SUTTER HEALTH: The Quest for Growth, Efficiency

      Tracing Sutter Health from its modest beginnings as a "tiny infirmary" in 1839 to its current status as one of the largest 10 integrated delivery systems in the nation, as well as the "dominant health care force" in Northern California, California Medicine documents the health care giant's evolution. Currently, Sutter claims "26 hospitals in Northern California and one in Hawaii; medical groups representing 5,000 physicians; a regional network of home health, hospice and occupational health services; eight cancer centers; five long-term care facilities; eight research institutes, a handful of for-profit subsidiaries and nearly $2.9 billion in annual revenues." In the 1970s, Sutter was a two-hospital system when a "series of scandals and investigations erupted" over the alleged sexual misconduct of an anesthesiologist. Sutter was threatened with the loss of its license, the hospital's executive director resigned and bylaws were re-written. Accelerated growth began in 1980, when former Kaiser Foundation Hospital head Pat Hays was brought in to lead the system, and "launched a strategic planning process that produced a mission statement emphasizing 'a proactive philosophy of constant, controlled growth.'" Hays began buying up "beleaguered community hospitals" -- adding four by 1985, as he recognized that "broad geographic spread of facilities would make Sutter more attractive to large managed care plans" and "give the system greater bargaining clout." Sutter also aligned aggressively with large physician practices, recognizing that "doctors act as the medial traffic controllers who largely determine which hospital their patients go to." By 1993, Sutter owned 14 facilities and Omni Health, an HMO that had been created by a group of doctors. But by 1994, the board had tired of Hays' "aggressive style and relentless pursuit of acquisitions" and ousted him. Following in his footsteps is the system's current leader, Van Johnson, a college friend of Hays' who had been brought in as a regional administrator, and who has expanded Sutter even further. Johnson noted, "There was never a grand design for Sutter to become Northern California's major system. The metamorphosis wasn't for power; it wasn't for ego. It was to fund our mission of helping preserve health care organizations in their communities."

Satiating Sutter
      In 1996, Sutter merged with the California Health Care System, which owned four Bay Area hospitals -- doubling its bed count. This was followed by another splurge of acquisitions in the last three years that added six more hospitals to the system, plus a merger deal with Sutter's "traditional nemesis, Alta Bates." While teaming up with Sutter "has clearly meant the difference between survival and closure" for many hospitals that benefit from an infusion of skilled management, new facilities and purchasing discounts, "[n]ot everyone in the Sutter family is happy." Dr. William Kirby, former chief of staff at Sutter Auburn Faith Hospital, said, "Sutter is the worst thing that's ever happened to this hospital. They are evil and care about nothing except the bottom line." Marin General and Mills-Peninsula hospitals have sued Sutter to dissolve their lease agreements, alleging "Sutter has unfairly usurped their authority, not to mention their earnings." The pending merger of Alta Bates Medical Center in Berkeley and Summit Medical Center in Oakland has drawn "intense scrutiny, even hostility" from critics, who note such a merger would grant Sutter control over one-third of the local market. The Federal Trade Commission is delving deep before granting approval to the merger, posing "extremely detailed and wide-ranging questions." Other Sutter critics allege the system has contributed only a paltry sum -- $208 million in 1998 -- to charity care, barely maintaining its non-profit status. Currently, the Health Care Workers Union, Local 250, is running a Web site, "The Sutter SCAM Sheet," which offers up "every tidbit of dirt about a Sutter facility that has ever seen the light."

Bigger is Better
      Sutter, however, holds that is has kept community hospitals strong, thereby ensuring residents continued access to local health care, and has seen its hospitals add 1,000 full-time positions since joining the system. Dispelling accusations of monopoly, Sutter notes that it owns just nine of the San Francisco Bay Area's 62 hospitals, representing just 3,056 beds. Perhaps its proudest accomplishment, however, was Sutter's successful standoff with Blue Cross of California, resulting in higher rates that trickled down to other hospitals as well. Wanda Jones, president of the San Francisco-based New Century Healthcare Institute, said, "Everyone thinks virtue comes in small packages. But when you look at the facts in health care today, that notion fails to persuade." Johnson, who has sold off several skilled nursing facilities and plans to close Sutter's HMO, Omni Healthcare, added, "For the next three or four years ... we've got to concentrate on linking everything up and getting economies of scale and making this work as a system" (Weber, June/July 1999 issue).