UCI Medical Center Creeping Out of Deficit, Official Says

After finishing last year nearly $10 million in debt, UCI Medical Center is on its way to breaking even or possibly turning a bit of a profit, the hospital’s acting director said Tuesday.

The turnaround is due largely to a new influx of privately insured patients, coupled with cost controls, said acting director Leon Schwartz, citing figures to be discussed Thursday by University of California regents.

“I’m not ready to declare a victory yet,” Schwartz said in an interview.

The one-time county hospital, he explained, still is the major provider of health care to the poor in the area and has a struggle ahead because “costs continue to go up and reimbursement (for treating Medi-Cal and indigent patients) won’t.”

However, at the end of April the medical center was only $287,000 in debt, according to the hospital’s year-to-date financial report. Figures for May, not yet officially tallied, look promising, and data for the current month--which will end the fiscal year--is also looking good, Schwartz said.

Last year, the teaching hospital ended the year $9.6 million in debt and was one of three UC teaching hospitals--along with Davis and San Diego--that pleaded with the Legislature for a $15-million subsidy to help reduce the deficit that was anticipated again this year.

The Legislature granted the $15-million subsidy, along with a $11.7-million capital improvement allocation, to the three hospitals. The other two UC teaching hospitals, in Los Angeles and San Fransciso, did not require such assistance.

Since then, however, UCI Medical Center has been making steady progress toward its goal of attracting more privately insured patients, whose payments for medical care offset the losses sustained by treating Medi-Cal and indigent adults, Schwartz said.

The hospital is reimbursed about 70 cents by the state for every dollar spent on a Medi-Cal patient, while the county pays about 50 cents on the dollar for treatment of indigent adults, he explained.

Averaged over the year, 29% of UCI Medical Center’s patients have been insured, a 3% increase over the previous year, Schwartz said. Coupled with 13% of the hospital’s patients on Medicare--a federal program that reimburses the hospital at cost or better--the hospital now has more than 40% of its patients in the so-called “paying” category, compared to about 30% this time last year, he said.

In April alone, the figure of privately insured patients jumped to 33%, Schwartz said.

“But I won’t call that a trend yet,” Schwartz said, obviously delighted with the figure.

He attributed the increase to “a great deal of cooperation from the physicians.” Physicians in the community are increasing their referrals of patients to the center, and doctors with a choice of taking patients to any of several hospitals “have been bringing them to UCI,” he said.

Still, even with the increases, Schwartz foresees that at least half, if not more, of the center’s patients will continue to be financed through Medi-Cal and county indigent medical services programs.

“Our strategic plan is to still make this place more attractive, more modern and more competitive,” Schwartz said. “We will always continue to serve the public patients, but for our teaching purposes and for our own financial self-sufficiency, we need both public and insured patients.”

He stressed that subsidies may still be needed in the future because inadequate reimbursement from Medi-Cal and county indigent services will not offset rising hospital costs.

Indeed, an independent management study to be discussed by the regents Thursday concludes that the Irvine, San Diego and Davis teaching hospitals suffer losses not because of poor management but because they are inadequately reimbursed for treating heavy loads of poor patients.

The study was prepared by Arthur Young Health Care Services for the state legislative analyst’s office, as directed by the Legislature last year when it approved the subsidy for the three hospitals.

Report Projects Loss

Given their economic environment, “these hospitals cannot continue to operate without some form of subsidy,” the report concludes. While all three are attempting to increase their load of insured patients, the teaching hospitals provide a “significant volume of uncompensated and underfunded care,” the study says.

The hospitals deserve special attention because in addition to providing medical care to their communities, they also train physicians and sponsor research in new diagnostic and therapeutic techniques, the report says.

A $21-million loss is projected for the UC teaching hospitals this year, according to the report. The regents and the Legislature must make a “public policy decision” about how to continue to finance the hospitals, according to the study. Among the options listed are continuing the subsidies, increasing payments for teaching support, encouraging counties to increase their funding for indigent care, and augmenting Medi-Cal reimbursements. All of the options, the report notes, are outside the hospitals’ control.

Although the Irvine, San Diego and Davis hospitals no longer are publicly owned, they all hold contracts to provide their counties with health-care services and “are generally known in the community as the hospital of ‘last resort,”’ the report says.

“So long as this is the case, efforts to redirect indigent patients are unlikely to succeed. Even if these hospitals chose to cancel their county contracts, they probably would find themselves providing at least emergency treatment to many of the same indigent patients, and receiving no compensation at all from the county.”

The largest contributor to the financial problems of the three hospitals was inadequate Medi-Cal reimbursement, the study says. In fact, losses from treating Medi-Cal patients exceeded the three hospitals’ overall losses, the report states.

The second largest reason for the debts was inadequate reimbursement from the counties, which finance medical care for indigent adults, the report states. It noted that Orange, Sacramento and San Diego counties spend less, per capita, on indigent medical care than the statewide average. Orange County ranks ninth of the 10 most populous counties in such expenditures, the report says. But it adds that the hospitals are in a “weak bargaining position” to demand higher payments from the counties.

The hospitals cannot hope to recoup losses by charging more because their current prices, while generally appropriate for teaching institutions, are still somewhat higher than surrounding community hospitals,’ the report says.

UCI Medical Center, the report says, needs permanent administrators to replace its acting officials. “The hospital is facing a number of major challenges, including significant renovation projects which could dramatically affect revenues, and needs the leadership of committed, permanent managers,” the report states.

UCI Medical Center has not had a permanent director since the resignation of William Gonzalez 15 months ago. The hiring process was put on hold while the university hospital negotiated a possible takeover by American Medical International, a plan that was disbanded in January. In addition, the search for a medical school dean has stalled the appointment of the hospital’s director.

If Irvine is to not just break even, but also generate enough profit to finance continuing improvements, the report states, “beds will probably have to be increased to accommodate sufficient private patients . . . .”