Doctors Urge Action Against Anti-Competitive Practices

July 31, 2013
(Left to right) Warren Lyons, Alameda County Medical Center (ACMC) Chief Strategy Officer; Brian Tseng, Membership Coordinator, Thomas Powers, M.D., Geoffrey Wilson, POC President and Wright Lassiter, CEO of ACMC) at a 20 August, 2012 meeting to explore the option of ACMC operating San Leandro Hospital.

(Left to right) Warren Lyons, Alameda County Medical Center (ACMC) Chief Strategy Officer; Brian Tseng, Membership Coordinator, Thomas Powers, M.D., Geoffrey Wilson, POC President and Wright Lassiter, CEO of ACMC) at a 20 August, 2012 meeting to explore the option of ACMC operating San Leandro Hospital.

Officials may use eminent domain to save hospital

Members of Physicians Organizing Committee at San Leandro Hospital (SLH) are calling for decisive action from local, state and federal agencies to avert potentially catastrophic medical consequences should Sutter Health proceed to close the hospital after gaining title in a controversial court ruling contested by California State Attorney General, Kamala Harris.
The Eden Township Health District (ETHD), Alameda County and the City of San Leandro responded to the urgent medical need for the hospital consistently projected by doctors, nurses and patients at city council, town hall and health district board meetings. They developed a plan to lease the hospital from Sutter and operate it under the Alameda County Medical Center (ACMC) as a “hybrid model” — an acute care hospital with an emergency room and a rehabilitation facility.
To finance the plan, San Leandro Mayor Stephen Cassidy proposed that he city put up $3 million dollars over the next three years if the County of Alameda, the ETHD and the ACMC also provided financial support. He asked POC physicians to speak to other council members about the medical need for the hospital, to assist him in getting the City Council to authorize the funding. POC physician members Bob Gingery, Thomas Powers, Craig Williams and Stephen Rosenthal testified along with nurses and com­munity members on 5 November 2012 before the San Leandro City Council, which then voted 6 to 1 to allocate $3 million for the hospital.
Alameda County Public Health Director Alex Briscoe presented demographic data showing the need for the hospital before ACMC CEO Wright Lassiter described the negative cash flow at the hospital and ACMC’s ability to absorb the losses while covering the expenses of converting the hospital to a “hybrid” model with both rehab and inpatient hospital services.
When council members questioned the wisdom of investing so much money in the hospital, Cassidy responded that SLH is the largest employer in the city and that spending $3 million to protect a $100 million operation was a good investment. The next day the Alameda County Board of Supervisors matched the city’s pledge of $3 million over three years, followed by Lassiter’s pledge of $25-30 million.
The ETHD was only able to pledge about $700,000 because of pending litigation with Sutter. According to POC member Carole Rogers, R.N. president of the ETHD board, “Sutter is demanding that in addition to turning the hospital over to them, we give them $30 million for the uncompensated charity care they claim they have provided and all their legal expenses involved in taking the hospital from us.” ETHD’s legal challenge to Sutter’s figures for the amount spent on charity care has an August 2013 court date.

Betty Yee, Chairwoman of the California State Board of Equalization, addressing a town hall meeting in San Leandro on 23 June 2012 held at the urging of Alameda County Supervisor Wilma Chan and POC members to discus non-profit hospitals obligations to provide a community benefit commensurate with their tax breaks.

Betty Yee, Chairwoman of the California State Board of Equalization, addressing a town hall meeting in San Leandro on 23 June 2012 held at the urging of Alameda County Supervisor Wilma Chan and POC members to discus non-profit hospitals obligations to provide a community benefit commensurate with their tax breaks.

Fly in the ointment

All the funding agreements were contingent on Sutter agreeing to allow ACMC to run the facility as an acute care hospital. However, Sutter announced that they would lease the hospital to ACMC only as an acute rehabilitation facility to replace the aging Fairmont rehabilitation center, not as a hospital that could compete with Sutter’s Eden Hospital, in nearby Castro Valley.
Sutter rebuilt Eden Hospital with 48 fewer beds than the hospital it replaced, eliminating psychiatry and four ICU beds. “They built a boutique hospital concentrating on well-insured service lines and made it small enough to be able to claim they are full, in order to divert uninsured and underinsured patients to the county hospital,” said vascular surgeon Gingery. “Their business model obviously calls for no San Leandro Hospital at all.”

