Sutter Health Holds Future of Healthcare over Small Town Hospital

Sutter Health Holds Future of Healthcare over Small Town Hospital

Crescent City, CA is the northernmost port on California’s rugged Pacific coast.  Ninety minutes by mountain roads to the next largest city, and with limited air service, it is also a community highly dependent on the only hospital in the region.

History of Sutter Health in Del Norte

Twenty six years ago, the Del Norte County Healthcare District transferred management authority of its hospital to Sutter Health Corporation.  An agreement was reached which granted Sutter Health monopoly privileges over hospital care, in exchange for specific obligations, such as construction of a new hospital, increased scope of medical services, and local ownership and governance. 

Land for the new Sutter Coast Hospital was donated by Sonny Hussey, and his sister, Sharon Van Bebber.  Years earlier, Sonny had been transferred to a distant hospital for intensive care after a trucking accident. He dreamed of a new, local hospital to serve the community. With Sonny and Sharon’s donation, Sutter built a 59-bed hospital, which opened in 1992.  Sutter Health agreed the hospital would be governed by representatives of the community, and would provide “improved and expanded” care.

Sutter Changes the Rules

The relationship between Sutter Health and the Del Norte community prospered, and the hospital was profitable for 26 consecutive years.  In 2011, everything changed.

Contrary to the wishes of the community and the donors of the land upon which the hospital rests, Sutter Health is now attempting to revoke its promises of local ownership and governance, and expanded care.  Of particular concern is Sutter’s consideration of closing 50% of the hospital beds in order to qualify for guaranteed reimbursement under a federal program known as “Critical Access.”

Bylaws Revisions

In 2011, Sutter Health quietly implemented its strategy to take over the hospital.  Beginning with over 1300 changes to the hospital bylaws, and followed by confidential presentations to the hospital Board of Directors, Sutter’s plan nearly succeeded—without the employees, doctors, or the community even being aware.  Sutter Health called the process “Regionalization” rather than stating what it really was—a transfer of hospital ownership, governance, and all decision making authority into the hands of Sutter Health. 

The new bylaws declared that the hospital was now under the control of Sutter Health.  The community mission statement--which stated that the hospital existed to serve the needs of the sick, injured and disabled—was deleted.  Instead, the local Board was directed to be “loyal to the Corporation and Sutter Health.” The stipulation that the majority of the Board of Directors reside in Del Norte County was also deleted.  The new bylaws were briefly discussed, then approved by the Board the same evening they were introduced by Sutter legal.  In one meeting, 26 years of local hospital governance was erased.

The Rush to Regionalize

Sutter’s “offer” to take ownership of the hospital was first presented to the hospital Board in September, 2011.  The Board deliberately excluded physicians, employees, elected officials (including the Healthcare District Board), and the community from the educational sessions and the decision to Regionalize.

In October 2011, Dr. Martin Brotman, President of the Sutter West Bay Region (into which ownership of Sutter Coast would be transferred) presented his case for Regionalization.  In response to concerns of loss of physician autonomy, Dr. Brotman reassured the Board that under Regionalization, “physician and credentialing decisions are always made at the local level.” That statement, repeated by other Sutter executives, is false.

In November, only two months after the initial offer to Regionalize, the Board made its decision.  Without any independent input, they voted to Regionalize by a 9-1 margin—the one dissenting vote cast by Chief of Staff Dr. Kevin Caldwell.   Dr. Caldwell asked the Board to postpone its decision in order to seek independent information and community input, but his request was denied.

Sutter’s takeover plan almost worked.  If not for Dr. Caldwell’s opposition, Regionalization would have taken place.  Instead, Dr. Caldwell sought help from his fellow doctors, patients, and the community he has served for the past 28 years.

Now, Crescent City is fighting to learn the secrets of Sutter’s closed Board room, and retain ownership of the hospital which represents a lifeline to this isolated region of California.

Takeover Without Representation

The local Board did request guaranteed representation on the Regional Board, but was told by Sutter executives that guaranteed representation was contrary to corporate bylaws, never offered to an affiliate hospital, and not an option for Crescent City.  This was another of many statements by Sutter executives which turned out to be inaccurate.  The Sonoma County Board of Supervisors had requested guaranteed representation in advance of Regionalization, and was granted six permanent seats on the Regional Board.

Claims of Financial Losses

Besides the offer from Sutter Health to Regionalize, 2011 also brought, for the first time in its history, claims of financial losses from Sutter Coast Hospital.  Based on information available at the state website where non-profit hospitals report earnings, Sutter Coast has been transferring cash into the Sutter Health “treasury” for many years, including $5.8 million in 2010.  But Sutter Coast CEO Eugene Suksi reported the hospital lost money in 2011.  In a newspaper interview, he attributed the losses to decreasing patient revenue, citing Regionalization as the needed fix, but failed to mention one huge source of money loss—corporate mismanagement. 

In 2011, Sutter Health decided to outsource billing services for Sutter Coast Hospital, a function which previously had been performed locally.  Sutter claimed it could cut costs by laying off local billing staff and transferring the service to its Regional billing firm.  The results suggest otherwise.  Sutter’s regional billing company failed to submit claims for services totaling $7 million.  So, after 26 years of profitability, the Sutter Coast CEO reported a loss, while failing to mention the intercompany cash transfers or the billing errors.

