Renewal by Earthquake: st Designing 21 Century Hospitals in Response to California’s Seismic Safety Legislation March 2004 Prepared for the California HealthCare Foundation by Wanda J. Jones, M.P.H. New Century Healthcare Institute About the Author Wanda J. Jones is the president of the New Century Healthcare Institute, an R&D and education foundation devoted to population-based planning and adaptation of the health care system to future conditions. In this project, NCHI partnered with the California Healthcare Association and four architectural firms: Anshen & Allen, San Francisco; Clark/Kjos, Portland; KMD, San Francisco; and NBBJ, Seattle. The development of this concept paper and the series of seminars based on these ideas was funded by a grant from the California HealthCare Foundation. For more information, contact: Wanda J. Jones, MPH President New Century Healthcare Institute wandahealth@earthlink.net Copyright © 2004 New Century Healthcare Institute About the Foundation The California HealthCare Foundation, based in Oakland, is an independent philanthropy committed to improving California’s health care delivery and financing systems. Additional copies of this and other publications can be obtained by visiting us online at www.chcf.org. California HealthCare Foundation 476 Ninth Street Oakland, CA 94607 Tel: 510.238.1040 Fax: 510.238.1388 www.chcf.org Contents I. Introduction..........................................................................................................................1 Background...................................................................................................................1 Calculating the Cost of Renewal ..................................................................................3 The Choices for Hospitals ............................................................................................4 II. Historical Perspective: The Evolution of California’s Hospitals........................................7 Retrenchment, Not New Construction..........................................................................8 What the Sponsors Didn’t Know..................................................................................9 The Problem of Capital...............................................................................................11 III. Factors that Encourage Suboptimal Decisions ..................................................................13 Functional Obsolescence: The “1970 Hospital”........................................................13 Statewide Oversight of Hospitals ...............................................................................15 Managers Cede Decisions to Architects .....................................................................17 IV. Long-term Effects of Today’s Decisions...........................................................................19 Community Impact .....................................................................................................21 V. Avoiding Obsolescence and Adding Value .......................................................................22 Moving Away from the 1970 Hospital.......................................................................22 Designing for the 21st Century....................................................................................23 VI. Value Principles of Advanced Hospital Design.................................................................28 21st Century Hospital Design: Value Propositions and Design Concepts .................28 The Power of Collaboration........................................................................................34 The Future Patient Meets the Future Hospital............................................................35 Appendix A. Public Policy Considerations ..................................................................................37 Appendix B. Roles and Resonsibilities in 21st Century Hospital Design, by Stakeholder...........41 Endnotes.........................................................................................................................................51 I. Introduction No state has renewed its hospitals en masse as California is now in the process of doing.1 The law that stimulates this renewal, SB 1953—Hospital Retrofit, 1994,2 has three parents: the San Fernando earthquake of 1971, the Loma Prieta earthquake of 1989, and the Northridge earthquake of 1994, which damaged more than one hundred hospitals. In the Northridge quake, the motion forces plus liquefaction in some areas caused collapsed floors, separation of buildings from utilities, shifting off of foundations, and failures of essential functional systems such as emergency generators.3 Hospitals that survived well had been constructed according to the seismic safety standards generated after the San Fernando earthquake. Those that did not perform well had not. While the major revision of the building standards used by OSHPD to govern hospital design was enacted in 1973, by 1994, noncompliant structures amounted to 50 percent of all California acute care hospital buildings.4 No one would, of course, argue against having safer hospitals. On the other hand, the consequences of the SB 1953–generated renewal will be wide-ranging and massive. They require careful scrutiny by all the stakeholders in California’s health care industry, whose action—and inaction—over the coming months and years may have profound consequences. Because of deadlines built into the law and other factors, the choices facing hospitals have taken on an urgency never before experienced in the industry. For Californians, the stakes could hardly be higher. Background SB 1953, the Alquist bill, states that hospitals with buildings used for acute care that do not meet the original seismic safety code (Alfred E. Alquist Facility Seismic Safety Act of 1973) are to be upgraded through retrofit or replacement by either 2008 or 2013, depending on the level of discrepancy. The two types of discrepancy are functional systems (such as emergency generators) and the building itself. There are five ratings for structure and five for function. The worst structural problems, coded SPC-1, were to be retrofitted, replaced, or removed from service by 2008. For SPC-2 buildings, the final date is 2030, by which time all elements of the Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 1 building and its systems must be in compliance. Five-year extensions to the 2008 date have been possible since fall 2002. The state has now had time to require and to receive evaluations of all the hospital structures in the state. Regulators know how many are most vulnerable to earthquake damage and how many meet the current code.5 Table 1. Summary of Seismic Evaluations Total hospitals reported 436 (out of 474 required to report) Total hospital buildings 2,507 Buildings at SPC-1 (worst) 975 38.9% (in danger of collapse) Buildings at SPC-2 211 8.4% Buildings at SPC-3 291 11.6% Buildings at SPC-4 672 26.8% Buildings at SPC-5 (best) 323 12.9% Percent of beds not in compliance 83% Percent of beds at risk of collapse a 26% Source: Summary of Hospital Seismic Performance Ratings, OSHPD, Sacramento, CA, April 2001, summarized by NCHI, San Francisco, 2002. a Meade, Charles, et al, Estimating the Compliance Costs for California SB 1953, The Rand Corporation, Santa Monica, CA, April 2002, p. 3. As the chart shows, 83 percent of California’s acute care beds are in hospitals not in compliance, and 26 percent are in buildings at risk of collapse. This figure is higher than the proportion of hospitals that are noncompliant, since the majority of noncompliant hospitals are in urban and suburban areas and therefore tend to be larger than those in rural areas, though rural hospitals may be older. Some areas of the state have a high concentration of the problems. Los Angeles County and Orange County together account for 397 of the Some 83 percent of California’s beds SPC-1 buildings, or 49 percent of the state total.6 Compliance is are not in complicated by the fact that some hospitals have multiple buildings compliance; constructed over a period of time; yet because their functions are 26 percent are at related, retrofitting or replacing any one structure may often require risk of collapse. updating the others as well. The state did not succeed in passing a bill providing capital to pay for such upgrades, making SB 1953 a prime example of an “unfunded mandate.” While the law puts the responsibility for hospital retrofits and replacements squarely in the provider sector, by extension it will also affect health plans, purchasers, and people who buy health insurance. What is the impact likely to be? Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 2 Calculating the Cost There are three ways for hospitals and health care systems to manage the cost impact of SB 1953: 1. Minimum Cost of Bare Compliance This approach uses retrofit wherever possible and avoids new construction. Such a response was the initial aim of the legislature because it assures that hospitals can continue to operate. The law’s sponsors did not contemplate forcing full replacements. 2. Actual Cost of Projects Stimulated by SB 1953 In cases where retrofit turns out to be extremely costly, the more prudent solution may be replacement. This can involve such additional costs as land, improvements, and even the expense of full relocation. Because many urban hospitals with multiple older buildings are like a complex puzzle, a clean-sweep replacement may be needed to achieve an efficient final structure, plus room to continue to grow or renew. SB 1953 has already stimulated a number of projects that amount to full replacement. Outpatient facilities or medical office buildings may be included in the total project, along with parking and other non-inpatient needs. Options 1 and 2 are both concerned with scale—the strategic decision of how much to do. They are compared using the total capital cost—the lump sum figure derived by multiplying the scale of the effort by the construction costs for these highly complex buildings. Adding up these lump sums gives an amount that suggests the total impact of SB 1953, but it is not a full picture. Capital is spent all at once, then paid back to lenders over time, usually 30 years. So a third method for gauging of capital costs is needed to complete the assessment. 3. Eventual Booked Cost of the Projects This includes the cost of the capital, i.e., the interest expense. In many cases that will effectively double the estimate for the project. The RAND Corporation provided an analysis to the California HealthCare Foundation (CHCF) of the various SPC-1 buildings by age, showing that the buildings will be between 45 and 49 years old by 2008, indicating that they will already have reached their natural maximum functional life. According to the RAND authors, this means that “modernization will be the principal design challenge for the new buildings, making it difficult to separate the SB 1953 compliance costs.”7 RAND calculated the total cost of these retrofits at $41.7 billion. While hospitals initially approached the law as a minimum compliance problem, by early 2000, it became clear that many could not limit themselves to retrofitting and would have to plan for the partial or complete replacement of their buildings. Not only will that raise the total price tag above RAND’s 2002 estimate, but the construction costs that lie behind it are also likely to increase, given that many of hospitals have been granted extensions to 2013. The total costs for any hospital replacement cannot be known until plans are approved, loans obtained, and the project costs converted to annual depreciation and interest. The total number of hospitals or beds being upgraded or replaced, and their square footage has yet to be determined. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 3 The following formula provides a rough boundary of the probable cost of this cycle of renewal. Table 2. Probable Cost of Cycle of Renewal Total acute beds in CA 53,900 Beds in SPC-1 buildings 76.4% (other construction, for non-acute facilities, will occur as well) Number of SPC-1 beds 41,179 If 100% rebuilt at $1 million/bed $41.2 billion (NCHI) (Rand estimate: $41.7 billion) Source: NCHI estimates, OSHPD data. NCHI estimates that the effect of borrowing can add another $30 to $40 billion, for a thirty-year burden of $71.2 to $82.4 billion, or $2.4 to $2.7 billion per year. Not included in this estimate is the cost of also upgrading SPC-2 beds or other structures accompanying the hospital itself. Over the long run, the total cost—including information systems and collateral buildings—will be much more. How much more cannot be known until the facilities are completed and the necessary bonds sold at the interest rates prevailing at the time, less any significant gifts from the community or capital from hospital reserves. The longer construction is delayed, the higher the costs will be; thus, the granting of five-year extensions by the state effectively escalates the overall cost of this renewal.8 Before the extensions were offered, much of this capital would be required or committed by 2003, if a new facility were to open by 2008. As it is now, there will probably be two peaks—the first in 2008 and a larger one in 2013. Such a large spike in capital investment could be expected to have a ripple effect on health care prices. That effect is being felt now, as hospitals raise prices so as to show a profit— a condition for qualifying for new bonds. The situation is made doubly urgent by the fact that the most consequential decisions hospitals face will come early in the process as they select a site, choose a bed size, estimate capital capacity, choose an architect, decide on market strategy, redesign clinical programs, and select a strategy regarding the operating system, the future workforce, and organization of physicians. Therefore, “D-Day” for hospitals with risk-prone facilities is not 2008 or even 2013; it is the date when hospitals close on their project plans—in 2003, 2004, or 2005. This is the timetable that should mobilize those who wish to influence how hospitals will choose to comply with SB 1953. The Choices for Hospitals Hospitals that fall into the risk-prone categories have a number of choices. Closure This is the “walk away” solution. For some hospitals, occupancy is sufficiently low and the cost of construction is sufficiently high that closure is the only prudent business decision. Closure is most apt to occur in cities having multiple hospitals and in rural areas where the sparse Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 4 population cannot support a full-service hospital. Closure often takes place in the context of a merged health care system, where priorities have been set as to which hospitals will be allowed to borrow money for renewal. Thus, SB 1953 can be credited with weeding out surplus hospitals. On the other hand, it can be blamed for reducing the availability of certain services to already underserved populations, since the weakest hospitals are likely to be inner city facilities that have not had money to maintain their plants or programs. Minor Retrofit As noted above, this is the minimalist approach: do as little as possible to bring buildings up to code, with no major changes. Focus on functional systems. Leave the building shape and interiors as they are. Only 23.6 percent of California hospital beds are in structures coded higher than SPC-1, which, by definition, require more substantial work than merely improving functional systems. Major Retrofit Improve the structure as well as functional systems, and while the buildings are out of commission, redo the interior, changing rooms with multiple beds into private rooms. Upgrade major utilities. Expand central departments and services, such as the emergency room (ER). This option can involve part or all of a hospital, since older hospitals often have multiple structures. Both retrofit strategies amount to “buying the original building twice,” since retrofit can cost more than original construction per square foot and even exceed that of new construction. It also makes the facility largely unusable during the construction period, reducing revenue at a critical time. Typically, hospitals consider this option first; if it is too costly, they may opt for replacement. Partial Replacement Replace a single building, leaving other structures as they are if they meet code. This option may be chosen, not as the ideal solution, but because there isn’t enough capital capacity to do more. Unfortunately, it also implies that additional capital will be spent within a decade or two to complete the renewal. Another downside is that the original building will constrain the design choices for the new one. The result may be as costly as starting over from scratch. Major Replacement Replace a majority or all of the acute hospital in a single move or multiple stages. Usually this is necessitated by the fact that the hospital is one large structure—making the entire facility subject to renewal again when it is old. (It is interesting to note that several hospitals as young as thirty years will have to be replaced because they are rigid