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Inside the Big Floop 

Threatening Mount Zion means curtains for the clowns who have mismanaged the UCSF-Stanford hospital merger

Wednesday, Aug 11 1999
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The press release was ominous, but not surprising. Last week, Stanford University President Gerhard Casper and University of California President Richard Atkinson announced that they were asking their respective staffs to "reassess the structure" of the controversial, 2-year-old deal that merged the hospital systems of Stanford and the University of California, San Francisco.

Although couched in vagary, the press notice was the closest anyone with authority had come to acknowledging that the merger is proving a massive folly.

Reaction to the announcement barely had time to percolate within local medical and political circles before an even bigger bombshell was dropped. The two men most responsible for presiding over the ill-fated merger -- Chief Executive Officer Peter Van Etten and Chief Operating Officer Bill Kerr -- announced Monday that they were stepping down to "facilitate" any changes needed to set the ailing company right.

The Hunter Group, a Washington-state-based consulting firm that specializes in turning around financially troubled hospitals, and which had been helping out since December, was tapped to take over management of the company and begin cleaning up the mess Van Etten and Kerr left behind.

In less than a week, it became clear that the UCSF-Stanford hospital merger is in deep trouble, and may need to be undone. And with good reason.

In November 1997, UCSF's and Stanford's hospitals, clinics, and other health programs were joined together to form a new health care juggernaut that supposedly would be better able to deliver medical care -- particularly to poor patients -- and prosper amid the ever-changing tides of health care financing. Those who supported the merger drowned out skeptics by spinning fantastic tales of how much money could be saved if the systems merged into a lean, mean model of business efficiency.

Clearly, that has not happened. Instead, the newly formed company -- known as USHC, for UCSF Stanford Health Care -- has proven to be a financial circus. Administrative costs have risen by more than $53 million. The new company has added nearly 1,000 new employees, only 600 of whom have anything to do with patient care. More than $100 million has been spent on expenses that are not directly related to the day-to-day operations of the hospitals. At least 10 top executives are pulling down salaries of more than $250,000 a year, not counting undisclosed bonuses.

USHC has lost control of its finances, and its hospitals are providing less medical care for the indigent now than they did before the merger. It is projected to lose about $60 million this year, and is in the process of laying off more than 2,000 employees. Most startling, however, USHC officials several weeks ago began batting around the idea of closing all or part of Mount Zion Hospital, which they blame for most of the system's financial losses.

Losses at Mount Zion are just one of the explanations USHC's executives have come up with for the financial catastrophe they have wrought. In fact, the excuses being offered have an eerie ring to them -- they are exactly the same arguments that were used to justify the merger in the first place. The federal government is cutting funds for academic medical centers, the USHC apologists say. Medi-Cal reimbursements aren't high enough to cover the cost of patient care.

Those, of course, are the very financial pressures that the merger was supposed to address. Even so, the UC Board of Regents and other officials seemed willing to let USHC work out the problems on its own -- until the talk of shuttering Mount Zion surfaced.

Then the faculty got mad. The community came unglued. Politicians swirled into action. Finally, last week, came word that Haile Debas, dean of the UCSF School of Medicine, who also sits on the board of USHC, might be fed up with the new arrangement. Debas indicated that he was set to make a recommendation about the future of Mount Zion on Aug. 27, and may urge that the merger be rescinded.

Shortly thereafter, Casper and Atkinson issued their press release, launching a review of the USHC structure, although they stopped short of actually calling for a divorce.

"What we're in is the most incredibly complex and difficult environment to deliver health care," says William Gertner, UC vice president for clinical services, adding that the universities are still trying to find the "best structure" to provide health care and academics.

But USHC's problems are more than structural, and won't be fixed by the departures of Van Etten and Kerr. The merger was a bad idea, badly executed. It has cost the public control of a $400 million hospital system, sometimes described as the "crown jewel" of the state's university hospitals. And it may cost taxpayers more, if some sort of state bailout is now needed to keep Mount Zion open, as many expect.

By agreeing to the merger in the first place, the UC Board of Regents gave the UCSF Medical Centers to a group of wealthy, influential business folks, essentially privatizing a public asset. The state, and the public, received nothing in return.

USHC has done virtually none of the things it promised in exchange for the Regents' largess. It has not reduced expenses. It has not become more efficient. Perhaps the most damning evidence of USHC ineptitude comes by comparing it to the four hospitals that remain in the University of California system, those in Davis, Irvine, Los Angeles, and San Diego. Although all four are academic medical centers with the same kinds of funding problems as USHC, each made a profit this year despite government funding cuts.

USHC's executives, and the architects of the merger, would have you believe that the system's financial problems are born of outside influences beyond their control, that none of this is their fault. That is intellectually dishonest, if not a total lie.

Many of USHC's problems, in fact, are a direct result of the merger itself. After USHC was formed, its leaders began spending money like drunken sailors. The company vastly underestimated the costs of merging two distinct hospital systems into one, and could not keep a handle on its overhead and accounting. Even though USHC receives more public subsidies than virtually any other private hospital corporation in the state, it is cutting services and providing a lower percentage of care to the poor.

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Lisa Davis

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