Court Filing And Documents Reveal 2012 Cleveland Clinic Plan To “Decant” Lakewood Hospital And Avoid Legal Agreements

Court filings made in the taxpayer lawsuit on July 31, 2015 revealed new documents verifying the Cleveland Clinic’s longstanding plans to close Lakewood Hospital and benefit Fairview Hospital. 

In the Court filings, the plaintiff taxpayers claim that “CCF (Cleveland Clinic Foundation), without the knowledge or approval of the City, engaged in a secret plan to siphon valuable medical services and equipment so as to cripple the viability of the hospital. According to CCF’s own 2012 Master Plan that was commissioned in 2011, a covert scheme was created to “Decant” Lakewood Hospital.

The “Decanting Plan” specified that medical services, equipment, and employees would gradually be transferred from Lakewood Hospital to Fairview Hospital (and other CCF wholly-owned hospitals) in preparation for the closure and razing of Lakewood Hospital as an inpatient, acute care, and medical/surgical hospital. 

What is further troubling about this conduct is that the Lakewood Hospital Foundation and CCF continued to solicit, campaign, and raise funds from the public for the support of Lakewood Hospital. These donors were never alerted or advised that their intended contributions for the support of Lakewood Hospital would never be a reality as the hospital would soon cease to exist.”

It should be noted that Lakewood Hospital Association (“LHA”) is a public charity. By the terms of its Lease with the City of Lakewood, LHA agreed to: (a) “provide healthcare services in accordance with [the Lease] to the residents of the City without regard to their ability to pay”(b) “operate… as Hospital Facilities for the service of the general public”  and “faithfully and efficiently administer, operate, and maintain as Hospital Facilities…rendering Required Services…to patients who are residents of the City and all members of the general public…”     

All of LHA’s money, property, equipment, bed licenses, service lines and programs are public assets that belong to the City of Lakewood. For example, Article Six of LHA’s Articles of Incorporation provides:  “Upon the dissolution of the [LHA], all of the [LHA’s] property of every nature and description shall….be paid over and transferred to the City of Lakewood, Ohio for public purposes which shall also serve one or more of the purposes of the [LHA] or to another nonprofit charitable organization… which is organized for the purpose of operating Lakewood Hospital..” 

At the end of the Lease, LHA “shall transfer all of its then assets to the City or to another nonprofit corporation organized for the purpose of operating the Hospital.” [Section 12.2]  The Lease also requires LHA to surrender all leased property and other assets to the City “in as good condition as prevailed at the time” LHA took possession. [Section 14.1]  

So, although LHA is a public charity and its assets belong to the City, in numerous recorded public forums, Mayor Summers referred to LHA as a “private” charity.   

In addition, the current Definitive Agreement between LHA and the Clinic provides that “CCF shall assure that Lakewood shall have a cash to debt ratio of 1:1 on a fiscal year basis…if it is determined that [LHA] does not meet such ratio, CCF shall advance sufficient funds to Lakewood to meet such ratio…any advances not repaid to CCF at such time as the [Lease] terminates shall be forgiven by CCF” [Section 2.1.1]

This means that the Clinic is required to fund all losses and cash flow needs of LHA through 2026. The Clinic’s Definitive Agreement essentially guaranties that the hospital will be viable as a hospital through 2026 and LHA and the City do not need to repay any money the Clinic puts into LHA. Subsidium estimated that the Clinic’s liability could be as high as $214 million through 2026 after the Clinic removes certain programs to its Avon hospital, slated to open in late 2016.

Apparently in furtherance of the 2012 “Decanting Plan,” the Clinic and LHA proposal from January, 2015 sought to end the Lease and dissolve LHA, but they did not want to give the money, property, equipment and programs back to the City and its citizens. 

Instead, they propose, among other things:

1. The Clinic would benefit from all of LHA’s equipment, programs, service lines and hospital bed licenses (all property belonging to the City) without paying any money to LHA or Lakewood.
2. LHA would use City money to tear down buildings belonging to the City i.e. destroying value so that: (a) the Clinic could buy cleared land at only the land price, and (b) some yet to be named private developers can buy cleared land at only the land price. According to the BuildLakewood.org website: “the City of Lakewood has already been contacted by a number of local and national developers interested in proposing projects for development on the land.”  Planning Director, Dru Siley, is a founding member of Build Lakewood—a political action committee that favors the Clinic/LHA plan.
3. The City’s money that is left over will go into a new foundation controlled by unnamed people for yet to be determined causes, but it will definitely not be controlled by the City---the Clinic would have some control over the new foundation too. 

So, if the Clinic/LHA proposal is adopted, the City will receive little or nothing for most of the City’s public assets and the Clinic will avoid any of its liability to fund the hospital through 2026.

The Clinic and private developers would be the primary beneficiaries of the plan.

The Clinic and LHA will also avoid the legal obligations and liabilities set forth in the LHA’s Articles of Incorporation, the Lease and the Definitive Agreement.  

All three legal documents were designed to protect Lakewood residents, including the most vulnerable, who are unable to pay for healthcare services.  

In May, the Clinic and LHA began reporting significant losses at the hospital caused by their own January announcement that the hospital would close and other actions taken in furtherance of the newly revealed “Decanting Plan.” 

For example, in February of this year, the Clinic and LHA through Shannon Ritchie, the Interim President of Lakewood Hospital, terminated Lakewood’s lucrative cardiac intervention program---this resulted in significant reduction of emergency room admissions and significant losses.   

Despite the Clinic/LHA pressure for a decision in favor of their plan using the losses that they themselves have caused to try to show that "the hospital is losing money," City Council is at a stalemate and no action on any proposal is expected before January when a new Council President will be elected and possibly a new mayor. 

It is uncertain what effect the public revelation of the Clinic's "Decanting Plan" will have on the political process prior to January. The newly discovered documents clearly bolster the plaintiffs’ case in the taxpayer lawsuit, but a resolution of that case is not expected soon.