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Publication Date: Wednesday, September 25, 2002

Critical condition: Sequoia Healthcare District defends its community mission as political foes aim to pull the plug on it Critical condition: Sequoia Healthcare District defends its community mission as political foes aim to pull the plug on it (September 25, 2002)

By Renee Batti

Almanac News Editor

The civil grand jury frowns upon it. A three-strong slate of candidates for public office wants to dissolve it. Many people living within its boundaries don't even know its name.

It is the Sequoia Healthcare District, established by voters to build and operate a community-based, publicly funded hospital some 56 years ago. The district through the years has not attracted much attention among residents of the communities it encompasses -- Menlo Park, Atherton, Portola Valley, Woodside, Redwood City, San Carlos, Belmont and nearby unincorporated areas -- as it administered Sequoia Hospital in Redwood City. But today, it's a different story, thanks to the release last spring of a San Mateo County Civil Grand Jury report.

That report sharply criticized the district for continuing to receive property tax revenue even after selling the hospital in 1996 to the private, nonprofit Catholic Healthcare West (CHW), which has operated the hospital since then. Since the report was released, a number of critics have emerged -- including the majority of the nine candidates running for three seats on the district board this November.

Although health-care district officials have not welcomed the tenor of recent critiques by some in the press and public -- a barrage of criticism by a public that pretty much ignored the district's business over the years -- the new scrutiny on Sequoia and its role in the community is a healthy development, some say.

A proper discussion, they say, would include how the world of health care in California has changed over the years since the hospital was founded, and the role public oversight plays, or should play, when a private company takes over a public enterprise whose first priority was the public's interest.
Are taxes needed?

When the grand jury issued its report, some district residents said they were not even aware that the district was still receiving tax money. The grand jury recommended that the district, even if it continues to exist, stop receiving its portion of the property taxes collected and distributed to local districts, cities and the county.

That recommendation was well-received by a number of residents, who argue that the district was formed in 1946 by voters to use tax revenue to construct and operate a hospital. Because that need disappeared with the sale of the hospital six years ago, taxpayers should no longer have to support the district, they insist.

Five of the district board candidates advocate taking the matter one step further: They say there is no need for the district to exist at all, and that it should be dissolved. All members of the Libertarian Party recruited by local Libertarian leader Jack Hickey or by the state party, they vow to work toward that end if elected. Three of the five, including Mr. Hickey, have formed a slate.

The task of dissolving a hospital district could be initiated by the board, but would also require a separate vote by the public, according to Martha Poyatos of the Local Agency Formation Commission (LAFCO), which has jurisdiction over certain aspects of special districts.

But because the primary stated goal of the Hickey slate is to dissolve the district, some see the November election as a critical one for Sequoia: A victory for the Hickey slate would be a sign residents would also vote to dissolve the district when the matter reaches the ballot.

Is the district needed?

Mr. Hickey firmly states that if he is elected he will "dissolve the district, and my board position thereon, so I might pursue more useful activities."

But supporters of the district, including incumbents Arthur Faro and Dr. Gerald Shefren, say the board's activities are useful -- to the community in general and to the well-being of the hospital that provides emergency-room and other important health services to district residents.

Mr. Faro and Dr. Shefren are running for re-election; the third open seat was held by Cecilia Montalvo, who resigned in July. The board has five seats.

The district, supporters argue, provides public oversight of the operations of the now-private hospital -- a provision written into the September 1996 sales agreement between the district and CHW. And with its tax revenue (about $4.5 million in fiscal year 2000-01) and its rental and investment income (about $5.1 million in the same period), the district has been able to give substantial grants to nonprofit groups that provide a range of health services to the community.
Public money for private hospital

The district also has provided about $11 million in grants since 1997 to Sequoia Hospital or its nonprofit foundation, making it possible for the hospital to upgrade its maternity ward and other care units, and purchase new, technologically advanced equipment.

While patients have no doubt benefited from the upgraded equipment and facilities, the taxpayers have been done a disservice by having their money spent on a private facility or given to nonprofit organizations, critics say. "The district has become a philanthropic organization, disbursing tax money to charities," Mr. Hickey says. "Taxpayers -- a.k.a. the people -- should decide where to donate their hard-earned assets."

