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

The Transition Times is a weekly newsletter designed to keep employees at Stanford University and the University of California, San Francisco abreast of developments in an ongoing merger of the two schools' medical centers. The June 24 issue of the newsletter includes an item appropriately titled "Merger Synergies: SHS's [Stanford Health Services's] Dirty Laundry Creates Jobs."

That item describes the efforts of an enterprising group of bean counters who determined that consolidating the laundry operations of all UCSF and Stanford hospitals at UCSF would save money.

The consolidation, projected to save hundreds of thousands of dollars a year, was implemented immediately. Even union leaders who are fighting the UCSF-Stanford merger seemed to think the laundry combination was good news. After all, it created 23 new jobs, and provided comfort to employees who fear a merger will mean nothing but staff reductions.

The move was also good news for Winfield Industries, a San Diego company that sells laundry supplies to UCSF. And good news for Winfield would certainly appear to be good news for John Davies, chairman of the Health Services Committee of the University of California Board of Regents. According to a financial disclosure statement he filed with the state in March, Davies is a member of the board of directors of Winfield Industries.

And at the end of 1996 (the last date covered by the disclosure), he owned more than $100,000 of stock in the company. Davies did not return phone calls seeking comment on his relationship with Winfield and its connection to his service as a UC regent. But there is a connection.

The UC Board of Regents will take its final vote on the massive UCSF-Stanford merger next week. Whether Davies can vote on the merger depends on whether he still owns stock in Winfield Industries and how large of a financial benefit a merger would confer upon the firm. Davies has participated in previous merger votes, but state conflict-of-interest law would prohibit him from voting on Sept. 18 if he continues to own more than $1,000 in Winfield Industries stock and if the merger were determined to have a "material" effect on the financial fortunes of Winfield.

Davies, a lawyer who serves as Gov. Pete Wilson's secretary for judicial appointments, is presumably familiar with California's conflict-of-interest law and the procedures for obtaining legal advice on what constitutes a material benefit.

In coming weeks, many other regents and decision-makers may need the same kind of advice, because the UCSF-Stanford medical merger -- a massive, unprecedented privatization of a public-interest institution -- is suffused with seeming conflicts of interest and surrounded by apparent opportunities for private, personal gain.

For nearly two years, the leaders of the University of California, San Francisco and Stanford University have been discussing, negotiating, and planning to merge their medical centers into one behemoth of high-end health care.

Such a merger would move an estimated $380 million in UCSF assets into the private sector -- a transfer that almost certainly represents the largest privatization of a governmental function in the history of California.

Both medical institutes are consistently ranked tops in the nation as research and treatment centers. Together, they lead the country in organ transplants, cancer treatment, AIDS care, and the discovery of the new drugs and techniques that extend the length and improve the quality of human life. These medical centers are home to the brightest minds in science.

They are also enveloped in a rapidly changing health-care arena, where business often comes before science, and the player with the most profits usually wins. Academic medicine was never supposed to be profitable. It was created to serve the public interest, in a broad sense.

But because both UCSF and Stanford treat real patients in the real world, they are forced in some ways to compete in the cutthroat realm of corporate medicine, where research means little or nothing and managed care cost-cutting reigns supreme. Faced with what appeared to be an increasingly dismal bottom line, the leaders of the two universities decided to join in the private health care game.

At least, that is the justification they gave in public.
On the surface, their plan looks like this: A merger of the two medical centers creates a new, nonprofit corporation known as UCSF-Stanford Health Care (in fact, the corporation has already been formed), governed by a board of directors composed of top officials from both universities, as well as some outside business players. The new entity takes over and runs the assets and liabilities of UCSF's Moffitt/Long and Mount Zion hospitals, the Stanford University Medical Center, Lucille Salter Packard Children's Hospital (at Stanford), and all of the clinics and clinical practices of the doctors of both universities.

In exchange, UCSF-Stanford Health Care funds the medical schools of both universities -- schools that remain separate -- at a level to be determined by the new board of directors.

