Essi's Letter To City Hall About Hospital
Posted: Tue Apr 14, 2015 7:59 am
This was sent to me last night, it was sent to City Hall a week ago...
Dear Mr. Mayor, Council Members and Mr. Butler,
I write to you as a resident of Lakewood. I have lived almost my entire life as a resident of Lakewood—beginning on Jackson at the time of my birth in 1959, on Edgewater in 1968, on Cliffdale in 1989 and on Edgewater again since 1993. I attended Lincoln, Horace Mann and Lakewood High (’77). I have degrees in finance, economics, accounting and law and have been a licensed attorney since 1984. I also have experience as a director and manager of a medical practice.
I offer the following observations that should be considered and discussed with the City’s legal counsel. Since good leadership is about accountability, I believe your first obligations as our leaders would be to fully understand the City’s rights under the Lease and related Definitive Agreement (“DA”) and determine if there has been full compliance with the terms of those agreements by the parties entrusted with the City’s assets for the care of our citizens.
Time is Your Friend
The false narrative is that the “crisis” at Lakewood Hospital is so severe that you must immediately decide on a proposal that closes the hospital, tears the building down ASAP, and awards CCF a contract without considering any other bidder. They say we are in the eleventh hour and there is no time to consider any options besides negotiating from a bad deal or stay with the status quo. I say nonsense. To add to this drama you are asked to become instant experts not only on Lakewood Hospital’s past, present and future, but also on the complexity and nuances of the current and future needs of Lakewood, the existing legal documents and all the while being denied information from the folks pushing for a decision that might be critical for you to make your decision. The central actor and creator of this high stakes drama is CCF--the party with the most to gain. The McGuffin in this drama is the $50M LTIP. It is apparent that CCF has used the existence of the DA and the projected losses from CCF’s planned Avon Hospital to convince Subsidium and the LHA Trustees that they could only deal with CCF to solve the crisis and that CCF’s proposal is your only option for the future or else the $50 LTIP will be lost by 2018. The carrot CCF dangles is allowing the City to keep $24M of the LTIP (the City’s own money) and CCF will add $8M albeit for a different purpose. To view that as the vision for Lakewood’s future, you must have a myopic focus on the carrot and ignore many other facts. Please note below that if you believe the Subsidium report CCF will have lost $8M by midway through 2018.
What you are being told is that the smarter folks over at LHA with Subsidium’s help have thought this through for you over a long period of time. That is simply not the case—they didn’t have independent legal counsel, they apparently didn’t know what is set forth in this communication to you and even if they did they were not the proper governing body to decide the City’s future healthcare needs—many of them are CCF’s folks. LHA’s duties and legal obligations are to run a hospital not close one. Just one example of why you should not trust what the trustees have concluded is that fact that you still do not have a full disclosure of all of the details concerning the Administrative Services—this means that the trustees do not have that information or perhaps a more sinister scenario exists.
The narrative being advanced for the LOI is bogus in several key respects. Time is actually your friend. Rejecting the LOI and enforcing the current Lease and the Definitive Agreement (“DA”) is the clear choice---it is not the only alternative to the LOI, but it guarantees the most benefits and options for the future.
The Lease and the DA are clearly better than the LOI and the New DA
Preserving the City’s current rights and insisting upon a new form of accountability guarantees several vital City interests:
1. It guarantees the hospital remains open until 2026 providing over $153M in benefits during that period, including $55M in capital improvements from CCF.
2. It guarantees the potential that Lakewood will have a hospital in the long term;
3. It guarantees if the hospital ever needs to be closed, the City will have financial and physical assets equal to or greater than it currently has and guarantees it can entertain proposals from multiple potential partners instead of just one.
4. It preserves the City’s rights to protect $50M LTIP—note even if some or all of this is ultimately lost, the City will benefit from the assets acquired $55M—The LOI results I CCF benefiting from $26M of the LTIP by 2016.
Accepting the LOI guarantees:
1. That Lakewood will not have a hospital after 2016 and little or no possibility of one in the future.
2. $26M of our LTIP will be spent to wind down and tear down the hospital that benefits only CCF.
3. A fiscal disaster for years to come. Note the “ESTIMATED FINANCIAL IMPACT OF THE LAKEWOOD HOSPITAL TRANSITION ON THE CITY OF LAKEWOOD as of February 9, 2015” looks pretty ugly especially when compared my proposal.
4. Uncertainty as to what the City will receive for our current assets.
Is anyone really good at “long term sustainable” healthcare solutions?
The notion that you as our City leaders must come up with a silver bullet or wave a magic wand to achieve a long term sustainable solution for the City’s healthcare needs in such short order is neither realistic nor advisable in an industry that is by all accounts ever changing. If we look back at what has happened and may happen with the deal the City cut in 1996 that our leaders and CCF back then believed would last for 30 or 60 years, we see that CCF/LHA has come to us twice prior to change the deal – promising both times long term sustainability and now less than 5 years later CCF/LHA say we have to close the hospital. Subsidium p. 7 “current lease partner unwilling to renew under current conditions.” So apparently CCF is not so good at long term planning either yet you are being asked to put all our eggs in their basket. Why would we end that 30 year deal 18 years into it when we have a financial guaranty from a world class financially viable fulfillment partner for at least another 11 years? The only quasi legitimate argument I have heard in response to that proposal is that we are heading toward a “cliff” in 2026 as our dated facility might be “empty”. As I explain below the fact is that 2024-2026 will present a new horizon for Lakewood—it is not a “cliff”.
It is clear that CCF has planned and created Lakewood’s current “crisis”—but there is no need for urgency.
There is only one real reason for the perceived urgency of a decision from you as our elected leaders and that urgency is due entirely to actions and plans by CCF. Under the guise that LHA and the City will somehow bear the impending losses resulting from CCF’s decision to open a competing hospital in Avon all in likely violation of CCF’s fiduciary duties owed to LHA and the City, CCF seeks to terminate its liability under the Definitive Agreement (“DA”) estimated by Subsidium as high as $214,000,000 through CCF asserting it rights under the very agreement it seeks to avoid (the DA) to block the City from dealing with a third party, thereby attempting to force the City to deal only with CCF for the City’s future healthcare needs. When did they begin planning for Avon? This crisis is CCF’s doing.
Stated differently, CCF seeks to achieve at least four basic goals in the LOI and New DA:
1. Escape its significant liability under the 1996 DA.
2. Retain its market share in Lakewood and forestall its competitors from entering Lakewood.
3. Support its new Avon Lake Hospital
4. Destroy the Lakewood facility so that there could be no hospital to compete with CCF’s other hospitals (Fairview, Lutheran & Avon)
CCF has employed three tactics for attempting to achieve its goals:
1. Assert its rights under the DA even though it wants out of the DA.
2. Breaking ground on Avon for its own purpose and against LHA.
3. Likely breaching the DA by loading LHA with millions of dollars of inflated overhead Administrative Services and then refusing to disclose the details and justification for those costs (which it likely has a fiduciary duty to disclose in every detail, e.g. the amounts and allocation of CCF executive salaries, which are they and how much they are paid.)