Bad faith negotiations go no where

On 7 January 2013, ACMC CEO Lassiter wrote a letter to Alameda Coun­ty Supervisor Wilma Chan and Mayor Cassidy saying that the negotiations between the medical center and Sutter were “stalled.” Sutter had offered Lassiter terms he could neither accept nor comment on, due to a nondisclosure agreement. “Negotiations broke down,” wrote Lassiter “when Sutter refused to consider any arrangement giving control of the asset to ACMC.” Lassiter needed either title or a long-term lease to get loans needed to renovate the hospital to accommodate a rehab facility.
Sutter has the option to close the hospital at any time. The county would then have 90 days to hold a hearing to appeal to the State Department of Healthcare Services to prevent the closure. Director Briscoe told Alameda County Board President Nate Miley and POC that he would make a strong case for the medical urgency of keeping the hospital open as one of five essential “safety-net” hospitals in the County treating 80-90% of uninsured and underinsured county patients.
“This hospital is critical to this community,” said Miles Adler, M.D. “The emergency room sees 27,000 pa­tients a year suffering from everything from broken hips and strokes to heart attacks. The community needs this hospital.” Adler and other POC members had scrambled to get SLH its own operating license in September of 2012 when Sutter replaced the prior joint license covering both Eden and SLH with a separate license for Eden. Despite Sutter’s pronounced intent to shut the hospital down, the doctors were able to retain a committed medical staff and SLH passed the Joint Commission on the Accreditation of Hospitals Organ­ization (JCAHO)’s inspection, receiving their Gold Seal of Approval for the hospital and its pathology and clinical laboratories.
According to Rogers, Sutter’s new downsized Eden Hospital is already full, as was SLH in January during the height of the flu season. “Even with San Leandro Hospital still operating, ambulances were being diverted 20-30 minutes away to Highland General Hospital. Eliminating San Leandro Hospital’s 129 beds would be a disaster.”
“Whether they shut it down themselves or pick it apart and allow it to die through attrition, it will have the same negative effect on patient care and give them an even greater ‘market share’ monopoly,” said ETHD board member Vin Sawhney, M.D.
Critics charge Sutter with using their monopoly position to consolidate profitable medical services at Eden Hospital. “They cry about losing money but that’s just to justify closing the hospital [SLH] and eliminating the competition,” said Bob Gingery, M.D. “Why else would they put up such a fight to stop someone else from running the hospital? They leave the community in a position of saying, ‘stop trying to kill the hospital or we will take away your tax breaks or sue you.’ Everybody in the community is supportive of this hospital. Sutter needs to step away and let somebody else take over instead of going against the entire community.”
In February 2013, Sutter canceled all orthopedic surgery at San Leandro Hospital. According to orthopedic sur­geon Joseph Cheng, M.D., his group was offered a contract with substantially lower reimbursement, while requiring more call coverage. When they at­tempted to negotiate, Sutter refused, using this as a pretext to shut down all orthopedic surgery without any notice to the County. Affronted by Sutter’s unilateral action, the Alameda County Board of Supervisors responded by putting a three year, $6 million subsidy to Sutter’s trauma center on hold, also blocking an equal $6 million federal subsidy. Meanwhile, Sutter has consolidated orthopedic surgery services to their new orthopedic floor at Summit Hospital.

Noting that in Toledo, Ohio the Federal Trade Commission (FTC) required the nonprofit hospital chain ProMedica Health System to sell off one of their hospitals because of their anti-competitive practices, POC provided Rogers, Mayor Cassidy and Supervisor Chan with contact information for the FTC’s Bureau of Competition which investigates anticompetitive business practices and can recommend that the FTC take legal action. Rogers passed the information on to State Senator Ellen Corbett.

FTC as trust busters?

As far back as November 2008 the FTC issued Working Paper No. 298 “The Price Effects of Hospital Mergers: A Case Study of the Sutter-Summit Transaction” demonstrating the anti-competitive effects of Sutter’s merger of these two hospitals resulting in price increases of 20.7% for Alta Bates, and 72.0% for Summit.
“Since they first got involved with San Leandro and Eden Hospitals, Sutter has planned to take the profitable medical services out of SLH, transfer them to their Eden Hospital facility and then shut down San Leandro Hospital to eliminate any competition, but not before also purging unprofitable services from Eden such as psychiatry and acute rehab,” noted psychiatrist Powers, who founded Eden’s award-winning Psychiatric Unit, since eliminated by Sutter. “They made a magnanimous-sounding deal to partner with the health care district in 1997 then modified the terms in 2007 to gain full control of the hospital with a Memorandum of Understanding rubber stamped by a health district board at a time when three out of the five board members had direct financial ties to Sutter.”

