Over the past year alone, a cascading set of trends has prompted the closure of 10 Bay Area hospitals outside San Francisco, according to longtime health care consultant Walter Kopp. Reductions in Medicare and Medi-Cal rates, a shift to greater reliance on outpatient facilities bolstered by Obamacare rewarding ambulatory care more heavily than hospital stays, with penalties for readmissions, and flat wage growth among low-income households contributed to the closings. Hundreds more facilities are expected to follow nationally. According to Modern Healthcare, rural areas, which are especially dependent on Medicare patients, have been hardest hit.
California hospitals have the added burden of complying with Senate Bill 1953, which requires all hospitals in the state to be retrofitted to withstand a large earthquake by 2030. California Health Care Foundation researchers estimate that nearly half of the state’s hospitals are affected by the law, with the ensuing construction costs representing an unprecedented expense. Financially troubled hospitals with few prospects of attracting the investments needed to make required upgrades have been steadily folding or merging with larger health care groups.
While the health care sector is being disrupted nationally, San Francisco is in the midst of a hospital construction boom. The re-christened “Zuckerberg San Francisco General Hospital” recently completed a $1 billion renovation. Three other health care giants – Kaiser Permanente, Sutter Health, and the University of California, San Francisco – have invested nearly $20 billion in the City over the last two decades, according to medical journalist Chris Rauber. And the Hospital Council of Northern and Central California estimates that at least another $5 billion will be needed to complete new health care projects before the decade is out.
“California remains the most active health care construction market in the United States,” said Kevin Day, a health care architect and associate vice president at HGA Architects and Engineers in San Francisco.
These large capital expenditures are being made even though the number of hospital beds in the City is more than ample, even excessive for a population of San Francisco’s size. At nearly 2,900 beds, San Francisco, arguably one of the state’s most health conscious cities, has double the statewide average for beds per 1,000 residents. In California, advanced technology and improved care coordination has resulted in significant efficiencies, reducing the state’s hospital bed average to 1.5 beds per 1,000 residents, down significantly from the national average of three beds per 1,000 residents, according to World Bank and Dartmouth Atlas data.
A significant portion of health care capital investments are directed at creating regional centers of health excellence in San Francisco, providing centralized, sophisticated, medical services. According to Kopp, tourists will be the primary beneficiaries of the City’s health care upgrades. Not those that visit San Francisco to eat chowder and walk along Fisherman’s Wharf, but ones seeking specialty health care: organ transplants, cancer treatments and other complex interventions.
Changes at the St. Luke’s campus of California Pacific Medical Center-Sutter Health exemplifies another health care trend buffeting the City: the upscaling of services. St. Luke’s historically catered to a sick population of mostly poor and working class San Franciscans. As the neighborhood around it gentrified, the facility merged with Sutter Health, a move that saved St. Luke’s from closing. According to the New York Times, from its emergence more than 100 years ago as a hospital founded by Episcopalian nuns to serve as an almshouse for the poor and suffering, St. Luke’s has become a go-to care center for the young, upwardly mobile, residents now occupying the historically immigrant neighborhood.
Taxpayer dollars – city and state – support some health care capital projects. However, the biggest drain on government coffers stems from the fact that hospitals’ activities are often tax-free. Since health care institutions were founded as refuges for the poor, destitute and unwell, they were granted nonprofit status to enable them to carry out their charitable mission more than a century ago. But a 2010 to 2013 investigation by the Greenlining Institute indicated that while nonprofit hospitals received $3.27 billion per year in government subsidies and benefits, they provided just $1.43 billion in community benefits.