CALIFORNIA, NORTH BAY – Sacramento-based Sutter Health’s practice of equity transfers in Marin and the East Bay has prompted legislation that would restrict them for district hospitals.

State Sen. Ellen Corbett, D-San Leandro, authored SB 1240 in response to Sutter’s practice of transferring funds in and out of both Marin General Hospital – now overseen by the Marin Healthcare District – and the Eden Township Healthcare District in Castro Valley, which oversees Eden Medical Center and San Leandro Hospital.

The two East Bay hospitals are currently Sutter affiliates, while the Marin Healthcare District just weeks ago reclaimed operations of Marin General after a severance agreement was met in 2006 that terminated Sutter’s lease five years early.

The bill, backed by the California Nurses Association, would prevent private companies, such as Sutter, from transferring both funds and assets out of district hospitals throughout the state. It would also mandate audits of the district hospitals and the operating entities to be conducted annually and made public.

Sutter has long defended the practice of equity transfers, which are pooled in Sacramento and distributed to other affiliates as it sees fit. Between 2002 and 2006, Sutter transferred approximately $156 million out of Marin General, while in the same time period transferred over $86 million into Sutter Medical Center of Santa Rosa, according to audited financial data from the Office of State Health Planning and Development. At San Leandro Hospital, Sutter transferred out over $50 million between 2004 and 2008.

“A situation involving my local hospitals spurred the legislation,” Ms. Corbett said, referring to Sutter’s attempt to close the district hospital in San Leandro while it builds a new, $300 million medical facility at Eden Medical Center. The Eden Township sued Sutter, claiming Sutter’s lease presented a conflict of interest in devaluing the hospital in San Leandro. The hospital will remain open pending the outcome of litigation.

The bill would apply only to district hospitals, Ms. Corbett said.

“It would affect anyone who is trying to transfer funds out of district hospitals – any entity that takes local taxpayers’ hospital assets out of their district,” Ms. Corbett said.

Sutter declined to comment on the bill and referred inquiries to the California Hospital Association.

The association, representing some 400 hospitals and health systems, “believes existing health care district law already provides for adequate protections and public review prior to a district entering into a major contract,” it said in a letter of opposition to the bill. Current law prohibits transfers exceeding 50 percent of a hospital’s total assets unless it meets voter approval in the given district.

“Oftentimes, contracting with another entity or a health care system is what a district must do in order to sustain operations of an acute care hospital,” the CHA said. “An outside entity will be reluctant to enter into a contract with a health care district given the restrictions on district assets” in the bill.

Ms. Corbett said she wasn’t swayed by the argument.

“I haven’t heard any good argument for removing local taxpayers’ assets out of a district hospital, especially if it means that the community’s local hospital will be harmed by removing hospital resources. The basic fairness in the bill is that it keeps assets in a local district, which residents helped pay for.”

The bill passed the Senate on June 1 and the Assembly Health Committee on June 22. It is currently awaiting a vote in the Assembly Appropriations Committee and will be headed for a final vote within a couple of weeks as the current session expires.