Academic centers must overcome costly traditions

Since 2000, Mark Laret has served as CEO of UCSF Medical Center in San Francisco, which reported operating revenue of $2.4 billion and an operating surplus of $159.4 million for the year ended June 30, 2014. He formerly served as chair of the California Hospital Association and of the Association of American Medical Colleges. Before joining UCSF, Laret was CEO at UC Irvine Medical Center, Sacramento, Calif. Modern Healthcare reporter Beth Kutscher recently spoke with Laret about how academic medical centers need to change and achieving success in capital fundraising. This is an edited transcript.

Modern Healthcare: How did you turn around the ship when you arrived at UCSF?

Mark Laret: UCSF had just had an ugly divorce from Stanford and the organization was in a bit of chaos. The most important thing was redefining our mission, our vision, our values, redefining a strategic plan and making sure everybody was aware of why we were focusing on certain programs and not on others. It created a sense of unified purpose. It took us two years to get into the black, but it has been a solid ride since then.

MH: What are the challenges that academic medical centers face as they confront the question of how to deliver value?

Laret: Academic medical centers have prided themselves on being at the forefront in clinical-care delivery, clinical research and new models of education. But academic medicine is still evolving its approach to funding each of the three missions. Academic medicine is well-positioned to be a part of the solution to the next generation of healthcare delivery. But it also has to overcome some long-standing traditions about how it has carried out that work. Those traditions are sometimes costly and inefficient, and often are physician- and learner-centered, not patient-centered. This is a time for us to think differently about how we deliver that care.

MH: Are you experimenting with new value-based payment models such as ACOs?

Laret: Yes. We have been involved with the CMS' hip- and knee-replacement package-pricing initiative. We are involved in a couple of ACOs or ACO-like models for commercially insured patients. We recently announced a partnership with John Muir Health, a major community hospital system in the Bay Area. That's going to be the foundation on which we put together a regional accountable care effort, with the idea of partnering with health plans. We want to be able to go to the market and offer employers an insurance product and a delivery network that rivals what Kaiser Permanente does in the Bay Area. Kaiser has been phenomenally successful in integrating how care gets delivered and doing it in a seamless, patient-centered way. The rest of us who are fragmented really need to change our mindset. So with John Muir Health and UCSF working with 15 or 20 other physician, hospital and other providers in the region, we are looking to be able to take financial risk for the care of populations, starting as soon as 2016.

MH: Does that include offering your own insurance products?

Laret: We are going to do our insurance products through established health plans. We intend to partner with Anthem Blue Cross or other insurers. This isn't just us putting together a narrow network and putting that on the list of narrow networks with the other products the health plans might offer. We want to come together as true partners where we are taking both upside and downside financial risk for the health of the population and the financial performance of the network. We are investing heavily in an IT infrastructure so the primary-care physicians have real-time data for making clinical decisions. We think it's important that the physicians who train at UCSF are exposed to this new environment, which is going to be the mainstay of how healthcare is delivered in the coming decades.

I'm guessing in five to 10 years, we'll have more than half our patients in a capitated or prepaid model. We are trying to be at the forefront to make sure we have a viable model that the community relies on, and that we have that network together and we're ready to step up. It's a bit of a bumpy ride right now, but it's a time of great optimism.

MH: Do you see a trend for academic medical centers to merge with other not-for-profit providers?

Laret: I do. One of the lessons I have learned in watching Kaiser here in the Bay Area is it has multiple hospitals and physician groups but one central clinical lab. They have figured out that it is more rational to centralize certain services and do them in bulk. When you look across the nation, how many 100- and 200-bed hospitals have their own clinical lab, their own radiology and their own etc., etc., etc.? Individual hospitals have to find a different solution. That is going to involve partnering in a bunch of ways that they weren't accustomed to before.

MH: Why did UCSF decide to build its new $1.5 billion medical campus?

Laret: California had adopted strict seismic standards so hospitals should be able to operate after major earthquakes. We spent a lot of time thinking about how we wanted to address those seismic upgrade needs. It just so happens that in the 1990s, UCSF had been gifted 43 acres with the idea that UCSF would build a research campus that would attract biotech, pharma and other medical-related companies to the area. That research campus started in 2003 and it has just exploded. A billion and a half dollars later, we just opened the new Benioff Children's Hospital, the Betty Irene Moore Women's Hospital, the Baker Cancer Hospital and the Ron Conway Family Gateway Medical Building with 900,000 square feet right next to the Mission Bay Research Campus. We fully occupied it within 2½ weeks and we have back-filled the space that was vacated at the other hospitals. We're not thrilled we still have debt payments to make on it, but we generally are very happy with the new hospitals.

MH: How did you raise the money?

Laret: We set an ambitious $600 million philanthropic goal. I had never really raised any money and this was all new to me. I received advice from a very generous man named Charles Feeney (co-founder of the Duty-Free Shoppers Group and founder of the Atlantic Philanthropies), who gave $125 million to this project. He told me that people give money in proportion to the magnitude of the vision that you give them. I quickly realized the big vision was that these new facilities adjacent to a spectacular research campus would be the clinical laboratory where research advances would be put into practice. That captured the imagination of many people. We have raised $550 million of our $600 million goal.

I learned early on that for many people who have the means to give, they are looking for the right place to give and they just want to know that the opportunity that you have in front of them is the right one for them. The second thing is no matter how small the gift, you now have an investor, a believer, an evangelist for your organization. These are people you can go back to in times when you are trying to move a political agenda or talk to your community about an expansion plan. The philanthropic efforts we undertook not only helped us build the hospital, but have led us to have a community of supporters that we would never have had if we hadn't asked.