What is the Cleveland Clinic Foundation?

[Stan Austin]

I present this query to Mssrs. Essi, et al:

What exactly kind of legal entity is the Cleveland Clinic Foundation and how does that status relate to the current discussion?
For instance, if it were a corporation with stockholders then its motivation would be to increase shareholder value and maybe distribute dividends to shareholders based on monthly economic and market success.
As per the Cosgrove departure wrap up it was pointed out that revenues during his tenure increased @$4 billion.
To whom does that money go? Who owns the CCF? If it is not a for profit corporation then what are its economic motivations?

Stan Austin

[Bill Call]

The Cleveland Clinic is a hedge fund attached to a hospital.

[Tim Liston]

^^^^^^^^^^ Nailed it! (My understanding is that CCF's non-operating profit often exceeds their operating profit, sometimes by a lot. And their profit from operations is quite substantial, close to $500 million in 2015 if I recall correctly. I haven't seen the 2016 numbers yet.)

Stan I probably know a bit more about it than you but not much, and I'm interested in this discussion too. But from what I do know I've often wondered why I didn't start a non-profit back in 1979 when I was a newly-minted MBA, instead of a for-profit. The Institute for the Advancement of Lending Technology or some such thing. The key seems to be making sure you're governed by a less-than-arms-length Board, at least for small non-profits. The key for CCF is not giving away their product (aka charity care)....

[Tim Liston]

OK I’ll start, but my knowledge is limited. I hope someone who knows will fill in the gaps. I’m gonna boil down Stan’s questions into two considerations. And his questions do imply perhaps some dissatisfaction with the typical non-profit arrangement, which dissatisfaction I share….

1… Ownership - Non-profits are almost always corporations. But unlike private corporations (and LLCs), non-profit companies have no specific owner or owners. Instead, non-profits are said to be owned by the “public-at-large.” This seems straightforward and reasonable. I presume that means that you and I “own” a piece of (for example) CCF. We’re not shareholders per se, there are none. But we’re rightful stakeholders, particularly as non-profits like CCF receive enormous tax breaks, especially when compared to their for-profit brethren. These tax breaks are granted by-and-large in exchange for providing some kind of public (charitable) services, services which for-profits are not obligated to provide. The so-called “mission” of the non-profit. Fair enough.

2… Governance – This is where my knowledge falls well short, and this is where I suspect the way non-profits typically operate leaves a lot to be desired. Non-profit corporations, like for-profit (“C” and “S” corporations, have Boards that ultimately (by law) direct the operation of the non-profit. Not on a day-to-day basis, but certainly the Board has the ability to select the chief executive. Right? And Boards establish and maintain the Bylaws, the operating roadmap. (FYI, LLCs don’t have Boards, the LLC “member”/unitholders govern the operation directly. Same with partnerships.)

To be quite honest I don’t know how a non-profit Board is initially put in place. Somebody tell me please. Using CCF as an example, who selected their first Board way back when? The “owners?” Nope, there are none. The bona fide stakeholders? Seems unlikely. The interests of taxpayers and patients, and in the case of a “charitable” tax-exempt organization like CCF that would presumably include the so-called “underserved” beneficiaries, have little clout in the make-up of the CCF Board. Sure, there are probably some Board appointees who do try to represent bona fide stakeholders. But when the Bylaws require a certain minimum percentage of Board members to enact policy (50%? 66.7%? Depends on the Bylaws and the decision being made.) how can a well-meaning Board minority accomplish anything? Do the non-profit’s “founders” select the initial Board? Who’s considered a founder? And what about the selection of replacement and additional Board member on an ongoing basis? How is that done? By the then-current Board member? I suspect that’s usually the case.

Seems to me that when it comes to selecting non-profit Board members, and the power they wield, it’s rather like Huxley’s Animal Farm, where “all pigs (stakeholders) are equal, but some pigs are more equal.” MUCH more equal. And however the mechanics, the end result is that non-profit Boards (1) are inbred, (2) are way too cozy with senior management, and (3) don’t fairly represent the real stakeholders: taxpayers and the presumptive beneficiaries of the charitable mission. In my experience, Board positions go to big donors and the politically connected. Duh! And this is the primary reason why non-profits better serve the insiders than they do their real stakeholders, the much larger constituency of taxpayers and beneficiaries. Like I said, had I known back in 1979 what I know today, I’d have tried to incorporate y little software company as a non-profit “Institute” instead of as a for-profit. And I have told both my daughters, if the entrepreneurial spirit ever strikes, there are many far worse options than running a non-taxpaying enterprise, even one you don’t technically “own.” You just gotta play your cards right.

