UCSF audit questions need for merger

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
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