Fanning the Flames: Add Wildfires to Your List of Hospital Costs

It's a smoky situation for CFOs looking at the future of health system expansion.

Wildfires have been devastating the West recently, and according to climate data, it's not going to let up.

What does this have to do with healthcare CFOs? A lot, actually.

A new study is uncovering some surprising data on hospital costs. A new analysis conducted by a team that includes Sean Wilkoff, an assistant professor in the Finance Department of the College of Business at the University of Nevada, Reno, found that wildfire smoke is linked to higher borrowing costs for hospitals. 

It plays out like this: If a hospital in this region issues, say, $90 million in bonds to finance a new building expansion or project, it probably would have an additional $1.6 million tacked on in interest costs due to smoke from wildfires.

"Municipal bond investors realize that wildfire smoke is a growing problem and one that will continue," Wilkoff said. "They have priced it into bonds."

Higher borrowing costs may also translate to higher daily costs over the next decade for health systems, hospitals and nursing homes in Western regions that grapple with intense wildfire smoke.

Other correlations between wildfire smoke and hospital finances are more apparent: Wildfires lead to several types of respiratory complications, like asthma and COPD. The industry will likely see a rise in these conditions in the West, but also possibly all across the country, as wildfire smoke can often travel hundreds of miles.

In 2024 alone there were over 60,000 fires that burned over 8 million acres.

Moreover, in low-income counties in this region, underinsured or underinsured patients may not be able to pay for the care needed for conditions caused by wildfires. This can disrupt hospital revenue and make it more difficult for these hospitals to repay borrowers.

A Double Whammy for Expansion

For health systems, (especially in the West) looking to build or expand, the timing may not be great. Between potential higher borrowing costs from wildfire smoke and hefty tariffs disrupting supply chains, CFOs may see the price to build jump higher and higher. According to a Black Book Research survey, the majority of healthcare leaders predict that costs will jump by at least 15% in the next six months from increased import expenses, including steel and other construction materials.

CFOs may have to prepare their budgets for both of these factors. Budgeting for tariffs will include diversifying supply chains as much as possible, and wildfires may simply mean preparing for the extra cost. For health systems looking to expand or build in the near future, CFOs will have to ensure efficient design and construction plans. Additionally, they can also explore different options for sustainable building practices and designs that can help lower costs. There's also the option to lease instead of constructing new buildings when appropriate.

Caring Communities

CFOs also need to consider the communities they serve and the unique struggles of those communities, whether environmental or socio-economic, because the two are often linked.

Many individuals facing climate change are lower income, more likely to be uninsured, and more likely to not have the financial option to relocate to safer areas. With this in mind, health systems need to be aware and ensure that factors like these are considered when building, implementing new care programs, and generally structuring care and payment models.