History of the Marin Healthcare District

By Terry L. Rosenthal

Improve the quality of care or plan for the future

The Marin Hospital District (now named Marin Healthcare District) issued bonds in the late 1940's and built Marin General Hospital which opened in 1952. For 25 years the District operated Marin General Hospital profitably with limited need to levy taxes, but lost that taxing authority with the passage of Proposition 13 in 1977. Due to this loss of tax revenue, in 1981, and needing new and larger facilities, the District issued bonds, hired a team of architects and planners and built MGH's West Wing.

In 1985, the Marin Hospital District Board entered into a 30-year lease of the Hospital to a new non-profit Marin General Hospital Corporation, an entity created and then controlled by the District's general counsel and hospital CEO. This MGH Co. promptly affiliated with California Healthcare Systems. The transaction transferred $11 million in cash and accounts receivable, as well as both Marin Home Care and Marin General Hospital Foundation to MGH Corporation. In 1987 the lease agreement was amended, requiring MGH Co. to pay the District $1,500,000 annual rent, consisting of a minimum cash rent of $125,000, with the $1,375,000 balance to be satisfied through capital improvements to the Hospital. The terms and conditions of the Lease and its Amendments have long been the subject of controversy between District Board members and MGH Corporation.

In 1996, two District Board members were recalled by a public vote, due to their conflicts of interest associated with their financial connections with Marin General Hospital . The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) in its 1995 site visit, scored MGH in the lowest 5% of all hospitals nationally. MGH kept this ranking secret until it was leaked to the news and public in early 1997, about 15 months after receipt. This resulted in a public outrage. Since then, the voting Marin public has chosen a 4 to 1 majority of District Board members whose intent has been to alter or void the lease.

In 1997, Healthcare District Board members entered into negotiations with MGH Corp, by then an affiliate of Sutter Healthcare. These negotiations failed to provide adequate funding or authority to the District in its mandated oversight management role. On August 20, 1997 , the District voted unanimously (5-0) that the mediation had produced an unsatisfactory result. Accordingly, the District initiated a lawsuit to invalidate the 1985 lease based on the conflict of interest of the two District employees who wrote the lease, then became the lessees, and on alleged MGH Co. breaches of the lease. The issues related to breaches was settled out of court in 1999, providing the District with additional operating expenses.

Finally, in February 2003, the California Supreme Court declined to reconsider the decision of the Appeals Court which had invoked the statute of limitations to reject the District's conflict of interest lawsuit"

In 1995 as an affiliate of California Healthcare Systems, Marin General Hospital Corporation merged with Sutter Health. Through this merger, MGH joined Sutter's obligated Group and Excess Cash Transfer programs, whereby:

. MGH rolled its existing debt into Sutter's; . MGH could incur unlimited amounts of debt without District authorization (previously prohibited by the Lease); . The District became jointly and severally liable for Sutter's debt; . Sutter gained access to all of MGH's cash; . Sutter acquired ultimate power to appoint the MGH corporate board.

California law SB1953 requires all hospitals to meet certain seismic standards for patient facilities by 2008. Sutter/MGH has proposed construction of a new wing of the hospital in preference to retrofitting the present facility for seismic compliance. They have claimed that they will not proceed to build without a new long-term lease. The District Board may soon be asked to negotiate with Sutter/MGH the terms of a new long-term lease. The District in general approves the preliminary plans for construction but does not agree that it should depend on a revised or replaced lease. The District has countered with an offer to fund the new proposed construction with District bonds. No decisions have been reached at this time.