Few institutions in healthcare beat a university teaching hospital for prestige. It's typically a hothouse for new medical procedures, the nexus of a community's charity care and generator of thousands of well-paying jobs.
For more than two decades, University of California Irvine Medical Center was all these things to Orange County. But in recent years, its reputation and its commitment to the community have been called into question. Observers say new management has helped the 462-bed hospital partly recover from a bruising fall from grace two years ago by improving morale, spotlighting its medical staff and, more improbably, marketing its affiliation with a local baseball team.
But many fear its bold plan to align with an outside hospital operator could send it stumbling again.
Although he carries the distinguished bearing of a network anchorman and is affable to a fault, UCI Executive Administrator Mark Laret doesn't hesitate to frame the situation in bald terms.
"There's a political firestorm brewing," he says of UCI's recent acceptance of proposals from Tenet Healthcare Corp. and Columbia/HCA Healthcare Corp. for a joint venture. The two investor-owned candidates were picked from a field of about a dozen, including several not-for-profit organizations.
The winning bidder-to be announced by the University of California Board of Regents sometime this summer-would likely sign a long-term lease of the facility and manage its 2,200 employees. Citing a confidentiality agreement with UCI, officials of Santa Barbara, Calif.-based Tenet and Nashville-based Columbia declined to discuss the terms of their proposals.
Laret says having a private organization running day-to-day operations would permit UCI to focus on clinical issues, allowing greater financial stability. In turn, that would help preserve its status as a university-affiliated teaching hospital.
"This is a very cruel environment for the stand-alone medical center," he says. "But financially, we need to be integrated into another organization and also to support the education and research missions."
Financial pressure. UCI lost $8 million in its fiscal year ended June 30, 1996, compared with an $11.5 million surplus in fiscal 1995. Net patient revenues were $179.4 million in fiscal 1996, compared with $200.4 million the previous year. Much of the drop was attributable to a change in Medicaid funding rules for hospitals that treat a disproportionate share of indigent patients, along with a shortfall in funding from the state. Combined, they cut UCI's annual Medicaid disproportionate-share funding to $11 million from $34 million.
In response to the lost funding, Laret has been able to cut annual costs by $15.3 million, mainly through the elimination of 250 jobs. He has also boosted the patient base by signing lucrative long-term contracts with Friendly Hills HealthCare Network and other large regional medical groups. As a result, he says the surplus for fiscal 1997 could approach $10 million.
And although he acknowledges that UCI's teaming with a for-profit operator is controversial, and will no doubt be part of a long and painful transition, he sees little choice.
"Academic medical centers have had a tradition of being places where there has been tortured decisionmaking, a very difficult place to develop a consensus about anything and to take firm action," he says. "They have been slow to react in the marketplace and are high-cost . . . But that model of an academic medical center is really an anachronism in this part of the '90s and into the next century. The challenge for academic medicine is to redefine itself."
Laret predicts that if UCI joins with Tenet, it is likely some tertiary services would be transferred out of UCI. Tenet's recent merger with OrNda HealthCorp gives it control of a dozen hospitals in Southern California, compared with the three operated by Columbia.
"(Tenet) does give the network more flexibility in setting up certain centers," he says. "With Columbia, UCI would be functioning as its tertiary hub in Orange County."
Laret acknowledges he is torn about teaming up with another operator. "I don't think there's a simple answer here, that we're just working through a process we need to get through," he says. "There will be trade-offs to be made in any kind of relationship we choose to pursue."
But he cautions that no matter who is selected, education, research, indigent care and the practice incomes from faculty members would be preserved. However, the dimensions of UCI's indigent-care burden would likely change.
Indeed, UCI has the largest indigent-care burden of any hospital in Orange County. It treats 37% of the county's indigent patients and receives nearly half the area's Medicaid funding, according to the Orange County Healthcare Council, an advocate for increasing healthcare access for the poor.
