This Date in UCSF History: MediCal Contract Denied


[Originally published in Synapse - The UCSF student newspaper, Jan. 6, 1983] Tomorrow morning, as you make your way up Parnassus destined for work or school, gaze up at the top of Moffitt Hospital and consider a moment. “We (will) all be working in an institution with a big neon sign on the roof saying, ‘Poor people, go someplace else!’”

That's how Chancellor Julius Krevans reacted to the news that the state had denied UCSF a contract for in-hospital care of MediCal patients. Due to the decision announced in late November by the MediCal “czar” William Guy, UCSF no longer will be able to admit MediCal patients into its hospital wards.

Implementation of the new MediCal contracts, originally scheduled to begin this week, has been deferred until Feb. 1.

In a statement to the press following the contract announcements, William Kerr, Director of UCSF Hospitals and Clinics, said, “UCSF has a long tradition of providing care to MediCal patients, so we were extremely disappointed not to have received a contract.”

The decision affecting UCSF is part of a radical shake-up of the MediCal program. Prior to this year, any hospital could admit a MediCal patient, provide the services deemed necessary, and then bill the state for the costs incurred in the patient's care — the so-called retrospective, “cost-based” form of reimbursement. All that has changed as part of a plan the State Legislature hastily put together last summer to cut $400 million from the MediCal budget.

Last summer's legislation directed hospitals to competitively bid for Medical contracts with a state-appointed negotiator, known as the MediCal czar. Hospitals had to propose a prospective, per diem rate they would bill the state for the care of a MediCal patient; that is, a single, across-the-board price for a day of hospital care, regardless of whether a patient was hospitalized for an uncomplicated childbirth or a rare brain tumor, of whether the care entailed a simple blood count or multiple CT scans and surgery.

Each hospital faced the formidable task of distilling its vast array of in-patient services into a single MediCal price, and making that price sufficiently economical to appease a czar intent on negotiating for bargain rates in the competition for MediCal contracts.

UCSF, along with other California hospitals seeking MediCal contracts, submitted its sealed bid to the czar last fall.

On Nov. 17, negotiator Guy made public the list of hospitals awarded MediCal contracts in San Francisco county. One hospital unexpectedly absent from that list was UCSF.

The decision’s impacts

The czar's decision stunned a local health care community, which generally assumed that UCSF would receive a contract. Because of its role as the Bay Area's principal tertiary care center, UCSF traditionally has been called upon to provide select services to MediCal patients with problems of unusual complexity or risk.

“The UCSF Hospitals and Clinics have been a statewide referral center for (MediCal) patients who need the highly specialized and in some cases unique diagnostic and treatment services required because of the severity of their illness,” said Kerr.

“We provide an extensive array of unique services to an especially sick population.”

The patients

A fundamental question posed by the czar's exclusion of UCSF is: will “especially sick” MediCal patients be able to receive the specialty care they need?

The question is particularly acute for younger MediCal patients, for the highest proportion of MediCal patients at UCSF is found in the pediatric ward.

Many of these children are admitted to specialty pediatric services: cardiology for congenital heart defects, renal for kidney transplants, hematology-oncology for childhood leukemias and lymphomas, and so on. In almost every instance, these are tertiary services which are not provided — or are provided to only limited degree — by those San Francisco hospitals awarded MediCal contracts.

Most of these hospitals simply appear ill-equipped to compensate for the absence of UCSF's tertiary care facilities.

Although there has been some suggestion that certain specialty services may be exempted from the contract exclusion, the state has yet to put any exemptions down in writing other than to allow open admissions to neonatal intensive care units. But even in the case of intensive care nurseries, the state has implied an unwillingness to continue paying the usual fee for such services.

Also, although contract hospitals are given the option of subcontracting for specialty services they are unable to provide, it remains unclear to what extent — if any — hospitals will pursue such arrangements with UCSF.

Staff and students In addition to its implications for patient care, the denial of a MediCal contract to UCSF will have a profound impact on the university's staff and students. Kerr predicts that with the barring of MediCal patients, “admissions at UCSF could drop in the neighborhood of 17 to 20 percent.”

The decrease in admissions means a decrease in hospital revenue, and Kerr believes UCSF may have “no alternative but to reduce expenses” by laying off workers.

Ellen Shaffer, of AFSCME local 1650, said her union had “met and conferred with the UCSF administration” but had received “no definite word” about potential layoffs.

