Doctors and healthcare workers don’t like to talk about patients being profitable or unprofitable. But American healthcare is an industry, even at hospitals dedicated to serving the poor — and the brutal realities of profits and losses have a way of challenging even the noble oaths doctors swear to uphold ethical standards.
That’s certainly true in San Francisco, where healthcare offerings often diverge sharply based on how much you can pay for care.
Earlier this year, conditions at two hospitals focused on serving lower-income patients — St. Mary’s Medical Center and Saint Francis Memorial Hospital — came under sharp scrutiny, after UCSF Health announced plans to add them both to their growing portfolio of healthcare centers in the city.
The cut-rate price of $100 million for two hospitals reflected just how much work it will take to transform the facilities, which are plagued with staffing shortages, empty beds, and hundreds of millions of dollars in deferred maintenance, including necessary seismic upgrades — not to mention they’re losing millions of dollars a month, each.
UCSF argues its purchase will preserve critical medical resources, while helping the organization solve its own problems at its current hospitals, which suffer from intense overcrowding and long wait times.
The strategy hinges on a plan to move less-profitable patients, including those who are uninsured or require simpler procedures, from UCSF’s existing hospitals, including its original campus, the Helen Diller Medical Center at Parnassus, to the newly acquired institutions. This redistribution will allow Parnassus to focus on surgery and procedures that require more specialty care — and net a higher profit.
The moves in San Francisco are part of a broader pattern for the sprawling UC health system, which has been acquiring community hospitals in cities around the state, and reshuffling patients between the properties in pursuit of profits. In December, UC San Diego bought a small struggling hospital and moved many of its mental health and ER services there. In March, UC Irvine and UCLA followed suit, snapping up hospitals to, according to UCI’s rationale, “meet the continually increasing demand for inpatient beds for a range of intensive and critical care needs.”
UCSF’s gamble is risky — and attracted the attention of California Attorney General Rob Bonta, whose office conducted an investigation into the San Francisco merger. Bonta’s office used the threat of a lawsuit, filed and settled last month, to extract promises from UCSF Health to keep providing critical services to the city’s most vulnerable residents at the two hospitals. UCSF also agreed to pour an additional $430 million into needed repairs and updates, bringing them up to modern standards of care and safety.
But as the system undertakes a plan that stands to dramatically reshape how and where San Francisco patients are treated, healthcare experts told Gazetteer SF that even a nearly half-billion-dollar investment may not be enough to pull it off.
This account of UCSF’s acquisition, including the physical descriptions of the hospitals, is based on documents gathered by Bonta’s office in the course of its investigation, as well as interviews with several UCSF hospital employees who requested anonymity because they aren’t authorized to speak publicly about the merger.
In response to a detailed description of Gazetteer’s findings, UCSF Health responded with a written statement, which addressed some issues and ignored others, including questions about seismic safety.
“It is no secret that both hospitals face significant challenges –ones we have publicly acknowledged since we began the acquisition process – including the low bed utilization rates and staffing and financial challenges,” the statement said. “We will make substantial investments in Saint Francis and St. Mary’s, and we believe we will be able to attract enough patients to create financial sustainability.”
“A boat with a giant-sized hole in it”
Perhaps the most shocking indication of the fallen state of St. Mary’s Medical Center is that some of the hospital’s operating rooms have been converted into makeshift storage areas, due to how few surgeries are being booked there, said a UCSF employee familiar with the merger. But those rooms are hardly the only sign of disrepair and dysfunction at the historic hospital, located on Stanyan Street across from Golden Gate Park.
The employee told Gazetteer that St. Mary’s CT scanner is often on the fritz, complicating what’s become a standard and normally reliable method of diagnosing disease and injury. Understaffing, meanwhile, has led to empty beds and gaps in specialty care. Maybe most critical of all, the hospital needs serious seismic upgrades to withstand earthquakes and meet safety requirements.
“It's like we bought a boat with a giant-sized hole in it, and said we're not going to sell this boat for scraps, we’re actually going to fix it,” the employee said. “Significant infrastructure investments are needed to make these hospitals fully functional.”
Part of the acquired hospitals’ difficulties stem from their founding 19th century Catholic mission to serve the poor. Many of their patients today are publicly insured or without any medical insurance; a disproportionate number are affected by the city’s twin problems of homelessness and drug addiction. Amid diminishing revenues, many doctors have left for other hospitals.
It’s a circular problem with a clear outcome: At St. Mary’s, which reported a $22 million loss last year, only 26 percent of its beds are being used, as severe understaffing has driven the hospital to send patients elsewhere for care. St. Francis isn’t faring any better, with just 23 percent of its beds being used, and a reported 2023 loss of $32 million.
At a March hearing, UCSF officials told the San Francisco Board of Supervisors’ Rules Committee that the two hospitals faced being shut down without its lifeline.
“My job is about to get harder”
UCSF expects the financial losses to continue in the short term, according to the person familiar with the merger. “We have to invest in them to turn them around, to be profitable,” they told Gazetteer.
But in all those empty beds, UCSF also sees an opportunity: A place to offload patients from the chronically overcrowded halls of its main campus, UCSF Parnassus. Current employees at the UCSF flagship describe long waits for patients to get treatment; often, a dozen or more patients are lined up on gurneys in the hospital hallways, because the beds are all taken.
The Parnassus emergency department is “always full, uncomfortably so,” according to a current employee there. “They are just constantly flooded with patients, where patients are having to wait for hours to be seen, and then days to get an inpatient bed.”