Skeptics. Observers are skeptical that a for-profit operator would be committed to caring for the poor at the same level as a university.
"It's pretty unique-the combination of a public safety-net hospital with a for-profit firm. I can't think of another example of that," says Paul Ginsburg, president of the Center for Studying Health System Change, a Washington-based think tank. "How this deal is negotiated is critical for the community. The county is not party to the transaction because it is run by a state institution, not a local one. It's not clear who would speak for the community."
Ginsburg, whose organization has a two-year, $20 million grant from the Robert Wood Johnson Foundation to study levels and access to care in 60 regions across the nation, observes that for-profit operators tend to provide indigent care on a level "based on what the community expects from them."
But that can be a loaded proposition, Ginsburg cautions, if the community doesn't expect much. He added though that "there could be a situation where the institution plays an important safety-net role, and I would expect the for-profit chain would do a fair amount. But then again, a for-profit venture under pressure from shareholders is not in business to give away product."
Local activists fear that could mean a for-profit operator would be willing to snip at Orange County's already fraying safety net.
But Laret insists that's not the case.
"We will continue to provide at least our fair share. But I'm not sure yet how we define that. We don't know what the number is, but we know we're way above it," he says. "This is a community issue that needs to be sorted out. And it goes back to a fundamental problem-that as long as providers get paid widely varying amounts for patients, there will have to be this problem of fighting over care."
"We fear a for-profit organization is not going to have a compatible mission with UCI," says Felix Schwarz, executive director of the Orange County Healthcare Council. "We see (the hospital) as a public asset, and we want the issue of what becomes of it to be part of the public discourse."
A forum Schwarz's organization held in January drew more than 120 people. Now, two state assemblymen are considering holding public hearings prior to an approval of any deal by the University of California Board of Regents, which governs the hospital. Other organizations have made veiled threats of legal action.
"This is not done yet," says Cynthia Hanna, a regional council representative for the American Federation of State, County and Municipal Employees, which negotiates on behalf of about a third of UCI's employees.
Aside from fearing a loss of jobs from a takeover by a for-profit, Hanna is concerned about preserving UCI's teaching mission and its role as an indigent-care provider.
"The university is fooling itself if they think they are going to keep the same missions," she says. "They would be crazy to think it would go the same way. It costs more to run a teaching hospital, and where would the new developments in medicine come from? The fact of the matter is, a for-profit hospital is just that. I think we have a very rocky year ahead of us."
Scandal-plagued. UCI enters this battle having had its share of rocky years.
In 1995, the hospital became mired in controversy. Three physicians from its Center for Reproductive Health were accused of taking eggs from one group of patients and implanting them in others, without the former's consent. According to published reports, at least 70 women were involved, and at least 10 children were born from stolen eggs.
Although they have not been prosecuted for the alleged thefts, physicians Ricardo Asch, Jose Balmaceda and Sergio Stone face trial on multiple federal mail fraud charges because they allegedly sent inflated bills to patients. Asch and Balmaceda now live in Mexico and Chile, respectively, where they both continue to practice medicine. Stone is under house arrest in Orange County, awaiting trial.
Legal experts say extradition back to the U.S. would be difficult, although Asch is considering returning for his trial. The doctors also are facing more than 80 civil lawsuits stemming from their alleged misdeeds.
Soon after the center was closed in June 1995, UCI Executive Administrator Mary Piccione was fired by the University of California Board of Regents. An audit following the scandal revealed she had created an atmosphere of intimidation at the hospital that helped keep the scandal from being discovered. Once the most visible female hospital executive in the country, the 58-year-old Piccione now sells real estate.
Indeed, the only people whose careers were boosted by the incident were the reporters from the Orange County Register who won a Pulitzer Prize for breaking the story.
"When I arrived here, the institution was in a degree of shock," Laret says. "Foremost from the fertility center scandal, but also from the fact that this was an institution that had missed the managed-care boat and was facing other serious problems."
