Lakewood Hosp Trustees Must Act For Citizen Beneficiaries
Posted: Wed May 13, 2015 10:14 am
Dear LHA Trustees,
I am one of over 52,000 beneficiaries under the Lease dated December 23, 1996 by and between the City of Lakewood and Lakewood Hospital Association (the “Lease”).
My background and research.
I am 55 years old and have lived almost my entire life as a resident of Lakewood. I have degrees in finance, economics, accounting and law. I have been a licensed attorney since 1984. In my legal career, as a solo practitioner and working with both medium and large law firms, I have handled complex litigation and business transactions involving fiduciary liability, professional liability, loan workouts, corporate restructuring, taxation, accounting and securities. I also have experience as an officer, director and manager of a medical practice. In recent months I have devoted fulltime and overtime researching the Lakewood Hospital matter which includes, but is not limited to reviewing documents and public records, and interacting with doctors, hospitals administrators, healthcare attorneys, elected leaders, Cleveland Clinic Foundation employees, Lakewood Hospital Association trustees, Lakewood citizens, representatives of the media and others willing to speak with me.
A hierarchy of wrongs and conflicting interests has resulted in a breach of trust.
The 1996 Lease and Definitive Agreement (the “DA”) created an unusual and complex love triangle among CCF, LHA and the City with LHA at the center between two competing interests that were supposed to share power and work together for the beneficiaries. The Lease and DA created a constructive trust with the CCF and LHA as trustees for the beneficiaries. There is an ongoing debate over the history and blame for how things went wrong that includes, but is not limited to: (1) CCF taking unfair advantage in its self-interest, (2) past and present City leaders failing to understand and properly execute their roles and the power vested in them, and (3) LHA board being less than effective and proactive in its supervision of CCF and the hospital affairs. Longstanding trends and changes in healthcare have also been blamed as a culprit. In addition to the gradual but steady loss of important and now vital hospital services, there has been a hierarchy of other issues and wrongs that have gone unaddressed.
These smoldering embers erupted into an inferno on January 14, 2015 with the announcement of the Letter Of Intent. As the debate over what to do rages, the hospital is burning. That CCF, LHA and the City have failed in their duties and the trust has been breached is beyond debate---the LOI stands as evidence of that failure. The hospital employees and the citizen beneficiaries are the victims. May I suggest that a major mistake was made and poor judgment was used in signing the LOI and presenting it as a “done deal” instead of just sending a recommendation to City Council. The lack of independent legal counsel for LHA explains but does not excuse the mistake. You can easily correct that mistake today.
The current state of affairs—high political stakes and high litigation risk.
Based upon my research, the City Council vote on the LOI has a good chance of failing. In my view, Council voting for the LOI is actually riskier for the hospital and the hospital employees (City assets), because if it is approved, there will be a referendum of some sort with the voters in deciding the matter in November—delay allows the hospital to burn longer. The folks at Save Lakewood Hospital are reporting approval of their current petition in the high 90%--they report getting 100% acceptance of the petition in some neighborhoods. To add to the risk, there is the taxpayer lawsuit that I am told will be filed by Attorney DeVito’s office as early as next week in which some or all of you may be named as individual defendants. Whether or not each of you is named personally there will be ensuing depositions of each of you, discovery requests and insurance defense lawyers in control, etc. i.e. the chaos of litigation. Based upon information made available to me, the plaintiffs have a strong case for breach and damages, i.e. the litigation risk as very high.
Minimize risk—maximize reward—a less risky course.
I believe that there is a much less risky and less contentious course that LHA should adopt at its May 13, 2015 meeting today. If chosen, the alternate course would greatly assist Mayor Summers and Council in their duties to make the best choices for the City and the beneficiaries. It will take open minds and courageous leadership by each of you to take the immediate action I recommend.
On behalf of the class of beneficiaries under the Lease and constructive trust to whom you all owe fiduciary duties, I hereby respectfully request that LHA take the following votes on May 13, 2015:
1. Vote to terminate LHA’s participation in the LOI.
2. Vote to unilaterally grant the City the right and option, at the City’s discretion upon reasonable notice, e.g. 90 days to terminate the Lease (the “Option”).
3. Vote to remove Michael Meehan, Esq. from any further involvement with the LHA trustees and appoint a new qualified secretary---a lawyer free of conflicts.
4. Vote to hold CCF’s feet to the fire—begin restoring hospital services and confidence in LHA.
The termination of the LOI and the grant of Option will free the City to explore all of its options.
