Can’t LHA just continue to operate Lakewood Hospital—even if it is experiencing losses—because the Cleveland Clinic is required to cover LHA operating deficits? « The City of Lakewood, Ohio -
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Can’t LHA just continue to operate Lakewood Hospital—even if it is experiencing losses—because the Cleveland Clinic is required to cover LHA operating deficits?

No. Pursuant to the 1996 definitive agreement, the Cleveland Clinic is required to ensure that LHA has a cash-to-debt ratio of 1:1 on a fiscal year basis. This “cash-to-debt ratio” requirement is not the same as a requirement that the Cleveland Clinic cover operating deficits.

The hospital can be operating at a loss, but the Cleveland Clinic is not required to provide any funds until LHA expends a significant amount of its cash or incurs significant debt, such that the amount of debt outstanding is equal to or greater than the cash held by LHA. The report prepared by Huron Business Advisory confirms that the Cleveland Clinic would have no obligation to provide funds to LHA unless LHA’s debt increases significantly.

Because the definitive agreement requires the Cleveland Clinic’s approval before LHA can incur debt in excess of $500,000 or engage in unbudgeted capital projects in excess of $500,000, it is unlikely that LHA would be in a position to trigger the cash-to-debt ratio requirement without the Cleveland Clinic’s approval.