California’s healthcare landscape is undergoing significant shifts as the state enforces stringent seismic compliance standards under the Office of Statewide Health Planning and Development (OSHPD). These changes, driven by evolving mandates and deadlines, are reshaping the state’s future of healthcare real estate and service delivery. The implications for hospitals, healthcare facilities, and real estate professionals are profound, particularly as the state approaches its 2030 seismic compliance deadline.

The OSHPD Mandate: A Seismic Shift in Compliance

In response to Assembly Bill (AB) 2190, certified emergency building standards require California hospitals to ensure seismic safety in facilities deemed critical for patient care. These regulations apply to facilities with Structural Performance Category (SPC) ratings of 1 or 2, or Non-Structural Performance Category (NPC) ratings below 5. Facilities that fail to comply face the potential loss of operating licenses, emphasizing the gravity of these mandates.

Compliance options include retrofitting existing buildings to meet higher safety standards, relocating services to conforming buildings or constructing entirely new facilities. While large healthcare systems with robust financial resources – such as university hospitals – can adapt, smaller, regional hospitals face immense challenges.

Smaller healthcare providers often lack the capital to undertake extensive seismic upgrades or rebuild facilities to meet compliance standards. The required changes involve significant hard and soft costs, from specialized materials to skilled labor, driving up construction expenses and timelines. For some, transitioning to non-overnight care services is the only viable alternative, albeit one that reduces their community impact.

The ripple effect is clear: communities dependent on smaller hospitals may face reduced access to critical healthcare services. This raises concerns about underserved populations, particularly in regional areas, where closures could lead to longer travel times for care. Seasonal workers and elderly residents, especially in rural or economically disadvantaged regions, will likely feel the most significant impact.

The Cost of Compliance

The California Hospital Association has highlighted hospitals’ financial burdens in meeting seismic retrofit requirements. A RAND Corporation study estimated the average cost of a retrofit at over $92 million per building, with costs varying significantly depending on the facility. In response, there have been legislative efforts to extend compliance deadlines and provide financial assistance, particularly for hospitals in severe financial distress.

The financial burden of compliance extends beyond construction. For example, facilities retrofitted to meet SPC-4D or SPC-5 standards often require advanced materials, specialized construction techniques, and long approval processes. These factors not only increase upfront costs but also disrupt existing operations.

In one instance, a three-story Oakland building was sold, stripped to its shell, and brought up to OSHPD standards at a significant expense. Despite efforts to secure a high-profile healthcare tenant, approval delays and unforeseen costs left the facility vacant, showcasing the complexities and risks associated with such projects.

Long-Term Implications

The long-term implications of OSHPD compliance go beyond individual facilities. What happens to properties that can no longer serve their intended purpose? Hospitals that shut down may remain vacant or face expensive demolition and remediation. Given the extensive infrastructure tied to healthcare facilities, including water, sewage, and electrical systems, repurposing these properties presents significant challenges.

The healthcare real estate sector must also prepare for potential spillover effects beyond California. While seismic risks are unique to the state, other regions like Arizona and Nevada could face similar regulatory pressures driven by safety or environmental considerations.

Opportunities & What Lies Ahead?

Despite the challenges, the evolving regulatory landscape presents opportunities for innovation. New developments can integrate cutting-edge design and construction methods, aligning with OSHPD standards while enhancing patient care and operational efficiency.  Helping clients navigate these transitions will be critical for healthcare real estate professionals.

For example, some outpatient facilities are capitalizing on OSHPD compliance as a competitive marketing advantage, emphasizing their capacity to offer overnight stays in safe, state-of-the-art environments. Furthermore, healthcare systems that are consolidating operations or expanding into new markets may pursue strategic partnerships to offset costs.

As California hospitals prepare for the 2030 deadline, the stakes are high. While larger systems may successfully adapt, smaller providers will require financial support and innovative strategies to remain operational. Collaboration between policymakers, healthcare systems, and real estate professionals will be crucial in addressing these challenges and ensuring equitable access to care. For healthcare providers, real estate developers, and advisors alike, the ability to navigate this complex landscape will determine the future of care delivery in the Golden State.