Stanford Today Edition: March/April, 1998 Section: Features: A Marriage Made in Medicine WWW: A Marriage Made in Medicine
Healthy prognosis for UCSF Stanford Health Care
By Yvonne Daley
Is this really a hospital? Elaine McCrae, a volunteer guide, beams as her group of visitors, patients and their families amble through the spacious halls of the Stanford University Medical Center. They stop to admire original artwork by the likes of Roy Lichtenstein before wandering on to blooming gardens visible from the glass-enclosed sitting area and many of the patients' rooms. In the chapel nearby, a waterfall of sculpted glass furnishes a sense of rushing water. "Most hospitals don't allow this much room for beauty," McCrae says proudly, pausing on the way to the "Inn at Stanford," a wing where rooms resemble upscale hotel suites.
Before they finish the tour, the visitors also will learn about the hospital's medical program, including its acclaimed organ transplant, heart and cancer treatment centers, and its helicopter service, which provides speedy transportation and on-board treatment to the injured and ill within a 150-mile radius around Palo Alto.
Forty miles to the north, high on Parnassus Street in urban San Francisco, the University of California-San Francisco (UCSF) Medical Center struggles for every inch of space for medical services. Hallways have been sliced, their precious square feet needed for offices and treatment rooms. The hospital's diverse and first-class programs, educational facilities and clinical labs are scattered throughout 13 buildings, the latest now under construction in the Mission Bay area.
Make no mistake. UCSF doesn't lack for beauty. The view of the Golden Gate and the Marin Headlands from hospital room windows is breathtaking; staff are afforded the unusual luxury of kayaking around the San Francisco Bay. And medically speaking, UCSF takes a back seat to no one. With its cutting-edge research and treatment in the fields of AIDS, gastroenterology, gynecology and neurology, UCSF has long taken pride in its technological innovations and its role as Stanford's leading competitor.
Both medical schools and hospitals are considered among the top 10 in the nation. For decades, the two have competed for grants, personnel and honors. But sweeping changes in health care and concerns about funding forced the traditional rivals to consider joining forces rather than compete for the same patient base. Several years ago, officials from both institutions began to view a merger of patient care services as a way to avoid duplication of capital projects and to place the teaching hospitals in a better position to negotiate contracts with health plan providers and health maintenance organizations (HMOs) for complex care such as cancer treatments and organ transplants.
"When we got beyond the obvious, we saw that we had much more in common than anyone thought and much more to gain by joining some of our forces," says William B. Kerr, executive vice president and chief operating officer for the new UCSF Stanford Health Care.
Merging the hospitals and clinics into a precedent-setting, $870 million corporation took two years of painstaking and sometimes acrimonious talks before the Stanford Board of Trustees and the UC Board of Regents reached an agreement last fall. It seemed a bureaucratic miracle when the UCSF Stanford Health Care opened its joint doors on Nov. 1, 1997.
"Can you imagine what we've undertaken?" asks Peter Van Etten, president and chief executive officer for the center. "By combining these two facilities, we are ensuring support for a $250 million research enterprise, one that spawned the biotechnology industry."
The new entity brings together Stanford University Hospital, Lucile Packard Children's Hospital at Stanford, UCSF Medical Center, UCSF/Mount Zion and the clinical practices of the faculties of both medical schools. It is the first merger in the nation of private and public university medical centers. Last year, the two centers admitted a total of 60,000 inpatients, and treated another 980,000 as outpatients. With a combined staff of more than 1,748 full-time faculty involved in patient care, 6,981 community physicians with admitting privileges and 2,608 registered nurses, UCSF Stanford Health Care hopes to maintain the two institutions' reputations as world-class research and treatment centers while pushing for new patients in the Bay Area and beyond.
Yet the union is not total. The two medical schools are not part of the merger. Faculty members, residents and postdoctoral fellows who care for patients and conduct research at UCSF Stanford Health Care will remain employees of their separate medical schools, and officials hope that healthy competition will continue to fuel research and development of new treatments.
"This unprecedented partnership of private and public university medical centers offers long-term potential not just for outstanding patient care, but for joint projects," Stanford University President Gerhard Casper said when he signed the merger accord. "With closer coordination and cooperation in teaching, training and research, we can strengthen even further our ability to move new medical treatments from the laboratory bench to the bedside."