In spite of corporate mismanagement, Sutter executives prospered. From 2006 to 2010, the latest year for which salary information is publicly available, the annual salary of Sutter Health CEO Patrick Fry doubled from $2.3 to $4.7 million.  Dr. Martin Brotman’s 2010 salary was $4.2 million.  Sutter Coast employees, on the other hand, received no salary increase during the past three years.

Critical Access

In another attempt to increase profits, Sutter Health is now considering downsizing the hospital in order to qualify for a federal program called “Critical Access,” which guarantees higher reimbursement for the treatment of Medicare patients.  The Critical Access program is a “cost based” reimbursement model, providing federal subsidies to small, rural hospitals.  The program was initially funded to increase access to care by maintaining remote hospitals with 12 or fewer beds.  Hospital bed capacity is capped at 25, and the average length of patient stay may not exceed 96 hours.  When the hospital reaches the 25 bed cap, or when a patient with a diagnosis requiring more than four days in the hospital arrives in the Emergency Department, they must be shipped to another hospital.

Sutter Health had already downsized a hospital in order to qualify for Critical Access.  At Sutter Lakeside in Lakeport, CA, Sutter Health cut bed capacity from 69 to 25 in order to qualify for the program.  Now, approximately four patients a day, who previously would have been cared for locally, are transferred elsewhere.  In essence, a federal program originally designed to increase access to care is now being used by Sutter Health to reduce access to care in order to qualify for federal monies.   The advantage to the hospital is clear—all costs, including salaries, are factored into the final bill submitted to Medicare, which is paid in full.  In 2010, Sutter Lakeside received more federal dollars than any of the nation’s 1300 Critical Access hospitals—consistent with the fact that Sutter Lakeside is often “full”.   

Air Ambulance Transfers

Due to Sutter Coast’s remote location, virtually all the patient transfers occur by fixed wing aircraft.  The transfer cost, borne by the patient, varies between $5,000 and $30,000--assuming an aircraft is even available.  Due to the large fluctuation in demand for air transfers that Critical Access would bring, the multiple aircraft needed may not be available.  Of course, the patient’s local doctor will be not be present at the accepting hospital, and in a low income community where reliable transportation is often unavailable, friends and relatives may be unable to visit their loved one.

The other cost associated with emergency patient transfers is even more important, but less tangible—the delay in treatment.  An accepting hospital, and an accepting physician, must be secured.  The patient is first transported by ground ambulance to the airport, followed by transfer to an air ambulance, then another ground transport from the destination airport to the accepting hospital.  The process takes hours.  If a patient with a life threatening condition presents to the hospital, which is “full” due to the restrictions of Critical Access, the treatment delay during transfer could easily result in greater morbidity or even mortality.

California Medical Association

The physicians on Sutter Coast’s Medical Staff were excluded from Sutter’s presentations on Regionalization, and were never given the opportunity to understand the effect on patient care.  Dr. Mark Davis, a local urologist and trustee of the California Medical Association (CMA), asked for help.  CMA, representing 35,000 California doctors, defends the rights of physicians to care for their patients, independent of corporate interference.  California law also upholds the right of physicians to remain autonomous from corporate influence with respect to patient care and hospital governance.

CMA determined the claims from Sutter executives regarding Regionalization were not only inaccurate, but also that the Regional bylaws may be illegal.  CMA Chief Litigator Long Do reported that Sutter’s Regionalization plan transferred “unusually vast powers” to the Regional Board.  Contrary to prior statements from Sutter executives, Mr. Do concluded that Regionalization “would represent a major shift in authority from local governance to the Region.” Following the CMA presentation, the physicians unanimously resolved that the Board rescind its prior vote to Regionalize.

Second Vote on Regionalization

Gregory Duncan, M.D., the new Chief of Staff for 2012, presented the Medical Staff’s resolution to the hospital Board on June 7, explaining that if the prior Regionalization vote were rescinded, the physicians and the community would finally have the opportunity for involvement in a process from which they had been excluded.  Despite physician concerns, the Board refused to rescind their prior vote to Regionalize.  Instead, they agreed that merger documents would not be signed until the Regional President made a presentation to the Medical Staff.

California Law on the Practice of Medicine by Corporations

California law prohibits corporations from hiring specialist physicians.  The rationale is to prevent hospital corporations from influencing patient care decisions made by their employed physicians, such as where tests or procedures are performed.  Patients are often unaware of the vast cost differences between facilities.  For example, a knee MRI at Sutter Coast Hospital for a privately insured patient is $3,367, while the same MRI in Medford, Oregon is $1409.  The “Corporate Bar” on the practice of medicine was implemented in order to eliminate conflict of interest, such as corporate-employed physicians directing their patients to company owned facilities, regardless of cost or quality.  

