Settlements & Affiliations

On Sunday, September 22, parties representing both sides of the federal lawsuit Hardin v. Mendocino Coast District Hospital (MCDH), Bob Edwards (former MCDH Chief Executive Officer), Wade Sturgeon (former MCDH Chief Financial Officer), and Steve Lund (former President of MCDH's Board of Directors and current board member) attended a mediation in the San Diego area. At the conclusion of that ten hour session, the mediator drafted a memorandum of understanding (MOU) between the parties settling the lawsuit that had been ongoing for more than two years. Readers can examine the AVA online archives, dating back to at least January, 2017, to find the origins of the allegations of harassment and questionable billing practices brought by then Chief Human Resources Officer Ellen Hardin against MCDH, its top two administrators and the leader of the board of directors. Many other AVA articles subsequent to the beginning of 2017 also reference the Hardin case.

The amount of the settlement, though blacked out in court filings, is presumed to be in the neighborhood between $2.5 and $3 million dollars, with the most precise educated guess placed at $2.6 million. According to a recent filing made by Hardin's attorney, Paragraph 3. of the Sept. 22 MOU states, “The Settlement Sum will be paid by check made payable to 'Ellen Hardin and the Trust Account of the Law Office of Twila S. White.' Appropriate IRS Forms 1099 shall be issued. Plaintiff reserves the option to structure all or a portion of the settlement proceeds into an annuity.”

At this point, the parties are squabbling about whether or not the payment will be made in one lump sum (MCDH's desired method) or doled out in smaller increments, presumably to make Ms. Hardin's tax hit less substantial. Other than that, the lawsuit is a done deal.

When a court case that has begun from extreme adversarial positions reaches a mutually agreed upon settlement, observers are still tempted to ask, “So, who won?” Having been a negotiator for a nascent then fledgling union for several years in the 1980s and 1990s it is tempting to go off on a tangent about “Interest-Based Bargaining” (IBB) vs. “position-based bargaining, but let's leave that to anyone interested in more progressive methods of negotiation investigating those worthwhile topics on their own time.

The Hardin case result might best be called a win-lose-win situation. Receiving more than $2.5 million in a settlement ostensibly makes the former MCDH human resource officer the victor. Obviously, those forced to pay out must be labeled the losers.

However, let's look at Paragraph 1. of the MOU: “MCDH and/or its insurer, BETA Healthcare Group, a California joint powers agreement (hereinafter 'BETA') shall pay to Plaintiff the sum of ____________.” [presumably an amount near $2.6 million]

BETA is covering the coast hospital's losses in this matter up to about $4 million. That means that MCDH is not going to incur an actual monetary loss from its financially stressed coffers other than a possible insurance rate increase in the future.

The next question that may be on some readers' minds: Will this impact the potential affiliation with Adventist Health if the haggling over how Hardin's money is paid out lingers too long? The short answer: another type of mediator will decide whether the Hardin payment comes in one lump sum or not will occur before the year is out.

This takes us to another sticky situation that at this point is more supposition than actual hard fact. At recent town hall forums in which MCDH interim CEO Wayne Allen, Chief of Staff, Dr. William Miller, and board member John Redding have laid out what affiliation with Adventist Health (AH) will look like, there has been talk about a possible roll back of the public vote on affiliation to June, 2020. Up until this past week, the March 3, 2020 election day had been all but cast in stone for a public yea or nay on affiliation.

In addition to hints about the affiliation vote being pushed back to a later date, CEO Allen also has brought up the possibility of MCDH entering into a management contract with Adventist Health during the period leading up to a public vote on the matter. That would require approval of the MCDH Board of Directors then AH would send in its own team to essentially run the day to day operations of the coast hospital. One might think of it as a sort of exhibition season representing part of what AH is capable of providing after affiliation becomes official.

Of course, an AH management team would likely make some quick and potentially painful payroll cuts. In addition, rumor on the street would have it that the first thing to go at an AH run coast hospital would be the labor and delivery department. For those revving up indignation (righteous or otherwise) at that prospect, MCDH plans a November public forum on the future of labor and delivery on the coast. Precise date, time, and setting of such meeting is yet to be determined. 

In the meantime, we can wait and see whether or not the voters of the Mendocino Coast Healthcare District have their say in March or later. Remember that the affiliation deal would first have to be approved by a truncated (three member) MCDH Board of Directors. To be clear about when a special election would occur, the June election mentioned at the affiliation forum is not an option. California election law has changed as of the first of the year in accordance with switching the Presidential primary to March. The first Tuesday after the first Monday in April is available for a special election as is a similar Tuesday in November, 2020. Making a rough guess, the cost to taxpayers of the Mendocino Coast Healthcare District for such a special election could be upwards of fifty to sixty thousand dollars. Of course, Adventist Health might be persuaded to foot that bill. A mail-in ballot procedure would be available in May, 2020, presumably at a reduced rate of expense.

The rumored reasoning behind a delay in the public vote involves hesitancy on the part of AH due to uncertainties created by their operational agreement with St. Joseph's Health to integrate clinical services. That agreement made more than a year and a half ago is still under review by the state attorney general's office for possible antitrust issues.

