California hospitals are at risk of overspending on large construction projects as they race to improve their earthquake readiness, according to a research brief by Moody's Investors Service.
Many California hospitals exceeded their original spending estimates by 15% to 40% in recently completed major capital projects, Moody's said. Overspending is likely to continue as other hospitals scramble to complete extensive retrofitting, Moody's analyst Lisa Martin said.
California law requires hospitals to ensure by either 2008 or 2013 that their buildings will withstand a major temblor and to guarantee by 2030 that the buildings could continue operating after a quake. State officials have estimated that 40% of all hospital buildings need upgrades to meet the standards, and that could cost the state's hospitals up to $41 billion.
"While hospitals nationally are at risk of overspending on large projects, we're seeing an early trend developing in California, where hospitals face a number of additional regulatory challenges, and the sheer size of the construction projects magnify their risk," Martin said.
Moody's recently lowered its outlook for Kaweah Delta Health Care District, Visalia, Calif., to negative from stable, after the 490-bed hospital discovered its expansion project was running $30 million over budget. Even after eliminating 30 beds and two surgery suites from its plan, the hospital still expects to spend $117 million over the next three years, or $11 million more than it projected in 2003.
The California Hospital Association is sponsoring a bill aimed at easing some of the pressure. The bill, which is before the state Assembly's health committee after passing the Senate in May, would allow hospitals to skip the 2008 deadline as long as they meet the stiffer 2030 requirements by 2020.