But you should make no mistake: The impending merger is not about teaching, research, or patient care. During the merger debate, the mission of academic medicine has gone all but unremarked. None of the experts hauled in to render an opinion on the deal has been charged with examining educational or public pol-icy questions.

This merger has always been about money, as evidenced by the plethora of wealthy players who have orbited the deal since it was announced publicly. But when it was announced, the merger seemed to have a compelling raison d'étre. If a merger was not effected, proponents of such a move claimed, the UCSF Medical Center would lose more and more money with each passing year, eventually forcing the medical school to cut educational programs.

But the stated reasons for the merger are thinning with the passage of time. Heroic treatment -- a merger -- no longer seems justified by the disease, if there ever was one. The UCSF Medical Center not only hasn't lost vast amounts of money, as was predicted by advocates of the merger, but made more than $20 million during the past fiscal year.

Why, then, would UCSF caretakers want to literally give away a $400 million public asset, the top public medical institute in the nation, to a private-sector firm?

Conspiracy theories about the motives for the UCSF-Stanford medical merger are vast and tangled, some of the wildest of them reaching all the way to the White House. Theorizing aside, it is clear that the merger will privatize the University of California, San Francisco Medical Center and bring two of the nation's premier medical research institutes under the control of a relatively small group of extremely wealthy, politically connected people who can be accurately described as power brokers.

It is also clear that there is simply no pressing financial reason for either institution to merge with the other -- and certainly no reason for the UCSF Medical Center to go private. UCSF is, by any number of verifiable measures, in fine financial health.

By July 1996, merger talks had gained enough momentum to make the agenda of the University of California Board of Regents. The UCSF administration had already discussed a merger plan in some detail with Stanford executives; the regents had to give approval for UCSF to go further. While deciding whether to pursue a merger, the regents essentially ignored the question of whether they had the legal authority to hand UCSF's medical center over to a private nonprofit entity -- a move that, when viewed from a certain angle, could be seen as an unconstitutional gift of $380 million in public funds. (Allegations that the merger constitutes a gift of government assets are part of a lawsuit challenging the deal.)

Even if constitutional niceties were glossed over, however, the regents could not approve a move as drastic as a merger without compelling reasons.

As the merger was being considered, UC President Richard Atkinson commissioned a "third-party review," billed, just as its name would suggest, as an independent financial analysis of the proposed merger.

The review was extremely narrow in scope, focusing entirely on whether the proposed merger of UCSF Medical Center and Stanford Health Services was a good business deal for the University of California, based predominantly on data provided by the UCSF Office of the President. It did not address any other options for dealing with alleged fiscal problems at UCSF. It also did not address any effect a merger might have on teaching or research. But perhaps the oddest part of this independent third-party review was its lack of an independent third party.

The reputedly impartial third party had apparent conflicts of interest involving both of the parties with which it supposedly was unallied.

Although they have regular dealings with a variety of large accounting and law firms, the UC regents didn't base this initial merger vote on the opinions of certified, sworn, or licensed lawyers or accountants. Instead, Atkinson turned to San Francisco investment banker F. Warren Hellman, a longtime, extremely generous benefactor of the university who had served on the board of the UCSF Foundation -- a primary fund-raising vehicle for the university -- and directed UCSF's $555 million capital fund-raising campaign. His firm also managed a portion of Stanford's pension funds.

At the regents' request, Hellman hired a team of people, including two executives from Bain & Company Inc., an international management consulting firm, to assess the financial pros and cons of a merger. Hellman found few cons.

But his team certainly had connections. Even though its executives were key players in what was presented as a review independent of both UCSF and Stanford, Bain & Company had previously worked as a consultant to both institutions. As a matter of fact, Bain was the second-highest paid consultant to Stanford Health Services in 1994 -- a year included in the team's review of Stanford and UCSF financial performance. Meanwhile, the husband of a Bain employee who worked on the team was a member of the faculty at UCSF.

