Friday, July 18, 2008
Sutter Health takes big bite of Marin General Hospital's profits
The Marin Independent Journal - by Richard Halstead
Sutter Health extracted nearly $39 million from Marin General Hospital in 2007 - $8 million more than it took over the previous 12 years.
The leap in asset transfers occurred as Sutter prepares to return management control of the hospital to the publicly-elected Marin Healthcare District board sometime between Aug. 1, 2009 and July 1, 2010. It also coincided with a decline in use of the hospital's services during the first quarter of 2008.
"It was surprising that despite a drop in volume of most services that the amount of transfer went up so dramatically," said Heathcare district board member Larry Bedard. Bedard said he has written a letter to Sutter Health CEO David Bradley requesting an explanation for the jump in asset transfers.
Healthcare board members learned earlier this month that the number of days patients spent at the hospital declined nearly 11 percent in the first quarter of 2008 compared with the first quarter of 2007, and the number of surgeries performed at the hospital dropped by nearly 17 percent over the same period. Nevertheless, Marin General's operating revenues increased $20 million to $277 million in 2007, and the hospital's income rose from $13 million to $33 million during the year.
Previously, the largest single-year transfer of equity was $17.7 million in 2004. From 1996 to 1998, Sutter made no transfers. In 2002 and 2005, it injected a total of $5.3 million.
"Revenue transfers are cyclical," said Kathryn Graham, a spokeswoman for Sutter. "Depending on our financial performance and obligations, there will be times when our deposits will exceed our withdrawals and times when we'll receive more than we give."
"In good times, affiliates share a portion of their revenue in excess of expenses in order to help strengthen the network through the shared balance sheet approach," Graham said. "And in times of need, affiliates can count on the network to help ensure that their services continue to be available to their local communities."
Graham said that since 1996, Sutter Health has invested $200 million in new technology and equipment for Marin General, and enabled the hospital to pay off its debt.
Sutter Health, which operates 26 hospitals throughout the state, recently announced its income remained flat at $623 million in 2007 with operating revenue of $7.7 billion. Sutter's income from operations rose $19 million but the gain was offset by investment losses.
Some remain skeptical of Sutter's motivations.
"It's a perfect illustration of the really poor lease that the district has with Sutter," said Healthcare district board member Jennifer Rienks, regarding the leap in the size of the transfer. "According to the agreement between Marin General Hospital Corp. and Sutter Health, Sutter can take all but two weeks worth of operating capital out of the hospital."
Rienks also noted that the equity transfer does not include the fee that Sutter charges Marin General annually for providing information systems and other services. In 2006, those fees amounted to nearly $8 million.
"This is an example of why extending the transfer is risky for the district," Rienks said.
At the urging of county supervisors, the district board has initiated talks with Sutter about the possibility of amending their settlement agreement and possibly extending the deadline for returning the hospital to district control. Those discussions are continuing.
Supervisor Steve Kinsey said the 2007 equity transfer indicates to him that if the deadline is extended that Sutter needs to agree to share the hospital's profits with the hospital district more equitably. \