The Governator is proposing to assign the provision of California state prison medical services to the University of California. This is designed to cut costs, increase the use of telemedicine, and create a central repository of electronic records.
The plan would be an interesting expansion of the UC system's mandate at a time when it is otherwise on the ropes. If the deal yields profits that can be shared with the part of the university that provides, ahem, education…that might be nice. But you do have to worry whether a university's management structure is well suited to running a statewide medical care system.
On the other hand, think of all the lovely residency sites!
If the UC system can't sever its ties with Lawrence Livermore National Laboratory (LLNL) in Livermore, California, I doubt there's much hope for any successful opposition to this plan. (While the UC system no longer exclusively manages and operates LLNL, it remains a dominant part of a 'partnership team' that does so and has the most powerful role in terms of corporate governance: e.g., the University of California is entitled to appoint three Governors to the Executive Committee, including the Chair, and the University of California-appointed Chair has tie-breaking authority over most decisions of the Executive Committee).
UC's entanglement with LLNL remains an exemplary instance of what John Ziman calls "post-academic science" and the Schwarzenegger administration's proposal appears to be yet another instance of this, among other things. There's a brief introduction to the essentials of "post-academic science" here: http://ratiojuris.blogspot.com/2009/08/science-technology-basic-bibliography.html