The Fight for San Leandro Hospital: Key Parties, Facilities and Agreements

August 29, 2012

Alameda County Medical Center (ACMA): Includes Highland General Hospital, Fairmont long-term care facility and John George Psychiatric Pavilion. Operated by the County of Alameda’s Alameda Alliance for Health, a “local initiative” managed care plan for treating the county’s Medicaid patients under California’s “Two-Plan” Medicaid waiver. This was a waiver to Title XIX of the Social Security Act that allowed counties in California to set up HMOs to treat their Medicaid patients. Fairmont does not meet California’s seismic standards for hospitals and the County must find or build an alternate location that does by 2012.

Eden Hospital: A 10-minute drive from San Leandro Hospital (SLH), Eden in Castro Valley is being rebuilt by Sutter Health to meet state earthquake safety requirements. However, the new Eden will be reduced from its current 178 beds to 130 beds and Sutter plans to close down the hospital’s award-winning inpatient psychiatric unit.

Eden Medical Center (EMC): Prior to 1998, the ETHD owned and operated Eden Hospital in Castro Valley. In 1998, the District began looking for a partner to assist in operating Eden Hospital and formed EMC with Sutter Health for that purpose. At that time, the District, Sutter and EMC entered into a Memorandum of Understanding (known as the “1998 MOU”), under which the District transferred ownership of Eden Hospital to EMC as a nonprofit corporation with two partners: Sutter and the District. Pursuant to the 1998 MOU, EMC is governed by a board consisting of 11 members — five appointed by Sutter and the five elected Board members of the District. The eleventh member is the chief executive officer of EMC, who is paid by Sutter.

Eden Township Healthcare District (ETHD): A public agency established in 1948 pursuant to the California Local Healthcare District Law (Health & Safety Code § 32000, et seq.) by the residents of Castro Valley, Hayward, San Leandro and San Lorenzo who paid special taxes to build and operate Eden Hospital. The District’s purpose is to act in the best interests of the public health and to “enforce all rules, regulations and bylaws necessary for the administration, government, protection and maintenance of health care facilities” under its management. The District includes much of the southern portion of Alameda County, where its operations are overseen — and key decisions are made — by a board comprised of five publicly elected members from the district. The board then appoints executives to run the day-to-day operations of the District.

San Leandro Hospital (SLH): In 2004, the ETHD purchased SLH from Triad Hospitals Inc., an investor-owned hospital company based in Plano, Texas. The District then entered into a Lease and Hospital Operations Agreement (the “2004 Lease”) with EMC, and both Eden Hospital and SLH came together under one consolidated license. While licensed for 136 beds, the hospital is currently operating 93 patient beds. The emergency room gets an average of 27,000 patients a year, a third of which are critical cases.

Sutter Health: One of the country’s largest non-profit hospital chains, Sutter operates 25 acute care hospitals, all of which are in Northern California. As a non-profit corporation, Sutter does not pay county property taxes on any of its facilities, nor does it pay state and federal income or sales taxes. In 2009 Sutter had revenues of $8.8 billion and paid its CEO, Patrick Fry $2.8 million, with his top 14 lieutenants making between $830,000 and $1.8 million each, according to its latest IRS filing.

Sutter also owns numerous for-profit subsidiaries, including a collections agency based in Modesto, California. In 2006 Sutter settled a class action lawsuit worth an estimated $276 million for overcharging uninsured patients many times more than the cost of providing the care and for aggressive collections practices.

The average price of a day of care in one of Sutter’s hospitals was 37% above the California state average in 2009.
In 2010 the Marin General Hospital Corporation sued Sutter for siphoning $120 million from Marin General to Sutter between 2006 and 2009. The case is still being fought in the courts.

The 1998 Memorandum of Understanding: It provided that certain key decisions by the EMC Board, in order to be effective, had to be approved both by a majority of the Sutter members and a majority of the District members. This was known as the “Block Voting Requirement” which was nullified in the disputed 2008 agreement between ETHD and Sutter Health.

2004 Lease: This agreement provided that EMC would (a) operate SLH for a term of 20 years, (b) EMC would spend at least $262 million to build a replacement for Eden Hospital for the District, and (c) if the New Facility was not operational by December 1, 2011, EMC would be required to purchase SLH from the District for the price the District had paid Triad Hospitals Inc., minus depreciation and the amount Sutter spent on charity care at SLH. In 2009, Sutter claimed it had spent $30 million on charity care, the same amount of money it calculated SLH to be worth, thus allowing it to assume ownership of SLH without paying any cash.

2008 Memorandum of Understanding “2008 MOU”: The 2008 MOU required the District Members to resign from the EMC Board, thereby eliminating the Block Voting Requirement. It also required the District to give up any ownership interest in Eden Hospital, and thus gave EMC (and Sutter) full control of both Eden Hospital and SLH. It also provided Sutter with an option to purchase SLH at a cost that Sutter claimed was far less ($0) than the price at which it would have to purchase SLH under the 2004 Lease (tens of millions of dollars). At the time of the negotiation, approval, and execution of the 2008 MOU, members of the District’s publicly-elected board included Rajendra Ratnesar, M.D., Francisco Rico, M.D. and its appointed chief executive, Mr. George Bischalaney.

Conflict of Interest: At all relevant times they were serving on the ETHD Board of Directors: Dr. Ratnesar also served as the chief medical officer of EMC; Dr. Rico owned a partial interest in a medical practice that derived 90% of its income from Sutter’s EMC; and Mr. Bischalaney was the chief executive officer of both Sutter’s EMC and the District.

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