single structures.) This situation may also apply to hospitals that have grown by adding buildings over the years, yet have become so inefficient that a complete replacement is required, even if some of the buildings are relatively young. Both replacement options usually make use of the current site, even if it means using up the last open parcels of land on the grounds, leaving no room for growth and imposing severe limitations upon future renewal. Major replacement may require removal of parking structures, medical Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 5 office buildings, or low-rise, special-purpose buildings—all of which, in turn, must be relocated to another site. Each of these choices, therefore, usually causes additional costs beyond the expense of the new structure itself. The architecture can also be compromised; typically by squeezing a building into a small horizontal space that forces it upward, necessitating smaller floor areas, which are less efficient to staff than a large patient floor. Pursuing either course can certainly result in a safer, more modern, and better functioning hospital. But by continuing to invest in an original site, the facility sets its anchor even deeper, making it that much harder to consider starting over and walking away at some future date from what might be several hundred million dollars in recent construction. So, whenever there is a great deal of money at stake, along with an original site that is largely built out or is too urban in character, the hospital leadership should allow itself to explore the potential benefits of relocating to a wholly new site. There are at least two strategies for such a relocation. Add a Second Site To reduce the need to expand or replace structures on a congested site, choose a second site further out in the market area and develop either a true satellite or the The availability of first stage of what could become a full replacement. land is a critical variable in these The availability of land is a critical variable in these decisions, even decisions, even more so than capital. Land is most affordable before it has been more important than capital. developed; yet land that already has houses and businesses offers the best environment for a hospital to operate successfully from the beginning. Gifts of land have often been the cause of a hospital going to the right place at the right time—or the opposite. Relocation If no adequate “footprint” is available on which to rebuild, the only choice is to build on a wholly new site while continuing to operate on the old. Relocating is a “lifetime decision,” one that usually takes a long period to gestate. Good pieces of land large enough for a hospital replacement—from twenty to fifty acres—are hard to come by in urban or suburban areas close to the population being served. A thirty- to fifty-acre site near a freeway exit in an area in which both housing and industrial growth are strong could compare favorably to a site that is less than 15 acres and fully built out, provided the population is not growing strongly enough to require a near-term expansion. Given the time pressure from the state to complete the renewal, combined with strong community encouragement to stay and an uncertain supply of capital, most hospitals are strongly motivated to remain where they already own the land, even if it is in the wrong place for their future patient population. Thus, the state is unwittingly playing a role in replicating a selection of hospitals that have outgrown their sites or whose patient population has migrated elsewhere. The strong influx of people to California will cause its population to double in the next forty years, with the most growth occurring in the outer suburbs. Yet little new hospital construction is likely to take place there. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 6 II. Historical Perspective: The Evolution of California’s Hospitals To understand the context in which hospitals will approach the decisions imposed by SB 1953, it is important to consider how the state’s health care industry evolved. Many of California’s hospitals were originally built in a construction wave that followed World War II and that was sustained by the Hill-Burton program that California activated in the 1960s. California was the only state to provide a full matching grant to supplement the federal Hill-Burton subsidy, which, when combined, covered two-thirds of hospital construction costs. Though intended primarily for suburban hospitals to accompany suburban housing stimulated by veterans’ loan programs for returning GIs, the program also funded the building of many rural hospitals, giving California the largest total number of hospitals of any state in the nation, over 450. California also had the largest array of corporate forms for hospitals of any state, several of which had access to the tax base. (They are: military, Veterans Administration, state, university, county, district, for-profit, religious not-for-profit, community not-for- profit, and children’s not-for-profit.) District hospitals were legislated We did not see the into being in the 1950s because there was so much population inflow to wave of re- California that young communities had no tradition of the kind of placement when it hospital philanthropy taken for granted in the East. In the 1970s, two was expected. changes occurred that hit district hospitals hard: the Hill-Burton program ended, and Proposition 13 made it difficult to raise capital through the local tax base on which district hospitals were supported. They came to depend on the same capital resource as not-for-profit hospitals—tax-free bonds, either general obligation bonds or revenue bonds. Since the difficult economic period of the 1980s and ’90s, many of the suburban district hospitals have leased their facilities to not-for-profit operating corporations, which in turn have become members of local, regional, or statewide health systems that cooperate in borrowing via tax- exempt bonds. Thus, they have hybrid organizational structures bridging old capitalization arrangements and the new ones. County hospitals changed during this period from when they were considered to be the resource of last resort for uninsured residents. When Medicare and Medi-Cal passed in 1965, counties that Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 7 could transferred this obligation back to the state and local community hospitals, then closed their own facilities. Those county hospitals that remain are either in large metropolitan areas such as Los Angeles and San Francisco where the sheer number of low income or uninsured people is too great for the private sector to absorb, or in rural areas where they genuinely serve the total community as an essential provider. By the 1990s, many of these post–WWII hospitals were both functionally and physically obsolete, and their buildings had been fully amortized. Many had already gone through several stages of growth, making it difficult to renew fully without starting over (see sidebar). The Hospital Life Cycle A hospital plant must contend with a number of timelines that govern its life cycle. Typically, these include a depreciation schedule (thirty to forty years or so); the amortization schedule for its bonds (thirty years or less); the lifespan of its infrastructure— such as HVAC, wiring, plumbing, and equipment (fifteen years or so); the utility of its operating system (model of nursing care and processes—fifteen to twenty years); and, finally, the effects of the increasing intensity of care, and of changed expectations of patient privacy, length of stay, acuity, and other clinical factors (ten to twenty years). The lifecycle of a hospital’s physical plant is often thought of first in relation to its primary role—acute care—then in terms of any secondary uses that might emerge after it can no longer serve its original purpose effectively. The acute care period is usually about thirty years, and the secondary stage can add another twenty to thirty years. However, extending the life of a modern hospital through remodeling for a reduced level of care is not only costly, it also results in a compromise facility because the structure is too complex to be operated economically, in contrast to the simpler buildings constructed in the 1950s. In the SB 1953 renewal cycle, there are more than a few hospitals built thirty years ago that are simply being replaced—not because the building has no life left in it, but because it is functionally obsolete and remodeling it would not be cost effective. That means that there is an “opportunity cost” to SB 1953 renewal in the form of the lost revenues that might have been realized through the ability to reuse a fully amortized facility. Given that hospitals do not last forever, the wave of replacement did not come when expected. The reasons why are discussed in the following section. Retrenchment, Not New Construction In the 1990s, California was in a retrenchment mode characterized by purchaser pressure over premium increases. Managed care covered three-quarters of the population (counting government programs). By the life cycle considerations above, hospitals built in the 1950s or ’60s should have been ripe for replacement in the ’90s. These would have been the original wave of post–WWII hospitals and those funded by Hill-Burton. That the renewal did not occur can be attributed in large part to the purchaser backlash against double-digit premium increases in the Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 8 1980s as California developed its managed care experiment. The revolt, which was led by CalPERS under the leadership of its director, Tom Elkin, then was emulated by other purchasers and the health plans with which they contracted. The result was a health plan pushback on prices, then a steep decline in hospital revenues, accompanied by an erosion of capital reserves. Many hospitals had their outstanding bonded indebtedness downgraded by rating agencies. In 1995, even large, well- operated hospitals lost money for the first time in their history.9 The No prudent following year saw the largest number of hospital merger announcements executive said to the board “Now in the state’s history. (In the nine-county San Francisco Bay Area, for would be a good example, hospital mergers averaged 0.7 per year in the 1970s, one per time to spend 10 year in the ’80s and three per year in the ’90s.) In 1998, Medicare $300 million on a instituted a “Balanced Budget Act,” which initiated a planned series of new hospital.” reductions in the rate of growth in hospital and physician payments. In short, the 1990s were a strongly recessionary period for hospitals, a period that ultimately coincided with the broader “dot com” recessions in the state and national economies.11 No prudent health care executive was in a position to say to their board, “Now would be a good time to spend $300 million on a new hospital.” Indeed, for much of the 1990s, the dominant condition was one of surplus hospital capacity due to the microcontrols and incentives instituted under managed care as well as by a rapid substitution of outpatient surgery for inpatient care. The state’s hospitals averaged less than 50 percent occupancy for most of the decade. No one would have borrowed money to replace a hospital that had shown declining occupancy since the ’80s, even at a smaller size. It would have been reckless to have high debt service without knowing whether the demand decline had bottomed out—information that was not available at the time. After a period of denial and resistance to SB 1953, hospitals and health systems finally began to plan seriously. They were properly appalled at the projected costs, and sought some financial support from the state to strengthen and expand the mortgage guarantee program already in place. But by the time the requests were presented to the California legislature in the form of four serious bills, the state was struggling with the combined effects of an energy crisis, a declining education sector, and the growing concern about security. No support for hospital capital could be generated. And, since the mortgage guarantee program has a project limit of $40 million, it works best only for rural hospitals. What the Sponsors Didn’t Know When SB 1953 passed in 1994, its sponsors lacked accurate information on the growing fragility of hospital balance sheets, as well as the losses and mergers yet to come. For top-tier hospitals, 1995 was the first loss year. Lawmakers lacked information on how many hospitals had buildings that would have to be upgraded or replaced—those numbers did not come in until after the law was already being implemented. There was little appreciation for the upcoming dot-com implosion and the resulting decline in tax revenues for the state—a condition that would absolutely preclude providing any capital support for the bill. In fact, the state was enjoying unprecedented surpluses from the tax revenue from the growing biotech, computer, and dot-com industries Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 9 Indeed, the due dates for compliance appeared sufficiently distant that most hospitals predicted they would have no trouble meeting them. After all, 2008 was fourteen years away. For some, the ultimate compliance date was 2030—thirty-six years away. And who, after all, would want to obtain care in an eighty-year-old building (1950-2030), or even one that was sixty years old (1970-2030)? One would think that the hospital industry would simply move ahead with its latest renewal cycle; albeit within the limits imposed by declining demand. Instead, the final years of the 1990s were devoted to three things: merging and learning how to stand up to health plans; dealing with costs and overstaffing; and ending uneconomic physician practice arrangements instituted during the period between 1985 and 1995. The reaction of health care executives to SB 1953 was, “How can we delay or avoid this?” For the frailest, a shotgun wedding was sought with established systems, solely as a way to gain access to capital. Most experienced health care leaders describe the California managed care decades as having “failed.” They are referring to the full-risk system whereby hospitals, medical groups, or whole health systems accepted capitation contracts from health plans. Hospitals and health systems were ill-prepared to operate successfully under those contracts, which were signed with great enthusiasm during the 1990s. The other difficult element in the managed care model was imposition of “gatekeepers,” or primary care physicians who would moderate the use of specialists by patients. Hospital systems lost hundreds of millions in Who would want to attempting to maintain programs under an unrealistic revenue cap. obtain care in an 80-year-old building, Having largely abandoned those strategies by 1999, health plans seem or even a 60-year- to have become disillusioned about micromanaging the health system, old one? and now resist over-promising purchasers that they can control costs. Premiums are at a new high in 2004. This abdication of a quasi- regulatory role over hospital and physician economics is presenting purchasers with several unsavory choices—they can just pass on costs and watch while some businesses change to a lower-priced plan; help the employer design a revised benefit plan that limits their payout and transfers costs to employees; or see the employer set a fixed limit for all benefits, giving workers the alternative of opting out of health insurance in favor of other benefit choices. The so-called next model of health benefits is thought to be “defined contribution” plans, whereby the employer simply states how much it will pay toward a health plan and leaves the rest up to the employee. These plans set high deductibles, which essentially makes employees responsible for their primary care and routine secondary care. This model is likely to further destabilize the economics of hospitals, as it will probably increase bad debts just when revenues need to be predictable as a basis for calculating capital capacity. Waiting in the wings is state action on the uninsured, a population that grows in parallel to health care costs. A concern of hospital watchers is the degree to which hospitals may use reserves to reduce the amount of money that must be borrowed. Non-operating income (interest on reserves) has been the lifeblood of hospitals that are not being paid in amounts that equal the cost of doing business; without it, the hospitals may not be able to weather another down cycle in revenue or demand. In fact, health plans have distinct underwriting cycles that cause them to be flush for a few years, then very lean for another few years, which conflicts with hospitals’ very strong need to hold a stable course. When underwriting cycles—and Medicare changes—hit, the hospitals are not usually well Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 10 buffered. The ’90s caused severe attrition of reserves because losses were so high, even for such established systems as Kaiser Permanente, Catholic Healthcare West (CHW), and Sutter Health. It should be noted that the aging of the population means Medicare reimbursement will grow as a share of