UC Hospitals’ Bail-Out Request Faces a Critical Hearing

University of California officials face a critical test Wednesday when they make their first plea to legislators for approval of a $25-million bail-out of UCI Medical Center and two other financially beleaguered public teaching hospitals.

The budget proposal--a $15-million subsidy, plus $10 million for capital improvements--will be discussed at a joint hearing of two seven-member Assembly subcommittees on health and education.

UC officials are depending on winning the funds, proposed in Gov. George Deukmejian’s budget, to rescue the medical centers at UC Irvine, UC Davis and UC San Diego. All three are former county hospitals which are losing money, largely because a disproportionate number of their patients are government-funded.

Of the three hospitals, UCI’s is in the worst financial shape, with a deficit of $10.2 million so far this fiscal year. The projected deficit next year for all three is $21 million. (The two remaining UC hospitals, at the Los Angeles and San Francisco campuses, are reported to be on more solid financial footing.)

The budget proposal was being described as a “lifeline” by one UC official. The subsidy is necessary to keep the hospitals running so that they can continue to train doctors and treat the communities’ sick, while the capital improvement fund will go toward renovating the buildings and buying medical equipment in an attempt to woo more private patients, according to the UC argument.

But it could be a difficult task to win the Legislature’s approval.

While the bail-out funds have the backing of many Orange County and other key legislators, the state legislative analyst has recommended against awarding funds, saying the proposed subsidy “does not provide a short-term solution or a comprehensive long-term solution to the teaching hospitals’ financial problems.”

And some legislators say they are troubled by the “inequity” of pumping millions into three former county hospitals while other teaching hospitals and dozens of county hospitals are struggling with similar financial problems.

A legislator says the problems of the UC hospitals are symptomatic of those facing county hospitals throughout the state.

Debate on the bail-out could boil down to whether the legislators see the financial crunch as an education issue or a health care issue.

Assemblyman Burt Margolin (D-Los Angeles), a member of the Ways and Means subcommittee on health and welfare, sees it as primarily a health care issue.

He said he will suggest at the hearing that the $15-million proposed subsidy be applied, not toward the three UC hospitals, but toward a bill he has introduced that would increase funding to hospitals throughout the state that treat a disproportionate number of indigents.

Margolin said he is “sympathetic” to the situation of the three UC hospitals, “but their problems are symptomatic of problems facing county hospitals throughout the state.”

Hospitals treating a large number of poor patients are suffering because state programs for Medi-Cal and medically indigent adults generally reimburse hospitals below the actual treatment costs. Those hospitals --such as county hospitals and the three UC medical centers--are reaching a point of financial crisis because they do not attract enough privately insured patients to offset the losses, health officials have said.

“The $15 million is the first time in the history of this Administration that they acknowledge there is a desperate need for support for indigent care,” Margolin said. “I’m grateful that it’s been acknowledged, but I question whether it’s appropriate to deal with only three hospitals.”

Margolin’s bill would put a total of $25 million in state money into a special Medi-Cal fund, where it would be matched with federal dollars and grow to $50 million. That money then would supplement Medi-Cal payments to hospitals that treat a disproportionate number of poor patients, he said.

The hospitals operated by UCI, UC Davis and UC San Diego would benefit from the fund, Margolin said, but he admitted that the three would receive a much smaller share than they would if the governor’s $15-million budget proposal is approved intact.

Assemblyman Bruce Bronzan (D-Fresno), the chairman of the health and welfare subcommittee, said he, too, wonders if the UC hospital bail-out proposal is equitable.

“I am sympathetic to the problems of UC Irvine, but anybody in my position has to be aware that you’ve got a much bigger system (county hospitals) with much bigger needs. How can you justify one and not the other?” he asked.

“County hospitals are required to be the providers of last resort. They can’t say no,” Bronzan said, adding that he has not decided how he will vote on the UC proposal. The UC hospitals “essentially are still county hospitals, but they’re run by the university,” he pointed out.

Assemblymen Doubtful

Assemblymen Bill Leonard (R-San Bernardino) and Charles Bader (R-Los Angeles), members of the education subcommittee, also questioned whether it was appropriate to single out the three UC hospitals for subsidy.

Carol Emmott, executive director of the California Assn. of Public Hospitals, said her organization will attempt to convince the legislators at the hearing that all county hospitals need the money as much as the three UC hospitals do. However, Emmott stopped short of endorsing Margolin’s proposal to take the $15 million from the UC hospitals.

“The difficulty for us is that it would diminish funding to the UC hospitals,” Emmott said. “We don’t want to rain on their parade.”

Deukmejian’s budget proposal “is the first glimmer of hope for the financing dilemma,” Emmott said, adding that her organization will testify at the hearing, “mainly to capitalize on this first evidence that there is some understanding of our difficulties.”

Emmott said it would require $86 million to accomplish a similar bail-out for the 32 county hospitals in her organization. The membership, which accounts for 5% of the state’s hospitals but 11.5% of the state’s hospital beds, provides about 27% of Medi-Cal patient care, she said.

Need Entire $15 Million

But Steve Arditti, UC director of government relations, said the three teaching hospitals “urgently” need the entire $15 million and would continue to be in financial straits if Margolin’s proposal succeeds.

“There isn’t any question that a lot of hospitals are suffering difficulties as a result of cost-containment policies,” Arditti said. But the problems facing the UC hospitals affect the education of doctors, he stressed, adding:

“We think our problem is one that needs to be addressed urgently, whether or not money is made available for the others.”

Assemblyman Bob Campbell (D-Richmond), chairman of the Ways and Means education subcommittee, strongly supports the UC hospital funding, even though he said he also is sympathetic to the plight of county hospitals.

“We’ll get to them next year. I hope there would be money for it then,” he said but explained that he regards the subsidy to the UC hospitals as an education cost.

“That’s part of our job, to help bring new doctors on board and treat patients at the same time,” he added.

The proposal also is backed by state Sen. Walter Stiern, chairman of the Senate subcommittee that will hear the issue next week. “It’s a health care subsidy, but they (the teaching hospitals) all have doctors in residence or in training, and they are obligated to carry out that mission,” he said.

Most Orange County legislators said they support the money for the UC hospitals.

‘Way Out of the Woods’

“What’s been proposed is a way out of the woods,” said Sen. John Seymour (R-Anaheim), whose district includes both the Irvine campus and the hospital in Orange. The money may not be enough, “but it’s the right approach,” Seymour added.

Sen. Marian Bergeson (R-Newport Beach) and Assemblyman Nolan Frizzelle (R-Huntington Beach) also said they will argue to keep the money in the budget.

“It depends on whether you consider this university training to be an investment in the economy of the state,” Frizzelle said. “If you do, you will vote for it. If you think it’s just some sort of handout to an institution, you vote against it.”

Assemblyman John Lewis (R-Orange), a member of the health and welfare subcommittee and the only Orange County legislator with a vote at Wednesday’s hearing, said he has not made up his mind on the issue. The UCI Medical Center is located within Lewis’ district.

A representative of state Legislative Analyst William G. Hamm has visited the three troubled hospitals since Hamm wrote his analysis opposing the bill. Hamm said he hopes to offer suggestions for the financial problems at Wednesday’s hearing.

UC’s Arditti agreed that there are no guarantees that the teaching hospitals’ problems will be solved by the money.

“But what is the alternative, not to try?” he asked.

The teaching hospitals’ financial crisis is complicated because it mixes education and health care issues, he said.

“It’s our problem because they’re teaching hospitals, but our problem is worse because of the patient mix,” said Arditti. “Tens of thousands depend on us who would be worse off if we were not there and if we were not running those hospitals.”