Also part of the review team was John McArthur, a former dean of the Harvard University Graduate School of Business Administration who has been credited with orchestrating the merger of Harvard-affiliated Brigham & Women's and Massachusetts General hospitals. Expense reports show that on Aug. 29, 1996 -- while he was traveling first class, and staying at the Ritz Carlton, courtesy of California taxpayers -- McArthur visited the home of Robert Halperin, a member of the Stanford Health Services board of directors, a body from which McArthur was to be independent.

Three months later, after the supposedly independent, third-party team had recommended that the merger go forward, and after the UC regents had voted to proceed, Halperin was named to a committee that would select so-called "outside directors" to serve on the board of the nonprofit entity that would run the new, merged UCSF-Stanford megalith. These outside directors might be expected to represent swing votes, the people who would be independent of the directors named directly by UCSF and Stanford.

One of the outside directors had a familiar name -- Warren Hellman.

Because they were charged only with determining whether the merger was a good business deal, the members of the third-party review team looked at the UCSF Medical Center as though it were a stand-alone business. Essentially, the review team analyzed the medical center's performance in a vacuum -- totaling operating income and subtracting expenses, without considering the outside support UCSF receives. The report projected that UCSF Medical Center would be suffering a $19 million loss by the year 2000.

But that analysis was profoundly mistaken in the short run, and will likely be just as mistaken in the long run, because it is based on unfounded assumptions.

Some of those assumptions seem so wrongheaded that other financial experts have wondered if they were accidental or purposeful distortions of reality.

The UCSF Medical Center is part of the University of California system, and as such receives from the state about $12 million a year in clinical teaching funds. That money pays for the treatment of patients who cannot pay the full cost of their hospital care -- but whose admittance to UCSF hospitals is absolutely required, if new doctors are to be properly taught. The third-party reviewers refused to consider those funds as income of the UCSF Medical Center -- even though the state will continue to pay for clinical teaching, whether a merger goes through or not.

But $12 million in teaching funds was hardly the only funding underestimate made by the third-party team.

Unlike Stanford, UCSF does not currently pay into a pension fund for its employees, because the University of California pension plan is overfunded -- that is, it has enough money invested to sustain itself, at least for a time, without annual contributions. The third-party review ignored this overfunding -- worth about $21 million a year -- on the assumption that the overfunded situation could not go on forever, and UCSF would someday again have to contribute to the plan.

And someday it will. But unless it merges, the university will enjoy the luxury of not paying $21 million a year toward pensions, for at least a few years. It is only in the event of a merger that the medical center will have to immediately begin pension payments.

These and other financial discrepancies in the third-party review were pointed out by economist Mark Blum, a consultant hired by UCSF unions who have filed a lawsuit to stop the merger. Blum's analysis was backed by Richard Weber, an economics professor and expert witness on fund accounting for the Securities and Exchange Commission who had been hired by the UCSF Academic Senate.

"The Hellman [Third-Party Review] Report, apparently the justification for the UC Regents decision to merge the UCSF and Stanford Medical Centers, had projected a deficit of nearly $11 million for fiscal year 1997, based on analytic assumptions that I can only describe as somewhat bizarre," Blum testified in a recent state Senate hearing on the merger. "When I finally had the opportunity to review the Hellman Report, I was unable to identify any sound financial rationale for the projection."

UCSF quickly dismissed the Blum/Weber analysis -- but without effectively rebutting any of its key points. Essentially, the university administration continued to say the merger is a good idea because Hellman's team said so -- even though it was clear by then that many of the team's assumptions were wrong.

In July, at the request of California Sens. Quentin Kopp and Tom Hayden, state auditors looked at the proposed merger -- an examination that regents had never requested.

Again, the auditors had a limited charge; they were only to examine the financial benefits of the proposed merger, not its legality or constitutionality, or its impact on patients, students, and the public.

State auditors found that both Stanford and UCSF were in good financial health, and that the third-party review had overstated the financial benefits of a merger by tens of millions of dollars.

"A merger is not needed for either of them to remain viable," says State Auditor Kurt Sjoberg. "They need to address any number of initiatives to be more competitive in the market in which they find themselves. That can be accomplished in any number of alternatives."

