Planned Merger of UC San Francisco, Stanford Hospitals Clears Key Hurdle

The nearly $1-billion public-private merger between UC San Francisco’s and Stanford University’s teaching hospitals passed its last crucial hurdle Wednesday despite complaints from unions and some faculty that the deal is financially unnecessary and will shortchange indigent patients.

A key UC Board of Regents committee voted 7 to 1 to approve the merger, which would combine the staffs and resources of two prestigious hospitals under the umbrella of a new private, nonprofit corporation called UCSF-Stanford Health Care.

If the full Board of Regents gives its approval Friday, as expected, it would mark the first privatization of any of the University of California’s five teaching hospitals, which are facing uncertain financial futures in an increasingly competitive health care marketplace.

Two others, UC San Diego’s and UC Irvine’s, have discussed possibly merging some programs or services with private care providers or leasing out their hospitals.

The financially ailing UC Irvine Medical Center announced Wednesday, however, that it had ceased talks with a private provider to run its teaching hospital in Orange. That decision came after hospital officials learned they will receive about $50 million in state funds over the next three years.

UC Irvine still plans to explore affiliations with private providers to run some of its programs, such as possibly coordinating with Childrens Hospital of Orange County on pediatrics training.

Nationwide, as managed-care organizations have opened outpatient clinics offering services at cut-rate prices, many public hospitals have seen a threat to their continued stream of patients, who help pay for medical education and research.

Such was the case with UC San Francisco, which will transfer an estimated $386 million in assets to the new corporation, contrasted with Stanford’s $483 million. The corporation will operate, but not own, UC San Francisco Medical Center and UC San Francisco/Mt. Zion Hospital in that city, and Stanford University Hospital and the Lucile Salter Children’s Hospital in Stanford.

Of the 11,000 employees at the facilities involved in the merger, scheduled to take effect Nov. 1, all but 28 would retain their jobs, officials said. UC officials also have insisted that the employees’ pay and benefits will remain the same, but union officials fear that the corporation will diminish them eventually.

Although the profit of UC San Francisco’s teaching hospitals had been declining in recent years, they posted a net income of $26 million in the fiscal year that ended in June. The Stanford hospital apparently has not done as well. While the regents were bound by a secrecy agreement not to disclose its finances, Regent Frank Clark, who voted against the merger, said “they present an alarming concern.”

William Gurtner, a vice president with the UC system, acknowledged that the deal is risky, but called it the best option to secure the long-term future of the hospitals in light of the increasing competition for patients.

He said a state auditor’s report, the most conservative of three outside reviews, concluded that the merger would generate $120 million more income for the combined organization over four years than if the hospitals had remained separate.

“I think we are in the position to attack the future--and it’s a scary future--in the best possible way,” Gurtner said.

Two labor unions have filed suit to block the merger, and critics attacked the plan Wednesday as unnecessary because the San Francisco hospital had turned a profit. They also questioned whether the drive to keep up with the marketplace would erode the commitment to care for the indigent, who provide little or no revenue for the hospital.

“Greed seems to be the factor here more than anything else,” said Nathaniel Drawsand, a representative of the American Federation of State, County and Municipal Employees.

Dr. Vishwanath Lingappa, a UC San Francisco professor of medicine, told the regents that the agreement “undermines the academic mission, most notably for the poor. . . . I believe they will focus on good marketing rather than good medicine.”

Margo Hunter of the Consumers Union advocacy group said UC San Francisco’s hospital is among the top 10 providers of care for the poor in the Bay Area. “We do not want to see indigent care on the chopping block,” she said.