District drops hospital lawsuit

Written by Adam Spencer, The Triplicate July 12, 2013 05:05 pm

With injunction lifted, Sutter awaits study results

Facing a low chance of success, the Del Norte County Healthcare District settled its case with Sutter Coast Hospital and Sutter Health outside of litigation Tuesday, removing the injunction that prevented Sutter from merging Crescent City’s hospital with Sutter’s Bay Area facilities and/or downsizing. 

The settlement became official Tuesday morning when an arbitration panel, assigned to settle the dispute, signed off on the arbitration award crafted by the settlement.

The healthcare district had alleged that when Sutter Health signed a lease agreement in 1986 to operate the district-owned Seaside Hospital in Crescent City, certain provisions of the lease, like Sutter maintaining an acute care hospital with a board of directors composed primarily of Del Norte residents, also applied to Sutter Coast Hospital. Sutter argued that the lease expired when Sutter Health built the new hospital on donated land in 1992.

“There was favorable language in the lease that the district clung to; the district did have an argument. The question was whether it was a winning argument,” said Martha Rice, attorney for the Healthcare District. “Our legal advice to (the district) was to settle this before arbitration. If we were confident in the legal case to be brought forward, we would’ve done so, but I think the best option for both parties was to settle this.” 

Even the Superior Court judge who granted a preliminary injunction admitted in his ruling that the district’s case had “very weak legs.”

Rice estimated that if the district lost its argument in arbitration, it would be facing damages of $300,000 - $400,000, on top of more than $160,000 in attorney’s fees already accumulated.

Back-and-forth negotiations lasted throughout the Fourth of July holiday weekend, rushing to finish before arbitration started Wednesday. The negotiations started with a special district meeting called on July 2. Board members of the district agreed to the settlement with a 5-0 consensus.

“Consensus is a difficult thing to reach,” said district Chairman Clarke Moore.

Sutter’s rights defined

The litigation between Sutter and the district started last summer in Del Norte Superior Court, when the district sought a temporary restraining order, and later an injunction, to block Sutter Coast from merging or “regionalizing” the hospital, which would eliminate the local board of directors. It also asked for the court to block Sutter from downsizing the hospital to a 25-bed Critical Access facility — both actions were pursued or publically considered in the last two years. Sutter asked the court to move the case into arbitration, as outlined in the 1986 lease. 

In order to preserve the status quo of medical services at the hospital until the matter could be resolved in arbitration, the court granted both requests. Arbitration was scheduled to begin Wednesday, as well as an argument in the Court of Appeals, since Sutter appealed the injunction.

During his ruling last October on the requests for an injunction and arbitration, visiting Judge Leonard LaCasse remarked that Sutter had abided by the lease terms for decades, maintaining an acute care facility via the 49-bed hospital, but “the question is, do they have to do that forever?”

The answer, delivered with the settlement, is a deafening “no.”

The settlement, has the district declare “that the 1986 Lease and Amendments have terminated and are no longer of any force or effect” and that Sutter Health and Sutter Coast does not owe “any obligation of any kind to the District or the Del Norte community” based on the 1986 lease.

Furthermore, the settlement has the district admit “that Sutter Health has been the sole general member of Sutter Coast Hospital, with the right to exercise control over it, since its inception,” and the District has no ownership interest or contract interest in Sutter Coast.  It also states: “The District admits that Sutter Health has the right, in its discretion, to consolidate or sell Sutter Coast Hospital, to change the number of beds or scope of services, or to execute any other lawful disposition of Sutter Coast Hospital.”

The settlement also stipulates that the district pay $90,000 for Sutter’s arbitration costs, but that Sutter will not make the district pay as long as the district does not sue Sutter Health or Sutter Coast on claims related to this case — a financial deterrent for the district not to break the settlement, Rice said.

The district may also not participate in, initiate, or fund any lawsuits related to regionalization, critical access or any change in beds or scope of services at Sutter Coast, the settlement stipulates.

The settlement could be described as a clarification of a divorce between Sutter and the district that happened more than 20 years ago.

Not a total loss

Although every line of the settlement reads like a resounding loss for the Healthcare District, the litigation partially achieved what the district intended: it slowed the process of regionalization and got Sutter involved with the local community.

“Through the temporary restraining order and preliminary injunction, they were able to slow the process down over the past year,” Rice said.

Despite more than $160,000 in attorney’s fees spent on litigation, district board members believe it was worth it.

“I believe the district did what they had to do,” said Chairman Moore, reflecting on the choice of starting litigation to begin with.

District board member Dr. Kevin Caldwell said the board always knew it was a weak case, but it was convinced it would buy enough time to show the negative impact of merging the hospital and “give the (Sutter Coast) board a chance to change their minds.”

Caldwell was chief of medical staff, and thereby a Sutter Coast board member, in November 2011 when the board voted to regionalize, dissolving itself, with a vote of 9-1.  

Caldwell’s dissenting vote kicked off a public campaign to oppose the merger, lead by Caldwell and current Chief of Medical Staff Greg Duncan, a pair of self-described “country doctors,” claiming that regionalization amounted to a corporate takeover and a slippery slope to a less-equipped Critical Access Hospital.

Soon enough, many entities in town, including the Del Norte County Board of Supervisors and the Crescent City Council, joined the opposition.

“It really unified the community,” Caldwell said.

In the year of litigation that’s passed, Sutter Coast CEO Eugene Suksi resigned. Also, Sutter Coast and Sutter Health have agreed to pay a consultant to conduct a “strategic options study” analyzing all possible future options for Crescent City’s hospital, including regionalization, downsizing to a Critical Access Hospital, and partnering with another medical company.  

Completing the study before regionalization or Critical Access application is mentioned in the settlement, but not in a binding way.

Tone of harmony

On Tuesday morning, Sutter Coast CEO Linda Horn and Moore invited the Triplicate to Horn’s office to present a “Joint Statement” (language included in the settlement), setting a tone of harmony.

“I think this is a really important day for us,” said Moore, who emphasized the importance of the strategic options study in the wake of health-care reform.

“We are united and looking forward to planning into the future; moving forward is a good thing,” Horn said.

The Joint Statement says, “The District is supportive of the study Sutter has commissioned and hopes that the community will provide input. The District supports a fact-based and objective assessment of the alternatives for Sutter Coast Hospital.”  The statement commends the district’s “excellent working relationship” with Sutter over the past 30 years and “Sutter’s recent efforts to involve the community and participate in public dialogue.”

Study group meets 

The Camden Group, the consultant picked to conduct the Strategic Options Study, recently held its first meeting with the steering committee, made up of local individuals with expertise on the medical environment of the North Coast, to provide local involvement.

Most committee members are remaining anonymous save for a few members with public positions like Scott Feller, who is representing Del Norte’s state Sen.Jim Nielsen. Feller said that the committee has a surplus of great medical and local expertise that will hold the consultant accountable to the task at hand.

“There were a lot of tough questions asked and answered,” Feller said, adding that he intends “to help provide a neutral voice to make sure this community has a robust medical facility and that the steering committee report is transparent and made available to the public.”

Some parties, including the county supervisors, chose not to participate in the study partially due to allegations from some local medical staff members that it will be biased because Sutter is funding it.

Committee members, including Moore, who is not representing the district, said that members will not hesitate to call foul if it appears the study strays from objectivity.

The Camden Group will not provide a final recommendation, but provide the Sutter Coast Board with a list of findings that will be used to determine the future of the hospital.

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