Marin General Hospital, a 235-bed acute care hospital in Greenbrae, Calif., has filed suit against Sutter Health to recover more than $120 million.
The suit alleges that since 2006, Sacramento, Calif.-based Sutter Health removed more than $30 million a year from Marin General's reserves. Hospital officials also alleged that in the five prior years, Sutter had made "cash sweeps" of less than $3 million a year.
Marin officials say Sutter's "improper and intentional actions depleted the reserves required to invest in the long-term future and continued modernization of the community's major hospital and its only trauma center."
"This action is not about money, but what that money represents: The ability for us to provide for the future health and welfare of Marin General Hospital and the people of Marin County," said Tim Sowerby of the Marin General Hospital Board. "The board has a fiduciary responsibility to recover the money Sutter took to fund fully our reserves – the down payment on the hospital's future."
In an official statement on behalf of Sutter Health, the health system's communications director Karen Garner said it was "regrettable that the hospital corporation has elected to pursue legal action as there is no basis whatsoever for any such action."
Marin officials contend that Sutter removed more than $120 million by creating a hospital board with a clear conflict of interest. They said the governing board for the hospital included Sutter employees who were "paid by Sutter and depended for their livelihood and career advancement on Sutter management," as well as "others who would follow Sutter's direction."
Hospital officials claim the board had detailed knowledge of the cash taken by Sutter and its effect on Marin General's finances, but never discussed or questioned its appropriateness.
"Sutter utterly ignored its fiduciary responsibility to Marin General and instead chose to line its own pockets with the hospital's reserves," said James J. Brosnahan, senior partner at Morrison & Foerster, the lead litigation attorney for the board. "It's improper, immoral and reprehensible conduct by a company that was trusted to manage this vital community resource."
The lawsuit claims Sutter Health sought to end its 20-year management contract with Marin General five years ahead of the completion date. This is when, hospital officials say, the cash transfers began, as well as other activities that showed intentions to become a competitor instead of a partner.
According to the suit, Sutter supposedly sought to lease most of the available medical office space near Marin General, refused to recruit physicians for Marin General, purchased a plot of land for new Sutter healthcare facilities that would compete with the hospital and forced Marin General to pay for Sutter's pension obligations.
Sutter officials vowed to fight the charges.
"Sutter Health complied in all respects with the legal agreements governing the transfer of Marin General Hospital and expended considerable resources above and beyond what we were required to do so as to ensure a smooth transition of the hospital," Garner said.
"We have responded to the district's concerns throughout the transition and have explained our financial policies to the satisfaction of the regulatory agencies, which govern non profit healthcare entities," she said. "While we had hoped to put the contentiousness of the past behind us, Sutter Health will now vigorously defend itself and will likewise vigorously pursue all claims against the Marin Healthcare District."