The village of Melrose Park is suing the new owners of Westlake Hospital, accusing the owners of committing fraud by attempting to close the hospital only months after the village claims the owners promised the village and Illinois state regulators the hospital would remain open.
On March 7, the village filed a complaint in Cook County Circuit Court, asking the court to declare the hospital owners, Pipeline Health, committed fraud and created a “public nuisance” by moving forward with plans to close the hospital they acquired only a few weeks ago.
The village says that alleged fraud should entitle the village to money from Pipeline, including unspecific punitive damages and fines under two village ordinances. The complaint does not specify the amount those fines may total.
The lawsuit centers around the purchase of Westlake in early 2019 by an ownership group that included private equity firms identified as Pipeline Health LLC, SRC Hospital Investments II LLC and TWG Partners LLC, among others. The groups were publicly represented by two men, identified in the complaint as Nicholas Orzano and Eric Whitaker.
According to the complaint, Orzano serves as CEO of SRC Hospital Investments II and serves on Pipeline’s “executive management team.”
Whitaker is “a principal at TWG Partners and is a principal and vice chairman at Pipeline,” the complaint said.
According to the complaint, the investment groups reached a deal to acquire Westlake in Melrose Park in 2018. They then sought approval from the Illinois Health Facilities and Services Review Board, which oversees construction and purchases of hospital facilities in Illinois.
As part of that process, the complaint said the investors also pitched the proposal to Melrose Park, allegedly telling officials they intended to make no changes to the levels of services at the hospital.
The complaint noted the 230-bed Level II trauma hospital is a “safety net” hospital, meaning it serves all, regardless of ability to pay, and provides relatively large amounts of charity care.
According to the complaint, Westlake is also a “certified stroke center and chest pain center;” provides “in-patient psychiatric care” to those on Medicaid and Medicare; operates “the only in-patient substance abuse facility” in Melrose Park; and “is the only area hospital with a functioning obstetrics department providing pregnancy, childbirth and post-partum services.”
According to the complaint, the Pipeline representatives allegedly “promised not to close Westlake Hospital” in discussions with the village over the assignment of tax benefits provided to the hospital’s previous owners.
The complaint noted Pipeline, in its state application, also committed that “Westlake will continue to operate for the benefit of the residents of Chicago and the greater Chicago area, including serving poor and underserved individuals through Westlake’s charitable activities.”
In the complaint, Melrose Park said it relied on those assertions, and opted not to file an objection to the purchase, allowing it to sail through state regulatory approval without a hearing.
Pipeline then completed the purchase, buying Westlake along with West Suburban Medical Center in Oak Park and Louis A. Weiss Memorial Hospital in Chicago from Tenet Healthcare for $70 million.
However, on Feb. 21, Pipeline filed an application with the state, requesting permission to close Westlake. According to its application, Pipeline asserts Westlake has been losing money since 2015.
The owners say the demand for the hospital’s services can be absorbed by other nearby hospitals, including West Suburban and Loyola’s Gottlieb Memorial Hospital, also in Melrose Park.
The application notes Westlake is located just four miles from West Suburban and 1.6 miles from Gottlieb.
The application also notes Westlake is 2.2 miles from the River Forest Medical Campus, an outpatient facility owned by West Suburban, which now “accepts patients from the Westlake service area.”
In the application, Pipeline noted the number of hospitals and medical facilities in the region have created a “significant overbedding in Westlake’s service area,” which has led to “continuously-reducing demand for services at Westlake.”
Pipeline said a 2018 market share analysis from Insight Analytics showed Westlake “ranked last among the 10 hospitals in Westlake’s primary service area.”
They also asserted the hospital has recently lost $4 million per year in state funding, on top of Illinois Medicaid reimbursements “that frequently does not cover costs, practices by some Medicaid managed care entities that result in payment delays and denials, and the prevalence of bad debt among self-pay patients.”
This, the application said, has created “an inhospitable funding environment that has had a crippling effect on Westlake.”
Pipeline asserted Westlake lost about $2.2 million in 2015. But in 2018, that loss had grown to $14.8 million.
“Stated in plain terms, the hospital is not economically feasible, and continuing operations will impair Pipeline’s ability to be successful in the greater Chicago market,” Pipeline said in its state application to close Westlake.
In its lawsuit, however, Melrose Park said all of those factors should have been known to Pipeline long before it purchased Westlake, and should have prevented them from claiming the company could keep the hospital open.
“Each of these supposed reasons to immediately shut down Westlake demonstrates defendants’ knowledge of the fraud,” Melrose Park wrote in its lawsuit. “Every single one of these excuses is based on events that occurred in the past, before the Private Equity Defendants consummated the agreement to purchase the hospital.”
In the complaint, Melrose Park alleged each of the reasons outlined by Pipeline to support closing the hospital “prove that Defendants’ earlier representations were knowingly false and deceptive at the time they were made.”
In other published reports, a representative of Pipeline called the village’s lawsuit “defamatory and false.”
Melrose Park is represented in the action by attorneys Ari Scharg, Jay Edelson, J. Eli Wade-Scott and Michael Ovca, of the firm of Edelson PC, of Chicago.