Sutter's Giant Sucking Sound

Sutter Health, which owns one of California's largest hospital empires, is a nonprofit, tax-exempt charity. Critics wonder why Sutter dispenses so little charity, and vacuums so much profit, from the hospitals it acquires.

The CEOs aren't the only ones getting paid as if Sutter were not a charitable organization. Sutter Health pays its board members $25,000 a year for attending meetings and doing whatever else board members do. The health care organization generously sends its board and top executives to conferences and retreats at resorts in Napa, Squaw Valley, and Hawaii. And Sutter has borrowed another page in the compensation manual from its for-profit counterparts: housing incentives. It's not an uncommon practice for big corporations to help finance homes in order to attract a key executive. Sutter has adopted the same practice.

Public records show that Alta Bates Health System loaned Richard Dixon $505,000 to buy a house in 1993 (Alta Bates became part of Sutter when it merged with California Health System in 1996). The same year, Dixon became medical director at Alta Bates Medical Resources Inc., a for-profit subsidiary that provides physician services.

"To the best of my knowledge those loans were related to the recruitment of senior-level people, which is not an uncommon practice for an organization like ours," Sutter's Gleason says.

At least three times, Sutter has taken over a hospital and changed the name so it does not include the word "community." The move is not insignificant to Sutter's critics, who are many and varied.

Those critics have repeatedly accused the Sutter system of providing below-average charity care -- and, therefore, failing to perform the public service mission on which the nonprofit's tax exemptions are based. Reporting mechanisms are so varied and inclusive that it's nearly impossible to discern exactly what any hospital is providing in charity care.

But it is clear that the larger and larger Sutter has grown, the less and less of its budget is devoted to providing medical care to the indigent.

In 1996, for instance, Sutter Health reports spending $154 million in what it categorizes as "community benefits." More than 70 percent of that expenditure, however, is an accounting trick that reflects the difference between what Sutter ordinarily charges for medical care, and what the government reimburses the hospital for its Medicare and Medi-Cal patients. Sutter has not actually provided a "benefit" to the community; the firm has just categorized what it feels is a lost profit opportunity as a type of charity.

In 1996, the organization spent $14.4 million for "traditional charity care" -- care for people with no ability to pay -- and $7.4 million on education and research. Another $12 million was devoted to "other community benefits," which includes everything from providing blood pressure screenings at public events (something critics say is marketing) to maintaining a health library.

This level of "charity" care -- which represents less than 1 percent of Sutter's total operating expenses -- is below levels many charity watchdogs feel is appropriate.

"It's low," says Judith Bell of Consumers Union, a consumer advocacy organization and publisher of Consumer's Report magazine. "A blood pressure check in a mall is not a charitable activity. It's more of a marketing activity."

Bell acknowledges that unreimbursed Medicare costs put a lot of financial pressure on hospitals. "Nonetheless," she adds, "to argue that because you're not getting market rate [for treating Medicare patients] you're somehow giving charity care, I think is pushing it."

And Sutter financial statements show that some of its charity has decreased as the organization has grown. In 1994, traditional charity care claimed .65 percent of Sutter's total operating expenses. By 1996, that figure had dropped to .60 percent. Similarly, spending for free clinics and the like made up .52 percent of Sutter's operating expenses in 1994, but only .25 percent of the total in 1996.

Sutter clearly is not alone in squeezing the charity line. But as charity care has decreased, animosity over the quality of and funding for health care at some Sutter facilities has skyrocketed.

The doctors at Sutter Auburn Faith Medical Center voted in December to file a lawsuit against the owner of their hospital.

"They've lied to us. They've stolen money from us. They've taken out money and bought for-profit corporations with it, in which their board members own stock," says Auburn Chief of Staff William Kirby. "The people at Sutter Health, as far as I'm concerned, are either criminals or stooges."

Kirby and his fellow doctors are at a near-standoff with Sutter regarding emergency room staffing. The medical chief has also blasted Sutter for restructuring at Auburn and cuts in nurse staffing inside the hospital.

"They take $3 million out of here a year. They're cutting our staffing so badly, patient care is dropping. Nurses are dramatically overworked, patients are not being bathed as often as they should be, things like that. It's damaging my ability to guarantee medical care," Kirby says.

"I'm not going to negotiate with these lying assholes."
Sutter has drawn fire from a number of directions recently for purported cuts in patient care at its hospitals.

Community members have criticized plans to consolidate the maternity services of Novato and Marin General hospitals into the latter institution, and have complained about nurse staffing levels at those hospitals. (State records show that Marin General ranks in the bottom 25th percentile of hospitals in nurse staffing.)

Late in October, complaints to the Department of Health Services regarding nursing supervision of new babies in Santa Rosa drew media attention. Those complaints alleged Sutter was not staffing the nursery at the Santa Rosa hospital, leaving mothers to care for their newborn babies around the clock.

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