BG - Lack of Records Exposes Rigged Hospital Bidding

This is a storage area for FACTS that have been found during the two year fight with City Hall for Public Documents. These are being posted for reference and historical purposes only. We encourage any conversations about these documents n "Lakewood General Discussion." Here you will find the Highlight the lie, with the document proven the lie.

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Dan Alaimo
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BG - Lack of Records Exposes Rigged Hospital Bidding

Postby Dan Alaimo » Sat Sep 17, 2016 12:24 am

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By Brian Essi
(Moderator's note: Lakewood Attorney Brian Essi is meticulously researching the back-room deals that resulted in the closing of Lakewood Hospital. He has written extensively about it for the Lakewood Observer where this article first appeared. He concludes that this is an example of "bad government." Citizens will have their chance to vote on the ordinance which authorized the deal in a referendum on the November ballot. An "against" vote is to nullify the ordinance that passed last December. A "for" vote supports it.
To clarify: The byline at the top of this article defaults to the person who entered the copy. In this case, Brian Essi is the author of the article, while Dan Alaimo entered the story, provided some editing as well as the summary information at the top. - D.A.)

Highlights from the following article:
• City failed to test market for hospital value
• City gets less than $20M vs. estimated $120M fair market value
• CCF gets $70M in wind-down costs, but documentation is unavailable
• CCF was the only “bidder” allowed to “bid” on an family health center and “bid” on hospital assets to liquidate the hospital

Key quotes:
“The city bears no written record of the Cleveland Clinic’s or LHA’s wind-down costs, although much information was exchanged during the parties’ negotiation of the master agreement.” – Kevin Butler, Law Director.
“LHA had no interest in reopening the process for a new [bid process] nor in allowing City Council to wrestle the process away from LHA.” – Councilman David Anderson
The Master Agreement had been structured in such a way that the anticipated voter referendum to challenge it could not stop the agreement from proceeding even if it passes... it was the city’s legal position that it would ignore the will of the people if the referendum passes. – Kevin Butler, Law Director


Regardless of where you stand on the hospital issue, it is hard not to argue that the whole hospital debacle represents bad government.

It has been established that Lakewood Hospital was an asset owned by the city that had an estimated fair market value of $120M (FMV). It is a given that you cannot obtain FMV if you don’t test the market. Our city government failed to test the market. (Source: estimates based on Lakewood Hospital Association and Subsidium numbers.)

On December 10, 2015, the terms of the Master Agreement were announced. Per that agreement, the city would receive money and property estimated to be only $20M. $5.7M of that amount is the estimated value of the empty gutted hospital building and land the city gets in the deal which is subject to a restrictive non compete covenant and parking lot rights in favor of CCF. So the $5.7M estimate is likely too high and the city will likely get much less than the estimated $20M.

The Master agreement gave the Cleveland Clinic (CCF) $70M of the Hospital’s value as a “dissolution distribution” (cash, accounts receivable, bed licenses, equipment, fixtures, a non-compete covenant, discounted prices of buildings and land, and the balance of the $50M investment portfolio, etc.) in exchange for the “risk” that CCF might have to pay some “wind down” expenses.

On December 13, 2015, Summers told the Plain Dealer that "$12 million of the hospital's $78 million in wind down costs would be borne by the Clinic.” That same day, I made several records requests seeking records of any estimated wind down costs.

The Master Agreement was passed on December 21, 2015, but there was no public discussion at all concerning the estimated wind down costs.

On January 4, 2016, I spoke at the City Council meeting and asked for information on the wind down costs. City Hall remained silent.

On February 3, 2016, the city’s Law Director Kevin Butler responded to my records requests made back on December 13, 2015 by stating “The city bears no written record of the Cleveland Clinic’s or LHA’s (Lakewood Hospital Association) wind-down costs, although much information was exchanged during the parties’ negotiation of the master agreement."

On February 4, 2016, CCF closed the hospital cutting their costs and losses to nearly nothing. The Master Agreement reflected that the hospital was losing less than $500K per month in 2015 so it's hard to imagine they lost $1M in closing it in less than 2 months.

On March 7, 2016, I spoke again at the City Council meeting asking for details concerning the wind down costs. City Hall remained silent again.

So our city official gave $70M of value to CCF based upon “information exchanged” in conversations behind closed doors concerning $78M in undocumented estimated expenses, and they won’t tell us what those expenses are.

What could be worse government than that?

At a special council meeting on February 11, 2016, Law Director Kevin Butler announced his legal argument that the Master Agreement had been structured in such a way that the anticipated voter referendum to challenge it could not stop the agreement from proceeding even if it passes. He went on to say it was the city’s legal position that the city would ignore the will of the people if the referendum passes.

What could be worse government than that?

Back in 2012-2013, Mayor Summers, Council President Madigan and Councilman Bullock were our representatives and trustees on LHA. They were among 19 individuals interviewed by the healthcare consultant to develop a “framework for evaluation of options”—10 of the other 16 were CCF executives, CCF doctors and/or trustees on CCF’s board. Even before the consultant had made its recommendations on the “options,” a CCF/Summers proposal for an outpatient family health center (FHC), demolishing the Hospital, creating a new foundation, and converting land for other economic development was already drafted. The early plans also included a recreation wellness center – a goal of Summers. Not surprisingly the number one option developed was precisely what ended up in the Master Agreement.

In late 2013-2014 Summers formed and led the “Step 2 Committee” to whitewash the CCF/Summers proposal. Step 2 consisted of 5 LHA trustees chosen by Summers that included Summers, two trustees from CCF’s board, and a conflicted physician who had lucrative business with CCF. Why did Summers choose three people aligned with CCF to evaluate bids on CCF competitors’ proposals? Under Step 2’s direction, the consultant issued a blind “Preliminary Memorandum” to only 10 parties in which it represented that the city “was only interested in proposals to operate the Hospital as an inpatient facility with substantially similar services as those offered today and for a period of no less than twenty (20) years.” Why were only ten other parties contacted?

CCF was the only “bidder” that was allowed to “bid” on an FHC and “bid” on hospital assets to liquidate the hospital. Why weren’t other parties allowed to bid on the number one option proposed by the consultant? It is clear that the CCF was not in the “bid” process at all, because Summers and his colleagues collaborated with CCF in formulating the “winning” proposal.

At a special council meeting on February 11, 2016, Mr. Butler, stated “I don’t think we can ignore the fact that [City Hall] relied on the expertise of those who had spent so many years in the room trying to figure this out.” Mr. Butler added that public bidding mechanisms can be done in many ways, “many of which resemble the process that LHA went through.” It’s hard to image a legal public bidding process that resembles what our elected officials led and participated in at LHA.

Throughout 2015 and into 2016, various elected officials made gestures that if other bidders would come forward, they would be considered. The fallacy of these empty gestures were exposed by Councilman David Anderson’s comments on December 21, 2015: “LHA had no interest in reopening the process for a new [bid process] nor in allowing City Council to wrestle the process away from LHA.” Since Summers, Madigan, and Bullock were a major part of LHA, it is clear that they prevented an open, honest and fair process to market the hospital and its assets.

Since all of our elected officials who were involved in supporting the Master Agreement now remain silent on key information concerning the basis for transferring $70M of value to CCF, it would seem that all now embrace the sham process and all are now involved in a cover-up.

Now that’s really bad government.


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