4. Diverting patients, programs and personnel from LHA.
5. Having LHA incurred nearly $500,000 for a consultant which appears to be to white wash its plan.
6. Putting its name to a document that proclaims that “healthcare is changing from facility- and physician-based paradigm, designed to care for the sick, to a population based effort that aims to improve the health…” when in that same document it plans to build a facility to care for the sick, it is simultaneously building a facility in Avon to care for the sick which is physician-based and while its overall market strategy is to build facilities and employ physicians to compete with its facility based competitors and eliminate independent physicians.
1. CCF is essentially a Guarantor of the Lease and is required to finance LHA’s losses to provide all of the ‘Required Services” by operating Lakewood Hospital through 2026 even if losses are $214M NPV as Subsidium forecasted.
Section 2.1.1 of the DA provides in part, “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” In Section 1.8.1 of the DA, CCF agreed “Notwithstanding any provisions in this Agreement to the contrary, CCF acknowledges and agrees that no provisions in this Agreement will cause [LHA] to take action or omit to take any action that could cause [LHA] to fail to perform or observe, or otherwise be in default of, any of its obligations under the Lease...” Section 9.11(b) of the Lease on page 35 requires LHA to “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…” Section 13.5 of the Lease provides an Agreement to Pay Attorneys ‘Fees and Expenses.” In the event there is an Event of Default or that it shall become necessary for the City….to employ attorneys or to incur other expenses…to enforce observance or performance of any covenant, agreement or other obligation on the part of [LHA]…[LHA] on demand therefor, shall reimburse the reasonable attorney fees and expenses of those attorneys, to the extent permitted by law, and will reimburse the other reasonable expenses incurred.”. It appears that the consequence of these provisions of the Lease and DA is that if LHA runs up trade debt, has to borrow money to fund operational losses or make the capital improvements required under the Lease, CCF as the sole member of LHA and per the DA must assent to incurring that debt and must advance enough cash to maintain the 1:1 cash to debt ratio. Since LHA and CCF have entered into the LOI and thereafter made a public announcement concerning closing the hospital, it appears that they have together breached the Lease, and all attorney fees incurred by the City to force those parties to do what is required under the their agreements, namely to operate a hospital for 11 more years, will ultimately be borne by CCF. It does not matter that some of you in your capacities as Trustees of LHA took actions in those capacities based upon the apparently incomplete and inaccurate information concerning the DA and with CCF withholding information from you that was relevant to the proposed transaction and without the advice of independent legal counsel to advise you in your deliberations as Trustees. Indeed, there is also some evidence that one or more of you may have relied on CCF’s attorney’s advice in making decisions concerning the proposed transaction and if so that appears to be improper. It also appears that the cost of that attorney’s advice may have been charged to LHA. If the Thompson Hine attorneys agree with my interpretation of the DA, and CCF is obligated to fund future losses, you should ask your attorneys and yourselves if CCF and/or their Trustees on the LHA Board knew of this obligation to fund losses? Did they have a duty to disclose that to LHA management or LHA Trustees? Did the CCF representatives who made public appearances and statements at the forums know this when Subsidium proclaimed at the forum that CCF has no liability for the losses? As a citizen of Lakewood, I strongly urge each of you as elected representatives to understand these all important and decisive legal rights the City possesses and to obtain the advice, opinions and counsel of Thompson Hine to guide your deliberations among the many options the City has, including but not limited to preserving Lakewood’s Hospital for at least the next 11 years and all the while carefully planning for the future of healthcare in Lakewood for what is beyond 11 years with the help of truly independent counsel, advisors and the input of the citizens of Lakewood.
2. CCF, Subsidium and the LHA Trustees all acknowledge and agree that the DA and CCF may have prevented any meaningful negotiations with any third party options for LHA, and if so it is clear that no third party options have been fully considered.
Subsidium Healthcare’s Overview (“SHO”) at page 67 underscores that as early as June 19, 2014, LHA and its Trustees knew or should have known that CCF and the DA prevented or impaired discussions with parties other than CCF that would benefit Lakewood Hospital. “Additional key consideration was the fact that we could not proceed with further detailed discussions with Metro Health until we determined the potential terms for either terminating the current Definitive Agreement or redefining the relationship with the Clinic.” SHO at p. 67 6/19/14. If LHA could not and did not negotiate with suitors solicited by Subsidium due to the DA, then it proves that the process employed by Subsidium and LHA did not, could not and does not serve as the City’s due diligence in considering its viable options for the future of Lakewood’s healthcare. Additionally, it is my understanding that the President of University Hospitals cited “tortious interference” concerns in relation to UH’s unwillingness to becoming involved in the process. It is my understanding that there has been no written waiver by CCF or LHA under the DA or Lease that would enable any meaningful exploration of the City’s long term options. Moreover, it is my understanding that the CCF attorney essentially advised at least one of you that LHA could not legally pursue third parties. If the Thompson Hine attorneys agree that CCF’s rights under the DA prevents third party options to be pursued at this time, you should ask if the City has to wait until December 1, 2024 when LHA’s option to renew the Lease expires to formally pursue those options? Since Subsidium’s report at p. 7 states that CCF is “unwilling to renew under current terms” would the attorneys advise obtaining LHA and CCF written authorization for the City to begin exploring partners for 2026 ?
3. LHA and its Trustees did not have all of the facts when they voted in favor of the LOI. ---they were not represented by legal counsel throughout the entire process with Subsidium on the RFPs’ and the results of their search for other partners and the product of their compromised negotiations i.e. the LOI cannot be relied upon as arm’s length or the City’s “only viable option” for the future.
As far back as April 2, 2014 Subsidium and the LHA Trustees failed to retain legal counsel (other than possibly the CCF attorney) to answer a critical question: Is CCF liable under the DA for the projected losses caused by CCF opening the Avon hospital? “We don’t have a definitive legal opinion about whether CCF would remain obligated to fund any operating losses and negative cash flow throughout the remainder of the Lease…If [CCF] were somehow obligated to fund cash flow for[LHA] until the end of 2026, [CCF] would likely take action to stem the losses, and the impact of their potential action cannot be projected…However, if we assume the range of scenarios that are shown on page 9, then the total net present value of the cumulative cash flow deficit from mid-2018 through 2026 could be between $158M and $214M” SHO p. 62 4/02/14. Even assuming that LHA was the proper party to conduct negotiations to determine the future of healthcare in our City, they did so without legal counsel and without understanding a very important right that the City holds and a very important liability that CCF has. You might ask the attorneys if CCF has a duty to provide LHA Trustees with any projections CCF may have concerning CCF’s likely action likely action to stem losses. I would note that any such projections would be critical for you all to have to assess the City’s options.