But the UC regents didn't need to wait for the state auditors' report to know the financial condition of the university's medical centers.

Last November, during a private meeting of the Board of Regents Committee on Audit (university officials, apparently realizing the meeting had been illegally closed to the public, would later release transcripts of the event), accountants from the firm of Deloitte & Touche, which had been hired to audit all five of the University of California medical centers, delivered some news that was disturbing, even when presented in the flat prose used by members of the dismal profession:

"We have very serious concerns about the accounting and the financial controls at the University of California."

To make UC's books balance, the auditors had needed to make $100 million in adjustments to the university system's financial statements. Many of those adjustments dealt with reserves that had been hidden "off the books" by university departments.

As with most academic institutions, UCSF divides its money into a variety of funds. These funds are roughly analogous to bank accounts; each has its own balance sheet. In making its report on the merger, Warren Hellman's third-party review team looked at the UCSF Medical Center's operating fund -- that is, the fund into which money paid for patient care flows and from which bills are paid.

But the Medical Center has many other accounts, some quite substantial. Among others, reserve and capital improvement accounts were not considered in the third-party review, even though they are part and parcel of the overall financial picture of the center.

In fact, back in November, auditors cautioned the regents that the medical centers were stashing money in reserve accounts. This stashing of excess year-end funds where legislators are unlikely to look is fairly common among universities and nonprofit entities. But the UC campuses were taking the practice to extremes.

Accountant Tom Weixel told the regents:
"Management needs to be more disciplined about monitoring the level of these reserves and more importantly not building them up just to avoid reporting larger bottom lines in these medical centers. At several medical centers active partnering and merger discussions are under way ... [text deleted by the UC's lawyers]."

In total, counting reserves, UCSF's most recent financial statements show the institution has $139 million in surplus funds -- that is, money available for operations or plant expenditures -- an increase of $42 million during the past two years. The Medical Center's long-term debt is about $40 million. In other words, the UCSF Medical Center, as a business, has enough expendable assets to pay off its debt three times over.

"Not only is the financial sky not falling, it's quite blue," says Blum. In fact, he adds, in the business world, the UCSF Medical Center is such a moneymaker that it would be a prime candidate for acquisition.

The laissez-faire accounting system that built huge reserves inside various components of the UC system basically was designed to allow those components to buy independence from the university bureaucracy. Money is stuffed into discretionary accounts used by department heads for recruiting and other activities unlikely to receive unrestrained legislative funding. These funds may not have been properly accounted for by the UC system. In fact the accounting system used at UC medical centers is clearly its own separate scandal.

But these reserve funds -- and others, including capital improvement accounts -- represent real, spendable money, even if so-called third-party reviewers refuse to acknowledge them as such.

It would be impossible to definitively determine all of the motivations behind the proposal to merge the University of California and Stanford University medical centers. Although SF Weekly reviewed thousands of pages of public and private documents while researching the merger, both UCSF and Stanford have denied requests to view numerous key documents related to the deal. And for perhaps understandable reasons, members of the press were not invited to many of the initial planning sessions for the merger.

But the available public record makes two things quite clear:
1) The official reasons given to justify a merger -- the financial crises predicted by university administrators and their consultants, including the so-called third-party reviewers -- are simply not true.

2) Many people who have been directing, or advocating for, the merger have the potential to make a lot of money if the merger becomes a reality.

When UCSF and Stanford officials talk about merging their medical operations into one nonprofit entity, they don't mean to say the resulting business will actually make no money. Placing the UCSF Medical Center within a nonprofit just means the resulting business won't distribute profits or pay dividends to owners. As is the case in any private business, control of the money flowing through a nonprofit corporation -- where it is spent, who is hired, what contracts are doled out -- remains in the hands of a private board of directors.

And therein lies the power to build an empire.
The board of directors for the merged entity known as UCSF-Stanford Health Care (USHC) will award tens or even hundreds of millions of dollars in contracts each year. And the strict anti-corruption laws that apply to government purchasing will be manifestly nonapplicable to that contracting process; what would be considered criminal self-dealing in governmental purchasing is often perfectly legal in the nonprofit world.

