East Bay Business Times

Friday, November 16, 2007

By Marie-Anne Hogarth

The Eden Township Healthcare District board of directors voted 4-1 Nov. 12 to move ahead with a deal with Sutter Health that calls for Sutter to fund a replacement hospital in Castro Valley and board members to give up their seats on the hospital board.

The approval was met with cheers from supporters – mainly hospital workers and physicians – who made up the majority of the 170-plus people at the meeting.
Opponents, mainly representatives from SEIU United Healthcare Workers-West, continued to press for the state attorney general’s office to review the deal.
Previously, the attorney general declined to review a similar agreement transferring control of Sequoia Healthcare District in Redwood City to Catholic Healthcare West.

“We find that the Sequoia Healthcare District is a government entity and not a public benefit corporation,” the office wrote. “In light of the foregoing, we conclude that the Attorney General’s written consent is not required.”
The union said it would continue to explore various possibilities including legal action against the hospital.

Eden Medical Center must meet seismic safety standards by 2013 or close, according to a state law impacting several hundred California hospitals.
That mandate has driven up construction costs, and Eden officials said that threatened an earlier deal forged with Sutter Health that called for up to $262 million to replace the hospital.

The new agreement, negotiated by district and Sutter representatives, funds a new hospital for an estimated $300 million plus cost overruns and guarantees that Sutter funds acute care at the unprofitable San Leandro Hospital through June 2009.
The plan nonetheless requires that five district board members, who sit on the 11-member hospital board, step down six months after construction of the new hospital begins, sometime around 2010.

At the Nov. 12 meeting, supporters of the plan talked about Sutter’s investments in the hospital and sought to rebut the perception of Sutter-appointed directors as “corporate drones from Sacramento.”

Carol D’Onofrio, a board member at Alta Bates Summit Medical Center, a Sutter Health affiliate that has only appointed directors, explained that local members interview and select new board candidates from the community, and then submit them for approval to Sutter. “It is locally controlled,” she said.
Meanwhile, some union representatives and elected officials spoke out about the loss of public oversight.

Timothy McGowan, on the board of the Castro Valley Sanitary District, said that the Sutter Health system, a nonprofit corporation, has issued over $2.4 billion in tax-free bonds from state authorities for construction projects. “It seems to me that somehow this money is coming from us,” he said.

Opponents maintained that because voters in 1997 approved Sutter Health’s affiliation with Eden, this new plan should be put back before the voters.
There is no time for a ballot measure, district officials say, if the hospital is to file construction plans by the end of 2008 as required by the state deadline.
The district’s attorney, Craig Cannizzo, advised that Measure A never guaranteed Eden would continue to operate under the original co-governance model. There is nothing stopping Sutter, he said, from building a new hospital independent of the district on an adjacent property.

Dr. Francisco Rico, a district board member, said it wouldn’t have been practical to hold Sutter to an earlier promise to build a new hospital.

“We’ve been told that they owe us a hospital and that we should see to it that they build it. How do we do that?” added Rico. “The only way is through litigation, which would take two or three years and cost us a lot of money.”
Rico also disputed the notion that elected board directors would somehow be more qualified or able to represent the views of their constituents than appointed members.

“To be a member of the district board, all that is required is you pay a fee and you get on the ballot,” Rico said. “If you get elected, you may get on the board.”
Overwhelmingly, the district board members said they voted to save the hospital.
“It is much more important to have a state-of-the-art earthquake-proof facility than to keep my position on the board,” said Dr. Walter Kran.
Dr. Rajendra Ratnesar, another district board member, said that it was not the members of the hospital board who saved lives in hospitals, and that the important thing was to have a building with the latest technologies and the best medical staff.

Carole Rogers, the lone director to vote against the deal, said that although the community needs a new hospital, she had too many concerns about Sutter to approve the plan.

How it will work
• Sutter Health pays for new 130-bed hospital in Castro Valley for an estimated $300 million plus cost overruns.
• Sutter funds acute care services at unprofitable San Leandro Hospital through June 2009.
• Sutter gets option to purchase San Leandro Hospital for the net book value of the hospital minus cash losses and capital expenditures made by Sutter since 2004.
• Five district board members, who sit on the 11-member hospital board, are replaced by Sutter appointees from the communities six months after construction of the new hospital begins, around 2010.
• Hospital CEO gives up his voting powers on the hospital board at that time.
• District continues to exist and manage $30 million endowment fund.
• Both sides give up claims stemming from previous deal.