hospital revenue. There will also be fewer active, taxed workers per retired person, so a natural constraint on the growth of Medicare funding will exist indefinitely. When the “baby boom” bubble begins to hit in 2011, Retired people Medicare services could rise to 50 to 60 percent of hospital revenue (from will join their 38 to 50 percent) , yet the relative buying power of Medicare younger cohorts reimbursements will probably decline by several percent a year. as retail users of Eventually, if the delivery system is not reengineered, Medicare will be a health services. token program, as Medicaid is now, and most retirees will depend much more on their supplemental policies.12 That these policies themselves will have large deductibles should not be in doubt. That means retired people will join their younger cohorts as retail consumers of health services. All this will occur during the period when hospitals will be debt- heavy. As of now, the one bright light is that hospital demand is up and patient counts are high at popular hospitals. The Problem of Capital One hospital executive predicted that people would look back at the early stages of managed care in California and be appalled at the inordinate transfer of wealth from hospitals to health plans and physicians in the form of purchased and underwritten practices and the price concessions made to the plans.13 The result was to drain hospitals of the cash reserves they could have used to obtain a good capital financing package for a new facility. As early as 1993, NCHI’s own studies showed an erosion of the fund balance of acute hospitals from an average of $75 million to less than $35 million in just 10 years.14 (Fund balance is the net amount of assets minus liabilities and contains both fixed and cash assets.) A fund balance of $35 million is almost wholly land and facilities, not cash. It should be noted that the SB 1953 capital impact comes on top of an already dramatic return to double-digit premium increases that began in 2001 and reached a new high in 2003. Price hikes at many insurers range from 20 to 40 percent—sometimes more. Hospitals in health care systems are now in a relative power position, so health plans cannot leverage them back down to the old single-digit rate hikes. Health systems have looked ahead and considered how much they had to recover on the revenue side to make up for the years of depressed earnings, as well as to lay up reserves against the time they would have to borrow. Hospitals know that they have already made the “easy cuts”—including the staff reductions that saw layoffs of hundreds of employees at a time in urban and suburban hospitals, the delays in purchasing new equipment, the reductions in charity care, and the termination of risk contracts. The only tactic that appeared to be left was revenue enhancement. So the preparation steps for implementing SB 1953 were not taken early by many hospitals. The exceptions were the safety-net hospitals receiving special state grants for treating a disproportionate share of Medi-Cal patients. Many county and children’s hospitals were able to take advantage of these funds, which came available in the mid-1990s, and used them to become the most modern hospitals in the state by 2000.15 Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 11 The first years of the 21st century saw the beginnings of resistance to the compliance deadlines of SB 1953. Hospitals realized they had no idea where their capital would come from.16 The health systems tried to add up their capital obligations for their members and saw that they might not be able to draw upon the capital market at a reasonable rate since they had, essentially, no bottom line from operations.17 Without a profit history, lenders would not lend, Hospitals realized or would lend only at prohibitive rates. they had no idea where their capital Since the end of the Hill-Burton program, the state has offered a loan would come from. guarantee program, known colloquially as “Cal Mortgage.” In recent years, few hospitals have availed themselves of this resource, since few were building and most are now in health care systems that offer an “obligated group” that functions as one large borrower. Rural hospitals still need this resource. The Medicare program was amended in major ways this year, most notably by the addition of a new drug benefit. None of the changes contemplate any return to the old “capital pass-through” of the early Medicare days. Senator Diane Feinstein has arranged to have FEMA offer a small grant fund that will supply part of the capital requirements of fewer than forty small hospitals in communities where the loss of the hospital might have a significant negative impact on access to care in civic emergencies. 18 The year 2004 finds the state projecting its own continuing deficits well into the next decade. There have been cuts in Medi-Cal and in various other programs that insure the poor. That deficit indicates continued weakness in tax revenues from business, which could affect scope of benefits and acceptance of premium increases. This will complicate the situation for hospitals arranging for bond issues, even if they have confidence in future revenues. Debt service, if spread over thirty-year bonds, need not be onerous, for the reason that capital is only 6 percent to 10 percent of operating costs. However, 2002 found 85 percent of California hospitals losing money on operations, with an average bottom line of 0.5 percent on operating income.19 Moreover, hospital costs are only 38 percent of the premium dollar, so there is only a small percentage effect from additional capital that would eventually reach the individual patient through the premium; other factors are cumulatively significant, such as drug costs and health plan administration and profit. Nevertheless, the combined impact will be felt, particularly in 2013, when hospital renewal can be expected to peak from all the hospitals undergoing renewal. Capital as a percent of operating expense could double from its current level of just under 10 percent. As hospitals file their actual plans with the state, an analysis should be made of the cumulative effect on premiums. The best possible result would be that the finished facilities had gained operating efficiencies sufficient to offset the increase in capital costs. The increases in health care premiums and hospital prices have raised revenues recently, but this money is regarded as a temporary catch-up for losses incurred in the ’90s. Given the recession, it is highly unlikely that insurers and health plans can continue to hike premiums by 20 percent or more annually.20 The other major cost driver is state-mandated nurse staffing ratios initiated in 2004, which cannot be sustained given the workforce shortages and the coming increase in demand from the “baby boom” generation.21 Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 12 III. Factors That Encourage Suboptimal Decisions With or without sufficient capital in view, hospitals that have not done so will soon make their decisions in response to SB 1953. Unfortunately, as hospital executives begin to consider their options, they find a number of obstacles standing between them and the best possible solution for the institution and community. Functional Obsolescence: The “1970 Hospital” As soon as hospitals began to work on SB 1953, hired architects and reviewed their buildings, they found that compliance through retrofit alone would not be enough. The buildings were old enough to be “functionally obsolescent,” so instead of simply strengthening the structure, replacement had to be considered. Thus, hospitals suddenly realized that projects must be much bigger than anything envisioned by the Hospitals suddenly legislature when the law was enacted. realized that projects must be “Functionally obsolescent” means patient rooms that are too small or much bigger than intended for multiple patients (four-bed rooms, semiprivate rooms, anything envisioned etc.) which tend to suppress occupancy, since it is necessary to take by the legislature. gender, age, and level of illness into account when admitting a new patient. Such rooms also offer less privacy than today’s patients prefer.22 (Multiple-bed rooms were created as a means of charging patients less. Blue Cross set the The law could lead pattern: Semiprivate rooms were written into their contracts as the to a whole set of “standard,” while private rooms were considered a luxury for which obsolete hospitals— the patient should pay extra.) Private rooms are now considered to be a in new structures. therapeutic necessity, as only the sickest patients are admitted for hospital stays. But the conversion of payment methods to the diagnosis-related group (DRG) format by Medicare in the 1980s made actual room type less important (see sidebar). So, the very law that could have stimulated California’s hospitals to lead the nation in hospital design and operation might instead result in a set of largely obsolete hospitals—with new Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 13 structures. They will be just as old-fashioned, yet will last three decades or more, perpetuating ideas that date back to the early 20th century. The obsolescence lies in the hospital operating DRGs and Outpatient Care system itself—i.e., how Diagnosis-Related Group (DRG) payments are structured so patient care works. Without that a hospital is paid a fixed amount per patient type, a clear idea of how leaving it with no incentive to keep a patient a greater functionally obsolescent number of days in order to earn a higher revenue. Having a hospitals now are, it is patient in a semiprivate room makes no difference in the tempting to see hospital DRG rate, while having a high proportion of semiprivate renewal as merely a rooms does limit the overall census that can be achieved, so question of buildings. limits revenue. However, addressing these obsolescent operating The incentives built into this payment system encourage systems would itself completion of the patient workup on an outpatient basis (for require that new settings be a separate fee), admitting a patient on the day of their designed and built. What’s surgery, and discharging as early as possible. required is a set of ideas about how a hospital can Since DRG-based payments have come into use, outpatient become modern and stay volumes have grown in comparison with inpatient volumes. modern in order to justify The irony is that SB 1953 will tend to reinforce the inpatient the huge investment that is side, while diverting capital from appropriate growth of being made. outpatient services. Figure 1. The “1970 Hospital” The standard hospital type can be thought of as the “1970 Hospital” to distinguish it from the “21st Century Hospital Design” described in this project. While there are many variations on both themes, the two are quite distinct, as the comparison in Table 3 will show. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 14 Table 3. Design and Operational Assumptions in the 1970 Hospital and the 21st Century Hospital The 1970 Hospital The 21st Century Hospital Change Major change will not occur in the nature Change is expected, and will be regular, of patients and patient care during the life by program and system of the building. Patients Patients will be a mix of those who are Patients will be sick. Less sick people not very sick and those who are sicker, will be cared for in other settings. Sick so there must be several bed types, and people should not be moved much. One several moves by patients as acuity bed type can handle most acuities. changes. Scale The diagnostic and therapeutic services Diagnostic and treatment services will used by the patients are in large-scale largely migrate to miniature versions that units of equipment, in large central are decentralized to the “point of care.” departments, using paper-based Only wholly new technologies will be information flow. large scale. Technology It is not possible to anticipate future It is possible to anticipate a technologies, so all space is designed continuous flow of new technologies for the science prevailing when the and provide for their seamless integration building was first constructed. Thus, new with existing services. technologies generate additions to the building. Demand It is not possible to anticipate future It is possible to anticipate the general demand, so only the capacity needed at scale of future demand and preserve the time is built. options. Workforce Workforce is readily available. Workforce is scarce. Capital Capital is readily available. Capital is scarce. Pricing Pricing is not a big concern. Pricing is constrained. Statewide Oversight of Hospitals The inefficient, functionally obsolete hospital operating systems described in this report are, unfortunately, built into the regulations that guide hospital design and operation. Neither Title 22, the hospital licensing code, nor the basic hospital building code, Title 24, have been overhauled since the early 1970s, although the building code receives technical revisions annually. So the state is asking hospitals building for the mid–21st century to comply with codes that carry forward decades-old concepts of how hospitals operate and are constructed. The existence of these codes creates boundaries to the planning that hospital teams and architects are doing, as they feel a strong need to “get through OSHPD” as quickly as possible. Thus, SB 1953, because of its hasty passage, its underestimation of the scope and scale of this renewal, and the Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 15 lack of attention to the forward-looking opportunities of renewing a third of the state’s hospital capacity, can be said to have created conditions conducive to conformity, not innovation. SB 1953 decisions will be made initially by providers, acting individually, within the parameters represented by state regulation. Health systems will make some of the judgments for their members. Bond counsel will have a voice in scale of the project. As of this writing, there is no way to tell whether the combined effects of those decisions and judgments will be what the people and communities in the state actually need. Planning is weak throughout the system. The combined effect of laws, regulations, custom, training, and example is to reinforce historical norms and ideas, not to stimulate new ones. Health care systems (85 percent of California’s hospitals are in 14 systems) have traditionally been hampered from planning well by their newness in historical terms (except for Kaiser and some religious systems); by their diffused authority; by the lack of experience in such wholesale and costly simultaneous change; and by the economic constraints under which they operate. Also, they may be moving unsteadily from a centralized management style to a decentralized one or the reverse, which has the effect of diluting institutional knowledge assets just when they should be strong. It is unfortunate that the state has no complete picture of its health care system on which any responsible party could make judgments. There is no longer a statewide set of area-wide health planning agencies, nor a state plan for the determination of how much capacity is required in various regions. Not that such bodies have been very effective (they were The state has no negative forces during the “certificate of need“ era), but they did serve as complete picture a scanning device to view the way various areas’ hospital and health care of its health care resources were evolving. system on which to make There is not enough lead time to reestablish such agencies—even if they judgments. could conceivably be helpful and even if the state saw fit to support them. The old certificate-of-need process was expensive and essentially useless in preventing waste. The agencies never were promoters of positive development, yet that is what is needed now. Ironically, in the 1980s and ’90s, the growth of health care systems transferred the area-wide planning function to provider networks, which, unlike the state agencies, have the financial power to make decisions about the allocation of capital. A majority of hospitals are now members of these health care systems, which are the major drivers in this wave of hospital replacement and whose decisions about capital allocation will set California on the next phase of its hospital development—for good or ill. Unwittingly, SB 1953 is accelerating the recognition of this role within those systems. Spending billions in capital forces decisions that might otherwise not be made in this time period. For example, Kaiser Permanente executives already know they will need to build multiple new hospitals in several areas, as well as replace some of those they now have. Other systems will build fewer totally new facilities, concentrating instead on renewing their existing ones. California’s urban/suburban hospitals are largely in this category, which represent Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 16 obligated groups. They include Adventist Health, Catholic Healthcare West (CHW), Daughters of Charity Health System, Department of Veterans Affairs, Hospital Corporation of America (HCA), Kaiser Foundation, Memorial