State Attorney General Weighs in on Behalf of Patients and Doctors to Save San Leandro Hospital

August 28, 2012

County Board President echoes POC’s concerns regarding hospital chain’s non-profit status
AG cites District Board members’ conflicts of interest but is ignored by appellate court

Ending six years of silence on the part of two prior California State Attorneys General in relation to a number of complaints raised by members of Physician’s Organizing Committee (POC) against the practices of Sutter Health, current California Attorney General Kamala Harris filed an amicus curiae (friend of the court) brief with the California Court of Appeal on 10 August 2011 recommending they overturn a November 2010 Superior Court ruling and prevent Sutter Health, the nation’s second largest non-profit hospital chain, from taking possession of and closing San Leandro Hospital.

POC members’ efforts to get the State to intervene with Sutter began in 2005 when Dennis Patton, M.D. attempted in vain to get AG Bill Lockyer to employ the power of his office when Sutter reneged on a settlement agreement that had been brokered by the state Attorney General’s office to keep the 32-bed inpatient psych unit at St. Luke’s Hospital in San Francisco open.

In 2007, POC member George Wu, M.D. tried to get then-incoming State AG Jerry Brown to enforce Sutter’s overall charitable care obligations as a non-profit hospital. In town hall meetings, healthcare district meetings, and through letter writing campaigns to San Francisco and Alameda County Supervisors and the state Attorney General, POC members have stressed the fact that, as a non-profit hospital corporation, Sutter pays no property tax and has an obligation to provide a commensurate amount of charity care to the counties.

In 2009, after being introduced to former San Leandro Hospital Chief of Staff Miles Adler, M.D. and Vin Sawhney, M.D. by San Leandro City Councilman Michael Gregory, POC began building a physician component to the campaign to save San Leandro Hospital, a full service hospital a third of whose 27,000 emergency room visits per year are from patients in critical condition. POC members at Eden Medical Center (EMC), (the partnership between the Eden Township Health District (ETHD) and Sutter Health that owns and operates Eden Hospital in Castro Valley) addressed a 2009 Open Letter to AG Brown calling on him to “block further mergers and acquisitions that enhance Sutter’s medical monopoly and to investigate if they meet the criteria to be awarded non-profit status in the state.”

Then State Senator Ellen Corbett wrote a letter, signed by 12 members of the State Assembly and Senate, calling for the state Attorney General to investigate “misrepresentations of hospital finances, economic and medical red lining, abuse of nonprofit status, anti-trust violations, questionable allocations of public assets, and execution of contracts that may be in conflict with existing law by Sutter Health…” There was still no response.

After town hall meetings, white-coat rallies and letter-writing campaigns organized by POC physicians failed to move Sutter from its decision to close San Leandro Hospital, turn it into a replacement for Fairmount Hospital (a county-owned long-term rehab facility that does not meet California’s earthquake retrofitting criteria) and lease it back to the county, ETHD sued Sutter to maintain ownership of the facility. At issue is the 2008 Memorandum of Understanding, ceding ownership of San Leandro Hospital to Sutter that was signed between the Healthcare District and Sutter at a time when, District lawyers assert, two of the five board members had conflicts of interest.
According to the California Nurses Association, while George Bischalaney was CEO for both ETHD and EMC, he received a total of $601,865 in compensation from EMC and Sutter-related organizations. In addition, then-fellow ETHD board member Dr. Francisco Rico was a 56% owner of Alameda Anesthesia Associates Medical Group, which received $2.2 million from EMC/Sutter each year from 2007 to 2009.

The San Leandro City Council voted to file an amicus brief on 25 July 2011 and two days later faxed a request, cosigned by Mayor Steven Cassidy, Esq. and City Attorney Jane Williams, Esq., to Harris’ office requesting the Attorney General weigh in on the case. The city’s brief rejects Sutter’s argument that there was no conflict because the “interests of the District and Eden Medical Center were perfectly aligned,” asserting “San Leandro Hospital is far from being an underutilized community resource… only when seen through Sutter’s lens of private economic gain and profitability, does shutting it down for alternative uses rise to the level of ‘highest and best use.’”

Attorney General Harris’ brief maintains that “the trial court’s reasoning does not reflect a correct understanding of the law” and concludes with “insofar as the trial court misapplied the law to the facts in this case, the judgment should be reversed.”

