Potential for Conflict Cited in UCI Ties to New Hospital

University of California regents Thursday questioned whether UC Irvine officials are getting into a “difficult position” by holding board seats on a soon-to-be-built private hospital that will compete for patients with UCI Medical Center.

However, most regents on the committee on hospital governance accepted UC Irvine Chancellor Jack Peltason’s argument that the university’s debt-ridden medical center “is better served” by having representatives on the board of American Medical International’s Irvine Medical Center than to have the new hospital proceed without UCI’s cooperation.

Nothing ‘Unethical’

“I think you’ve identified a problem we’ll work on,” Peltason told the committee, meeting at UC Riverside. He added after the regents’ meeting that there is nothing “unethical” about university officials sitting on the private hospital’s board of directors but that an uncomfortable situation could develop when the two hospitals compete for patients.

Faculty members, medical residents and students from UCI’s College of Medicine will work and train at AMI’s new Irvine hospital, run by one of the world’s largest for-profit hospital chains.

UCI holds six of some 20 seats on the Irvine hospital’s board. Ground is scheduled to be broken for the 177-bed medical center in August.

Peltason thought that AMI, too, might feel the conflict posed by UCI’s board seats. “I worry about it more for them than for us,” he said.

The alternative, Peltason told the regents, is to have the Irvine hospital proceed and then compete against the university medical center without any UCI representation on the board.

However, Peltason said, it will be several years before the Irvine hospital will be able to truly compete with UC Irvine Medical Center’s specialized care for complicated cases.

During the next few years, the university plans to build up UC Irvine Medical Center, located in Orange, into an attractive, expert-care facility, he said. In the meantime, AMI will grow to depend on the university medical center, Peltason said.

He said UCI is working on an affiliation agreement with AMI to accept their patients--not only from the Irvine hospital but also from other AMI facilities in the county--for specialized care in cases too complicated to be handled in community hospitals.

‘Hospital Wars’

“Our intention is that UCIMC will become so essential for AMI that it will be in their (AMI’s) interest to keep it strong,” Peltason said.

Several years ago, UCI battled to build its own new facility on the campus. However, UCI lost the “hospital wars” to a citizens group, People of Irvine for a Community Hospital, which successfully backed an off-campus facility.

While several regents pressed the issue of a potential conflict of interest, they seemed to agree that UCI was making the best of the situation.

“I think it’s a creative, inspiring strategy,” said Regent Sheldon Andelson. “We will compete (against AMI) by getting on the inside.”

UC President David P. Gardner agreed but warned that UCI, with its officials sitting on the board of a competing hospital, could find itself in an uncomfortable position. “Under one scenario, this is what we should be doing,” Gardner said. “But under another, it could be a problem.” Still, he added, “it’s easier to get off a board than it is to get on one.”

UCI has been negotiating for more than a year with AMI in an effort to find a solution to the university medical center’s financial woes. UC Irvine Medical Center lost $9.6 million in its last fiscal year.

Negotiations With AMI

In addressing the regents, Peltason recapped UCI’s recent decision not to have AMI take over management, under a lease arrangement, of the UCI Medical Center because “the financial problems are not primarily caused by management.”

However, he said, the university is continuing to negotiate with AMI. The chain plans to build a psychiatric hospital in southern Orange County, and UCI is trying to persuade the firm to build it on the UCI campus, Peltason said.

In the meantime, Peltason said, UCI plans to turn its medical center around through massive renovations. The governor’s budget proposes spending $40 million in the next three to five years on the hospital. Combined with other improvements instituted since the university bought the hospital from the county 10 years ago, some $70 million in renovations will be completed by 1990, he told the regents.

“UCIMC is rapidly becoming an attractive facility where people go because of the services, not because they have to go there,” he said.

According to a financial report presented to the regents’ committee, UC Irvine Medical Center is in much better financial shape compared to last year at this time, although the hospital continues to lose money.

Losses Down

The medical center lost $2.6 million during the first six months of the current fiscal year, compared to a $5.2-million loss recorded at this time last year, according to the report.

However, thanks to a state subsidy to UC’s financially strapped hospitals, UC Irvine Medical Center has a surplus of $3.2 million, according to the report. In addition, the medical center received about $1.7 million at the end of the year from the county for treating medical indigents.

Medical center officials attribute most of the hospital’s red ink last year to the disproportionately heavy load of poor patients at the former county hospital. About 70% of the medical center’s patients last year were indigents or on Medi-Cal or Medicare, and the hospital is not fully reimbursed under government health care programs.

Lowest Increase

Of the five UC teaching hospitals, Irvine showed the lowest increase in operating expenses, 4%, compared to 14% at Davis, 9% at Los Angeles, 8.4% at San Diego and 6.7% at San Francisco.

Dr. Cornelius Hopper, vice president of health affairs for the UC system, warned regents that the five teaching hospitals will be hurt by propsed Medicare cutbacks.

But he was pleased with increased patient loads at all of the UC medical centers, except at Irvine, where renovations have made some beds unavailable, he said. He also pointed to the smaller-than-projected losses at Irvine.

“We should all feel good about what’s happening at Irvine,” said committee chairman Frank W. Clark Jr.