Faced with an antitrust lawsuit, Sutter Health agreed late last month to affiliate with St. Luke's Hospital in San Francisco and give the struggling facility $55 million in relief.
The affiliation is expected to take effect sometime next year, pending state and federal antitrust approvals.
In less than two years, Sutter has gone from alleged assassin to reluctant savior.
Just 21 months earlier, 225-bed St. Luke's, one of the city's last freestanding hospitals, accused Sacramento, Calif.-based Sutter of trying to put it out of business with unfair business tactics.
"This is a better answer than taking a lot of time fighting in court," said St. Luke's Chief Executive Officer Jack Fries.
St. Luke's will become part of Sutter, which includes 29 other hospitals throughout California, including former St. Luke's rival California Pacific Medical Center in San Francisco.
Under the agreement, St. Luke's will maintain its current management. Sutter will be allowed to appoint two directors to St. Luke's 26-member board. However, while St. Luke's will be able to nominate new trustees, Sutter must approve them.
Sutter will pay St. Luke's $15.5 million in the first year of the affiliation to shore up its finances. It has pledged another $40 million during the next
10 years for capital improvements.
St. Luke's reported net income of $2.3 million on net patient revenue of $80.3 million for the year ended June 30, 1999, according to HCIA-Sachs, a Baltimore-based healthcare data company.
In addition to 613-bed California Pacific, Sutter operates Alta Bates Summit Medical Center, which consists of a 468-bed facility in Berkeley and a 420-bed facility in Oakland; and 395-bed Mills-Peninsula Health Services in Burlingame.
Ironically, it was St. Luke's that accused Sutter and California Pacific of antitrust violations.
In a suit filed in San Francisco County Superior Court in January 1999, St. Luke's said California Pacific was stealing away St. Luke's patients through an illegal exclusive contract with Brown and Toland Medical Group, a 2,000-physician practice based in San Francisco. California Pacific insisted the business arrangement was above board.
Simultaneous with the announcement of the affiliation agreement, both sides announced that they had settled the suit for undisclosed terms, although sources said Sutter paid St. Luke's $10 million to drop the suit.
The case had been scheduled to go to trial on Oct. 23, but both sides agreed to postpone the date to continue with negotiations. Sutter spokesman Bill Gleeson said Sutter and St. Luke's had been engaged in settlement talks since early September.