The main reason you need terminate the LOI is because it is the right thing to do.
I cite 12 additional reasons supporting the request as follows:
1. The LOI is damaging the City’s ability to attract third party options. It is wrong and damaging to our City that the LOI requires LHA and Mayor Summers to negotiate exclusively with the Clinic. In a public statement to City Council on April 27, 2015, Mr. Haber, speaking for LHA, stated that the LOI was only a “recommendation” and not intended to be “final.” He said “third party options may emerge.” Two days later Metro made a public statement: “We are always looking at ways to collaborate with healthcare providers and community leaders to see if there’s a role MetroHealth can play in building up the health of the community.” (Cleveland.com 4/29/15) Third party options cannot be pursued with the LOI in place. On April 27, 2015, Mr. Gable agreed that CCF won’t walk away if negotiations are put on hold to consider third party options—CCF wants the hospital leveled and wants to control the Belle/Detroit location. Mr. Huntsberger can continue to keep the draft and discussions going on a nonexclusive basis if you all deem that advisable. Mr. Haber’s word and fine reputation should be honored. Using City Council as an excuse not to act is not acceptable leadership by LHA. It is wrong for LHA to bind itself and our City leaders to an agreement when with the stroke of a pen it can terminate the LOI and allow Metro and City leaders to explore at least that option.
2. LHA and the City have the sole right to amend the Lease without CCF approval. It is clear that the City and LHA have the sole exclusive legal right to amend the Lease. If you grant the City the Option and the City comes to terms with Metro, the City can exercise the Option to terminate the Lease, and CCF will have no rights after termination. There is no reason to fear CCF—they want out of the DA and the LOI is only one vehicle for them to escape it. Lease Section 14.6 provides the “Lease may be amended by Lessee and City without the consent of or notice to….any other person [i.e. CCF] provided that such amendment shall be authorized by ordinance passed by at least two-thirds affirmative vote of the Council.” The DA at Section 10.2 provides “This Agreement may be terminated…[10.2.2] --.[i]f the Lease expires or terminates ….” The DA Section 10.3 further provides, “Any termination pursuant to….Section 10.2 shall first be approved by the Board of Trustees of the party seeking termination.” Therefore, only 12 trustees voted are needed to amend the Lease to grant the City the Option and only 12 votes are needed to terminate the DA if that becomes necessary at a later date. Under Section 10.4 of the DA, if and when the Lease is terminated, the DA ends and CCF is removed as the sole member of LHA. Unless CCF claims a breach of the DA by LHA (which would be hard for CCF to do), CCF has no rights or claims after termination of the Lease. (See DA Section 10.5)
3. The Option Will Allows Council to Maximize the City’s Assets. Selling a going concern is almost always better than selling pieces and parts. Having multiple bidders is better than having just one. If the constraints of the DA, LOI and CCF’s inside track in negotiations are removed, the best prices can be obtained---likely with much more cash being paid to the City immediately or over time. The City does not need to bear the $26M cost of winding down the going concern and tearing down its buildings (together valued by Subsidium at over $70M) to gift CCF a piece of land. The City does not need to forgo the loss of so many jobs and income taxes. The Option would empower Council and the City to sell or re-lease the going concern or liquidate the assets with multiple bidders and multiple potential solutions.
4. Hospital Services must be restored. I am told that the following services or elements of these services have been removed from Lakewood Hospital: Neurology, OB/GYN- turning away patients now, saying they will close it soon, Oncology (cancer), Pain Management, Pathologist – no frozen section, Physician Pre-certification Program, Thoracic surgery (lungs), Open Heart Surgery, Interventional Cardiology (stinting), 70% of Hospital profits come from Heart Service line, Electro Physiology (complex pacemakers), GI Gastro Intestinal lab, In patient Psych, Rehab- to be removed soon. Work on restoring these services should be a major focus of the trustees.
5. Council is the proper body and has the right to control the City’s future healthcare needs. At this point in time, City Council is the proper body to decide the direction of healthcare in Lakewood. With the Option in the hands of Council, the negotiating power shifts from CCF to the City. Your duties as trustees are to serve the City and the needs of the citizens as beneficiaries of the Lease and LHA. Only 11 of you are Lakewood residents. Whatever power LHA has retained by holding on to the non-binding LOI, it should immediately cede to the City to open up all options for the beneficiaries.
