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Stanford Report, November 3, 1999

Letter from Gerhard Casper to Richard C. Atkinson

The following is the text of a letter sent Oct. 28 from Stanford President Gerhard Casper to University of California President Richard C. Atkinson.

28 October 1999

President Richard C. Atkinson
University of California
Office of the President
1111 Franklin Street, 12th floor
Oakland, CA 94607-5200

Dear Dick,

More than four years ago, Chancellor Martin and I first broached the idea of merging the hospitals and clinics of UCSF and Stanford University into a single not-for-profit enterprise. We understood that what we were pursuing had no precedent and would face innumerable difficulties. Bringing together a public and a private university in this manner had been unheard of.

Only a few have worked harder than I to make the merger work. In the last few months, I have spent much of my time to determine whether an appropriate organizational model can be found that will allow us to go forward, gain the support of the faculty in both medical schools, and recruit the strong leadership that we urgently need. Discussions have included intensive consultation with the clinical leadership of the two medical schools, separately and jointly.

With great anguish I have concluded that, in our efforts to find bold solutions to the problems of academic medical centers, we have taken on too much. We have failed to achieve a new common UCSF Stanford Health Care culture that would provide the whole-hearted support needed. Instead, most faculty continue to identify almost exclusively with their home campus. As a result, UCSF Stanford Health Care has not succeeded in carrying out the purposes for which it was formed.

Among our challenges has been the need fully to integrate our medical centers. Simply merging the hospitals is not enough. Our faculty physicians were expected to join their practices, share risks, and pool their revenues. That has not been achieved by the September 1, 1999 target date established in the agreements. On both sides, few see any prospects for accomplishing that with the support of the faculty. The issue is thus intractable for both of us.

The time we had to devote over the last three years to sorting out organizational and economic issues has been truly staggering. Both universities are much indebted to the dedication, energy, and cooperation of many members of their respective faculties and staffs as well as the people at UCSF Stanford Health Care. The transaction costs have been far higher than most had assumed. Energy has been sapped and great weariness has crept in. Many fear paralysis. Unfortunately, our unitary management structure has not given us the flexibility and resources that we needed for managing the north and south sites effectively. Under these circumstances, I believe it is best that we now begin the process of unwinding the current venture. I suggest that our staffs meet with UCSF Stanford Health Care management and begin planning on how to carry out this process with as little disruption as possible.

I do this with a heavy heart because many of our financial losses are due to forces beyond our immediate control, forces that affect other academic medical centers as well. Since the merger, the negative impact of the Balanced Budget Act of 1997 has been much worse than expected and developments in the managed care market have given no reason for optimism as concerns that market place. For Stanford Hospital and Clinics alone, the impact of declines in federal funding over the next four years will be nearly $85 million. In addition, the State of California continues to expect academic medical centers, including Stanford and UCSF, to bear much of the cost of providing medical care for the poor. UCSF Stanford Health Care last year rendered at least $100 million in unreimbursed aid to the poor, a substantial portion of which was provided by Stanford Hospital and Clinics and the Lucile Salter Packard Children's Hospital. Even before the merger, Stanford had a strong record of contributing to the public good in this regard and its commitment to providing public services for the indigent will continue unabated.

In our joint letter of August 3, 1999 to the UCSF Stanford Health Care Board of Directors, you and I pointed to the progress that has been made in consolidating financial services and purchasing, in correcting deficiencies in information technology, and in pursuing joint contracting. We also stressed progress in bringing some academic clinical services, most notably children's services, together. If there is any interest on the part of the University of California to consider an alternative service corporation that will retain portions of the benefits of the merger, Stanford University will be more than ready to sit down and explore these possibilities.

Sincerely,

Gerhard Casper