And Harland Harrison, who along with Warren Gibson is also part of the Hickey slate, says it is "wrong to spend public money to improve private property."

According to the 1996 sales agreement, the hospital, not the district, is responsible for "all costs and expenses related to the carrying out of the business of (the hospital)," including "costs for maintenance or replacement of property, plant and equipment."

But that section doesn't preclude the district from paying for such things, says Mr. Faro, who chairs the district board and was Sequoia Hospital's CEO before it was sold. "We want to see the hospital survive," he says. "We don't have to do it, but we may do it."
The district's mission

Giving grants to the hospital is no different from awarding them to the nonprofit groups the district supports, Mr. Faro says. The district's charge, he says, "is to make sure health care is available" to the community.

Dr. Shefren agrees, and states that "the district board has identified a number of programs and services provided by the hospital as worthy of financial support" by the district. Noting that "one of the important functions of the district is to ensure access to health-care services," he says that without funding support by the district, "residents would not have access to those services within the district."

District funds were critical to keeping the hospital afloat for a time after CHW bought it, says board member Malcolm MacNaughton, whose seat is not up for election. "The hospital was so far under water for about three years after it was sold," he says, adding that "if there hadn't been some support for some services ... (the hospital) certainly wouldn't have remained the kind of hospital the community wants and expects."

Glenna Vaskelis, Sequoia's CEO since 1996, says the situation was "quite shaky when we took over," noting that the hospital was $29 million in the red at the time. Without district support in the form of grants, many of the upgrades in equipment and care units would not have been possible.

Mr. MacNaughton bristles at the tone of the grand jury report, saying, "The grand jury was sort of sniping at us" and implying that the district was "doing something wrong." But the grand jury focused on policy issues, and it is up to the community and its elected officials, not the grand jury, to set policy, he says.
No tax relief

There was much talk after the grand jury report was released that the district should not receive tax revenue, which would lead to tax relief for district residents.

But Ms. Poyatos of LAFCO notes that taxpayers would see no drop in taxes. Because of a complicated state formula for tax distribution, the tax burden would remain the same even if the district refused its relatively small share. But the money the district was entitled to would be distributed among the other county districts and cities that also share the property-tax revenue.

After the release of the grand jury report, county Supervisor Rich Gordon said he fielded some criticism from residents about the Sequoia district's continued financial support by taxes. He and Supervisor Mike Nevin began looking at alternative ways the district could spend the tax money that might satisfy critics and provide a major public benefit.

Since that time, the district has authorized grants -- $1.3 million annually for five years -- for the county's Children's Health Initiative, recently created to ensure health care for all uninsured children 18 and under.

"Supervisor Nevin and I feel that having the district remain in existence, as long as it spends money on health care in a responsible manner, is appropriate," Mr. Gordon said last week. Support of health care for uninsured children, he added, "is a responsible action and a responsible use of the dollars they collect."

But whether the district will continue to receive tax revenue is not a dead issue. The grand jury recommended that Sequoia "request that the county controller's office eliminate the amount of tax apportionment computed for the district" each year; in its response to the report, the district said it will consider the issue.
Oversight needed?

When the district was struggling with the question of selling the fiscally drowning hospital in 1996, it asked for bids from private entities interested in buying the hospital or operating it with a long-term lease.

The two most serious bidders -- Columbia and Catholic Healthcare West -- each carried a burden of issues of concern to district officials and residents. With CHW, residents were concerned about whether the company would provide adequate family-planning services, or would accommodate women considering or seeking an abortion.

The board heard a range of such concerns during a series of community meetings held to get input from the public. One way of addressing the concerns was the promise that the district would provide public oversight over the private operation of Sequoia Hospital.

"In order to make this sale, we had to go to a vote by (the people of) the district," says Brent Britschgi, a former Redwood City councilman and mayor who was chairman of the district board at the time of the sale. And the public "thought oversight was a good idea," he says. So did he. "Every large organization needs an oversight board. So does the hospital board," he says.

In order to provide oversight, the sales agreement included establishment of a 10-member hospital board. Five members would be appointed by the five-member health-care district board; five by CHW.

At this point, the district board members also serve on the hospital board -- known as SHS. Of the five members appointed by CHW, only one is a CHW employee. The others are a banker and three doctors, none of whom practices at Sequoia.

