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UC health system faces a potential 'existential threat' without changes, regents are warned

UC health system faces a potential 'existential threat' without changes, regents are warned
The University of California's massive health network, which includes the Ronald Reagan UCLA Medical Center, faces peril without more flexibility, UC regents were told. (Ann Johansson / Getty Images)

The University of California’s massive health network brings in nearly half of UC’s revenue, but regents were told Thursday that its existence could be in peril if it isn’t able to be nimble and change.

The highly ranked health system of five medical centers and 18 health professional schools is one of the largest in the nation. But it needs to be more flexible — and more independent of the UC Office of the President — to adjust to a rapidly shifting healthcare landscape and stay competitive, university health care officials told regents at their meeting at UCLA.

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“Standing still, doing nothing, is an existential threat to the UC Health and its components,” said John Stobo, executive vice president of the UC Health Division.

State officials have stepped up oversight of UC President Janet Napolitano’s office following a critical audit last year that questioned its budget practices and levels of executive pay. Since then, Napolitano and the regents have sought to reduce the office’s budget and add other spending controls.

The office’s new constraints have hampered UC Health’s ability to move quickly, officials said. They have made it difficult for health officials to recruit talented employees and enter into contracts in a timely manner, according to a report Stobo and other members of a university health advisory committee presented to regents Thursday.

The committee members rejected an outside analyst’s proposal earlier this year to make UC Health completely independent as part of a sweeping overhaul to reduce the size and cost of Napolitano’s office.

Instead, the committee recommended that the Health Division stay in Napolitano’s office but be split into two subdivisions. The UC Healthcare Collaborative would oversee functions and activities funded solely by revenue from the health systems themselves such as payments for patient care. Such activities would include shared data services and collaborative purchasing for the university’s health systems at UCLA, UC San Francisco, UC Davis, UC San Diego, UC Irvine and UC Riverside. The collaborative would have the independence to set budgets and hire people outside spending caps on the president’s office.

The other subdivision would cover functions and activities — such as oversight of student counseling services — funded by state general funds and fees charged to self-funded health plans. Its budget would remain subject to limits on growth imposed by Napolitano and the regents.

Both subdivisions would still report to the president’s office.

Steven Lipstein, who headed the advisory committee, said that the proposed plan would give UC Health needed flexibility and agility.

The aging population and expansion of health insurance under the Affordable Care Act have brought more Medicare and Medicaid patients to UC medical centers. But public and private reimbursements for their care are declining, said Lipstein, the former president and CEO of BJC HealthCare.

At the same time, he said, UC is facing more competition from health providers who are consolidating into large regional and national networks.

Uncertainty over the future of healthcare policies, along with the federal budget deficit, add to the volatile landscape.

UC Health “must get bigger to survive,” the report said.

Newly appointed Regent Michael Cohen, who previously served as Gov. Jerry Brown’s finance director, questioned the idea of setting up the collaborative with greater budget freedom. Napolitano told him that, without such independence, adding staff to health divisions that need to expand quickly would require cuts in other programs in her office.

“I do not think that is the best way to manage the shop,” she said.

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“Switching from a controlled environment to one that’s free … makes me a little bit nervous,” Cohen replied.

Regent Sherry Lansing, an expert on healthcare, assured Cohen that all hiring would be subject to the university’s checks and balances.

Board Chairman George Kieffer said he felt UC Health was well-positioned to meet any potential threats to its future because of its deep bench of talent. He said regents were likely to vote on the recommendations for the health system in November or January.

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