June 24, 2011
California is nearing the completion of years of consolidation on both the provider and the payor side. The commercially-insured population is almost

California is nearing the completion of years of consolidation on both the provider and the payor side. The commercially-insured population is almost entirely capitated and inpatient utilization is low--average length of stay has declined from 5.7 days in 1986 to 4.47 days in 1995, according to the California Office of Statewide Health Planning and Development. The California Healthcare Association (CHA), Sacramento, predicts that by the year 2000 there will only be three or four integrated health systems providing care in the metropolitan areas. The CHA also forecasts rapid growth in Medicare and Medicaid HMOs, and the consolidation of the state’s 30 HMOs to 10 plans in the next five to 10 years. The association predicts that California’s healthcare bill will reach $200 billion by the year 2000--about 13 percent of national healthcare spending.

While widely regarded as the most progressive state for healthcare reform (along with Minnesota), California is plagued by the daunting challenge of delivering care to large populations across sprawling metropolitan areas, coupled with high percentages of non-English speaking and indigent people. An estimated 22 percent of California’s 33 million residents do not have health insurance, compared with a national uninsured population of 18 percent. Eighty-four percent of those uninsured are workers or have family members who work, according to a recent study conducted by UCLA and UC Berkeley.

Is the California experiment working? There is still much controversy over whether all the mergers and downsizing in the state have reaped the intended financial benefits. "There is very little evidence that these mergers are reducing administrative costs," observes Albert Lowey-Ball of ALB Inc., a healthcare management consulting firm in Sacramento.

In a recent report on the future of California healthcare, the CHA predicts more hospital closures into the millennium as bed occupany rates dip to 43 percent, while managed care profits will hover at only three to five percent. Additionally, reports of shortages in emergency room care and nursing units have drawn headlines in California newspapers of late.

The source of all the current healthcare despair is reimbursement, says Al Holloway, president and CEO of the IPA Association of America, Oakland. "It’s dollars, from everyone’s perspective," he says. Rate wars involving HMOs, employers and consumers are the fundamental source of conflict for a purchasing market demanding better access to high quality care at prices most managed care organizations cannot support.

On many levels, consumer views and demands will play a growing role in healthcare delivery throughout the state. Lowey-Ball, an adjunct professor in health policy and economics at UCSF, predicts public resistance to any further consolidation and expansion by healthcare organizations will result in anti-trust regulation as well as lawsuits over HMO tactics to restrict access to care. A second major trend, he predicts, will be "substantial moves in determining competitive approaches to providing services to the underinsured and the uninsured." The CHA also predicts a growing accountability of healthcare organizations to the public and increased requirements for quality and performance data. Consumers will continue to demand more choice in plans and in care--with specialty care and alternative medicines becoming more available by health plans, according to the CHA.

Broadly speaking, healthcare and managed care are virtually synonymous in California. An estimated 90 to 95 percent of California’s insured population excluding Medicare and Medicaid recipients is enrolled in an HMO or PPO. There will come a day in the near future when the term "managed care"--becoming as obvious to healthcare as Windows is to the desktop--will die off, just as all other trends in the Golden State eventually do to make room for the next new idea or buzzword. What happens in California healthcare this year will probably set the stage for the next national revolution in healthcare: the branding of care into consumer product lines.

Two organizations based in Northern California may prove powerful trendsetters in the long-term plan of the state’s healthcare industry. One is Kaiser Permanente, the managed care dinosaur without which no story on California healthcare would be complete. The other is UCSF Stanford Health Care, the landmark and controversial 1997 merger of two of the nation’s most prestigious medical traditions. The potential for success in each organization is great--Kaiser with its strong track record in customer service and patient-friendly policies, and UCSF Stanford’s legacy of excellence in clinical research and academic medicine. Yet integrating and managing geographically-dispersed, decentralized entities and competing in the tumultuous California healthcare market will be a defining challenge for both into the next century.

