The financial crisis besetting Ohio's premier health institution, the Cleveland Clinic, appears unlikely to be fatal, though it is inflicting a lot of pain.
The clinic, generally regarded as one of America's finest medical institutions and a precious asset just 90 miles from Toledo, lost nearly half of its $1.2 billion long-term investment pool between late 1999 and mid 2002, when it was at $650 million.
Why? Because the stock market tanked, because its investments weren't sufficiently diversified - too much bet on a handful of high-tech stocks - and because of a substantial investment in expansion, which included a new cancer center, a new eye institute, an upgraded research center, and a fresh presence in Florida.
The clinic's pension funds, at $537 million in 1999, stood at $368 million at the end of 2001. The clinic will need $240 million over the next two years to keep its retiree fund solvent.
As with other organizations in the news lately, clinic board members were loath to oppose a powerful figure in their midst. He was the late billionaire Al Lerner, who gave $16 million toward the research center and whose family has pledged $100 million more to help the clinic begin a five-year medical school in conjunction with Case Western Reserve.
Mr. Lerner, ever bullish on the market, pressed his board colleagues in the direction of stocks (up to 95 percent at peak), which in the economic turnaround were among the first to fall. Most persons of even minimal financial acumen know that diversification is key to minimizing losses in the market. But no one wanted to defy the guy with the deep pockets, who spent lavishly to raise the clinic's proud profile to new heights. And when a 7-5 majority on the finance committee did suggest more conservatism in investments, Mr. Lerner, its chair, tabled discussion.
These tight economic times and the board's questionable financial judgment will make fund-raising particularly trying. But that doesn't mean the Cleveland Clinic is going away. It does mean that its board members' judgment must in the future be driven by common sense and generally acceptable investment practices, rather than a cult of personality.
Like many other American hospitals, Cleveland Clinic has had to use investments to stay viable in light of rising costs and less-than-cost reimbursements from insurance companies and the government. But this is a nationwide problem that has yet to be moved to the top of the political agenda. And lack of movement here is pushing patients as well as health care providers to crisis.