UC Hospitals Edging Closer to Privatization

Shocked by staggering financial losses at its San Diego teaching hospital, a special panel of the University of California Board of Regents on Wednesday continued to move to privatize major parts of its five-campus hospital system.

In one of several key votes, members of the regents’ committee on health services voted to allow UC San Diego to seek private partners and make dramatic job reductions to eliminate a projected $20.3-million deficit.

They also voted to approve a merger of UC San Francisco’s small managed-care plan with a much larger for-profit managed care network in the Bay Area.

The regents discussed but did not vote on a landmark merger that would privatize the UC San Francisco Medical Center, regarded by many as the UC hospital system’s crown jewel, and merge it with the private Stanford University Medical Center.

Both Stanford and UC San Francisco hope for a quick decision, but the regents indicated that they were concerned by legal and political questions involved in the privatization of one of its most valuable assets.

A parade of labor union officials started Wednesday’s meeting by assailing the proposed Stanford deal. Union members fear that the merger with private Stanford Medical Center under a new corporate entity would lead to massive layoffs that would deprive heavily unionized UC San Francisco workers of pension, salary and other benefits.

“To date we have been given virtually no information” about the merger, complained Libby Sayre, a hospital worker and member of a coalition of unions fighting the merger. “Under the circumstances, we can only oppose the merger.”

The specter of a merger that would create the West Coast’s largest hospital dominated a day in which regents debated a number of moves that could lead to an overhaul of its well-established system of stand-alone medical centers.

Driving the regents’ actions are budget problems that UC administrators say are threatening the survival of the five state-owned medical centers.

Three of the five teaching hospitals--San Francisco, Irvine and San Diego--are in trouble financially. All five face financial uncertainties as they fight to hold their own in the face of threatened cuts in Medicare and Medi-Cal, fierce competition from the private managed care industry, and lower payments from health insurance plans.

Budget problems have forced layoffs at the UC San Diego Medical Center, which will lose more than $20.3 million this year, and UC Irvine, which is projecting a loss of $8 million.

The loss at UC San Diego is $16 million worse than projections made less than three months ago, and left regents stunned.

Regent Frank W. Clark Jr. called the worsening deficit in San Diego “a big surprise,” and described it as “a disaster.”

The regents discussed in private how the university would move forward with massive job cuts that they say are necessary in San Diego to put the medical center back in the black.

The regents also approved a request by San Diego officials allowing them to pursue what were described as “strategic partnerships,” or mergers with private health care providers.

The UC San Francisco Medical Center is expected to operate in the black this year, but barely. Medical Center Director William Kerr said it barely stayed in the black last year, earning just $1 million on a budget of nearly $500 million.

Kerr told the regents that UC San Francisco cannot survive “without dramatic change.” He said year-end surpluses are the chief source of money to purchase medical equipment, upgrade technology and develop programs.

Dr. Haile Debas, dean of the UC San Francisco Medical School, said the university faces “a bleak future” unless dramatic steps are taken to forge partnerships with private health care providers.

The votes must still be ratified by the full Board of Regents, but the board traditionally accepts policy recommendations by its committees.

*

With about 80% of privately insured San Franciscans enrolled in health maintenance organizations, managed care plans have become the lifeblood of major hospital systems. Under these plans, hospitals and doctors receive fixed amounts for each person covered and in turn agree to provide whatever care they need. Because the payments for each person are relatively low, health plans need large numbers of enrollees to be profitable.

University documents spelled out the problem. UC San Francisco, needing 100,000 members in its own managed care plan to be financially sound, has been able to sign up only 30,000. That compares with the 140,000 people living in the San Francisco area who are enrolled in the Kaiser Permanente system.

The deal with Stanford commanded most of the regents’ attention Wednesday.

Under study since July, the proposed deal would merge the two big hospitals, along with UC San Francisco’s Mount Zion Medical Center and its Langley Porter Psychiatric Hospital, as well as the Lucile Salter Packard Children’s Hospital at Stanford.

The regents seemed encouraged by UCLA’s purchase last year of the private Santa Monica Hospital. As a result of the purchase, regents were told Wednesday that UCLA is in good financial shape.

“All the medical centers are looking at potential [private] partners,” said Mark Laret, director of the UC Irvine Medical Center and the executive who spearheaded the UCLA purchase. “In today’s environment, medical centers can’t stand alone the way they have in the past.”

One of the major issues that must be resolved if the mergers are carried out is what will happen to services for the poor being provided at San Diego, Irvine and Davis. Those medical centers contract with counties to provide care for the poor.