Hospital Deal Sickens City

State Senator Michael Skindell, at first press conference to look into the hospital deal.

The deal, which results in the closure of Lakewood Hospital in 2016 does not serve the residents of Lakewood and is a clear violation of the public interests. The plans were made privately and specifically preclude community involvement. The Mayor, Lakewood Hospital Association, and the Cleveland Clinic presented it as a done deal. The essential parts of that deal include:

  1. Early termination of the Lease (in 2016), which provides for the operation of Lakewood Hospital by the Cleveland Clinic through 2026. Under the terms of the lease, the Cleveland Clinic must operate our hospital through the end of 2026. Why are we helping the Cleveland Clinic close our hospital, which they promised to operate for the next eleven years?
  2. This agreement allows for the permanent closing of Lakewood Hospital, resulting in the loss of inpatient care, emergency services, surgical services, and other hospital acute care services within the city. It will mean the loss of nearly 1,100 hospital jobs. This will have a devastating effect on access to quality health care in Lakewood and it will be bad for Lakewood's economy.
  3. This deal gives away real and personal property owned by the people of the city of Lakewood and held in trust by the Lakewood Hospital Association. There were no appraisals or open bidding for the 2.5 acres that the City is planning to transfer to the Cleveland Clinic. There was no appropriate appraisal or open bidding for 850 Columbia Road in Westlake where the proposed purchase is almost $3 million less than market value.
  4. The deal removes more than 32 million Lakewood Hospital Foundation dollars from the books of Lakewood Hospital and results in the dissolution of the Foundation.

The Mayor and Lakewood Hospital Association had a responsibility to the hospital and the people of Lakewood to determine the true value of the hospital and all property, prior to going into negotiations to give away those assets. Appropriate legal and financial professionals were not retained in assembling this deal to protect these valuable community assets.

The only meaningful communication with the people of Lakewood about this has been to try to sell a deal. This agreement has been handled as if it was a private matter, but it is a public matter, about a hospital, which belongs to the people of Lakewood.

The Need to Close the Hospital is a Fabrication

The Mayor, the Lakewood Hospital Association, and the Cleveland Clinic all argue that Lakewood Hospital is not sustainable because 1) patient activity has been dropping over the past years making the Hospital no longer profitable and unable to continue to do business; and 2) the future of healthcare is changing and the way healthcare is to be delivered is different than the current model of care at Lakewood.

During the last decade, the Cleveland Clinic, in carrying out its strategic plan, created the current situation. There is ample evidence to support these findings:

  1. The Cleveland Clinic management cancelled, transferred and/or significantly reduced services depleting Lakewood Hospital of patient volume and revenue to remain sustainable under Cleveland Clinic operation;
  2. The Cleveland Clinic maintained inadequate medical leadership, resulting in the decline of medical departments within the hospital;
  3. The Cleveland Clinic encouraged its physicians and schedulers to refer patients within the Lakewood Hospital service territory to other medical facilities when treatment or diagnostic procedures could have been performed at Lakewood Hospital.

Apparently the Cleveland Clinic is planning to move the Neurology unit out of Lakewood to Fairview Hospital. Cardiology has moved to Fairview Hospital. Moving these services will undermine any hospital.

The Mayor, Lakewood Hospital Association, and the Cleveland Clinic argue that national and regional healthcare trends are moving from less inpatient care to greater outpatient care. At the same time, the Cleveland Clinic has promoted additional ICU beds at Fairview Hospital and started building a new hospital in Avon. The fact that the Cleveland Clinic does not need Lakewood Hospital as a part of its strategic plan does not mean that a community hospital is not needed in Lakewood. The obligations of the Cleveland Clinic must be appropriately enforced.

Financial Case to Close Lakewood Hospital Not Established

Financial statements provided to the public do not demonstrate financial doom for Lakewood Hospital, notwithstanding the City of Lakewood and the Lakewood Hospital Association permitting the Cleveland Clinic to continue what appears to be an undermining of doctors, services, and patient utilization.

Ernst & Young, LLP audits of the financial statements demonstrates that Lakewood Hospital has been given a clean audit opinion year after year. Ernst & Young has never indicated that there would be a problem for Lakewood Hospital to continue operations for the next three years. If there were financial issues, Ernst & Young would have been obligated to report them.

Audited statements reveal that although Lakewood Hospital's inpatient (only) revenue is down between 2009-2013 by 3%, the decrease is less than other area hospitals: Lutheran 6% and Metro 5%. Please note that while net patient service revenue at Lakewood Hospital has been fluctuating steadily between $135 million and $141 million for many years, Fairview Hospital has seen an increase of nearly $193 million from 2011 to 2012 and nearly $92 million from 2012 to 2013. It appears that Cleveland Clinic has been preparing to sacrifice Lakewood Hospital.

At least since 2008, Cleveland Clinic has saddled Lakewood Hospital with over $120 million in "Administrative Services" which appear as not being charged to other hospitals like Fairview Hospital. We must demand a full explanation. City Council must gain access to Cleveland Clinic's financial books to determine if this is an accounting device, which is being used to defraud the people of Lakewood of our community hospital. From the audited financial statements, it appears the Cleveland Clinic has charged yearly “Administrative Services” to Lakewood Hospital.

