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Daring Daylght Merger 

Wednesday, Sep 17 1997
Over the past many months, I've enjoyed watching University of California regents and administrators make up reasons for giving away a world-class, $380 million, publicly owned medical center. It's been like watching Bill Clinton explain Whitewater, lies constantly evolving one into another as new and unfortunate facts arise -- with one major difference.

You don't need the hassle of impeachment proceedings to get rid of regents or administrators. They can just be indicted.

The pending merger of the UCSF and Stanford University medical centers is, indeed, a scandal. If you've been following the run-up to the merger through your daily newspaper, of course, you might believe there is nothing at all scandalous about the proposal. The placid, navel-gazing dailies of San Francisco have presented the merger as just another item of business on the UC agenda, a worthy proposal beset by irritating controversies that will go away, sooner or later, if everyone just keeps focused on Di and Dodi and the other important stories of the day.

This view is -- and how can I put it politely? -- incomplete. The merger of the UCSF and Stanford medical centers constitutes an amazing, daring daylight theft of $380 million in public assets.

Obviously, UC and Stanford officials never publicly announced that they were planning to steal $380 million from the rest of us. That is not how these complicated, white-collar swindles are conducted. No, starting nearly two years ago, UC and Stanford put out a cover story for the merger, a superficially reasonable justification that could be absorbed easily by San Francisco Chronicle reporters and other simple people.

The cover story went something like this:
The medical centers at UCSF and Stanford are in desperate straits; they just can't compete in the cutthroat world of private corporate medicine. Not too far down the line, these public hospitals and clinics will become money sinkholes, draining funds from their respective institutions and causing cutbacks in educational programs and health care services. A merger that joins these two research and treatment centers into one giant of high-end health care would solve the coming fiscal emergency. That new entity would be a nonprofit corporation known as UCSF-Stanford Health Care, or USHC.

USHC will save our universities, our hospitals, our lives -- and make San Francisco a great, can-do city again!

The UC regents are scheduled to take a final vote on this can-do merger Friday. The smart money is betting the merger will be approved; vast amounts of political grease have been spread to make things slide in that direction.

And, frankly, I hope the regents do approve the merger. Before they vote, I hope they spend a lot of time elaborating on their reasons. Afterward, I hope to receive UC system press releases touting the merger as a great leap forward for UCSF and San Francisco.

I hope to see these things happen, because they will provide ironic background detail for the stories SF Weekly staffers will write if and when a grand jury begins to investigate the merger. And the preceding sentence is not just wishful fantasy.

A grand jury will have plenty of reasons to start drafting subpoenas the minute the regents officially approve this merger, because even when viewed in the rosiest of lights, the union of the UCSF and Stanford medical centers is clearly illegal.

Let us look at a few of the possible, probable, and almost certain crimes of the UCSF-Stanford merger:

1) The University of California, San Francisco is a governmental entity. Its assets belong to the public. The state constitution forbids the government from giving gifts of public assets to private citizens or business entities. The merger will give two UCSF hospitals and other facilities -- some $380 million in assets -- to a private corporation. UCSF will get nothing certain in return. (That private nonprofit corporation will decide how much money it will return to the UCSF medical school each year; after the first year, there is nothing to stop the private business from returning nothing.)

If the UC regents approve the merger, they will almost certainly be violating their fiduciary duties to protect public as-sets. Because the regents have failed to ask the state attorney general for an opinion on the merger, those fiduciary failures probably constitute crimes.

2) In an attempt to "cure" the unconstitutionality of the proposed merger, the university system went Clintonian; that is, it morphed the cover story. In the sub-cover story, UC claims that the new merged entity, USHC, would provide all the public interest services -- the charity medical care, the public health research, and so on -- that the old UCSF Medical Center offers (plus that unspecified amount of income for UCSF).

According to this sub-cover argument, the merger represents nothing but a technical change in the way the UCSF Medical Center is organized. Its fundamental functions remain unchanged, so the merger does not represent an asset transfer, unconstitutional or otherwise, to the private sector.

