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
