Pinstriped Medicine

How the UCSF-Stanford hospital merger foreshadows the new -- and sometimes frightening -- world of health care

Hellman put together a team, issued a report, and gave the Board of Regents the celebrity imprimatur it craved.

"My thinking on the whole issue was greatly influenced by Warren Hellman's report," says Lt. Gov. Davis. "His report persuaded me that many more people would have a job two years from now than are currently working at UCSF."

It was no surprise, then, that on Jan. 7 Hellman was named to the new board of the new entity known as UCSF Stanford Health Services. That's business. And, now, academic medicine is business, too, something that troubles a lot of people.

"Fundamentally, health care doesn't belong in the marketplace," argues Vishwanath Lingappa, a UCSF professor of physiology and medicine, and a vocal opponent of the merger. "When you go buy orange juice, you can taste it and make a decision. Unless you are a physician, you are dependent upon someone who has looked at the X-rays and tests and makes a decision that you are not allowed to evaluate. Medicine is judgment. Now you superimpose either financial incentives to do things, or the new managed care incentives not to do things. Neither of those is right. You, my patient, want my judgment to be free of financial incentive either way."

The whole point in merging Stanford and UCSF medical centers and turning them over to a private board to run was to create a better, more competitive business. After all, this deal started because of the bottom line, which is likely to become much more of a driving factor.

Without the deal, the universities ran the risk of losing everything they had to financial crisis. Now they run the risk of losing it all to financial gain.

The new UCSF Stanford Health Services is a nonprofit, public-benefit corporation, which basically means that the money doesn't leave the corporation, and the corporation supports the UCSF and Stanford medical schools. It does not mean that the corporation isn't profitable. The risk lies in how that profit is made and how it is spent, particularly with respect to research and training.

So private business has just moved onto what was previously sacred ground. The public's $400 million UCSF Medical Centers are the top AIDS research center in the country. They were the first to devise the techniques of recombining DNA for tests and vaccines that launched the biotechnology industry, the first to perform a successful surgery on a baby still in the mother's womb, the first to discover the genes that lead to cancer. UCSF performs more kidney transplants than any other medical institute in the world.

"Well-trained, bright scientists must be allowed to do their work in a clinically sensitive environment," explains the AAMC's Korn, who generally supports the idea of the merger. "The business environment might make that research environment a little less conducive to new discovery. In the long run, that would be a tragedy. You need the hospital management to be committed to that research or it won't happen."

The affiliation agreement between the two medical centers binds the new entity to provide that environment. But specifically how -- and for how long -- is up to the new board of directors.

The UCSF Medical School graduates 140 new doctors, 200 advanced-degree nurses, 120 doctors of pharmacy, 80 dentists, and 16 dental hygienists every year, and it is home to the highest number of minority medical students in the country, outside of African-American colleges.

The primary funding for all of this is now in the hands of private business. The UCSF Medical Centers provide $20 million, more than 40 percent, of the medical school's annual budget. According to the Hellman report, the affiliation agreement of Stanford and UCSF specifies that the new entity "will target historical funding," make an additional annual academic contribution ($1.25 million to $2.5 million in the first year), and create a reserve fund of 5 percent to 7 percent of adjusted operating profits.

But the report also states: "Beyond year one, the board of directors will determine the amount of academic contribution in the context of its annual budget-setting process and overall financial plan. ... It strives to maintain historical funding levels while recognizing the financial uncertainty of the future."

In other words, no guarantees are given. Initially, the regents imposed a number of constraints, including a minimum financing level. But the review team persuaded them that it was a better business move to leave that in the hands of the new board.

The business plan for this new health care giant remains a mystery. It will be crafted by the new board and whomever it hires to run the place. Meanwhile, the doctors are a little edgy about how the pinstripes are going to direct the money.

Especially in recent years, money from the faculty practice has grown to be a big source of income to medical schools. But that is now under the umbrella of the new corporation.

"The faculty is nervous about it," says one UCSF doctor. "The way support will be put together is going to be different. And the concern is about how the monthly salaries are going to be figured."

The poor might have even greater cause for concern. More than 25 percent of UCSF's patients are indigent, which translates into $66 million in unreimbursed care every year. Another 20 percent of Stanford's patients are indigent. The Hellman report states that the merger will not likely reduce that. In the future, however, deciding the level of unreimbursed care will lie in the annual budget discussions of the new board. And if they cut and run, it will fall even more on the public's shoulders than it does now. Private hospitals are not rushing into the charity care business. In fact, with more Medicare cuts coming down the pike, they're likely to back off even more. Losing money is not good business.

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