SANTA ROSA -- Citing an unforeseen change in Medicare reimbursement rules, Sutter Medical Center of Santa Rosa has dropped plans to transfer the residency program to a consortium of community stakeholders after two years of discussions, it was announced today.

Sutter Medical Center of Santa Rosa announced in 2007 intentions to pass the financial responsibilities of the long-established Santa Rosa Family Residency clinic to a newly created group called the Santa Rosa Family Medicine Residency Consortium, which included the hospital and Sutter Medical Foundation—North Bay, Kaiser Permanente, Southwest Community Health Center, UCSF, the Sonoma County Department of Health Services and Santa Rosa Memorial Hospital.

Though Sutter would continue as the primary funder providing about $4 million annually, Kaiser agreed to supplement the program’s revenue by $2.7 million a year, according to a business plan approved by the Sonoma County Board of Supervisors last October.

The change was intended to take less than a year to complete, but in the midst of extended planning, changes were made to the Medicare system that would have meant the loss in public funding to the residency of about $1.8 million annually if the consortium took on the program as written in its business plan.

“There are many, many rules related to Medicare and they are constantly changing, so it takes a while for them to get ingrained in the system,” Sutter spokeswoman Lisa Amador said.

“It came to the attention of the finance director in February and the consortium started discussions with experts and Medicare to try and find a solution. ... Ultimately we were not able to overcome the hurdle and last night the partners agreed that business plan was no longer viable.”

The updated Medicare rule states that Sutter must pay for at least 90 percent of resident salaries in order to continue receiving medical education reimbursements, which accounts for about $2.8 million of their annual $4 million investment in the program. But in the consortium business plan, the Kaiser Foundation specifically earmarked its contribution for resident salaries, which would have triggered the loss in Medicare funding.

Ms. Amador said the consortium will discuss its other possible roles relative to development of residency program during meetings over the next 30 days. She said the decision will not result in a reduction to the program.

Southwest Community Health Center will continue to operate the Family Practice Center where residents do the majority of their clinical training.