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Published on 12/18/1995 All articles from this issue

El Camino Hospital board member relates conflict of interest allegations to state committee

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By Clyde Noel / Town Crier Staff Writer

El Camino Hospital District board member Mark O'Connor offered his version of the ongoing battle for control of the hospital during a Dec. 6 meeting of the state's Assembly Committee on Judiciary in Sacramento. The purpose of the meeting was to discuss conversion of publicly-funded hospital operations to private use and whether existing law assures protection of the public interest.

O'Connor, a physician assistant and co-owner of a medical clinic in San Jose ,has been a vocal critic of the Camino Healthcare management system that allowed public hospital business to be conducted like a private operation. He also has been suspicious of the motives behind the buyouts of the Shoreline and Sunnyvale clinics.

"In my opinion, what occurred with the conversion at El Camino Hospital in 1992 with regards to the stated expected outcomes versus the occurred outcomes is a prime example of Murphy's law: What can go wrong will go wrong," he told the committee.

O'Connor described a series of retreats in the early 1990s that began with senior medical and administrative staff concerned about El Camino's long-term survival. He said some expressed concerns about a possible conversion but because no one presented a cogent rebuttal, the board voted in a new management system by a 4-1 vote Oct. 30, 1992.

He said the board's vote resulted from heavy pressure because of the passage of Senate Bill 1771, which mandated that district transfers would require a popular vote. The district was able to transfer the $278 million public asset to private control without a public vote or a check on the fair market value of the asset.

The lease was signed in December 1992 and the asset transfer included more than $100 million of liquid assets, which include cash, accounts receivable, bonds and pension funds.

O'Connor said the publicly elected district board became the landlord for the new health system. The new private board, alleges, was hand-picked without public input or interviews.

He said administrators portrayed themselves as being accessible to the public. "This has not occurred," O'Connor said. "In three years, no summaries of meetings have occurred. All audited financial statements that were to be reviewed by the district board to assure the new system was meeting its obligations have never been given to us on a timely basis."

In 1992, according to O'Connor, the hospital's 480 physicians were told that an Integrated Delivery System (IDS) would be formed and were given the option to join. If the physicians choose not to join, he said, they were still promised equal access to all insurance plans that the physicians enjoyed and were part of the IDS.

"At present," O'Connor said, "it can best be described as civil war at the hospital in that many of the physicians who choose to be independent now feel they have been entirely excluded from many of the insurance plans and what previously had been an administration that supported all the physician staff was now mainly represented by 200 physicians in the IDS."

Most of those physicians came out of the Sunnyvale Medical Clinic, O'Connor alleged. A deal that is still under review by the IRS was struck between the new health care system and the clinic.

"A real estate transaction occurred where the new system would purchase approximately 3 acres of 30-year-old medical buildings from Sunnyvale Medical Clinic (at 1992 value) for a reported $27 million. That worked out to approximately $350,000 per physician," O'Connor said. "This was paid for (with funds) that a few months before were in the public venue. A supposed additional $100 million is waiting in an escrow account for the actual practices/good will, pending IRS approval. We on the board do not know what will happen to this $100 million if the IRS does not approve the merging of the Sunnyvale Medical Clinic practice with the (Camino) Healthcare system."

O'Connor noted that after citing a conflict of interest with the legal counsel who lobbied to get the law changed, the legal counsel resigned the next day. He also cited a Fair Political Practices Commission ruling that arose from having former CEO Richard Pettingill act simultaneously in both capacities of the board and the new system and he also resigned from the elected board.

But the most important conflict of interest came when the Santa Clara County district attorney's office gave an opinion regarding the El Camino situation. The office ruled that if the board found a conflict of interest as defined by Government Code 1090, any contracts that transferred the assets were void. The board then hired an independent counsel and that counsel found a conflict of interest had indeed occurred.

"It also revealed that the district had entered into what we now call a 'poison pill' lease," O'Connor said. "The independent counsel determined that whether by default or any other means, if the hospital returned to district control, the $100 million liquid assets that initially were transferred would stay with the new health care system, but only the debt that the new Healthcare system developed would be returned to the district, effectively bankrupting it, hence a 'poison pill.'

"The elements of the conflict were that the CEO and the lawyers, when the hospital was still under the district governance, were the same ones that guided the process as government employees, had influence of the process and then financially gained," O'Connor alleged. "They then assumed the same roles as they had in the public entity once it privatized. Thus the conflict."

As a result of these discoveries, the Board has filed a lawsuit asking the courts to declare the leases and the asset transfer void.

"We as a board feel confident we will prevail," O'Connor said. "The health care system board denies conflict and has hired new counsel. The old CEO and law firm have also resigned. I am sure they felt confident in their change of the governance because the changeover was modeled after several other district hospital conversions.

"However, what is interesting to consider is that the contracts of these other hospitals may be voided if they were entered into without proper recognition of the governmental conflict of interest.

"We have requested several documents from the health care system at El Camino but despite publicly stated desire to cooperate with us, so far none of the information has been forthcoming and based on the past lack of disclosure of the system, I hold little hope that cooperation will occur and this will probably be settled in court."