale Memorial Hospital and Health Center, and Northridge Hospital Medical Center, said it was not possible to project reasonable start and completion dates for future seismic retrofit projects “until the nation’s economic recovery, and healthcare reimbursements, can generate sufficient net revenue to fund the cost of hospital capital requirements.” Like most organizations CHW experienced enormous investment losses over the past 9 months, he wrote. “We have seen a decrease in our days cash on hand, our debt to equity ratio has risen, in order to maintain stable finances we have frozen capital and IT spending, frozen non-union salaries for 2 years, as well as the hiring of non essential staff.” According to Jarrett, CHW alone is facing nearly $500 million dollars in pending reimbursement reductions annually from public programs like Medicare and Medicaid. “These cuts will be on top of nearly $500 million in current underfunding of these programs below our costs,” he said. Many hospital systems have already allocated millions towards retrofitting buildings. Providence Health & Services has invested approximately $300 million to date toward seismic compliance at Providence Saint Joseph Medical Center and Providence Holy Cross. However, the additional investment required to complete work to meet seismic standards at three other locations including Providence Tarzana Medical Center, exceeds $800 million, Schaffer said. The current financial climate demands that hospitals act prudently in the way they invest their resources, said Schaffer. “If you have the money to buy either gasoline for your car or oil for your car, but only the money to buy one, does it really matter?”

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