Seismic Retrofit Cost Estimates Could Double
Previous cost estimates of the seismic retrofit of California hospitals -- about $50 billion -- did not take into account interest or other financing expenses, which could double the cost of retrofits, the San Francisco Business Times reports.
When legislation was enacted in 1994 to require hospitals to meet new seismic safety standards, cost estimates by the California Hospital Association and RAND did not include interest and fees associated with borrowing large amounts of money.
Interest rates usually are around 6%, but they could be as high as 11% or 12% for hospitals with weak finances that are starting high-cost projects, according to hospital consultant Wanda Jones of the New Century Healthcare Institute.
Richard Gianello, president of HFS Consultants, said that most lenders would require some equity, which would reduce the total amount being borrowed, and that some hospitals or hospital systems likely will pay some of the cost in advance. However, many hospitals do not have the financial reserves to fund projects and lack the ability to secure low-interest loans.
Because reimbursement rates for federal and state programs, such as Medicare and Medi-Cal, likely will not increase to help pay for costs related to retrofitting hospitals, the "private sector is going to be solely responsible" for the expenses, Jones said. Hospitals eventually will shift the costs to employers through private health insurers, according to Jones.
RAND currently is working on a new study on the cost of meeting state seismic safety standards, including financing costs and construction expenses (Rauber, San Francisco Business Times, 4/7).