Many historical and cultural differences complicated the merger. As a private institution, Stanford Hospital was an outgrowth of the university's medical school. As part of a private, well-endowed institution, its faculty has enjoyed a long history of research and teaching in an aesthetically pleasing and academically stimulating atmosphere. Employees were not unionized.
While UCSF shares a similar reputation as one of the nation's leading medical schools and research centers, its location within a metropolitan area and its definition as a public facility have shaped it into an institution that simultaneously had to answer to budget-conscious state officials while responding to the needs of the community. Unlike Stanford, its buildings were paid for by tax dollars, and most health care employees belonged to a union.
Some critics thought it would be impossible to merge the centers in a way that would benefit both universities and the patients - as well as the insurers who paid the bills. But merger supporters insisted there was no choice: Come together, or die apart.
As hard as it is to understand how two world-class medical institutions were under such dire threat, both had been slammed by the rapid consolidation of health care systems in California. With the creation of ever bigger health care plans and HMOs, all refusing to pay top dollar for care that could be provided cheaper elsewhere, both Stanford and UCSF found their hospital use declining.
In recent years, occupancy rates had fallen to around 60 percent. Both hospitals also realized they were often competing for the same patients. Financially, it became apparent that many millions of dollars could be saved annually through an integration of administrative duties such as purchasing, laundry, billing, marketing and computer systems and that a more efficient operation would make the two medical centers more attractive to HMOs.
But for two years, a series of sticky issues central to the differences between the two centers were raised by critics, members of both boards, the California legislature and the general public: What information about the new facility would be public? Who would own UCSF's buildings, all built with public money? How would the hospitals continue to conduct research while reaching out to the underinsured and the uninsured?
The trickiest question of all: How would the new institution be run, with public input or as a private corporation? Casper and other Stanford officials were adamant that the merged organization would be private. They argued that the new medical center couldn't operate competitively with area community hospitals if its meetings and records were open to public scrutiny. But UCSF's meetings and most of its records had always been open to the public. Many critics were uncomfortable with the concept of a state entity doing business behind closed doors. The idea of a merger was nearly scuttled when some regents and members of the Senate Judiciary Committee demanded that the new organization comply with state laws regarding public access to meetings and records. By then, Casper was threatening to pull out.
After much negotiation, compromise legislation was passed that provided greater public access to records and meetings while allowing the new medical center privacy in contract negotiations, pending lawsuits, health care contracts and other sensitive areas. Simultaneously, the UCSF-Stanford venture promised to retain 95 percent of all current employees and maintain wages and benefits.
In response to concerns about State of California assets, supporters of the merger developed a plan under which Stanford and UCSF will maintain ownership of their individual buildings and lease them to the new corporation for a nominal fee.
Critics were still upset that assets such as medical equipment that had been bought with public money would become the property of the new center. Last fall a state audit declared the two hospitals financial equals, with Stanford contributing slightly more than UCSF. State Auditor Kurt Sjoberg found that Stanford would contribute 56 percent of the assets, or $483 million, while UCSF would contribute about $386 million.
However, the audit found that UCSF brought a stronger history of earnings to the deal, with its most recent earnings totaling more than $250 million, compared with Stanford's $215 million.
Two lawsuits opposing the merger remain unresolved. The California Nurses Association has taken its request for an injunction barring UCSF Stanford Health Care from doing business to the California Supreme Court after a lower court refused to hear the case. Simultaneously, an appeals court turned down a suit filed by Frederick Mayer, a San Rafael pharmacist and president of Pharmacists Planning Service, a non-profit, public health organization. In his suit, Mayer had challenged the ability of the California regents to transfer nearly $400 million in UCSF assets to the new entity. Mayer has taken his case to the California Supreme Court.
"It's highway robbery," Mayer says. "They've given away everything at that public university, including the ability to make decisions."
Van Etten and Kerr, for their part, look back on the past two years with awe - not that negotiators were able to combine a private, non-unionized medical institution with a public, unionized center, but that it all went, believe it or not, so smoothly.
"The more we got into it, the more apparent it became that differences in culture existed between [the universities'] two boards," Van Etten explains. "As a private institute, Stanford's board valued privacy, while the regents were very public and political. But those differences existed on the board level only."
