Wednesday, July 28, 2010

Over $50 million in Equity Transfers from Eden to Sutter

By Steven Tavares

Since 2004, Sutter Health has diverted a net amount of over $50 million in equity transfers from Eden Medical Center in Castro Valley while its nearby hospital in San Leandro is languished in debt. The disclosure comes from annual financial reports filed with the state.

The issue of equity transfers by Sutter has dogged the healthcare provider recently in Marin County and which led state Sen. Ellen Corbett and Assemblyman Jared Huffman to refer the case to the attorney general's office last year. Sutter has maintained the practice of pooling profits from its better performing facilities to help struggling ones is common. Critics, though, in San Leandro have long said Sutter's explanation  for the transfers are not equitable. The company says the hospital at one point was losing up to $600,000 per month yet received no assistance leaving the impression Sutter aims to eliminate nearby competition as it builds a new $300 million Eden Medical Center.

According to the Office of Statewide Health Planning and Development, a vast majority of the equity transfers from Eden Medical Center (Eden and San Leandro Hospital operate under the same license) occurred in 2008 when $51,209,737 was transferred to Sutter. The previous year $23,660,923 was transferred out of Eden to Sutter corporate along with $4,400,000 in 2005. Eden, though, received over $10 million from Sutter in 2004, the first year of its involvement with San Leandro Hospital, but that number is offset by nearly $18 million in transfers in 2002-2003.

2008 ($51,209,737)
2007 ($23,660,923)
2006 $824,474
2005 ($4,400,000)
2004 $10,100,000
2003 ($10,382,096)
2002 ($7,400,011)
Source: OSHPD

"This is why we asked for a forensic study of San Leandro Hospital's books," said the chair of the Eden Township Healthcare District Carole Rogers. The board approved a study be undertaken earlier this year, but the preliminary report yielded none of the specific answers asked. Subsequently, Rogers says, the board relented on pressure for the report while its enters possible negotiations with Sutter regarding its countersuit filed against the company last March.

The controversy over Marin General Hospital, which was up until this month operated by Sutter has put a spotlight on the practice of equity transfers and whether Sutter is using it for the health of certain affiliates or as leverage against competition, local healthcare boards and designs on future sites for expansion. Critics in Marin allege Sutter began briskly moving profits out of Marin General Hospital after negotiating with the healthcare district to end its lease five years earlier than anticipated. After the 2006 agreement, the local board asserts Sutter plundered the hospital's finances making its future viability suspect. The Marin Healthcare District will need to fund a new seismically-stable hospital in the next few years at a cost of up to $500 million.

The largest of the transfers out of Eden occurred in 2008, the same year Sutter and the Eden Township Healthcare District agreed to it contentious memorandum of understanding presently at the core of both sides legal right to San Leandro Hospital. The 2008 MOU assured Eden would be rebuilt at no cost to the district, while San Leandro Hospital's fate would await a two-year window to achieve profitiability. Many critics conclude Sutter manipulated the books between the two hospitals to insure San Leandro Hospital would eventually cease operating as a full-service hospital with emergency room services and become an acute rehabilitation facility replacing the seismically-deficient Fairmont Hospital.

In regards to the District's legal battle with Sutter, Rogers will be making an announcement at tonight's monthly board meeting in Hayward. The board will also make a few changes to its two committees handling discussions with Sutter representatives. Boardmember Dr. Bill West, who was previously barred from sitting on either the litigation or negotiating teams because of conflict of interest from his recent employment with Eden, has now passed the one-year legal threshold since his last official contant with Sutter. West is available to join the litigation committee in place of Dr. Rajendra Ratnesar, who also had a conflict of interest himself. He gained a seat by way of drawing lots when only two members were legally available. Presently, only West and Dr. Harry Dvorsky do not maintain any conflicts among the five-person board and lots will be again drawn tonight for a seat on the negotiating committee.


Sutter siphoned off over $50 MILLION dollars from Eden/San Leandro Hospitals in 2008 alone and sent it to its Sacramento headquarters. What else was happening in 2008? We were being told, OVER AND OVER AGAIN, that San Leandro Hospital was a massive money-loser and not a viable business. If this is not a criminal abuse of the public trust, it should be.

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