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Where is Sutter Coast Hospital headed?

 

The doctors looked out over a sea of familiar faces, seats filled with bodies they’ve actually touched.

“I’ve had the privilege of caring for many of you as patients,” Dr. Greg Duncan began, before explaining to hundreds of attendees at a town hall meeting Wednesday night why he’s turned to community activism over the last four months, rallying local organizations and residents against “regionalization,” a corporate merger that would group Crescent City’s 49-bed hospital with five other Sutter Health affiliated hospitals in Northern California. 

 

Sutter Coast CEO Eugene Suksi and hospital Board of Directors Chairman Andy Ringgold sat alongside the four most vocal opponents to a business plan they’ve said is necessary, beneficial and all but unavoidable. 

“From my perspective, it’s a 99 percent likelihood that it will happen,” Suksi said of regionalization, which is on hold by court order until Aug. 27, at the petition of the Del Norte County Health Care District.

Dozens of audience questions were leveled at Ringgold and Suksi, though as master of ceremonies and wielder of the only microphone, Duncan usually responded too.

The aisles brimmed with equal parts trust for what the three local doctors on stage had to say, and mistrust of the corporation that built Del Norte County’s only hospital. Fingers were literally pointed, anxieties aired and questions raised about the accountability of a big-time corporation to the small, rural community where it provides medical services. 

The rub lies in shifting hospital management oversight to a 32-member board of directors based in the Bay Area. Right now, and for the last 26 years, a mostly local board of 11 directors has been in place. This board voted to dissolve itself last November, without consulting local entities or the public.

What’s on the line now? Some say it’s the loss of local control – perhaps a precursor to downgrading the hospital. Officially, it’s called a transfer of ownership. 

Sutter’s comingled funds

Sutter Health, formerly known as Sutter Community Hospitals of Sacramento, “does not own any hospitals,” according to a 2006 legal declaration from the company’s vice president. The hospitals are “owned by separate and distinct non-profit public benefit corporations that have no stockholders,” he told an Alameda County judge.

Sutter Coast Hospital pays about $1 million a year to be part of the Sutter Health system, which provides access to money and resources. Sutter Health also transfers money generated at the local hospital back to system headquarters. According to corporate policy 207, these “cash equity transfers” take place after an affiliate meets its target income. 

“Sutter Health’s practice of pooling resources among all its facilities – to build and upgrade facilities, purchase equipment and technology, fund new services and help critically needed health care facilities through financial hardships – is common among large not-for-profit organizations,” Suksi wrote in a Friday email.  

In 2011, Sutter Coast Hospital operated at a loss for the first time since it opened,  according to internal hospital financial data obtained by the Pilot’s sister paper, the Del Norte Triplicate. The net $6.1 million loss was some 195 percent below the hospital’s budgeted income goal. Meanwhile, the documents show $7.4 million in “equity transfers made to Sutter Health” that same year. 

When the hospital is struggling financially, to the extent that it necessitates changing the business model to ensure it doesn’t go under (as Suksi has said), then why would transfers back to the Sutter system have increased by nearly $2 million from the previous year?

It’s complicated, Suksi said in a lot more words explaining the ever-fluxing flow of money between Sutter Health and any affiliate, at any given time.  

“If affiliates have additional cash on hand after expenses – and there’s certainly no guarantee of that in today’s challenging environment – that additional cash is pooled with all other affiliates in a central account at Sutter Health,” Suksi wrote.

“Sutter Health is going to be consolidating a lot of their support services so they can reduce costs and reduce charges, the costs to access care,” he told the town hall crowd, adding that this is already well under way, independent of regionalization.

He brought a couple of explanatory hand-outs to the town hall meeting, one entitled “Consolidation reduces Cost.”

A recent study of hospital price disparities across California concluded that, while mergers can drive down costs for the providers, they tend to drive up the prices for patients through market consolidation. The CalPIRG report singles out Sutter Health as its example of this practice. 

Corporation 

‘strong partner’

While Sutter Health may not “own” any hospitals, it does negotiate the rates private insurers pay at every affiliate (and thus the co-payments paid by privately insured patients); as well as the governance, leadership, finances and operations at many facilities.