6. A hierarchy of CCF conflicts of interest has culminated in a colossal related party transaction, self-dealing and usurpation of corporate opportunity by CCF which can be best described as defalcation while serving in a fiduciary capacity. The CCF “Code of Conduct” included in your trustee handouts at various LHA board meetings purports to govern “affiliates” (p.2) and “trustees”. At p. 4, item 3 “Conflicts of Interest…Employees owe a duty of complete loyalty to Cleveland Clinic” This means that Drs. Jones, Freeman, Culley, Shannan Ricthie and Ankit Chharbra and Michael Meehan all owe “complete loyalty” to CCF, not LHA. This is bizarre since LHA reimburses CCF for portions of salaries of some of these actors purporting to be working on behalf of LHA. Mr. Meehan has additional unresolvable professional conflicts imposed by virtue of his license as an Ohio attorney combined with the fact that part of his salary is allocated to and paid by LHA in the administrative services charged by CCF. Based upon information provided to me, Mr. Meehan likely violated attorney ethical considerations and disciplinary rules by providing advice to LHA trustees that has impacted the current crisis as well as threatening an elected official. The Code of Conduct also suggests that Mr. Gable and other trustees who also serve as trustees for CCF affiliates may owe their “complete loyalty” to CCF, and not LHA. In fact, since LHA is considered an “affiliate” of CCF, the Code could be argued to apply to all trustees of LHA.
Adding to those conflicts were the January 14, 2015 presentations by Dr. Donley, Dr. Jones and Mr. Glass promoting the terms of the LOI that would dissolve LHA and enable CCF to cannibalize LHA and City assets. CCF and these individuals made the presentation while they owed fiduciary duties to and were being paid by LHA. Their actions exposed a hierarchy of complex conflicts of interest and duplicity. The LOI if acted upon is a monumental related party transaction involving self-dealing, usurpation of a corporate opportunity by CCF using the DA to preclude fair bidding for public assets. This amounts to defalcation by CCF and its officers while acting in fiduciary capacities in relation to LHA. That malfeasance by CCF has in turn tainted and sullied the public’s perception of the LHA trustees.
Adding yet further to this hierarchy of conflicts and duplicity are paragraphs II L & M of the LOI whereby LHA arguably agrees to indemnify CCF for Jones, Ricthie, Glass and Chharba serving as agents of LHA. To top all that, LHA pays CCF $2.5M for insurance coverage ($108,659 per trustee) to absolve all from any bad conduct---this sum is an unusually high premium to pay for such coverage and implies that there is a great deal of litigation risk exposure. This makes all of you as trustees look pretty bad—it is a shameful waste of public money by a public charity. It is simply wrong to pay that additional taxpayer money to CCF to protect their people from conflicts they created and are exploiting. At the very least, Mr. Meehan must be removed for his own good. I understand that much of this is not news to you and that there may be some internal rules adopted by LHA and CCF that somehow allow these conflicts to exist, but it is simply not healthy or wise to have LHA stand on its position on the LOI it is at this time.
7. Employees at Lakewood Hospital will benefit. The May, 2014 Metro proposal provided an offer of employment for LHA employees to join Metro. Many doctors and staff at the hospital will join Metro or another system if they come to Lakewood. Many will choose to go to Avon. This is a win-win for the employees --including doctors. As you may be aware, a highly respected ER doctor with 25 years of service recently quit the hospital amid this crisis. Doctors and staff will stay with us and they will come back if another system takes over.
8. Despite trends, there is a need for inpatient hospital beds in Lakewood. In a recorded statement to City Council on April 30, 2015, Dr. Donley said that he does not know Lakewood’s needs for inpatient beds, and that the Clinic relies on LHA for that assessment. At the same meeting he said he knew precisely that Avon needed 80 beds. Metro announced adding 85 beds to their health campus in a neighborhood with more challenges than Lakewood. How can there be an increased need in Metro’s neighborhood and no need in Lakewood? LHA pays the Clinic over $24 million annually for administrative services and if the Clinic truly does not know the need for beds unless LHA tells it—if this is true that is mismanagement. The 34 page 2014 Metro proposal released on Cleveland.com on May 11, 2015 contains many thoughtful details which underscore that there is a need for inpatient beds in Lakewood and a plan to sustain a hospital. May I suggest that Dr. Donley and CCF know that there is a need for inpatient beds in Lakewood and they just don’t want to share it with you as their “partner” even though LHA has already paid them for their costs in generating the withheld information? CCF does not want to service our population with a hospital in Lakewood because there is not enough money in it for them.
