Thursday, April 3, 1997
MERGER:
Analysis of medical center merger questioned after Hellman’s
relationship revealedBy Brooke Olson
Daily Bruin Staff
It began as an ambitious idea. Merge two prestigious hospitals,
creating a behemoth medical center able to bargain powerfully with
managed-care firms.
Hailed by supporters as financially rewarding for both
cash-strapped UC San Francisco and Stanford Medical centers, the
merger has consistently generated a stir of opposition and concern
among students, state legislators and even among several UC
Regents.
The most recent controversy involves Warren Hellman, a San
Francisco investment manager hired by the regents last year to
analyze the merger. A month later, Hellman was one of three people
recruited from outside Stanford and UC San Francisco to serve on
the board of the UCSF-Stanford Health Care, the new nonprofit
organization created by the merger.
The problem? Stanford is an investor in Hellman’s firm, Hellman
& Friedman  an economic relationship that some say should
have been disclosed to the regents.
"I think the fact that Mr. Hellman has a company that invests
part of (the Stanford) endowment represents a potential serious
conflict of interest," said Greg Vaughn, director of internal
university affairs and educational equity at the UC Student
Association.
UC Regents and administrators were unaware of the tie until it
was brought to their attention by an undergraduate intern for
Student Regent Jess Bravin.
"(Hellman) didn’t talk of his relationship with Stanford when he
was hired by the regents," said Howard Leach, one of the three
regent members on the UCSF-Stanford board.
Although Hellman did not disclose this information to the board,
he did discuss it with UC President Richard Atkinson, who failed to
mention this to the regents, board members said. Atkinson has
indicated that he assumed everyone was aware of the
partnership.
UC administrators and regents, though, were quick to defend
Hellman’s impartiality, noting that the businessman is deeply
committed to the university.
"I know that Hellman is a man of integrity and of very
substantial expertise," said UC General Counsel James Holst, adding
that Hellman volunteered his time to perform the analysis at no
cost to the university.
Although Hellman did not return repeated phone calls, sources
have said that the UC Berkeley alumnus and substantial UC donor is
incensed that anyone would question his involvement.
But some believe there may be more at stake than simply
Hellman’s approval. Students and other critics have suggested that
Hellman stands to gain from the merger, since it would greatly
increase Stanford’s funds.
Between 2 and 3 percent, or about about $114 million, of
Stanford’s total endowment is invested in Hellman’s firm, according
to Stanford Management Company CEO Laurance Hoagland.
If Stanford’s endowment fund goes up, so could the university’s
stake in Hellman & Friedman, Hoagland indicated, but added that
he did not believe the merger would affect the endowment.
Stanford officials who could confirm whether the endowment would
be affected did not return calls.
Other Hellman & Friedman employees did not return phone
calls either while UC administrators brushed aside the concerns,
pointing to Hellman’s long and personal relationship with the UCs
as evidence that he would complete a fair and impartial analysis.
They also praised Hellman’s report, which essentially gave the go
ahead to the regents to complete the merger.
Critics, though, are a little more suspicious of the report,
noting that it did not explore alternatives to the privatization of
the public medical school, as the merger would create a private,
non-profit corporation.
"All (the report) did was say ‘let’s assume that this is our
only option … and let’s look at where it will be in 10 years,’"
said Jess Bravin. "(It) didn’t look at issues that were relevant
and examine why it was necessary to give hundreds of millions of
dollars to a private system.
"I’ve concluded that (the merger) is contrary to the interests
of UC and California taxpayers," Bravin said.
Bravin is not convinced that the UC hospitals financially need
to consider such dramatic steps, and he fears that the merger will
weaken the hospital’s public accountability.
Administrators have argued that privatization of the hospital is
necessary because Stanford, as a private entity, is more
comfortable with the arrangement.
Although UC officials refused to comment, prior reports indicate
that Stanford would be quick to shun the deal, if any attempts were
made to make the union more public.
But recent proposals in the state senate are attempting to do
just that. Sen. John Burton, D-San Francisco, said he intends to
introduce legislation to allow the public to fully scrutinize the
merger.
In a meeting last month with the UC officials, Burton grilled
the university on their plans.
"If you’re giving 50 percent of the dough, why don’t you have 50
percent control?" Burton asked. "Why did you give away the public’s
money?"
Administrators at both schools have argued that only by merging
can the two schools guarantee their hospitals’ future in an era
marked by stiff competition from managed- care organizations.
The merged company would look to become the provider of choice
for highly specialized care in the entire Bay Area while still
maintaining a role as a primary-care provider in the immediate
area.
Despite concerns raised by both legislatures and Bravin that
public property will be "given away," both UC administrators and
Stanford officials repeatedly maintain that the universities never
proposed giving up ownership of any land or buildings.
UCSF and Stanford announced their intention early in the merger
discussions to retain ownership of the property involved and to
lease the facilities to UCSF-Stanford Health Care on a long-term
basis.
"It is infinitely better and wiser to take control of our
destiny while we can, and with a like-minded partner, than to
succumb to a for-profit entity for whom the university name is
merely a marketing tool," said Dr. Haile T. Debas, dean of the UCSF
School of Medicine, in a March 14 hearing with the state Judiciary
Committee.
However, UCSF Medical Center is hardly in need of financial
resources, according to Mark Blum of Organizing Professionals in
Washington, D.C., a consulting firm that handles issues of higher
education. Last month, Blum presented a report showing that UCSF
has more than $350 million of reserves accumulated in recent
years.
UCSF Medical Center Director William Kerr said that most of the
recent gains resulted from settlements of Medicare disputes that
could not be expected to continue, and that competition in the
health care industry is expected to intensify.
Despite administrators’ assurances that the merger would greatly
benefit the university, some still fear that this is just another
step towards privatization of the university.
"Stanford is not used to being accountable to the public … and
it is apparent that our administration would prefer to operate as a
private unaccountable entity," Bravin said.
Concerns raised by both legislatures and Bravin could have some
bearing on the negotiations.
According to officials, the merger is not a done deal, but
Stanford management and its UCSF counterparts have set a
self-imposed goal to reach an end point by July 1.