Sutter to pay Marin General $21.6M in arbitration

Both California-based Marin General Hospital (MGH) and former parent company Sutter Health are declaring victory over the other party in arbitration awards issued this week.

The Judicial Arbitration and Mediation Services, an independent arbitrator, awarded $21.6 million to MGH and $721,000 to Sutter Health, after a long-standing dispute over Sutter Health allegedly taking millions from the hospital's account, San Anselmo-Fairfax Patch reported.

In June 2010, the Sutter Health-MGH contract ended when the Marin Healthcare District assumed management of MGH. In August 2010, MGH sued Sutter Health, claiming Sutter improperly took $120 million from the hospital's accounts during the management transfer, especially when MGH said it could have used the money toward IT improvements.

According to Sutter Health, large organizations often pool excess working capital from its affiliates, stating that Sutter had no legal obligation to leave reserves other than $5 million in cash and $20 million in accounts receivables, which Sutter did, according to the arbitrator.

"We were always confident that we met our fiduciary obligations to Marin General Hospital, invested an appropriate amount of capital and left the hospital in a strong financial position," Sutter Health President and CEO Pat Fry said in a statement yesterday.

Although MGH claimed Sutter Health violated its fiduciary duty and breached its charitable trust, the arbitrator rejected both claims, Sutter said.

The arbitrator found that "The cash generated by MGH while an affiliate of Sutter did not 'belong' to MGH, it was to be used to further the charitable purposes set forth in the articles and implemented by the bylaws of Sutter," according to the arbitrator's ruling regarding the equity cash transfer policy.

MGH, on the other hand, asserts Sutter failed to make reasonable efforts to cooperate with MGH's IT transition and failed to pay its agreed share of IT training costs. In addition, the arbitration found Sutter breached its duty of good faith and fair dealing by charging MGH for "cost of capital."

"This ruling validates our longstanding contention that in the years leading up to the transition, Sutter did not operate Marin General in a manner consistent with the best interests of our community," MGH CEO Lee Domanico said in a statement yesterday. "Instead, they diverted funds for the benefit of Sutter and the detriment of the people of Marin."

MGH will be using the funds to modernize the hospital, it said.

For more information:
- read the San Anselmo-Fairfax Patch article
- see the Marin General statement
- here's the Sutter Health statement

Related Articles:
Sutter Health, Marin General enter arbitration on $180M dispute
Sutter Health, Catholic Health settle $2.3M improper billing claims
Sutter Health faces second lawsuit over data breach of 4.2M patients
Marin General sues Sutter Health to recoup $120M

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