Paper Analyzes Why UCI Medical Center Takeover Was Denied

The problems that led University of California officials to reject corporate management of UCI Medical Center earlier this year illustrate that for financially ailing teaching hospitals, private takeover “is no panacea,” a UCI professor has written in a national medical journal.

The analysis of UCI’s experience, in the latest issue of the New England Journal of Medicine, was written by Dr. Howard Waitzkin, UCI professor of medicine and social sciences, along with six other UCI medical school faculty members. It details the political, legal, economic, academic and labor concerns that prompted UC officials to abandon the private-takeover proposal in January.

With many academic medical centers across the nation looking to private management or ownership to solve financial problems, there are lessons to be learned from the near-takeover of UCI Medical Center by American Medical International, Waitzkin said in an interview. At the time, Waitzkin was a vocal opponent of the takeover.

Teaching hospitals are facing hard times because they typically treat large numbers of poor, severely ill patients and in return are inadequately reimbursed by government programs, Waitzkin said. To academic medical centers under financial stress, he said, “a corporate affiliation seems to have promise.”

“But actually other problems can be created through the corporate linkages,” Waitzkin cautioned. These include assuring adequate medical care for the indigent, possible compromises of academic policies and procedures, and implications for hospital employees, who may find themselves working for a private employer, with little job security, after being covered under labor contracts with the teaching institution, he said.

The problems at UCI Medical Center and other teaching hospitals also underscore the need for a national health policy and a re-examination of policies and priorities, Waitzkin suggested in the interview.

“The crisis of academic medical centers has to be seen as a crisis of adequate public-sector funding,” Waitzkin said.

AMI officials, saying they had not seen the medical journal article, declined to comment Wednesday.

In 1984-85, the medical center was $9.6 million in debt, the most financially troubled of UC’s five teaching hospitals. A former county hospital, the medical center in Orange suffered largely because of its heavy share of indigent, Medi-Cal and Medicare patients, for whom government payments fell far below costs.

Looking for a financial cure, UCI officials began negotiating a lease-management contract with Beverly Hills-based AMI, which--at about the same time--announced that it would build a community hospital in Irvine that would be affiliated with the university’s medical school.

But the management proposal faced opposition from organized labor, university faculty members, state legislators, officials of other UC teaching hospitals, Orange County government and the University of California administration.

State legislators questioned the propriety and legality of spending tax dollars to underwrite the hospital’s teaching activities “that would contribute to the profits of a multinational corporation,” according to the article.

“Some legislators were worried that this money would constitute an inappropriate public subsidy to a private corporation,” the article says. But state funds were crucial to AMI’s agreement, it added.

Medical center employees “stood to lose the most from corporate management,” according to the article. Workers would have become employees of AMI, and they would have been given a one-year grace period before they “could be fired without cause,” Waitzkin wrote. Previously negotiated salaries, seniority and benefits might be retracted, and the union’s position as bargaining agent under corporate management was in doubt.

While the majority of UCI medical faculty members endorsed the management takeover, “an active minority”--of which Waitzkin and his fellow authors were members--questioned whether AMI, which at the time was reporting dwindling profits, might adversely affect the medical and educational missions of the teaching hospital.

Medical centers at UCLA and UC San Francisco did not support the AMI proposal, fearing that UCI would set a precedent that would be followed at San Diego and Davis, the two other financially strapped UC hospitals, the article states.

Faced with these concerns--particularly the legal questions involving labor contracts and use of state funds--the University of California system’s administration in Berkeley rejected the AMI proposal, the article says. UC President David Gardner instead pursued state funds for the three debt-ridden UC medical centers, of which Irvine’s hospital received $8.5 million, the largest share.

The funds, combined with cost controls, a hiring freeze and efforts to attract more privately insured patients, turned around UCI Medical Center’s finances. At the end of the 1985-86 fiscal year, the medical center broke even.

The rejection of AMI “sets an important precedent,” the article states. “The increasing involvement of for-profit hospital chains in academic medical centers is a major trend in health care during the 1980s.”

AMI is currently negotiating to manage George Washington University’s teaching hospital in Washington, Waitzkin said in an interview. Los Angeles County supervisors recently gave the go-ahead for National Medical Enterprises to build a $100-million teaching hospital with USC.

In the interview, Waitzkin said that until the government develops a national health care policy and addresses the special financial problems associated with treating the poor, teaching hospitals will continue to look for solutions to their economic problems. But the issues raised in UCI’s experience point out that corporate management is not a simple solution, he said.

“I think we all have to look at this much more skeptically,” Waitzkin concluded.