An Interview with William Gurtner: The 'Managed Care' Revolution Brings a World of Trouble to UC's Medical Centers

Signs of trouble at the University of California's medical centers are impossible to miss. The UC Irvine Medical Center, already projecting a $3.9 million deficit for this year, announced in February that its losses through mid-year were $2.5 million, with most of that coming in the last two months of the period. In March the center announced that continuing losses would mean it would have to lay off 151 workers. UC San Diego is projecting a loss this year of $4.3 million; UCSD officials told the UC Regents in March that the UCSD problems cannot be solved simply through cost-cutting and that the center will examine whether it needs "more fundamental changes in order to survive."

Averaged over the UC system, medical center net operating revenues have made a steady march downward over the past four years. Revenues are expected to exceed costs this year by a bare 2.2 percent; if the operating margin dropped as much next year as it is likely to this year, the system as a whole would be in deficit. Even if deficits are avoided, thin operating margins are trouble enough: one study has estimated that operating gains of 5 to 7 percent are necessary to finance capital improvements at teaching hospitals such as UC's.

With the possibility of enormous deficits looming on the horizon, the Office of the President last fall decided to hire a person whose mission is to staunch the red ink. He is William Gurtner, 53, who has been given the title of UC's vice president for clinical services development. Part of Gurtner's appeal to UC is that he has viewed the health care industry from several sides. He has been a senior vice president for Blue Cross of California, an executive with Mt. Zion Hospital in San Francisco -- finishing up there as its CEO -- and most recently was CEO of a northern California regional health care provider called HCP A Partnership for Health. One measure of the seriousness of UC's concerns is the salary the Regents approved for Gurtner: $325,000 a year with the possibility of up to $75,000 in additional "performance" pay. Gurtner joined the University in January; in late March, Notice Editor David Krogh conducted an interview with him on the state of UC's medical centers.

Notice --

What are the factors that are responsible for the change that's come about in the financial condition of UC's medical centers?

Gurtner --

I think the first and most important of them is the move of the health system toward managed care; it has resulted in substantial reductions in length of stay and substantial reductions in admissions to all of our centers to varying degrees. The second factor is that you have several of our centers -- Davis, Irvine and San Diego -- who find themselves in a continuing crunch of providing services to the Medicare population and indigents in such a way that it puts an enormous burden on their overall operations. Third, the debate about who is responsible for funding medical education and research is a serious one and unless we bring that issue to the front and get some recognition that there's costs there, all of our system will be affected. Finally, there are places in the system where we have not been as successful as we ought to have been in recognizing that the process of medical education has to mesh with the revenue streams generated by today's health-care environment. We have to be able to deliver our teaching product within the restraints of the clinical enterprise.

Notice --

The cost of health-care delivery matters now in a way that it never did in the past. Ten or 15 years ago, primary care physicians ordered up whatever procedures they thought were best for their patients, University medical centers provided much of this work and insurance picked up the tab. Now, however, health-care has become much more like any other industry in that, other things being equal, the business goes where the costs are lowest. Given that the University's reason for being in the health-care business is to train students -- and that this training has significant costs -- can UC realistically hope to compete with community hospitals on the basis of cost?

Gurtner --

Not directly, but I'm not sure that's the bottom-line need here. I think there is a legitimate 10-percent difference between costs at a teaching hospital and costs at a strong community hospital. I think that, beyond that, the costs in our system are within our control. This includes both our academic costs and costs on our operating side. With belt-tightening in these areas, I think we're in a position to demonstrate a quality difference and to be able to sustain a 10 percent differential because of the things we can do. We have to prove this difference, though; business isn't going to come to us just because we're the University.

Notice --

To look at another aspect of this, the University medical centers are the victims of a straightforward market shift: the skills of its highly trained specialists just aren't in demand they way they used to be, because primary care physicians are now rewarded for not ordering up specialized, inpatient procedures. The market's not going to change to suit the University; how can the University change to suit the market?

Gurtner --

The sixty-four-thousand-dollar question. First of all the University has to recognize that the volumes at the specialty level have changed and that it has to rethink the size of programs relative to those quaternary and tertiary services; we have to be more realistic about how big those programs can be. Second, we have a new market that we have to be cognizant of. Our attitude cannot be, as it has been in the past: send us the tertiary stuff and we'll get back to you. We've got to become a partner with the primary care delivery networks in order to be the supplier of their tertiary and quaternary services.

Notice --

How?

Gurtner --

I'll give you an example. When UCLA made the decision to acquire Santa Monica Hospital, what that meant was, here is a strong community hospital that can be a significant participant in the UCLA system as a referral base. That's one way; others have reached out to group practices and said: "Let's work with you; we are in a better position to deliver the high-cost tertiary stuff and if we have a feeder system, we'll have enough of a volume to make that more efficient for you."

Notice --

So we're still talking about tertiary care; the real issue is how to foster new feeder systems through which the university gets this business.

Gurtner --

That's one way to look at it. Our business hasn't changed; what we do well hasn't changed. What has changed is where the patients come from and the size of the population we need to service our programs. Because there's been such a decline in the use-rate, if you will, for our services, it takes a broader base for us to support our programs.

Notice --

Much has been made of the so-called "culture" of academic medical centers, the idea being that, traditionally, they didn't have to have the first rule of business in mind, which is to please the customer. To what extent do you think some change is called for in this respect and would this stand to have much effect on the bottom-line?

Gurtner --

I think this change is fundamental and I think it will have a significant impact on the bottom-line. There are examples throughout the system on a program level where this is beginning to show and demonstrate its worth. I think this idea ties as well to how we train medical professionals. I think we have to give some serious thought to how we train professionals to be successful in this new marketplace. I raise the question of whether we're training professionals for a system that no longer exists.

