GREENBRAE – Sutter Health called on the now independently run Marin General Hospital to submit its claims alleging the Sacramento-based health organization improperly transferred millions of dollars out of the facility to arbitration – the latest development in the ongoing legal saga between the two sides.

The severance agreement reached between the two sides in 2006 requires certain disputes be resolved through arbitration – “thus avoiding more costly and protracted litigation in court,” Sutter said in responding to the lawsuit filed in late August by the Marin General Hospital Corp.

The Marin Healthcare District, which oversees operations at the 235-bed trauma center, parted ways in June of this year after years of controversial operations by Sutter, during which $120 million was transferred out between 2006 and 2010.

The health care district is seeking to recoup that money, arguing that Sutter rapidly escalated its transfers and disproportionally targeted the hospital after the “divorce” occurred between the two. Sutter operated the hospital from 1995 through this year, after a court-approved severance ended Sutter’s lease five years early.

“We have complied with the terms of the agreement,” Sutter spokesman Bill Gleeson said. “It’s time for the district to do the same.”

But Marin General spokesman Pete Hillan said Sutter’s call for arbitration misses the intent of the lawsuit.

“What I can tell you is that their plea for arbitration is wrong,” Mr. Hillan said. “In the contract there are some areas where arbitration is spelled out, but it does not include what we’re suing about.”

The health care district claims the previous board, under Sutter’s control, acted with “a clear conflict of interest” because it allowed Sutter to transfer millions of dollars to its Sacramento headquarters, thus failing to act with the hospital’s best financial interest in mind.

“We believe very strongly that Sutter should do what is legally right and morally right and return the $120 million they took from citizens of Marin,” Mr. Hillan said.

When the suit was filed in August, Mr. Hillan told the Business Journal that equity transfers could occur on the condition that Sutter pay depreciation. The health care district said Sutter has not done so, nor did it invest in physician recruitment or technology upgrades, which coupled with the cash transfers put the hospital in a precarious financial state.

But Sutter, in its recent response, said it left the hospital in strong financial shape, with at least $20 million in patient accounts receivable, $5 million in operating cash at the time of the transfer and $5 million with the Marin General Foundation.

It also said the 2006 agreement provides that “excess working capital” is the property of Sutter, which would include the $120 million transferred to Sutter’s pool that it says is distributed as needed to other hospitals in its network, of which there are 24 throughout the state.

For instance, Sutter Medical Center of Santa Rosa received more than $86 million between 2002 and 2009 from the very same practice, according to a Business Journal tally from state health records.

Be that as it may, the health care district has also sharply criticized Sutter for investing in competing facilities in Marin County as it shipped cash back to Sacramento. Sutter has made no secret of its plans to stay in the county and has purchased a large swath of commercial real estate in San Rafael for outpatient services.

“[Sutter] did spend about $37 million on a strip mall as a place where they seemingly intend to set up some sort of medical business that would compete with the hospital,” Mr. Hillan said. “You look at the body of their work, and they’re taking the money out of the hospital while they’re looking to set up competing business.”

Sutter counters that the equity transfers were a well-known component of the severance, that it intended on remaining in Marin – although it has no plans to build another acute-care hospital – and that Marin General improved as a result of Sutter’s operations.

“Sutter Health not only met the specific requirements outlined in the agreement but also returned a high-quality, well-run hospital that consistently generated revenue well in excess of its monthly expenses,” Sutter spokesman Mr. Gleeson said.

Meanwhile, Sutter announced that its Institute for Health and Healing center opened a new clinic in Greenbrae – less than a half mile from Marin General. The IHH, as it is called, was moved into an outpatient site at 1350 South Eliseo Dr., which used to be owned by Marin General.

The IHH, Sutter spokeswoman Kathie Graham said, has been providing services such as massage therapy and other wellness and integrative services to Marin General patients since 2000. It also serves the general public and is available for patients at Novato Community Hospital, a Sutter-operated facility in Northern Marin.

That contract for Sutter to provide those services to Marin General patients expires on Jan. 1 of next year, and Marin General plans to offer similar services at the hospital at that point, said Jamie Maites, hospital spokeswoman.