UCSF Stanford Health Care Breaks Tradition

The merger of UCSF Medical Center and Stanford Health Services last fall was one of historic proportions, marking the first time two academic medical centers affiliated with different medical schools came together under one roof. Bringing the systems together was a painstaking process fraught with controversy: Lawsuits threatened to unravel the deal altogether. Civic organizations and unions protested about the merging of public funds from UCSF into a privately-held company, and fought for public access to information in the new organization.

However, the merger may be critical for the long-term financial and competitive health of the two institutions and their affiliated medical schools; in the past five years the medical centers at UCSF and Stanford have cut costs by $127 million. Executives in the new company have a goal of further cutting administrative costs by at least $26 million in the first two years, according to UCSF Stanford VP of Communications Mike Lassiter. A report from the California State Auditor’s Office estimated a $120 million benefit to the combined organization over four years. While UCSF Stanford’s detractors will be watching the new system closely, some believe the economy is forcing such unions. "I think it’s the only way we can continue to provide healthcare to our citizens and keep a good medical education base," says Al Holloway, president and CEO of the IPA Association of America and a supporter of the merger.

Adds UCSF Stanford’s CEO Peter Van Etten: "There was a strong feeling that by coming together we could better support our clinical operations." Van Etten’s visions are both practical--a merged organization can support the development of an advanced technology infrastructure much more cost effectively, he says--and grandiose: "We hope to establish one of the nation’s preeminent medical centers."

The advent of UCSF Stanford Health Care is striking evidence that not even long-standing, internationally renowned academic institutions are immune to the forces of managed care, dwindling Medicare funds and competition. Not only does UCSF Stanford face the typical merger constraints of integrating cultures, business processes and information systems across large geographic areas and multiple sites of care--but it also confronts the perplexing fusion of two independent and formerly competitive medical traditions of research and education. While the Stanford and UCSF medical schools were not part of the merger, their futures are tied to the new organization.

The toughest part of the merger will be physician integration, according to Becky Magee, practice director for First Consulting Group, Dallas, which provided IT management consulting during the merger. "How do you give a physician at UCSF the incentive to refer a patient to Stanford when he knows that money is going to go back into the Stanford campus?" she asks. Magee, while optimistic of the long-term potential for UCSF Stanford, believes it will take at least three years to iron out such issues. Van Etten says that over time, competitive issues will be neutralized as funding for both schools will come out of the same revenue pool.

Nevertheless, UCSF Stanford has little time to waste, competing for business in the nation’s most capitated and progressive healthcare marketplace. Without the right leadership, the union could have catastrophic results. Larry Blevins, the new chief information officer, is determined to make the experiment work. "Our challenge was how do we continue to grow and continue to provide the resources in today’s economic times?" he asks.

Out of the merger came a strategy to coordinate care across multiple departments and specialties to manage disease areas and population sectors like cardiology or women’s health--increasingly called "service lines" by healthcare strategists. "We are running very quickly to change our company from a hierarchical company to a service line company," Blevins says. Adds Gerry Shebar, CIO at Stanford University Hospital: "The strategy was to create a healthcare product and an identity in Northern California where a conservative estimate is we could increase the share of patients by two percent." To make the service line concept work, UCSF Stanford will have to make a heavy investment in IT to standardize and integrate its data and systems so that caregivers can share patient information and work collaboratively across the two campuses--a goal that will take several years to realize.

Preaching for partnerships

The palatial Stanford campus in Palo Alto is located just a few miles north of the nation’s high tech capital, Silicon Valley, born largely from Stanford’s legacy of entrepreneurial scientists. With such ties to the Valley, the new delivery system is in a prime position to capitalize on the latest engineering feats. Yet in an internal memo to department heads early this year, Blevins noted the challenge of keeping up with the dizzying pace of change in the industry: "We will either exploit the new technologies or be exploited by those organizations that do."