Care, Providence Health System, St. Joseph Healthcare System, Scripps Health, Sharp Healthcare, Southern California Healthcare Systems, Sutter Health, Tenet Healthcare Corporation, and the University of California medical centers, with a combined total of 36,215 staffed beds as of 2002.23 Another consequence of the focus of SB 1953 on the hospital building itself, rather than the operating system, is an overemphasis on reinvesting in the acute facility. This puts other capital initiatives on the back burner, such as renewing clinical programs, fully developing clinical information systems throughout a service area, modernizing operating systems, and developing complementary pre- and post-acute services. This is particularly true with regard to the dissemination of ambulatory care services and primary care throughout the growth areas of the state. There will not be enough capital to renew hospitals and develop sufficient ambulatory care at the There will not be same time. Moreover, hospitals do not necessarily see it as their job, enough capital to although the fastest growing category of care on their own campuses is renew hospitals ambulatory diagnostic and treatment services. By not doing this right in and develop the first place, hospitals will overbuild their emergency rooms (because ambulatory care that is the default solution for a lack of enough primary care capacity) and at the same time. over-centralize their diagnostic and treatment services. The combined planning work of health systems, moreover, probably will not produce a collective commitment to modern operating systems around which new modern facilities can be designed. What’s more, the health systems are sufficiently ambivalent about their centralized power that they may feel constrained about setting new parameters that their members must follow. Again, Kaiser is preparing operating and design concepts to gain the efficiency of using design templates for several hospitals at once. Managers Cede Decisions to Architects Suboptimal hospital decisions would not be surprising given the recent history of California’s hospitals, which not only downsized the employee workforce during the 1990s, but downsized management as well. The surviving managers are attempting to operate complex facilities and at the same time plan the most Hospital executives’ complicated building type known to architecture short of a clean natural tendency is to over-delegate to the room research facility. Their natural tendency is to over-delegate to architect, asking for the architect, asking principally for “a building to meet the code.” “a building to meet What they do not do is engage in a deep examination of the operating the code.” characteristics that will have to change to make the hospital affordable within expected revenues and patient types. They are not likely to simultaneously redesign programs and reconfigure the workforce while the building is being designed.24 Nor are architects equipped to lead this. It does not help that hospital CEO turnover is high, a common symptom of an industry in financial trouble or undergoing consolidation, as is this one. When two hospitals merge, only one Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 17 CEO remains. The result is that fewer executives even have jobs, and those that do are running much larger systems, making it harder to be fully involved in even the most significant projects. Additionally, because it has been so long since the last wave of hospital construction, few CEOs have experience supervising a major construction project. Where Hospital CEOs Stand Are California hospital executives prepared to make the best possible decisions about hospital replacement and renewal? At a recent seminar series on hospital design and SB 1953 compliance, the 150 attendees from some 55 hospitals and 12 health systems reported they had: ▪ No demand forecasts beyond 20 years (with one exception). ▪ No firm decision to choose new sites where there was population growth. ▪ No clinical program redesign to influence facility design. ▪ No advanced plans for incorporating modern technologies for functional systems. ▪ No strategy for husbanding future capital by not constructing another building that would have to be replaced as a total unit. ▪ No organizational policy for facility adaptability, staffing flexibility, or growth.* *Attendee evaluations, 21st Century Hospital Design seminars, NCHI, July-November, 2002. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 18 IV. Long-Term Effects of Today’s Decisions Making poor or suboptimal choices now will have long-lasting consequences. Some hospitals will make mistakes in deciding whether to close, stay on their site, or relocate, as well as mistakes with respect to borrowing. Here are some long-term effects of such decisions. Hospitals in the Wrong Place If a hospital was located properly in the 1960s or ’70s, it may be in the wrong place for the future. California’s population is doubling; the growth is principally moving toward the outer suburban ring along major transit and freeway corridors. Some large cities, such as San Francisco, will lose population. Hospitals on deadline do not spend much time carefully looking for alternative sites. There is literally no mechanism in the state, apart from health care systems, to express concern about locating hospitals near their patients. Communities tend to resist either a decision to leave an old site or approve a new site, as do their city and county planning staffs. It is no wonder CEOs are frustrated with the idea of following the population rather than expecting the population to continue to seek out hospitals where they stand. Hospitals That Don’t Fit the Population The composition of the future patient base will be older, sicker, and more likely to come from a non-Anglo ethnic group. Today’s design assumptions, and even the clinical programs, are not apt to fit the actual future users. For example, an area with a large Latino population should be served by a hospital with a very robust diabetes prevention and treatment program, strong connections at the neighborhood level, and an ability to accommodate families in the care process. A strong outpatient service with spaces for groups should house services within the neighborhood. Hospitals Not Prepared for Future Demand Although hospitals can last thirty to forty years or more, they routinely rely on twenty-year demand forecasts, estimates that will entirely miss the major increase in demand that will occur as the baby boomers move into their Medicare years. Hospitals should be saving room on the site for growth, husbanding borrowing power, and providing nonhospital options to absorb this demand in a lower- cost setting. Building extra space is not itself a wise strategy, but providing for growth is. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 19 Hospitals That Cannot Be Staffed Old-concept hospitals will require more staff to operate than the workforce can supply. A shortage of entry-level workers has driven the average age of nurses in some hospitals to 47 or older; the figure for medical staff may be over 55. It is not clear that most hospitals have any strategy for either creating a larger workforce by drawing upon the ethnic minorities in California or redesigning the tasks that call for skilled staff.25 Recruitment from abroad has also proven to be problematic. Hospitals That Cannot Make a Profit High debt service is the last thing a hospital should have on its books during a period when revenues are apt to be decreasing. Even if California-based health plans negotiate adequate rates, Medicare and Medi-Cal probably will not bear their share of these additional capital costs. Profit erosion means risking debt service defaults and downgrading of bonds, leading to higher costs and less access to future capital. (For example, $400 million at 6 percent produces annual debt service of $28.7 million, an onerous burden when operating profits are less than certain.) Hospitals Whose Prices Have to Increase Substantially to Cover Debt Service This could affect premiums and add to the overall cost increases that lead to a rise in the number of uninsured Californians. The public backlash against this could lead to price regulation, which in turn could cause bond defaults. Similar hospitals in the same service area that do not replace their buildings will have a market advantage over those that do—until, of course, their own projects have to go forward. If the state institutes a law for universal coverage that requires additional taxes, a new regulatory framework may be required, which could cap prices or premiums just when debt service obligations have been incurred. Hospitals That Do Not Innovate There will be a slow adoption curve for new technologies for a decade or more because hospitals’ net earnings are going to debt service. There is little perceptible attention being paid at the community hospital level to genetics, brain chemistry, or implantable devices as one class of surgical procedures calling for sophisticated robotics. The slowness is because of both a lack of money and lack of attention by leadership occupied with such side issues as HIPAA. Hospitals especially need to be turning their attention to the facility design implications of infectious disease epidemics. Contracting That Is Conflicted Relationships between health plans and hospitals will continue to deteriorate, because they are not planning together for this renewal. Health plans are moving away from the idea that they should guide the system. Instead, they are delegating “first dollar” responsibility back to the patient in the form of high deductibles, and easing up on the task of being a quasi-regulatory body for hospitals and medical groups. Purchasers and health plans have not been active in SB 1953 planning; there is no indication that they are aware of the hit they will take in the next decade. Even small changes in deductibles are leading currently to strikes against large employers such as Safeway and Wal-Mart. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 20 Hospital Bond Downgrades and an Overwhelmed Mortgage Guarantee Program This could conceivably affect California’s own credit rating and discourage future lending to the state’s hospitals for a time. Before that occurs, however, Cal Mortgage will probably limit their exposure. Even if they do, the combined borrowing of the state’s hospitals, coming at a time when the state’s own bond rating has dropped, suggests that California hospitals may be rated lower, and thus pay more for their capital than they had planned. Defaults and Closures One scenario is that billions in capital may be sufficiently at risk that restructuring or reissuing bonds at a lower price will not be enough to make the resulting debt service affordable for many hospitals that are not in growth markets. Related Industries Will Be Affected The construction industry, now getting a windfall, will see the SB 1953 building boom simply stop in 2013. Others that could be exposed include lenders, realtors, equipment manufacturers, and health care IT companies. Community Impact Communities are shocked when a hospital closes. Closures mean a loss of emergency services, obstetrical services, and, usually, the collection of physicians who practiced around the hospital. Even relocations within the same service area can bring out community resistance if they are surrounded by residential structures and are perceived to bring additional parking and traffic problems. Hospitals have little community or county support in finding suitable land and gaining backing for what they are required to do, since SB 1953 is not well-known outside of health care industry and government circles. While this list of possible negatives reads like a cautionary tale, these consequences are not inevitable. The fact that SB 1953 creates so much potential for disruption concentrated in so short a time could attract solutions whose probabilities are hard to weigh. And, of course, new hospitals, however they arise, produce benefits. Doctors and patients clearly prefer them to older hospitals in the same area. A project done with an established health care architect is apt to be much more patient-friendly than the original facility, and is sure to have more modern technologies in both clinical areas and in functional systems. Typically, this attracts new doctors and market share increases, bringing in additional revenues. But success is not assured simply because a hospital is new. As the above arguments make clear, it must be new in operations, not just in the fact that the plant can withstand an earthquake. To illustrate what that means, this report contrasts the 1970-era hospital with a distinctly different set of design concepts based on the extra value that is needed to justify the enormous investment of capital, and, if possible, to offset the cost through greater operating efficiency. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 21 V. Avoiding Obsolescence and Adding Value Moving Away from the 1970 Hospital The 1970 hospital was a product of its times. It imitated older hospitals that had become vertical following the invention of the Otis elevator. The concern was to limit how far nurses had to walk between the nurses’ station and the furthest patient room. Diagnostic and treatment services were located on lower levels simply because the first generation version of the equipment took up entire rooms, and might need special floor to ceiling heights or other structural features. This structure came into being during a time when there was a surplus of nurses, so devoting considerable nursing time to moving patients around the hospital was considered normal. But those conditions no longer prevail; the standard hospital design has to be revisited. The key design flaw of 1970 hospitals was their rigidity. The basic design assumption is that health care in the future will be just like health care in the past, except for changes in demand. California will have to do better in this wave of renewal. Rethinking the 1970 Hospital The main elements of hospital obsolescence came about in response to conditions that have changed over time: ▪ The hospital is still in its original location, perhaps determined early in the 20th century or mid-century. Its population has already shifted. ▪ The site is too small and is covered by several hospital buildings, medical offices, parking and support buildings. There is no open space on the site that can accommodate a new replacement hospital using a design unaffected by existing buildings. ▪ The hospital structure is one integrated building, even if it was constructed in pieces over a period of time. It cannot be divided and replaced sequentially without disturbing operations. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 22 ▪ Patient beds are in towers accessed through one or more lower floors holding all diagnostic and treatment services. The tower is inflexible as to number of beds per floor, and is organized around fixed nursing stations. ▪ Patient rooms are organized in several levels of acuity, and may have multiple beds per room. ▪ Patients are brought to centralized diagnostic and treatment departments organized around physicians who oversee use of the specialized equipment. Movement of patients occupies about 40 percent of nursing time, and ordering and accomplishing a simple X- ray can involve many individuals. The average number of employees interacting with the patient over a four-day stay is 53, according to some studies.* ▪ Information is handled via paper or a combination of computer and paper. Nursing stations which house the patients’ paper charts and their associated beds determine the configuration of the building. (When clinical computing is installed, the chart is at or near the bedside and in portable devices carried by the staff and physicians.) There is no need for a central nursing station apart for reception purposes. ▪ Most functional support areas are provided on site, by hospital employees. Some have out-sourced management and some staff, such as housekeeping workers. ▪ HVAC (heating, ventilation, and air conditioning )is a single system and cannot be flexed by floor or unit of the building in case of infections. *Lathrop, J. Phillip, Restructuring Health Care, The Patient Focused Paradigm, The Healthcare Forum, Jossey- *Bass, 1993, p 12. Designing for the 21st Century Is there really something so different about the future that we should make an effort to rethink hospital structures? Yes. In fact, when it comes to function, the hospitals we now occupy are even older than they look. They grew out of the old “Nightingale pavilion”— a wide, open ward, connected horizontally in a series of “wards.” Elevators made it possible to stack those wards into vertical towers. The size of the tower was determined by the site to be used, how far someone had to walk from the elevator to the furthest patient room, and the bed multiples in each room. There was little provision for support space or major procedural departments, as patients were not differentiated according to condition or acuity. A single surgical theatre would serve. The 21st century will require much different settings. The following are observable trends that hospitals will need to consider in making their decisions in response to SB 1953. