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North Bay Business Journal

Monday, June 28, 2010, 4:40 am

As Marin prepares for hospital transfer, battle looms over funds

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    GREENBRAE — While seemingly herculean tasks have been checked off by the Marin Healthcare District as it retakes control of the county’s only trauma center from Sutter Health, two final and equally complex issues lay ahead in the final hours of the transition.

    District officials expect one of those tasks to be met with little issue – though the transition to a new information technology system is no simple matter. But the other touches on one of the most intractable issues to play out between the two sides – who has the right to about $160 million that Sutter has transferred out of Marin General Hospital and another $20 million expected to be transferred upon the transition to district control. That occurs tomorrow, June 29, at midnight.

    Although the transition is less contentious than it has been in years past, district officials and numerous others have called on Sutter – and say they will continue to do so – to either leave the millions with Marin General or reach some form of compromise.

    This all amid the fact that the health care district is in the finishing stages of building an entirely new IT system from scratch, which it has outsourced to Affiliated Computer Services for a seven-year, approximately $16 million contract.

    The IT system, both Sutter and health care district officials said, was one of the most challenging facets of the transition given how vital it is for patient care. Sutter’s previously installed IT system was considered proprietary, and as such the district agreed to build a new one. An agreement was brokered that, should any issues arise with the new system, Marin General could use Sutter’s as a contingency plan. In addition, Marin General expects to have electronic medical records fully in place in two years.

    But whereas agreement has been met on most other issues, the equity transfers of $180 million show little sign of being a resolved matter anytime soon.

    “I can tell you we’re not going away,” said Jon Friedenberg, the district’s chief fund and business development officer.

    The district and some of its allies, including Assemblyman Jared Huffman, D-San Rafael, have criticized the transfers and argue that the money was generated by patients at Marin General and as such should stay in the community.

    “We believe the transfers are indefensible and inappropriate,” Mr. Friedenberg said, adding “It’s not in the best interest of the community and not fiduciarily responsible with hospital operations.”

    Sutter, for its part, maintains that the transfers are consistent with company policy, that there is nothing unique about the process and that it is consistent with the state’s charitable trust laws for not-for-profit organizations such as Sutter.

    “This is at some level an unproductive discussion,” Sutter spokeswoman Kathie Graham said. “This is a policy Sutter has had in place for a long time. It’s not an unusual practice; it’s an important practice. It’s about pooling resources. Frankly it’s time to move on.” Sutter officials have said the cash transfers are part of the legal transition agreement, and the district has known about the policy since the agreement.

    Ms. Graham also said Sutter is leaving the hospital in better shape than when it took over operations in 1995, and much of the services provided have vastly improved as a result of Sutter’s investments and physician resources.

    “The fact is, since Marin General has been a part of Sutter, over $235 million has been invested in the hospital to enhance patient care and technology. It’s important to look at the other side,” she said, adding that the cancer and heart programs, as well as the level III trauma designation, came about as a result of Sutter’s stewardship of what she called “a treasure” to the community.

    “The list goes on and on in terms of accomplishments,” she said.

    Mr. Huffman said he hoped the district would further explore its legal options in reclaiming the money, which district officials said could ease the burdens of rebuilding the hospital to meet state-required seismic upgrades – a process that is expected to cost roughly $500 million.

    “I hope Sutter is mindful about the court of public opinion,” Mr. Huffman said, adding that Sutter “has made a very cold business calculation.” Beyond whatever legal options the district may pursue, Mr. Huffman said the money should stay with Marin General as show of good faith to Marin County residents.

    “I think there is some legal vulnerability,” on Sutter’s end, he said, adding that a compromise could likely be met so long as it involves leaving a portion of the money. “My view is that is should be in the tens of millions at a minimum.”

    Mr. Friedenberg, who did not specify what legal options the district might pursue, said the money would go a long way in helping the hospital with capital improvements, the seismic upgrades and the general obligation bonds it will be seeking to foot some of the cost for the construction.

    “Our ability to do that is $180 million more difficult,” he said.

    Sutter counters that, while in control of the hospital, it was willing to foot the cost of a new seismically safe hospital, which would have saved taxpayers money and would have been done by the very means it is now being criticized for – pooling resources from its parent structure.

    “It’s doubtful that critics who now choose to question the practice of pooling resources and dedicating them where needed would have found the equity cash transfer practice questionable if Sutter Health had been given approval to rebuild Marin General Hospital at no cost to local taxpayers,” wrote Martin Brotman, president of Sutter West Bay Region, in a letter to Attorney General Jerry Brown, who heard arguments in March on the cash transfers.

    The district has not decided on an exact dollar amount for the bonds it will seek, but Mr. Friedenberg anticipates the number to be around $250 million. If Sutter were to leave some of the money with the hospital, that number could go down significantly, he said.

    While most attention has been paid to the cash transfers, both Sutter and district officials said the transition is otherwise going smoothly. Ms. Graham said Sutter specifically made sure labor contracts would not expire on the date of the transfer so the new management wouldn’t be faced with complex negotiations.

    “We wish the district the absolute best,” Ms. Graham said.

    Post transfer, the district said it will continue to focus on improving patient care as well as the retrofitting deadline, which is December 2015.

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