Blevins’ first order of duty is to bring together the minds of IS leadership from the UCSF Medical Center and ambulatory practices, UCSF Mt. Zion Medical Center, Lucille Packard Children’s Hospital and Stanford Health Services, including Stanford University Hospital. Blevins moved to the Bay area to take the IS helm at UCSF Stanford after an illustrious career as the CIO of Harris Methodist Health System in Fort Worth, Texas, where he spent the last 14 years. "This is my last adventure as a CIO," he said matter of factly during a tour of Stanford’s facilities. The position may be his greatest challenge yet and what he believes is the next movement in healthcare--bringing together academic medical centers.

Blevins confides that his friends and colleagues thought he was crazy to jump into the political hotbed of two merged, academic powerhouses. "That’s the very reason why I wanted to do it," he muses. "This is a unique opportunity because we have two pools of such vast amounts of skills and resources. If we can capitalize on bringing those resources together, we now involve not only the care and the cure but the discovery, so we’re working on the prevention of disease not just the treatment." So determined to make an impact at UCSF Stanford, he managed to persuade three key members of his IT team in Houston to make the move with him. He also brings with him a hatful of experience in testing new models and ideas of IT management at Harris Methodist, where he engineered innovative outsourcing and risk-sharing agreements.

Blevin’s job this year is to sell his vision and make the partnerships necessary to gain the precious information capital he needs to build an enterprisewide strategy. While his long term goal is to create a "virtual repository" of patient information linking all four hospitals, clinics and other sites of care, he is intent on not reinventing the wheel or creating costly redundancies of effort. For instance, he has negotiated to share telecommunications costs with Stanford University, and is sharing storage costs by housing Stanford Hospital’s mainframe computer in the university’s data center.

Making the university connection

Blevins sees great untapped potential in partnering with the IT and computer science departments in the two universities--not only to keep costs down but also to share in scientific discoveries and research. "No one (in the healthcare industry) has done this well," he says. Companies like Cisco Systems, the networking giant formed by two Stanford engineers and once housed on the Stanford campus, has become a pervasive technology throughout Stanford’s networking operations and will likely be one of the network standards adopted by the new delivery system.

MedNET, the networking and Web services organization for the Stanford Medical Center complex, is another consortium of university and medical center expertise and is funded equally by both. With a staff of 11 full-time employees, MedNET provides connectivity, consulting and Web hosting and design to Stanford Hospital and clinics, Packard Children’s Hospital, and is beginning to work with the UCSF campus. "We’re like a small ISP," says John Reuling, MedNET’s director.

MedNET installed the first IP network at Stanford Hospital and is responsible for investigating new Web tools and concepts--such as streaming audio and video, and longer term, how to use the Web to support patient care. As Stanford was one of the users of the Internet’s predecessor ARPANet, its expertise in Internet and Web technologies will be valuable in developing the networking infrastructure at UCSF Stanford.

Equally important are the information resources which groups like MedNET and the medical school’s informatics department are pulling together through the Web. A project that just came online is the Stanford Health Information Network for Education, or SHINE, a research site available to all physicians and medical students. It incorporates a search tool that integrates information across multiple medical databases such as MEDLINE, and leverages the knowledge of the user to refine the search, according to Ted Shortliffe, a practicing physician, professor of medicine and associate dean for information resources and technology at Stanford. "The real advantage is you don’t have to understand all the quirks and peculiarities of the different databases," Shortliffe explains. An exhaustive physician referral guide has also been created on the Web to help patients and the general public learn about specialists, services and research activities in the health system.

And to support the international patient base crucial to both UCSF and Stanford, Stanford’s International Medical Services department is using videoconferencing technologies and the Web to repackage and deliver medical lectures to foreign hospitals. Programs with hospitals in Singapore and the Philippines are well-established; in the future, such activity may become a new source of revenue for the organization. "For us it’s a very good opportunity to recycle the content and get multiple uses out of it," Reuling says.

Paramount to the success of such relationships within the scope of UCSF Stanford’s IT mission is getting a bunch of brilliant but staunchly opinionated academicians, scientists and department heads to work together toward common goals, notes Blevins. "When you put together that many skillful people with their own ideas and their own direction and cultures they have come from--that always presents a challenge."

