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University of Utah officials are negotiating with health-care providers about sweeping changes to the status of University Hospital that are aimed at establishing the hospital as part of an integrated managed health-care network.

"The sale of the University Hospital or other physical assets is not on the table and is not going to be, and we're not talking mergers," U. President Arthur K. Smith told the Deseret News.What is on the table is the formation of a third health-care network or the possibility of creating new entities through joint ventures. Discussions are going on now, and a decision is expected in "a matter of months, not years," Smith said.

Discussions have been held with networks including Intermountain Health Care, Colum-bia/-HCA, Champion (which owns the former Holy Cross Hospital, now called Salt Lake Regional Medical Center) and Blue Cross-Blue Shield.

"One option, in addition to a joint venture with one or two of those entities I've described, is the formation of a third network in Utah," he said.

The university has retained national health-care experts and financial consultants to help it in the search for new answers. Mean-while, Gov. Mike Leavitt, regents and university trustees are involved in the discussions, according to Smith.

Utah's biggest health-care network is IHC. The second major one would be a new network currently going through the approval process with the Federal Trade Commission, in which Columbia/

HCA would merge with Health-Trust Inc.

Before it would approve the nationwide merger between the Nash-ville-based giants Columbia/HCA and HealthTrust, the FTC has said it would require them to divest three hospitals in Utah. They are Davis Hospital and Medical Center, Layton; Jordan Valley Hospital, West Jordan; and Pioneer Valley Hospital in West Valley City.

"The third network would be basically everything that's left, including University Hospital," Smith said.

The new network could include Champion, FHP, whichever entity acquires the three divestees, University Hospital, Blue Cross-Blue Shield and others.

A joint venture would create a new entity, with each participant investing in the new organization and sharing risks and benefits.

Two forces are driving the hospital toward these changes, Smith said:

- The need to keep patient bills down in an increasingly competitive health-care market.

- Other networks sewing up patients and physicians into integrated systems. The danger to unaffiliated hospitals like University Hospital is that insurance companies committed to particular networks will refer clients to designated hospitals that are part of those networks. That would leave the university with too few patients.

University Hospital relies on paying patients to an extent that is unusual among teaching facilities like itself.

"The university depends on a flow of patients coming to the University Hospital and to the medical school," Smith said. "If we don't have those patients, we can't educate students."

Both graduate and undergraduate medical students need exposure to a wide variety of ailments and medical challenges, he said.

But to keep functioning, the hospital needs money. According to Smith, Utah is probably at the bottom of the national chart in terms of state contributions to its medical school and hospital.

"The Utah Legislature provides only 1.5 percent of University Hospital's budget, and only 8 percent of the medical school's budget," he said.

"To a degree unparalleled in the rest of the country, the university has to support the cost of medical education by seeing patients."

Medical education shifts costs onto patient bills. Yet the hospital is competing for patients with health networks that don't also support medical education.

"Generally, that cost overlay, the cost of medical education, is estimated at about 30 percent," Smith said. That means a procedure at University Hospital would be expected to cost 30 percent more than the same procedure at another hospital that doesn't bear the costs of educating tomorrow's doctors.

Other competitors are striving to become "the low-cost provider," and economics forces this kind of goal on University Hospital, too. Recently, officials at the U. confirmed that they are cutting hospital positions, including those involved with patient care, in order to reduce bills to patients by 10 percent.

Adding to the hospital's fiscal uncertainties are changes in the way the federal Medicare program operates, Smith said.

"Medicare historically has provided a percentage of funding to support medical education." In the past, this money - delineated as both direct and indirect costs - has gone to the institutions that provide the medical education.

"In the future, because of actions taken in the last Congress - not the current one - that money's going to go not to the institutions that provide the education but to the institutions that see the patients."

That would shift funding from medical schools and university hospitals and to managed-care providers.

The hospital's challenge is to stay afloat in the new environment. It has low state financial support, the tide of change is flowing toward concentrations of health maintenance organizations and federal funding is dwindling.

"The challenge for us is: How do we maintain quality? How do we keep our best faculty?" Smith said.

The hospital and medical school must continue their outstanding teaching and continue to be a major engine of growth for the Utah economy in the field of biomedical research, he said.

"I suppose one answer might be that the state Legislature could step forward and provide a significant increase in state funding to support the cost of medical education, at a level comparable to many other states," Smith said.

"While we would welcome that, we don't consider it very likely."