GREENBRAE -- Both sides in a long-running feud between Marin General Hospital and Sutter Health are claiming victory in last week's arbitration ruling awarding $21.5 million to the hospital district.
Judicial Arbitration and Mediation Service arbitrator Rebecca Westerfield, a retired circuit court judge from Kentucky, issued the ruling after 11 weeks of arbitration, which stemmed from a lawsuit filed by Marin General Hospital about two years ago that said as much as $180 million was illegally removed from the hospital.
The lawsuit alleged Sutter escalated the amount of transfers after a severance deal was brokered between the two sides in 2006, which ultimately returned the hospital to control of the Marin Healthcare District in late June 2010. An average of $3 million was transferred out of Marin General between 2001 and 2006, but from 2006 to 2010, the suit said, an average of $30 million was transferred out of Marin General. A Marin County Superior Court judge ordered the case to arbitration.
The district, which now operates the 235-bed hospital, quickly touted the $21.5 million settlement as proof of what it has maintained for nearly three years: that Sutter’s practice of transferring funds out of the hospital was improper and placed it in a precarious financial state.
“The money is for a willful violation of the standard of care at the hospital during the time that Sutter was there,” said Jim Brosnahan, the attorney who argued the case for Marin General. “Everybody on our side is satisfied with the result and we’re glad to have it. It’s real money that will help the hospital.”
But Sutter, which has long defended the cash transfers as routine practice for large organizations, was quick to point out that the amount is a “fraction” of the total claim and cited language in the 64-page ruling that says “The MGH board of directors and Sutter met their fiduciary duties. ... In addition, ‘transferring funds’ was expressly permitted under the provisions of the [agreement].”
The judge also wrote that "the act of transferring cash pursuant to the (extra cash transfer program) did not constitute a breach of any fiduciary or contractual duties on the part of Sutter."
“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.
The $21.5 million for Marin General is final and cannot be appealed, Mr. Brosnahan said. "That's serious business for Sutter," he said.
Ultimately, the arbitrator herself didn’t declare a clear victor, instead setting that aside for a hearing in August that will determine who gets reimbursed for legal fees that could total “several millions.”
“An issue remains as to which is the prevailing party … and thus entitled to be reimbursed its reasonable attorneys fee, cost of suit and arbitration fees,” the judge wrote in her ruling.
Both Marin General and Sutter said they would seek to recoup those costs. Parties must file by July 20 and a hearing will take place on Aug. 3.
Bill Gleason, Sutter senior spokesman, said the claim by Marin General totaled close to $300 million, which breaks down as such: equity cash transfers totaling $105 million; lost profitability related to physician recruitment of $104 million; incremental financing costs of $44 million; Sutter weighted average cost of capital charge of $5 million; IT training and conversion costs totaling $2 million; Sutter Health’s pension plan of $21 million and “Sacramento litigation” settlement payments of $783,000.