June 30, 2016
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Peninsula Health Care District
Peninsula Health Care District
Jury finds that the Peninsula Health Care District (PHCD) Board
of Directors, in its pursuit to build a new hospital, is not able
to negotiate terms of a new agreement in the best interest of
the District's residents.
Medical Center must be rebuilt to meet the seismic standards mandated
by the State of California. PHCD and Mills-Peninsula Health Services
are currently negotiating terms of a revised agreement however,
two of the five PHCD board members have conflicts of interest
and therefore cannot vote nor directly participate in the negotiations.
Issue: Is the Peninsula Health Care District fairly representing the interests of the residents of the District in its negotiations for the terms of building and operating a new hospital?
of California has determined that the Peninsula Medical Center
could sustain significant damage in an earthquake that would render
the hospital inoperable. In order to meet California state earthquake
safety standards, Peninsula Medical Center must be rebuilt or
close in 2013.
Mills-Peninsula Health Services (MPHS) operates Mills Health Center and Peninsula Medical Center. MPHS leases from the Peninsula Health Care District (PHCD) the land on which Peninsula Medical Center is situated. MPHS is a private, not-for-profit corporation that is a member of the Sutter Health (Sutter) network. At the end of 2001, Sutter had cash reserves of $258 million, and is currently in a position to issue bonds to fund a new hospital in Burlingame.
MPHS has an
independent, self-appointed, 21 member Board of Directors that
manages the business affairs of Mills Health Center and Peninsula
Medical Center. As reported by Modern Healthcare magazine, MPHS
was named one of the top 100 hospitals in the United States for
the years 1998 and 1999.
PHCD, organized in the 1940's, has a five-member publicly elected Board of Directors. PHCD's mission includes acting as the lessor of Peninsula Medical Center, responding to local health needs, and allocating resources for programs that enhance the health of the District's residents. Annually, PHCD contributes to the community by awarding grants to a variety of agencies and programs.
agencies and programs funded in fiscal year 2001-02 include: Mills-Peninsula
Senior Focus programs ($290,000); Samaritan House ($150,000);
Youth and Family Assistance ($60,000), and; the College of San
Mateo Nursing Program ($150,000).
year 2001, PHCD collected $2.8 million in property tax revenue.
At fiscal year end 2001, PHCD had $12 million in cash reserves,
and its property assets were estimated by PHCD to be approximately
Peninsula Medical Center buildings and underlying property which
encompasses approximately 26 acres. In 1985, MPHS and PHCD entered
into a 30-year lease, which is subject to renewal options. Concurrent
with the lease transaction, Peninsula (Burlingame) and Mills (San
Mateo) Hospitals merged to form Mills-Peninsula Hospitals in 1985,
and subsequently divided their services in order to be more effective
in delivering health care. As a result, Mills Health Center was
re-designed to primarily serve in-patient rehabilitation and out-patient
services including minor surgery, walk-in emergency room service,
rehabilitation and diagnostics. Peninsula Medical Center was designated
as the primary site for acute-care, emergency services, and to
house MPHS management offices.
new hospital is required to be constructed, MPHS is renegotiating
all terms and conditions of the 1985 lease with PHCD. Under the
current agreement, PHCD does not have the authority to make operational
or policy decisions.
plans for a new hospital have been developed and are currently
under review by MPHS and PHCD. The cost to rebuild the hospital
is estimated to be over $350 million. Construction should be completed
2000, a letter of intent for a revised agreement was signed by
PHCD and MPHS outlining the following terms to be negotiated:
In June 1997,
PHCD Board of Directors filed suit against MPHS for alleged conflict
of interest in the original lease. Disposition of that suit in
favor of MPHS is probably assured by the recent decision of the
California Court of Appeals in Marin Health District vs. Sutter
Health, et al, 2002 Cal. App. Lexis 4981, which under a very similar
set of facts affirmed the trial court's determination that the
suit was barred by the statute of limitations.
Grand Jury finds there is widespread public acceptance that Peninsula
Medical Center is a needed facility and that it is in the community's
best interest to rebuild it. The capital funding required to build
a new facility and the oversight required to manage its day-to-day
operations are extensive, and beyond the scope of service PHCD
is currently able to provide. To date, the arrangement among Sutter,
MPHS, and PHCD has had a positive affect on community health care,
and the current lease arrangement has served the residents of
the District and the larger community well.
terms being discussed are varied and complex, and require a comprehensive,
qualified team to negotiate the new agreement. The current PHCD
Board of Directors does not have the expertise nor experience
to negotiate all of the terms. Some of the items being negotiated
to the November 2002 election, only two directors of the PHCD
were able to participate in negotiations with MPHS, as the remaining
three directors were deemed by the Fair Political Practices Commission
(FPPC) to have a conflict of interest. As a result of the election,
there will be three non-conflicted members of PHCD Board of Directors,
and two directors will continue to be conflicted. Although one
of the conflicted directors is in the process of appealing the
FPPC ruling, a successful appeal will still leave one conflicted
While PHCD and MPHS would like to proceed quickly with negotiations to finalize an agreement, the Grand Jury believes that a deliberate approach is prudent to ensure that PHCD is equipped to thoroughly consider and negotiate all terms of the agreement.
an important role in its support of health programs in the community.
To continue to serve the residents of the District, Peninsula
Medical Center must be rebuilt to meet the seismic requirements
set forth by the State of California.
to accomplish the construction of Peninsula Hospital and to
maintain MPHS as a business partner, the existing lawsuit between
the PHCD and MPHS must be resolved, and the 1985 lease amended
according to the letter of intent signed in 2000.
It is not
feasible for PHCD to manage the operations of Peninsula Medical
Center. MPHS is a viable business partner, and Sutter provides
effective financial support and continued management support
for MPHS and its two healthcare campuses.
MPHS is managed by Sutter, services that are offered by MPHS
could potentially be consolidated and moved to other Sutter-affiliated
hospitals. If this was to be the case, and should Sutter close
any of its hospitals outside San Mateo County, PHCD residents
could be adversely affected by the scope of services offered
majority of the Board of Directors will be able to participate
in negotiations with MPHS, the community would be better served,
on the most important issue to face PHCD, if all five directors
could have input on negotiations for a new agreement. This could
be accomplished if PHCD hired consultants, experienced in healthcare
issues, to negotiate terms of a new agreement on behalf of the
entire PHCD Board of Directors.
should enter into an agreement with MPHS with fair and reasonable
terms that would best serve the residents of the District.
2. To ensure
that the PHCD Board of Directors is better able to serve the
District's residents, the two conflicted PHCD directors should
immediately resign and PHCD should defer the appointment of
their replacements to the Board of Supervisors as provided by
should negotiate with MPHS for the following:
should request the San Mateo County Board of Supervisors to
sponsor multiple community forums, to be aired on cable television,
for the purpose of educating and orienting the public to the
issues facing PHCD and MPHS as the negotiations proceed.
should ensure that a qualified negotiating team, experienced
in healthcare industry issues, conduct negotiations on its behalf.
the timeframe for securing the financing and commencing construction
is critical, PHCD needs to take into consideration that a fair
and equitable agreement may take time and should proceed with
deliberate speed and care to this end.