4. Any erosion of LHA’s $50M LTIP (which is an asset belonging the City at the end of the Lease) that might result from CCF opening its “Cannibalizing” Avon hospital must be restored by CCF if those losses are the result of any breach of the DA or breach of fiduciary duties CCF owes to LHA or the City.
Subsidium’s report makes it clear that if there is an erosion of the LHA $50M LTIP it will be as a result of CCF’s decisions to have that happen or not. “Volume impact of Avon on [LHA] Income Statement… Two scenarios 1. CCF moves 80% of its volume out of [LHA] to new Avon Hospital 2. CCF moves 50% of current volume…If we continue the current lease, CCF would likely find programs to maintain at [LHA] so could assume much smaller volume loss.” (SHO at p. 60) “Threats…New Avon hospital will likely cannibalize significant in patient volume for [LHA]” SHO p 12 The language used by Subsidium “CCF moves..its volume out of [ LHA]” is quite telling—it reinforces popular belief that CCF can control patient volume among hospitals. Threshold questions that your lawyers need to answer re: Is CCF in fact managing the “day to day” operations of Lakewood Hospital or are the Trustees? Section 2.1.3 of the DA “Right to Manage” sets forth conditions that give CCF the right to manage the “day to day” operations of Lakewood. Have those conditions been met? If not, and CCF is in fact managing the hospital are they a fiduciary? Does it even matter? You should all inquire of the THF lawyers if CCF will be responsible for LHA’s (and the City’s) losses of the LTIP that might be caused by CCF’s breaches of fiduciary duties (as the sole member of LHA or under the DA) by, among other things CCF opening Avon. That presents another important question: Since CCF charges “Shared Administrative Expenses” to LHA that includes, among other things, “Executive Team” and “Finance”, were the salaries and expenses on any CCF executives and other personnel working on the planning for the Avon hospital and its impact on LHA included in the Shared expenses, and if so since LHA has paid for those services do the attorneys have on opinion as to whether LHA and its Trustees have a right to the information that is the product of those services? In other words does CCF have a duty to disclose to LHA all information concerning the planning of the Avon Hospital that Subsidium says would “cannibalize” LHA?
5 Did/Does CCF have a duty to disclose to LHA and its Trustees all details relating to the Administrative Services that LHA has paid to CCF?
Knowing whether the Administrative Services charged and paid are justified was relevant to the Trustees’ decisions to close LHA and is certainly relevant to your decisions. Knowing how CCF does the allocation of Administrative Services among hospital is one question. Does CCF have duties to supply all details relating to those services, e.g. all details of executive compensation?
Another is does the allocation fairly benefit LHA? Two suspicious categories exist: “Finance” and “Legal”. Without that information, the City and its advisors cannot properly make any determination as to the viability of the hospital. Section 1.1 p.2 of the DA allowed CCF to become the sole member of LHA with all of the “obligations” required by ORC 1702 et seq. Article Five (a) of the LHA Articles of Incorporation provide, in part, that “No part of the earnings shall inure to the benefit of... [CCF]. If any portion of the Administrative Services paid to CCF are inflated or unjustified it may be a violation of Ohio Law. CCF is the sole member of LHA and, by virtue of the DA essentially controls LHA and thereby owes fiduciary duties to LHA, the City and the citizens of Lakewood. LHA Board meetings were required to be open to the public “to assure full disclosure of the operations of the Hospital.” (see Lease p 2) Also, under Section 9.11 (c) of the Lease, LHA “covenants that it shall…open to the public all meetings of its Governing Board to assure full disclosure of the operations of [LHA].” Does “full disclosure” mean full disclosure? It is my understanding that these meetings have not been made public. Again, under the DA, CCF cannot cause LHA to fail to comply with or omit to do something required by the Lease (see Section 1.8.1 of the DA). In my view, it does not matter what CCF and LHA decided to do internally to close their meetings to the public. I believe that under the Lease, the City and the citizens of Lakewood have a right to know all of the details of the Administrative Services paid to CCF. If the City incurs any expenses or legal fees in obtaining the information by enforcing the Lease, will LHA be required to pay those fees and expenses? Again, the THF lawyers will provide you with their advice and I hope the cost of that advice will ultimately be borne by CCF per the DA and Lease.
7 The citizens of Lakewood are third party beneficiaries under the Lease.
As mention above, the public is entitled full disclosure of the operations of LHA. [Section 9.11 (c)] Note that this provision is in addition to the City’s right to appoint Trustees to the LHA Board so the public appears to be an intended third party beneficiary under the contract. The Lease also provides that LHA agreed “to continue to provide healthcare services in accordance with [the Lease] to the residents of the City without regard to their ability to pay…” (page 3 of the Lease) Article II Section 2.2 of the Lease provides, in part, “Purpose. [LHA] will… operate… as Hospital Facilities for the service of the general public...” Section 9.11(b) p 35 requires LHA to “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…” Thompson Hine should be asked if class action litigation could be commenced on behalf of the uninsured, indigent people or the general public as a result of the actions by CCF, LHA and perhaps the City by proceeding with the LOI. Does the City have any exposure? Should the possibility of that type of litigation be factored into your decisions? It seems to me that a strong majority of Lakewood citizens who are paying attention are up in arms over the prospect of the hospital closing. Can the lawyers for the City demand that section 9.11(c) of the Lease be enforced so that motivated, well informed and well intentioned citizens can serve as additional guardians of the City’s rights into the future? If that is advisable, can the attorneys’ fees for this effort be charged to LHA (and ultimately CCF) if you decide to help theses citizens?
8 There is no need to be adversarial with CCF and no reason to fear CCF or that they will leave Lakewood even in 2026—Lakewood is a valuable market.
If you believe Subsidium’s report at p. 12: “Lakewood Hospital’s primary service area (4-zip) generates 25,000 admissions per year to area hospitals (we are a valuable market)”
Will CCF Walk Out? I have heard the argument that if the City presses CCF to honor its obligations under the DA through 2026, there is a significant “risk” they might leave and we would be let with an “empty building”. I say nonsense---they clearly want and need our real estate —they joined us in 1996 for market share and they won’t abandon it to any competitor without a fight—folks at CCF have acknowledged that CCF can easily afford $20M loss per year for the last 11 years of the Lease—but that will not likely happen under the DA as they have a huge incentive to stem the losses. On the other hand, in the highly unlikely event that they would want to leave before 2026, then they would need to some give notice and it frees the City up to begin fruitful discussions with Metro, UH and a host of other options that are highly likely to be better than the “deal” on the table. The City could then preserve the City’s rights to damages and attorney fees if need be. The opening bid by the City if CCF does that should be $214M—that would build us a nice hospital and a recreation center. Do the attorneys believe that there is any significant risk that CCF will walk?
Will Quality of Care Suffer?” I have heard the argument that quality of care will suffer if CCF is forced to run a hospital that it does not want to run. Again, that is not likely, but if any of you truly believe that, I suggest that you should not vote in favor of doing business with such a party for the future of our City’s healthcare. That would also present many ethical problems for a world class hospital such as CCF and they won’t likely tarnish their brand over even a $200M liability. Of course, as a City we will need to be much more proactive going forward and change our Trustees on the LHA Board to protect our interests. Do the attorneys believe that CCF will let patient care suffer?