Emergency and surgery departments at the hospital are “always competing for beds,” the employee added. “We’re pretty much just waiting for discharges to happen.
In addition to opening up beds at Parnassus, moving patients with less-demanding healthcare needs — and little or no insurance — to the newly acquired hospitals would allow other UCSF campuses to focus on specialized, and often highly profitable, care and procedures such as organ transplants, cancer treatment, and neurosurgery.
But there’s a wrinkle: To make it work, UCSF will have to spend hundreds of millions of dollars on improvements, which officials were well aware of when they made the deal. Last year, UCSF Health Chief Executive Officer Suresh Gunasekaran told the UC Regents that the system would need to spend $300 million upgrading the two hospitals.
The investment would be offset by the “backfill opportunity” of “moving patients from UCSF’s main campus facilities and refilling those spaces with patients needing more complex care,” Gunasekaran said, according to a document describing the meeting. Using this strategy, UCSF will push the two facilities into profitability within two years of the acquisition, according to the document.
“I’m thinking my job is about to get harder,” the employee at UCSF Parnassus said. Under the new plan, they worry, “every single person you take care of is really sick, instead of a mixture” of patients, including those that require less intensive care.
In its statement to Gazetteer, UCSF denied that patients would be transferred based on profit motives, despite claims to the contrary from an employee with knowledge of internal discussions. “Patients are triaged according to their acuity – never their financial status,” the statement said. “When it is clinically appropriate to do so, we may transfer patients with less complex care needs to a community hospital that can provide that care.”
Glenn Melnick, a professor of health economics at the University of Southern California, expressed concern about how, exactly, the University of California will leverage its growing consolidation of San Francisco’s healthcare market to achieve profitability at its two new hospitals.
“One thing we worry about is that a system hospital like UCSF, which is high-priced and negotiates with health plans as part of the UC system, will have the power to demand higher prices” at the acquired hospitals, Melnick said. “So this is how they will increase profits — not through efficiency and competition, but shared market power.”
A “critical service for San Francisco’s youth”
Despite the problems at St. Mary’s and St. Francis, the two hospitals form an invaluable part of the city’s safety net, a point underscored in the lawsuit filed by attorney general Bonta last month. After his office’s investigation of the merger, it filed a complaint over antitrust concerns that it could reduce competition for, and access to, acute hospital care in San Francisco.
In particular, the complaint pointed to St. Mary’s acute mental health crisis unit, which is the only such ward in the city that cares exclusively for adolescents aged 11 to 17 years old, which currently suffers from staffing shortages in parallel with the other units of the hospital. The city’s Department of Public Health has deemed the unit’s 35 licensed beds a “critical service for San Francisco’s youth.”
The complaint also noted the significance of a 24-bed locked psychiatry unit at St. Francis, which treats patients “in acute crisis, requiring a high level of psychiatric care and safety,” according to a memo from the health department.
The city has a contract with St. Francis to cover the treatment of patients who require such care, but have no health insurance. That has led to more mental health patients being transported there from other facilities than to any other hospital, as well as “the highest percentage of unhoused patients, and the most drug overdose cases,” according to Bonta’s complaint.
In response to the lawsuit’s allegations that the merger could reduce care for the city’s most vulnerable residents, including the unhoused and those struggling with drug addiction, UCSF agreed to maintain St. Mary’s and St. Francis’s services and staff for five years. The university also agreed to continue treating Medicaid beneficiaries.
In addition, UCSF agreed to pay for significant upgrades to the hospitals, including $80 million to fund an electronic medical records system, and at least $350 million for deferred maintenance.
“This process will be difficult”
Susan Maerki has done her own sleuthing of the merger, and is skeptical UCSF can pull it off. A retired health policy specialist who worked at PricewaterhouseCoopers for more than two decades, Maerki has taken an interest in the merger as both an expert and resident living near UCSF’s Parnassus hospital. When she suffered a knee injury late last year, Maerki said she chose to do her physical therapy at St. Mary’s. Poking around the hospital, she said she noticed empty patient rooms with unused medical equipment.
But it was the seismic ratings she saw posted on the walls of the hospital that gave her the most pause. She snapped photographs revealing parts of the building scored well below the standards which California hospitals will be required to meet by 2030. By that year, under state law, every hospital must demonstrate they can continue providing care after an earthquake, or risk being shut down.
While the agreement with Bonta included a promise from UCSF to seismically retrofit both hospitals in the next few years, Maerki said she doesn’t believe $350 million will cover both the retrofitting and the required upgrades, based on her experience.
In February, Maerki attended a public meeting of the San Francisco Health Commission, where she voiced her concerns about the seismic ratings of both acquired hospitals. In an interview with Gazetteer, she called UCSF’s plan to reach profitability at both hospitals in two years “extremely aggressive.”
“These hospitals have served an important population,” Maerki said. “The question is whether the UCSF commitment is going to be sufficient to save one or both hospitals.” While the attorney general’s settlement improved the merger for San Franciscans, “I just don’t think it’s going to go very far,” she said, referring to the $350 million.
In its statement, UCSF Health acknowledged the challenges they will face in meeting their own deadlines — and said that they might end up spending more than they’ve pledged.
“While preliminary estimates were made prior to taking ownership of the hospitals, we do not have definitive financial plans or timelines,” the statement said. “We know this process will be difficult and may take longer than we hope. UCSF Health is committed to the long-term health of San Franciscans, and we remain optimistic about the future of Saint Francis and St. Mary’s.”
