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Newsbreak
Issue: 4 June 1999
| Editor's note: This
is the first in an occasional series about the challenges of UCSF Stanford Health Care as
well as an analysis of the trends shaping the future of medicine and medical education.
This first article presents an overview of the current situation. |
UCSF Stanford Health Care Works Toward
Financial Recovery
In its second year as a merged organization, UCSF
Stanford Health Care is taking steps to ensure its marketplace survival as a united health
care organization. Amid criticism and concern over the current financial crisis, officials
with both universities stand by their November 1997 decision to combine patient care
services. In recent weeks top-level administrators, including Chancellor Mike Bishop and
Dean Haile Debas, have defended the historic union as the best strategy for the survival
of both academic medical centers.
Although both UCSF and Stanford are serving a higher volume of patients -- seeing an
overall 8.9 percent increase in patient days across both campuses -- the growth in
clinical activity at UCSF has not translated into profitability. Shrinking Medicare
payments have left revenues flat. Income has been affected by soaring expenses and
investments in infrastructure improvements, such as information technology. Of the $125
million UCSF Stanford has committed to upgrade information systems before year 2000, for
example, about two-thirds will be spent at UCSF where systems have suffered from
inconsistent and inadequate investment.
Consequently, after posting a $20 million operating gain in its first year as a merged
entity, UCSF Stanford now expects to end 1999 with a $60 million deficit.
For help through the financial troubles, UCSF Stanford
retained the Hunter Group, a consulting firm that worked to eliminate a similarly
crippling deficit at UC San Diego.
The Hunter Group recommended that UCSF Stanford immediately reduce expenses by $170
million to return the organization to a break-even point in 2000. The Hunter group also
advised UCSF Stanford to make $100 million in financial improvements over the next year,
either by cost savings or increased revenues. The UCSF Stanford board of directors
accepted the recommendations.
At the May 20 meeting of the UC Board of Regents at UCLA, Regent Frank Clark, a longtime
opponent of the merger, called for its immediate dissolution. And while no other Regents
echoed his sentiments, several said they want increased supervision over financial
matters.
Having been an enthusiastic supporter of the merger, Debas, dean of the School of Medicine
and a member of the UCSF Stanford board of directors, told the Regents he will continue to
support the merger, but "only if it is good for UCSF."
"I believe that the reasons for creating the merger are even more compelling today
than they were in November 1997, and the merger has never been more important if we can
make it work. It is my belief that we must make it work, we can make it work and we will
make it work," he said.
Debas and other UCSF Stanford officials say dissolving the merger would cost more money
and would eventually weaken both institutions by pitting them against each other in an
already cutthroat managed care marketplace where payers have driven reimbursement for
specialty services to a low level.
In an interview last week, Debas described the causes of the financial problems and what
UCSF Stanford is doing to solve them.
A Broken System
Debas attributes the financial deficit to a poor payer
mix, high expenditures at UCSF and UCSF/Mount Zion and the effects of the Balanced Budget
Act (BBA) of 1997, which reduces Medicare subsidies for graduate medical education and
other Medicare payments to academic medical centers.
At UCSF, expenses rose for labor, supplies and drugs. In the first 18 months of the
merger, UCSF Stanford added 400 new full-time equivalents (FTEs) at the north campus,
Debas says. Employees were hired at UCSF to handle more patients, improve information
technology, develop new purchasing and payroll systems and improve billing operations,
among other duties.
Revenues have been particularly flat at UCSF, which has a less lucrative payer mix than
Stanford. UCSF serves 11 percent fewer private fee-for-service patients, 4 percent more
Medi-Cal, 4 percent more capitation, and 3 percent more Medicare patients than Stanford.
Since UCSF serves more Medicare patients, the impact of the BBA is greater at UCSF than at
Stanford.
UCSF Stanford officials, who expect BBA losses will amount to nearly $200 million over the
years up to 2002, are working with the Association of American Medical Colleges (AAMC) to
ask federal representatives to support a bill introduced to Congress by Senator Patrick
Moynihan. The bill aims to freeze the effect of the BBA on graduate medical education
funding. The AAMC forecasts that the total loss sustained by all teaching hospitals by
year 2002 will amount to $14.7 billion as a result of the BBA. But even if Moynihan's bill
passes, UCSF Stanford will still face the challenges brought on by the much-maligned
managed care market system.
"I think the American people will have to come to grips with this," Debas says.
"The system is broken. I think there is something wrong when the health of a person
is traded on Wall Street."
In the absence of a sound national health care policy, market forces have led to
consolidations of HMOs in the Bay Area and the growth of large health care purchasing
pools. In 1993, these purchasing pools began demanding reductions in their premiums, a
demand that HMOs accepted but quickly passed down to the providers.
The changes have led to bankruptcies of physicians, some of whom joined medical groups in
an attempt to protect themselves and their practices. But medical groups are no safe haven
-- the Brown & Toland Medical Group, a partnership of UCSF and California Pacific
Medical Center, is facing financial deficits as well.
"I think the health care system is about to implode," Debas says. "The
profits to be made in health care have all been squeezed."
Debas predicts the next shift in health care will come when employers give an allowance to
their employees asking them to buy their own health care plans. "When this happens,
the public will really get involved and they will force a national debate on the future of
health care," Debas says.