“Do We Have No other Options?” I have heard the arguments that LHA Trustees and Subsidium’s process is an exhaustion of all our options and that we have no options besides CCF’s proposal. Do the attorney’s agree that we have no other options than to do a deal with CCF now?
9 Subsidium’s Report is very weak in several key areas.
While I don’t know all the details of their engagement yet, Subsidium made several glaring strategic and factual errors in the course of their engagement and their report and public presentations show they went far afield from the mission they state they had.
1. They should have halted all work until after they had LHA obtain a legal opinion on CCF’s obligation under Section 2 of the DA.
2. If they believed that the DA prevented negotiations with third party suitors then they should have come to terms with CCF on that issue before wasting LHA’s time and money trying to elicit bids.
3. They should have rejected the CCF proposal out of hand as it did not meet the criteria of the RFP.
4. They started with the mission of planning for 2026 and then 15 months later they have a deal that would terminate a valuable agreement for LHA and the City 11 years early—an agreement that Subsidium apparently never took the time to fully understand. They also did not understand that LHA was not the proper party to be determining the City’s future---they failed to appreciate CCF’s dominance and influence over the LHA Board per the DA and Code of Regulations—it is not independent of CCF.
5. Subsidium and the LHA Trustees overlooked the most common first step in a hospital turn around---to change the trustees that have been their too long, lack the necessary experience and skills, have no solutions, and engage in group think—the fact that the January 14, 2015 was unanimous underscores that syndrome and the need for change.
6. Subsidium cites statistics that a small portion of Lakewood residents are using Lakewood hospital as a reason for closing it—most of my neighbors laugh at that spin. Some nationally reports are that 5% of our population consumes 85% of the total benefits so it should not surprise any expert that only a small part of the population uses the hospital.
7. Subsidium claims by statistics that Lakewood residents are somehow choosing to go to hospitals other than Lakewood ---yet they admit that CCF has the ability to “move…its current volume out of [Lakewood]” (SHO at p. 60) Of course most people who are not from out of town like the Subsidium folks and who pay any attention to healthcare issues in our area already know this and did not need an expensive consultant to tell them that. CCF has been funneling patients out of Lakewood for years---when these Lakewood patients call to schedule appointments or test, CCF sends them where CCF wants them to go. Just one of many examples is mammography test directed away from Columbia to the current Avon facility. Ask the attorneys if CCF can purposely divert patients from LHA facilities without legal recourse by LHA and the City?
8. I’ve heard that Subsidium has been involved in making changes to the draft of the New DA while LHA remained or remains unrepresented by legal counsel. You should ask the Thompson Hine lawyers if this is helpful or even proper at this stage. Are they lawyers?
While Subsidium’s report and public presentations may contain many “facts” and statistics, it is clear that they did not have all the relevant facts, and their analysis and conclusions contain many contradictions of the “facts” they do cite. Overall it is quite flimsy. There are many more problems, but the bottom line is someone at LHA should demand a refund from these folks and hold them accountable.
10 Change is needed--I am not advocating the status quo or to do nothing.
I have heard some of your comments that the status quo is not acceptable and I agree. Good leadership is all about accountability. Without good leadership and accountability there can be no real change. The LOI is worse than the status qou—it fails the accountability test in many respects. According to Subsidium, CCF is not happy with the current terms of their deal and it is apparent why—it has little to do with market changes or what is happening in Lakewood—they have had a longstanding plan (not fully disclosed to LHA trustees) to close Lakewood Hospital. If they out they need to say so and come to the table in good faith and disclose all that they are required to disclose. I understand that the construct of the current Board is highly dysfunctional with CCF essentially running the show. But if the current trustees did not have the information concerning the Administrative Services charged to and paid by CCF, this poses a few questions for the attorneys: Did the trustees fulfill their fiduciary duties to investigate and ask tough questions as the charges increased dramatically? If so what information were they given? Do some of the trustees have this information and are not sharing it with the others? Does the fact that CCF has been less than forthright on this issue excuse the trustees for making such an important decision without that information? What D&O insurance exists from which a recovery could be paid?
There are many options to be explored that don’t involve litigation. By way of example, the City could form a task force of talented healthcare professionals free of conflict and influence by LHA, CCF, Metro and UH, etc. to (1) work on short term solutions for the City with LHA/CCF including making changes the City’s representative on the LHA—many have been there too long and there is a perception in the general public that it is a social club and some are defeatists (fair or not), and (2) begin planning for 2024-2026. I am only one person and have been at this only two weeks and I see much promise in several solutions besides those being offered.
Summary
CCF has created the immediate crisis and has or could cause great damage to LHA, the City and its citizens if the City does not stand up for their rights. They must advance cash to cover all losses caused by the opening of Avon—they are accountable for their decisions and legal duties just like any other charitable organization. I see no need to be adversarial with CCF, but I have no illusions that due to the competing interests and their perceived power, that working out a solution will be no easily matter. You as our leaders need to ask tough questions and demand complete answers.
You on behalf on our City currently have at least five aces in your hands:
1. If my analysis is valid the Lease and DA are assets;
2. CCF needs and wants to retain its share of Lakewood’s valuable market;
3. CCF desperately wants the prime real estate location owned by the City upon which the hospital rests—tearing down the hospital insures their monopoly in the Lakewood Service Area for years to come—25,000 hospital admissions;
4. The possibility of a hospital continuing at that location after 2026—keeping this option open is very important for our City and any future negotiations.
5. The ability to seek competitive bidding for well thought out options with many others besides just CCF.
By asserting the Cities rights through 2026, the City and community will received over $12M in rent $9.9M in income taxes, $55,000,000 in capital improvement and $77,000,000 in support for our uninsured in the next 11 years. Even if the LTIP is lost by 2018 and there is no recovery of it, the benefits we receive as a city far outweigh that loss—the LTIP is truly a McGuffin. Compare this to the fiscal and financial jackpot set forth in the February Impact Statement—Note that impact statement does not include any analysis of property value declines caused by not having a hospital. This decision to pass on CCF’s offer is an easy one.
We have plenty of time to plan as a community for what will happen in 2024 while our world class partner runs our hospital. As we approach 2024-2026 the possibilities include retaining a hospital and at the very least freedom to avoid any player monopolizing our market and our citizen’s choices. As CCF’s leverage to obtain a monopoly in Lakewood wanes---they will be just as eager to bargain with us.
In my opinion the five aces the City holds more than evens the perceived power imbalance of CCF now and in the future.
We can do far better than the deal negotiated by a consultant and trustees without all the facts, without legal counsel, with only CCF to bargain with and with CCF knowing the consultant’s and LHA’s negotiating strategy . We have many options.
I am committed to working with all of you to solve this important problem for the City and our fellow citizens. This is an enormous undertaking by you and your willingness to listen is what makes Lakewood a great city.
