Eliot Spitzer Stops $41 Million Sale of Deluxe Hospital

The jowly dowagers who check in for cosmetic surgery at the Manhattan Eye, Ear and Throat Hospital all expect to walk out prettier than they were when they walked in. But the hospital itself is going out ugly. Real ugly.

After months of open warfare with 300 of its doctors, the hospital, known as Meeth, was ordered by a Federal judge on Sept. 30 to halt its $41 million going-out-of-business sale to the Memorial Sloan-Kettering Cancer Center. That means the hospital’s board will likely have to seriously consider offers from three of Memorial’s competitors to take over its coveted East 64th Street campus-and keep Manhattan Eye, Ear and Throat Hospital alive. So much for a quick, painless mercy-killing.

Lenox Hill Hospital, Continuum Health Partners Inc. and Mount Sinai-New York University Health System are all actively competing for what is suddenly the hottest piece of hospital real estate in New York City. A fourth titan, New York-Presbyterian Hospital, is in talks with Meeth’s board to take over its proposed clinics and its library.

“Overnight, this thing went from being a fait accompli to being a competitive situation,” said an executive with one of the three hospitals bidding against Memorial Sloan-Kettering for control of the Meeth site. “We’re alive.”

Making things even messier, the State Attorney General’s office-which monitors nonprofit hospitals and other charities-hasn’t liked what it’s been seeing. It’s considering pulling the plug on Meeth’s board of directors.

“The board’s decision-making process and overall behavior have been unacceptable,” State Attorney General Eliot Spitzer told The Observer . How unacceptable? “It’s conceivable that at a certain point in time we might determine their behavior’s been so bad that we’ll seek their removal in court,” Mr. Spitzer added. “We’re not close to that point yet, but we’ll be watching their behavior very closely. Very closely.”

Mr. Spitzer’s scrutiny comes as no surprise to Meeth’s beleaguered board. The shocker for the would-be deal makers was that the Democratic Attorney General cleared his campaign against the Meeth sale with a cordial call to Gov. George Pataki, a Republican.

The doctors who have been vehemently fighting the Memorial Sloan-Kettering deal have been saying for months that the blueblood board, led by Lindsay (Dinny) Herkness III, a vice president at Morgan Stanley Dean Witter & Company, has a real talent for making enemies.

The Meeth-Memorial deal was supposed to be a neat cash-and-close-shop arrangement. Meeth administrators contend the hospital has been losing $2 million a month, and that they were compelled to act, stat, to end the hemorrhaging.

Under the agreement inked in July, Memorial would have built a brand-new breast cancer center on the site of Meeth’s main building; two smaller parcels of land were to be sold to Downtown Development, a luxury housing developer. Meeth would walk away with $41 million. Gone would be its renowned East Side base, its 17 state-of-the-art operating rooms, its fabled residency programs.

But to fulfill the board’s mandate to provide health care-and to sweeten the pot for state monitors-Meeth’s board voted to use the proceeds to build a half-dozen clinics in poor neighborhoods like Harlem and downtown Brooklyn.

State monitors, however, aren’t buying it. On Sept. 30, Mr. Spitzer scored a victory when State Supreme Court Justice Bernard Fried ordered Meeth to keep its doors open and commence “good-faith” talks with any suitor who might make a reasonable offer to keep it running at its current location. On Oct. 14, Meeth will have to defend the Memorial deal in a brief trial.

Meanwhile, the atmosphere at the East Side cosmetic surgery mecca will likely remain, in a word, ugly. “Starting in July, they hired security guards who have basically been frisking all of the patients and doctors,” said Dr. David Edelstein, director of Meeth’s respected ear, nose and throat program. “They’ve been checking everybody’s bags, too. It’s insulting. It’s designed to make life as uncomfortable as possible for everybody so we’ll just give up and leave. It won’t work.”

“We had no choice,” responded Meeth spokesman Abigale Knapp. “We have had incidents where doctors were taking very expensive equipment.”

Offers They Refused

Lots of people, it seems, want a piece of Meeth. According to Mr. Spitzer’s office, no less than four medical institutions have made serious inquiries about buying the hospital, all with an eye toward keeping it running. In May, the Mount Sinai-New York University Health System offered $27.5 million to the board for the site.

