Seismic Compliance of Marin General Hospital

By Diana De Angelis Parnell, MD

Marin General Hospital would be financially better off paying for its own retrofit than incurring the extra debt load due to all of Sutter's seismic retrofit obligations

Mr. Rockey does not state his credentials for making the "factual" statements set forth in his opinion piece, nor does he support his "estimates" of cost; he simply opines on complicated financial matters in connection with an institution (MGH) about which he has no first hand or professional knowledge.

Due to wide variations in dollar amounts by Sutter Corp. for seismic upgrades at MGH, the public District Board hired Mr. Stephen Mayer to evaluate the ability of and impact on MGH and Sutter Corp. to finance their respective hospitals, (MGH as an individual hospital and Sutter Corp. with its 30 hospitals). The public is entitled to know the accurate facts about MGH from a seismic standpoint, from a neutral expert. I refer to the Burr, Pilger & Mayer Report, authored by Mr. Mayer, who has BS and MBA degrees from UC Berkeley and is a founder of a 140+ person accountancy and consulting firm in San Francisco. Mr. Mayer has had extensive hospital experience and regularly advises hospitals on financing issues. His conclusions are very significant, and are contrary to the unsubstantiated speculation by Mr. Dennis.

In 1998, Sutter/MGH stated that the cost of Marin's compliance to 2008 was approximately $1 million. That estimate is now $15-20 million maximum! Sutter/MGH, the lessee, is responsible for the upgrades, not Marin taxpayers. After reviewing the necessary documentation, showing Marin General's strong cash flow and net profit, Mr. Mayer states" "Based on its cash flow, Marin General Hospital could easily pay not only its existing debt, but also the estimated $20 million needed for seismic upgrades at an increased borrowing rate of 50 basis points."

After considering Sutter Corp's debt position of $1.2 billion, and Sutter's commitment to new debt of $450 million for its East Bay hospitals, and Sutter's announced systemwide seismic plan of $400 million more debt to upgrade 29 hospitals other than MGH (which only needs $15-$20 million) -- Mr. Mayer found that "the overall impact of the estimated $400 million of seismic upgrades to the Sutter Health Group will have a significant impact to the ability of the Sutter Health Group to improve its operating results." In other words, once Sutter Health gets into debt to the tune of $400 million more, Sutter's ability to improve financially will be negatively impacted by its debt load, i.e., high payments of interest on debt.

The Mayer Report went on to state that: "Based on the financial covenants in the Sutter master indenture agreement as described in the bond-offering statement, Marin General Hospital could borrow up to $158 million, based on its current cash flow. Moveover, for the past four years the cash flow produced by Marin General Hospital is in excess of its debt service requirements and its fixed asset acquisition by over $5 million. For Sutter Health... this same calculation results in a short fall of $250 million."

With respect to the physical retrofit details, a substantial portion, the west wing, of the Hospital (78 beds), already satisfies the 2030 standards without any seismic work whatsoever. Sometime after the present Lease expires in 2015, and before 2030, the needs of the Hospital must be assessed to determine what further must be done, if any, but it is premature to speculate on this now - from both an engineering and financial standpoint. In the last 15 years, the census at MGH has dropped by more than 50%. With all the changes that are occurring in medical delivery, we are unable to determine at this time what our needs will be 30 years from now.

The real financial concerns should be MGH's obligation to Sutter Corp's eventual debt of $2.5 billion. MGH is obligated for at least 5% of it, (with interest), likely in excess of $500 million or more when interest is added in. Should MGH remain in the Sutter Obligated group when Sutter goes into the debt market for the money Sutter needs to upgrade its other 29 hospitals, Marin will be subjecting its patient revenues to a horrendous debt load - for 29 hospitals which provide no service to Marin residents. The Mayer report is available at the Marin Healthcare District offices.