Sincerely,
Brian J. Essi
Dear Mr. Mayor, Council Members and Mr. Butler,
I write to you as a resident of Lakewood. I have lived almost my entire life as a resident of Lakewood—beginning on Jackson at the time of my birth in 1959, on Edgewater in 1968, on Cliffdale in 1989 and on Edgewater again since 1993. I attended Lincoln, Horace Mann and Lakewood High (’77). I have degrees in finance, economics, accounting and law and have been a licensed attorney since 1984. I also have experience as a director and manager of a medical practice.
I offer the following observations that should be considered and discussed with the City’s legal counsel. Since good leadership is about accountability, I believe your first obligations as our leaders would be to fully understand the City’s rights under the Lease and related Definitive Agreement (“DA”) and determine if there has been full compliance with the terms of those agreements by the parties entrusted with the City’s assets for the care of our citizens.
Time is Your Friend
The false narrative is that the “crisis” at Lakewood Hospital is so severe that you must immediately decide on a proposal that closes the hospital, tears the building down ASAP, and awards CCF a contract without considering any other bidder. They say we are in the eleventh hour and there is no time to consider any options besides negotiating from a bad deal or stay with the status quo. I say nonsense. To add to this drama you are asked to become instant experts not only on Lakewood Hospital’s past, present and future, but also on the complexity and nuances of the current and future needs of Lakewood, the existing legal documents and all the while being denied information from the folks pushing for a decision that might be critical for you to make your decision. The central actor and creator of this high stakes drama is CCF--the party with the most to gain. The McGuffin in this drama is the $50M LTIP. It is apparent that CCF has used the existence of the DA and the projected losses from CCF’s planned Avon Hospital to convince Subsidium and the LHA Trustees that they could only deal with CCF to solve the crisis and that CCF’s proposal is your only option for the future or else the $50 LTIP will be lost by 2018. The carrot CCF dangles is allowing the City to keep $24M of the LTIP (the City’s own money) and CCF will add $8M albeit for a different purpose. To view that as the vision for Lakewood’s future, you must have a myopic focus on the carrot and ignore many other facts. Please note below that if you believe the Subsidium report CCF will have lost $8M by midway through 2018.
What you are being told is that the smarter folks over at LHA with Subsidium’s help have thought this through for you over a long period of time. That is simply not the case—they didn’t have independent legal counsel, they apparently didn’t know what is set forth in this communication to you and even if they did they were not the proper governing body to decide the City’s future healthcare needs—many of them are CCF’s folks. LHA’s duties and legal obligations are to run a hospital not close one. Just one example of why you should not trust what the trustees have concluded is that fact that you still do not have a full disclosure of all of the details concerning the Administrative Services—this means that the trustees do not have that information or perhaps a more sinister scenario exists.
The narrative being advanced for the LOI is bogus in several key respects. Time is actually your friend. Rejecting the LOI and enforcing the current Lease and the Definitive Agreement (“DA”) is the clear choice---it is not the only alternative to the LOI, but it guarantees the most benefits and options for the future.
The Lease and the DA are clearly better than the LOI and the New DA
Preserving the City’s current rights and insisting upon a new form of accountability guarantees several vital City interests:
1. It guarantees the hospital remains open until 2026 providing over $153M in benefits during that period, including $55M in capital improvements from CCF.
2. It guarantees the potential that Lakewood will have a hospital in the long term;
3. It guarantees if the hospital ever needs to be closed, the City will have financial and physical assets equal to or greater than it currently has and guarantees it can entertain proposals from multiple potential partners instead of just one.
4. It preserves the City’s rights to protect $50M LTIP—note even if some or all of this is ultimately lost, the City will benefit from the assets acquired $55M—The LOI results I CCF benefiting from $26M of the LTIP by 2016.
Accepting the LOI guarantees:
1. That Lakewood will not have a hospital after 2016 and little or no possibility of one in the future.
2. $26M of our LTIP will be spent to wind down and tear down the hospital that benefits only CCF.
3. A fiscal disaster for years to come. Note the “ESTIMATED FINANCIAL IMPACT OF THE LAKEWOOD HOSPITAL TRANSITION ON THE CITY OF LAKEWOOD as of February 9, 2015” looks pretty ugly especially when compared my proposal.
4. Uncertainty as to what the City will receive for our current assets.
Is anyone really good at “long term sustainable” healthcare solutions?
The notion that you as our City leaders must come up with a silver bullet or wave a magic wand to achieve a long term sustainable solution for the City’s healthcare needs in such short order is neither realistic nor advisable in an industry that is by all accounts ever changing. If we look back at what has happened and may happen with the deal the City cut in 1996 that our leaders and CCF back then believed would last for 30 or 60 years, we see that CCF/LHA has come to us twice prior to change the deal – promising both times long term sustainability and now less than 5 years later CCF/LHA say we have to close the hospital. Subsidium p. 7 “current lease partner unwilling to renew under current conditions.” So apparently CCF is not so good at long term planning either yet you are being asked to put all our eggs in their basket. Why would we end that 30 year deal 18 years into it when we have a financial guaranty from a world class financially viable fulfillment partner for at least another 11 years? The only quasi legitimate argument I have heard in response to that proposal is that we are heading toward a “cliff” in 2026 as our dated facility might be “empty”. As I explain below the fact is that 2024-2026 will present a new horizon for Lakewood—it is not a “cliff”.
It is clear that CCF has planned and created Lakewood’s current “crisis”—but there is no need for urgency.
There is only one real reason for the perceived urgency of a decision from you as our elected leaders and that urgency is due entirely to actions and plans by CCF. Under the guise that LHA and the City will somehow bear the impending losses resulting from CCF’s decision to open a competing hospital in Avon all in likely violation of CCF’s fiduciary duties owed to LHA and the City, CCF seeks to terminate its liability under the Definitive Agreement (“DA”) estimated by Subsidium as high as $214,000,000 through CCF asserting it rights under the very agreement it seeks to avoid (the DA) to block the City from dealing with a third party, thereby attempting to force the City to deal only with CCF for the City’s future healthcare needs. When did they begin planning for Avon? This crisis is CCF’s doing.
Stated differently, CCF seeks to achieve at least four basic goals in the LOI and New DA:
1. Escape its significant liability under the 1996 DA.
2. Retain its market share in Lakewood and forestall its competitors from entering Lakewood.
3. Support its new Avon Lake Hospital
4. Destroy the Lakewood facility so that there could be no hospital to compete with CCF’s other hospitals (Fairview, Lutheran & Avon)
CCF has employed three tactics for attempting to achieve its goals:
1. Assert its rights under the DA even though it wants out of the DA.
2. Breaking ground on Avon for its own purpose and against LHA.
3. Likely breaching the DA by loading LHA with millions of dollars of inflated overhead Administrative Services and then refusing to disclose the details and justification for those costs (which it likely has a fiduciary duty to disclose in every detail, e.g. the amounts and allocation of CCF executive salaries, which are they and how much they are paid.)