I hope someone who understands the governance technicalities will weigh in. And I hope that if I have said something fundamentally wrong, I’ll be corrected. I have a couple relatives who sit on Boards of small non-profits, and the lack of accountability and effectiveness of those Boards rather stuns me, presuming that the primary reference point for accountability and effectiveness is to the taxpayers and presumptive beneficiaries of the charitable mission. Which actually are kind of one and the same, which is why charities get tax breaks. And why faux charities should not get tax breaks. Like the hypothetical “Institute” I should have started.

Stan I hope this helps a little….

[Stan Austin]

Tim-- thanks for jumping in--- I think! What you have outlined I think is the proverbial Pandora's Box. My initial reaction is that the City of Lakewood was woefully ill equipped to enter into a contract with the CCF some 20 years ago. The Clinic still has the advantage of public shine but is in fact a mysterious entity that just flat out bulldozed its contractual partner- the City of Lakewood.
I am very skeptical that there is any attorney or business expert who can unravel -and- make understandable to the average Joe or Jill what this situation and respective ownership's actually are.
Would that the current court case which has gone on for several years been any enlightenment, that has not happened.
In my mind there is about $100 million out there that is mystery money. Where is it? Who's is it? Where does it go?
Stan

[Jim O'Bryan]

Tim-- thanks for jumping in--- I think! What you have outlined I think is the proverbial Pandora's Box. My initial reaction is that the City of Lakewood was woefully ill equipped to enter into a contract with the CCF some 20 years ago. The Clinic still has the advantage of public shine but is in fact a mysterious entity that just flat out bulldozed its contractual partner- the City of Lakewood.

Stan

A couple things, Foundations can do nearly anything they want, it is pretty wild. One of my concerns with two new foundations. Example in the State of Ohio, a Foundation Board, can vote to liquidate the foundation, while paying themselves to do it. That is how wild it can get.

The major difference between for profit and non-profit, is how people get paid, and what happens to the profits. It also depends greatly on how they file, and under what classification(s). I would imagine, most of CCFs burning of profits, is reinvesting in medical technology, ie medical patents, and cutting everyone else out of healthcare. errrr deliver better healthcare through modern methods.

Cleveland Clinic had no obligation to the City of Lakewood, the residents, well that is another story. But CCF had a contract with LHA, our "rental agent" for lack of a better term. We had three members of council serving as our fiduciary agents on LHA. Their single biggest purpose, tell us when we are about the get screwed. They actually expedited the screwing (probably in missing documents.)

CCF receive a payment of around $78 million in value, I believe, that is about the right rate when a landlord throws someone with a lease/contract out. Then the $20 million and $40 million going to Foundations with good friends of the mayor running them.

As you point out, CCF are giants in medicine, and their legal staff are bad ass. Hell they hired the top criminal attorney in the state, Lakewoodite Jim Wooley, to represent Toby Cosgrove in a civil matter. That is bad ass. Wait!! Hmmmmmmmmmmmmmmmm

LHA, and City of Lakewood were taken, because Mike and his advisors just wanted the millions for themselves, and the land to develop.

This crew has been getting little woodies for commercial economic development, well any development for about 25 years. Stan, you know who and what I am speaking of.

FWIW

.

[Marguerite Harkness]

Cleveland Clinic is a for-profit institution masquerading as a non-profit charity.

The three major differences between a for-profit, and a not-for-profit, are:

1. The profit of the for-profit corporation belongs to the shareholders, either as higher value of their stock, or as distributed in dividends. Distribution of dividends is proportional to the number of shares owned.
The non-profit has no shareholders, but can pay exorbitant salaries and bonuses if it wants to, to its officers and employees, without regard to any relative "ownership". Thus, its officers may benefit hugely while its stakeholders (patients/citizens) suffer.

2. The profit of the for-profit corporation, is taxed. If it pays dividends to its shareholders, they also pay tax on the dividends. The non-profit pays no income tax (except on "unrelated business taxable income", which is income not related to their main purpose.) The non-profit pays NO REAL ESTATE TAX, either (in our county, at least).

3. If you "give" money to the for-profit, you do it by buying their goods or services - which BUILDS into their taxable income. It isn't deductible to you, and it is taxable to them. Win-Win for the tax system. Conversely, if you contribute money to the non-profit, you can deduct it on your tax return. but it is not taxable income to the non-profit organization. So, the contributed money LEAVES the tax system. Lose-Lose for the tax system.