Administrative Services (in millions):            

2008      $14,864         

2009      $15,083         

2010      $20,727         

2011      $23,810         

2012      $23,043         

2013      $24,438       

Note 16 “Related-Party Transactions" in the audited financial statements, which is a recurring expense in the nature of $24 million annually must be accounted for. The complete review of the financial situation must be undertaken by the appropriate professionals.

Exercise of Due Diligence by Lakewood City Council

Council should retain attorneys experienced in healthcare/hospital matters and financial matters and other consultants experienced in distressed healthcare/hospital situations to investigate and assess Lakewood Hospital's situation and explore viable "turnaround" options. These professionals can gather a complete and accurate picture of the hospital's assets and liabilities, to implement strategies regarding the enforcement of the current lease agreement, to protect the healthcare assets, and, if necessary, to identify other options to operate a community hospital other than the Cleveland Clinic.

Council should protect the City's legal interest pertaining to the assets of the Lakewood Hospital Foundation and seek to immediately preserve those assets.

Council should determine the status of all government licenses (including certificate of need), permits and registrations or other governmental authorizations and ensure the preservation of all such licenses. Council should determine the status of all contracts and leases that are critical to the ongoing operations of Lakewood Hospital and ensure the preservation of such contracts. These contracts may include Medicare, Medicaid, and other federal or state health care provider contracts, physician contracts, radiology or other specialized professional services agreements, and contracts to supply blood.

Conflicts of Interest

There are possible conflicts of interest and problems with public's access to information. The Lakewood Charter (Article XIII) authorizes the Mayor to serve on a nonprofit Board of Directors provided that his service is as an ex-officio member and cannot be in conflict with his fiduciary and legal duties owed to the Citizens of Lakewood. He may not serve two masters. A review of the circumstances surrounding the degradation of services at Lakewood Hospital and the failure of the administration to police this agreement by insisting on full compliance of the terms of the lease indicate a failure to provide proper oversight. More troubling is the Letter of Intent, which obligates the Mayor to only speak in support of the Cleveland Clinic proposal. Considering all the unanswered questions, it appears to put the Mayor in a conflict of interest with his obligation as Mayor of Lakewood. Lakewood City Council and the Mayor must first consider the fiduciary responsibilities to the City of Lakewood.

Lakewood Hospital is owned by the residents of Lakewood. Information acquired by the Mayor as a Board member of Lakewood Hospital Association becomes a "Public Record" and mandates complete disclosure. The people of Lakewood through their City Council should be made aware of the entire history of the Lakewood Hospital Association and Cleveland Clinic activities. 

Enforcement of the Lease Agreement

The Lease agreement between the City of Lakewood and Lakewood Hospital Association and the Definitive Agreement between Lakewood Hospital Association and the Cleveland Clinic set forth contractual obligations for mandated services through 2026 to be provided at the Lakewood Hospital. Had there been proper oversight by the City of Lakewood and Lakewood Hospital Association to ensure full compliance of the terms of this lease we would not be in this position. The contract requires the Cleveland Clinic to provide residents "Required Services" from facilities located within the City of Lakewood. The level of “Required Services" may not be changed or altered if such change shall result in a significant reduction so as to be an effective elimination of such service. Lakewood Hospital Association is contractually obligated to maintain the hospital in good repair and operating condition. Lakewood Hospital Association and the Cleveland Clinic are obligated in their management to not impair the value or the suitability of the Hospital to provide the "Required Services." Any substitution or removal of equipment or services shall not impair the operating viability of the hospital.

These contractual obligations are "Absolute and Unconditional" and Lakewood Hospital Association and the Cleveland Clinic are obligated to observe and perform all covenants, agreements, and obligations until this lease end in January 2027.

Alternatives to Closure

The Letter of Intent fails to demonstrate that the closure of Lakewood Hospital is necessary, or that it is the only or best alternative. If Lakewood Hospital is not a part of the Cleveland Clinic's long-term strategic plan as a continuing healthcare provider, the City of Lakewood must assess that partnership, and if necessary, develop a strategic plan of its own for the continued operations of the hospital. The legal and financial team assembled by Lakewood City Council can guide this.

It appears that the drafters and promoters of the Letter of Intent have only listened to the Cleveland Clinic. Missing in this conversation is the engagement of the independent physicians who currently account for nearly 50% of patients utilizing the services at Lakewood Hospital. Physician engagement is essential to financial health and growth of Lakewood Hospital.

Conclusion

Evidence leads to the conclusion that the Cleveland Clinic has established a long-range goal to increase market share in the west side of Cleveland and Lorain County. Lakewood Hospital is the only Hospital in the Cleveland Clinic System that is not owned by the Clinic. It will be the stepchild in decisions made for growth and expansion of the Clinic system. The Mayor appears to have agreed to speak only in positive terms of this deal and not to negotiate with any other hospital; it becomes the responsibility of City Council to protect the citizens of Lakewood. It is imperative that Council exercises its due diligence as outlined.

Remember any decision to close the hospital has significant economic consequences to the citizens of Lakewood. Our public hospital has been an integral part of this successful and vibrant community for over 100 years. Our City needs to reassert control over this crucial community resource. City Council should evaluate all financial and legal options available. The Cleveland Clinic has a responsibility to honor the promises and commitments it made to our community. I urge you to reject the Letter of Intent.

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Volume 11, Issue 6, Posted 4:41 PM, 03.17.2015