Legal Victory Buys Time for Rural Northern California Hospital

February 5, 2017

MDs who oppose Sutter’s profiteering face retaliation
After a nearly two-year legal battle, Beverly Hussey reached a settlement in November 2015 in her suit to stop Sutter Coast Hospital (SCH) from cutting the number of patient beds in half, in violation of the terms under which her late husband donated the land in Crescent City, California that the hospital was built on.


Hussey Suit Details

Beverly Hussey, widow of the late Francis “Sonny” Hussey, who donated his land to Sutter Coast Hospital, first filed suit in February 2014, claiming the hospital Board of Directors’ vote to change the hospital designation from an acute care hospital to a Critical Access facility breached the Declaration of Covenants, Conditions, and Restrictions executed in 1988, when the land was donated. The suit also accused three hospital board members, who are employees of Sutter Health, of violating the obligations of a charitable trust by not recusing themselves from votes through which they stood to gain personally.

According to Mrs. Hussey’s attorney, Majed Dakak, “Since Mrs. Hussey’s case was resolved through a last-minute settlement, several important accusations were never tried.”
Sutter demanded the settlement be sealed, so the exact terms of the agreement remain confidential, but Del Norte County District Attorney Dale Trigg has subpoenaed evidence from the case, in pursuit of potential criminal and civil charges against Sutter Coast (see sidebar Hussey Suit Details).
According to former Sutter Coast Chief of Staff Kevin Caldwell, M.D., who has served the Northern California coastal community of Crescent City for over 30 years, “Given the history of falsehoods and broken promises Sutter has made to this community, no agreement — sealed or not — is a guarantee that the hospital will not be downsized. When millions of dollars are available, Sutter has demonstrated the ability to lie and distort the truth with impunity.”

Unsettling settlement leaves issues unresolved

One salient unresolved point from Mrs. Hussey’s suit is the fact that the hospital was operating without a chief financial officer, in violation of section 5213 of the California Corporations Code, for the two-and-a-half-year period during which they were trying to move hospital ownership out of Del Norte County to Sutter’s regional multi-hospital corporation. This was the only period of financial loss in the hospital’s 30-year history.
Sutter also paid the Camden Group hundreds of thousands of dollars to conduct a study corroborating Sutter’s claimed losses. Sutter used these purported losses to justify its plan to downsize Sutter Coast to a Critical Access facility. Ultimately, the County Board of Supervisors and City Council of Crescent City discredited the Camden study findings in a unanimous 10–0 vote.

Sutter Coast didn’t hire a CFO until challenged on two fronts

When former hospital Chief of Staff Greg Duncan, M.D. obtained Sutter Coast’s Medicare renewal application through a Freedom of Information Act Request, he found that Sutter Health had stated that it owned Sutter Coast Hospital, and that Sutter Coast had a CFO, neither of which was true. After Medicare questioned Sutter’s statements, Sutter revised the application. According to the Centers for Medicare and Medicaid Services, fraudulent statements on Medicare applications may result in fines of up to $500,000.
Secondly, Dr. Duncan brought his concerns about the lack of a CFO to auditors from Ernst and Young, who confirmed Sutter Coast did not have a CFO. Shortly thereafter, a CFO was appointed, and the truth about Sutter’s claimed “losses” was revealed in the local newspaper — the “losses” were, in fact, profits of $11.8 million in 2014 with similar expected profits in 2015.

Falsehoods and fraud

Reports of past losses by former Sutter Coast CEO Linda Horn were also proven fraudulent. “She attempted to rewrite history and confuse the public, by falsely claiming the hospital had lost money in 2009 and 2010, when in fact Sutter Coast sent over $7 million in profits to Sutter Health during that time,” said Duncan.
The Hussey lawsuit also documented that three executives of Sutter Health (which manages Sutter Coast) sit on the Sutter Coast board and voted to transfer ownership of Sutter Coast to Sutter’s regional corporation. The Sutter Health executives also voted for critical access, which Sutter estimates will bring an additional $5 million annual income to Sutter Health. These executives receive bonuses tied to the financial performance of the hospital. By not recusing themselves from these votes, they “violated the duty of a charitable trust to avoid self-dealing,” according to the suit (see sidebar The Price of Price Gouging).


