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<p class=MsoNormal>Buddy:<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>I’d like to offer the following for your e-mail
discussion group:<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>Natural disasters such as earthquakes create complex
situations for policy makers. The difficulty lies in the balance between the
costs of mitigation and the actual risk. Failing this, policy makers could find
themselves dealing with unintended consequences such as those experienced by
the hospital industry in California. If it’s worth the expense in
any one region it would be California; but looking at the hospital industry in
California we don’t see it.<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>Earthquake risks in California are, to some degree,
statistically predictable; being a near certainty that a moderate to strong
earthquake will occur somewhere on the west coast during a single generation of
the built environment. California attempted to balance public safety with
mandated seismic mitigation in a knee jerk reaction to the 1994 Northridge
earthquake California’s Legislature passed Senate Bill 1953 (SB 1953).
The bill was an unfunded mandate to retrofit, rebuild, or close; a free lunch
for California taxpayer. However, over the past decade the consequences of the
mandate caused a once sound hospital system transform into one of the
nation’s foremost financial basket cases.<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>As in California, policy makers in the New Madrid Seismic
Zone are led to believe that earthquake mitigation costs are small, having
little effect on the built environment. California’s mitigation program
entails retrofitting all acute care hospitals or re-building nearly 70 million
square feet. The pace of construction is limited to approximately 1.5 million
to 2 million square feet per year due in large part to the ability of
regulatory agencies to keep up. Furthermore it takes upward of 10 years to
design and build a new hospital. “The lengthy process for review
and approval of hospital construction and retrofitting projects is far too
long. Economic growth is being thwarted; jobs are being lost; and patient
safety is being compromised.”<a style='mso-endnote-id:edn1' href="#_edn1"
name="_ednref1" title=""><span class=MsoEndnoteReference>[i]</span></a>
The result is that it will take nearly 30 years to complete all the construction
required by SB 1953. <a style='mso-endnote-id:edn2' href="#_edn2"
name="_ednref2" title=""><span class=MsoEndnoteReference>[ii]</span></a> The
extended deadline is 2013.<o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>The size and scope of most of these projects are very large
and expensive. Compliance could cost California hospitals as much as $110
billion dollars. The original estimate assumed that the number of
patients and the number of beds would generally remain the same. However,
modern design standards are most effective with facilities 35% to 60% larger<a
style='mso-endnote-id:edn3' href="#_edn3" name="_ednref3" title=""><span
class=MsoEndnoteReference>[iii]</span></a>. Thus, the scope of each
construction project will increase as will the overall cost; perhaps as much as
20%. <a style='mso-endnote-id:edn4' href="#_edn4" name="_ednref4" title=""><span
class=MsoEndnoteReference>[iv]</span></a> In California construction costs are
rising at an annual rate of more than 14 percent above the Consumer Price Index
resulting in construction costs more than 40 percent higher for comparable
facilities in other states.<a style='mso-endnote-id:edn5' href="#_edn5"
name="_ednref5" title=""><span class=MsoEndnoteReference>[v]</span></a> In my
view this increase is likely to continue do to regulatory oversight, the
limited number of qualified contractors, as well as the annual inflation of
material costs. In California, a fully furnished and equipped acute care
facility (labor and materials) costs $1,000 per square foot. Since the SB
1953 mandates affect for-profit, non-profit and publicly owned organizations most
all projects will be financed. Depending on the terms of the loan the
cost in current dollars for an acute care facility the square foot cost can
exceed $2,800; comparatively normal office construction in Tennessee is roughly
a third the cost per square foot.<span style='font-size:12.0pt'> <o:p></o:p></span></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>Looking at FEMA’s annualized earthquake losses<a
style='mso-endnote-id:edn6' href="#_edn6" name="_ednref6" title=""><span
class=MsoEndnoteReference>[vi]</span></a> we find the relationship of Cost vs. Benefit
even more lopsided. FEMA reports that California will experience a loss of
approximately $3,167.5/$Million of infrastructure each year as a result of
earthquakes. Looking at the same 50 year period, California can expect to lose
approximately 15.8% of the present value of hospitals. Thus, California’s
acute care infrastructure, worth approximately $48 Billion [my estimate - C.