The recent amicus curiae brief marks a dramatic departure from prior silence on the part of the AG’s office. The Superior Court ruled in November 2010 that there was no conflict of interest on the part of two ETHD members with financial ties to Sutter who sat on the District board at the time it agreed to a 2008 Memorandum of Understanding ceding control of the hospital to Sutter. Harris’ brief asserts there was a clear conflict in that George Bischalaney and Dr. Francisco Rico, “…actively guided the District through contract negotiations with two private healthcare entities, Sutter Health and Eden Medical Center at the same time they were receiving income from one of those entities.”

Oral arguments were presented in front of the Appellate Court on 1 November 2011, where Associate Judge Kathleen Banke stated, “Bischalaney would always be in conflict with anything,” calling his position an “inherently conflicting situation.” However, according to Mayor Cassidy, who attended the oral arguments on 1 November 2011, the other two judges on the Court of Appeal panel took positions hostile to the State AG’s position. On 21 December 2011 the appellate court issued its decision against the District, claiming there was no conflict of interest.

POC members refuse to “wait and see”

“The fate of San Leandro Hospital as a full-service general hospital, however, does not rest entirely with the appellate court decision,” noted POC Operations Manager, Brian Tseng. “There is still the option of appealing the decision to the State Supreme Court and then there is the ‘court of public opinion.’”

In the meantime, POC members have opted not to wait. At a 16 November 2011 meeting of the Physicians Advocacy and Information Task Force (PAITF), Robert Gingery, M.D. said, “the conflict of interest is completely obvious, but that doesn’t necessarily mean the court will rule that way. We need to keep organizing.”

Physicians at the meeting agreed to reach out to their colleagues at nearby St. Rose Hospital, a facility that many doctors along with Mayor Cassidy, Alameda County Board of Supervisors President Wilma Chan, and the ETHD have proposed as a better partner for San Leandro Hospital than Sutter. PAITF members pledged to find physicians who will advocate for the medical advantages of combining the two hospitals as described in the ETHD’s April 13, 2001 “Operations Summary” to the Alameda County Health Services Agency. The proposed merger plan with St. Rose also includes incorporation of the rehabilitation services from Fairmont Hospital at both San Leandro and St. Rose hospitals.

Others at the meeting pledged to reach colleagues at Alameda County’s Highland General Hospital which would be negatively impacted if San Leandro Hospital were closed. Alameda County is 30% below the national average beds per population ratio (2.3 beds per/1,000 residents vs. 3.3 nationally) and, given Oakland’s poverty, Highland’s emergency room is routinely full to capacity.

“The county has to consider the negative health impact on patient care if Sutter is successful in closing San Leandro Hospital and how the increase in patients with advanced disease states coming from the 27,000 ER visits that would no longer be handled by San Leandro Hospital would negatively impact the county financially,” said POC Operations Manager Brian Tseng.

(Front row, left to right) Calif, State Senator Ellen Corbett, ETHD board member Vin Sawhney, M.D., San Leandro Vice Mayor Michael Gregory and Miles Adler, M.D., at the 17 May 2011 Town Hall meeting on the future of San Leandro Hospital.

This call has now been taken up by several local politicians including Chan who, at a town hall meeting at the San Leandro Senior Center on May 17, 2011 said, “Sutter as a non-profit, enjoys considerable tax breaks but that should come with an obligation to be good ‘community partners.’ I hope you all call them (Sutter) and remind them of those obligations.’”

Revocation of non-profit hospital tax exemptions for failure to provide commensurate amounts of charity care is gaining momentum across the country. In August 2011 the Illinois Department of Revenue moved to revoke the property tax exemptions enjoyed by three non-profit hospitals.

“It doesn’t make sense to unnecessarily eliminate a vital medical facility in order to construct one with a different purpose,” said Tseng. “Our members are committed to doing everything possible to preserve San Leandro Hospital, which fills a vital community need.” All those interested in joining this campaign should call (415) 434-9335 and ask for Tony. Editor’s note: For additional information see “The Fight for San Leandro Hospital: Key Parties, Facilities and Agreements” in the Winter 2011 issue of New Diagnosis.

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