A seismic shift is under way in Los Angeles County’s hospital industry.
As hospitals face a series of deadlines to meet tougher earthquake safety codes, billions of dollars of construction are reshaping the local hospital landscape.
This year alone, Children’s Hospital Los Angeles opened a 317-bed patient tower in Los Feliz. Providence Holy Cross Medical Center opened a 138-bed expansion patient tower in Mission Hills. And Santa Monica-UCLA Medical Center dedicated a 266-bed replacement hospital expected to start operations in January.
These new facilities are not your father’s hospitals.
Forget the sterile green walls, rank odor of disinfectants and barely edible food. Think suites with wood paneling and big flat-screen TVs, corridors with murals depicting the region’s Hispanic heritage and menus with restaurant-quality entrees.
Steve Valentine, president of Camden Group, a national health care management consulting company based in El Segundo, said the industry is under cost pressure but has no choice but to remake itself.
“The public may not want to pay higher health care costs, but they still want all the latest technology and modern amenities in their hospitals, especially in a sophisticated market like Los Angeles,” Valentine said. “They want private rooms and Internet access, restaurant-quality food, and to know that their doctors and nurses have the latest equipment.”
Industry officials don’t have a precise dollar figure for the economic impact of hospital capital projects in the county in recent years, but it’s clear that they have kept thousands of local construction workers on the job as office and home construction has dried up.
Twenty-two hospitals and large medical facilities have appeared on the Business Journal’s annual list of the county’s largest construction projects over the past five years. They account for about 16 percent of all major construction projects during that span. Cumulatively, they cost more than $5.3 billion.
Kaiser Permanente Southern California, the county’s second largest hospital operator by licensed bed count, so far has replaced or retrofitted four of its seven county hospitals as part of a more than $8 billion regional construction program.
What’s more, the Los Angeles County Economic Development Corp. earlier this year estimated that there was a $23 billion backlog in hospital construction projects statewide, perhaps one-third of which are local.
“The level of construction is at historic levels,” said Paul Coleman, facilities development deputy director for California’s Office of Statewide Health Planning and Development, which regulates health care building projects. “We have about $9 billion in construction going on around the state right now.”
New generation
To get a sense of what these new hospital buildings are like, consider Children’s Hospital Los Angeles, where ill children and their families are greeted by Paul Bunyon-size toy blocks at the entrance to the new patient tower that opened in July. (See photo essay, pages 28-29.)
Or Ronald Reagan UCLA Medical Center, where the exterior is not institutional concrete but cream-colored travertine marble panels (provided at a significant discount by the owner of an Italian quarry whose cancer was cured at the old university hospital).
Even Kaiser, a low-cost managed-care non-profit that usually employs standardized designs, couldn’t refrain from extra touches. Its Kaiser Downey Medical Center, which opened in 2009 to replace a Bellflower hospital, features aircraft wings, cowlings and other components in its hospital furnishing as a nod to the facility’s location at a former Boeing-NASA plant.
“Kaiser has to be very disciplined in the way it manages its square footage to get all this work accomplished, but we try very hard not to be cookie-cutter,” said Ron Smith, regional vice president for capital projects.
But it’s more than head-turning architectural elements or even patient comforts that distinguish this new generation of facilities.
Inside the new Children’s Hospital facilities, the operating rooms are filled with the latest robotic surgical technology, some equipped with cameras to allow surgeons to consult colleagues in the building or even around the world.
At UCLA Medical Center, touted by boosters as the world’s most technologically advanced hospital when it opened in 2008, there is a wireless network that provides medical professionals instant access to medical records at the flick of a finger on their tablet computers.
At the Providence Holy Cross Medical Center expansion that opened this year, each private room includes a nurse’s ministation with a window that allows nurses to check on patients without disturbing them.
The construction was largely prompted by a fact of Southern California life: earthquakes. The idea is to keep the facilities operational when the Big One hits. The 6.7 magnitude Northridge Earthquake in 1994 caused an estimated $3 billion in damage to Southern California hospitals alone. About a dozen eventually were red-tagged as unsafe for occupancy, including several in the San Fernando Valley.
That year, the Legislature passed a law that required hospitals to retrofit or construct patient towers that could remain open after a major quake. Originally, hospitals had until 2008 to retrofit or replace their most vulnerable buildings. However, the hospital industry, citing financial difficulties, successfully lobbied for more time, with many hospitals receiving extensions until 2013. A 2030 deadline requires hospitals to meet even higher seismic standards, which is expected to trigger another building boom.
A 2007 Rand Corp. report found that nearly half of California hospital floor space needed retrofitting – primarily in Los Angeles and the Bay Area. The result has been the unprecedented building boom.
One contractor alone, Rudolph & Sletten Inc., was tapped by local hospitals to build roughly $1 billion worth of hospital facilities in East Hollywood – from Kaiser Permanente’s two-year-old Los Angeles Medical Center to the Children’s Hospital tower.