9. Metro is a more trustworthy steward. Kindly note that to date, despite 15 years of full power and opportunity to do so, CCF has done little in the way of innovation to increase the efficiency of how over $7M of charity (our money) is spent each year on delivery of services to the underserved. This must be contrasted with Metro which is way ahead of CCF in the population-based ACO model and has the proven ability and desire to serve demographics such as ours efficiently and profitably. It is the view of nearly every one of the many doctors with whom I have spoken that Metro is a much better fit for Lakewood than CCF—and I have spoken to many CCF doctors. In short, Metro cares more about populations like Lakewood's and is far ahead of CCF in serving them in innovative ways. In addition to Premier Physicians, there are a growing number of independent physicians who are being organized and will support Metro at Lakewood if Metro is given that opportunity. Metro has been around 70 years longer than CCF and is a proven sustainable provider and innovator.
10. The LOI is not a healthcare “Partnership”--it is just a bad real estate deal. On April 30, 2015, in a recorded statement before City Council Dr. Donley acknowledged that the long term sustainability of its Family Health Center is largely about the City having “faith” in CCF. Back in 1995, Dr. Loop told Lakewood leaders “trust us”—leaders who were there and are still alive view these as words from con men. Several Trustees have agreed with me that the City will have little or no control over CCF and the proposed FHC once the deal is signed and the FHC is built. Drs. Jones and Donley both admitted in recorded statements before City Council that the $34M proposed FHC is an “investment in us” (referring to CCF). While the role of the proposed new foundation remains very uncertain, the recorded discussions at the April 30, 2015 meeting make it very clear that the new foundation and the proposed FHC will not amount to a “partnership” between the City and CCF.
11. A Family Health Center is not an “Exciting” or New “Opportunity” For Lakewood as Dr.Donley claimed in his recorded comments before City Council. A FHC is not at all new or cutting edge. Page 2 of the 1996 DA refers to “development of family health centers.” Drs. Donley and Jones said they first met and worked together at a family health center earlier in their careers. Dr. Jones said FHCs have been a CCF “strategy” for 10-15 years. Per the LHA minutes of January 14, 2015 at page 4, Dr. Donley admitted that the FHC is a “specialty referral center”—it will have “family medicine” residents refer patients out of Lakewood to other CCF facilities and specialists. Dr. Donley offered no specifics concerning anything highly technological or cutting edge about the new FHC other than it would be an “enhanced facility.” Ankit Chhabra stated that the number of employees that will serve at the proposed FHC will depend on the services CCF decides to offer. The services they will offer and the number of employees CCF will employ is uncertain—what is certain is that CCF will decide what is in CCF’s best interest. It is clear why CCF sees the LOI as an “exciting opportunity.” This FHC is not exciting to Lakewood beneficiaries—they see it for what it is.
12. Every resident of Lakewood is a third party beneficiary under the Lease and constructive trust and each is owed fiduciary duties by the trustees. LHA Board meetings are 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].” 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…” 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). The Lease imposes a constructive trust whereby LHA is in possession of the public assets and owes duties to the citizens of Lakewood to operate the hospital. CCF is leaving Lakewood because of the payer mix---they don’t really want to serve residents without regard to their ability to pay. Metro wants to come to Lakewood to do just that. Your duties as trustees are to ensure that beneficiaries without the ability to pay are protected. The LOI enables CCF to abandon the people you are tasked with protecting.
In summary, the course I propose would be for LHA to grant the City an option under the lease and free the City from the grip and control of CCF as the perceived only option. A competitive rebid with all bidders for the first time on an even playing field would maximize the City’s options and assets.
“A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.” “Common Sense”, Thomas Paine, 1776. There is a hierarchy of longstanding habits and customs involving the CCF, LHA and City relationships that have been thought of as not wrong, giving them a superficial appearance of being right. When leaders make a mistake and persist in denying it while the followers know the mistake has been made, trust and confidence in leadership is eroded. Trust and confidence can only be restored if the leaders acknowledge the mistake or at least pivot from it and take corrective action. Each of you has the opportunity to change the things that are wrong and make them right—or at least improve the bad dynamic.
I want to continue to interact with each and every one of you who are willing to work with me in an effort to resolve this crisis. I would also like the opportunity to address the trustees on May 13, 2015 to provide further details supporting the request set forth above.
