Reacting to the perils facing the nation's academic medical centers in a turbulent period of cost-cutting, UCLA Medical Center has agreed to acquire Santa Monica Hospital Medical Center, a well-regarded community hospital, for an undisclosed sum.
The UC Board of Regents is expected to approve the proposal when it meets this afternoon in San Francisco, officials of both hospitals said. Under the agreement, the Santa Monica hospital would become part of the University of California system and be renamed Santa Monica-UCLA Medical Center.
The deal is the latest in a string of hospital industry deals. Facilities in California and across the country have been struggling to cope with a variety of economic pressures. Employers and insurers want to cut costs. Revenue from government programs is declining. And outpatient surgery is a growing alternative to higher-cost inpatient surgery.
Because their operating costs are generally higher than those of community hospitals, academic medical centers are especially vulnerable to these trends--and to the cutthroat price competition taking place in Los Angeles, San Francisco and other metropolitan areas.
UCLA, like other teaching hospitals nationwide, has tried to adapt to these changes with strategies aimed at reducing costs, attracting more patients and putting greater emphasis on primary care and outpatient services. UCLA Medical Center has trimmed $45 million from its operating budget and cut 1,000 jobs over the past several years.
In North Carolina, Duke University Medical Center has been acquiring physician groups. In Kentucky, the University of Louisville Hospital last year agreed to turn over its management to Columbia/HCA Healthcare Corp., a giant for-profit hospital chain. And in St. Louis, hospital operators Barnes-Jewish and Christian Health agreed to merge their four hospitals to help cut costs.
"We're probably moving more aggressively than most academic medical centers," said Gerald S. Levey, UCLA's provost of medical sciences.
UCLA's strategy is to combine the strengths of two very different hospitals. UCLA Medical Center is a specialist-dominated hospital known for top-notch care in complex cases, such as organ transplants. Santa Monica Hospital is recognized for its primary care programs and maternity and emergency services.
The hospitals are "very complementary, are close in proximity, and some of Santa Monica's staff has teaching positions at UCLA," Levey said.
UCLA was attracted by Santa Monica's strong primary care and women's health programs and its success at attracting crucial health maintenance organization contracts, hospital officials said. About a third of Santa Monica Hospital's revenue comes from HMOs.
Importantly, Santa Monica's primary care physicians can become a source of referrals to UCLA specialists and to the medical center. The acquisition will also allow UCLA to expand its training programs for primary care doctors.
"We're all concerned about being left without an appropriate number of referrals," Levey said.
For Santa Monica Hospital, the deal with UCLA offers prestige and financial resources it otherwise couldn't command.
In a related move, UCLA announced it will be creating a large network, the UCLA Health Network, composed of physicians and clinics on the Westside and in the San Fernando Valley. The network will include 240 doctors in medical groups affiliated with Santa Monica Hospital, the 1,000-member UCLA Medical Group and the 3,500-doctor Huntington Provider Group. The new network will let the hospitals offer insurers a comprehensive package of community-based, primary care providers and centralized specialty care.
UCLA said it plans to open more neighborhood clinics--staffed by UCLA primary care physicians--in various locations. The first such facility recently opened in Marina del Rey.
Santa Monica Hospital, which is owned by Burbank-based UniHealth America, a large nonprofit health care company, had been discussing a merger or sale since shortly after last year's Northridge earthquake. The hospital suffered $96 million in damage in the quake; portions of the facility remain closed.
Santa Monica Hospital broke off talks with St. John's Hospital & Health Center, which also sustained major quake damage, late last year. It has been negotiating a deal with UCLA ever since.
If the UC regents approve the transaction, it then requires the approval of the UniHealth and Santa Monica Hospital boards of directors.