Possible Violations of the Corporate Bar

Sutter Health hires specialist physicians in Crescent City through a physician foundation, the Sutter Pacific Medical Foundation.  But the relationship between Sutter Health, the Sutter West Bay Region, the Sutter Pacific Medical Foundation, and Sutter Coast Hospital is unusual.  One person—Mike Cohill--is an executive in all four organizations.  Mr. Cohill is a Senior Vice President of Sutter Health, President of the Sutter West Bay Region, CEO of the Sutter Pacific Medical Foundation, and a Sutter Health appointed member of the Sutter Coast Hospital Board of Directors. 

Questions of Conflict of Interest

The ten member hospital Board includes Eugene Suksi (Sutter Coast CEO), Mike Cohill (Sutter Health Executive VP, SPMF CEO, and Sutter West Bay Region President), Sutter Health appointee Dr. Thomas Polidore, and Board Chair Andy Ringgold.

In 2011, Mr. Ringgold’s term as Board Chair had been extended beyond the nine year limit stipulated in the hospital bylaws.  The term extension, in violation of the bylaws, was granted “in order to implement Regionalization without a change in leadership.” (per Eugene Suksi, hospital CEO)

Another potential conflict developed four days prior to the Regionalization vote, when it was announced that hospital Board member Dr. Thomas Polidore had signed on with the Sutter Pacific Medical Foundation (SPMF).  Dr. Polidore had previously been appointed to the hospital Board by Sutter Health, and was now an employee of SPMF, part of the Sutter Health network.  Four days after Sutter announced his affiliation with SPMF, in the presence of his CEO (Mr. Cohill), Dr. Polidore voted for Regionalization, opposing his colleague Dr. Caldwell, the Chief of Staff elected by local physicians.

The final signatures to transfer ownership of the hospital into the Sutter network now belong to a nine member Board, eight of whom were appointed by Sutter Health, four of whom have potential conflicts of interest, and none of whom recused themselves from the vote to Regionalize. 

In order to comply with IRS Safe Harbor guidelines, no more than 20% of the voting power of a non-profit Board may be vested in any contracted service provider.  Because Sutter Health provides management services for Sutter Coast Hospital, and SPMF provides physicians and recruiting services for Sutter Coast Hospital, four of the nine Board members may be conflicted, triggering questions of compliance with the IRS Safe Harbor rule.

Meeting with the Regional President

On 8/2/12, Sutter Health Regional President Mike Cohill presented his arguments in favor of Regionalization to the hospital Medical Staff.  Without providing any specifics, he claimed Regionalization was a financial necessity.  Despite the $7 million billing error by the Regional billing service, Cohill believed that Regionalization would eventually cut costs.  But he also acknowledged the claimed efficiencies could be implemented at any time, without the change of ownership which Regionalization represents.  So, the rationale for Regionalization remained dubious.  What is clear is that if Regionalization occurs, all future decisions involving the hospital, including Critical Access, will no longer be made locally, but by a 32 member Board in San Francisco, 350 miles to the south.

Cohill did acknowledge that Sutter Coast Hospital is locally owned.  His Regional Vice President had stated the opposite--that Sutter Health owns the local hospital and could Regionalize it at any time.  Sutter Coast CEO Eugene Suksi also claimed Sutter Health owned the hospital, and that Critical Access could be implemented without any change in routine operations—all of which is inaccurate.

Cohill was questioned about the possibility of Critical Access, which had already resulted in massive job losses and increased emergency patient transports at Sutter Lakeside. He was blunt—Lakeside’s two choices were Critical Access or the possible outcome of “going broke and closing the hospital,” which “might be one we choose here in Crescent City.”

Future Directions

Regionalization of Sutter Coast Hospital is now being challenged on multiple fronts.  A grassroots effort is underway to keep ownership local, including two community rallies in front of the hospital, a petition opposing Sutter Health signed by over 2000 local residents, and a Town Hall meeting arranged by local doctors, where 300 citizens finally had the opportunity to express their opposition to Regionalization.  The doctors have been joined by the County Board of Supervisors, City Council, Mayor, Sheriff, District Attorney, Board of Realtors, Healthcare District Board, Chamber of Commerce, Del Norte Senior Center, and the United Indian Health Service, representing seven Native American tribes.

The County Board of Supervisors and City Council jointly wrote a letter to the hospital Board, asking them to rescind their prior vote to transfer hospital ownership.  When the hospital Board met to respond to the letter, Chief of Staff Dr. Greg Duncan was dismissed from the meeting, under the direction of Sutter Health’s attorney, charging his opposition to Regionalization represented a conflict of interest. 

On July 12, the Healthcare District was granted a Court Order, restraining Sutter Health from taking any action to merge Sutter Coast Hospital with Sutter Health, from implementing Critical Access, and from downsizing any hospital departments in preparation for Regionalization.  The order extends until 10/17/12, at which time a Hearing for an Injunction against Sutter Health is scheduled in Superior Court.

Sutter Health continues to withhold Board room information from the community, insisting that the meetings are closed and the minutes are confidential.  Cohill has twice promised to provide a legal opinion on these Board room policies, but four months later, none has been provided.   

 

Gregory J. Duncan, M.D.

Chief of Staff

Sutter Coast Hospital

Crescent City, CA