Sincerely,
Brian J. Essi
15306 Edgewater Drive
Cell 216-346-3434
I am one of over 52,000 beneficiaries under the Lease dated December 23, 1996 by and between the City of Lakewood and Lakewood Hospital Association (the “Lease”).
My background and research.
I am 55 years old and have lived almost my entire life as a resident of Lakewood. I have degrees in finance, economics, accounting and law. I have been a licensed attorney since 1984. In my legal career, as a solo practitioner and working with both medium and large law firms, I have handled complex litigation and business transactions involving fiduciary liability, professional liability, loan workouts, corporate restructuring, taxation, accounting and securities. I also have experience as an officer, director and manager of a medical practice. In recent months I have devoted fulltime and overtime researching the Lakewood Hospital matter which includes, but is not limited to reviewing documents and public records, and interacting with doctors, hospitals administrators, healthcare attorneys, elected leaders, Cleveland Clinic Foundation employees, Lakewood Hospital Association trustees, Lakewood citizens, representatives of the media and others willing to speak with me.
A hierarchy of wrongs and conflicting interests has resulted in a breach of trust.
The 1996 Lease and Definitive Agreement (the “DA”) created an unusual and complex love triangle among CCF, LHA and the City with LHA at the center between two competing interests that were supposed to share power and work together for the beneficiaries. The Lease and DA created a constructive trust with the CCF and LHA as trustees for the beneficiaries. There is an ongoing debate over the history and blame for how things went wrong that includes, but is not limited to: (1) CCF taking unfair advantage in its self-interest, (2) past and present City leaders failing to understand and properly execute their roles and the power vested in them, and (3) LHA board being less than effective and proactive in its supervision of CCF and the hospital affairs. Longstanding trends and changes in healthcare have also been blamed as a culprit. In addition to the gradual but steady loss of important and now vital hospital services, there has been a hierarchy of other issues and wrongs that have gone unaddressed.
These smoldering embers erupted into an inferno on January 14, 2015 with the announcement of the Letter Of Intent. As the debate over what to do rages, the hospital is burning. That CCF, LHA and the City have failed in their duties and the trust has been breached is beyond debate---the LOI stands as evidence of that failure. The hospital employees and the citizen beneficiaries are the victims. May I suggest that a major mistake was made and poor judgment was used in signing the LOI and presenting it as a “done deal” instead of just sending a recommendation to City Council. The lack of independent legal counsel for LHA explains but does not excuse the mistake. You can easily correct that mistake today.
The current state of affairs—high political stakes and high litigation risk.
Based upon my research, the City Council vote on the LOI has a good chance of failing. In my view, Council voting for the LOI is actually riskier for the hospital and the hospital employees (City assets), because if it is approved, there will be a referendum of some sort with the voters in deciding the matter in November—delay allows the hospital to burn longer. The folks at Save Lakewood Hospital are reporting approval of their current petition in the high 90%--they report getting 100% acceptance of the petition in some neighborhoods. To add to the risk, there is the taxpayer lawsuit that I am told will be filed by Attorney DeVito’s office as early as next week in which some or all of you may be named as individual defendants. Whether or not each of you is named personally there will be ensuing depositions of each of you, discovery requests and insurance defense lawyers in control, etc. i.e. the chaos of litigation. Based upon information made available to me, the plaintiffs have a strong case for breach and damages, i.e. the litigation risk as very high.
Minimize risk—maximize reward—a less risky course.
I believe that there is a much less risky and less contentious course that LHA should adopt at its May 13, 2015 meeting today. If chosen, the alternate course would greatly assist Mayor Summers and Council in their duties to make the best choices for the City and the beneficiaries. It will take open minds and courageous leadership by each of you to take the immediate action I recommend.
On behalf of the class of beneficiaries under the Lease and constructive trust to whom you all owe fiduciary duties, I hereby respectfully request that LHA take the following votes on May 13, 2015:
1. Vote to terminate LHA’s participation in the LOI.
2. Vote to unilaterally grant the City the right and option, at the City’s discretion upon reasonable notice, e.g. 90 days to terminate the Lease (the “Option”).
3. Vote to remove Michael Meehan, Esq. from any further involvement with the LHA trustees and appoint a new qualified secretary---a lawyer free of conflicts.
4. Vote to hold CCF’s feet to the fire—begin restoring hospital services and confidence in LHA.
The termination of the LOI and the grant of Option will free the City to explore all of its options.
