Kadlec Health System's board voted unanimously Wednesday to withdraw litigation seeking to revoke state approval for Kennewick General Hospital's proposed new Southridge hospital.
"It's what's best for the community right now," said Davidson Wood, Kadlec board chairman. "The community has become very divided with letters, phone calls and so forth."
The two hospitals have been battling for months over their dueling expansion plans. Each has sought to add beds, saying the Tri-Cities' booming population is driving their plans for growth.
But any hospital needs a state certificate of need before it can expand, and the formula applied by the state to determine need likely means both hospitals won't get all the beds they want.
The competition resulted in Kadlec filing two legal actions trying to overturn the state-granted certificate of need for Southridge, and a flurry of settlement offers exchanged between the two hospital boards in the last two months.
"It was apparent to us that the two sides were too far apart to settle," Wood said of the decision to withdraw the litigation.
Vic Johnson, president of the Kennewick Public Hospital District board, said he's glad Kadlec is dropping the litigation but wants assurance it won't take further steps to block the Southridge hospital.
"The objective right now is to make sure we don't have any more interference with our Southridge project so we can proceed like we were six months ago. ... The dismissal ... was certainly a good step, but nothing says you can't file (litigation) tomorrow."
The conflict started last fall when Kadlec applied for a certificate of need to add 114 beds to its Richland hospital, and KGH applied for a 25-bed expansion at its existing campus right on Kadlec's heels.
Those 25 beds wouldn't be added until after KGH builds the $112 million Southridge hospital and moves 74 of its allotted 101 beds there, leaving 27 at the Auburn Street campus.
The additional 25 would bring the bed count to 74 at the new hospital and 52 at Auburn Street, a total of 126.
At the time KGH got its preliminary certificate of need for Southridge, the hospital only proposed to move 74 beds to the new hospital and had no further expansion plans on the table.
Kadlec is licensed for 188 beds, but officials want to build the remaining four floors of its 10-story River Pavilion tower and add 114 beds there, bringing it to 302 beds.
Kadlec cried foul when KGH asked for 25 more beds because KGH officials hadn't disclosed expansion plans for Auburn Street in the Southridge application.
Kadlec officials also were upset KGH sent a letter to local residents March 3 urging them to writecomments in support of KGH's request for the 25 beds at Auburn Street.
The letter claimed Kadlec's growth plan would cost more than KGH's and be "detrimental to choice, quality and cost" of health care.
So Kadlec officials sent their own letter to the state Department of Health's Certificate of Need program, claiming the agency staff never should have approved the Southridge plan.
Kadlec officials alleged it was clear the Southridge project and addition of beds at Auburn Street all were a single expansion plan and should have been on one application, not two.
Kadlec also filed two legal actions -- one an appeal to the state health department's Adjudicative Services Unit and the other asking a Thurston County Superior Court judge to revoke the Southridge approval.
KGH responded by saying it only applied for the 25 Auburn Street beds because Kadlec had proposed to grab all of the beds the community will need for the foreseeable future, thus preventing later expansion by KGH.
Kadlec in its appeal to the state also claimed KGH overstated admissions, occupancy and rates of growth in its certificate of need applications.
KGH denied those allegations, saying Kadlec took the numbers out of context.
Kadlec's appeal to the health department was dismissedJune 30.
That left the Kadlec board with a settlement offer from KGH to consider when it met Wednesday.
KGH had submitted the offer June 18 asking Kadlec to drop the litigation, withdraw a letter to the Certificate of Need program asking to overturn the Southridge approval, withdraw a public records request to the federal Department of Housing and Urban Development for information about KGH's efforts to obtain HUD financing for Southridge and agree not to interfere in development of Southridge.
In exchange, KGH officials said they would withdraw the 25-bed application.
Wood said when the board met Wednesday, members just wanted to be done with the fight.
"As far as I'm concerned, we just got out of the fray," he said.
Kadlec isn't planning to withdraw the letter or public records request, but will withdraw the Thurston County litigation. It also has retracted its request that KGH drop the 25-bed application, Wood said.
Johnson said even if this is the end of the fight, it may be awhile before the scars fade.
"The first thing we have to do is repair any damage done," he said.
KGH will reassess what needs to be done to get Southridge moving again, including resuming talks with HUD about financing.
KGH hasn't yet applied for financing because the hospital and HUD wanted all necessary information compiled and any problems resolved before the application is submitted.
"That would be our first order of business," Johnson said. "You can look at HUD as our underwriter, so if you have an underwriter who is skittish about the existence of complaints and lawsuits, you have to make sure all of those things are cleared."
-- Michelle Dupler: 582-1543; firstname.lastname@example.org