4. Diverting patients, programs and personnel from LHA.
5. Having LHA incurred nearly $500,000 for a consultant which appears to be to white wash its plan.
6. Putting its name to a document that proclaims that “healthcare is changing from facility- and physician-based paradigm, designed to care for the sick, to a population based effort that aims to improve the health…” when in that same document it plans to build a facility to care for the sick, it is simultaneously building a facility in Avon to care for the sick which is physician-based and while its overall market strategy is to build facilities and employ physicians to compete with its facility based competitors and eliminate independent physicians.
1. CCF is essentially a Guarantor of the Lease and is required to finance LHA’s losses to provide all of the ‘Required Services” by operating Lakewood Hospital through 2026 even if losses are $214M NPV as Subsidium forecasted.
Section 2.1.1 of the DA provides in part, “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” In Section 1.8.1 of the DA, CCF agreed “Notwithstanding any provisions in this Agreement to the contrary, CCF acknowledges and agrees that no provisions in this Agreement will cause [LHA] to take action or omit to take any action that could cause [LHA] to fail to perform or observe, or otherwise be in default of, any of its obligations under the Lease...” Section 9.11(b) of the Lease on page 35 requires LHA to “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…” Section 13.5 of the Lease provides an Agreement to Pay Attorneys ‘Fees and Expenses.” In the event there is an Event of Default or that it shall become necessary for the City….to employ attorneys or to incur other expenses…to enforce observance or performance of any covenant, agreement or other obligation on the part of [LHA]…[LHA] on demand therefor, shall reimburse the reasonable attorney fees and expenses of those attorneys, to the extent permitted by law, and will reimburse the other reasonable expenses incurred.”. It appears that the consequence of these provisions of the Lease and DA is that if LHA runs up trade debt, has to borrow money to fund operational losses or make the capital improvements required under the Lease, CCF as the sole member of LHA and per the DA must assent to incurring that debt and must advance enough cash to maintain the 1:1 cash to debt ratio. Since LHA and CCF have entered into the LOI and thereafter made a public announcement concerning closing the hospital, it appears that they have together breached the Lease, and all attorney fees incurred by the City to force those parties to do what is required under the their agreements, namely to operate a hospital for 11 more years, will ultimately be borne by CCF. It does not matter that some of you in your capacities as Trustees of LHA took actions in those capacities based upon the apparently incomplete and inaccurate information concerning the DA and with CCF withholding information from you that was relevant to the proposed transaction and without the advice of independent legal counsel to advise you in your deliberations as Trustees. Indeed, there is also some evidence that one or more of you may have relied on CCF’s attorney’s advice in making decisions concerning the proposed transaction and if so that appears to be improper. It also appears that the cost of that attorney’s advice may have been charged to LHA. If the Thompson Hine attorneys agree with my interpretation of the DA, and CCF is obligated to fund future losses, you should ask your attorneys and yourselves if CCF and/or their Trustees on the LHA Board knew of this obligation to fund losses? Did they have a duty to disclose that to LHA management or LHA Trustees? Did the CCF representatives who made public appearances and statements at the forums know this when Subsidium proclaimed at the forum that CCF has no liability for the losses? As a citizen of Lakewood, I strongly urge each of you as elected representatives to understand these all important and decisive legal rights the City possesses and to obtain the advice, opinions and counsel of Thompson Hine to guide your deliberations among the many options the City has, including but not limited to preserving Lakewood’s Hospital for at least the next 11 years and all the while carefully planning for the future of healthcare in Lakewood for what is beyond 11 years with the help of truly independent counsel, advisors and the input of the citizens of Lakewood.
2. CCF, Subsidium and the LHA Trustees all acknowledge and agree that the DA and CCF may have prevented any meaningful negotiations with any third party options for LHA, and if so it is clear that no third party options have been fully considered.
Subsidium Healthcare’s Overview (“SHO”) at page 67 underscores that as early as June 19, 2014, LHA and its Trustees knew or should have known that CCF and the DA prevented or impaired discussions with parties other than CCF that would benefit Lakewood Hospital. “Additional key consideration was the fact that we could not proceed with further detailed discussions with Metro Health until we determined the potential terms for either terminating the current Definitive Agreement or redefining the relationship with the Clinic.” SHO at p. 67 6/19/14. If LHA could not and did not negotiate with suitors solicited by Subsidium due to the DA, then it proves that the process employed by Subsidium and LHA did not, could not and does not serve as the City’s due diligence in considering its viable options for the future of Lakewood’s healthcare. Additionally, it is my understanding that the President of University Hospitals cited “tortious interference” concerns in relation to UH’s unwillingness to becoming involved in the process. It is my understanding that there has been no written waiver by CCF or LHA under the DA or Lease that would enable any meaningful exploration of the City’s long term options. Moreover, it is my understanding that the CCF attorney essentially advised at least one of you that LHA could not legally pursue third parties. If the Thompson Hine attorneys agree that CCF’s rights under the DA prevents third party options to be pursued at this time, you should ask if the City has to wait until December 1, 2024 when LHA’s option to renew the Lease expires to formally pursue those options? Since Subsidium’s report at p. 7 states that CCF is “unwilling to renew under current terms” would the attorneys advise obtaining LHA and CCF written authorization for the City to begin exploring partners for 2026 ?
3. LHA and its Trustees did not have all of the facts when they voted in favor of the LOI. ---they were not represented by legal counsel throughout the entire process with Subsidium on the RFPs’ and the results of their search for other partners and the product of their compromised negotiations i.e. the LOI cannot be relied upon as arm’s length or the City’s “only viable option” for the future.
As far back as April 2, 2014 Subsidium and the LHA Trustees failed to retain legal counsel (other than possibly the CCF attorney) to answer a critical question: Is CCF liable under the DA for the projected losses caused by CCF opening the Avon hospital? “We don’t have a definitive legal opinion about whether CCF would remain obligated to fund any operating losses and negative cash flow throughout the remainder of the Lease…If [CCF] were somehow obligated to fund cash flow for[LHA] until the end of 2026, [CCF] would likely take action to stem the losses, and the impact of their potential action cannot be projected…However, if we assume the range of scenarios that are shown on page 9, then the total net present value of the cumulative cash flow deficit from mid-2018 through 2026 could be between $158M and $214M” SHO p. 62 4/02/14. Even assuming that LHA was the proper party to conduct negotiations to determine the future of healthcare in our City, they did so without legal counsel and without understanding a very important right that the City holds and a very important liability that CCF has. You might ask the attorneys if CCF has a duty to provide LHA Trustees with any projections CCF may have concerning CCF’s likely action likely action to stem losses. I would note that any such projections would be critical for you all to have to assess the City’s options.
4. Any erosion of LHA’s $50M LTIP (which is an asset belonging the City at the end of the Lease) that might result from CCF opening its “Cannibalizing” Avon hospital must be restored by CCF if those losses are the result of any breach of the DA or breach of fiduciary duties CCF owes to LHA or the City.
