Community Hospital War Pits University Against the Rest of Region's Healthcare System

It's a rare day when you see a hospital CEO get angry in public, especially one who was recently elected chairman of the board of governors of the American College of Healthcare Executives.

But that's what happened last week when Chris Van Gorder, CEO of five-hospital Scripps Health in San Diego, learned that his system's long-time rival will build a 245-bed hospital in affluent La Jolla, a facility that is twice as big as he says he was led to believe.

The University of California San Diego will build its $645 million hospital a stone's throw from one of Scripps' La Jolla flagship hospitals and just down the road from the other–in just five years.

The teaching hospital also will downsize its safety net acute care facility near downtown San Diego, a strategy that would mean Scripps' two southernmost hospitals would be left to absorb care for many more underinsured and uninsured from the inner city, Van Gorder believes.

UCSD does say it will move key services, such as oncology, advanced surgery and imaging, obstetrics, and neonatal intensive care services to La Jolla, which Van Gorder believes will require Scripps to absorb the many uninsured and underinsured patients needing that kind of care from the southern part of the county.

He is convinced UCSD is trying to abandon–little by little–the safety net population it agreed to serve decades ago when it took over the 10-story county hospital building near downtown San Diego for $1.

Instead of treating the poor, Van Gorder believes, UCSD wants to treat the rich, poaching well-insured and affluent patients and philanthropists who might otherwise align with Scripps.

Those are fighting words.

UCSD, on the other hand, says it must make this transition, despite the slings and arrows from Scripps.

First, its 10-story safety net hospital in Hillcrest, two miles from downtown, cannot meet seismic structure requirements set by the state for 2030, an issue that took on renewed and obvious importance over the weekend. The hospital will have to be entirely rebuilt, something it plans to do, says UCSD CEO Tom Jackiewicz. But where will the patients go in the meantime?

Other hospital systems like Scripps or Sharp will have to pick up the load.

Second, university officials reason the teaching facility needs to move patient care closer to researchers so UCSD scientists and the many biotech companies and new stem cell research institute nearby can facilitate bench-to-bedside translational medicine that is so important for federal grants.

Third, there's the need for more beds to care for a growing and aging population. San Diego County, population 3.1 million, is bigger than 22 states and its sunshine promises to maintain its growth trajectory.

And fourth, UCSD also acknowledges it does need a better payer mix, something it says it needs to support its commitment to take care of the poor.

For Van Gorder, the issue is a classic Gown vs. Town conflict. From his view, UCSD has enormous advantages in the business of healthcare over its competitors. It's a state-supported academic teaching hospital with millions in federal research grants and numerous tax and state-backed financing breaks–one that can legally hire doctors.

In effect, Van Gorder views the state-supported hospital as a bully that's encroaching on a struggling nonprofit health system that lacks those credit market handicaps and can't hire its own doctors.

It receives indirect medical expenses for its teaching functions, receives more funding from Medicaid than does Scripps, and receives special funding for child healthcare.

"UC is a government, free from taxes or fees from any other government," Van Gorder says. "That means they don't have to respond to local community planning groups, city planning commissions or city council on land use issues or fees. For example, their Environmental Impact Report only requires approval by Board of Regents—the same board that already approved the plan and accepted the donation to build the project."

Additionally, UCSD will not be required to pay "Facility Benefit Assessments" to fund road and bridge improvements, while Scripps has to go through each bureaucratic step, "costing years and millions in addition to paying facility assessments, when most of the traffic growth and problems are caused by the university's growth."

I spoke with Joanne Conroy, MD, chief healthcare officer with the Association of American of Medical Colleges, and asked her if other teaching hospitals were making similar moves. She replied that they are, but for a variety of reasons.

In her view, there's another matter potentially at stake in UCSD's decision and that has to do with the way the healthcare system will respond when a lot more patients have health insurance coverage, even if it's with expanded Medicaid.

"We're aware that when patients have insurance, they make different decisions, they want to be treated like a customer. And instead of going to a safety net hospital, where demand is high and resources are often scarce, they choose to go to hospitals where care is more patient centric."

"It may be a challenge for some safety net hospitals to change how they deliver services if their patients are all now insured," she says.

And, she points out, there may be an upside to UCSD and Scripps being such major powerhouses so close together. In an era of health reform, new ways of reducing readmissions, errors, regional electronic health record management, and other innovations may find good pairings between town and gown collaborations, she says.

"We [in academic medicine] are really good at inventing things, but I have to say that the private hospital community excels at executing them. They show us how theory translates to widespread implementation."

Conroy adds that in her view, "town-gown rifts of the past are actually closing. We're seeing a much greater degree of alignment between the two, with mergers and creative delivery models popping up all over the country."

Who's right in this argument? San Diego healthcare analyst Nathan Kaufman says the big question for him is "where are the patients going to come from to require funding another $600 million worth of infrastructure? Plus paying pensions of new employees, and new doctors, who are more expensive in a university setting than in non-academic medicine. Is the San Diego market growing fast enough to support that?"

With new ideas and rules in the new health reform legislation, physicians and hospitals will be entering new partnerships that in effect keep patients out of the hospital, not finding new ways to admit them.

"This creates an arms war," Kaufman says. "UCSD and Scripps will be in a contest to determine who can attract the best doctors and equipment. To the extent that there's a community need for those services, that's a good thing, but to the extent we're duplicating, there's no reason for it."