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The University of California at San Francisco is building a three-hospital campus in the Mission Bay neighborhood. The $1.5 billion project is scheduled to open in 2014.
The University of California at San Francisco is building a three-hospital campus in the Mission Bay neighborhood. The $1.5 billion project is scheduled to open in 2014.

Healthcare Market Profile: San Francisco-Oakland-Fremont

Boom in the Bay: Seismic-safety law is driving new construction

By Rebecca Vesely
Posted: July 25, 2011 - 12:01 am ET

A hospital construction boom is going on in the San Francisco Bay Area.

Spurred by California's seismic laws, hospital systems are spending billions to upgrade and revamp their facilities. Some of these projects have proved controversial, drawing criticism of market consolidation that has accelerated in the past few decades in the region.

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The University of California at San Francisco is building a 289-bed three-hospital campus in San Francisco's Mission Bay neighborhood, near the San Francisco Giants ballpark. The $1.5 billion campus will house a children's hospital, oncology and women's services and outpatient care and is expected to open in 2014.

Across town, Sutter Health, the largest hospital chain in Northern California, plans to build a 555-bed facility at Cathedral Hill to replace some buildings at 798-bed California Pacific Medical Center, at an estimated cost of $2 billion. That project still requires city approval.

In Oakland, the public Alameda County Medical Center is rebuilding its flagship Highland Hospital, and Kaiser Permanente is scheduled to open a medical center downtown in 2013.

Nearby, a battle is ongoing over the closure of San Leandro (Calif.) Hospital by Sacramento-based Sutter, which wants to turn the facility into a rehabilitation center. Some local officials and unions are concerned about closing the city's only emergency department. Sutter's nearby Eden Medical Center in Castro Valley is in the middle of a $320 million reconstruction project, slated to open in January 2013 under the new name of Sutter Medical Center Castro Valley.

“The seismic mandate is forcing hospitals to incur huge capital expenses,” says David Hopkins, senior adviser to the San Francisco-based Pacific Business Group on Health, an employer coalition.

Rebuilding projects are driving up the cost of care, but that's not the only factor. In San Francisco, for instance, hospitals get $7,349 per patient per day, on average, compared with $4,389 per patient per day in Los Angeles, where hospitals also face state seismic mandates.

The California Hospital Association has attributed more expensive care in the Bay Area to the higher cost of living and wages and benefits required to retain healthcare workers.

Kevin McCormack, spokesman for the California Pacific Medical Center in San Francisco, says nurse salaries are 17% higher in the north. “The cost of living in Southern California is much lower,” he says.

But Hopkins of the Pacific Business Group on Health says lack of competition is causing costs of care to balloon. “Cost of living can't possibly explain a 70% differential,” he says.

In San Francisco alone, there are about 2,700 private hospital beds outside of Kaiser Permanente, which has nearly

250 beds in the city. Sutter owns 44% of the remaining private beds—or nearly 1,200. Catholic Healthcare West owns 28%, or 759 beds, and UCSF has 722 beds, or 27%.

The San Francisco Board of Supervisors is taking a closer look at the issue, both in regard to approving Sutter Health's Cathedral Hill project and also as a purchaser of healthcare. The city has partnered with Blue Shield of California and local providers on two accountable care initiatives for 26,000 city workers, their families and retirees launching in July in an effort to improve care and lower costs.

It's unclear yet whether accountable care organizations will lower costs and improve care, or whether they will drive further market consolidation, as some local purchasers of healthcare worry.

“We're going to stay very vigilant on the ACO front,” Hopkins says.

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