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Stanford Report, December 13, 2000
Stanford, UCSF release financial results for fiscal year 2000

The Board of Directors of UCSF Stanford Health Care today released financial results for Sept. 1, 1999, through March 31, 2000 -- the final seven months of the previously merged UCSF Medical Center and Stanford Medical Center.

During the final seven months of merged operations, UCSF Stanford Health Care operated at a loss of $127 million. This brings the total losses during the 29 months of the merger to roughly $176 million. According to the merger agreement, the losses were split about evenly between the two entities. These losses occurred during the time of the merger and had the effect of decreasing the net assets returned to each entity after the merger termination.

In addition to announcing the results for the first seven months of the 1999-2000 fiscal year, officials at Stanford Medical Center (Stanford Hospital and Clinics and Lucile Packard Children's Hospital) released financial results for the last five months of the fiscal year, which ended Aug. 31. Between April and August, Stanford Medical Center reported a loss of approximately $48 million. The majority of this loss was attributable to one-time, non-recurring expenses that included costs associated with the June/July nursing strike and several accounting adjustments.

The accounting firm of Arthur Andersen, LLP audited the results for the merged entity as well as for Stanford Medical Center.

UCSF Medical Center and Stanford Medical Center merged their health-care operations on Nov. 1, 1997, and operated as a single clinical enterprise through March 31, 2000. The goal was to provide cost-effective health services, improve community access to the latest advances in medical science and maintain strong medical training programs in a challenging health-care environment.

"The end of UCSF Stanford Health Care speaks to the financial, structural, operational and cultural difficulties of merging two complex academic medical centers, as well as to the financial challenges faced by all academic medical centers across the nation," said Eugene Bauer, MD, vice president for the Stanford Medical Center and a member of the UCSF Stanford Health Care board.

The losses can be traced to a number of different sources, most specifically declining reimbursements from the federal government and large HMOs, the high cost of labor and services in the Bay Area, the relatively low price of fee-for-service health care in the region, and the lack of adequate cost controls in the merged operation.

"The financial results for UCSF Stanford Health Care reflect many of the challenges we face, together or separately, in this health-care market," said William H. Gurtner, vice president of clinical services development at the University of California and a member of the UCSF Stanford Health Care board.

Both academic medical centers are implementing strategic plans to strengthen their ability to uphold their clinical care, teaching and research missions in the years to come.

"At Stanford Medical Center, we have an experienced management team and we are developing long-term business strategies designed to strengthen our market position and control costs," Bauer said. "During fiscal year 2001, we will be focusing on increasing patient volume. We are confident that our management team has the experience and knowledge to lead us into this next phase of operations."

A strategic planning effort is underway that officials anticipate will put Stanford's academic medical center on the path to a break-even budget by September 2001. Several programs in pediatric and adult services have been targeted for growth and investment, and officials report already seeing an increase in patient days this fiscal year. This increased volume exceeds first -quarter volume projections.

"While Stanford Medical Center experienced losses," commented Bauer, "this will not impact our ability to provide excellent health care, train the next generation of leading doctors, support innovative research and offer invaluable resources to our communities. We are confident that we are now back on the track toward a break-even situation."