Lenox Hill Gets Ready To Divest Manhattan Eye

After more than six years together, Lenox Hill Hospital and Manhattan Eye, Ear and Throat Hospital—the odd couple of the Upper East Side medical establishment—are re-examining their relationship, potentially with an eye to divorce. And as with so many marriages that falter or fail, the cause of the friction between the granite-sheathed Lenox Hill and the famed tummy-tuck center is mounting financial pressures.

“We’re now in the process of evaluating the existing relationship to see if changes should be made,” said a spokeswoman for the hospital, Ann Silverman. “They include such options as exploring the interest of other New York City health-care institutions in the future operation of MEETH to the possibility of a merger between Lenox Hill Hospital and MEETH.”

Rumors of potential problems between the two uptown institutions, which were legally joined as sponsor and subsidiary in early 2000, have been swirling for several months, with most of the talk focusing on a potential split. “There’s been a lot of talk about severing the relationship,” said an insider at Manhattan Eye, Ear and Throat Hospital, or MEETH (pronounced “Meeth”), as the posh plastic-surgery Mecca is commonly known. But the chatter got a jolt of hard reality on March 8, when Lenox Hill’s vice president of operations, Tom Linhares, told doctors at a quarterly staff meeting that the hospital was looking to sever its ties to its East 64th Street subsidiary.

“He said they are looking to divest themselves of MEETH—‘divesting,’ that’s the word he used,” recalled one attending physician at Lenox Hill who was present at the late-afternoon meeting but asked to remain anonymous. “He didn’t go into details, he just said we’re looking to anybody who would be interested to divest ourselves [of MEETH].”

A second physician who was also at the meeting confirmed this story, saying that a “very energetic” vice president told the staff that Lenox Hill “wanted to kind of get out of MEETH, because they’re losing money on the hospital. There wasn’t any set date,” he continued, “just that that was the plan.”

Several sources familiar with this “plan” said that a committee of the board of trustees had been pulled together during the last few months to begin fleshing out alternatives.

At the same time, a source confirmed that representatives from the two hospitals have met several times during the last six months with senior staffers at the State Attorney General’s office—an important preliminary step should the old East Side grandees decide to split or simply restructure. (Under state nonprofit law, a court must approve any substantial sale of charitable assets, and the Attorney General’s office has the right to object.) While the source declined to elaborate on the details of the discussions and stressed that “nothing specific” had been broached, the person did say, “It would not be unusual for large institutions contemplating that type of endeavor to seek guidance if they were considering one particular tack or another.”

If all this sounds a lot like marriage counseling, at least several sources said they were skeptical that it would end happily for both sides of the couple. In particular, they wondered what might come of the “divested” party, MEETH, which almost certainly requires a sponsor hospital to stay afloat and has the most to lose from a potential separation.

A Lenox Hill spokesperson emphasized that no one scenario had been endorsed, and that possibilities ran the “gamut”—from separation to a merger to everything in between. (A merger would bring the two hospitals into an even closer legal relationship than they now enjoy, giving Lenox Hill the power to do everything from restructuring MEETH to closing it down and selling off its assets.)

But MEETH partisans might find these words only modestly comforting. “It sounds to me like it’s hard to tell whether they’re saying, ‘put them out of business,’ or ‘we recognize that MEETH has a right to exist in light of its important mission,’ said one source. “I don’t really know what they have in mind.

“We are not sure how far along [the plan] is … but it’s far enough that responsible people from the MEETH side are very upset,” the source added.

From the beginning, the relationship between Lenox Hill and MEETH was a strained one, born out of convenience in the case of Lenox Hill, desperation in the case of MEETH.

It was late 1999, and the doctors of the East Side’s favorite face-lift emporium had just emerged from a bruising court battle with the board of directors. (For reasons that still remain murky, but had something to do with finances, the board had tried to sell the hospital’s two buildings to Memorial Sloan-Kettering Cancer Center and a luxury condo developer—a move that would effectively have put it out of business.) The judge ended up siding with the doctors, and in his decision ordered that the old MEETH board be dissolved and a special committee put together to find a sponsor for the hospital. He declared there would be a bidding process to find the best MEETH partner.

It was at this point that Lenox Hill stepped in, eager and flush with capital. Anxious to win what had suddenly become one of the hottest properties north of 59th Street, Lenox Hill drafted a proposal that promised everything from “capital equipment acquisitions” to “infrastructural improvements” to “information systems upgrades” to an infusion of $40 million over 10 years for “building and plant renovations.” Perhaps most attractively, it promised to allow MEETH to “maintain” its “unique identity”—including its own leadership structure and board of trustees—by absorbing MEETH as a subsidiary rather than negotiating a traditional merger.

The wooing worked, and on Jan. 13, 2000, a special MEETH committee accepted Lenox Hill’s proposal over a competing bid by Continuum Health Partners. “It looked like everybody would live happily ever after,” said a source with knowledge of the original MEETH–Lenox Hill saga.

But, alas, the relationship soon began to sour as the hospitals fell on hard financial times. Money had begun to get tight for MEETH in the late 1990’s, but it hit a certifiably grim period in the early 2000’s, when the death of one of its nurses from anthrax inhalation was followed by the deaths of two high-profile patients on the operating table (one was the novelist Olivia Goldsmith). Then Lenox Hill, which had historically been one of the city’s few profitable hospitals, began hemorrhaging cash around 2004, losing as much as $32 million in 2005. In October, both Moody’s and Fitch Ratings downgraded Lenox Hill’s bonds to junk status. (Both companies have subsequently given these bonds modest upgrades, but the outlook remains negative.)

Such woes have helped speed the MEETH–Lenox Hill marriage to its present troubled state. No deals have been sealed, no legal moves made, but how the hospitals proceed from here—be it separation or some other strategy—will shape whether and how the hospitals survive in the future.

Already tensions are beginning to simmer, and partisans on both sides have begun warming up their pointing fingers. Among Lenox Hill doctors, for instance, there was a ready consensus that MEETH is to blame for many of its financial worries, that everything was fine until their little 60-bed subsidiary came along.

“Oh God, what a mistake!” said Dr. Hugh Barber, director emeritus of obstetrics and gynecology at Lenox Hill. “We were supposed to help underwrite their losses and so on, and try to get them on their feet, and all they’ve been doing is losing money for us.” (Dr. Barber said he was aware of some of the current rumors surrounding the hospitals’ troubled alliance but was not privy to any details.)

But partisans of the ear, nose and throat center take a different view, arguing that MEETH is, in fact, the unlucky party in this relationship. These sources accused Lenox Hill of failing to follow through on some of its original promises to the hospital—promises, for instance, to create a business plan to beef up their finances—and they argued that MEETH is more solvent than it is often given credit for being.

“Manhattan Eye and Ear is a cash cow that is being depleted,” said one MEETH partisan.

Several sources also complained that MEETH has been given little voice in divestment discussions, its fate negotiated without its input.

“The problem is that, in spite of this committee, there is a wall that’s up. So there is not a free flow of information,” said one insider. “Lenox is attempting to unload Manhattan Eye and Ear in some way …. But we think it’s totally inappropriate of them to do that based on the commitments they made to the judge five years ago.”

But more and more, it looks like the two uptown landmarks are being borne back into the messy past.

“First we had this major battle when Manhattan Eye and Ear tried to close,” said the insider. “Then the marriage was made with Lenox, and … well, that doesn’t seem to have worked out. So, in some sense, to borrow from Yogi Berra: It’s déjà vu all over again.”