USHC will, therefore, have wide latitude to contract with businesses owned or operated by the members of its own board of directors, the administrators of the medical centers themselves, and the large web of business movers and shakers who have moved and shaken to make the merger a reality.

If the UC regents approve the merger, monetary opportunities will certainly abound at the UC executive level.

By comparison to their counterparts in the private sector, university hospital administrators are grossly underpaid. For instance, Kaiser's David Lawrence earns about $1.2 million a year in salary and bonuses. Both Peter Van Etten, previously Stanford Health Services' director, and William Kerr, UCSF's chief administrator before the merger, each make less than $500,000 annually.

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.

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.

(Almost as an afterthought, the bill also exempts directors and officers of the merged medical center from liability under the state's chief conflict-of-interest statute, the Political Reform Act.)

Advocates of the merger are so focused on maintaining privacy for USHC that they have officially contradicted their own previous public assertions in an attempt to avoid coming under the regulation of the Fair Political Practices Commission, which requires government officials to file disclosures of their personal financial interests. In a July letter to the commission, UCSF-Stanford Health Care lawyers argued that the nonprofit's officials are exempt from state financial reporting requirements because the new medical entity is entirely separate from the government. Among other things, the lawyers asserted that:

* "USHC has not and will not receive any appropriations, nor will it receive any tax revenues from the state."

* "UC retains no control over USHC's daily operations or long-term planning."

* "USHC is not obligated to provide the public with opportunity to inspect or copy records."

These statements may persuade the commission to find that USHC has no significant connection to the government and that its directors and executives are therefore exempt from financial disclosure requirements. But the statements in the letter are diametrically opposed to assertions that supporters have made in regard to a UCSF-Stanford merger. And some of the assertions made to the FPPC seem to be, quite simply, false.

In claiming that USHC will be entirely a private affair, the letter suggests the nonprofit will get no state support. Yet preliminary merger agreements call for UC to lease the buildings that compose its medical center to the new corporation for $1. The new corporation will also lease some employees from the University of California -- so that they may remain in California's Public Employee Retirement System. And although the state cannot legally fund USHC directly, there is a plan to pass $12 million in state clinical teaching funding through UCSF and to the hospitals that will be controlled by the new merged medical center.

If USHC is attempting to be both public and private in regard to financial reporting laws, it also has a multiple personality problem as relates to the educational and health care services that are now considered primary missions of both the UCSF and Stanford medical centers.

Merger supporters have repeatedly said that the combination of UCSF and Stanford medical centers will not affect the academic quality of, or the indigent health care provided by, either institution. But that July letter to the Fair Political Practices Commission suggests that USHC's lack of focus on the general public interest is at least as troubling as the manifold conflicts of interest that surround the proposed merger.

In recent years, UCSF has provided some $66 million a year in free medical care to those who cannot afford to pay for it; Stanford provides another $22 million a year of such indigent care.

The July letter to the Fair Political Practices Commission offers a look at the cold, harsh reality of the future -- a future in which the mission of the University of California, San Francisco Medical Center will simply disappear:

"USHC is not taking on those aspects of the provision of health care services which are arguably suffused with public interest concerns," the letter asserts. "USHC is not responsible for operating the med-ical schools. USHC is not obligated to provide medical care for the indigent. USHC is not responsible for carrying on public health research ...."

Later, the authors of the letter spell out the point more clearly, saying that the new, merged UCSF-Stanford Health Care nonprofit corporation "has no general public service mission."

And, those authors are precisely correct. As proposed, the merger of the UCSF and Stanford medical centers will create an institution that includes $380 million in public assets, but the institution will be run by directors and executives who are entirely unaccountable to the public, who are under no legal requirement to serve the public interest -- and who will nonetheless have the power and the financial authority to dictate the level of support that public medical education and public health care will -- or will not -- receive in San Francisco.

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