The main reason you need terminate the LOI is because it is the right thing to do.
I cite 12 additional reasons supporting the request as follows:
1. The LOI is damaging the City’s ability to attract third party options. It is wrong and damaging to our City that the LOI requires LHA and Mayor Summers to negotiate exclusively with the Clinic. In a public statement to City Council on April 27, 2015, Mr. Haber, speaking for LHA, stated that the LOI was only a “recommendation” and not intended to be “final.” He said “third party options may emerge.” Two days later Metro made a public statement: “We are always looking at ways to collaborate with healthcare providers and community leaders to see if there’s a role MetroHealth can play in building up the health of the community.” (Cleveland.com 4/29/15) Third party options cannot be pursued with the LOI in place. On April 27, 2015, Mr. Gable agreed that CCF won’t walk away if negotiations are put on hold to consider third party options—CCF wants the hospital leveled and wants to control the Belle/Detroit location. Mr. Huntsberger can continue to keep the draft and discussions going on a nonexclusive basis if you all deem that advisable. Mr. Haber’s word and fine reputation should be honored. Using City Council as an excuse not to act is not acceptable leadership by LHA. It is wrong for LHA to bind itself and our City leaders to an agreement when with the stroke of a pen it can terminate the LOI and allow Metro and City leaders to explore at least that option.
2. LHA and the City have the sole right to amend the Lease without CCF approval. It is clear that the City and LHA have the sole exclusive legal right to amend the Lease. If you grant the City the Option and the City comes to terms with Metro, the City can exercise the Option to terminate the Lease, and CCF will have no rights after termination. There is no reason to fear CCF—they want out of the DA and the LOI is only one vehicle for them to escape it. Lease Section 14.6 provides the “Lease may be amended by Lessee and City without the consent of or notice to….any other person [i.e. CCF] provided that such amendment shall be authorized by ordinance passed by at least two-thirds affirmative vote of the Council.” The DA at Section 10.2 provides “This Agreement may be terminated…[10.2.2] --.[i]f the Lease expires or terminates ….” The DA Section 10.3 further provides, “Any termination pursuant to….Section 10.2 shall first be approved by the Board of Trustees of the party seeking termination.” Therefore, only 12 trustees voted are needed to amend the Lease to grant the City the Option and only 12 votes are needed to terminate the DA if that becomes necessary at a later date. Under Section 10.4 of the DA, if and when the Lease is terminated, the DA ends and CCF is removed as the sole member of LHA. Unless CCF claims a breach of the DA by LHA (which would be hard for CCF to do), CCF has no rights or claims after termination of the Lease. (See DA Section 10.5)
3. The Option Will Allows Council to Maximize the City’s Assets. Selling a going concern is almost always better than selling pieces and parts. Having multiple bidders is better than having just one. If the constraints of the DA, LOI and CCF’s inside track in negotiations are removed, the best prices can be obtained---likely with much more cash being paid to the City immediately or over time. The City does not need to bear the $26M cost of winding down the going concern and tearing down its buildings (together valued by Subsidium at over $70M) to gift CCF a piece of land. The City does not need to forgo the loss of so many jobs and income taxes. The Option would empower Council and the City to sell or re-lease the going concern or liquidate the assets with multiple bidders and multiple potential solutions.
4. Hospital Services must be restored. I am told that the following services or elements of these services have been removed from Lakewood Hospital: Neurology, OB/GYN- turning away patients now, saying they will close it soon, Oncology (cancer), Pain Management, Pathologist – no frozen section, Physician Pre-certification Program, Thoracic surgery (lungs), Open Heart Surgery, Interventional Cardiology (stinting), 70% of Hospital profits come from Heart Service line, Electro Physiology (complex pacemakers), GI Gastro Intestinal lab, In patient Psych, Rehab- to be removed soon. Work on restoring these services should be a major focus of the trustees.
5. Council is the proper body and has the right to control the City’s future healthcare needs. At this point in time, City Council is the proper body to decide the direction of healthcare in Lakewood. With the Option in the hands of Council, the negotiating power shifts from CCF to the City. Your duties as trustees are to serve the City and the needs of the citizens as beneficiaries of the Lease and LHA. Only 11 of you are Lakewood residents. Whatever power LHA has retained by holding on to the non-binding LOI, it should immediately cede to the City to open up all options for the beneficiaries.
