Sebastopol medtech firm spawns legal wrangles, sends robot on Sonoma West hospital rounds

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Tech-savvy James Gude, medical and intensive-care director for Sonoma West Medical Center, denied allegations that an electronic medical records system he helped develop endangered patient lives, as claimed in an Aug. 1 lawsuit filed by the Sebastopol hospital’s chief financial officer, fired in June.

Gude, 77, who started practicing critical-care medicine and pulmonology at former Santa Rosa Community Hospital in 1971, embraces technology that propelled him into telemedicine — using a robot to remotely interface with patients and deliver specialized medicine in Sebastopol as well as Africa. In 2006, Gude co-founded OffSiteCare Resources to take telemedicine to hospitals and clinics worldwide.

In his lawsuit, former Chief Financial Officer Douglas Goldfarb challenges the quality of the medical records software and seeks unspecified damages in an action for discrimination, retaliation and wrongful termination. Goldfarb worked for the hospital from Nov. 2015 to June 2016. The lawsuit states that Gude is in business with Dan Smith, chairman of the hospital’s board and a technology entrepreneur, and that allegedly flawed HarmoniMD medical records software donated for five years of use by the hospital may benefit the two financially.

HarmoniMD is software under development by E-Health Records International, founded in 2014 as a spinoff from OffSiteCare Resources, a telemedicine company co-founded by Gude, according to Gude in an Aug. 8 interview with the Business Journal. HarmoniMD’s coding team works in a Sebastopol office for OffSiteCare Resources roughly 100 yards from the hospital.

Several years ago, Gude hired Nick Smith (unrelated to Dan Smith) to code HarmoniMD medical-records software. E-Health Records International was created to develop and sell HarmoniMD. Dan Smith is chairman of the E-Health Records board; Nick Smith became CEO in November 2015.

Nick Smith aims to add algorithms to the medical-records software to make it predictive, to help doctors anticipate patient problems. “The ability to mine that data with reports,” he said, “to do predictions about what is going to happen is where the industry is going. The computer sees the patients’ vital signs, allergies, medications, their procedures. It can say, ‘Hey, did you think about this.’”

Co-founders Gude, Dan Smith and Nick Smith retain ownership interest along with other angel investors who have provided operating capital of about $4 million, Nick Smith said in an Aug. 9 interview with the Business Journal. “As we grow, we will need more capital. Our goal is to grow quite rapidly. We are going to aggressively pursue a marketing campaign” both overseas and domestically.

Sebastopol’s hospital, which on a typical day has about 13 patients, is the only facility in the United States where HarmoniMD operates. Six other sites include the Philippines, Tanzania, India and soon Uganda.

“There’s no competition there,” Gude said of international sites where the low-cost software is used on a trial basis.

HarmoniMD competes with more expensive systems from giant companies: Cerner, based in Kansas City, Mo.; Epic, based in Wisconsin; MEDITECH, based in Massachusetts; and McKesson, based in San Francisco. Medical records software from those companies costs $1 million to $3 million to start, Gude said, and “tens of thousands per month,” what he calls “inordinately expensive.” Before it went bankrupt, the Sebastopol hospital bought into McKesson’s Paragon electronic health record, spending roughly $3 million, including about $1.2 million in consulting fees, according to Dan Smith.

Five medical clinics in the Philippines are waiting for the next version of HarmoniMD, Nick Smith said. The largest facility using the software now is a 500-bed hospital in Tanzania. Because Internet access is poor there, data is stored on-site using a dual server instead of in the cloud.

“Overseas, we like to sell it by the patient visit,” Nick Smith said, based on volume of activity, ranging from 25 cents to more than a dollar per visit. “We can deliver these solutions for a fraction of what other companies are doing,” he said.

“We’re running it well,” Gude said of HarmoniMD’s use in Sonoma West Medical Center, though there have been some glitches. “We have never hurt any patient or had any major error that has resulted in any harm,” Gude said. “There have been allegations that this record has led to patient harm or to compromise care. That is not true. We have been very cautious. We find an error, we correct it. It’s almost like a beta site working here. It was donated to the hospital. It’s a free trial.”

HarmoniMD’s allegedly “serious life-threatening defects” could have “endangered patient lives and placed at risk the licenses of nurses and other medical professionals,” the lawsuit claimed, because the system allegedly: intermingled patient records and medication information; sometimes failed to provide patients’ code status; dropped medications from patient records; did not timely reflect new medications; and once reverted its clock back to the 1900s, causing patients’ antibiotics to be “missed for a period of over 24 hours,” Goldfarb’s lawsuit claimed.

No patient records were intermingled by the system, according to Nick Smith.

“The critical issue is the training of the users,” he said. “If you have an organization that’s having a lot of turnover, training is even more important,” and new people can make mistakes. “The hospital is really focused on training. It was a real rush to open it. Typically what takes 18 months to two years was really compacted to get the hospital open. People were running very fast. We’re not aware of any issues. Early on, there could have been some confusion,” he said.

“We’re not aware of any issues surrounding patient safety,” Nick Smith said. “If I thought for a minute that we had any problem with our software that would impact patient safety, we would immediately tell the client to stop using the software. In a hospital setting, when there’s an allegation of this type, there’s a quality council that has to do a complete investigation and document findings. That was done” several months ago, he said. ”There were no issues involving the software.”

It’s beneficial to have the company office close to the hospital, he said. “We can be in tune with what’s happening there.”