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 23 More Demand, Fewer Workers Population growth, aging, and divergent customer types are the three big population themes for the future. Together, growth (births and immigration against the backdrop of a declining death rate) will double the population in California during the first thirty to forty years of the planning window, which might lead to a doubling of hospitals and beds.26 Clearly, it would be better to build less and still accommodate the needs of California communities. Population growth will overtake attempts at prevention. The ways in which Californians use the hospital system will differ so much that a single kind of setting will no longer work well, no matter how modern. While demand rises, there are likely to be fewer people in the health care workforce due to the low birthrate, perceived poor working conditions and income potential, the failure of the education system to sustain the higher cost programs at the undergraduate level, and imbalances in the supply of health professionals among newer immigrant populations.27 As succeeding generations become educated in the U.S, a choice of health career may become more common. Some of those workforce conditions can be overcome, but attempts to correct for today’s workforce shortages by raising salaries have so far proven to be marginally effective at best. In fact, hospitals more often close ICUs because of a lack of staff rather than a lack of patients, despite historically appealing salary upswings.28 Hospitals must either increase the pool of staff How to Adapt to Workforce Shortages ▪ Design facilities that use less labor: Shift routine, automated work to nursing floors to minimize patient moves; automate functional systems; and serve more people in a group format. Design for flexible staffing and team care. Cross-train for multiple skills. Delegate routine tasks to patients and families. Involve vendors in distributing directly to floors, as required. Enrich clinical computing. ▪ Use nursing time for nursing: Install clinical computing and adopt a patient-focused care operating system. Choose this nursing operating system before designing a new hospital. ▪ Automate routine functions: Use ATMs for registrations, scheduling, routine medication; use vendors for cart renewals on floors. ▪ Re-enter education via "distance learning" plus apprenticeships in the hospital. This year, a small number of hospitals are re-entering the nursing education business in response to chronic workforce shortages. ▪ Strategically reduce the acuity of the patients through disease prevention, management, and more effective treatments. ▪ Create incentives for patients to comply with prevention and treatment regimens. ▪ Arrange for some physicians and surgeons to bring their own staff to assist in patient care and care management. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 24 to overcome these natural limitations, or learn how to partly substitute capital solutions for labor (see sidebar). From an Acute Care Model to Disease Management The hospitals of today are designed to support the professional work of medical staff as they work on the “acute care” phase of the disease model, even if their own office practice consists primarily of diagnosing and managing the care of patients with chronic diseases. (Example: Heart surgery, even when successful leaves the patient with the same disease that existed before surgery, a condition that will persist until death.) Acute care is arranged around the most serious episode in what might be a long-evolving chronic disease. The payment system, professional development, and professional standards all fit the assumption that the length of stay will be short (under five days) and that the hospital has no responsibility for the patient after that acute episode. Medical specialists do take a longer view, but are only involved if the patient comes back for care. The specialist is not equipped to track cohorts or arrange for recall unless practicing in a very mature, integrated group practice of medicine. Because of the aging population, the acute care model must inevitably make way for a disease management strategy that will better fit the actuality of illness. CalPERS estimates that 30 percent of its enrollees now account for 90 percent of its costs, Chronic diseases are principally from chronic disease.29 Rather than infectious disease, the predominant childbirth, or trauma, chronic diseases are now the predominant cause cause of health care of death—and the primary driver of health care costs.30 Chronic use—not infectious diseases have been progressive, leading to ever greater intensity of disease, childbirth, care as the patient reaches the terminal phase of disease. Most experts or trauma. consider the first half of the 21st century the period when the health care system will transition from so-called “palliative care,” or the treating of symptoms, to “curative care” or using customized treatments from proteomics and pharmacogenetics to end the disease process itself. That being the case, the sources of revenue on which hospitals depended in the last century—tertiary procedures, principally—will be superceded. Adaptation to the various stages of chronic disease is well under way in some respects. Hospitals have spun off home care and hospice services, community clinics, case management services, and skilled nursing facilities, but largely in the name of utilization management, not disease management. Numerous continuity-of-care services have evolved into separate businesses, with the hospital as the hub. Hospitals developed outpatient surgery services beginning in 1960 in Arizona.31 These days, outpatient surgery services now account for between 50 and 75 percent of all surgeries. In fact, the movement of services out of the hospital set off the great decline in acute patient days during the 1970s and 1980s, even as managed care was getting most of the credit. It is worth noting that these new services were “additive” in the case of post-acute care, but “substitutive” in the case of outpatient surgery. When the hospital itself developed a new service, it retained the revenue and benefited from any cost savings. By contrast, when outpatient surgery was done by entrepreneurial doctors, Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 25 they reduced the revenue of the hospital and returned no particular efficiency to the hospital, although the patients paid less and recovered more quickly. In the long run, there can be no controlling of the entrepreneurial drive within medicine. The huge funds that flow through hospitals will attract those who think they can do the same thing better and cheaper. So hospital products will have to continually be refreshed with new programs as older ones are moved off to other settings. Hospitals can do this preemptively as well. Rather than merely replicate the acute care model for the reasons summarized above, hospitals need to embrace a broadened role: the development and oversight of a whole collection of pre- and post-acute services that can be managed seamlessly from the standpoint of the patient’s interface with the health system.32 The health care system, which is responsible for contracting with health plans, can assume this broader developer role as well. All of this should be agreed to by the hospital board or health system before facility design begins, as it will underscore the need to have a highly adaptable building. Buyers and health plans can help make their own preferences known and provide information that could be useful in planning. This should be done regardless of the fact that Medicare and most other payers are not yet fully engaged in chronic disease management. However, it must be assumed that the movement of baby boomers into Medicare will accelerate acceptance of that model of care. California could be a demonstration state for the rest of the country if enough of these renewing hospitals, purchasers, and payers take on a common objective about chronic disease management. Medicare’s 2003 amendment providing for a drug benefit also included a chronic disease demonstration program. Designing for the 21st Century should be an attempt to add long-term value commensurate with the billions in capital being invested. A set of principles for arriving at modern design are introduced in the following pages. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 26 Goals for Hospital Modernization 1. Evolve a sustainable health care system even in light of the difficult age mix and overall growth of population that will have to be addressed in this half century. 2. Make it unnecessary to have another wholesale replacement wave when these new hospitals are 30 years old, when payment may not be able to keep pace with the capital costs. 3. Make investments in facilities match the strong demand trends that support all forms of outpatient services as well as inpatient facilities. 4. Adopt medical science advances that can cure, rather than palliate health problems. 5. Modernize fundamental concepts of how to address chronic disease, mental illness, public health and medical-social problems. Reflect those in facility design. 6. Stimulate the production of an adequate healthcare workforce relative to the population's need by using modern educational technologies and knowledge management as well by making health care as an attractive career choice to minority populations. 7. Evolve governance and management forms that have competencies over both current operations and future development. Do the same with and for the medical community. Take sufficient responsibility for meeting the public interest in a health system that can be used and afforded by the whole community—both as individual organizations and an industry—so that public regulation becomes less necessary. 8. This decade is the start of this next half-century, and the biggest step—either forward or backward—will be this current wave of hospital renewal. It may have begun as “renewal by earthquake,” but it could become "renewal by design." Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 27 VI. Value Principles of Advanced Hospital Design “Value propositions” translate to: “What do we get for our money?” If buyers and health plans, representing the public, are being asked to spend tens of billions on new hospitals in California, what should the public expect to get in return? Will there be future value commensurate with this money or will there just be newer plants? Value principles can serve as a checklist to validate the ideas that underlie any project. They are meant to stimulate innovation and adaptation over time, offering specific ways to optimize hospital projects to best fit with future population, clinical care, functional systems, design concepts, and capital options. The principles are designed to ensure that: ▪ California hospitals should seldom have to do a full replacement project again, or borrow capital in the billions in a compressed time period, setting off a wave that duplicates that stimulated by SB 1953. Hospital renewal should become organic, periodic, and staggered, as each hospital evolves according to market and medical science changes alone. ▪ Hospitals become less costly to staff, give faster service to patients, and readily adopt new patient care methods and curative technologies. ▪ Hospitals that renew in this wave will not find themselves “land poor” when they have to expand in the next round of population growth. Instead, they will make the right decision about location and site in this round. These lend themselves to adoption as policies of the Board to guide the project’s planning. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 28 21st Century Hospital Design: Value Propositions and Design Concepts 33 1. Fit the Project to Current and Future Populations ▪ Anticipate population growth and retain an ability to grow incrementally throughout the life of both the site and facility. ▪ Locate in the midst of the communities being served, ideally with fast freeway access as well as street-level access. ▪ Choose a site that can accommodate not only this project, but the future growth needed, as well as eventual replacement fifty to one hundred years from now. (Forecast demand for at least the primary life of the facility, or forty years, to protect against under- estimating ultimate demand and choosing a site that will not accommodate growth.) ▪ Design a site development plan with a circulation system that extends to the complete build-out of the site, assuring that each original structure has a replacement footprint on reserve, and that the circulation system will not be blocked by growth. ▪ Study the dynamics of population change in a form that will aid clinical programs to modernize their service offerings before entering into design. 2. Create Clinical Program Designs Consistent with Both Acute Care and Chronic Disease Care to Guide Facility Plans ▪ Redesign clinical programs to incorporate assumptions about the future of disease patterns, medical science, patient care processing, and workforce (both physicians and hospital staff). Start design with primary care at the neighborhood level, then build from there, rather than starting with the hospital site. ▪ Incorporate a chronic-disease management process, incorporating the acute phase, that involves all providers in the greater hospital/medical community system, begins at the point of enrollment or primary care access, and extends to cure or a terminal stage. ▪ Ensure that “default” care services (such as ER) will have community or offsite solutions to more fully recognize the primary care and medical-social support needs of the community and to minimize overbuilding of high-cost space. ▪ Design a modern medical office building in the form of multi-specialty institutes defined by target group and clusters of related conditions, with the accompanying diagnostic and treatment services, as close to “one-stop shopping” as possible for the patient and family. Include in the clinical information system adopted by the hospital. ▪ Redesign the financial system to align revenue and expense by clinical program and manage both single events of care and multiple services over a disease life cycle, so that contract terms can be reflected in operations. Move to multi-year chronic disease management contracts. Structure each program at a size that can earn a profit and provide future capital. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 29 3. Redesign Functional Systems (Professional Services, IT, HR, Finance, Logistics, and Administrative Systems) before the Structure Is Designed ▪ Design workforce management to include cross-training, continual education for all clinical personnel and managers, multiple job assignments, and “pay for performance.” Reflect the efficiencies gained in modified space requirements. ▪ Employ advanced energy systems to control temperature, air quality, and electrical demands. Unitize HVAC to permit isolation of rooms, care modules, program floors, or clinical towers in the event of infectious epidemics. Incorporate advanced methods of infection control and decontamination. Anticipate and provide for new forms of energy, especially those based on hydrogen. Install co-generation plants. ▪ Specify a “green” energy-saving architectural design and materials system in conjunction with selection of advanced energy technologies. There are principles and specifications for these that architects know. ▪ Modernize the systems and tools used by management and the governing body to manage clinical care and all resources, across sites, programs, and contracts. ▪ Outsource as many logistical systems as possible, while providing for a safety net of essential emergency backups. Figure 2. The Linear Spine Model Clinical Towers Linear Spine Central Departments Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 30 4. Specify Elements of Facilities Design That Support Flexibility and Adaptability ▪ Establish the main axis of the site along which growth will occur. Designate the zone for the primary "linear spine." Use this to organize the initial set of structures. Combine all channels for wiring, pipes, tubes, AC duct work, and other mechanical/electrical infrastructure along the linear spine, so that it can reach directly into each building unit along the spine. (The spine can be simple or complex, expanding to a galleria concept housing an extended lobby and public circulation area. Several levels with different roles are also possible.) ▪ Connect all patient care buildings and necessary nonclinical buildings, such as parking, to the linear spine so that any separate structure can be removed, replaced, or changed without affecting the other units. ▪ Place patient rooms in two or more “clinical towers” connected to the linear spine and to each other. The towers can house single programs or sets of programs, or combine ambulatory and inpatient services. The towers should be in a low-rise configuration. Allow one or more blank footprints for replacement of the clinical towers in rotation. ▪ Design clinical towers with “program floors” that can be designated for specific clinical use from time to time, but are otherwise similar in size and configuration. Connect the towers to each other and to the diagnosis and treatment building in as many levels as possible. ▪ Configure program floors in “care modules”—two sets of patient rooms with related support space that can be activated or closed according to demand. One nursing team can be assigned to a single care module during the day, while covering two on other shifts. Choose the number of rooms in each set according to the expected acuity of patients served by this hospital; if lower acuity, then 8 or 9; if higher acuity, then 5 or 6. ▪ Make patient rooms “variable-acuity” or “universal.” They should be large enough to accommodate gurneys on either side of the bed, have outboard handicapped toilets and variable inner walls, and accommodate family overnights. Ceilings should be strong enough to permit attachment of light booms. