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.

Dr. Richard Podolin, chairman of the community board at St. Mary’s, said he is “very enthusiastic” about the acquisition.

“At St. Mary’s and Saint Francis, there is a real commitment of the physicians for providing excellent care to the community, particularly the most vulnerable members,” said Podolin, the hospital’s former chief of staff and a cardiologist. “This is a really great opportunity to expand our services, to ensure our future, to grow together. Now, instead of closing wards, which we had been doing, we’re talking about expanding and opening up 100 new beds in our hospital to handle the overflow from UCSF.”

How many of the two hospitals’ employees and medical staff will stay on once UCSF is at the helm is unclear.

“There’s no guarantee, but we will do everything we can to encourage them to stay and be part of the future hospitals,” said Decosta, the UCSF Health Affiliates Network leader.

There is some precedent for UCSF acquiring a religious hospital: In 1990, it bought Mount Zion,  San Francisco’s first Jewish hospital.

“Mount Zion also had a very rich history of serving patients in the community, and we preserved that rich history and tradition in a respectful way that honored the work that came before, but very much still integrated it completely into UCSF in terms of our systems and processes,” Gunasekaran said. “Each system is different — St. Mary’s and Saint Francis are already part of a very large health care system in CommonSpirit Health, and that was not the case with Mount Zion.”

In early 2019, Dignity Health merged with Catholic Health Initiatives, creating a new, $29 billion nonprofit health system that today is known as CommonSpirit Health. Based in Chicago, CommonSpirit reported steep operating losses in fiscal years 2022 and 2023, and reported a $441 million operating loss in the first quarter of the 2024 fiscal year on increased expenses.

The CHI-Dignity Health merger required approval by California’s attorney general and from the Vatican — Decosta said that the Catholic Church will also need to sign off on the sale of St. Mary’s and Saint Francis hospitals, but added that this part of the transaction is managed by Dignity Health.

For UCSF, the deal is an opportunity to expand not only its offerings, but also its already significant footprint in San Francisco, where it is among the largest landowners.

UCSF owns more than 8.9 million square feet of space in the city — across hundreds of buildings that make up its Parnassus Heights, Mount Zion and Mission Bay campuses, as well as in off-campus buildings — of which about 30% is dedicated to UCSF Health. In San Francisco, UCSF is also affiliated with Zuckerberg San Francisco General Hospital, the San Francisco VA Medical Center and the Gladstone Institutes, and it also owns the 61-acre Mount Sutro Open Space Reserve.

According to figures provided by UCSF, St. Mary’s campus on the edge of San Francisco’s Golden Gate Park spans roughly 403,000 square feet, while the Saint Francis campus in Nob Hill stretches about 471,000 square feet. The properties are assessed at $121 million to $192 million.

Gunasekaran described the negotiated price for the two campuses as “fair market value” when taking into account their continued health care uses. He said the pricing was validated by an independent third-party assessment.

“You have to factor in the use. The hospitals still need significant investment and seismic compliance as well as to break even,” he said. “That’s where we arrived at this price, which is reflective of that value.”

Per a preliminary estimate, UCSF Health plans an immediate investment of $75 million to $100 million to address “deferred maintenance projects and needed facilities and equipment improvements” once the deal closes.


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