HarmoniMD’s development cost is “hundreds of thousands as opposed to hundreds of millions,” Gude said. “We stand in a very unusual competitive position. It’s not a Cadillac. But it’s a very, very good Ford.” The software runs on cloud servers owned by Santa Rosa-based Sonic.

E-Health Records International has 11 employees, including four coders. Gude is the company’s medical director. Most of the employees hold options for equity positions in the company.

Sebastopol’s former Palm Drive Hospital, pulled out of bankruptcy and renamed, competes with Kaiser, Sutter and Santa Rosa Memorial Hospital in Santa Rosa. The revived hospital has no contract with Blue Cross Blue Shield; patients insured by those companies cannot yet be admitted in Sebastopol, Gude said. “Our problem is being paid for what we do,” he said.

In July, Sonoma West Medical Center contracted with Pipeline Health at $125,000 to $150,000 a month to manage the hospital and stanch its losses. “They come in to rescue a hospital that’s financially in difficulty,” Gude said. “It means layoffs — trimming to the marrow, shutting anything not profitable.” Beyond 25 recent layoffs, Pipeline on Aug. 5 also shut the hospital’s alternative-medicine institute, he said. “Coming out of bankruptcy is brutal. This is survival. We are going to be so lean. We are determined to stay afloat.”

“A physician couldn’t run a technology company,” Gude said. “Nick is a coder” who worked for the Press Democrat when it was owned by the New York Times. The software interacts with pharmacies, labs, physicians and nurses, and “helps keep overhead down” in Sebastopol, Gude said.

On the business side of the hospital, Goldfarb’s lawsuit alleged, “errors in Smith’s system significantly delayed patient billing claims submission and processing, and negatively impacted the cash position of the hospital.” The hospital “essentially has been captured and controlled by businessman Dan Smith, to use as a beachhead for his defective HarmoniMD electronic records system, to tout as a marketing tool for making and building sales,” the lawsuit alleged.

OffSiteCare, in which Gude and Dan Smith have ownership interest, is an independent hospital contractor that “provided hospitalist and intensivist medical services,” Goldfarb’s lawsuit claimed. “When I attempted to cut costs with OffSiteCare,” by “re-negotiating our contract with OffSite or exploring contracting with a different vendor, Dan Smith and Ray Hino (former CEO, resigned in June) instructed me not to do so,” Goldfarb alleged. “SWMC was paying $84,500 a month to OffSite for these services,” he alleged.

Dan Smith approved a plan for the hospital to “pay Dan Smith’s business partner Dr. Gude a Hospital Medical Director stipend of $10,000 per month,” the lawsuit claimed. Goldfarb alleged that “Smith ardently attempted to have me falsely portray the hospital as having a positive operating profit.”

It was no secret that the hospital was losing money, Gude said.

“SWMC has been essentially controlled by multi-millionaire businessman Dan Smith, who seeks to use SWMC as a vehicle for self-dealing in service of his own personal financial interests and the financial interests of his business,” Goldfarb alleged in his lawsuit. A couple of months earlier, another lawsuit was filed against the hospital by Cheri AnDra, former chief nursing officer, also fired. Goldfarb and AnDra are represented by attorney Daniel Bartley, based in Campbell.

“That’s ridiculous,” Nick Smith said. “This is not the first time he has rescued this place,” he said of partner Dan Smith. “None of those previous iterations had anything to do with software. Here’s a guy who believes wholeheartedly that his community needs a hospital. He hasn’t just put in money. When that place was being opened, he was there day and night — painting, plumbing, building, whatever had to be done. For someone to say that the only reason he donated millions and millions of dollars was for prototyping some software is absolutely wrong,” he said.

“If you saw how he lives,” Nick Smith said about donor Dan Smith, who resides in a two-bedroom cabin. “If you visited his house. Look at the car he drives,” a green Mazda Miata more than a decade old. “The only thing that money means to him is the good he can do with it. He is 70 years old. I haven’t seen a harder-working man and a more honest person. He likes to find a place where he can make a difference. This is his community,” Nick Smith said.

“It’s baffling,” Nick Smith said of the lawsuits. “I don’t get it. I knew both of those people when they were working. We just hope that the hospital can remain viable.”

“I can’t comment on the lawsuits or the substance of their claims,” Dan Smith said on Aug. 9. The original complaint by Goldfarb listed Smith as a defendant then was amended. “They actually dropped the claims against me,” he said.


Sebastopol’s reopened hospital relies heavily on technology. At night, Gude serves the Sebastopol hospital with four doctors in Israel who do telemedicine via the robot, which has a sophisticated camera with zoom technology.

“That costs about half as much” as daytime physicians in person, he said. Specialists from San Francisco serve patients in Sebastopol by robot for strokes, infectious diseases, psychiatry and intensive care. “It’s part of our survival mode. We use telemedicine to help us economically.”

With his cell phone, Gude summoned the 5-foot-tall device, which traveled with him to the ICU. It can go into any room and interact with a patient. So far the robot, its base made by iRobot (which also makes Roomba vacuum-cleaning robots) and purchased from InTouch Health of Santa Barbara, has resisted telling Gude how to practice medicine.

“I’m watching for that,” he said, where artificial intelligence exceeds human intelligence and the robot suggests, “Correction, doctor, that’s the wrong move.” He chuckled. “Then you find out the robot is right.”

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