Reality Check
While the process of returning to financial stability will be difficult, UCSF Stanford
must also resolve other issues that have hindered the working relationship of its clinical
faculty. For example, plans for creating pilot multidisciplinary service lines have not
been realized, except for those for adult cardiac, pediatric cardiac and pediatric
neurosurgery. The potential for expanding clinical research and collaborations in graduate
medical education remains, but UCSF Stanford has to face some realities.
"The UCSF Stanford merger has proven more complex and challenging than any of us
expected," Debas says.
First, the 40-mile distance between the two academic medical centers makes it very
difficult for busy clinicians to work collaboratively on a regular basis.
Second, the fact that the schools remain separate -- with faculty having strong
institutional loyalty -- inhibits the full integration and improvement of medical training
since they still compete to recruit residents and faculty.
Third, the merged organization has been stymied by a public-private culture clash among
the faculty used to different styles of decision making. UCSF faculty are accustomed to
the system of shared governance in which they have a role in the decision-making process
as it affects the academic mission.
"We made mistakes," Debas admits. "We tried to force collaborations from
the top down. I have asked for a change of 180 degrees. We must let the faculty tell us
what to do and give incentives to them for coming up with strategies that will work."
By appointing chief medical officers at both UCSF (Ted Schrock) and Stanford (Peter
Gregory) instead of one at the Executive Park headquarters, UCSF Stanford has strengthened
local control. This change pleases faculty and staff who have been disillusioned and
disconnected with the centralized decision-making process.
In the meantime, faculty at UCSF and UCSF/Mount Zion are deeply concerned that the
financial crisis will result in cuts that will harm the academic mission.
Debas says he's concerned too. "The primary purpose of the merger is to support the
academic missions of the schools by having a profitable hospital system," he says.
"If it fails to support that mission then the merger will not continue."
Critical differences also exist in management philosophy and practice, particularly the
ways funds flow from the hospital system to the clinical departments. UCSF Stanford has
attempted to make the funds-flow process uniform and consistent between both campuses,
with common incentives for faculty, but the plan has yet to be carried out successfully,
Debas says.
These woes, coupled with financial pitfalls, have exacerbated the process and progress of
merging patient care operations at UCSF and Stanford, Debas says.
Financial Recovery
UCSF Stanford is in the midst of a financial recovery
plan that calls for reducing expenses by $170 million, two-thirds or $112 million of
which, will come from a phased reduction of about 16 percent of its workforce over the
next year. UCSF Stanford will lay off 780 FTEs, with 450 positions to be eliminated at
UCSF.
Another 22 percent, or $38 million in savings, will come through reductions in drug and
supply costs. The remaining 12 percent, or $20 million, will come through a variety of
other measures to reduce expenses, including controls on spending for consultants,
employee education and training, campus services provided to the clinical enterprise and
other such costs.
To spur revenues, UCSF Stanford is renegotiating with private insurers to bring
reimbursements closer to the costs of providing care. UCSF Stanford recently negotiated a
series of contract revenue increases.
Of critical importance, though, is keeping better track of its $1.5 billion budget. UCSF
Stanford lacked adequate and timely financial information to manage itself properly until
the second quarter of its second year in operation, Debas says.
The UCSF Stanford board has asked its executive committee to be the Turnaround Oversight
Committee, which meets every two weeks regularly to review progress with Chief Executive
Officer Peter Van Etten and his senior management team. The board also asked Bill Kerr,
chief operating officer, to oversee UCSF hospitals.
UCSF faculty and staff are also concerned that the quality of patient care will be
compromised to balance the budget. UCSF Stanford officials say the merged organization is
considered overstaffed in comparison to other academic medical centers and that, even
after the proposed reductions, will have sufficient staff to deliver high-quality care.
Nevertheless, UCSF Stanford will continue with traditional measures of medical quality and
the Clinical Services Executive Board at UCSF has recommended that faculty and staff have
an opportunity to respond to patient care issues by emailing ideas to Schrock at (schrockt@medcenter.ucsf.edu).
The most controversial part of the financial recovery plan is the proposed restructuring
of operations at UCSF/Mount Zion, which faces a potential loss of $40 million this year,
largely because of lower reimbursement for hospital services. Ideas under consideration
include:
moving clinical programs and their hospitalized
patients from UCSF Medical Center to UCSF/Mount Zion and thus allow Parnassus programs to
expand;
operating only those functions at UCSF/Mount Zion
that relate to outpatient physician practices and the outpatient clinical cancer center,
including outpatient surgery, lab and radiology services, infusion and outpatient renal
dialysis;
operating all outpatient services described above
plus an inpatient short-stay unit for patients requiring less than 72 hours in the
hospital, including maintaining the ancillary and support services necessary to run a
short-stay unit.
Committees have been formed to allow faculty
physicians, staff, community members and trustees to take part in the process of reviewing
proposed changes for UCSF/Mount Zion.
Responding to faculty concerns about the timing of his sabbatical to begin July 1, Debas
has modified his plans. He will return for two weeks at a time every two months so that he
can attend the meetings of the UCSF Stanford board and meet with chairs and faculty
"to review the impact of the cutbacks." Debas also will participate by telephone
in the weekly meetings of the UCSF Advisory Group to keep current on the issues and to
participate in the decision-making process.
By Lisa Cisneros
CURRENT NEWSBREAK
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