UCSF To Pay $100 Million To Acquire Two Struggling S.F. Hospitals

UCSF Health has confirmed that its $100 million deal to acquire two struggling San Francisco community hospitals is just weeks away from closing.

The city’s preeminent medical research institution has signed an agreement to purchase St. Mary’s Medical Center at 450 Stanyan St. — San Francisco’s oldest Catholic hospital — and Saint Francis Memorial Hospital at 900 Hyde St. from Dignity Health by the end of March.

The possibility of the deal first emerged in July, and some concerns from St. Mary’s doctors surfaced immediately over whether UCSF Health would eliminate important programs.

The acquisition would mark a notable change in San Francisco’s health care landscape, though the scale of the transaction is smaller than that of the large mergers that have led to the Bay Area’s health care sector being dominated by a few larger providers.

UCSF Health officials say the intent is to bring diversified care choices to consumers by investing in two underused hospitals that will augment UCSF Health’s academic medical system with community-based services.

The 167-year-old St. Mary’s joined several other hospitals in 1986 to form the medical network Catholic Healthcare West, a precursor to Dignity Health. The network acquired Saint Francis in 1993, and in 2012 renamed itself Dignity Health.

The deal, once closed, would bring the facilities and their thousands of workers under the UCSF banner, adding two emergency rooms and 500 beds to UCSF’s existing single emergency room and 1,200 beds. It would also expand UCSF’s sprawling real estate footprint in the city by nearly 1 million square feet.

UCSF officials told the Chronicle last week that existing programs and services at the former Dignity facilities will be preserved. And, yet, the pending acquisition will usher in at least one sweeping change at the two community hospitals: As part of UCSF Health, they would no longer operate under the religious and ethical directives of the Catholic Church, which prohibit abortion and contraception.

“There will no longer be any affiliation with the Catholic health systems or church — that’s critical and part of UCSF’s values, and something that is important to us and understood by the team that will be joining us,” said UCSF Health Affiliates Network President Shelby Decosta, who will oversee the hospitals’ transition.

In 2019, UCSF called off its pursuit of an affiliation with Dignity Health in the Bay Area over concerns, at the time, that deepening ties with the Catholic system would compromise health care options for women and LGBTQ patients.

But the hospitals’ worsening financial realities have created an opportunity for UCSF that was too good to pass up, said UCSF Health President and CEO Suresh Gunasekaran. St. Mary’s and Saint Francis have a combined occupancy rate of 25%, he said, and each lose millions of dollars every year.

Meanwhile, UCSF faces a growing need to address overcrowding at its facilities, where patients face increasingly long wait times for emergency care and other services.

“Our hospital beds are completely full almost every evening. This is causing delays both in our operating rooms and for patients in the emergency room,” Gunasekaran said. “We thought that the best way to address this significant healthcare demand is to create another platform for health care in the city of San Francisco that allows us to meet patients’ health care needs at an earlier time, before it gets serious.”

By making investments in areas such as the equipment, infrastructure — for instance, electronic medical records — and the facilities at St. Mary’s and Saint Francis hospitals, Gunasekaran said that the idea is to “expand the scope of what those hospitals are able to deliver in 2024” and attract physicians to the hospitals.

Their services will run “complementary” to UCSF’s offerings, which are focused on “complex care” that is aligned with its research-based mission, he said.

“What we recognized is that St. Mary’s and Saint Francis are run very differently, and we want them to remain different,” Gunasekaran said. “They are much more community-based and much more focused on the common conditions that many patients have, and we want to preserve that legacy.

“We really think that this will open up new options in the city.”

For current patients at St. Mary’s and Saint Francis, costs such as co-pays would not change, as the same contracts that the hospitals currently have with health insurers would remain in place subject to their approval, according to Gunasekaran.

Health industry watchers say they’ll monitor the impact on patients’ prices. UCSF is one of the region’s largest health care providers after Kaiser and Sutter, and consolidation within the industry has contributed to higher prices for consumers, research shows. One 2018 analysis found that Northern California residents pay 20% to 30% more for health services than those in Southern California, where the industry is less consolidated, even after accounting for the Bay Area’s higher cost of living.

“While we don’t know the impact this particular acquisition is going to have, we have decades of research and experience here in California with various types of consolidation,” said Kristof Stremikis of the California Health Care Foundation, which researches health care markets. “From a patient perspective, consolidation leads to higher prices with no improvements in quality.”

UCSF leaders say they have a written agreement in the deal to keep all 1,800 employees from the two hospitals. UCSF Health is also maintaining the open medical staff models at both hospitals, meaning the 700 independent physicians could continue to practice there. UCSF currently has 14,000 employees.

Both medical centers will remain open during the transition and continue to offer the same services and programs after the acquisition is completed.

That includes the Sister Mary Philippa clinic and Women’s Health center at St. Mary’s and the Bothin Burn Center at Saint Francis.