Policy Limits Low-Cost Loans to UCI Hospital

In a move akin to rubbing salt in a wound, a committee of the UC Board of Regents approved a policy Thursday that may force financially troubled UCI Medical Center to borrow money at higher rates of interest.

The new policy “is going to accelerate our current financial crisis,” Dr. Walter Henry, UCI vice chancellor of health sciences, said after the meeting.

Because it cares for so many indigent patients, whose treatment is not fully reimbursed by the state and county governments, UCI Medical Center in Orange is expected to show a loss of $13.1 million when the fiscal year ends June 30.

Following guidelines used by commercial lenders, the regents’ Committee on Finance limited the amount of working capital--money for salaries and equipment purchases--that UC hospital’s can borrow at below-market interest rates from a university investment pool.

Starting July 1, the committee said, a UC hospital may not borrow more than an amount equivalent to 60% of its accounts receivable.

UC hospitals in Davis and San Diego, both of which treat indigent patients but are not facing deficits, and UC San Francisco were not expected to have any problem complying with the new limit. The hospitals are expected to continue to pay about 8% interest when they borrow from the university’s short-term investment pool.

But UCI Medical Center often requires an amount greater than 60% of its accounts receivable to pay salaries and buy equipment. Such a cap on borrowing low-interest funds from the UC pool likely would force medical center officials to seek funds elsewhere at higher prevailing interest rates.

Last December, for instance, the medical center’s working capital needs came to $49.9 million, according to a background paper considered by the committee. Had the new borrowing limit been imposed then, the center could have borrowed only $34.1 million from the UC pool--a shortfall of $15.8 million.

Henry said he did not know where the medical center would turn now to meet its working capital needs. But, he said, the new policy “is going to require us to borrow money at a higher rate of interest than we would presently be able to borrow. . . . We are looking for, and hope we can find, other sources to borrow these funds.”

Henry quoted UCI Chancellor Jack W. Peltason as saying that the new limit “highlights the financial crisis” at the medical center.