Beverly Hussey contends hospital violated contract
A lawsuit against Sutter Coast Hospital has been filed by the widow of the donor of the land where it was built, saying that plans to convert the facility to a Critical Access Hospital violates the donation contract stating Sutter must maintain an acute care hospital.
The lawsuit filed by Beverly Hussey also claims that three hospital board members who are also employees of Sutter Health violated the obligations of a charitable trust by not recusing themselves from votes to convert to Critical Access and to “regionalize” (merge the local hospital with a Bay Area-based Sutter corporation). By voting, the board members were acting in their own interest and not the community’s, according to the suit.
“The board members violated their respective duties against self-dealing because they stood to benefit from bonuses paid to employees of Sutter Health,” states the lawsuit filed March 26 by a Los Angeles-based law firm known for prominent anti-trust cases against large corporations. Since Critical Access status would increase revenue for Sutter Health, “the board members stood to benefit financially from their votes,” the suit states.
Michael Duncheon, Sutter Health’s regional legal counsel, said in an email that “Sutter Coast Hospital is and will remain an acute care hospital. Critical Access does not change that reality,” he said.
“The allegation that employees on the Board stood to benefit from regionalization is false and libelous” and could result in a countersuit, Duncheon wrote.
Donation was 26 years ago
In 1988, Francis “Sonny” Hussey donated several acres on Washington Boulevard to Sutter Coast Hospital on the condition that the property “shall be used primarily for healthcare related purposes. Permissible uses shall include, but not be limited to, acute care hospital, medical laboratories, medical offices, trauma centers, convalescent care and similar uses,” states the 1988 contract.
According to the suit, Sonny Hussey was motivated to improve health care in Del Norte County after a car accident in 1959 sent his loaded gasoline truck hurtling 150 feet down a mountainside.
“For approximately eight hours Mr. Hussey lay undiscovered until a passing logger by chance saw the wreckage. The logger clambered down the steep cliff and found Mr. Hussey only semi-conscious with a crushed chest,” the lawsuit states. “Mr. Hussey’s near death experience triggered Mr. Hussey to donate an unprecedented and substantial amount of his real property to Sutter in order for Sutter to develop and maintain an acute care hospital.”
Sutter Coast Hospital, which was operating the old Seaside Hospital building on A Street via a lease through the Del Norte Healthcare District, agreed to build the hospital on the donated property, opening its doors in 1992.
“The old facility leaked and we had a lot of problems,” said Gerald Cochran, who as chairman of Sutter Coast Hospital in 1988, signed the agreement with Hussey.
The lawsuit states that Sutter Coast violated the contract for the donation on Dec. 5, 2013, when the Board of Directors “voted to change Sutter’s designation from a full service acute care hospital to a critical access facility.”
The plaintiff’s lawyers said that if the implementation of a Critical Access hospital continues during the lawsuit, they might seek a temporary restraining order and/or a preliminary injunction blocking the conversion.
“We definitely think there are strong grounds that would prevent the downgrade by looking at the contractual language and intent of the agreement,” said Majed Dakak, an attorney for the law firm handling the case, Blecher Collins Pepperman and Joye P.C. “What Sutter is doing is really putting the community in peril.”
What’s an acute care hospital?
According to California state law, a “general acute care hospital” is a facility that “provides 24-hour inpatient care, including the following basic services: medical, nursing, surgical, anesthesia, laboratory, radiology, pharmacy, and dietary services.”
Sutter Coast Hospital has no plans to eliminate any of those services, according to Duncheon.
Since Sutter Coast is already qualified as a “rural general acute care hospital,” the facility is not required to provide surgery and anesthesia services, according to state law. Duncheon said that there are no plans to eliminate or even reduce surgical or anesthesia services.
The suit states that there is no incentive to maintain or expand services as a Critical Access hospital, “which is contrary to the language and intent of the (contract).”
In information provided by Duncheon, Sutter Health states that all services will remain under Critical Access designation, including: in- and out-patient surgery, OB services, “24/7/365 MD in the hospital for the Emergency Department” and “24/7/365 hospitalist,” lab services, radiology services, respiratory therapy services, rehabilitation services, 24/7 case management, and a pharmacy for inpatients.
State law clearly states that Critical Access hospitals are also considered general acute care hospitals:
“Every hospital designated by the department as a critical access hospital and certified as such by the United States Department of Health and Human Services shall be deemed to be a general acute care hospital.”
The state could waive certain acute care requirements for Critical Access hospitals if “it is in the public interest to do so” and “the waiver would not negatively affect the quality of patient care,” according to state law.
Asked how the plaintiff’s case would reconcile with the state law saying Critical Access hospitals are acute care hospitals, Dakak said “that’s going to get into legal strategy so I can’t comment on that.”
Critical Access concerns
The lawsuit states that if Sutter Coast converts to Critical Access as planned it will be “creating a tremendous burden on and at times a complete barrier to acute care treatment at Sutter.”
Since Critical Access facilities have a cap of 25 in-patient beds, there is likely to be an increase in patient transfers to other hospitals. The lawsuit says that a patient could be forced to wait for several hours while an acceptable facility is located to accept the patient.
Sutter Coast interim CEO Linda Horn recently wrote in a Triplicate Coastal Voices piece that “if we were already a Critical Access hospital ... in the last 12 months, we would have had to transfer approximately 40 additional patients out.”
Horn said this would be a 6 percent increase in patient transfers while acknowledging that “I understand that if you are one of those patients, it doesn’t matter to you if it’s one or 40.”
Beverly Hussey, who has had to go to Sutter Coast several times but has never been air-ambulanced to another hospital, was less not impressed, saying of Horn’s writing:
“She’s telling everyone how wonderful it’s going to be while encouraging everyone to join Cal -Ore Life Flight.”
Necessary to stay afloat?
Besides the claims based on Sutter Coast not maintaining an acute care hospital, the lawsuit ‘s other claim is based on certain Sutter Coast board members acting in their own self interest, violating the hospital’s charitable trust status.
“These board members, who stood to benefit directly or indirectly, by virtue of transferring hospital ownership and governance, should have recused themselves but instead participated and voted for regionalization” and to “downgrade the hospital’s status,” the lawsuit states.
Sutter Coast officials have stated that converting to a Critical Access hospital, which receives cost-based Medicare payments, is necessary to stay financially afloat, but the lawsuit alleges that the conversion is being pursued out of “corporate greed” in an attempt to “game the system.”
The lawsuit states that Sutter Coast was profitable every year from 1985 until 2010 (Sutter officials said that the hospital has had financial losses since 2009). In 2011 the hospital started operating without a chief financial officer (illegally, according to the lawsuit).
“Thus, the decision to convert to Critical Access was based on claims of financial losses during the only period in Sutter’s history when the hospital was illegally operating without a Chief Financial Officer,” the lawsuit states.
This was the also the time that the hospital was moving toward regionalization, and the lawsuit claims that the votes for regionalization and Critical Access violated the obligations of a charitable trust, including “its duty to avoid self dealing.”
Duncheon responded that the hospital has always operated with the “requisite financial staff” and that when the locally-based CFO, Jim Strong, stepped down, his duties were fulfilled by John Gates a Sutter CFO based in San Francisco.
“There is no merit to the claim that an alleged lack of CFO had anything to do with the losses,” Duncheon said.
In February, Mrs. Hussey and her attorneys sent a letter to Sutter Coast demanding that the hospital retract the decision to downgrade, as the contract gives Sutter 30 days to correct violations of the contract.
“Sutter has refused to alter its decision to downgrade the hospital status,” the lawsuit states.