The conflicts over Sutter Health’s affiliation with Marin General Hospital surfaced more than a decade ago. For a time, the accusations and counterclaims flew so fast and furiously they were hard to chronicle, let alone validate. The climax came in 2006, when Sutter agreed to prematurely cancel its contract and return control of the hospital back to its owner, the Marin Healthcare District.
That transition—effective June 30th of this year—involves tens of millions of dollars (for each side) and creates myriad challenges for MGH to overcome in order to remain viable. Regardless, in less than six months, Marin General embarks, literally, on a life of its own. And the person who will be leading the transition is 57-year-old Lee Domanico, Marin Healthcare District’s CEO.
Actually, Domanico, a 30-year veteran in the health care field, has been guiding Marin General through its complex transition process for more than a year now. “Either by intent or through opportunity,” he says, “it seems I’ve taken over the leadership of several hospitals that were in some sort of difficulty. Then, over the course of two to five years, I proceeded to lead a balanced turnaround in terms of finances, growth and patient-physician-employee satisfaction.” Then in a matter-of-fact manner, he summarizes where his career path has taken him: “It’s to take under-achieving, under-performing organizations and lead them into over-achieving and over-performing in a matter of years.”
El Camino Hospital in Mountain View is what many of Domanico’s advocates point to regarding what his skills and leadership can accomplish. “In 2000, when Lee took over, El Camino had a deficit of $13.4 million,” says Charles Auerbach of the Alliance to Save Our Hospital, a citizens’ group that has helped steer Marin General through its years of perilous times. “And in 2004, when Lee left, they had a $20.5 million surplus; the man knows his business.” If there’s a controversy regarding Domanico, it relates to his salary—which many say will exceed half a million dollars annually (his current contract expires June 30, 2011). “What is my salary?” he asks rhetorically. “It’s $450,000 a year plus allowances and a performance bonus,” he answers, adding, “It was reviewed by two compensation consulting firms—one specializing in Northern California health care executives—before being approved by the Marin Healthcare Board.”
There has been considerable talk of Sutter Health “draining the coffers” of MGH before the turnover occurs. Figures for that go as high as $100 million. Can you clarify this? In 2007, both Sutter and the Marin Healthcare District signed a Settlement and Transfer Agreement. It is a complicated document, drawn up by attorneys for both sides and supervised by the courts. It talks about a minimum amount of cash being available at the time of transfer, and that is $10 million. It didn’t mention anything regarding long-term reserves, which any business would expect to have at its onset. Unfortunately, Sutter has transferred the money in that account to their Sacramento headquarters. It is not clear whether they are entitled to that money; it’s still being researched.
Was that an oversight by those who drew up the Settlement Agreement? At the time the Settlement Agreement was drawn up, there were zero dollars in the funded depreciation or long-term reserve account. Maybe that’s why it was not addressed, because there was no money in the account. Since 1995, the figure Sutter transferred out is roughly $118 million, and by June 30th, it will be $130 million or more. Of this amount, $88 million has gone out over the last two years. Let’s put it this way: between 1995 and 2006, Sutter transferred around $2 to $3 million a year from Marin General to their corporate accounts; since then $88 million has been transferred. So the rate of transferring funds has gone up precipitously since the Settlement Agreement was signed. And that’s what is being researched. We do not believe Sutter should be able to take cash from the hospital’s bank account and transfer it to their bank account in Sacramento. They’re different corporations, and Sutter does not own MGH; it’s a nonprofit hospital owned by the community.
Please expand on that. The Marin Healthcare District was founded in 1946 and it opened MGH in 1952. The district is a public entity with a publicly elected five-person board of directors. It owns the hospital’s land and the buildings. Since 1985, the Marin General Hospital Corporation has been the district’s tenant and they have operated Marin General Hospital. In 1985, faced with increasing costs and competition, the corporation affiliated with California Healthcare Systems who, in 1995, merged with Sutter Health, a not-for-profit health care network. Now, on July 1, 2010, after years of bitter disputes over a number of issues, Sutter Health will end its affiliation five years ahead of schedule.
To date, how is the transfer proceeding? Other than the disagreement over cash transfers, we are on schedule and expect a very smooth transition this June. Under certain rules and conditions, I’ve had access to the hospital; I have attended meetings and reviewed certain business files and records. Actually, the hospital is doing very well. I am confident it can successfully operate as a freestanding, independent hospital. Moreover, it is time for Marin to have a state-of-the-art hospital, not one that, for the most part, is 50 years old. And one that meets California’s new earthquake standards, which the existing hospital does not—and that won’t happen until 2015.
How do you envision this happening? For the next two years, we’ll be engaged in planning and design; getting the necessary entitlements and environmental reports; and putting in place financing for the new buildings. Financing will be made up of three elements: philanthropy or donations; long-term mortgage debt; and the successful passage of a general obligation bond. Most likely, the new buildings will consist of a 235-bed, all-private-room hospital, a parking structure, and a medical office building. The hospital will feature new imaging technology, rebuilt operating suites that are about twice the size of the existing rooms, and an emergency room, again with about twice the size of the existing facility.
Would you comment on the hospital’s governance? The publicly elected Marin Healthcare District Board will approve decisions affecting ownership of the hospital, any possible sale and/or acquisition, and any change in mission. In other words, things happening every five, 10 or 20 years. The month-to-month, year-to-year decisions—such as operating and capital budgets, strategic planning, and personnel issues—will rest with a nine-to-13-member hospital board. The first hospital board will be appointed by the Healthcare District Board and, after that, will be nominated by the hospital board and approved by the Healthcare District Board. The hospital board will meet monthly and the first half hour will be open to the public when the hospital will make its report and listen to public input. After that, as with most hospital boards, the meeting will be private. We’re trying to strike a balance, one that combines public accountability while insulating hospital operations from the political divisiveness that has existed with the Marin Healthcare District Board for years. This concept came from consultants, lawyers and a nine-member community-based Transition Advisory Committee that has been working with me for the past year.
Who are some of the Transition Advisory Committee members? There’s Derek Parker, former CEO of Anshen + Allen, an international architectural firm specializing in health care structures; David Joyner, senior VP of Blue Shield of California; two physicians currently practicing at Marin General: Dr. Ann Kao, a cardiologist, and Dr. Tim Sowerby, a gastroenterologist; there’s Dr. Steve Schroeder, former CEO of the Robert Wood Johnson Foundation; Robert Parker, former owner and CEO of Ocadian Hospital and Care Centers; and there’s David Hill, the owner of a nationwide health care public relations and marketing firm. All are Marin residents; they have allowed Marin General to obtain help from part of the community that would likely never run for public office. And yes, they are all eligible for consideration for Marin General’s new hospital board—it’s not automatic, but they will be considered.