Sutter bleeds St. Luke's - Page 2

The ailing but vital Mission District hospital has an uncertain future
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Luke's with a series of subsidies — and included a promise of up to $20 million for needed retrofit work that doesn't appear to have been done — while allowing the hospital to remain somewhat independent. The terms expired last year, and St. Luke's has since been completely folded into the family of San Francisco hospitals known as the CPMC, which includes the Davies Campus, nestled between the Castro neighborhood and the Lower Haight, the Pacific Campus on Buchanan Street, and the California Campus in the opulent Pacific Heights area.

While St. Luke's can't complete a fiscal-year cycle without coming up short of cash, the CPMC as a subsidiary of Sutter Health earns tens of millions of dollars in net income annually, much of which is sent to Sutter's home office in Sacramento. In 2003, for instance, the CPMC transferred $118 million in net income — the money remaining after expenses are covered, which any other business would call profit — out of the city. Other ailing Sutter-owned hospitals around the state receive inflows of money from Sacramento, such as a Santa Rosa medical center that got $16 million in 2003, according to documents Sutter must provide to the state.

"In good times, affiliates share a portion of their revenue in excess of their expenses to help strengthen the network through this shared balance-sheet approach," Sutter spokesperson Karen Garner told us. "And in times of need, our affiliates can count on the network to help ensure that those services can continue to be available to their local communities."

But Sutter has announced that it plans to close part of the money-losing Sutter Medical Center of Santa Rosa, which faces high seismic retrofit costs, fueling concerns that something similar will happen at St. Luke's. Sutter also last year moved to sever ties with Marin General Hospital and wash its hands of a costly needed retrofit there. An acute-care facility in San Leandro that loses money may soon be closed as well, as locals there learned just this month when a Sutter employee leaked the news to the San Leandro Times.

"CPMC plans to stop serving unprofitable areas, ignoring their obligation to the community," Helen York Jones, a union steward of CPMC employees, said at a July rally outside St. Luke's. "How can they be entrusted with a large share of the area's health care system?"

For a supposedly nonprofit chain of hospitals, Sutter Health is very profitable, having one of its best years in 2006. Its net income from operations amounted to more than $500 million, an increase of 33 percent from the previous year, which its execs attributed to the company's outsize investments. Sutter controls more than two dozen medical centers throughout California and one located in Hawaii.

The company's mammoth $2 billion investment portfolio brought the company $159 million in returns last year. Sutter's CPMC subsidiary also benefited from more than $50 million in local, state, and federal tax breaks during 2005, according to figures maintained by the San Francisco Department of Public Health.

Meanwhile, Sutter has announced plans to spend $1.1 billion fully replacing facilities in Sacramento and San Mateo. In fact, the company broke records in June when it acquired state-backed bond financing of $958 million — which essentially amounts to a low-interest, tax-free loan — which it intends to use for seismic retrofit projects at several of its hospitals across the state.

But according to state records, the company doesn't intend to use any of the loan money for retrofitting the St. Luke's campus, part of which the state has concluded poses "a significant risk of collapse and a danger to the public after a strong earthquake," according to state structural ratings.

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