Shaffer contended that there are “other ways to make up for lost money” than from labor costs, and she pointed out that UCSF workers had already been faced with no pay raises and increased health benefit fees over the past year.

AFSCME currently is circulating a petition requesting the czar to reconsider UCSF for a MediCal contract.

Additionally, there is what Chancellor Krevans called the “terrible educational impact” of the MediCal ruling: UCSF will be training health professionals in a hospital setting off-limits to the poor.

It is a prospect that hardly sits well with students and faculty advocating an educational environment responsive to issues of patient access and the equitable distribution of health care resources.

What went wrong?

Although no official explanations accompanied the czar's decisions — Kerr claimed UCSF had “not been told why our contract was unacceptable” — the competition for MediCal contracts appears to have boiled down to a simple matter of dollars and cents, with the low bidders winning out over higher bidders. Guy told the San Francisco Chronicle that hospitals in San Francisco were denied contracts because “we just couldn't deal with their bids. They were too high.”

Hospitalization costs at UCSF tend to be higher than those at other local facilities, and UCSF's bid reflected its traditionally higher rates. While some state officials have argued that teaching expenses artificially inflate patient care costs at university hospitals such as UCSF, Kerr rejected this claim.

He stated that UCSF's bid was “not high because of teaching costs” but because of the specialty care the hospital provides.

“We do not deal with a so-called typical patient population,” Kerr said, “but one at the 99th percentile nationally in terms of degree of illness acuity” requiring more elaborate and expensive types of care.

There are those who believe that what went wrong with the MediCal negotia-

tions was not so much UCSF's bid as the whole contracting process itself. One UCSF housestaff member condemned the MediCal bidding as a “process allowing health care decisions to be made on sealed bids as if they were contracting for a building — it's totally outrageous.”

While the building analogy may be appropriate, it is not entirely so: construction bids have to conform to a pre-established design blueprint. In the construction of a new MediCal system, contract bids did not have to conform to any blueprint for standards of patient care quality.

The exclusion of UCSF's tertiary care facilities is but one sign that concern for quality of patient care was not a prominent consideration in the selection of MediCal contract hospitals. Mount Zion and Saint Mary's have been among the most active of San Francisco's private hospitals in admitting MediCal patients.

Nevertheless, the czar rejected both hospitals' MediCal bids. It is estimated that with UCSF, Mount Zion and Saint Mary's out of the Medical picture, some 40 percent of the city's MediCal patients will have lost their customary source of hospital care.

Perhaps nowhere is the situation more accentuated than at Mount Zion Hospital.

Located in the heart of the Western Addition, Mount Zion has earned recognition for its role in delivering care to residents of this low-income community.

The loss of MediCal patients may prove disastrous to Mount Zion, which depends on MediCal reimbursement for over one-quarter of its hospital revenue. Bordering the Western Addition is Pacific Heights, one of the city's poshest neighborhoods.

As it happens, one hospital not overlooked by the czar in granting MediCal contracts was Pacific Heights' own Pacific Medical Center.

The czar's decision now compels Western Addition MediCal patients to travel away from their community and Mount Zion Hospital to Pacific Heights in order to get to the nearest contract hospital, Pacific Medical Center — a hospital that has not distinguished itself in the past for its eagerness to welcome the city's poor into its wards.

The secrecy with which the MediCal negotiations were conducted — from the sealed bids to the abrupt announcement of final contract awards — has led many to indict the negotiating process for its failure to accommodate community health needs and sound health planning goals.

The lack of coherent health policy led one San Francisco Department of Public Health administrator involved in negotiating a contract for San Francisco General Hospital to complain, “Negotiating with these people (the czar) was like sumo wrestling in the dark — and they were the only ones who knew how big the ring was.”

Guy lived up to his title of “czar,” displaying a hard-nosed style in the bidding competition one source described as “autocratic” and “ruthless.” Guy's reply to detractors of his contract choices? “There were those who didn't think we were serious about this, and they will have to think again.”

Such is the tenor of the new czarist era of MediCal. In its repudiation of any accountability to community interests or professional health care standards, in its return to a two-tiered health system where the poor must accept a level of care

qualitatively lower than that available to other Californians, the new MediCal system is a drastic retrenchment of the state's commitment to health care.

As the Feb. 1 deadline approaches, keep an eye out for UCSF's new neon sign.