Subsidium’s report makes it clear that if there is an erosion of the LHA $50M LTIP it will be as a result of CCF’s decisions to have that happen or not. “Volume impact of Avon on [LHA] Income Statement… Two scenarios 1. CCF moves 80% of its volume out of [LHA] to new Avon Hospital 2. CCF moves 50% of current volume…If we continue the current lease, CCF would likely find programs to maintain at [LHA] so could assume much smaller volume loss.” (SHO at p. 60) “Threats…New Avon hospital will likely cannibalize significant in patient volume for [LHA]” SHO p 12 The language used by Subsidium “CCF moves..its volume out of [ LHA]” is quite telling—it reinforces popular belief that CCF can control patient volume among hospitals. Threshold questions that your lawyers need to answer re: Is CCF in fact managing the “day to day” operations of Lakewood Hospital or are the Trustees? Section 2.1.3 of the DA “Right to Manage” sets forth conditions that give CCF the right to manage the “day to day” operations of Lakewood. Have those conditions been met? If not, and CCF is in fact managing the hospital are they a fiduciary? Does it even matter? You should all inquire of the THF lawyers if CCF will be responsible for LHA’s (and the City’s) losses of the LTIP that might be caused by CCF’s breaches of fiduciary duties (as the sole member of LHA or under the DA) by, among other things CCF opening Avon. That presents another important question: Since CCF charges “Shared Administrative Expenses” to LHA that includes, among other things, “Executive Team” and “Finance”, were the salaries and expenses on any CCF executives and other personnel working on the planning for the Avon hospital and its impact on LHA included in the Shared expenses, and if so since LHA has paid for those services do the attorneys have on opinion as to whether LHA and its Trustees have a right to the information that is the product of those services? In other words does CCF have a duty to disclose to LHA all information concerning the planning of the Avon Hospital that Subsidium says would “cannibalize” LHA?
5 Did/Does CCF have a duty to disclose to LHA and its Trustees all details relating to the Administrative Services that LHA has paid to CCF?
Knowing whether the Administrative Services charged and paid are justified was relevant to the Trustees’ decisions to close LHA and is certainly relevant to your decisions. Knowing how CCF does the allocation of Administrative Services among hospital is one question. Does CCF have duties to supply all details relating to those services, e.g. all details of executive compensation?
Another is does the allocation fairly benefit LHA? Two suspicious categories exist: “Finance” and “Legal”. Without that information, the City and its advisors cannot properly make any determination as to the viability of the hospital. Section 1.1 p.2 of the DA allowed CCF to become the sole member of LHA with all of the “obligations” required by ORC 1702 et seq. Article Five (a) of the LHA Articles of Incorporation provide, in part, that “No part of the earnings shall inure to the benefit of... [CCF]. If any portion of the Administrative Services paid to CCF are inflated or unjustified it may be a violation of Ohio Law. CCF is the sole member of LHA and, by virtue of the DA essentially controls LHA and thereby owes fiduciary duties to LHA, the City and the citizens of Lakewood. LHA Board meetings were required to be open to the public “to assure full disclosure of the operations of the Hospital.” (see Lease p 2) Also, under Section 9.11 (c) of the Lease, LHA “covenants that it shall…open to the public all meetings of its Governing Board to assure full disclosure of the operations of [LHA].” Does “full disclosure” mean full disclosure? It is my understanding that these meetings have not been made public. Again, under the DA, CCF cannot cause LHA to fail to comply with or omit to do something required by the Lease (see Section 1.8.1 of the DA). In my view, it does not matter what CCF and LHA decided to do internally to close their meetings to the public. I believe that under the Lease, the City and the citizens of Lakewood have a right to know all of the details of the Administrative Services paid to CCF. If the City incurs any expenses or legal fees in obtaining the information by enforcing the Lease, will LHA be required to pay those fees and expenses? Again, the THF lawyers will provide you with their advice and I hope the cost of that advice will ultimately be borne by CCF per the DA and Lease.
7 The citizens of Lakewood are third party beneficiaries under the Lease.
As mention above, the public is entitled full disclosure of the operations of LHA. [Section 9.11 (c)] Note that this provision is in addition to the City’s right to appoint Trustees to the LHA Board so the public appears to be an intended third party beneficiary under the contract. The Lease also provides that LHA agreed “to continue to provide healthcare services in accordance with [the Lease] to the residents of the City without regard to their ability to pay…” (page 3 of the Lease) Article II Section 2.2 of the Lease provides, in part, “Purpose. [LHA] will… operate… as Hospital Facilities for the service of the general public...” Section 9.11(b) p 35 requires LHA to “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…” Thompson Hine should be asked if class action litigation could be commenced on behalf of the uninsured, indigent people or the general public as a result of the actions by CCF, LHA and perhaps the City by proceeding with the LOI. Does the City have any exposure? Should the possibility of that type of litigation be factored into your decisions? It seems to me that a strong majority of Lakewood citizens who are paying attention are up in arms over the prospect of the hospital closing. Can the lawyers for the City demand that section 9.11(c) of the Lease be enforced so that motivated, well informed and well intentioned citizens can serve as additional guardians of the City’s rights into the future? If that is advisable, can the attorneys’ fees for this effort be charged to LHA (and ultimately CCF) if you decide to help theses citizens?
8 There is no need to be adversarial with CCF and no reason to fear CCF or that they will leave Lakewood even in 2026—Lakewood is a valuable market.
If you believe Subsidium’s report at p. 12: “Lakewood Hospital’s primary service area (4-zip) generates 25,000 admissions per year to area hospitals (we are a valuable market)”
Will CCF Walk Out? I have heard the argument that if the City presses CCF to honor its obligations under the DA through 2026, there is a significant “risk” they might leave and we would be let with an “empty building”. I say nonsense---they clearly want and need our real estate —they joined us in 1996 for market share and they won’t abandon it to any competitor without a fight—folks at CCF have acknowledged that CCF can easily afford $20M loss per year for the last 11 years of the Lease—but that will not likely happen under the DA as they have a huge incentive to stem the losses. On the other hand, in the highly unlikely event that they would want to leave before 2026, then they would need to some give notice and it frees the City up to begin fruitful discussions with Metro, UH and a host of other options that are highly likely to be better than the “deal” on the table. The City could then preserve the City’s rights to damages and attorney fees if need be. The opening bid by the City if CCF does that should be $214M—that would build us a nice hospital and a recreation center. Do the attorneys believe that there is any significant risk that CCF will walk?
Will Quality of Care Suffer?” I have heard the argument that quality of care will suffer if CCF is forced to run a hospital that it does not want to run. Again, that is not likely, but if any of you truly believe that, I suggest that you should not vote in favor of doing business with such a party for the future of our City’s healthcare. That would also present many ethical problems for a world class hospital such as CCF and they won’t likely tarnish their brand over even a $200M liability. Of course, as a City we will need to be much more proactive going forward and change our Trustees on the LHA Board to protect our interests. Do the attorneys believe that CCF will let patient care suffer?
