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Monday, 7/21/97 UCSF audit questions need for merger MERGER: Detractors fear quality of instruction, medical care may suffer

By Tyler Maxwell Daily Bruin Senior Staff The state Legislative Joint Audit Committee (LJAC) launched an audit Wednesday of the proposed UCSF-Stanford hospital merger, reflecting growing concern in Sacramento about the hospitals' mission. The UC Board of Regents has been considering merging the UCSF Medical Center with Stanford Health Services to form a new private, nonprofit entity. The state auditor will conduct an investigation of the two institutions' financial performance and the legal implications of the proposed merger. Senators Tom Hayden and Quentin Kopp requested the investigation after hearing lengthy testimony by experts before the Senate Select Committee on Higher Education. The testimony suggested that UCSF financial reports that were used to justify the merger "grossly understated" UCSF Medical center's financial condition. "The fact that the UC projections missed the mark by such a wide margin suggest that financial management is either incompetent or ill-motivated," said Mark Blum, the economist who testified. "(But) given that UCSF Medical Center has consistently given such a strong financial performance, I think management is quite competent," Blum continued. Blum cited an independent analysis commissioned by University Professional and Technical Employees (UPTE). UPTE, an organization that represents 8,000 employees in the University of California system, led a coalition which opposes privatization of the UC medical centers. A financial analysis commissioned by UCSF and conducted by financier Warren Hellman showed only a $3 million increase in profits for the 1997 financial year, which translated to an $11 million loss. UPTE's independent analysis showed an increase in net assets of $20 to $27 million, according to Blum. "The Hellman report made no sense to us professionally, from an analytic standpoint," Blum said. According to Blum, UCSF's financial analysts were citing an "arbitrary figure" on their financial records as a representation of the medical center's financial health. "(This figure) does not represent the financial health of any not-for-profit organization. It is misleading to say that it does," Blum said. "What we see is an institution that is increasing liquid assets at a very rapid rate." UCSF officials declined to comment. According to the state auditor's analysis of the audit request, proponents of the merger maintain that it is the best way for both institutions to survive in the competitive health care industry. Opponents of the merger are concerned with the future quality of teaching, research, and health care for the needy under the new merger, according to the state auditor's analysis. In a letter to Assemblyman Scott Wildman, chairman of the LJAC, Senators Hayden and Kopp stated that "significant issues" regarding the merger were raised at the Senate Select Committee's hearing, warranting "deeper and ongoing analysis." The letter went on to state that "hundreds of millions in state dollars are at stake." "It appears to me that UCSF is a financially healthy entity, generating income beyond what was projected and stated," said Senator Kopp. The senators' letter also expressed the need to expedite the audit investigation and have the better part completed by September, when the UC Regents are scheduled to address this matter. "Before the (regents) meeting, we hope to have this report (compiled by the state auditor) so we know the upside and the downside to this merger," Wildman said. "I have no judgments one way or the other. The purpose of the investigation is to find out what the facts are." "(The LJAC) make recommendations about whether or not this is in the public's interest," Wildman added. The investigation will review the laws relevant to the merger, financial analyses of the previous three to five years for both institutions and the impact of the merger on staffing and salaries. The audit will also compare the mission of the proposed new entity to the current missions of UCSF Medical Center and Stanford Health Services. It is estimated that the investigation will cost $86,400 and require 1,440 hours of audit and contract work. "There is no intention to delay or encroach the merger," Wildman said. The regents should have the report from the audit available when they take up the issue of the merger in September. However, since the regents have a certain degree of autonomy from the state legislature, it is difficult to say what impact the audit will have on the their decision. "We have an oversight ability with the UC system," Wildman said. "We don't have enforcement ability. We can give recommendations ... (and) they can take a certain course of action." Related Site: UCSF - Stanford Merger Archive