November 17, 2006

County Report

County begins $1.2 billion seismic compliance project

By Supervisor Pete McHugh
Special to the Times

In November, the Santa Clara Valley Medical Center (SCVMC) received a full, three-year, unconditional accreditation from the Joint Commission on Accreditation of Healthcare Organizations (JCAHO).

Unconditional accreditation means that SCVMC meets without qualifications JCAHO's state-of-the art hospital performance standards in key areas such as patient treatment, infection control and patient rights. SCVMC is the only hospital to achieve unconditional accreditation among a half-dozen others of similar size and complexity that the JCAHO also recently surveyed.

For SCVMC to maintain its high quality services, however, the County will have to invest approximately $1.2 billion in seismic compliance over the next 10 years. Current state law requires that by 2013, hospital buildings housing inpatient beds and essential services must remain standing and occupants must be able to exit safely. By 2030, these hospital buildings must not only remain standing but must also remain operational after a major earthquake.

SCVMC’s Seismic Compliance and Modernization (SCM) Project involves two phases of demolishing, replacing and adding several buildings to the SCVMC campus by 2016. Current architect estimates place the cost of Phase One at $625 million and Phase Two at $554 million. Phase One includes replacing the services building, built in the 1930s ($343 million), and upgrading the rehabilitation and ancillary buildings ($34 million). Phase Two calls for the construction of the hospital replacement bed building ($554 million), designed during Phase One ($103 million).

On November 14, the Board of Supervisors approved an action to generate approximately $88 million in January of 2007 to continue the work on the SCM Project. The Board will obtain this amount in January in exchange for selling investors the rights to the County's tobacco settlement revenues from 2025 to 2056. The Board action securitizes or shifts all the risk of collecting these revenues to investors after the County has retired the new main hospital debt in 2025. The Board believes that the poor performance of these revenues in their first five years and the challenges facing tobacco companies justify this action.

Currently, Coun-ty staff has only identified this $88 million amount and $70.272.6 million in special revenues from the San Jose Redevelopment Agency to fund the SCM Project. Clearly, the County must identify additional sources to fund the remaining $4645 million of Phase One and the $554 million in Phase Two. The County will be looking to the State and Federal governments. At some point, however, the County, however, may have to approach County voters for their financial support through general obligation bonds or other tax measures.

If the County does not complete the planned modernization and seismic upgrades, SCVMC would have to close 272 hospital beds in 2013. SCVMC would be forced to turn away an estimated 10,500 patients a year. Its ability to serve insured patients would be reduced, causing further revenue losses and undermining its capacity to care for uninsured or under-insured residents.

A smaller SCVMC in 2013 would also have a negative impact on health care in the County as a region. Hospital beds would be in short supply, as the demand for health care services from an aging population would be increasing. This situation would also limit the County’s ability to respond to disasters or care for emergency and trauma cases. Without sufficient inpatient beds, emergency room wait times and ambulance diversions would increase significantly.

Providing quality health care services to County residents has been a Board priority for many years. The tremendous effort and dedication of the SCVMC staff has resulted in the exceptional level of care that the JCAHO’s unconditional accreditation recognizes. While the costs for the SCM Project are considerable, I believe moving forward is good public policy for the County. The SCM Project will allow the County to continue to offer high quality, full-service health care to all our residents regardless of their ability to pay.