Laret thought opening communications was critical. Whereas Piccione has been characterized as high-handed with her employees, Laret has been known to stop in the corridors, chat and listen to grievances.
"We've tried to create an open environment, where every staff member feels free to raise issues and concerns," he says. "Nobody will ever get in trouble for raising a potential problem."
Even union organizer Hanna agreed that Laret has carried out that promise.
"Morale is not great because people are nervous about the plans, but they're comfortable with the level of communication they receive," she says. "He is much more open about stuff-at least he appears that way-and he really treats employees well. He's very personable."
Image transplant. Laret, 43, who replaced Piccione in August 1995, previously had been chief executive of University of California Los Angeles Medical Center's 900-physician medical group and deputy director of external affairs at the hospital. His knowledge of the mass media probably had something to do with a 50% boost in the hospital's fiscal 1996 marketing and community relations budget, to $1.5 million. However, he said the move is not an attempt to polish UCI's image.
"I really hate that term," he says. "What we wanted to do is remind the community of the very strong specialty services that we offer here at UCI and the very strong primary-care services."
However, preliminary market research revealed that "inform" was a more appropriate term for UCI's patient base than "remind."
"We were really surprised to learn that the biggest communications problem UCI had was lack of public knowledge, opinion and perception," says Bruce Schroffel, president of Schroffel & Associates, the Los Angeles-based advertising firm the hospital hired to craft an ad campaign. "It didn't have image problems as much as an awareness problem. The fertility scandal weighed less in people's minds than the fact that they really didn't know much about UCI Medical Center."
The hospital was built in the 1950s and operated by the county for its first 20 years before the University of California purchased it in 1976. Schroffel learned through telephone surveys that the change of ownership had blurred UCI's identity among consumers. His data told him that most Orange County residents considered UCI a way station for poor patients, eclipsed by its far tonier rival in Newport Beach, Hoag Memorial Hospital Presbyterian. Few knew UCI was the only teaching hospital in a metropolitan area of 2.5 million.
"One of our main advertising objectives was to create an awareness of the hospital in the main marketing area," Schroffel says.
A print campaign was created, touting the fact that 57 of the hospital's physicians were included in the 1996-97 Best Doctors in America guide, compared with Hoag's 15 physicians. Along with space taken in the local newspapers, regional inserts were placed in national magazines, including Time, Newsweek, U.S. News & World Report and Sports Illustrated, that gave the names and telephone numbers of all the doctors. Fliers were also mailed to 150,000 households served by the hospital.
Although Schroffel has yet to gauge the exact effect of the campaign, he observes that "hundreds of people have called the hospital, wanting to get signed up with a UCI doctor."
A new ball game. In a more offbeat facet of the campaign, UCI proclaims itself the official hospital of the Anaheim (Calif.) Angels baseball team. Anaheim Stadium is separated from the hospital by little more than a freeway overpass. One print ad features a close-up of a sepia-toned baseball. The copy claims a home run hit by former Angel slugger Reggie Jackson in 1986 rolled to the hospital's front door. "We stitched it up and gave it back to him," it says.
Laret admits the ad takes poetic license. "But we're very close to the Angels and the Disney organization (which owns 20% of the team and handles its day-to-day operations), which is such an important organization in the county. We think it's a natural synergy."
Hanna acknowledged that Laret also has made progress in boosting UCI's image.
"I do think the marketing is working well. I like the ads, and when I see them, I know it reminds people there is an excellent facility here," she says.
And Laret's leadership and cost cutting are among the reasons why Hanna believes UCI is capable of remaining on its own. "They're operating on a stronger level. But the regents have sent down their orders," she says.
Laret, however, appears undeterred, even if new management would mean the elimination of his job.
"Every now and then, in a dark moment, I reflect on that possibility. But I think I'm confident that if we do the right thing here for the long term, that this group of managers will come out of it fine," he says. "We really don't have another choice. My job is to do what is in the best interest for this institution."