The Price of Price Gouging…
Letter by Velma Rinehart to the The Daily Triplicate

As I sit and eat my Cheerios, I’m staring at a hospital bill for $8,487.49 for a condition I still have. That astronomical amount does not include the anesthesiologist, labs, or the surgeon’s fees. Curiosity forced me to call Surgery Center of Southern Oregon to compare costs. They would have charged — get this — $900 for the use of their hospital room. Yes, I would much rather pay a $90 co-pay instead of just over $1,000.
How can Sutter call itself a nonprofit? I’ve heard the CEO makes a six-figure salary. Is that where all our co-pays go?
Crescent City folks aren’t rich, yet our hospital charges us too much.
If this continues, Crescent City will lose its old-timers like me with steady income and those who work hard for the money they earn.

While physicians and others have been waging a three-year battle against Sutter Health’s attempt to take ownership of and downsize the hospital by fraudulently claiming multi-million dollar financial losses to portray Sutter Coast
as a poor, struggling rural hospital in need of higher Medicare payments to survive, the Hussey suit bought the time needed to prove that Sutter Coast has been lying about losses while sending millions in profit to Sutter Health. Critical Access would further enrich Sutter Health, while increasing out-of-pocket costs to local seniors and forcing all patients to be transferred whenever the twenty-five-bed Critical Access cap was reached.

Two year reprieve at the most

“Although the actual wording of the sealed Hussey settlement is not available to the public, even a best-case scenario would only bar Sutter from applying for Critical Access status for the remainder of the term of the land donation, which gives us only until the end of 2018,” said POC Membership Coordinator Brian Tseng.
“There is no time to lose,” noted Kevin Caldwell, M.D. “Those of us dedicated to the health of our community will continue to organize public presentations and town hall meetings and release written statements to educate both the community and responsible government officials as to what is at stake here. As POC members, we will continue to avail ourselves of the support that POC membership has provided.”
Although current Sutter Coast CEO Mitch Hanna announced the hospital is no longer pursuing Critical Access status, he also stated, “We may again consider Critical Access in the near or distant future to honor our community commitment to preserve the long-term viability of Sutter Coast.” (The Daily Triplicate, March 23, 2015)
It wasn’t until the February 23, 2016 SCH medical staff meeting that CEO Hanna announced they had finally complied with the request from the California Department of Public Health Licensing and Certification Division to submit a written retraction of their CAH application, filed over two years ago.
If Sutter Health does attempt to resume its pursuit of Critical Access status and transfer of ownership plans, the Del Norte Healthcare District has retained an attorney to prepare for retaining control of the hospital via eminent domain, by which the Healthcare District could compel Sutter to sell them the hospital, thus stopping the harm that Sutter’s actions would bring to the community.

Meanwhile patients suffer

Although Sutter Health claims not to be pursuing Critical Access at this time, physicians have reported negative impacts on their patients from the downsizing Sutter Coast has already engaged in to attempt to show a patient census low enough to justify downsizing to Critical Access status.
This February 2016, Sutter Coast staff reported that when a patient needed a cesarean operation, Sutter Coast falsely claimed there were no beds in the hospital. There were beds, but hospital administration has refused to staff them, which supports Sutter’s effort to show patient census numbers are low enough to qualify for extra funding.
“Sutter Coast has already cut staff to the point that patients are being transferred, at the patient’s expense, to other hospitals,” says Greg Duncan, M.D., Chief of Surgery at SCH. “Patients are being flown to other hospitals, surgeries are being cancelled, emergency room waits have risen and, frustrated by the lack of care, more patients have left the emergency room without being seen.”
According to data from the Office of Statewide Health Planning and Development (OSHPD), Sutter Coast transferred out a record 872 patients in 2014: 671 ER transfers and 201 transfers from the inpatient ward, compared to 271 ER transfers in 2006, before Sutter began trying to downsize to Critical Access status.
After being told the hospital was “full,” a cancer patient with a leg infection was flown from Sutter Coast to Medford, Oregon, when in truth; beds were available at Sutter Coast. Another patient with a childhood kidney disorder was transferred by air ambulance to Redding, California, for the same treatment she could have received at Sutter Coast. She was unable to afford the $1200 airfare for the trip home, so the Redding hospital wanted to discharge her to a homeless shelter. A local cab driver came to the rescue.  He drove 260 miles over the mountains in a snow storm, picked up the patient and brought her home.