Where there is one rumor, you can pretty much count on a counter balancing alternative. That has the Adventists still full steam ahead in their desire to make affiliation with MCDH happen as soon as possible.

Full disclosure: This writer has the price of a decaf mocha riding on the outcome of whether or not the public vote occurs in March or later. So come and get me coppers, for betting not on the outcome of an election, but when said election takes place. Perhaps this is one of the signs of the apocalypse or a sign that I need a gamblers anonymous meeting.


The Ruling Against The Adventists

An “October surprise” is a term usually associated with politics. In the current climate, decisions regarding healthcare are about as political as life gets. On October 31, California Attorney General Xavier Becerra provided a Halloween shocker to two of California's bigger healthcare systems, Adventist Health and St. Joseph Health.

Those two hospital networks were anticipating a potentially favorable ruling by the Federal Trade Commission (FTC) in approximately six weeks time, allowing them to continue an operating agreement that shared services at nine different California medical facilities. Instead Becerra dropped a big trick in their candy bag in the form of this statement: “Pursuant to California Corporations Code 5920 et seq, the Office of the Attorney General hereby denies the requests of Adventist Health System/West and its affiliates, and St. Joseph Health System of the proposed transaction between them and creation of the ST Network, LLC.

“In coming to this decision, the Office of the Attorney General has carefully considered the factors set forth in Corporations Code 5923 and concludes among other things, that the proposed transaction is not in the public interest, included but not limited to, having the potential for increased health costs and concerns over access and availability of health care services…”

The ST Network, LLC referenced in the Attorney General's decision refers to Sacred Trust Network. It included nine hospitals and two home health entities. The nine hospitals are Adventist Health Clear Lake, Adventist Health Howard Memorial, Adventist Health Ukiah Valley, Adventist Health Vallejo, Adventist Health St. Helena, Queen of the Valley Medical Center, Santa Rosa Memorial Hospital, St. Joseph Hospital of Eureka, and Redwood Memorial Hospital of Fortuna.

Readers interested in a full length explanation for the formation of the network can access an online link at: 

https://www.oag.ca.gov/sites/all/files/agweb/pdfs/charities/nonprofithosp/adventist-sjhs-hia-r2-sthelena-clearlakevallejo-061419.pdf.

Boiled down, the thesis statement might be, “The Sacred Trust Network seeks to create a partnership that recognizes and builds upon Adventist Health and St. Joseph Health’s faith-based traditions and common values of dignity, excellence, and service. Adventist Health and St. Joseph Health believe there is significant opportunity to provide healthcare for patients closer to home by achieving the following: Concentrating on centers of excellence; creating a broader and deeper value-based provider network; integrating clinically across the respective hospitals and physician groups; improving quality, stabilizing volume, and reducing costs; expanding the provision of managed Medi-Cal services; and collaborating on health information sharing and care management.”

Later on Halloween, St. Joseph's and Adventist Health issued a joint statement in reply to the Attorney General's ruling. “Today, the Office of the Attorney General within the California Department of Justice (CA DOJ) issued a letter denying the proposed joint operating company between Adventist Health System and St. Joseph Health System, a proposed agreement that would have integrated clinical activities and services through a new joint operating company. Our proposed venture would have combined our services across clinics and facilities in Humboldt, Mendocino, Sonoma, Lake, Napa and Solano counties to lower the cost of healthcare and improve quality and access to care. The agreement has been under the regulatory review process since Spring, 2018.

“Both Adventist Health and St. Joseph Health are very disappointed in the outcome of this decision. Our intent has always been to better serve our communities, increase access to services, and create a stronger safety net for families in Northern California.

“At this time, our organizations will need to take a step back and determine implications of this decision. The well-being of our communities remains our top priority.”

Obviously, the legal decision impacts Mendocino County's medical facilities in Ukiah and Willits. Perhaps somewhat ironically, one of the reactions from Adventist Health will be to fast track the potential affiliation with the Mendocino Coast Healthcare District. This means that the anticipated FTC ruling, that might not have come until December, will not delay a public vote until April or May. Rather it is likely that vote will now coincide with the Presidential primary in early March, 2020.

Only two steps remain before ballot language can be delivered to Mendocino's County Clerk-Recorder. A term sheet agreement between Adventist Health and the Coast hospital followed by approval of a majority of the Coast healthcare district's board of directors (BOD). Due to recusals, that BOD vote will be made by only three members, Steve Lund, Amy McColley, and John Redding.

Redding is chair of the hospital's finance committee. The facility's September financial statement shows the Coast hospital with a net loss of $467,000 for that one month alone. Two of its three bond covenants are out of compliance. The only covenant above the minimum standard is “Days Cash on Hand.” That is only compliant by adding what is essentially a set aside savings account (the Local Agency Investment Fund or LAIF) into the equation. Without the LAIF money Mendocino Coast District Hospital has about two week's worth of cash with which it can pay its creditors.

The $467,000 September loss contrasts with what was budgeted ahead of time as a $92,000 loss. Adventist Health will not provide a panacea in affiliation. Anywhere from 20-50 (out of roughly 300) Coast hospital employees may well lose their jobs., but the downward economic spiral continues there. Affiliation with Adventist Health is the only way out at this juncture.

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