Duane Dauner, President and Chief Executive Officer, California Healthcare
Association, Statement “Heath Care Scene in California,” May 10,
2001, suggested 24 Billion.], should expect a loss of approximately $7.6
Billion due to earthquake. We find that California is spending $110 Billion to
offset a loss of $7.6 Billion; a cost benefit relationship greater than
14. <span style='font-size:12.0pt'>Over the past 10 years, we’ve
asked FEMA for a </span>Cost vs. Benefit analysis for the New Madrid Seismic
Zone. So far we haven’t seen anything that would come close to
suggesting that the public would benefit spending limited resources. <span
style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><span style='font-size:12.0pt'><o:p> </o:p></span></p>
<p class=MsoNormal>There are a more subtle negative consequences resulting from
forcing acute care facilities to close because they don’t meet mandated
requirements. California is experiencing a critical closure of hospitals
with the closure of over 50 hospitals in the 10 year period between 1995 and
2005. More than 3,000 acute care beds have been removed from service between
2001 and 2005. In the five year period prior (1995 to 1999) 23 hospitals
closed. Unfunded mandated seismic requirements are creating a stampede for
funding, usually in the form of bonds. The median credit ratio of
California hospitals had nosed dived to the junk-bond status. The money
needed to retro fit California hospitals is drying up. <a style='mso-endnote-id:
edn7' href="#_edn7" name="_ednref7" title=""><span class=MsoEndnoteReference>[vii]</span></a>
“Nobody can bear the burden [of SB 1953 unfunded mandate]”<a
style='mso-endnote-id:edn8' href="#_edn8" name="_ednref8" title=""><span
class=MsoEndnoteReference>[viii]</span></a> Here in the New Madrid
Seismic Zone we’re told that the cost is minimal. <o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>“Seismic upgrades are important. But mandating them
during the worst economic time in the history of California hospitals is like
ordering a homeowner to fix a dilapidated porch on a house that's on fire.
Right idea. Wrong time.”<a style='mso-endnote-id:edn9' href="#_edn9"
name="_ednref9" title=""><span class=MsoEndnoteReference>[ix]</span></a> How
many doctors and nurses could have been hired in lieu of spending the money on
hospital infrastructure? Just how many lives will be saved? How many lives will
be lost because of the loss of acute care facilities? Who pays, the bottomless
pocket of the taxpayer? Each of the 35 million people in California will need
to pay $3,143 (per capita state and local taxes were roughly $1,600 in 1996).
Are the people of California going to be willing to forfeit three times
their current tax burden? <o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal>If the benefits (reduction of earthquake related economic
loss or lives lost) don’t outweigh the costs in California, how can they
be justified in the New Madrid Seismic Zone? <o:p></o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal><o:p> </o:p></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>Joseph
Tomasello, PE</span></b><span style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>5880
Ridge Bend Rd.</span></b><span style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>Memphis,
TN 38120</span></b><span style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><span style='font-size:12.0pt'> <o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>Phone:</span></b><span
style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>(901)
761-2016 office</span></b><span style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>(901)
821-4968 direct</span></b><span style='font-size:12.0pt'><o:p></o:p></span></p>
<p class=MsoNormal><b><span style='font-size:12.0pt;font-family:"Arial","sans-serif"'>(901)
412-8217 mobile</span></b><o:p></o:p></p>
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<p class=MsoNormal><span style='font-size:12.0pt'><br clear=all>
<o:p></o:p></span></p>
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<p class=MsoNormal><span style='font-size:12.0pt'><br clear=all>
<o:p></o:p></span></p>
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<hr size=1 width="33%" align=left>
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<div style='mso-element:endnote-list'><br clear=all>
<hr align=left size=1 width="33%">
<div style='mso-element:endnote' id=edn1>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn1' href="#_ednref1"
name="_edn1" title=""><span class=MsoEndnoteReference>[i]</span></a> California
Heathcare Association Statement on the Hospital Construction Plan Review and
Area Compliance Process before the California Performance Review Commission,
U.C. Riverside, August 13, 2004.<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn2>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn2' href="#_ednref2"
name="_edn2" title=""><span class=MsoEndnoteReference>[ii]</span></a> Ibid., 4<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn3>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn3' href="#_ednref3"
name="_edn3" title=""><span class=MsoEndnoteReference>[iii]</span></a> Ibid.,
41<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn4>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn4' href="#_ednref4"
name="_edn4" title=""><span class=MsoEndnoteReference>[iv]</span></a> Ibid., 8<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn5>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn5' href="#_ednref5"
name="_edn5" title=""><span class=MsoEndnoteReference>[v]</span></a> Ibid., 30<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn6>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn6' href="#_ednref6"
name="_edn6" title=""><span class=MsoEndnoteReference>[vi]</span></a>
FEMA 366 Hazus 99 Estimated Annualized Earthquake Losses for the United
States, February 2001, 16<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn7>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn7' href="#_ednref7"
name="_edn7" title=""><span class=MsoEndnoteReference>[vii]</span></a>
California HealthCare Foundation, The Financial Health of California Hospitals,
June 2007, 2-13<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn8>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn8' href="#_ednref8"
name="_edn8" title=""><span class=MsoEndnoteReference>[viii]</span></a> Ibid.,
(interviews with key unnamed health care leaders), B-6<o:p></o:p></p>
</div>
<div style='mso-element:endnote' id=edn9>
<p class=MsoEndnoteText><a style='mso-endnote-id:edn9' href="#_ednref9"
name="_edn9" title=""><span class=MsoEndnoteReference>[ix]</span></a> The Press
Democrat, Another hospital falls, what killed Sutter Medical Center – and
what will it mean to families like mine, January 14, 2007<o:p></o:p></p>
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