This derivative cover story -- the second attempt to put a legal fig leaf on the naked theft of UCSF resources that the merger represents -- is not terribly persuasive. It would probably be laughed out of court, if things ever go that far.

Things just may, because this Clintonian sub-cover story has put UC regents and administrators in a terrible legal double-bind.

You see, the new nonprofit USHC has already been operating, in anticipation that the regents will give final approval to the merger. And in July, lawyers for the new entity wrote to the state's Fair Political Practices Commission, arguing that USHC officials should not have to disclose their personal financial interests, as government officials do. In making that argument, USHC lawyers insisted that the new merged medical center is -- whoops! -- entirely private. It will not be responsible for giving medical care to the indigent, or for carrying out public health research. It will have "no general public service mission."

So: If the USHC lawyers are telling the truth, the new merged medical center will be entirely a private-sector business -- which is exactly the opposite of what the UC regents had been telling everyone. Giving UCSF's public assets to this private business would constitute an unconstitutional gift. Ergo, the merger is illegal.

But: If the sub-cover story is true, if the new merged medical center has such close ties to UC that it is essentially part of the government, USHC has lied -- on the record, in writing -- in an official submission to the FPPC, a government agency. The USHC board includes UC regents and representatives chosen by the regents. The intentional submission of false government documents can be a crime.

So how did this FPPC letter come to be written? Which UC and Stanford officials knew about the letter? When did they know?

Who wants to testify first?
3) I know I've probably overused the Clinton metaphor, but the sheer number of conflicts of interest surrounding the UCSF-Stanford merger makes me wonder whether God moved San Francisco to Arkansas while none of us was looking. As of their latest financial disclosures:

-- UC Regent John Davies owned stock in a company that already sells laundry supplies to USHC;

-- Regent Peter Preuss was a stockholder in a company that provides radiological imaging supplies and equipment to UCSF;

-- USHC board members Isaac Stein and Denise O'Leary sat on the board of a Palo Alto pharmaceutical company that seems well-positioned to benefit from a merger; and

-- Howard Leach, a UC regent and USHC board member, held financial interests in venture capital and stock partnerships invested in medical and pharmaceutical businesses.

How or if the various conflicted regents vote on the merger will, of course, be of interest to indictment aficionados everywhere. But serious prosecutors will be more interested in how and when all of the public and private movers and shakers who concocted this merger received (at minimum) hundreds of thousands of dollars of stock in all sorts of flashy biomedical companies -- and how much was paid for the stock.

Subpoenas, please. And don't forget the bank records.
4) Throughout the merger process, UC officials have routinely violated open records and open meetings laws. These violations have been repeated, blatant, arrogant. In many cases, UC officials haven't even bothered with cover stories. They've just refused to turn over obviously public records. These types of violations are boring to write and read about. But an enterprising prosecutor could use them to leverage testimony on items 1) through 3).

The proposed merger of the UCSF and Stanford medical centers is radical, illegal therapy for a disease that does not exist. State auditors and other financial experts have confirmed that there is no financial emergency threatening UCSF. Its medical center is not a loss leader; it is a profit center that could provide long-term financial support for a great medical school with a continued commitment to the public interest.

There is a fairly small group of businesspeople (and, sadly, medical researchers) who are connected to the biomedical industry and who want to steal the $380 million UCSF Medical Center from the rest of us. They want to take the UCSF Medical Center into the private sector, so they can direct its resources to profit themselves and their friends. (That profit potential is huge; he who controls the hospital beds of the Medical Center controls which medicines undergo the clinical testing that leads to government approval. And a single, FDA-approved biomedical discovery can be worth hundreds of millions of dollars.)

Clearly, this group of businesspeople and researchers has influence over the sad pack of political hacks known as the University of California Board of Regents. The regents have allowed the planning for this daring daylight theft to continue for months now. The theft will probably be consummated Friday.

If it is, smart regents (and friends of same) will begin consulting their defense attorneys and revving up their shredders on Saturday. Very early on Saturday.

John Mecklin ( can be reached at SF Weekly, 185 Berry, Lobby 4, Suite 3800, San Francisco,

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John Mecklin


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