Suit claims hospital group improperly took $120 million; Sutter calls filing ‘regrettable’
GREENBRAE --Marin General Hospital filed a lawsuit last week claiming Sutter Health, which operated the hospital for more than a decade, improperly transferred more than $120 million out of the hospital between 2006 and June 2010, jeopardizing financial stability after it severed ties with the health care district.More to the story
Read the legal complaint against Sutter Health and previous coverage of the Marin General Hospital equity transfers.
The lawsuit, filed in Marin County Superior Court by the Marin General Hospital Corp., alleges that from 2006 and onward, Sutter disproportionately transferred funds out of Marin General while it sought to build competing facilities in Marin County. Marin General was also removed from an “obligated group,” meaning that it could not benefit from Sutter cash transfers yet still could be targeted for funds.
In a statement, Sutter spokeswoman Kathie Graham said Sutter could not comment on specific allegations because it has not yet had the opportunity to review the complaint.
“However, we can say that it is indeed regrettable that the Marin Healthcare District has elected to pursue legal action, as there is no basis whatsoever for any such action,” she said. “Sutter Health complied in all respects with the legal agreements governing the transfer of Marin General Hospital and extended considerable resources above and beyond what we were required to do.”
Sutter said that it has not violated any terms of the initial severance agreement, and the transfers, known as equity transfers, were a well-known element of the deal. Sutter has also long defended the transfers, describing them as a routine practice among hospital organizations that often serve as a safety net for other Sutter affiliates, of which there are 24 throughout the state.
Sutter operated the 235-bed hospital from 1995 through June of this year, but in 2006 a severance agreement was reached that permitted the healthcare district to regain control five years before Sutter’s initial lease expired.
The 2006 agreement, a “divorce” that began when Sutter sought to end its 20-year management contract, included a provision that said equity transfers could occur, but that Sutter would pay depreciation at Marin General, according to the healthcare district. Sutter has allegedly refused to pay such depreciation, which violates the terms of the agreement. Coupled with the $120 million in transfers, Sutter’s alleged practices severely undermined the hospital, a spokesman said.
“The agreement said that equity transfers can occur. The question is what does that mean and what did it mean?” said Pete Hillan, spokesman for the Marin General Hospital Corp. “In 2006, Sutter stopped paying depreciation and took those funds. Our position is that Sutter and the then-board failed to perform its fiduciary responsibilities. If Marin General knew that Sutter wasn’t going to pay depreciation and that Sutter was going to do the cash sweeps, why would you agree to that? That allows them to have their cake and eat it too, and that’s what they have.”
Sutter was able make the “cash sweeps,” as the suit calls it, by establishing a hospital board “with a clear conflict of interest,” the suit says. The Sutter-appointed board consisted of Sutter-appointed employees who failed to fulfill their legal responsibility of protecting the financial interests of the hospital by knowingly allowing Sutter to make such transfers as the hospital became independent, the suit says.