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California Lawmakers Want AG to Investigate Sutter Health

Cheryl Clark, for HealthLeaders Media, September 9, 2009

Sutter Health, a 26-hospital system in Northern California, is on the hot seat amid accusations that it illegally extracted nearly $90 million from a Marin County hospital it now operates—but may soon compete against—as well as for questionable practices involving its relationships with three other hospitals.

Thirteen state legislators demanded in a recent letter that state Attorney General Jerry Brown "immediately investigate" nonprofit Sutter Health for "alleged misrepresentation of hospital finances, economic and medical redlining, abuse of nonprofit status, anti-trust violations, questionable allocations of public assets, and execution of contracts that may be in conflict."

"In almost every community in which Sutter Health operates, a legal and public battle over their broken promises and questionable actions ensues," they wrote.

Bill Gleeson, vice president of communications for Sutter Health, calls the accusations and suspicions "wild and completely false," specifically any innuendo that Sutter Health is trying to get out of taking care of the poor or that it is trying to make a profit at the expense of safety-net hospitals.

Gleeson says a check of state statistics would reveal that Sutter Health treats "more Medi-Cal patients in Northern California than any other healthcare organization and serves some of Northern California's most vulnerable populations . . . It's a misrepresentation of our record and anybody who spends any time looking at our history can see our outstanding record of service."

One of the most contentious accusations involves Sutter Health's lease management of Marin General Hospital, a 300-bed facility in affluent Marin County, which is north of San Francisco. Marin Health Care District spokesman Barry Blansett said that community leaders have long accused Sutter Health of letting the hospital deteriorate since the late-1990s, a time when it at one point almost lost Medicare and Medi-Cal reimbursement.

After several years of turbulence, Sutter Health agreed in 2006 to relinquish control of the hospital back to the Marin Healthcare District. But in 2007 and 2008, Sutter Health extracted $86.7 million in "excess cash," and transferred it to its network of 25 other hospitals, according to the lawmakers.

Chief among the lawmakers criticizing the large hospital system is Rep. Jared Huffman of San Rafael, who in an Aug. 11 letter, accused Sutter Health of taking an even larger sum of money—$120 million—$out of the hospital for use by Sutter Health affiliates since 1995, while transferring only $5.3 million in.

The transfers were made, Huffman says, after Marin Healthcare District, which owns the hospital, and Sutter came to an agreement in 2006 that Sutter Health would terminate its management of Marin General in June 2010. Sutter Health has managed the facility since 1995 when it inherited ownership through a hospital merger.

"I respectfully request that you explain the basis for allowing these large transfers of money out of MGH to other Sutter hospitals," Huffman wrote in a July 17 letter to the board that executes the hospital's operations. "I also ask that you assert your authority to stop any additional transfers of these ‘excess' funds until the situation has been fully investigated, and it is clear that such transfers are both lawful and in the best interests of MGH and its patients."

In response, Marin General Hospital's board of directors, members who were appointed by Sutter Health to approve transactions, responded in a letter signed by the board's chair, Robert Heller:

"Sutter Health will be returning to the district a debt-free, high-quality hospital whose value has been substantially increased, and will be doing so at a date well in advance of the original 2015 lease expiration, along with millions of dollars in cash accounts receivable and other assets, all in strict accordance" with the termination agreement.

"Until June 2010, MGH will continue to derive the benefits that being part of a large integrated system offers."

The letter continued, "Sutter Health operates much like a family that supports each other in good times and bad. In good times, affiliates share a portion of their revenue in excess of expenses in order to help strengthen the network. In times of need, affiliates can count on the network to help ensure that their services continue to be available to the local communities."

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