Lenox Hill has cooked up three separate proposals, including a plan to keep the main Meeth building open while investing $3 million a year for 10 years to renovate the ailing hospital. The most recent Lenox Hill bid is a hybrid: They would sell the Meeth property to Memorial, and then use the proceeds to build a new ear, nose and throat hospital on Lenox Hill’s East 77th Street campus. (“I don’t know how the hell we’d do it,” said a puzzled Lenox staff member. “We don’t have enough space for ourselves as it is.”)

The third, and most seriously discussed, proposal comes from Continuum Health Partners, the aggressive umbrella group that runs Beth Israel Hospital and St. Luke’s Roosevelt Hospital Center. Under their plan, Continuum would buy Meeth for an undisclosed amount and merge it with the recently purchased Manhattan Eye and Ear Infirmary, located at 14th Street and Second Avenue. Continuum would invest up to $10 million in Meeth while maintaining the hospital at the 64th Street site for at least five years. According to Mr. Spitzer, Continuum’s chairman of the board, Morton Hyman, has pledged to take over Meeth on “24 hours’ notice,” if necessary.

The proposals, Meeth’s directors say, are neither new nor particularly appetizing. “It appears to us that [the Attorney General’s office] has a favored bidder-Continuum,” said attorney John Aerni, a partner with LeBouef, Lamb, Greene & McRae, which represents Meeth’s board. “I don’t know why they are so hot on the Continuum thing. There have been many offers over many months, and we’ve considered them all seriously. Memorial’s is the best.”

The head of the State Attorney General’s charities bureau, William Josephson, couldn’t disagree more. In a scathing 43-page affidavit submitted to Justice Fried, Mr. Josephson blasted Meeth’s single-minded pursuit of Memorial’s money.

Throughout the summer, other suitors called, and Mr. Herkness and other board members slammed the door, according to Mr. Josephson. Continuum executives, when asked to see the hospital’s financial records, were reportedly told No. Officials from New Jersey’s Hackensack University Medical Center said they got the same response and decided not even to make a bid after Meeth refused to provide information. In mid-September, Mr. Josephson reported, Lenox Hill chief executive Gladys George had to cut off negotiations with the Meeth board after she was denied a copy of its feasibility study on the proposed neighborhood clinics.

Government fact-finders haven’t fared much better. State Department of Health officials have repeatedly hectored Mr. Herkness and Meeth’s executive director, George Sarkar, for key documents.

But apparently the board has been chatting it up with New York-Presbyterian Hospital in a bid to get the uptown giant to sponsor Meeth’s proposed neighborhood clinics and to create a small Meeth division at its West 168th Street campus. In exchange, New York-Presbyterian would get $10 million in cash, $8 million in equipment and possession of Meeth’s valuable medical library.

Condition Critical

Mr. Josephson said such news has trickled down to his office secondhand. “The Attorney General learned about the Memorial contract through a press release, even though the Meeth board had given us assurances of their willingness to keep the Attorney General apprised of major developments,” wrote a piqued Mr. Josephson in his affidavit.

For their part, Meeth’s defenders say they are simply trying to protect their plan to open clinics for the poor from attacks by politically motivated outsiders. Mr. Spitzer, they say, has been taken in by the hospital’s 300 sacked doctors and their high-powered and politically connected attack dogs, lawyer Charles Stillman and public relations man Howard Rubenstein.

“It’s sort of ironic that the charities bureau is spending all their time working with some wealthy plastic surgeons who are getting rich off Upper East Side patients,” said Mr. Aerni, Meeth’s lawyer.

“The Attorney General,” added a source at Memorial, “is a brave man. He is making the world safe for cosmetic surgery.”

But even Meeth’s cherished clinic plan has come under attack as a rushed attempt at press-release altruism that is poorly planned and destined for failure. “They hatched this thing in a month,” said Mr. Stillman, the doctors’ attorney.

Meanwhile, day-to-day conditions at Manhattan Eye, Ear and Throat could be labeled critical. Only nine of Meeth’s 17 operating rooms are still operating, and the emergency room is barely running. There are chronic pharmacy shortages and new locks on many of the doors, and doctors are leaving in droves. To cut overhead, the hospital recently fired Dr. Iris Klatsky, director of the highly regarded Voice Restoration Program for throat-cancer patients. Meeth’s 50 residents, who were given the sack in late June, are starting to be evicted from hospital-owned housing.

When Dr. Edelstein, Meeth’s ear, nose and throat director, walked in the door a few weeks ago to read his charts, he said he was greeted by Mr. Sarkar, his boss, and ordered to leave.

“He told me I had no right to be there,” Dr. Edelstein recalled. “I told him I did. There’s the whole fight in a nutshell.