“Once we finish a few remaining projects at Children’s, it’s going to be strange not having a presence there,” said Martin Sisemore, chief executive of the Redwood City company, who has employed hundreds of workers and subcontractors straight through the recession.
Cedars-Sinai Medical Center, the county’s single largest hospital by licensed beds, completed some of the critical retrofits several years ago. The bulk of its recent building projects have focused on upgrading patient rooms and the emergency department. Its most ambitious current construction project is the Advanced Health Sciences Pavilion, an estimated $350 million outpatient facility set to be completed in 2013 that will include clinics, surgical suites, and educational and research facilities.
Financing difficulties
The wealthy hospital was able to tap its deep donor base, but funding the projects by and large hasn’t been easy, particularly when the 2007 credit crunch and resulting global recession hit just as many hospitals were attempting to raise capital.
Hospitals have used a combination of cash flow, debt and community fundraising. Some have received philanthropic donations, while others that suffered earthquake damage were able to get millions in federal grants.
Providence Health and Services, a suburban Seattle-based operator of three hospitals in the Valley and two in the South Bay, is a good example.
It issued bonds, accessed operating capital and raised community funds to build a $134 million replacement tower at Providence St. Joseph Medical Center in Burbank in 2006. St. Joseph also benefited from a Federal Emergency Management Agency disaster grant. It had a similar mix of funding for its $150 million expansion tower at Providence Holy Cross Medical Center in Mission Hills that opened this year, though the project did not receive FEMA money.
“We typically expect community fundraising to make up 15 to 20 percent of a project and that’s what we saw with St. Joseph and Holy Cross,” said Kerry Carmody, the chain’s regional chief operating officer.
Other hospitals have had it a bit easier. Both St. John’s Health Center in Santa Monica and Children’s Hospital were aided by substantial endowment by wealthy board members.
Billionaire biotech executive Patrick Soon-Shiong and his wife, Michele Chan, in 2009 gave St. John’s $35 million to pay off the costs of its new patient tower and create a research center. The 230-bed tower was named the Chan Soon-Shiong Center for Life Sciences in their honor.
Just a few months before he died this July, billionaire John Anderson – whose widow, Marion, leads the Children’s Hospital’s board – donated $50 million so that the hospital would not have to finance the remainder owed on the $636 million patient tower, now known as the Marion and John E. Anderson Pavilion.
Hospitals that started their projects in the last few years also benefited from the global recession, which lowered both the costs of acquiring steel and concrete, and made contractors willing to accept jobs at lower cost.
“The economic downturn in some ways didn’t hurt us on the Holy Cross expansion because construction prices went down,” said Providence’s Carmody.
But even with some big donations and reduced costs, it hasn’t necessarily been smooth going.
An additional wrinkle for Children’s Hospital was that a substantial portion of its budget funding came from a voter-approved state children’s hospital bond issue. However, with the poor economy and its own mounting budget deficit, the state dragged its feet in 2009 on selling the bonds.
Unable to pay contractors, Children’s Hospital pondered whether to halt construction. Instead, Sisemore’s project management team at Rudolph & Sletten worked with the hospital to keep a core group of construction workers on the job, even covering payroll and other costs until the bond funds came through.
“They bent over backwards to keep as many people employed as possible at a time when it would have been hard for those workers to find other jobs,” said Children’s Hospital Chief Executive Richard Cordova.
Marketing opportunities
While prompted by state mandates, the hospital upgrades have enabled many of the institutions to rebrand themselves to better compete in the marketplace.
DeAnn Marshall, Children’s Hospital vice president and marketing communications coordinator, said the modernization program enabled the hospital to reach an even wider regional and even international audience. The hospital earlier this year launched an extensive marketing program that includes a variety of transit billboards plus radio spots featuring actress Jamie Lee Curtis.
“The opening of the Anderson pavilion enables us to provide a totally different experience to patients and their families,” Marshall said. “Parents who want to spend the night with their children can do so on a daybed rather than a chair, and there are playrooms and other activities for visiting siblings to do, too.”
Another example is St. John’s, which closed for about nine months for repairs after its 1940s-era patient wing was badly damaged in the Northridge quake. The sleek arc-shaped replacement tower features 12 VIP suites with wood-paneled walls and other amenities similar to an upscale hotel. The suites, which cost an extra $500 a day, include an upgraded menu and concierge services.
The hospital markets itself as the New St. John’s Health Center, offering what Marketing Coordinator Sara Phelen touts as more comfort for its patients. Hospital consultant Valentine, noted the hospital’s Westside market.
“St John’s is competing with two UCLA hospitals and Cedars-Sinai,” he said. “You have a very attractive demographic and payer mix on the Westside and hospitals have to be willing to do what it takes to get their share. Hospitals have to keep up with the Joneses.”
