Participants included Dr. Joseph Martin, chancellor of the University of California at San Francisco, and Stanford University President Gerhard Casper. Among their wide-ranging fiscal responsibilities as luminaries in academe, these men oversaw two of the nation's top medical schools, home to four Nobel Prize winners. Both schools relied heavily on the teaching hospitals to which they were attached. And that's why Martin and Casper were worried.
During the intermission, the two men took a walk together. Both knew their schools were being hammered by managed care, through which HMOs and other payers were holding their teaching hospitals' purse strings very tightly. And for some time those same payers had played the two institutions' high-priced specialty practices against each other, cutting revenue streams that had been crucial to building their schools' prestige. The medical schools had expanded their hospital operations in the late 1980s, only to see the government money on which they depended begin to wane quickly.
Other problems loomed. Nearly a quarter of both institutions' patients were indigent -- an increasingly difficult cost to absorb. And, all around them, Bay Area hospitals were merging; a circle of more cost-effective giants was enticing HMOs to send over their patients for a better price.
Stanford Health Services had cut its budget by $74 million in recent years. UCSF Medical Centers had cut $52 million -- to a current $450 million budget -- and had already laid off employees. Both were looking at an operating profit of barely more than $1 million. A loss would be devastating -- research and training are their primary missions, not extra activities.
So, on that walk in the desert air, Martin and Casper agreed to form some kind of alliance. They would have their people call other people and figure out how to start sharing more -- and competing less. They would no longer be the pawns in someone else's market gamesmanship. They would be players. Big players.
That was the beginning.
And after the meetings and the huddles and the consultants and the plans that followed, what was left on the table was likely the biggest decision of their careers. "A merger was at least a more likely success story in the end than simply saying, 'Well, let's try to collaborate here and there,' " remembers Martin.
For UCSF, the move would mean turning from public to private, and separating the medical business from the medical school (already private, Stanford had done the latter a few years before with the creation of Stanford Health Services).
But, more than anything else, the merger would mean placing science in the hands of business -- rather than continuing to fight what seemed to be a losing battle against it.
As a result of the Palm Springs stroll, the University of California Board of Regents late last year relinquished control of a $400 million public asset -- the world-renowned UCSF Medical Centers -- to a private board of conservative moneymakers. The move remains legally questionable. But, quite simply, the regents were afraid of what might happen if they didn't do it.
Here's the deal: The merger created UCSF Stanford Health Services, a new, nonprofit corporation, directed by a board of top administrators drawn from both universities and outside business players. This new entity will take over operation of UCSF's Moffit/Long and Mount Zion hospitals, Stanford University Medical Center, Lucille Salter Packard Children's Hospital, and all of the clinics and clinical practices of the doctors of both universities. (City-owned San Francisco General Hospital and Veterans Affairs Medical Center, both staffed through agreements with UCSF, are not a part of the deal.)
Both universities keep their separate medical schools, and UCSF Stanford Health Services continues to fund both medical schools -- for now.
Essentially, the move says that the only way for the practice of academic medicine to survive is to take it out of academia. The prescription for survival is profit through corporate control. But the side effects could be devastating.
The white coats may be still giving the shots, but the suits are now calling them, even in the formerly sacrosanct arenas of research and training. Jobs are at risk. Lawsuits are being filed left and right. And the future of medicine -- from training doctors and pursuing scientific discovery to caring for the poor -- is now in the hands of big business.
The academic epitome of California's public university system, built with taxpayer money, has become a private shop.
All of those baggy-eyed young surgeons wander the halls of UCSF hospitals for a reason. Medicine is not learned in the classroom. And that means medical schools have to be in the health care business. They have to have patients in order to train physicians and do the research that leads to curing disease, fixing broken parts, and keeping society healthy.
Yet because of the overhead of those two missions -- teaching and research -- the hospitals and clinics attached to medical schools can't compete with their counterparts in what has become a very cutthroat health care market. That's why academic medicine is in such trouble.
During the last two decades of shrinking education budgets, medical schools became increasingly dependent upon the money from patient care -- more than 28 cents of every dollar coming in from medical care was being used for academic support -- and that left them vulnerable to the health care market. Medical school profits have actually declined by 20 percent since 1990, according to the American Academy of Medical Colleges (AAMC). "This is a very significant piece of the revenue stream that medical schools have grown lusty on and very dependent upon," says David Korn, head of the AAMC's Task Force on Medical School Financing, and former dean of Stanford University School of Medicine. "It's kind of like if you have a beautiful car that cost you a bundle and you don't have any oil in it, it's not going to run. These funds made the medical school run. That's very much under duress right now."