[Brian Essi]

I present this query to Mssrs. Essi, et al:

What exactly kind of legal entity is the Cleveland Clinic Foundation and how does that status relate to the current discussion?
For instance, if it were a corporation with stockholders then its motivation would be to increase shareholder value and maybe distribute dividends to shareholders based on monthly economic and market success.
As per the Cosgrove departure wrap up it was pointed out that revenues during his tenure increased @$4 billion.
To whom does that money go? Who owns the CCF? If it is not a for profit corporation then what are its economic motivations?

Stan Austin

Mr. Austin,

The Cleveland Clinic Foundation was founded by a group of doctors who wanted to make more money than they otherwise could make as doctors elswhere.
It was formed in 1921:

Cleveland Clinic Articles of Incorp.pdf

(889.3 KiB) Downloaded 120 times

It now operates like a feudal state--where doctors compete to get to the top and make more money.

If you took the "net profit" earned by the "non-profit" Cleveland Clinic each year and applied the US corporate income tax rate to the "net-profit" the amount of income tax would be many time more than the "net charitable services" the Cleveland Clinic provides.

So the Cleveland Clinic is a "for-profit" corporation masquerading as a "charity" that operates for the benefit of a small group of greedy doctors struggling for power.

Earlier this year, Cosgrove said he would not leave until the board asked him to leave.

Well, he has been shown the door and other greedy doctors are fighting to climb to the top.

Why are we all subsidizing the largest "charity" in the state that provides less "net charitable services" for every dollar it collects than any other charity in the state?

[Brian Essi]

I present this query to Mssrs. Essi, et al:

What exactly kind of legal entity is the Cleveland Clinic Foundation and how does that status relate to the current discussion?
For instance, if it were a corporation with stockholders then its motivation would be to increase shareholder value and maybe distribute dividends to shareholders based on monthly economic and market success.
As per the Cosgrove departure wrap up it was pointed out that revenues during his tenure increased @$4 billion.
To whom does that money go? Who owns the CCF? If it is not a for profit corporation then what are its economic motivations?

Stan Austin

Mr. Austin,

The Cleveland Clinic Foundation was founded by a group of doctors who wanted to make more money than they otherwise could make as doctors elswhere.
It was formed in 1921:

Cleveland Clinic Articles of Incorp.pdf

It now operates like a feudal state--where doctors compete to get to the top and make more money.

If you took the "net profit" earned by the "non-profit" Cleveland Clinic each year and applied the US corporate income tax rate to the "net-profit" the amount of income tax would be many time more than the "net charitable services" the Cleveland Clinic provides.

So the Cleveland Clinic is a "for-profit" corporation masquerading as a "charity" that operates for the benefit of a small group of greedy doctors struggling for power.

Earlier this year, Cosgrove said he would not leave until the board asked him to leave.

Well, he has been shown the door and other greedy doctors are fighting to climb to the top.

Why are we all subsidizing the largest "charity" in the state that provides less "net charitable services" for every dollar it collects than any other charity in the state?

[Brian Essi]

I present this query to Mssrs. Essi, et al:

What exactly kind of legal entity is the Cleveland Clinic Foundation and how does that status relate to the current discussion?
For instance, if it were a corporation with stockholders then its motivation would be to increase shareholder value and maybe distribute dividends to shareholders based on monthly economic and market success.
As per the Cosgrove departure wrap up it was pointed out that revenues during his tenure increased @$4 billion.
To whom does that money go? Who owns the CCF? If it is not a for profit corporation then what are its economic motivations?

Stan Austin

Mr. Austin,

The Cleveland Clinic Foundation was founded by a group of doctors who wanted to make more money than they otherwise could make as doctors elswhere.
It was formed in 1921:

Cleveland Clinic Articles of Incorp.pdf

It now operates like a feudal state--where doctors compete to get to the top and make more money.

If you took the "net profit" earned by the "non-profit" Cleveland Clinic each year and applied the US corporate income tax rate to the "net-profit" the amount of income tax would be many time more than the "net charitable services" the Cleveland Clinic provides.

So the Cleveland Clinic is a "for-profit" corporation masquerading as a "charity" that operates for the benefit of a small group of greedy doctors struggling for power.

Earlier this year, Cosgrove said he would not leave until the board asked him to leave.