“Do We Have No other Options?” I have heard the arguments that LHA Trustees and Subsidium’s process is an exhaustion of all our options and that we have no options besides CCF’s proposal. Do the attorney’s agree that we have no other options than to do a deal with CCF now?
9 Subsidium’s Report is very weak in several key areas.
While I don’t know all the details of their engagement yet, Subsidium made several glaring strategic and factual errors in the course of their engagement and their report and public presentations show they went far afield from the mission they state they had.
1. They should have halted all work until after they had LHA obtain a legal opinion on CCF’s obligation under Section 2 of the DA.
2. If they believed that the DA prevented negotiations with third party suitors then they should have come to terms with CCF on that issue before wasting LHA’s time and money trying to elicit bids.
3. They should have rejected the CCF proposal out of hand as it did not meet the criteria of the RFP.
4. They started with the mission of planning for 2026 and then 15 months later they have a deal that would terminate a valuable agreement for LHA and the City 11 years early—an agreement that Subsidium apparently never took the time to fully understand. They also did not understand that LHA was not the proper party to be determining the City’s future---they failed to appreciate CCF’s dominance and influence over the LHA Board per the DA and Code of Regulations—it is not independent of CCF.
5. Subsidium and the LHA Trustees overlooked the most common first step in a hospital turn around---to change the trustees that have been their too long, lack the necessary experience and skills, have no solutions, and engage in group think—the fact that the January 14, 2015 was unanimous underscores that syndrome and the need for change.
6. Subsidium cites statistics that a small portion of Lakewood residents are using Lakewood hospital as a reason for closing it—most of my neighbors laugh at that spin. Some nationally reports are that 5% of our population consumes 85% of the total benefits so it should not surprise any expert that only a small part of the population uses the hospital.
7. Subsidium claims by statistics that Lakewood residents are somehow choosing to go to hospitals other than Lakewood ---yet they admit that CCF has the ability to “move…its current volume out of [Lakewood]” (SHO at p. 60) Of course most people who are not from out of town like the Subsidium folks and who pay any attention to healthcare issues in our area already know this and did not need an expensive consultant to tell them that. CCF has been funneling patients out of Lakewood for years---when these Lakewood patients call to schedule appointments or test, CCF sends them where CCF wants them to go. Just one of many examples is mammography test directed away from Columbia to the current Avon facility. Ask the attorneys if CCF can purposely divert patients from LHA facilities without legal recourse by LHA and the City?
8. I’ve heard that Subsidium has been involved in making changes to the draft of the New DA while LHA remained or remains unrepresented by legal counsel. You should ask the Thompson Hine lawyers if this is helpful or even proper at this stage. Are they lawyers?
While Subsidium’s report and public presentations may contain many “facts” and statistics, it is clear that they did not have all the relevant facts, and their analysis and conclusions contain many contradictions of the “facts” they do cite. Overall it is quite flimsy. There are many more problems, but the bottom line is someone at LHA should demand a refund from these folks and hold them accountable.
10 Change is needed--I am not advocating the status quo or to do nothing.
I have heard some of your comments that the status quo is not acceptable and I agree. Good leadership is all about accountability. Without good leadership and accountability there can be no real change. The LOI is worse than the status qou—it fails the accountability test in many respects. According to Subsidium, CCF is not happy with the current terms of their deal and it is apparent why—it has little to do with market changes or what is happening in Lakewood—they have had a longstanding plan (not fully disclosed to LHA trustees) to close Lakewood Hospital. If they out they need to say so and come to the table in good faith and disclose all that they are required to disclose. I understand that the construct of the current Board is highly dysfunctional with CCF essentially running the show. But if the current trustees did not have the information concerning the Administrative Services charged to and paid by CCF, this poses a few questions for the attorneys: Did the trustees fulfill their fiduciary duties to investigate and ask tough questions as the charges increased dramatically? If so what information were they given? Do some of the trustees have this information and are not sharing it with the others? Does the fact that CCF has been less than forthright on this issue excuse the trustees for making such an important decision without that information? What D&O insurance exists from which a recovery could be paid?
There are many options to be explored that don’t involve litigation. By way of example, the City could form a task force of talented healthcare professionals free of conflict and influence by LHA, CCF, Metro and UH, etc. to (1) work on short term solutions for the City with LHA/CCF including making changes the City’s representative on the LHA—many have been there too long and there is a perception in the general public that it is a social club and some are defeatists (fair or not), and (2) begin planning for 2024-2026. I am only one person and have been at this only two weeks and I see much promise in several solutions besides those being offered.
Summary
CCF has created the immediate crisis and has or could cause great damage to LHA, the City and its citizens if the City does not stand up for their rights. They must advance cash to cover all losses caused by the opening of Avon—they are accountable for their decisions and legal duties just like any other charitable organization. I see no need to be adversarial with CCF, but I have no illusions that due to the competing interests and their perceived power, that working out a solution will be no easily matter. You as our leaders need to ask tough questions and demand complete answers.
You on behalf on our City currently have at least five aces in your hands:
1. If my analysis is valid the Lease and DA are assets;
2. CCF needs and wants to retain its share of Lakewood’s valuable market;
3. CCF desperately wants the prime real estate location owned by the City upon which the hospital rests—tearing down the hospital insures their monopoly in the Lakewood Service Area for years to come—25,000 hospital admissions;
4. The possibility of a hospital continuing at that location after 2026—keeping this option open is very important for our City and any future negotiations.
5. The ability to seek competitive bidding for well thought out options with many others besides just CCF.
By asserting the Cities rights through 2026, the City and community will received over $12M in rent $9.9M in income taxes, $55,000,000 in capital improvement and $77,000,000 in support for our uninsured in the next 11 years. Even if the LTIP is lost by 2018 and there is no recovery of it, the benefits we receive as a city far outweigh that loss—the LTIP is truly a McGuffin. Compare this to the fiscal and financial jackpot set forth in the February Impact Statement—Note that impact statement does not include any analysis of property value declines caused by not having a hospital. This decision to pass on CCF’s offer is an easy one.
We have plenty of time to plan as a community for what will happen in 2024 while our world class partner runs our hospital. As we approach 2024-2026 the possibilities include retaining a hospital and at the very least freedom to avoid any player monopolizing our market and our citizen’s choices. As CCF’s leverage to obtain a monopoly in Lakewood wanes---they will be just as eager to bargain with us.
In my opinion the five aces the City holds more than evens the perceived power imbalance of CCF now and in the future.
We can do far better than the deal negotiated by a consultant and trustees without all the facts, without legal counsel, with only CCF to bargain with and with CCF knowing the consultant’s and LHA’s negotiating strategy . We have many options.
I am committed to working with all of you to solve this important problem for the City and our fellow citizens. This is an enormous undertaking by you and your willingness to listen is what makes Lakewood a great city.
Sincerely,
Brian J. Essi