Fortunately, Blevins has an ally in the chief executive: He has a close relationship with Van Etten, who cofounded Boston-based healthcare decison support vendor Transition Systems, Inc. "Peter has a rich history of supporting technology," Blevins says. "He visualizes what technology can enable but he’s also a leader in not identifying technologies and then trying to find a problem to fit them."

Van Etten says he hopes that the new organization can develop a "more cost-effective approach to IT," and he is resolute in his opinion that IT is critical to the long-range business plan. "There’s no question that our successes to a large extent are dependent upon the successes of IT," he says.

Running IT like a business

Pragmatism is the fabric of Blevins’ management philosophy; he is a vocal proponent of accountability in information services. His belief in effective partnering to manage risk and cost extends to the information system and consultant community. He has relied heavily on outside consultants in the past, and plans to continue long-term relationships with firms like Daou Consulting in San Diego and First Consulting Group to assess UCSF Stanford’s current information systems, identify an enterprise infrastructure, find development partners and build the long-term plan. The 1998 IT budget is projected to be five percent of UCSF Stanford’s total budget.

Over the next few years, IT will work to consolidate the four data centers, networks and communications systems; and choose an integrated system for ADT, order entry, financials, results reporting, and a master patient index to support the virtual repository. Oacis Healthcare Systems, Greenbrae, Calif., has been working with Stanford for two years to develop a data dictionary that Blevins says will help the organization meet the requirements for standard data definitions and logical data presentation in the repository.

Once an enterprisewide clinical and financial information system is selected it will replace the current systems gradually--beginning with the UCSF complex. Blevins and his team are working now to define and develop the infrastructure to support this. "Common structures such as email, intranet, teleconferencing, video mail and wireless communications all operating together as one will serve as enablers in developing a total access system," Blevins explains.

UCSF Stanford will invest heavily in Microsoft technology--Windows 95, NT and Microsoft Exchange for email will be the standards for desktop operations. Microsoft Windows NT-AS (advanced server) has been chosen as the server platform for the enterprise, running on Compaq servers. Picture Tel and Daou Consulting are also key development partners.

Blevins does not plan to do much in the way of inhouse development. "With the correct strategic partners, you’ll be successful," he says. "You want to build an internal shop with people who have business skills that relate to how technology can help business issues." Because he will be depending so much on outsiders to supply him with sound technology on time and within budget, Blevins is a stickler for keeping to the contract terms--so much so that he requires risk-sharing agreements when he works with IS suppliers.

His definition of risk-sharing is one of give and take on both sides: "We want to develop a business model where our partners are rewarded for above average results and maintaining a certain level of service, but we also want to share the risk of not obtaining those service levels." In other words, Blevins agrees to adhere to the vendor’s product standards by avoiding customization that makes future support and upgrades unmanageable. The vendor in turn must deliver on the promises set forth in the contract to receive full reimbursement.

"For-profit" thinking

Risk sharing is also his presiding management philosophy inside the organization: It’s what he calls the "for-profit mentality" of IT. "Everyone in the information technology department is a salesperson," he says decisively. By guaranteeing service levels such as network response time and measuring performance, he says, IT is doing its job. An "IT Marketing" position is also planned; this person will introduce new technologies to users and educate them about IT services. "Eventually our customers will do our budget by saying what kinds of services they want to purchase," Blevins explains. But users are accountable too. Departments must prove the need for products and services and factor both the cost and return on investment into their budgets. Meeting the needs of the users, or "customers" will be particularly tough in the UCSF Stanford environment, he says, because of the fact that many of his customers are at the pinnacle of their careers and will expect "way above average" services.