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 31 Figure 3. The Universal Room Suite Additional Structures ▪ Place an “integrated group practice facility” organized by clinical program along the linear spine, ideally with floor-to-floor connections to the program floors in the clinical towers. ▪ Add one or more administrative structures to house management, education, and other nonclinical functions near patient care, but in a less costly structure. ▪ Group central departments in a wide-span “D&T building” (diagnostic and treatment) for renewal through internal remodeling. ▪ Reduce central diagnosis/treatment and support departments to sizes commensurate with the delegation of functions to the floors and care modules, decentralization of ambulatory care off campus, and outsourcing of support functions. (This net reduction should bring the total square footage of the facility to a level equal with traditional hospital design, notwithstanding the additional space provided in the patient rooms and care modules.) Additional Design Considerations ▪ Plan multiple options for new technology adoption, rather than designing tightly to current services. Include such concepts as a medical loading dock. Collaborate with other hospitals undergoing renewal to promote adoption of loading-dock-friendly design by vendors with advanced diagnostics. ▪ Make separate provisions for outpatients requiring diagnostic or treatment services so that timely access and growth needs are accommodated without undue constraint or waiting times (assuming the size of the operation can support this). Use speed of service Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 32 as a key design imperative. Allow for self-ordering for cash, recognizing new insurance patterns. ▪ Design all operating suites to permit future use of surgical robotics, computerized OR management, and concurrent use of imaging. Locate smaller procedure rooms in the same area. For larger hospitals, provide a “virtual OR” in the education center for training surgical teams prior to use of the main OR. ▪ Use modern communication technologies throughout to maximize patient independence and competency in the care process, beginning with self-registration, and extending to an over-bed console housing a computer, video screen, and telephone, to be used in scheduling, meal ordering, and communication with the attending physician, nursing staff, and home. ▪ Incorporate “healing environment” concepts in patient rooms and all clinical spaces, paying special attention to privacy, quiet, view of nature, daylight, and patient’s control over his or her area. Accommodate for sensory deficits and patient frailty. Case study: Baptist Memorial Medical Center in North Little Rock, AR, was built according to these principles, opening in 1999 on a new 157-acre site. CEO: Harrison Dean.34 5. Adopt Conservative Capital Strategies Assume that future capital will be harder to obtain for the reasons stated in the first part of this paper. ▪ Re-house any optional support service or outpatient program in nonhospital space, at a substantially lower capital cost. If reimbursement is a problem, redesign the service to succeed within revenue limitations. Use a real estate developer partner to capitalize all nonhospital structures so they do not represent an additional burden on the hospital’s capital capacity and can be developed at the same time. Note: Payment levels for post-acute services discourages their development. This may require charity and fundraising support, plus extensive volunteer help or partnering with a post-acute-care management company. ▪ Structure annual debt service to preserve, insofar as possible, the organization’s reserves that produce non-operating income. ▪ Sell nonperforming assets to realize capital that can reduce the amount of funds that must be borrowed. Invest in land and seek gifts of land. ▪ Plan how to invest capital incrementally in the future for growth and renewal, rather than for a full facility replacement. Choose an average life cycle for the total building so that excess obsolescence is prevented. Expect to build for growth or functionality on twenty-year cycles for 25 percent to 33 percent of the total operation. Borrow in such a Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 33 way that future borrowing capability is preserved, and attempt to earn sufficient profit that future borrowing is, in fact, minimized. Each hospital considering renewal should attempt to It takes more than the CEO, the specify the value principles it wishes to realize in its management team, and a good hospital design and provide the necessary instructions to architectural firm to achieve a the architectural team at the beginning of the project. Many new generation of hospital health care architects are adept at proposing design design. solutions that will incorporate these principles and design concepts. The Power of Collaboration While the main burden of SB 1953 rests with hospitals and health care systems, it is important to realize that buyers, health plans, and providers are all in this together. Buyers and health plans will pay for hospital replacement and renewal eventually, and so should find a way to be part of the “pre-design” phase of these projects. At other times and in other places, buyers and health plans have helped to fund hospital development—most notably in Detroit after World War II. The Big Four Buyers and health auto companies and the United Auto Workers decided to avoid the plans will pay for future cost of interest on debt by giving direct grants to the hospitals of these hospitals their choice. They established the Greater Detroit Hospital Council to eventually. help decide which hospitals should be assisted. Their leaders were also on the boards of downtown hospitals, so they banded together to form the “Detroit Medical Center” of seven hospitals, and committed to the city to do the planning for a large inner city area, with attention to health care, housing, transportation, and schools.35 Today’s concentration of purchaser power in coalitions and CalPERS, along with the concentration of health plan power among a relatively small group of major payers, means the decisions of a few organizations—and the mobilization of even a token amount of direct grant making—could ensure that projects with the greatest potential benefit are funded. In the absence of Hill-Burton funds, providing grants would reduce borrowing and future expenses. There are, of course, limitations on what health plans can do today, but even a token financial involvement could increase influence substantially. Even asking to be part of a planning team might help raise some of the right questions about future service needs and payment forms. While there are no planning agencies to do this sorting or advising, there are professional teams in architectural and consulting firms with a good understanding of the health system who have the potential to step up to this unusual situation. There are also staff within health plans that can articulate how they see the future market and health care economics. Hospitals and health systems may be dubious about any attempt at such influence, but if presented with a choice between involving the health plans that represent their future revenues or accepting the guidance of the state, most hospital executives would opt for the health plans. Here are three promising examples of the role appropriate forethought can play in hospital design: Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 34 1. Kaiser Permanente As a system, Kaiser Permanente will be making decisions about multiple hospitals covering several decades. It is the largest HMO by far, and its decisions will directly affect all urban and suburban markets in California. Already it has plans for multiple hospitals and clinics in high growth counties. The risk is that other systems will be slow to develop as widely, inadvertently ceding whole new areas to Kaiser. That will reinforce Kaiser’s position as the dominant health system, causing it to shoulder more of the community benefit obligations of the state. 2. John Muir/Mount Diablo Hospitals John Muir/Mount Diablo Hospitals in Walnut Creek and Concord have purchased a large site in Northeast Contra Costa County, which is experiencing a huge population wave. (Kaiser also has a site there.) Other hospitals throughout the state have also probably found second sites. The promise for the future is that hospitals in these new locations will be unhampered by the constraints of an old site, and so will be better able to start with a future-oriented facility that can evolve with the population. A proven model for a second site is the series of suburban multi- specialty clinics built by Henry Ford in the various Detroit suburbs in recent decades. 3. The Palo Alto Medical Foundation (PAMF) PAMF has designed a facility to be located in San Carlos that puts the emphasis on outpatient services, the neglected part of SB 1953. The hospital portion of the complex is linked to the medical office portion by shared diagnostic and treatment services. PAMF will install a modern clinical information system for both. The Future Patient Meets the Future Hospital ▪ A 55-year-old woman drives to the health campus, parks near the D & T Building, then in the lobby uses her health card to register, touching the screen to indicate the services she is accessing today--the Women's Health Center, the Foot Clinic and the Eye Clinic. The machine prints her debit receipts and schedule. ▪ In the Women's Health Center, she sits at a console and updates her medical history, employment and insurance status, and confirms the medications she is taking. Her record includes a list of standard tests her physician has pre-ordered according to her age and history. She goes to a testing area where she has a work-up that includes lab tests, a fast Ed –please correct mammogram and abelow. screen psychological test for depression and bone scan, a spacing above and touch WJJ) anxiety. ▪ The results are produced digitally and automatically read by the testing software, which prints out a trend line report for her and her physician. She has a physical exam which reveals a soft lump in her upper abdomen, clearly movable. Rather than scheduling her for a separate date with an ultrasound technician, the physician uses a hand-held ultrasound wand to visualize the lump—which proves to be a recurring fibroid tumor. She is scheduled to return more frequently than every two years, to observe the tumor's progress. She completes the testing on this schedule and receives an updated printout Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 35 of the results and her EMR, plus a surgical decision video to take home to help her decide whether to have the soft lump removed early or late. ▪ On another day two years later, she enters the hospital, is given a local anesthetic, then has a minimally invasive procedure using a surgical laser to ablate the tumor through a small incision. After resting two hours, she is discharged. ▪ When her husband dies, her case manager schedules her for grief counseling and closer follow-up to assure that she has no health effects from his death. She is offered a support group and asked to participate in volunteer work and a new exercise regimen to counteract her depression in lieu of medication. It is inevitable that future patients will transform health care by their behavior and choices. People born in the age of the Internet will think nothing of managing their own health care online, and will not be shy about comparison shopping for health services. People from other countries who brought traditional medicine ideas with them will seek out both traditional and Western medicine practitioners. Couples planning children will eagerly arrange for DNA testing of gametes, with correction of genes with predictable disease consequences. Pharmacies in supermarkets will have clinics with time-share exam rooms for nurses, podiatrists, obstetricians, and more. And California’s hospitals will be fresh and new. Eventually, renewal will prove to be a good thing, however hard and costly over the near term. With intelligent and timely planning, it is still possible for the 1970-style California hospital to become a thing of the past. The future is already here and requires hospital services suitable for this century, not the last. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 36 Appendix A. Public Policy Considerations That the hospital renewals under SB 1953 are “infected with the public interest,” as is often stated in legal tomes in regard to their exemption from taxes, there can be no doubt. But how will the public interest be expressed in the industry’s response to SB 1953? The following are a number of public issues in need of attention that the state can act upon: 1. Encourage Expanded Capital Sources The state should consider incentives for health plans to mobilize capital to contribute to the renewal of hospitals they intend to use. Let them invest their reserves in hospital bonds at low rates, giving health plans a stake in how hospitals renew. Any other potential source that would reduce the borrowing required to fulfill this law should be encouraged. (The Little Hoover Commission noted that there are billions held in reserve by special purpose districts for which they have no operational need.) California also has some of the largest not-for-profit foundations in the country. 2. Facilitate Land Acquisition The state should allow hospitals to quickly obtain exceptions to local zoning codes hampering land acquisition that would permit a hospital to move closer to the population to be served. This will help to minimize any delay that would prevent hospitals from achieving their opening day target under SB 1953. 3. Review Regulations, Mandates, Licensure Standards, and Codes The state should institute an immediate review and advisory process to undertake fundamental revisions to these frameworks to cove the next decades in which these hospitals will operate. While individual hospitals can obtain exceptions in the short term, the industry as a whole would benefit from being made aware that the state is amenable to 21st century hospital design concepts. This regulation revision should be accompanied by a refresher for reviewers, as the reviews are sometimes stricter than the codes and work against innovation. 4. Expedite Reviews Currently, the state does not have the necessary staff to review these projects in a timely manner, yet the hospitals are under a time deadline to perform or risk losing their license. The former governor recently approved the filling of only nineteen of thirty-four positions even though those positions are paid for by user fees. In ordinary times, a review can take a year. A year in construction dollars applied to a $300 million project is worth tens of millions. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 37 5. Provide Statewide Targeted Tax Support of Emergency Services L.A. County, in 2002, voted to tax itself to support emergency services in the same manner as fire and police. If hospitals knew that this support would be available, it could help materially in their capital planning, as most busy emergency rooms call for considerable loss underwriting by the hospital. While this could be a county-by-county effort, that may take too long, given the present timetable for hospital completion. However, the same kind of tax support should be available to hospitals that develop decentralized primary care networks that are more appropriate for the community than vast centralized ERs. 6. Recognize the Health Systems All the above codes and laws were written when hospitals were in individual corporations. Today, most operate in health care systems. These systems have the potential to provide much of the oversight and guidance that the state once used to supply, particularly in area-wide planning of future resources. Yet they have no official mandate or support for doing this, and no process by which the state and these systems can negotiate the delegation of responsibility or exemptions to obsolescent regulations and mandates. Health systems should be able to easily vary the number of beds they offer, and change the types of beds, as long as they match staff and equipment to the patient acuity. They should be expected to have their plans reflect delivery solutions for the underserved. 