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

Many of the people involved in the merger and the Mission Bay development that will host the new UCSF campus have to be keenly aware of the profit potential of the biotech industry.

And many of those people have significant amounts of money invested in biotechnology, which makes for some interesting and cozy arrangements. (A graphic representation of these arrangements and other business links is on Page 20.)

Research-based biotech companies generally make partnership deals with big pharmaceutical firms to bring their drugs to market, once governmental approval has been gained. This year, for example, the San Diego-based DepoTech Corp. reached the final stages of FDA approval with its primary product, DepoCyt, an anti-cancer drug that was developed in partnership with Emeryville-based Chiron Corp., which has the right to market the product in the United States.

As of his latest disclosure form, UC Regent Preuss sat on the board of DepoTech and owned at least a $10,000 interest in the firm. Chiron Corp.'s chief executive, a former UCSF researcher named William Rutter, has been instrumental in pushing for the Mission Bay campus.

Others in and near the merger debate also seem to consider DepoTech stock a good investment. Disclosure forms show that former UC Regent Leo Kolligian, a lawyer from Fresno, who left the board earlier this year, had more than $10,000 sunk in the company at the end of last year. And UC President Richard Atkinson invested at least $10,000 in DepoTech last March, public records indicate.

USHC board members Isaac Stein and Denise O'Leary and a member of a committee that chose board members for the nonprofit all sit on the board of Alza Corp., a Palo Alto-based company that researches and develops pharmaceutical products and would seem well-positioned to benefit from a merger. Stein, general partner of Waverly Associates, a Palo Alto investment firm, also was on the board of CV Therapeutics Inc., another biopharmaceutical company.

Howard Leach, a UC regent and USHC board member, held financial interests in venture capital and stock partnerships invested in medical and pharmaceutical businesses, according to his disclosure form. He is former chairman of Sybron Corp., a medical, dental, and pharmaceutical product maker.

Even the real estate underneath and near the new, biotech-oriented campus raises conflict-of-interest questions. Regent John Davies of San Diego had to recuse himself from voting to select Mission Bay as the new site for a UCSF campus, because, according to his disclosure form, the one and only investment property he holds outside of Southern California is, by coincidence, the Mission Bay Golf Center on Sixth Street, located at the heart of the Mission Bay development that will include the new UCSF campus.

William Bagley, another regent, didn't vote on choosing the Mission Bay campus site because his law firm, Nossaman, Guthner, Knox & Elliott, represents Catellus Development Corp., owners of the land that will become Mission Bay. Preuss owns less than $10,000 worth of stock in Catellus; he apparently did not see the same conflict of interest and voted in favor of the Mission Bay site for UCSF's campus.

Like scientists conducting a genetic experiment in the laboratories of UCSF, the architects of California's first great public-private health care merger are trying to create a hybrid. They want to form a private business that keeps all the benefits of state funding, but sheds the accountability requirements that usually go with public money.

The leaders of the nonprofit corporation created by the merger -- Chief Executive Officer Peter Van Etten and Chairman of the Board Isaac Stein --- both hail from the private-sector side of the combination, Stanford Health Services. And privacy, it seems, is paramount to many merger advocates. Merger architects consider it so important for the newly formed UCSF-Stanford Health Care to be a private entity that the official merger agreement states that if it becomes anything other than a fully private entity -- if, for instance, its directors and executives are made to comply with state disclosure requirements that apply to government officials -- the merger itself may be canceled.

Merger proponents say privacy is required if USHC is to compete with the lean, mean corporations in the private health-care sector -- corporations that operate with none of the clumsy public oversight inflicted on governmental entities. Even a cursory examination of the apparent conflicts of interest surrounding the proposed merger, however, suggests that the aversion to public disclosure and oversight might be based on less savory motives.

Motivations notwithstanding, privacy seems to be trumping public oversight of the new UCSF-Stanford medical monolith.

Assemblywoman Carole Migden proposed legislation that would have provided extremely general oversight of state assets contributed to the merged entity -- but that bill was vetoed last week by Gov. Wilson, who said that even light supervision would harm the nonprofit corporation's ability to compete.

State Sen. John Burton made another proposal, which would have allowed the public to have access to the financial records of USHC -- but that measure has been negotiated and compromised and now allows a truly astonishing plethora of exceptions to public disclosure. Although Burton has touted the measure as a victory for the public's right to know, as amended the measure would make public virtually no financial records of USHC -- and would specifically keep from public view many records that are routinely disclosed by governmental entities, including UCSF.

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