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In 1985, the Peninsula Hospital District Board, an elected public board, executed a lease with Mills-Peninsula Corporation, a not for profit corporation now known as Mills-Peninsula Health Services, leasing the Peninsula Hospital for 30 years, subject to renewal options. The execution of this lease merged two previously separate hospitals, Peninsula and Mills, under one management group, the Mills-Peninsula Corporation. This lease changed the role of the Peninsula Hospital District Board from that of an operator to a landlord. The lease also turned over seven parcels of property owned by the Peninsula Hospital District and $16 million in cash and equivalents to the Mills-Peninsula Corporation and subsidiaries. In return, Mills-Peninsula Hospital Services agreed to pay off the Peninsula Hospital District's $20 million in outstanding bonds and operate the hospitals. When the bonds were paid off in 1987, an amendment to the lease was written requiring Mills-Peninsula Health Services (lessee) to pay $1.785 million in rent each year, either in cash or in the form of capital equipment or improvements to the Peninsula Hospital District as landlord (lessor). In 1995, Sutter Health took over the management of Peninsula Hospital under an agreement with Mills-Peninsula Health Services. In January 1997, the Peninsula Hospital District Board, now known as the Peninsula Health Care District Board, hired an attorney to review the lease. In June 1997, the Peninsula Health Care District (PHCD) Board filed suit against Mills-Peninsula Health Services (MPHS) for alleged deficiencies in the original lease. Both Sutter Health and Mills-Peninsula Physicians Group joined in the defense against the lawsuit filed by the PHCD. The San Mateo County 1997 Grand Jury recommended three alternatives to the filed lawsuit: mediation or arbitration; both parties in the filed lawsuit re-examine their existing positions in preparation for negotiations; all parties enter into good faith negotiations to resolve all issues. The San Mateo County 1997 Grand Jury requested that the status of the litigation be further investigated by the 1998 Grand Jury. The 1998 Grand Jury held additional hearings. Circumstances prevented a report from being published. The 1999 Grand Jury received new complaints. |
The original litigation by the PHCD alleged a conflict of interest at the time the merger occurred. The San Mateo County Superior Court ruled against the PHCD. The decision is being appealed. No date has yet been set for hearings on this appeal. The PHCD in 1997-1998 incurred legal expenses in excess of $582,000. The 1998-1999 estimated legal expenses were in excess of $401,000. Attempts were made in 1998-1999 to mediate a solution to the legal dispute. The cost of preliminary mediation attempts were in excess of $100,000 as of September 1999. Amounts paid to date on all such matters are in excess of $1 million. PHCD, MPHS, Mills-Peninsula Physicians Group and Sutter Health formed a long range planning committee to meet without the use of attorneys. Prior to this meeting, a confidentiality agreement was drafted and agreed to by all parties. The 1999 Grand Jury reviewed the PHCD's audited financial statements for the past five years, commencing July 1, 1993, through June 30, 1998. These statements and interviews with board members and the PHCD auditor disclosed the following information since the commencement of the lease:
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The San Mateo County 1999 Grand Jury recommends that the Peninsula Health Care District Board continue to attempt to settle differences between the parties to the lawsuits. |
The San Mateo County 1999 Grand Jury recommends that the Peninsula Health Care District Board look into their investment policies and change from totally short term investments to a combination of short and medium term maturity dates in order to achieve higher returns on these investments. |
The San Mateo County 1999 Grand Jury recommends that the Peninsula Health Care District Board suggest that the hospital review their salvage procedures to ensure that the value of these assets are fully realized. |
The San Mateo County 1999 Grand Jury recommends that the Peninsula Health Care District Board requests quarterly financial reports and annual audits from the lessee, Mills-Peninsula Health Services, dealing with the hospital operations, be placed on the agenda for regular board meetings under the consent calendar. |
The San Mateo County 1999 Grand Jury recommends that the San Mateo County 2000 Grand Jury monitors the above recommendations to ensure their implementation. |