Hospital’s Woes Demonstrate Perils of Retrofit Mandate
By LAURENCE DARMIENTO
Staff Reporter
Henry Mayo Newhall Memorial Hospital could well be on its way to becoming the poster child for California hospitals seeking relief from SB 1953, the state law requiring hospitals to seismically retrofit their facilities by 2008.
The independent Valencia non-profit institution filed for Chapter 11 bankruptcy protection last month, despite it being the only hospital serving the fast-growing Santa Clarita Valley
But, then again, it spent $35 million repairing its damaged campus after the Northridge earthquake, a cost driven up by a seemingly logical decision to meet the SB 1953 mandate while basic repairs were under way
The hospital then received only $23 million in federal funds and insurance payments for the repairs, forcing it to dip deep into its capital pool to make up the difference for the extra state-mandated work
That $12 million outlay left it with little wiggle room after a series of full-risk contracts it had with health insurers backfired. “Those were highly risked agreements, and they lost the bets,” said Roger Seaver, the hospital’s president who was brought on to turn the facility around
Those contracts required the hospital to pay for the medical care of patients sent to other hospitals for expensive procedures not performed at Henry Mayo, such as heart surgery. If only a few patients were transferred, the hospital stood to make money on the contracts. But there was a big downside when the use of other hospitals was not tightly controlled
After ending the contracts, slashing jobs and eliminating some services, the hospital says it is paying its current bills on time. But it was unable to reach an agreement with its creditors to discount $10 million in past due accounts payables
Recovery expected
Hospital officials say that the facility continues to operate as normal and that they expect it to come out of Chapter 11 in a year or so, with its financial troubles behind it. But it would do so with a blotch on its credit rating, perhaps an example to hordes of other hospitals yet to meet SB 1953 requirements
The California Healthcare Association, the state’s hospital industry trade group, has estimated it will cost $14 billion to meet the 2008 deadline, which requires hospitals to be retrofitted so they could withstand a major earthquake without collapsing
But a Rand Corp. study concluded the costs could be as little as $5 billion or even less, considering the need for many hospitals to modernize old buildings anyway
(A second 2030 deadline requires hospitals to remain functional after such a temblor, but the first deadline has drawn the most scrutiny since, without it, the second could largely be met by regular capital construction.)
Earlier this year, an effort by the hospital trade group to get the industry some relief ultimately fell short in the Legislature and was put off until next year
One law by Sen. Jackie Speier, D-San Francisco, would have pushed the 2008 deadline back to 2013, while another bill by Sen. Joseph Dunn, D-Garden Grove, would have put a bond measure on the state ballot
Jan Emerson, vice president of external affairs for the health care association, said that in light of the economy and massive state budget deficit, the bond measure is dead, and there may be little sympathy even for Speier’s bill
“I wouldn’t say we are throwing in the towel, but we have read the tea leaves and decided to take a smaller bite of the apple,” she said
Targeting red tape
Instead, the industry plans to bide its time and next year seek simple regulatory changes at the state and perhaps local level that would cut some of the costly red tape associated with the law, Emerson said
But an aide to Speier said the senator plans to push on with her bill, noting recently announced cuts in federal programs such as Medicaid that will eat into hospital revenues. “The problem has only gotten worse,” said staff director Richard Steffen
The clock is ticking for the industry
The Rand study found that 40 percent of hospital buildings statewide are collapse hazards. And for hospitals to meet the 2008 deadline, they have to start the planning and fundraising process now
While Henry Mayo is certainly not the only hospital going through tough financial times various studies have found other state hospitals operating on paper-thin margins it’s not necessarily the kind of facility that would be expected to fail
Seaver said that once the hospital emerges from bankruptcy, he would expect it to be in the top one-quarter of hospitals in California.