Even though still a non-profit organization, it will be impossible for UCSF Stanford to ignore a for-profit sensibility: the need to find new markets and improved ways of operating in the saturated California marketplace. If predictions from the California Healthcare Association, Sacramento, come true, UCSF Stanford Health Care is just the first of a wave of academic center consolidation as state and federal support for medical education and research declines nationwide. The association forecasts that California’s seven medical schools will merge and consolidate to four or five by the year 2000. The actions UCSF Stanford will take in the coming year--both from a business and an information technology perspective--will either pave the way for future academic mergers, or prove to be just one more California experiment.


1998 projections: $1.4 B operating budget; expect savings of $19 million from operational improvements;

Average LOS predicted at 5.6 days;

Average daily census for enterprise: 879;

Approximately 11,600 employees.

(Source: UCSF Web site)

Larry Blevins: "Not So Much Technology, But Business."

LARRY BLEVINS’ EASYGOING, GRACIOUS Southern manner seems at odds with his gold 1998 Lexus, fully equipped with a global navigation system to guide him around the perplexing maze of highways in the Bay area. "This car has saved my life," he says. He regularly shuttles between his home in Palo Alto to his offices in San Francisco, the UCSF and Mt. Zion medical centers downtown, and the Stanford campus. He admits that he is still adjusting to the fast pace, unending traffic jams and expense of living in Northern California since moving there from Houston last fall.

Blevins is a strategist and a salesman and--perhaps more importantly--a diplomat in his new position as the IT chief at UCSF Stanford Health Care. In explaining the reasoning behind the merger, he speaks in plain terms: "If you take two strong organizations with a common interest and a common direction, the outcome should be a much stronger organization. The challenge, of course, is to bring the cultures together." Blevins calls his job "not so much technology but business." He spends much of his time meeting people and striking relationships that will help him assemble the resources and expertise he needs to put together an IT plan for the sprawling enterprise. He is a big believer and proponent of the IT department as a for-profit, financially accountable organization--a topic he presented during a session at the 1998 HIMSS convention in Orlando.

Career Highlights

November, 1997: Accepted position of Senior VP and CIO at UCSF Stanford Health Care, San Francisco

1983 to 1997: Senior VP of Information Systems, Harris Methodist Health System, Fort Worth, Texas.

1995: HIMSS CIO of the Year Award

1994: CIO of the Year Award from the Health InformationSystems Executive Forum(one of three winners)

Professional Affiliations


Healthcare Information Systems Executive Forum

United Way Board of Directors

1998 Chairman, Microsoft Health Care Users Group

Competing Through Innovation

THE STANFORD AND UCSF MEDICAL centers have been forever the gems of California healthcare because of their reputation in the national and international medical community and commitment to clinical discovery across multiple specialties--assets some believe will be magnified in one organization. "Bringing together the research insights at these institutions is very powerful," notes First Consulting’s Magee. She says the ability of UCSF Stanford to deliver groundbreaking clinical research to patients in the community will be a competitive advantage the other major California players can’t touch.

This drive to excel also extends to information technology. Techno wizard Richard Barth, MD, associate professor of radiology at Stanford, is like a proud father when he talks about the hospital’s Picture Archiving Communications System (PACS). The system, codeveloped with Imation Cemax, Minneapolis, provides online access to a five terabyte and growing archive of CT, MRI and ultrasound images. "We’ve realized tremendous gains in patient care by being able to render reports within hours of completing the exam as opposed to in some cases two or three days because we can’t locate the film," he says. Barth’s goal is to supply all referring physicians with digital studies, and to create an interface from the PACS to the enterprisewide repository. Current investigations in "virtual studies"--manipulation of radiology images to create a 3D internal view of organs--may succeed in one day eliminating expensive and invasive procedures like colonoscopies.

Other projects like Starbright, a Steven Spielberg-backed virtual reality software program for kids in the hospital to talk with each other through email and videoconferencing, and express creativity through animated "zones," has garnered national attention. President Clinton paid a visit to Packard Children’s Hospital in 1997 to see the program and talk to kids who use it. Such services--made possible by generous community and alumni donations--will be important in attracting the kind of savvy consumer USHC will need to thrive.


