SEBASTOPOL --  The board of directors at Palm Drive Hospital has decided not to renew a contract with Dr. James Gude, the hospital's well-known telemedicine specialist whose company provides key services and physicians to the hospital. 

The vote is the result of a conflict of interest that the board majority says exists between director Dan Smith  and Dr.  Gude's company, OffSiteCare,  which the latter founded to provide telemedicine services to rural hospitals. The company, of which Dr. Gude is CEO, provides hospitalist and respiratory care,  manages the intensive care unit and provides the robotic telemedicine services to Palm Drive.

Mr. Smith has consulted for and invested in OffSiteCare, based in Petaluma, which the board believes is a conflict of interest because state law says public hospitals are prohibited from contracting with a company in which a board member has a financial interest -- unless the board finds that the services provided cannot be obtained in any other way. OffSiteCare provides about four or five internal medicine physicians to Palm Drive.

Board President Nancy Dobbs and board member Frank Mayhew voted to not renew the contract; Chris Dawson, the board treasurer, voted in favor of renewing the contract.  Mr. Smith was not present for the vote.

In a letter dated June 27, 2010, Mr. Smith wrote to fellow board members that he was working as a volunteer with Dr. Gude "in building a business strategy and obtaining capital to expand the [OffSiteCare] business."  He has loaned the business $175,000 and said, while he has not yet received any remuneration, he might benefit financially in the future.

Richard Polheber, CEO of the hospital, said he would explore numerous options that could enable Dr. Gude and the other physicians to continue working with the hospital. In the immediate term, he said he could temporarily extend the contract.  Specifics on how the relationship would work without a conflict would emerge at a later date, Mr. Polheber said.

"My job is to figure out how to make this work," he said. "I had a very cordial meeting with Dr. Gude this morning." 

Dr. Gude's telemedicine has been seen a bright spot for the hospital, which emerged from bankruptcy last year after selling off $10 million in bonds.

The hospital is currently in affiliation talks with potential partners and Dr. Gude's work has been cited as one element that made Palm Drive attractive.