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appeared 20 July 1999
UCSF Stanford Agrees to Audit, Regents
Allow Recovery Plan to Continue
Following a request from four Bay Area lawmakers for a
state audit of UCSF Stanford Health Care's finances, board members agreed last Friday to
make the private nonprofit corporation's records available.
UCSF Stanford's losses for the first nine months this fiscal year now total $51.5 million.
With investment income, interest expense and cumulative restructuring costs, year-to-date
net income shows a loss of $31.5 million as of May 1999, according to UCSF Stanford. Due
to a 2.8 percent reduction in discharges and an 8.8 percent reduction in patient days,
May's losses alone equaled $10 million - twice as much as was projected.
The fiscal crisis has prompted outcries from employees, the community and legislators who
fear the organization will not be able to fulfill its primary purpose - to support the
education and research missions of both universities through patient care.
Senators John Burton (D-San Francisco) and Jackie Speier (D-Hillsborough) and Assembly
Members Kevin Shelley (D-San Francisco) and Carole Migden (D-San Francisco) requested that
the state auditor review UCSF Stanford's financial records and the operational changes
that have occurred as a result of the November 1997 union of UCSF Medical Center and
Stanford Health Services. This review would update the state auditor's September 1997
report that concluded that while UCSF and Stanford may have overstated the financial
benefits of the merger, the consolidation should make the partners fiscally stronger.
UCSF Stanford executives, who first questioned the auditor's authority to audit a private
nonprofit organization, agreed to the audit after their procedural concerns were answered,
said Mike Lassiter, UCSF Stanford spokesman. Four members of the UCSF Stanford board met
with the four legislators who requested the audit, the scope of which will be agreed to in
advance.
Speier, who chairs the Senate Select Committee on Government Oversight, said she would
delay a public hearing on the merger until the audit is completed.
In other news, state legislators are pursuing action that would make UCSF Stanford a
public agency. UCSF Stanford officials oppose that idea believing it would hinder the
organization's ability to compete in a marketplace that requires the board to make
decisions in a timely and cost-effective manner.
Regent Howard Leach, a member of the UCSF Stanford board, said at the UC Regents meeting
last Wednesday that he believes reversing UCSF Stanford's private status "would be
fatal to the merger." He said he remains "totally committed to maintaining the
quality of and access to patient care and is equally supportive of our academic
mission."
Meanwhile, after hearing a sobering report from administrators and testimony from more
than a dozen speakers about the problems of UCSF Stanford, members of the UC Regents
Committee on Health Services last Wednesday supported UCSF Stanford's pursuit of a
financial recovery plan.
Speakers at the Regents meeting at Laurel Heights aired myriad concerns ranging from
skepticism over UCSF Stanford's financial status, quality of patient care and
opportunities for training health professionals and the possible consequences of closing
inpatient and emergency services at Mount Zion.
"Rather than enhancing our academic mission, the pressures created by the merger are
forcing us to behave more like a profit-making business than an academic
institution," said Warren Gold, professor of medicine and chair of the UCSF Faculty
Association. He urged the Regents to dissolve the merger.
Regent Leach told Regents that "the costs of taking it [the merger] apart would be
very substantial and that would still leave Mount Zion for us to fix."
Although some Regents said they shared the concerns of the speakers, they ultimately
endorsed the efforts of UCSF Stanford executives to turn the organization around.
"This has been a very frustrating and agonizing process for all of us," said
Regent Ward Connerly. But, he concluded, "I think we need to step back as a board and
allow the process to continue."
Added Regent S. Sue Johnson, "Let's stay the course for a while. Let's give the
recovery plan a chance. These are very complex problems, much more than we anticipated,
but the reasons for the merger are still there. It distresses me to see this underlying
feeling of cold feet."
Financial recovery
UCSF Stanford's financial recovery plan calls for making major cuts throughout the
organization to balance its $1.5 billion budget by next year.
UCSF Stanford is in the midst of cutting $170 million in expenses - including reducing its
hospital workforce by about 20 percent across all sites -- just to break even in 2000.
Through mid-July 1999, 644 employees have been notified of layoff or have selected
voluntary resignation. The total full-time equivalent (FTE) reduction will reach 943 by
mid fiscal year 2000. An additional 1,000 FTEs will be eliminated through attrition,
reduced hours and cuts in temporary help over the same period, according to a report to
the Regents.