Notice --

Could you elaborate?

Gurtner --

Historically we have trained professionals for a fee-for-service system based on direct access to specialists. Well, that system is gone. The new system is a gatekeeper model in which primary care physicians serve as the access point. My question to the academic side of the house would be: are we teaching people how to deliver medicine in this milieu? And I think the answer is we're not; we're still teaching them how to function in the old fee-for-service system in which the specialist is independent, gets his patients directly, and has no responsibility for the economics of his decisions.

Notice --

UC San Francisco and Stanford announced last fall that they were entering into negotiations for some sort of undefined "collaboration" in patient care. Do you see partnerships and acquisitions as playing an important role in UC's future?

Gurtner --

Very much so. The Stanford-UCSF discussions are very exciting; they're also extremely complex and it's too early predict what might happen there. But what they've done is responsive generically to the issues of critical mass, efficiencies and operations.

Notice --

What this generally means is downsizing; efficiencies of scale usually mean people's jobs have to be eliminated. Do you think that more of this is in the offing?

Gurtner --

I think for us to assume that we are any different from the rest of the marketplace in this regard would be naive. I think the challenge is to approach this as carefully as possible so that we can protect what we have.

Notice --

Society has an obvious stake in supporting medical education. Now, with university medical centers nationally facing the same kind of challenges that exist at UC, what do you think the prospects are for the kind of thing President Clinton proposed in his health-insurance proposal -- a surcharge on health insurance policies that would be earmarked to sustain teaching and research institutions?

Gurtner --

My primary focus is not government, it's the private-payer community, and I believe that that community has an obligation to help support education and research. And I'd argue that there is a growing recognition of this among some private payers. The challenge they throw back to us, and that I'd pass along to your readers, is that the public is not convinced that we are training the right professionals in the right numbers to justify that public support. We need to look very closely at the number and distribution of the medical professionals that we're training in order to convince the public that we've moved in the right direction.

Notice -- What do you mean by "the right professionals"?

Gurtner -- Are we training too many radiologists, too many anesthesiologists; are we training enough primary care physicians? Are we tying our training programs to the actual needs of the delivery system we're part of, or are we so focused on the historical numbers of various programs that our training isn't matching needs?

Notice --

But hasn't the University moved a long way already toward training more primary care physicians and fewer specialists?

Gurtner --

Yes, we've moved significantly, but perhaps not far enough. What we did was agree to approach a fifty-fifty mix. I don't think that speaks yet to the need for specialty services within the delivery system. We've said we recognize that primary care is more important and we'll begin to change the mix. This does not say anything about how many anesthesiologists we really need.

Notice --

So you think the mix needs to be weighted further toward primary care physicians.

Gurtner --

I think we need to sit down and debate that; I don't know the answer, but I think we owe the public the debate and an explanation of our conclusions.

Notice --

We talked earlier about the cost of medical education in relation to today's marketplace realities. Have you thought about how the cost of medical education might be reduced at the University?

Gurtner --

I do not accept the assumption that the cost of medical education as we have defined it is necessarily the legitimate cost going forward. To be simplistic about it, the historical tradition of teaching says: In learning, residents order multiple tests because that's how they learn. Well, when the revenue supporting those patients is a fixed price -- and I'm not just talking about capped patients, I'm talking about Medicare and Medical and the private sector where they're not paying us fees anymore, they're paying us a predetermined amount of money. When this is the case, then I question whether the traditional model is legitimate for the training of medical professionals. I think the academic community has to take a good look at this and say, "Can we modify the way we have historically trained medical professionals?"

Notice --

How is the University going about bringing these financial considerations together with the medical training concerns?

Gurtner --

My challenge and opportunity is to help the faculty debate these issues. My door is open; they can come yell at me at anytime and I'll be happy to struggle with these issues with them. It's critical to recognize that nobody's got the answer here; all we do know is the problem. And how we get it solved really rests with the faculty as much as anyone else. I welcome the opportunity to debate these issues with them, because with that we'll come up with better solutions than we would any other way.

Notice --

You noted earlier that UC's medical system is really five separate entities. Do you see efficiencies to be gained in some consolidation of operations across the system?

Gurtner --

Coming in here at the front end, my assumption is yes. Those are tough to identify, but down the road in the next 24 to 36 months I'm sure we will explore and probably pursue a number of those. They tend to be on the operating side.

Notice --

The concern of some faculty is that medical center deficits will eventually be made up out of general campus budgets. To guard against this possibility, one idea that's been suggested is of effecting a separation between the medical centers and the general University, making the medical centers financially separate entities. Does this idea have merit?

Gurtner --

It does, but let me offer a very concerned caveat to it. It's very easy to say, "These institutions may not do well; therefore, let's let somebody else manage them." Well, right now, faculty are part of the organization they are providing treatment in, and they participate in decisions about its future. Why would we think a new owner or manager of a facility is going to be anything but uninterested in the faculty's needs vis a vis the economics of this operation? To my mind the question is, do we succeed together, or do we give it to somebody else who now tells us what we need to do to succeed? I think we need to get beyond this issue of let's avoid the risk because from the academic perspective you can't avoid the risk.

Notice --

Setting aside medical training, if you had to put your finger on one area of UC's operation that is notably inefficient, what would that be?

Gurtner --

I think it's probably our incredibly slow process of decision-making. That we are not able to make sound business decisions quickly and respond to a rapidly changing marketplace.

Notice --

The University is a very conservative institution, in that it's resistant to change. Yet change is the name of the game in today's health-care industry. Do you think the University can square this circle?

Gurtner --

Of course it can. There's no greater concentration of the intellectual ability to understand the problem than there is in the University system and I think that this intellectual capacity will clearly move us in the right direction.