At almost every other level, from secretary to physician, he says, employees could see the benefits of the merger and, despite legitimate concerns over its effect on them, could accept that both centers would have to give up something to gain security.
"The two hospitals share common values as a result of being academic clinical enterprises with a tradition of excellence and achievement," Kerr adds. "Once that was shown, the merger became viewed as a marriage of equals."
Dr. Nancy Ascher, chief of UCSF's organ transplant program, says she believes faculty leaders were behind the merger plan for practical and philosophical reasons. "I need patients for clinical trials," she says. "I need patients to take back questions for the laboratory. One goal of the merger is to secure our patient base, so that makes me happy."
The hard work, Van Etten and Kerr agree, lies ahead as physician leaders and employees put into place fundamental structural changes aimed at increasing client base and controlling costs.
Kerr explains that in order to capture more patients in the Bay Area they will create teams and programs to provide top-to-bottom services for patients with specific diseases or conditions, from cancer or heart patients to new mothers.
Here's how it will work: A patient with a suspected heart ailment would no longer be shuttled from department to department, family practitioner to cardiologist. Rather, he would be treated within a single cardiovascular "service line," in which the various practitioners talk to each other about treatment plans and meet to assess the patient's options and progress. The idea: Look at the patient as a whole and include all relevant medical personnel as a team.
Kerr says it is still too soon to determine whether some programs will be consolidated, or eliminated. "If we can achieve efficiency and it's a service that people are willing to drive 40 miles to get, we will consolidate," he says, "but what's more likely is that we will avoid future duplication, especially in high-cost technology."
At the time of the merger, the two partners' pediatric services already were discussing ways to combine some of their work. UCSF Stanford Health Care plans to launch a new pediatric pulmonary center and build programs based on the natural synergy between the two hospitals' pediatric services. For instance, UCSF specializes in rehabilitating children with severe head injuries, while Lucile Packard Children's Hospital at Stanford is renowned for cutting-edge work in prosthetics. The newly merged medical organization could thus become a leader in treating severely injured children.
Some criticism remains. Spyros Andreopoulos, director emeritus of the Office of Communications at Stanford Medical Center, remains concerned about support for research and teaching.
"It appears now that the medical schools will have to do some work to bring salaries in line with what the new entity is willing to pay," Andreopoulos says. While he believes salaries need to be contained, he worries that the bottom line could take precedence over academic research and teaching.
"I'm concerned about the future of health care in general, not just here. This is part of a move away from placing emphasis on patient care. Managed care is not the answer to increases in health care costs," he says.
Dr. James B. D. Mark, a professor emeritus and former chief of staff at Stanford Hospital who specializes in cardiothoracic surgery, says he continues to have "significant reservations about the effect of the merger, particularly on the academic enterprise. It's all done from the business standpoint - if we don't do this, we're going to sink but you wonder what the reality is.
"The money we earn from the merger is supposed to go to the academic schools, but we're at the end of the line," Mark says. "Are we creating a whole new bureaucratic entity that will end up taking money away from teaching and research? The jury's still out. It may be a howling success but they're playing with the blue chips and they're our chips. We're the ones at risk."
Dr. Judith Swain, chair of Stanford University's Department of Medicine and one of Stanford's representatives to the new board governing the merged organization, says most physicians are optimistic about the transition.
"It's the best of both worlds - local health care and access to the best in specialized care, with one organization overseeing total patient care," says Swain, who came to Stanford a year and half ago after serving as chief of cardiology at the University of Pennsylvania.
Swain urges faculty members to remain patient and give the merger a chance to succeed. "This has never been done before. We're trying to find a way to remain strong in terms of teaching and research while also competing in an ever-changing health care system. Of course it's risky, but doing nothing is riskier," she says.
And some critics continue to worry about how the new corporation will go on treating the poor. "UCSF has always been the hospital of last resort, a place that took care of everyone, regardless of whether they could pay. This won't happen when the bean counters are in charge," Mayer says.
But Van Etten insists the merger is dedicated to "building new delivery systems that respond to the uninsured and the underinsured."
"We have many challenges still to come," Van Etten says. "But we are now stronger and richer in experience and talent than we were separately. Now it is the job of those who proposed and fought for this merger to prove that we are right." ST