7. Act on Medicare The state of California should mobilize a bi-partisan effort to have Medicare do three things: (1) Pay California hospitals in keeping with the payments made in the rest of the U.S., a move that would bring billions into the state.) (2) Provide an exception to any “budget balancing” reductions in Medicare payments to hospitals faced with repaying large amounts of capital, or re-institute the old “capital pass- through”; and (3) Undertake a joint planning effort around the conversion to a “chronic disease management” model of delivery, treating California as a demonstration state. 8. Modernize Forms of Hospital Ownership Among the hospitals that will be borrowing millions for SB 1953 projects, there are legacy forms of ownership that make management and repayment of that capital more difficult and confused than it needs to be. Forms of ownership have been narrowing through merger and acquisition to those that are capable of obtaining and deploying capital—not-for-profit or governmental organizations that use tax-exempt bonds and for-profit organizations that obtain funds through the stock market. The state set up some of these forms in earlier times, so it is the state’s job to bring them up to date with a minimum of rancor and legal skirmishing Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 38 9. Clarify County Roles Relative to the Poor After Medi-Cal passed in 1965, many county governments got out of the hospital business. Some leased their hospitals to the University of California—notably Sacramento, Orange, and San Diego counties—while others leased or partnered with community hospitals. The counties did not necessarily follow that action with a continuation of funding for wholly uninsured people; it was assumed that Medi-Cal would take care of the problem of the uninsured. It is now understood that never happened; there is, however, no clear mandate requiring counties live up to the responsibilities spelled out in the famous “Section 17000” of the California Code. The state takes the local tax revenue that would make it possible for counties to continue to be responsible for the underserved and uninsured. This is one of the conditions that has led to the SB 2 mandates in California. Where there is no county hospital, the county needs to underwrite some of the care for the uninsured that takes place in community or university hospitals. 10. Educate the Public Assist hospitals in countering the “blame game” that will be played as hospitals close from lack of funds; costs go up for replacement hospitals; or hospitals leave or enter certain services, such as emergency care. Hospitals are caught between a law they must follow and the consequences that others will feel. Much greater public information about the state’s health care system, its economics, and what each stakeholder can do should be disseminated with the backing of the state. Note: It would be appropriate for a state of California’s size to have a “health atlas” or “health digest” in both print and electronic form. (NCHI also proposes a “health digest” to describe the macro-economic relations across the health system and the long wave trends that under gird health policy.) There could be semiannual reports on the evolution of the hospital system under this law, reminding the public that the law was passed in 1994, under much different conditions. Future legislators will recall the tax shortfall of 2000-2004, and may respond by trying to negate the impact of this law. 11. Stimulate Collaboration Managed care and the need to steer clear of the Sherman Anti-Trust Act have made hospitals and health systems wary of each other as they compete for market share. With the great uncertainties arising from the erosion of managed care, it high time for a collaborative effort to find new approaches to health system evolution, so delivery and payment can be aligned. The very large problems of too many uninsured, too much cost-shifting leading to unsustainable pricing, and too many gaps in care cannot be solved by one party alone, nor regulated out of existence. 12. Provide for Appropriate Service Development for the Uninsured For the homeless and mentally-ill, managing an insurance policy may be the last thing they can accomplish on their own. If health care is to be available to them, the best model would be outpatient clinics, with no insurance card required, along with outreach workers on the street. To make sure this care is made available, the state should contract with health care systems to take on this responsibility in partnership with counties. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 39 13. Renew the Public Health System Many medical-social problems are not being managed well at this time since they fall between the work that doctors and hospitals do and the role of public health departments or the criminal justice system. This division is costly, and can often aggravate the underlying problem. The solution is to tackle medical-social problems at the community, neighborhood, family and individual levels. A grab bag of community health agencies and church services make valiant attempts. Clearly, for some areas, that is not enough. The neglected problems often end up in hospital ERs. Public health has models that can help. Successful residential care models, such as Delancey Street in San Francisco, also exist. The other reason to revitalize public health is the growth of infectious diseases as a problem for all countries connected by international travel. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 40 Appendix B. Roles and Responsibilities in 21st Century Hospital Design, by Stakeholder The mandates of SB 1953 point to opportunities for leadership on the part of various stakeholders. If activated, such leadership could turn this renewal wave from “compliance” to a rippling circle of innovation that would benefit both the health care industry and the people of California. The following actions, organized by stakeholder, would ideally occur simultaneously rather than sequentially. I. ORGANIZATIONS WITH CLEARLY DELINEATED ROLES AND ESSENTIAL RESPONSIBILITIES: HEALTH CARE SYSTEMS, HOSPITALS, ARCHITECTURAL FIRMS AND LENDERS. As the key players implementing hospital renewal, leaders in these organizations should: (1) Become familiar with advanced design principles at the CEO, management team, and board level, and customize them to the organization’s circumstances; (2) Incorporate these principles in organizational policies and use them to develop projects, such as architectural RFPs, or justification for bonds. The following are specific steps for each group: Health Care Systems A. Instruct hospitals to work on site selection early. Include sites for distributed services, especially a primary care network appropriate for the distinctive target groups in the service area. B. Set priorities for concurrent planning for primary and ambulatory care, and seek outside capital or developers for that work. C. Advance the timetable for any acquisition or merger that would affect the design work and capital planning of any facility, or require acquisition of a new site. D. Prioritize projects for potential contribution to the system’s market position and financial strength. Concentrate resources on hospitals with a strong market position. E. Negotiate with lenders about the criteria they will use to fund priority projects. (If there are corporate structures that are artifacts of the original hospital, attempt to modernize these so that borrowing and commitment to repay are in alignment with the Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 41 actual operating corporation responsible for making the revenue and expense decisions that will protect the ability to meet debt service.) F. Minimize borrowing and its impact on pricing. If necessary, sell property to produce capital, or schedule hospital construction so the organization is in a position to invest cash in selected facilities in priority order. This is each hospital’s contribution to an unregulated future. If necessary, ask for additional time waivers to spread the investment so there is no peak in 2013. G. Make assumptions about the prevalence of chronic disease and how it will be managed. Build in design concepts to support the model the health system wishes to use. Integrate renewal of medical staff facilities and support systems aligned with this model and the hospitals’ planning. H. Invite contracting health plans to negotiate long-term contracts that establish the basis for budget assumptions and thus capital management. Use the years before opening as a period of testing. I. Select and contract with the best health care architects and contractors well before they are needed, as they are in great demand. Encourage common use of 21st century hospital design principles, adapted to the circumstances of each local unit. J. Assure that the various communities and target groups have a chance to influence the hospitals’ projects before they reach the schematic stage. Educate those communities as to the mandates and choices that the hospital has. K. The board of the health system, which is about to become accountable for borrowing an injection of capital that may be in the billions, should negotiate with the system CEO about the steps to be taken from this list, then evaluate performance accordingly. The CEO should ask the board to support actions that may be unpopular in the short term, such as decisions not to fund replacements of lower-tier hospitals. The board should look for: 1. Inner city hospitals that should become non-acute facilities, with urgent care. 2. City hospitals that should build fewer beds, but have a second site in the suburbs. 3. Suburban hospitals that need new campuses. 4. Suburban hospitals that should sponsor new campuses along transportation corridors. 5. Rural hospitals that should be converted to health retail and ambulatory care. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 42 Hospitals The following list applies both to members of health care systems and to free-standing hospitals. In both cases, the CEO is the chief planner. The local CEO should negotiate with system leadership the specific steps that will apply to the local hospital. A. Make a fresh policy decision about the population to be served by the new facility, i.e. its geographic dimensions and characteristics. B. Make a well considered decision about location and site, then develop a site plan that allows for renewal, replacement, and growth. Customize a demand forecast for the primary service area that extends over the life of the bonds that will pay for the building. C. Select a planning team that is capable of leading an innovative project aligned with the value principles and have them lead a planned decision process involving the board, the whole management team, and the medical staff leadership. Use it to institute renewal in the organization’s clinical work as well as in the hospital plant. D. Plan adaptations to chronic disease management and educate clinical leaders. Develop a distributed primary care network for the newly defined service area. E. Proceed through design, addressing choices at both macro and micro levels as they are presented in logical order by the design team, rather than wait until a complete design is presented to the board. F. Plan the operating budget so that it produces the necessary profitability during the ramp-up years as necessitated by the capital plan. Plan how to make labor efficiencies offset the increased capital cost, either completely or in part. G. Prepare labor unions to operate within these principles in the future hospital. Also begin work on new educational approaches for the future workforce. H. Invite members of the medical staff to plan how they would like to adapt their practice situations and facilities for the future in parallel with the hospital’s own planning. Aim for specialty care solutions that are capable of managing long-term contracts for chronic disease management. That may mean a new type of medical office building, one able to contain appropriate diagnostic and treatment services, which, if known, could reduce the volume to be handled within the hospital structure. If possible, assist in creating an integrated group practice to associate with the hospital campus. Architectural Firms The advanced hospital design concepts displayed on in the section on Value Principles in this report give architectural firms a good place to start in considering SB 1953-related work. Firms should: A. Make some practice-wide decisions about how to present and advocate the new design concepts. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 43 B. Redesign presentation and client education materials accordingly. Decide whether to participate in the early site and facility planning business, or just the architectural business, once the planning has been done. C. Negotiate these principles early, to confirm that the client is prepared to realize them in the specific project. Incorporate that understanding in the contract. D. Add a service that continually reviews the hospital plant for renewal needs and helps assure that flexibility features in the original design are not blocked by opportunistic development by a future CEO who did not learn why certain features were selected. Lenders A. Study California hospitals’ past and current economic situation to gauge the strategic impact of the capital investment that will result from SB 1953. Estimate probable future reimbursement trends, private and governmental, that will prevail during the life of a bond issue. B. Revise the company’s standard parameters for those appropriate to the California situation, ensuring that the bond issues are affordable, the company does not “red- line” the state, and the bonds are funding an efficient, profitable operation. Advise bond counsel of the new parameters. C. Request that a health system describe the value propositions that it is realizing for each of the member institutions participating in a mutual indenture capital program. Ask them to determine if they have achieved staffing efficiencies sufficient to offset the increase in their capital expense. Ask about their strategies for solidifying their markets and correcting for shortages in the medical and nursing workforce. Ask about any new programs that could produce new sources of revenue. II. ORGANIZATIONS WITH COMPLEMENTARY ROLES AND RESPONSIBILITIES The amount of influence wielded by the following groups will depend on formal and informal economic ties, professional leadership, and the stage during which influence is brought to bear. Medical Community, Medical Staff, and Medical Groups Should relocations be in order, the medical staff can either lead or resist, which may limit the hospital’s future success. Relocations always challenge established life and work patterns of the core medical staff. Management and medical leaders should work through ways to mobilize positive leadership from physicians. These are the most valuable process steps: A. Assure that opinion leader physicians understand the organization’s strategic goals, and that the new hospital will not be just a continuation of the old. Engage program leaders in learning about future markets and target groups. B. Enlist key physicians in advocating a patient-focused care model for future hospital’s operations. In order to work on this issue as early as possible, they can be advisors to a Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 44 nursing-led effort. Recognize that early skepticism has given way to high satisfaction when these programs are complete. C. Engage physicians in advancing the fundamentals of clinical programs—their transition from acute care to chronic disease management, their new medical science applications, new tools, and new workforce requirements. D. Plan future medical manpower, and the strategies that will be used to attract and retain them, despite such negative factors as housing costs, the managed care climate, and declining physician income. If the medical workforce is inadequate to assure future demand and revenue, the project should either be down-sized accordingly or aggressive new strategies designed and tested before opening. E. Plan with physicians to re-house specialty services so that this facility can influence the hospital design and use of the site. Re-housing calls for creation of multi-specialty institutes defined by target groups (women, children, mentally ill) or clinical problems (cancer, cardio-pulmonary, etc.). F. Engage selected physicians as part-time faculty in the hospital’s new educational academy (a team-oriented educational support service, across disciplines), preparing future workforce candidates and training future care teams who will work with physicians to manage care selected risk groups and patient types. Purchasers Purchasers as individual businesses are so numerous that their influence is indirect. However, those businesses that are in purchaser coalitions, such as PBGH, have potentially greater impact because of sheer numbers. A purchaser may have influence if: it is a dominant local employer; is self-insured; has a large, stable, or growing workforce and has enough earning power to afford full health care benefits, and can provide direct incentives to the hospital relative to its plans. A purchaser also would increase its influence by taking leadership in establishing a policy about hospital renewal and partnering with their health plans to express that policy. In addition, purchasers can boost their influence by joining forces with the top several companies in a local area to collaborate on the issue of hospital renewal. They might do the following: A. Discover the top 5 to 10 hospitals used by the company’s employees. Ask for their planning status and a preview of their plans. B. Offer a small planning grant to obtain a seat on the project committee, and bring a specific study of the company’s employees—where they live and work, their health profile, family status, etc. C. Advocate advanced design concepts within the planning committee of the hospital. Stress the need to respond to geographic population shifts, even if it means relocation, as the company is standing in loco parentis for its employees and their families, and should make their needs known. