Sutter Health, Eden Medical Center
Economic Crisis

Economic Survey Shows 64% of Hospitals
Cannot Secure Funds for Seismic Compliance Mandate

The nation’s ongoing credit crisis and deteriorating revenues, caused in large part by governmental underfunding, is jeopardizing the ability of California’s hospitals to comply with state-mandated deadlines for seismic retrofitting, according to an updated economic impact report released today by the California Hospital Association (CHA).

The report, which is based on a survey of hospital chief financial officers (CFOs) conducted in April 2009, shows that 64 percent of hospitals report that they will not be able to access the capital necessary to comply with the state’s 2013/2015 seismic deadlines. More than a quarter of hospitals statewide (28 percent) have seen their interest expenses increase during the first quarter of 2009, while many other hospitals have been frozen out of the credit market entirely. As a result, hospitals throughout California are faced with limited access to capital and increased costs of borrowing. These dual challenges come at a time when hospitals are facing an unfunded mandate for seismic improvements estimated to cost up to $110 billion without financing charges.

“This report makes clear that revisiting the current timelines for the seismic mandate is essential,” said CHA President and CEO C. Duane Dauner. “The faltering economy is forcing all segments of our society to make difficult decisions. For many community hospitals, these decisions come down to whether or not they will be able to ensure that patients have access to care 24 hours a day, seven days a week.”

Under current state law, the state could force hospital buildings that are not in compliance with the seismic standards by January 1, 2013 (or January 1, 2015, if an extension has been granted) to close their doors to patient care. An estimated 900 acute-care hospital buildings, out of a total of 2,700 structures, face closure if they cannot meet the 2013/2015 deadlines.

In order for hospitals to access affordable capital for projects such as those related to the seismic mandate, creditors and rating agencies evaluate a hospital’s balance sheet and its demonstrated financial stability. Creditors also look for sustained operating results, specifically operating income of greater than 3 percent. In aggregate, California hospitals reported operating margins of less than 1 percent for each of the last three years, with margins in 2007 and 2008 in the red, according to the CHA report.

Among the factors impacting operating margins is a significant increase in the number of uninsured patients seeking care in hospital emergency rooms. According to the CHA report, more than 57 percent of hospitals have seen a rise in the number of uninsured patients during the first quarter of 2009, most likely as a result of rising unemployment and the loss of job-based health coverage. This is a 22 percent increase since CHA released its first economic impact report in January. Additionally, more than half of California’s hospitals are reporting a decrease in inpatient admissions and elective procedures.

In 2008, the costs of uncompensated care provided by California hospitals totaled $11.3 billion. Of that amount, Medicare payment shortfalls accounted for nearly $3.7 billion, while Medi-Cal underpaid hospitals to the tune of $4.1 billion. An additional $2.1 billion in 2008 losses are attributable to bad debt and charity care.

“California hospitals are not unique to the negative impacts of the economic recession,” Dauner noted. “The unfunded seismic mandate, however, places an extraordinary burden on our community hospitals at a time when they can least afford it.”

Access the full copy of the special report, called California Hospitals and the Economy — Ongoing Credit Crisis Jeopardizes Seismic Compliance Mandate.


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