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"Not only is the financial sky not falling, it's quite blue," says Blum. In fact, he adds, in the business world, the UCSF Medical Center is such a moneymaker that it would be a prime candidate for acquisition.
The laissez-faire accounting system that built huge reserves inside various components of the UC system basically was designed to allow those components to buy independence from the university bureaucracy. Money is stuffed into discretionary accounts used by department heads for recruiting and other activities unlikely to receive unrestrained legislative funding. These funds may not have been properly accounted for by the UC system. In fact the accounting system used at UC medical centers is clearly its own separate scandal.
But these reserve funds -- and others, including capital improvement accounts -- represent real, spendable money, even if so-called third-party reviewers refuse to acknowledge them as such.
It would be impossible to definitively determine all of the motivations behind the proposal to merge the University of California and Stanford University medical centers. Although SF Weekly reviewed thousands of pages of public and private documents while researching the merger, both UCSF and Stanford have denied requests to view numerous key documents related to the deal. And for perhaps understandable reasons, members of the press were not invited to many of the initial planning sessions for the merger.
But the available public record makes two things quite clear:
1) The official reasons given to justify a merger -- the financial crises predicted by university administrators and their consultants, including the so-called third-party reviewers -- are simply not true.
2) Many people who have been directing, or advocating for, the merger have the potential to make a lot of money if the merger becomes a reality.
When UCSF and Stanford officials talk about merging their medical operations into one nonprofit entity, they don't mean to say the resulting business will actually make no money. Placing the UCSF Medical Center within a nonprofit just means the resulting business won't distribute profits or pay dividends to owners. As is the case in any private business, control of the money flowing through a nonprofit corporation -- where it is spent, who is hired, what contracts are doled out -- remains in the hands of a private board of directors.
And therein lies the power to build an empire.
The board of directors for the merged entity known as UCSF-Stanford Health Care (USHC) will award tens or even hundreds of millions of dollars in contracts each year. And the strict anti-corruption laws that apply to government purchasing will be manifestly nonapplicable to that contracting process; what would be considered criminal self-dealing in governmental purchasing is often perfectly legal in the nonprofit world.
USHC will, therefore, have wide latitude to contract with businesses owned or operated by the members of its own board of directors, the administrators of the medical centers themselves, and the large web of business movers and shakers who have moved and shaken to make the merger a reality.
If the UC regents approve the merger, monetary opportunities will certainly abound at the UC executive level.
By comparison to their counterparts in the private sector, university hospital administrators are grossly underpaid. For instance, Kaiser's David Lawrence earns about $1.2 million a year in salary and bonuses. Both Peter Van Etten, previously Stanford Health Services' director, and William Kerr, UCSF's chief administrator before the merger, each make less than $500,000 annually.
Van Etten and Kerr, who have repeatedly advocated for the merger, will become chief executive officer and chief operating officer, respectively, of UCSF-Stanford Health Care if a merger goes through. In that event, the salaries of both men can be expected to soar. There will be no governmental guidelines to restrain them.
Profit potential extends to the UC boardroom.
The UC regents and their business entities would be legally free to do business with the new nonprofit health center, without concern about conflict-of-interest laws targeted at governmental actions. And some of those regents haven't been overconcerned with conflict-of-interest questions, even before there was talk of merging the UCSF Medical Center out of the governmental bailiwick.
UC Regent Peter Preuss, for example, owns a wide portfolio of stocks.
Among other things, Preuss sits on the board of directors of Dome Imaging Systems Inc., a Massachusetts-based company that provides radiological imaging supplies and equipment to UCSF. According to a recent disclosure statement filed with the state, Preuss owns more than $10,000 worth of stock in the company. Invoices show that UCSF did at least $170,705 worth of business with Dome during the past year alone.
Preuss did not return phone calls requesting comment on Dome Imaging Systems' sales to the university for which the regent sets policy.
If a merger goes through, Preuss and other UC regents and administrators will be able to do all the business they want with UCSF-Stanford Health Care, without the least fear of prosecutors or, for the most part, reporters. If a merger is finalized, dealings such as those between Dome and the nonprofit health service will be entirely private business matters.
In 1974, Herbert Boyer, a UCSF researcher, and Stanley Cohen, a Stanford scientist, changed the way science looks at human life with the discovery of a gene-splicing technique. Together, the universities have collected $194 million in royalties from more than 200 products created from that discovery. Boyer went on to found the South San Francisco-based pharmaceutical giant Genentech Inc.
Truth be told, UCSF gave birth to the biotechnology industry, in much the same way that Stanford spawned Silicon Valley. The biotech industry is a network of family trees, where one business spins off another, funded by venture capital money. It is not surprising, then, that many of the people orbiting the UCSF and Stanford medical centers have investments throughout the biotech landscape. They're intimately familiar with what most of the millionaires traversing the 40 miles of highway connecting UCSF and Stanford already know -- there is a potential for truly great riches in science.