6. A hierarchy of CCF conflicts of interest has culminated in a colossal related party transaction, self-dealing and usurpation of corporate opportunity by CCF which can be best described as defalcation while serving in a fiduciary capacity. The CCF “Code of Conduct” included in your trustee handouts at various LHA board meetings purports to govern “affiliates” (p.2) and “trustees”. At p. 4, item 3 “Conflicts of Interest…Employees owe a duty of complete loyalty to Cleveland Clinic” This means that Drs. Jones, Freeman, Culley, Shannan Ricthie and Ankit Chharbra and Michael Meehan all owe “complete loyalty” to CCF, not LHA. This is bizarre since LHA reimburses CCF for portions of salaries of some of these actors purporting to be working on behalf of LHA. Mr. Meehan has additional unresolvable professional conflicts imposed by virtue of his license as an Ohio attorney combined with the fact that part of his salary is allocated to and paid by LHA in the administrative services charged by CCF. Based upon information provided to me, Mr. Meehan likely violated attorney ethical considerations and disciplinary rules by providing advice to LHA trustees that has impacted the current crisis as well as threatening an elected official. The Code of Conduct also suggests that Mr. Gable and other trustees who also serve as trustees for CCF affiliates may owe their “complete loyalty” to CCF, and not LHA. In fact, since LHA is considered an “affiliate” of CCF, the Code could be argued to apply to all trustees of LHA.
Adding to those conflicts were the January 14, 2015 presentations by Dr. Donley, Dr. Jones and Mr. Glass promoting the terms of the LOI that would dissolve LHA and enable CCF to cannibalize LHA and City assets. CCF and these individuals made the presentation while they owed fiduciary duties to and were being paid by LHA. Their actions exposed a hierarchy of complex conflicts of interest and duplicity. The LOI if acted upon is a monumental related party transaction involving self-dealing, usurpation of a corporate opportunity by CCF using the DA to preclude fair bidding for public assets. This amounts to defalcation by CCF and its officers while acting in fiduciary capacities in relation to LHA. That malfeasance by CCF has in turn tainted and sullied the public’s perception of the LHA trustees.
Adding yet further to this hierarchy of conflicts and duplicity are paragraphs II L & M of the LOI whereby LHA arguably agrees to indemnify CCF for Jones, Ricthie, Glass and Chharba serving as agents of LHA. To top all that, LHA pays CCF $2.5M for insurance coverage ($108,659 per trustee) to absolve all from any bad conduct---this sum is an unusually high premium to pay for such coverage and implies that there is a great deal of litigation risk exposure. This makes all of you as trustees look pretty bad—it is a shameful waste of public money by a public charity. It is simply wrong to pay that additional taxpayer money to CCF to protect their people from conflicts they created and are exploiting. At the very least, Mr. Meehan must be removed for his own good. I understand that much of this is not news to you and that there may be some internal rules adopted by LHA and CCF that somehow allow these conflicts to exist, but it is simply not healthy or wise to have LHA stand on its position on the LOI it is at this time.
7. Employees at Lakewood Hospital will benefit. The May, 2014 Metro proposal provided an offer of employment for LHA employees to join Metro. Many doctors and staff at the hospital will join Metro or another system if they come to Lakewood. Many will choose to go to Avon. This is a win-win for the employees --including doctors. As you may be aware, a highly respected ER doctor with 25 years of service recently quit the hospital amid this crisis. Doctors and staff will stay with us and they will come back if another system takes over.
8. Despite trends, there is a need for inpatient hospital beds in Lakewood. In a recorded statement to City Council on April 30, 2015, Dr. Donley said that he does not know Lakewood’s needs for inpatient beds, and that the Clinic relies on LHA for that assessment. At the same meeting he said he knew precisely that Avon needed 80 beds. Metro announced adding 85 beds to their health campus in a neighborhood with more challenges than Lakewood. How can there be an increased need in Metro’s neighborhood and no need in Lakewood? LHA pays the Clinic over $24 million annually for administrative services and if the Clinic truly does not know the need for beds unless LHA tells it—if this is true that is mismanagement. The 34 page 2014 Metro proposal released on Cleveland.com on May 11, 2015 contains many thoughtful details which underscore that there is a need for inpatient beds in Lakewood and a plan to sustain a hospital. May I suggest that Dr. Donley and CCF know that there is a need for inpatient beds in Lakewood and they just don’t want to share it with you as their “partner” even though LHA has already paid them for their costs in generating the withheld information? CCF does not want to service our population with a hospital in Lakewood because there is not enough money in it for them.