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 45 D. Offer to sign longer-term contracts with preferred health plans if they undertake the steps outlined in the section on health plans. Help broker the right incentives to assist the preferred local hospitals to realize their plans. E. Advocate for locally based primary and urgent care, net of that available from physicians in independent practice or groups. F. Encourage employees to use the hospitals that have made creative choices and with whom the company has negotiated services and prices. G. Offer free space on site for a combined primary care and occupational medicine facility, or do so at a location favorable to several companies. Do this early. H. For businesses locating in new industrial parks where there is new housing nearby, assure that the developers have requested local providers to establish health services appropriate for the workforce and their families. Health Plans The most important health plans in the life of a hospital are those that: ▪ Have a large market share; ▪ Are locally owned, so there can be policy-level negotiations; ▪ Are willing to negotiate long-term contracts; ▪ Have the respect and business continuity of major employers. Typically, communities have no more than 6 to 10 of these core plans. Each has more potential power than it may actually use, because the leadership thinks like insurers, just as lawyers think like lawyers. They may not know what to ask for relative to SB 1953 projects since there has been no precedent for this type of wholesale renewal. They may have no idea that there are creative choices for the hospitals that are funded by health plans, so they do not know how to express those choices early. By default, they will be using a strategy of shifting costs to enrollees, and blaming providers for the high premiums that will still be necessary in the post-2013 period. There are four main aims a payer could have concerning hospital renewal: 1. To have adequate hospital capacity where its market is and where it is going; 2. To have capacity at the lowest possible cost, which means not over-building and not over-borrowing; 3. To have capacity that operates economically over the life of the building as to staffing efficiency; and Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 46 4. To be able to delegate care management to an organized delivery system that encompasses as much of the disease life cycle as possible for the main conditions presented by the population and enrollees. To have an impact, a health plan could do the following: A. Find out the status of each contracting hospital’s planning and ask for particulars. Study these to determine which appear to be working toward the four goals above. Identify projects where the plan would like to have greater influence. B. Internally, determine which interventions the plan could bring to bear on the contracting hospitals. These are the main choices: ▪ Informal advocacy through visits, letters, and publication of principles and desired outcomes. ▪ Formal advocacy through contract negotiations. ▪ Formal advocacy through incentives. ▪ Formal advocacy through exclusivity. ▪ Formal advocacy through direct capital grants. ▪ Partnerships on preferred strategies, such as the disseminated primary care networks, which can free up crowded core sites. ▪ Preferences and restrictions negotiated with purchasers that will become part of regular contracting. Hospitals and health systems reading this section should not be afraid of business/purchaser involvement, but should prepare to request the kind of relationship they believe they need from the above list, or more. C. Model the cost of these advocacy efforts against the cost of no advocacy at all. Plan which to employ with all hospitals and which with selected hospitals. Take this matter to decision-makers above the level of the Human Resources department. Obtain experienced advice, if needed. D. Ask hospitals to offer an opportunity to review hospital plans before final decisions. Use it to negotiate desired changes while also opening negotiations on a new, longer- term contract. Any health plan accounting for 10 percent or more of a hospital’s revenue should do this. E. Model and estimate the probable capital impact on prices in the next decade and make sure that purchasers are aware of it and are prepared for any effect on premiums. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 47 F. Cooperate in any capital campaigns the hospital may conduct, as this will produce double savings in the future from lower debt service. Unions Unions tend to reinforce current practice regarding the number and type of hospital jobs, how work in the hospital is done, and even the methods used to get it done. This paper calls for many substantial changes, especially on the patient floor. The unions that consider these ideas threatening should bear in mind the very uncertain economics of the health care system, especially Medicare. To help the hospital succeed under adverse future conditions means helping to achieve a much higher level of efficiency than has been asked for previously. The union should start early to educate its members so they can collaborate rather than resist the ideas the hospital project team may consider. A. Prepare members for the kinds of decisions hospitals will be making regarding hospital renewal. Be sure they understand the economics of capital investment, debt service, pricing, and future revenue. In simplest terms, higher debt service means fewer future jobs, along with lower wages and salaries. Efficiency gains help offset those costs. B. Study workforce patterns, especially shortages, and propose solutions that will make greater use of local residents rather than imported staff from countries with worse health care problems. C. Work with the hospital on the staffing implications of chronic disease management, patient-focused care, and automation of routine tasks such as registration. D. Plan how to upgrade the union members’ skills to succeed under a chronic disease management delivery model, where jobs may overlap and where a clinical information system is in place. E. Plan with the hospital for facility enhancements that encourage job retention and employee satisfaction, along with patient and physician satisfaction. F. Become part of the team telling the hospital’s story to the community as a way to gain support for the project, especially if the community will be asked to fund it. III. ORGANIZATIONS WITH ADVOCACY ROLES Professional Associations A. Educate members about the issues involved in SB 1953 decisions and the principles of advanced hospital design. Do this every year, involving other important sectors such as health plans, purchasers and community representatives, along with responsible government agencies. The main decisions will take place or be fixed in place in the next two years. B. Maintain a current profile of members’ activities and issues regarding hospital renewal. The CHA needs to know about capacity plans, dissemination, clinical Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 48 programs, and capital costs. The CMA needs to know about medical staff complements, physician shortages, and enhancements to physician capacity to see patients. Both should track economic trends in contracting and health care, as the response to SB 1953 will be a major event in the cost of health care. C. Advocate at the public policy level regarding a framework for chronic disease management and its enabler—longer-term contracts. D. Advocate at the state level for a new permanent commission on health care policy that can maintain continuity of effort on evolving a strong system that is not subject to the kind of public utility regulation that could sink the industry, particularly if it is attempted after hospitals have incurred massive debt at the behest of the state. County Health Departments A. Offer to co-plan around disease patterns, to combine a public health perspective with a clinical program design perspective. B. Offer to co-plan around disadvantaged populations and urgent/emergent care. C. Offer to co-locate services where the county already has land. D. Offer to contract with community hospitals for care of the uninsured under Section 17000. Health Care Foundations A. Offer planning grants around the concept of the “21st Century Hospital” to cover deeper studies of the population patterns, clinical program renewal, workforce planning, or a demonstration of new delivery settings. Do this early so it can influence plans. B. Offer recognition programs for advanced hospital planning incorporating the value propositions in this concept paper. Direct the award to the CEO and management team for use in further planning for the service area. C. Study and report out on the variety of outcomes of SB 1953; the relative positions of hospitals that did renew, or only complied via retrofit. D. Offer development grants for desirable community-based services that would once have been available only on a hospital campus. E. Track the economics of this renewal wave, from the standpoint of each major player. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 49 IV. ORGANIZATIONS WITH REGULATORY, OVERSIGHT, OR LEGISLATIVE ROLES All of the state regulatory offices governing health care have the power to either advance or retard innovation toward 21st century hospital design. The Joint Commission also does reviews that touch on facilities and how they are used. The desirable actions for all offices are: A. Review the Value Propositions and design concepts against existing regulations and review practices. Provide waivers or new regulations. B. Publish an advisory to the field regarding acceptable concepts in time to influence current planning and design. C. Begin to study the effects of new concepts as they come on line. Speed the review of plans to save escalations in construction costs. D. Begin to work on the public policy issues raised by the renewal and recapitalization process (see Appendix A). E. Publish annual analyses as to progress by hospitals on fulfilling the intent of SB 1953, and on achieving a renewed hospital system. F. Collaborate with the health care industry and the legislature to establish a permanent commission on the health system for the purpose of long-term revitalization of the health policy function of the state, and protecting the hospital industry from a backlash over the costs incurred in responding to this legislation. G. After 2013, publish a complete directory of California hospitals to show the impact and the positive results from the investment that has been made. The Press Each member of the press who is concerned about hospitals and health care has a major role to play in educating the public about the meaning of this hospital renewal wave. This report introduces concepts. It outlines responsibilities of the key parties who bear some responsibility for the results. It can be an outline for a whole series of stories. Major decisions will be made between now and 2008, so there will be plenty to write about. Plan for Sunday Supplements in 2008 and 2013 that summarize the total program. Watch for the tendency to pass around blame when costs appear overwhelming. Give due credit to the hospitals that have made the tough decisions and are doing a good job of managing their capital. V. THE GOVERNOR, IN 2013 Resist the multiple demands to regulate hospital rates that have risen in response to the costs of implementing SB 1953. Remember that it was the government in place in 1994 that required hospitals to launch these expensive projects, and it was the government that imposed an unfunded mandate. Put a good face on the situation—your state now has the newest and most modern hospitals in the nation. A book should be written immediately for the benefit of other states. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 50 Endnotes 1. For an overview of U.S. hospital construction situation, see Coile, Russel B. and Tracy Johnson, Russ Coile’s Health Trends, March 2003. 2. SB 1953–Alquist, Amendment to the Alfred E. Alquist Hospital Seismic Safety Act of 1983. 3. The Northridge Earthquake, A Report to the Hospital Building Safety Board on the Performance of Hospitals. OSHPD, Facilities Development Division, Sacramento, CA 1995. 4 . Meade, Charles, Jonathan Kulick, and Richard Hillestad, Estimating the Compliance Costs for California SB 1953, Rand Corporation, Santa Monica, CA, April 2002, p vii. 5. Ibid., p. 3. Also: Summary of Hospital Seismic Performance Ratings, Sacramento, CA, April 2001. 6. Summary of Hospital Seismic Performance Ratings, Sacramento, CA, April 2001. 7. Meade, Charles, Richard Hillestad, and Jonathan Kulick, Estimating the Compliance Costs of California SB 1953, RAND, Santa Monica, 2001. 8. Estimate cost escalations at 4.5 percent per year for this decade, Per KMD architects. 9. Jones, Wanda J., Jim Ensign, Steven DeMello and John Mayerhofer, “Bay Area Hospital Stock Under Managed Care Scenarios, A Simulation Model and Report,” NCHI, San Francisco, January, 1994, p 17. 10. NCHI merger studies, continuous. 11. See Shattuck-Hammond Report, 2002. 12. President Bush announced in March 2003 a set of proposed revisions to both Medicare and Medicaid that would give enrollees options, including more private sector choices. 13. Private conversation, Jones and Montgomery, 1995. 14. Jones, et al., ibid. 15. See OSHPD reports, beginning 1997. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 51 16. Another compliance obligation at this juncture is HIPAA, a federal program for protecting the privacy of patient information, one that is also unfunded, but requires considerable administrative, information system, and educational costs. 17. See Shattuck-Hammond Report. 18. Per Duane Dauner, President, California Healthcare Association, 2002. 19. CHA figures, 2003. 20. SB26 sponsored by Sen. Liz Figueroa would require health insurer’s rate changes to be regulated by the Department of Managed Health Care. Not passed by committee. 21. The state passed, in 2002, a bill requiring minimum staffing ratios in hospitals, effective 2004. 22. See the Pebble Project of the Center for Health Design, Layfayette, CA. 23. California Managed Care Review, 2002, California HealthCare Foundation, Oakland, CA, Allan Baumgarten, ed. 22. Healthcare architects’ and CEOs private communications, 2001-2003. 25. Jones, Wanda J., “Staffing Shortages, How Did We Get Here?” SSM, Volume 8:6, December 2002, p 18; and Jones, Wanda J., “Staffing Shortages, Where Do We Go From Here?” SSM, 9:1, February 2003, p. 41. 26. NCHI Acute Hospital Demand Reports, Selected California Counties, 2002. (40-year forecasts.) 27. Jones, Wanda J., “Staffing Shortages, How Did We Get Here?” SSM, 8:6, December 2002, p. 18. 28. NCHI CEO interviews, 2001–2 29. Feezor, Allen, Economic Issues in California's Health System, CalPERS, Sacramento, August 2002. 30. Freund, P., and Meredith B. McGuire, Health, Illness and the Social Body: A Critical Sociology, Prentiss Hall, Englewood, NJ, 1995, p. 19. 31. At the former Good Samaritan Hospital, Phoenix, AZ. 32. There are legal barriers that make this broad role difficult, beginning with the Stark I and Stark II legislation that limited provider investment in projects in which they had a referral Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 52 role; designed to reduce fraud and abuse. These laws reduced innovation, and have nearly obliterated the tender experiments in continuity of care arrangements under the same health system. The other main barrier is payment—there is no good business case for being in the skilled nursing business today, if one expects to take government patients. 33 Jones, Wanda J., “Value Propositions for Future Health Facilities,” NCHI, San Francisco, April 1999 34. Jones, Wanda J., ‘Population-based Design, The Baptist Health Experience,” Healthcare Forum Journal, November/December 1997, p. 19. 35. Historical Overview, Detroit Medical Center, Symond R. Gottlieb, personal communication. Renewal by Earthquake: Designing 21st Century Hospitals in Response to California’s Seismic Safety Legislation 53