Giving Away the Hospital

University of California regents are set to vote next week on finalizing a merger of the UCSF Medical Center with Stanford University's health service. Supporters claim the merger -- a transfer of $380 million in public assets to the private sector -- is

Van Etten and Kerr, who have repeatedly advocated for the merger, will become chief executive officer and chief operating officer, respectively, of UCSF-Stanford Health Care if a merger goes through. In that event, the salaries of both men can be expected to soar. There will be no governmental guidelines to restrain them.

Profit potential extends to the UC boardroom.
The UC regents and their business entities would be legally free to do business with the new nonprofit health center, without concern about conflict-of-interest laws targeted at governmental actions. And some of those regents haven't been overconcerned with conflict-of-interest questions, even before there was talk of merging the UCSF Medical Center out of the governmental bailiwick.

UC Regent Peter Preuss, for example, owns a wide portfolio of stocks.
Among other things, Preuss sits on the board of directors of Dome Imaging Systems Inc., a Massachusetts-based company that provides radiological imaging supplies and equipment to UCSF. According to a recent disclosure statement filed with the state, Preuss owns more than $10,000 worth of stock in the company. Invoices show that UCSF did at least $170,705 worth of business with Dome during the past year alone.

Preuss did not return phone calls requesting comment on Dome Imaging Systems' sales to the university for which the regent sets policy.

If a merger goes through, Preuss and other UC regents and administrators will be able to do all the business they want with UCSF-Stanford Health Care, without the least fear of prosecutors or, for the most part, reporters. If a merger is finalized, dealings such as those between Dome and the nonprofit health service will be entirely private business matters.

In 1974, Herbert Boyer, a UCSF researcher, and Stanley Cohen, a Stanford scientist, changed the way science looks at human life with the discovery of a gene-splicing technique. Together, the universities have collected $194 million in royalties from more than 200 products created from that discovery. Boyer went on to found the South San Francisco-based pharmaceutical giant Genentech Inc.

Truth be told, UCSF gave birth to the biotechnology industry, in much the same way that Stanford spawned Silicon Valley. The biotech industry is a network of family trees, where one business spins off another, funded by venture capital money. It is not surprising, then, that many of the people orbiting the UCSF and Stanford medical centers have investments throughout the biotech landscape. They're intimately familiar with what most of the millionaires traversing the 40 miles of highway connecting UCSF and Stanford already know -- there is a potential for truly great riches in science.

The physicians and researchers and businessmen who circle the UCSF and Stanford medical centers are precisely the people who have made the proposed merger of those two institutions a near-reality. The UC regents have the power to approve or abort the merger. But the Stanford Health Services board of directors also must approve a joining with UCSF. And there are other institutions and groups of people who exert influence on the regents, the SHS board, and other decision-makers who have been in and near the merger discussion.

Clearly, one of those influential groups is the UCSF Foundation, a vehicle used to raise most of the private donations given to the San Francisco medical school. The board of the foundation recently wrote to the UC regents asking for their support in the merger. That letter made a connection between the merger and a new UCSF campus that will be built in Mission Bay and, soon thereafter, is expected to be surrounded by a new biotechnology research park.

UCSF has definitively stated that the Mission Bay site and UCSF-Stanford Health Care support different campus missions, and that UCSF has no plans for major clinical activities at the Mission Bay site. However, in its July letter, the foundation board contended the merger was vital to the new campus.

"The merger is key to the future vitality and progress of the University of California San Francisco," the letter said. "In fact, the vibrant and financially stable clinical enterprise this merger creates would ensure the successful development of UCSF's next major campus site at Mission Bay."

Plans for UCSF's Mission Bay campus are not yet complete. Although initial construction will focus on research laboratories that will (apparently) not become part of UCSF-Stanford Health Care, the campus is likely also to include at least some clinical operations down the road. Those operations -- major or minor -- could fall under the umbrella of the merged nonprofit.

Agreements between the University of California and the new private entity were amended in July to allow the nonprofit to conduct research and clinical trials, if the heads of the UCSF and Stanford medical schools agree.

Clinical trials are the necessary, tedious, and costly process that brings new discoveries from the laboratory into the commercial market. But that market is worth billions. Industry observers believe it's about to boom, with some 200 biotech drugs in the final stage of testing and heading toward approval from the Food and Drug Administration within the next two years.

A huge nonprofit institution that controls hospital beds and has research capability could help determine which companies will prosper most in such a boom.

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