California's healthcare governance seems at first glance to be in chaos. Three hospital districts have sued in less than two years to break the leases of their hospitals to private operators.
Yet there is a distinct thread running through the disorder: Attorney Stephen S. Mayne has represented all the plaintiffs.
Some healthcare observers say Mayne is an altruistic crusader who has embarked on a one-man campaign to break unfair leases between naive hospital districts and slick private hospital operators. Others say he has uncovered a legal gold mine for the San Francisco law firm in which he is a partner, Steefel, Levitt & Weiss.
"It looks like they're trying to create a new specialty," said Robert W. Merwin, chief executive officer of San Mateo, Calif.-based Mills-Peninsula Health Services, one of Mayne's latest litigants. The Peninsula Health Care District, just south of San Francisco in San Mateo, sued the system in San Mateo County Superior Court in June.
The suit claims the 12-year-old arrangement between the two parties violated California government code 1090, which bars officials from benefiting from any transactions involving their jurisdictions. Mayne argues that Charles Mason, Peninsula's administrator at the time of the deal, later performed the same job at Mills-Peninsula, therefore reaping a financial benefit.
"It makes no sense. In no merger of institutions do you throw out the entire management team," asserted Merwin, who added that the state code only addresses conflicts between elected officials and companies they operate on the side.
A trial date has not been set.
Mayne is handling another lawsuit, this one filed on July 18 by the Grossmont Health Care District against Sharp HealthCare, based in San Diego. Sharp has been leasing the district's 377-bed Grossmont Hospital in La Mesa, Calif., a San Diego suburb, since 1991. The district also is claiming a violation of state code 1090 because two district employees who negotiated the deal later worked for Sharp (June 30, p. 2).
"This lawsuit is without merit and will only siphon desperately needed dollars away from the hospital's healthcare services and into the pockets of attorneys," said William Renert, M.D., chairman of the Grossmont Hospital Corporation Board, the body that handles the hospital's day-to-day operations for Sharp.
The 56-year-old Mayne, who has practiced in California since 1971, said the cases he's involved in stem from his first successful suit, on behalf of El Camino Hospital District in Mountainview, just south of San Francisco.
Operation of the district's 426-bed El Camino Hospital was transferred to privately operated Camino Healthcare in 1993. But Camino Healthcare had been losing money-
$17 million in 1995 alone-and Mayne was able to return the hospital to district control in January after a year of litigation.
As in the Grossmont and Peninsula cases, he cited a potential conflict of interest in the El Camino case. He argued that Camino Healthcare's executives benefited financially from its 1994 purchase of two medical groups that became part of Camino Healthcare.
The two sides settled out of court, with the district resuming control of the hospital. Camino Healthcare was dissolved as part of the agreement, but the district paid $4.7 million to and arranged a $9 million line of credit for Camino's surviving affiliate, Camino Medical Group, which had threatened to countersue unless it received financing to operate independently (Jan. 13, p. 20).
"It caught a lot of attention; a lot of people followed it closely, and we received several phone calls after that," Mayne said. "If we had not won that suit, I doubt we would have received any inquiries. And I certainly did not see other cases on the horizon."
Mayne believes his litigation stems from the buyer's remorse districts are feeling about the arrangements they have made with private operators.
"In many cases you have a publicly elected board who do not carry with them extensive experience and are heavily dependent on the leadership and directions given by the CEO and general counsel of the district," Mayne said. "Later, when they see those people work for the other side, they ask where their fair, hard representation was."
Industry observers mostly concur with this assessment.
"The governing boards of these districts were left with no meaningful role after the transactions were completed. And as the composition of the boards change, that becomes an issue of unrest," said Vic Biswell, CEO and president of the Association of California Healthcare Districts.
According to Biswell's organization, there are 65 district hospitals in California. Sixteen are leased or managed by private operators.
Steve Valentine, president of the Camden Group, an El Segundo, Calif.-based consulting firm that works with hospitals throughout the state, said he believes such skepticism is more likely to occur in deals involving not-for-profit operators.
"They're often not willing to pony up as much cash as for-profit operators," Valentine said. "The feeling is: `Let's go back; maybe we're worth more.'*"
Indeed, Mayne also is representing the Marin Healthcare District in its legal mediation with Marin General Hospital Corp. and parent Sacramento-based Sutter Health to renegotiate its lease. Mayne claims Sutter's $190,000 annual lease payment to the district for the use of $190 million worth of assets is insufficient.
Marin, based just north of San Francisco in Greenbrae, entered the lease in 1985, essentially surrendering all its assets, including accounts receivable, with no cash upfront, Mayne said.
"This is a district that has an annual election expense alone of $180,000," he said.
But while such grievances are keeping Mayne busy, both Biswell and Valentine have doubts as to whether it will last.
"I think we went through a phase, and the parties now know how to structure these deals," Valentine said.