Nullification of non-profit status

Besides potentially running afoul of the FTC, closing down San Leandro Hospital could have other negative ramifications for Sutter, said POC Membership Coordinator Brian Tseng. “The operation of San Leandro Hospital constitutes a significant share of their community benefit in the East Bay. The fact that they are demanding to be paid back for the losses they claim to have suffered at San Leandro Hospital means they cannot claim that care as charity care, another reason their tax exempt status should be revoked.”
Following up the June 2012 public forum hosted in San Leandro by Betty Yee, Chairwoman of the State Board of Equalization, and Alameda County Board Supervisor Wilma Chan, the newly created Senate Select Committee on Charity Care and Nonprofit Hospitals met in Sacramento on August 15, 2012 to discuss the charity care obligations of nonprofit hospitals.

Capitalizing on confusion

The committee, chaired by Senator Corbett (D-San Leandro), concluded that the lack of uniform criteria regarding what constitutes charity care prevented the state from taking concrete action against the questionable practices of nonprofits regarding either the absolute dollar amount or how much of their community benefit obligations for charity care they actually provide. This allows some hospitals to count Medi-Cal shortfalls and promotional costs as charity care. The Catholic Hospital Association and the Voluntary Hospital Association exclude counting “bad debt” or Medicare shortfalls as charity care, but the American Hospital Association permits this.
The California Nurses’ Association, which co-hosted the hearing with Senator Corbett, pointed to a report by their research arm, the Institute for Health and Socio-Economic Policy, finding that in 2010 California private, not-for-profit hospitals reaped more than $1.8 billion in government subsidies and benefits from their tax exempt status beyond what they provided in charity care. Currently, 247 out of 387 private hospitals in California avoid paying taxes by claiming nonprofit status.
Presenting the nurse’s report, CNA Policy Director Michael Lighty called on the state to enact legislation that would establish a mandatory minimum level of charity care all hospitals must meet to maintain eligibility for tax-exempt status. CNA proposed a charity threshold of eight percent of combined operating and non-operating (mostly non-healthcare related investments) revenues, a percentage recommended by the Illinois Attorney General in 2006.
The Bureau of State Audits (BSA) proposed in an August 2012 report that the Office of Statewide Health Planning and Development (OSHPD) be granted the authority to penalize nonprofit hospitals that don’t submit a community benefit plan. “That’s not enough,” said Tseng. “If they don’t provide a commensurate amount of charity care to match their tax breaks, the responsible county, state and federal bodies should revoke their nonprofit status.”
POC’s informal poll found the majority of the Alameda County Supervisors would support an effort to revoke Sutter’s property tax exemption, with Supervisors in Del Norte and San Francisco Counties considering similar actions.

The eminent domain option

Rogers has suggested that if Sutter refuses to allow San Leandro Hospital to remain an acute care hospital, then the city, ETHD or the County should compel Sutter to sell them the hospital under eminent domain. A similar motion has been proposed by city attorney Bob Black in Crescent City, CA, another community fighting Sutter to retain their hospital (See lead story on page one).
All these proposals — breaking up Sutter’s monopoly, revoking their non-profit status or buying the hospital by eminent domain — come in the wake of the apparent complete failure of the court system. The California Attorney General’s friend of the court brief illustrated numerous “conflict of interest” issues that should have undermined Sutter’s claims to SLH, yet the State Court of Appeal denied any conflict of interest, allowing the 5-person ETHD Board, three of whose members had direct financial ties to Sutter, to give the hospital to Sutter. When the State Supreme Court refused to hear the case, Sutter prevailed by default.

Public health consequences

“Although Sutter won title to the hospital, other overriding laws and public health consequences should prevent them from using the property in a way that harms the community,” said POC Membership Coordintor, Brian Tseng. “This is not a condo or a shopping mall. It’s a vital health facility treating uninsured and under-insured patients with nowhere else to go! The question is: Will responsible government officials exercise the power vested in them by the constituency that elected them to counter the profiteering agenda of a wealthy and politically-connected hospital corporation?”
Physicians and others interested in joining the effort, or who face similar problems with their hospitals, should call 415-434-9335 and ask for David.

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