SAN FRANCISCO — A recent change to California building standards is expected to give some hospital operators an extension of their deadlines for meeting earthquake safety requirements. The change is expected to move about 500 hospital buildings into a lower-risk category, which means their owners will have 17 years longer to replace or refit the buildings — and figure out how to pay for it.Spurred by the 1994 Northridge earthquake, state lawmakers passed a law requiring hospitals to upgrade their structures to ensure that they can survive a severe temblor.It is a phased approach — and new building standards adopted on Nov. 14 are expected to allow many hospitals to delay the most expensive phase, which in most cases will require them to build entirely new buildings.It’s a responsible adjustment that weighs earthquake safety needs against the financial burdens that threaten the very existence of some hospitals, according to Jan Emerson, spokeswoman for the California Hospital Association, he state trade group.“We feel we’ve reached a balance between keeping access available and making sure all our hospitals are safe,” she said earlier this month in a conference call with reporters.The original 1994 law required hospital buildings designated as Structural Performance Category 1, or SPC-1 — in other words, buildings at risk of collapse in a major earthquake — to be replaced or refitted by 2008, though in most cases that deadline has since been extended to 2013.This month, the California Building Standards Commission approved a new performance model in which a fair number of SPC-1 hospital buildings are likely to be reclassified as SPC-2, defined as buildings that are not a life-safety risk in an earthquake, but may not be functional or repairable afterwards.State law requires SPC-2 buildings to be phased out by 2030, after which hospitals will be required to operate in buildings that are expected to remain functional after a major earthquake.The new performance model is known as HAZUS, for Hazards U.S., a standardized methodology and software developed by the Federal Emergency Management Agency.It uses geographic information systems software to map hazard data using information incorporating building design, local geology and the location and size of potential earthquakes. (FEMA also uses HAZUS to estimate flood and hurricane risks, but it’s the earthquake component that is relevant to California hospitals.)The building standards commission adopted the HAZUS methodology at the recommendation of California’s Office of Statewide Health Planning & Development, the state agency that oversees all hospital construction.The original FEMA methodology that led to so many hospital buildings being classed SPC-1 was fairly crude, according to Evan Reis, a structural engineer and consultant who participated in the hospital trade group’s conference call.“Modeling technology 10 or 12 years ago wasn’t anywhere near as good as it is today,” he said. The HAZUS technique, which has been customized by OSHPD, provides a more accurate picture of a building’s safety, Reis said.The health planning office estimates that approximately half the hospital structures now rated SPC-1 would be rated SPC-2 using HAZUS.The change has the potential to ease the capital financing pressures for at least some hospital bond issuers, said Geraldine Poon, a health care analyst for Standard & Poor’s.“From a credit perspective we’ve seen a lot of health care and hospital systems really struggle to deal with the seismic regulations for the past many years,” she said. “If anything, it’s a credit positive to credit neutral,” Poon said of the adoption of HAZUS methodology.Most larger hospital systems are already well into the process of upgrading their facilities to meet the coming seismic standards because they have the resources to do so, but some smaller issuers that lack resources have struggled, Poon said.For the many hospital issuers that have already set the train in motion to upgrade their facilities, the adoption of the HAZUS methodology won’t matter a great deal, she added.On the other hand, issuers that see the looming 2013 deadline for new buildings moved to 2030 might take the opportunity to reprioritize their capital planning and move their construction schedule back slightly, according to Keith Dickinson, another Standard & Poor’s health care analyst.“That could take some of the pressure off the construction cost escalation,” he said. One factor in that escalation has been that so many hospitals are planning projects simultaneously.Hospitals with buildings in the SPC-1 category have little incentive to retrofit existing buildings to make them SPC-2, since they will be illegal by 2030, according to a RAND Corp. report commissioned by the California Health Care Foundation and released earlier this year.“The costs of retrofits often are comparable to new construction projects and they greatly disrupt hospital operations,” the report said.Some hospital operators simply self-declared their buildings to be SPC-1 after the seismic laws were passed rather than go through the expense of an evaluation, Emerson said. They may now find it worthwhile to have their buildings evaluated.The hospital earthquake safety upgrades will ultimately cost the industry many tens of billions of dollars.The California Hospital Association has not given up trying to obtain funding for what until now has been an unfunded state mandate, Daniel Gross, the chair of the CHA’s board of trustees, said on this month’s conference call.“I would not rule out the need to look at bond financing, state bond financing, in the future,” said Gross, an executive vice president at Sharp HealthCare in San Diego.“All avenues will need to be explored,” he said. “I would not take that off the table.”
Independent and authoritative analysis and perspective for the bond buying industry.
No credit card required. Complete access to articles, breaking news and industry data.
Have an account? Sign In