“Sutter Health, the broad umbrella corporation, seems to be viewed by many as the devil,” Ringgold said. “I’d like to just give you my perspective on the relationship we’ve had in my 10 years on the board: it’s been a strong partner for us. It’s been there when we needed it.”

“For the last 22, 23, 24 years, things were running well. For the last three or four years, things began to change,” Dr. Kevin Caldwell said of his perspective on Sutter Health. He’s been on the hospital’s medical staff for 28 years.

In 1986, five articles laid the foundation for the incorporation of Sutter Coast Hospital as an independent affiliate of Sutter Health. These still define the purposes of the hospital. One says that the “property of this corporation is irrevocably dedicated to charitable purposes and no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer of member thereof, or to the benefit of any private person.”

In 2010, Sutter Health CEO Pat Fry reported $4.8 million in annual earnings to the IRS. In 2009, his documented $3.9 million salary out-cashed the nearest for-profit public company executive in Sacramento by more than $1 million, according to a Sacramento Bee analysis. 

“I feel like this is about money,” one woman said at the town hall, asking Suksi: “Has the administrative branch of Sutter Coast taken any decrease in salary in the last few years?”

“I can’t speak for other executives at Sutter Health, but we put a salary freeze at Sutter Coast Hospital. I actually was extended the opportunity, because again, I work for Sutter Health ... I was eligible for a raise. I didn’t take it,” Suksi said.

In 2010 Suksi was compensated $321,028, according to IRS filings. Then-Sutter Coast CFO Jim Strong earned $338,970. West Bay Region Vice President and Sutter Coast Hospital board member Mike Cohill was paid $1.45 million. West Bay Region President Martin Brotman made $4.3 million.

Post-regionalization, individual IRS filings would not be made for Sutter Coast Hospital, nor would separate audits be required. This is part of the projected savings, Suksi told the crowd. When one man asked exactly how much regionalization could yield in savings, the CEO didn’t have a number, but said the figure is likely small compared to current trends for increasing costs and decreasing revenues, which threaten the viability of stand-alone hospitals nationwide.

Concerns about secrecy 

Many audience questions related to transparency and freedom of information. The hospital’s board meets in closed quarters, the minutes are kept confidential. 

Several people cited the public benefit aspect of Sutter Coast’s mission, others the millions in annual taxpayer dollars that cover publicly insured patient services, or the tax-exemptions enjoyed by a non-profit enterprise, as reasons why this just doesn’t set well. 

County Supervisor Leslie McNamer asked why the board wouldn’t open up at least part of its meetings to the public and then conduct sensitive business in closed session, like the county government does. 

 “We are not elected public officials. We are corporately appointed board members. We have dual duties: to the public and to the corporation,” Ringgold said. 

Since 2007, the rules governing Sutter Coast Hospital, called by-laws, have been amended in dozens of ways.

Previously, Sutter Health appointed board members “for their willingness and ability to effectively contribute to and support the objectives of the hospital.”

As of 2011, the word “hospital” was replaced with “corporation and the general member.” Sutter Health is the general member.

‘Something sacred’

“Us physicians do not want to run this hospital. ... We are surgeons and physicians. We are not hospital administrators,” Duncan said. “What we want is a trustworthy and a capable company to manage the hospital, a company that will include the community in important decisions that affect their health.”

Those up on the stage weren’t the only ones who gave speeches. A couple of politicians let out impassioned spiels, while county Supervisor Martha McClure took audience questions, repeating some at a yell so everyone could hear.

District Attorney Jon Alexander delivered these words, propped up on crutches thanks to a recent run-in with the Fourth of July dunk tank:

“Just in the front here, I see members of the tea party. I see members of the Democratic Party. I see Republicans. I see Independents. I see every political faction or group or party in this county standing shoulder to shoulder because we believe in our hospital and we want to support them and we are against regionalization. ... That tells me that something is really sacred here.”

The auditorium broke out in applause and the onslaught of questions began. 

On the way out the door, nearly three hours after the meeting began, community organizers handed people yellow flyers reading: “Rally at the Hospital. Do your part and show your support. Bring two friends. 3-5 p.m., Thursday, Aug. 2. Sidewalk in front of the hospital on Washington Blvd.” 

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