Did Lakewood pay for Avon?
Posted: Thu May 21, 2015 8:19 pm
The anxiously-awaited Lakewood Hospital 2014 audit arrived today, May 21.
The Hospital shows a small operating loss (page 4), just $435 thousand. But this is more a function of Cleveland Clinic accounting, than reduced patient volume.
Again in 2014, Cleveland Clinic charged over $24 million of Administrative Expense to Lakewood Hospital.
The audit footnote #16 (page 26) describes this Related Party Transaction: "The Hospital contracts with the [Cleveland Clinic] Foundation and its affiliates for certain services in the normal course of business. Expenses include $25.0 million and $25.6 million in 2014 and 2013, respectively, for these services."
Save Lakewood Hospital has been trying for three months to get a detailed explanation of these charges.
We have a boilerplate page that lists many kinds of expenses but does not break down dollar amounts. These include IT, Marketing, Supply Chain, Legal, HR, Executive Team, Revenue Cycle, Internal Audit, Regional Administration, Finance; clinical staffing services; Consulting Fees; Legal Fees; Cost of special projects; Travel expenses; Dues and Licenses.
Since 2008, these charges have grown from $14 million and quickly ramped up to $24 million - totaling over $146 million in 7 years. By what method did they choose to allocate these expenses? Why has this allocated amount grown so fast?
The Operating Statement (page 4) has already identified Salaries and benefits, Supplies, Pharmaceuticals, Purchased services, Facilities, and Insurance. The $24 million administrative expense is the largest expense, after payroll (per page 4 of the audit).
Further back in the audit (page 26), if you add and subtract you discover that about $4 million of this is for some kind of health care services that were provided. That leaves $20 million to account for, not related to health care services.
That's a lot of money. It is about 20% of Total Unrestricted Revenues (ranging around $125 million to $140 million) in every year since 2008.
Get rid of this "extra" expense of $20 million from Lakewood Hospital's financials - and the financial picture improves dramatically. Lakewood Hospital would not only be alive and well, but would be robust and booming. 2014 would be a profit of $19 million instead of a loss of $435 thousand.
The other Cleveland Clinic hospitals do not appear to be encumbered by an Administrative Expense. The $24 million is about 1/7 of the Admin Expense of the entire Consolidated Cleveland Clinic admin expense of about $160 million. How can our little hospital be charged 1/7 of the expense of the big behemoth Cleveland Clinic?
To put it in perspective, $25 million is 3 times the price the Clinic is willing to pay ($8 million) for our medical building on Columbia Road (which is valued by the County at more than $13 million). It is 10 times the cost ($2.5 million) of the new state-of-the-art hybrid heart-vascular catheterization lab that was installed several years ago. If it is related to overseeing 1100 employees, it divides out to over $21,000 to supervise every employee. (It can't be that.) If it's medical billing, divide it by 87,000 outpatient and inpatient procedure and it costs $276 to send every invoice for every $100 blood draw and X-ray. (Can't be that.)
To give you a personal parallel, it is as if you rented your rental house to a tenant for $10,000 a year and he turned around and charged you $250,000 for cutting the grass.
So why is this so high?
Did Lakewood pay for Avon?
The Hospital shows a small operating loss (page 4), just $435 thousand. But this is more a function of Cleveland Clinic accounting, than reduced patient volume.
Again in 2014, Cleveland Clinic charged over $24 million of Administrative Expense to Lakewood Hospital.
The audit footnote #16 (page 26) describes this Related Party Transaction: "The Hospital contracts with the [Cleveland Clinic] Foundation and its affiliates for certain services in the normal course of business. Expenses include $25.0 million and $25.6 million in 2014 and 2013, respectively, for these services."
Save Lakewood Hospital has been trying for three months to get a detailed explanation of these charges.
We have a boilerplate page that lists many kinds of expenses but does not break down dollar amounts. These include IT, Marketing, Supply Chain, Legal, HR, Executive Team, Revenue Cycle, Internal Audit, Regional Administration, Finance; clinical staffing services; Consulting Fees; Legal Fees; Cost of special projects; Travel expenses; Dues and Licenses.
Since 2008, these charges have grown from $14 million and quickly ramped up to $24 million - totaling over $146 million in 7 years. By what method did they choose to allocate these expenses? Why has this allocated amount grown so fast?
The Operating Statement (page 4) has already identified Salaries and benefits, Supplies, Pharmaceuticals, Purchased services, Facilities, and Insurance. The $24 million administrative expense is the largest expense, after payroll (per page 4 of the audit).
Further back in the audit (page 26), if you add and subtract you discover that about $4 million of this is for some kind of health care services that were provided. That leaves $20 million to account for, not related to health care services.
That's a lot of money. It is about 20% of Total Unrestricted Revenues (ranging around $125 million to $140 million) in every year since 2008.
Get rid of this "extra" expense of $20 million from Lakewood Hospital's financials - and the financial picture improves dramatically. Lakewood Hospital would not only be alive and well, but would be robust and booming. 2014 would be a profit of $19 million instead of a loss of $435 thousand.
The other Cleveland Clinic hospitals do not appear to be encumbered by an Administrative Expense. The $24 million is about 1/7 of the Admin Expense of the entire Consolidated Cleveland Clinic admin expense of about $160 million. How can our little hospital be charged 1/7 of the expense of the big behemoth Cleveland Clinic?
To put it in perspective, $25 million is 3 times the price the Clinic is willing to pay ($8 million) for our medical building on Columbia Road (which is valued by the County at more than $13 million). It is 10 times the cost ($2.5 million) of the new state-of-the-art hybrid heart-vascular catheterization lab that was installed several years ago. If it is related to overseeing 1100 employees, it divides out to over $21,000 to supervise every employee. (It can't be that.) If it's medical billing, divide it by 87,000 outpatient and inpatient procedure and it costs $276 to send every invoice for every $100 blood draw and X-ray. (Can't be that.)
To give you a personal parallel, it is as if you rented your rental house to a tenant for $10,000 a year and he turned around and charged you $250,000 for cutting the grass.
So why is this so high?
Did Lakewood pay for Avon?