"There is no question that increasing the revenue stream is critical to the future
profitability, however, the primary problem is one of expenses," reported William H.
Gurtner, UC vice president of clinical services development.
To achieve an operating gain of 3 percent in 2001, UCSF Stanford must find another $100
million in savings or revenue increases. To accomplish that UCSF Stanford is considering
several options to change services at Mount Zion, which officials say has racked up $56
million of the projected $60 million deficit this year. UCSF Stanford officials are
expected to make a recommendation about Mount Zion at the UCSF Stanford board meeting on
Friday.
Numerous analyses provided to the Regents prior to their decision to approve the merger
were consistent in stating that a number of factors were critical to the success of the
merger, including aggressive cost-cutting and implementation of the business plan.
However, since the November 1997 merger, UCSF Stanford:
Added a total of 950 employees, 600 of whom were in
direct patient care areas;
Increased costs at UCSF by $43 million to pay for
additional staffing, more support of physician practices, higher legal, administrative and
insurance costs and increasing costs of drugs and medical supplies; and
Allowed overhead expenses to rise by $45 million in
areas including finance, information technology, human resources and strategic
development. At UCSF, information technology had to be made Y2K compliant.
These expenses were in addition to an underlying 4- to
5 percent annual increase in the cost of doing business, including escalating costs for
skilled labor, such as nurses, according to a report to UC Regents. UCSF Stanford has also
absorbed the $17 million in new pension costs at UCSF that were previously covered by the
University's retirement plan.
Leach admitted that "one of the major management failures" was the inability to
review timely financial data, a consequence of having three different accounting systems.
With the help of Florida-based consulting firm, The Hunter Group, UCSF Stanford is now
working toward more effective management controls, including developing financial and
management reports on the performance of major business units and clinical programs and
keeping productivity reports to monitor and reach staffing standards.
Bill Kerr, chief operating officer of UCSF Stanford, told Regents that UCSF Stanford is
also monitoring the quality of patient care through patient and referring physician
satisfaction surveys and reports on outcomes, such as readmission rates. UCSF Stanford
appointed chief medical officers at UCSF Medical Center and at Stanford to provide
oversight of quality of patient care and to manage clinical services more efficiently.
Representing Haile Debas, dean of the School of Medicine, Lee Goldman, chair of the
department of medicine and associate dean for clinical affairs, told Regents that several
UCSF committees have considered many issues as they discuss the options for Mount Zion.
Chief among them, he said, is the education of medical students, residents and fellows,
many of whom rate their experiences at Mount Zion high, and the impact on the 100 faculty
who work full time and are based at Mount Zion. "We don't want to win the battle and
lose the war and end up with a functioning health center that doesn't take our academic
mission into account," he said.
Larry Pitts, chair-elect of the Academic Senate and a member of the physician committee
looking at the clinical aspects of proposed changes at Mount Zion, said "There's no
question that there is a fervent wish that the plans work out." But, he said, "I
think the faculty believe that the deliberations are incomplete to put it kindly."
Pitts said his committee has concluded that the discussion about the fate of Mount Zion
should be given more time and thought.
Laurel Hodgson, medical director of the Emergency Department at UCSF/Mount Zion and a
member of the Mount Zion committee, also asked for more time to deliberate the fate of
Mount Zion. She said that the potential loss of "11 emergency beds and 19 intensive
care unit beds will create nothing but chaos and pure disaster " in a city where
there is already a shortage of these beds, according to her review of Emergency Medical
Services data for San Francisco.
UCSF Stanford plans to add 18 more emergency treatment
stations and 16 additional critical care beds at the UCSF Medical Center.
Regent Meredith Khachigian, who also serves on the UCSF Stanford board, said it's her wish
to work with the Mount Zion community to find a viable solution. "There's no doubt
that it's a money loser, but it's a program enhancer. I don't want to rush into any
decision that we will regret later on."
After hearing a recommendation about Mount Zion on July 23, the UCSF Stanford board will
likely seek to begin implementation of whichever option it chooses as soon as practical -
probably well before next September, Chief Executive Officer Peter Van Etten wrote in a
June 29 letter to Senator John Burton.
Links:
UCSF Stanford Health Care
Weighs Options for UCSF/Mount Zion
UCSF Stanford Health
Care Works Toward Financial Recovery
UCSF Stanford
Health Care
Source: Lisa Cisneros, Newsbreak
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