Doctors who stand up are 
economically targeted
After urologist Mark Davis, M.D. opposed Sutter’s corporate plans, Sutter began subsidizing a competing urologist, in a market that Sutter determined had no need for a second urologist. Sutter Coast CEO Hanna claimed Sutter was not required to demonstrate community need in recruiting decisions. Dr. Davis was forced to leave town. One week later, a young girl could not get treatment for a large painful kidney stone. Why? Sutter’s new urologist had taken an eight-week leave of absence, leaving Sutter Coast with no urology coverage. The girl had to be taken to Gold Beach, 60 miles away in Oregon for treatment.


Impact of Critical Access

Although the past and current Sutter Coast CEOs Eugene Suksi, Linda Horn, and now Mitch Hanna have maintained that a Critical Access hospital will provide the same care as the current acute care hospital, research on Critical Access hospitals proves otherwise. A nationwide study in 2011 found patients treated at Critical Access hospitals had higher mortality rates for heart attack, heart failure and pneumonia (lead author Karen Joynt, M.D., M.P.H. Journal of the American Medical Association).
Additionally, patients pay as much as 300 percent more in co-pays at Critical Access hospitals according to a December 25, 2015 Wall Street Journal article “Comparing Costs for Outpatient Care.” According to the Carpenters Health and Welfare Trust Fund for California, Sutter’s price gouging cost them $5,000,000 in 2012 alone. Sutter patients have received bills with charges as high as $10,000 an hour for operating room time, not including medications, surgeon and anesthesiology fees.

In addition to the risk of complications due to delayed emergency care, patients transferred out of Sutter Coast are billed upwards of $50,000 for air ambulance flights to hospitals from Portland, Oregon, to the Bay Area. By reducing their beds from forty-nine to below twenty-five, Sutter stands to gain an extra $5 million a year in Medicare reimbursements by qualifying as a Critical Access Hospital. (See sidebar Impact of Critical Access).
According to eye surgeon Larry Eninger, M.D., past Chief of Staff at Sutter Coast Hospital and member of the hospital Conflict Resolution Committee, the main obstacle to resolving the conflict is the local Hospital Board. The Hospital Board is appointed by Sutter Health, with the exception of the chief of staff. The Conflict Resolution Committee was formed when hospital physicians opposed the hospital board’s secret vote to transfer hospital ownership out of the local community. In his letter of resignation from the committee, Eninger wrote, “It is our Board’s responsibility to protect the interests of Sutter Coast Hospital, and by virtue of the hospital’s charter, the local community. Whether by ego, ignorance, ineptness, laziness, cowardice or combination thereof, our local Board has failed miserably in that responsibility.”
“Our Sutter Coast Hospital Board is at odds with our community, fighting us on behalf of Sutter Health. Until the majority of our Board is once-again composed of community-focused individuals who are capable of independent thought, our efforts on the Conflict Resolution Committee are a waste of time.”
According to POC President Geoffrey Wilson, “Opposition to the increasing corporatization and commodification of healthcare is now playing itself out in ethics committees, medical executive committees and hospital board rooms across the country. These are some of the new battlefields in the movement for change in health care where all possible influence and support from the community must be brought to bear. Learning how to fight and win for patient care in these arenas is crucial to being a doctor in the 21st century.” Physicians seeking to learn organizing skills should call POC at 415-434-9335.

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