The SHS board has been "very effective -- a good example of public and private partnership," says hospital CEO Vaskelis. One benefit, she says, is that board meetings are open to the public, which is not the case with private hospitals without a joint private-public board.

While the Libertarian challengers say a private hospital doesn't need public oversight in addition to that provided already by the state and federal goverments, the incumbents and non-Libertarian challenger David Rosner defend the practice. "Oversight by a public body that is elected by voters in the community is very desirable, since it gives the community, through the public body, some say in the hospital's operations and responsibility to the community," Mr. Rosner says.

Oversight is a key issue in the mind of former board member Britschgi in another sense: the need for the public to pay more attention to what its elected representatives on the district board are doing. He said the question of whether the district should continue to receive tax revenue is "very debatable," but, he emphasizes, the public needs to become involved in the debate.
The race is on

While five Libertarian candidates for the district board profess to be in agreement with each other on the pertinent issues concerning the district, two have said they won't actively seek election, but will support the Hickey slate. They are Arthur Bates and Philip Brattain.

A sixth Libertarian candidate, Sonya Sigler, is still a serious contender, she says. An attorney, she says she wants to review the district's charter before she decides on several issues, including whether the district should be dissolved.

Mr. Rosner says he is running for a board seat because "the board has chosen to ignore the recommendations of two county grand juries." (The 2000-01 civil grand jury also issued a report criticizing the district.)

Mr. Rosner is well-acquainted with the most current grand jury: He was a member. Although he agrees that the district should stop receiving property tax revenue, he differs with the Libertarian slate in several ways -- most significantly in that he believes the district serves a valuable function and does not advocate that it be dissolved.
A short history

When the district was formed in 1946 as the Sequoia Hospital District, it was the first such community hospital district in the state, says Sequoia CEO Vaskelis.

The hospital over the years was able to build up its physician staff and services in several key areas, including cardiology. When the hospital was sold, the agreement included special protection for several services, including the emergency room, and cardiology and maternity units, according to Frank Gibson, the district's CEO.

It was about 1994 when the district began seriously "hemorrhaging" and began talking about change, Mr. Gibson says. The health care system in the state "was changing so radically," and small, stand-alone hospitals like Sequoia were imperiled by new reimbursement practices of the increasingly powerful HMOs, he explains.

Jack Burrows, director of consulting services for the Association of California Healthcare Districts, says that other small hospital districts in the state were frantically searching for ways to continue operating during those changing times as well. Larger hospitals and firms such as CHW and Columbia had bargaining clout with HMOs, whereas smaller hospitals "were dictated to" by them, he says.

Today, of the 76 health-care districts in the state, only 47 own hospitals, according to Mr. Burrows. The other 29 either sold their hospitals or have long-term operational leases with private companies, or they have no hospital or skilled nursing facilities in their districts at all, he says.

When the Sequoia district sold its hospital, it retained four facilities that now generate income. The district's total listed assets as of fiscal year 2000-01 totaled about $52.3 million -- a figure that includes property, cash and investments.
Another challenge

Sequoia Hospital faces a major test in the next few years: It must meet a state mandate to seismically retrofit the facility by 2008. A report commissioned by CHW should be finished by the end of the year, but a CHW spokesperson has given a cost estimate of between $76 million and $160 million.

Mr. Gibson says the district is concerned that CHW, which must retrofit more than 20 of the hospitals it owns in the state, may not be able to pick up the entire bill for Sequoia's project, which could involve building an entirely new facility. The district may be forced to use some of its own assets to help, he says.

He says the district's contingency plan makes good sense if the long-term goal is to make sure the hospital survives, and he thinks criticism of it is unwarranted. "We think we're doing good work" in behalf of the community, he says. "We've been good shepherds of the public's money.

"In this day and age, when companies and CEOs are ripping off the public," the district is looking out for "the rainy day we all believe is coming."
E-mail Renee Batti at

Candidate forum

A discussion of Sequoia Healthcare District issues and board candidates' views is set for Thursday, October 3, 7 to 9 p.m., at the First Congregational Church, Euclid and McGarvey, in Redwood City.

The free forum is being sponsored by the League of Women Voters of South San Mateo County.

For information, call 325-5780, e-mail, or log on at


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