‘Void and Unenforceable’

THE DISTRICT V. SUTTERJust days after an arbitrator ruled in favor of Sutter Health’s claim to San Leandro Hopsital, the Eden Township Healthcare District filed a countersuit Wednesday morning against the hospital chain alleging the contentious 2008 agreement is “void and unforceable” due to three instances of a conflict of interest during the negotiations and approval of the deal, according to court documents filed in Alameda County Superior Court.

The District’s lawsuit alleges Eden Medical Center CEO George Bischalaney, current District boardmenber Dr. Rajendra Ratnesar and former boardmember Dr. Francisco Rico all “maintained financial interest” in the 2008 Memoradum of Understanding (MOU) which constituted “substantial conflicts of interest,” the suit states.

At the time of negotiations and approval of the MOU, Bischalaney served as CEO of both Eden Medical Center and the Eden Township Healthcare District. It also alleges Rico earned “substantial income” from his partnership in a medical group of anesthesiologists contracted by Eden Medical Center and Ratnesar served as the hopsital’s chief medical officer at the time of the 2008 MOU, the lawsuit asserts.

A spokesperson for Sutter Health said the company has not seen the lawsuit, but believes in the validity of the 2008 MOU. “We believe we have a legally binding agreement with the District that was approved by the District and outlines the District’s authority to enter into the agreement,” said Stacey Wells. “We are confident that the court will uphold this agreement and we will receive title to San Leandro Hospital, as outlined in that agreement.”

In essence, the District’s lawsuit hopes to turn the clock back to the 2004 agreement between Sutter and the District. That agreement called for Sutter to operate San Leandro Hospital for the next 20 years and rebuild Eden Medical Center. Construction of the $300 million hospital in Castro Valley began last July.

The 2008 MOU came to existence, according to observers, from a belief Sutter was seeking to extricate itself from operating San Leandro Hospital in favor of building the state-of-the-art facility just a few miles away. In testimony given to the healthcare board in November during interviews to replace Dr. Walter Kran, who resigned, former member Rico said the 2008 MOU was needed to stop Sutter from leaving the district completely and, therefore, saddling the District with a seismically-deficient Eden Medical Center facing a costly mandate to retrofit by 2013.

News of Sutter’s victory in arbitration was not known publicly until it was contained in today’s lawsuit. According to the filing, an arbitrator found Sutter “properly exercised its option to purchase San Leandro Hospital, as described in the 2008 Lease.” The arbitrator then ordered the title to San Leandro Hospital be delivered no later than Mar. 31. The suit says the arbitrator allowed for the District to file a countersuit in the meantime, which they exercised Wednesday.

What happens next is unclear. Sutter could conceivably move forward with its plans to lease the hospital to the Alameda County Medical Center and commence transforming the facility into an acute rehabilitation center. Doing so would likely entail closing the emergency room within the next month.

Eden Township Healthcare District Chair Carole Rogers, recalling past comments by Sutter in the past, believes they could move forward with their plans to close the hospital’s emergency room. The lawsuit notes the possibility of the District issuing an injunction if Sutter attempts to close to the emergency room before adjudication of today’s countersuit.

The timing of the lawsuit comes five days after the arbitrators ruling against the District and Rogers says she never wanted to go to arbitration,” That was a decision favored by Ratnesar, Kran and Boardmember Dr. Harry Dvorsky, she said. Rogers also says Wednesday’s filing was not a response to the arbitrator’s decision last Friday, but part of the District’s new strategy to keep the hopsital open. “I’ve always said we should have dealt with the problem last year.” Clamoring for Ratnesar specifically to step down because of alleged conflicts of interest derived from his employment by Sutter have been voiced since as early as last May by detractors of Sutter, including the California Nurses Association.

Rogers specifically criticized Ratnesar’s continued involvement within the decision-making process in the District’s fight with Sutter to keep San Leandro Hospital open, calling for him to recuse himself. “He should stand down,” said Rogers. In fact, the attorney for the District recently found three members of the board, including Ratnesar to possess current conflicts of interest regarding financial dealings with Sutter. Ratnesar, though, was  allowed to participate in discussions regarding the District and Sutter to maintain a quorum of three that was lost by recusing three of the five boardmembers. According to the legal “rule of necessity,” Ratnesar was allowed back in by way of winning a drawing of blind lots.

The allegations against the three named in the lawsuit come with possible legal jeopardy. According to the state attorney general’s web site, public officials partaking in the negotiation and execution of a government contract when a financial conflict of interest exists could face “criminal, civil and administrative sanctions.”

San Leandro Mayor Tony Santos told The Citizen he would like to see an equitable solution to conflict and said he supports keeping the emergency room at San Leandro Hospital open either in its current form or as a hybrid facility of many small scale operations within the building. “I would hope the two sides would sit down and keep the hospital open past June 30,” said Santos. “We have to have a facility in town for people to go when they suffer some kind of ultra emergency.”

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