U.S News and World Report, Honor Roll in the Best Hospitals Survey of 1997 for high marks in 11 specialties--UCSF and Stanford Medical Centers.

UCSF Stanford Health Care Facts

UCSF Medical Center, UCSF Mt. Zion Medical Center, Stanford Packard Children’s Hospital, Stanford University Hospital.

Stanford--350 family practice physicians and specialists on campus.

UCSF/Mt. Zion--Three ambulatory care clinics, senior outpatient facilities

Clinical Distinctions
Highlights from the Stanford School of Medicine:

1968--first adult human heart transplant in the U.S.

1972--first construction of a recombinant DNA molecule containing DNA from two different species.

1973--first expression of a foreign gene implanted in bacteria by recombinant DNA methods.

1981--first successful human-combined heart/lung transplant in the world.

1996--discovery that the p53 protein, known to be involved in controlling cancerous tumors, works as an "emergency brake" on cancer development.

Kaiser Permanente Seeks Salvation in IT

As the country’s first managed care organization, now more than 50 years old, Kaiser Permanente has made an indelible mark as a trendsetter and market leader in California--still by far the company’s largest customer base with approximately 5.3 million members of a total 8.9 million nationwide. With more than 2.7 million members, 16 hospitals and 35 medical offices, the Northern California division covers roughly 30 percent of the insured community, and has been at the forefront of the organization’s clinical research and technological development. A recent survey highlighted the division as having one of the lowest disenrollment rates in the nation.

Kaiser’s reach today extends from New York to Hawaii and the company continues to operate as one of the few remaining staff-model HMOs, touting a historical commitment to physician autonomy in decision-making and a strong partnership between its two arms--Kaiser Foundation Health Plan and The Permanente Company (medical groups and hospitals). The organization has won numerous regional and national awards for member satisfaction, prevention and quality of care, and is also community-oriented: last year it committed $100 million to subsidize health coverage for up to 50,000 California children from low-income families and was a member of a national coalition proposing consumer managed care protections.

Yet Kaiser has endured several attacks of late. A two-day nursing strike in January at 54 of Kaiser’s facilities in Northern California was just the latest in a year-long battle with the California Nurses Association over wages and charges the company understaffs its nursing units and jeopardizes patient care. Shortages in emergency room capacity in the Bay area over the last several months have also been blamed on Kaiser facilities. And like many other large HMOs, Kaiser suffered spectacular financial setbacks in 1997 from pricing pressure and a saturated marketplace. Despite a nearly 20 percent jump in membership from 1996 and two mergers, the company reported estimated losses of $270 million in 1997.

Such setbacks may be a temporary and necessary pause for the managed care industry after several years of rapid growth--yet the long-term survivors will likely be those that invest wisely in information management. The failures of other major HMO players to do so caused devastating financial losses and embarassment in 1997. While Kaiser has always invested heavily in IT and has a long history of clinical automation in California, until the last couple of years the IT operations have been disjointed and--in the words of Kaiser spokesperson Dyan Pollack--"renegade."

That has all changed since senior vice president and CIO Tim Sullivan was hired in late 1996 to head up a national strategy for information technology. "A very high priority was given to IT as an important strategic objective transforming the organization into a higher level of performance," Sullivan says. Despite volatile economic times at Kaiser and a widespread consumer malaise about HMOs and managed care, Sullivan is confident about the future ability of the organization to compete with information: "The fact that we have such huge volume, that we’re a capitated system so we get the cradle-to-grave vision with our members, offers us probably more opportunity than other healthcare organizations."

Going national

From his corner office in downtown Oakland, Sullivan has a commanding view of the San Francisco bay--a view he may enjoy little of shuttling from one meeting to the next in his role of chief architect and orchestrator of an ambitious plan to consolidate the eight regional IT divisions and create a national information system. Hailing from CIO jobs in the cutthroat world of banking, Sullivan’s no-nonsense manner is complemented by a wry sense of humour. In explaining his immediate mission to get the troops in order across the divisions and consolidate resources, he says: "It&r

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