9. Metro is a more trustworthy steward. Kindly note that to date, despite 15 years of full power and opportunity to do so, CCF has done little in the way of innovation to increase the efficiency of how over $7M of charity (our money) is spent each year on delivery of services to the underserved. This must be contrasted with Metro which is way ahead of CCF in the population-based ACO model and has the proven ability and desire to serve demographics such as ours efficiently and profitably. It is the view of nearly every one of the many doctors with whom I have spoken that Metro is a much better fit for Lakewood than CCF—and I have spoken to many CCF doctors. In short, Metro cares more about populations like Lakewood's and is far ahead of CCF in serving them in innovative ways. In addition to Premier Physicians, there are a growing number of independent physicians who are being organized and will support Metro at Lakewood if Metro is given that opportunity. Metro has been around 70 years longer than CCF and is a proven sustainable provider and innovator.
10. The LOI is not a healthcare “Partnership”--it is just a bad real estate deal. On April 30, 2015, in a recorded statement before City Council Dr. Donley acknowledged that the long term sustainability of its Family Health Center is largely about the City having “faith” in CCF. Back in 1995, Dr. Loop told Lakewood leaders “trust us”—leaders who were there and are still alive view these as words from con men. Several Trustees have agreed with me that the City will have little or no control over CCF and the proposed FHC once the deal is signed and the FHC is built. Drs. Jones and Donley both admitted in recorded statements before City Council that the $34M proposed FHC is an “investment in us” (referring to CCF). While the role of the proposed new foundation remains very uncertain, the recorded discussions at the April 30, 2015 meeting make it very clear that the new foundation and the proposed FHC will not amount to a “partnership” between the City and CCF.
11. A Family Health Center is not an “Exciting” or New “Opportunity” For Lakewood as Dr.Donley claimed in his recorded comments before City Council. A FHC is not at all new or cutting edge. Page 2 of the 1996 DA refers to “development of family health centers.” Drs. Donley and Jones said they first met and worked together at a family health center earlier in their careers. Dr. Jones said FHCs have been a CCF “strategy” for 10-15 years. Per the LHA minutes of January 14, 2015 at page 4, Dr. Donley admitted that the FHC is a “specialty referral center”—it will have “family medicine” residents refer patients out of Lakewood to other CCF facilities and specialists. Dr. Donley offered no specifics concerning anything highly technological or cutting edge about the new FHC other than it would be an “enhanced facility.” Ankit Chhabra stated that the number of employees that will serve at the proposed FHC will depend on the services CCF decides to offer. The services they will offer and the number of employees CCF will employ is uncertain—what is certain is that CCF will decide what is in CCF’s best interest. It is clear why CCF sees the LOI as an “exciting opportunity.” This FHC is not exciting to Lakewood beneficiaries—they see it for what it is.
12. Every resident of Lakewood is a third party beneficiary under the Lease and constructive trust and each is owed fiduciary duties by the trustees. LHA Board meetings are 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].” 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…” 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). The Lease imposes a constructive trust whereby LHA is in possession of the public assets and owes duties to the citizens of Lakewood to operate the hospital. CCF is leaving Lakewood because of the payer mix---they don’t really want to serve residents without regard to their ability to pay. Metro wants to come to Lakewood to do just that. Your duties as trustees are to ensure that beneficiaries without the ability to pay are protected. The LOI enables CCF to abandon the people you are tasked with protecting.
In summary, the course I propose would be for LHA to grant the City an option under the lease and free the City from the grip and control of CCF as the perceived only option. A competitive rebid with all bidders for the first time on an even playing field would maximize the City’s options and assets.
“A long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.” “Common Sense”, Thomas Paine, 1776. There is a hierarchy of longstanding habits and customs involving the CCF, LHA and City relationships that have been thought of as not wrong, giving them a superficial appearance of being right. When leaders make a mistake and persist in denying it while the followers know the mistake has been made, trust and confidence in leadership is eroded. Trust and confidence can only be restored if the leaders acknowledge the mistake or at least pivot from it and take corrective action. Each of you has the opportunity to change the things that are wrong and make them right—or at least improve the bad dynamic.
I want to continue to interact with each and every one of you who are willing to work with me in an effort to resolve this crisis. I would also like the opportunity to address the trustees on May 13, 2015 to provide further details supporting the request set forth above.
Sincerely,
Brian J. Essi
15306 Edgewater Drive
Cell 216-346-3434