Marin General gets $21 million in Sutter Health arbitration

GREENBRAE -- Marin General Hospital today was awarded $21.5 million from arbitration in the long-running dispute between the hospital and Sutter Health, which operated the facility until it ceded control nearly two years ago.

Rebecca Westerfield, a retired circuit court judge from Kentucky, issued the ruling today after 11 weeks of arbitration stemming from a lawsuit filed by Marin General Hospital Corp. The lawsuit alleged that Sutter escalated the amount of transfers after a severance deal was brokered between the two sides in 2006. That deal ultimately returned the hospital to control of the Marin Healthcare District in late June 2010.

At the center of the dispute was whether Marin General is entitled to a claim of nearly $300 million relating to what are known as "equity transfers" and other issues that Marin General, which is overseen by the Marin Healthcare District, said caused financial harm as the hospital ended a protracted divorce from Sutter in 2006.

Sacramento-based Sutter has long maintained the transfers were perfectly legal, arguing that the money is considered "excess working capital" that it pools with its other hospitals throughout Northern California.

With the ruling, both sides are claiming victory and both traded barbs via press statements.

Marin General says the award proves what it has said all along: Sutter's cash transfers were "improper."

The arbitrator "found that Sutter willfully and purposely failed to meet their contractual duties," Lee Domanico, chief executive officer of Marin General, said in a statement. “This ruling validates our longstanding contention that in the years leading up to the transition, Sutter did not operate Marin General in a manner consistent with the best interests of our community. Instead they diverted funds for the benefit of Sutter and the detriment of the people of Marin.”

Sutter points out that the award was a fraction of what Marin General was seeking.

“We were always confident that we met our fiduciary obligations to Marin General Hospital, invested an appropriate amount of capital and left the hospital in a strong financial position,” said Pat Fry, Sutter Health president and chief executive officer in a statement.

Sutter said the arbitrator awarded the district a fraction of its total claim of nearly $300 million and more than half the amount awarded -- approximately $11.3 million -- includes payment for over-funding the Marin General employee pensions.

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