Well, he has been shown the door and other greedy doctors are fighting to climb to the top.

Why are we all subsidizing the largest "charity" in the state that provides less "net charitable services" for every dollar it collects than any other charity in the state?

BTW the amount of "charity" that CCF provides is measured by the amount of patient fees that CCF writes off as uncollectible. So, let's say my neighbor is a surgeon in a private group of surgeons. The group pays US income tax and also writes off patient fees as uncollectible, i.e. the group provides the same charity work as CCF. In addition, the CCF surgeons charge and collect "facility fees" for the identical services that my neighbor's practice provides.

So, my neighbor and the rest of US taxpayers are subsidizing my neighbor's competitors at CCF by paying US taxes so that the doctors within and at the top of the CCF feudal state can make more money than my neighbor.

Is is any wonder why private doctors are closing their practices and joining CCF or retiring?

So, CCF is also an anticompetitive "predator" that lobbies the US government, the state government, the county government, the City of Lakewood, Cindy Marx, Tom Bullock and Ryan Nowlin to keep laws and real estate deals to fuel the feudal state.

That in a nutshell is "What the Cleveland Clinic is."

[Bridget Conant]

Very good article about non-profit hospitals and the voluminous tax breaks they enjoy while overinflating the value of the charity care they provide in return.

https://mobile.nytimes.com/2013/12/17/u ... itals.html


We know this isn't true for the Cleveland Clinic:

You should get close to the value of tax exemption in community benefit,” said Paula Song, professor of health services organization at Ohio State University. “I think you’ll find most hospitals aren’t providing that.”

They overvalue the supposed "charity care"

the I.R.S. allows hospitals to use broad definitions of community service, including the value of traditional charity — care dispensed free or at a discount to those who cannot pay — and the money hospitals calculate they lose because Medicaid reimburses them less than their costs. Hospitals can also take credit for hosting health fairs, operating some research labs and “donating” their executives’ time to serve on local community boards.

In reality,

But many experts argue that most hospitals today do not deserve their tax-exempt status.

“The standard nonprofit hospital doesn’t act like a charity any more than Microsoft does — they also give some stuff away for free,” Professor Colombo said. “Hospitals’ primary purpose is to deliver high quality health care for a fee, and they’re good at that. But don’t try to tell me that’s charity. They price like a business. They make acquisitions like a business. They are businesses.”

The Clinic counts many expenses as "charity care."

the Cleveland Clinic said that nearly 14 percent of its revenue was spent on activities that would qualify. But two-thirds of that was for professional education and research, and it did claim credit for its so-called Medicaid shortfall.

[dl meckes]

Mr. Liston, I can't stand having one of my favorite books misidentified. Animal Farm was the product of George Orwell. Correct reference, wrong author.

[Tim Liston]

Sorry DL. I guess I got 1984 and Animal Farm mixed up. Of course 1984 was still in the future when I read them.

Speaking of academia, and way back then, I’ve actually been thinking about taking the SAT again, just for giggles. It would be interesting (disheartening?) to see how I stack up against the 18-year-old me. Plus Deneen said it’s a great way to meet teenage girls. About 4+ years ago I challenged my daughter, then a HS senior, but I chickened out. She graduates from Carnegie Mellon in a couple weeks. Majored in Neuroscience.

I can envision a “Senior SAT”….

Sample Math Question….

“Tim and Bill Call had lunch at Bob Evans. Tim’s ordered the Slow Roasted Turkey and Dressing. Bill ordered the Chicken Pot Pie. Both meals together cost $17. Tim’s meal cost $0.85 less than 65% of the total. How much did Bill’s meal cost?”

Sample English Question….

“Tim and DL were watching Murder She Wrote reruns. Jessica told Dr. Hazlitt that he was being “obstreperous.” For cryin’ out loud what did she mean by that?”

Sorry for going OT (not). But I am serious about taking the SAT again. Anyone wanna join me?

[Jared Denman]

To Brian's point... here's part of that puzzle. According to the 990, the Clinic spent $673,136 on "attempting to influence foreign, national, state, or local legislation..." It is part of the story I submitted for the print version of the LO that I'm hoping will be in the next issue?

Clinic Lobbying.png (387.96 KiB) Viewed 3270 times

[Dan Alaimo]

How does the Cleveland Clinic compare to other big "non-profit" hospital foundations, the Mayo Clinic comes to mind but I'm sure there are others. Structure, practices, size, etc.