Catholic Health Initiatives Releases Annual Financial Report.

Catholic Health Initiatives (CHI) released its Annual Report for Fiscal Year 2017 last week. Given that the company is in the middle of discussions with Dignity Health about a possible merger or alignment, and the attempted sale of half of its hospital beds in Kentucky, the report is of considerable interest. I cannot pretend to understand the arcane rules of accounting underlying the numbers and discussion in the report. Others in a position to do so emphasize the increasing $585 million loss in operational income from the company’s core healthcare business, and the considerable outstanding debt of $8.7 billion. There is a reason that bond rating agencies have been downgrading CHI’s rating and assigning a negative outlook. What I intend to do below is to highlight material from the report that is specific to Kentucky, to offer a few general comments, and to ask my readers to help us interpret what is at stake for Kentucky.

Earnings Before Interest, Depreciation, and Amortization (EBIDA).
CHI uses this method of accounting to present much of its financial numbers. EBITDA is (according to Wikipedia) “not recognized in generally accepted accounting principles” but intended to allow comparison of profitability between different or heavily leveraged companies. [The ‘T’ in EBITDA is for taxes, which are less relevant for a non-profit.]  It has been suggested that “EBITDA doesn’t give a complete picture of a company’s performance.” and that because it is not defined in GAAP, “companies can report EBITDA as they wish.” Furthermore, CHI lists its EBIDAs “before restructuring, impairment, and other losses.” In short, I have no confidence in my ability to interpret the financial health of CHI from this report. Can anyone help us?

Items Specific to Louisville.
From the 127-page document, I extracted all paragraphs in which Louisville (or Kentucky) is mentioned, along with the page number from the original document. A lot is stuff we already knew here in Louisville. There is a good bit of repetition, boiler-plate, and business-speak language that seemed not very specific or informative to me. Maybe that is the nature of annual reports. Allow me to highlight (in sequence) some of the mentions. Continue reading “Catholic Health Initiatives Releases Annual Financial Report.”

Louisville’s Human Organ Transplant Program Stagnates As Lexington’s Grows

Financial and operational stresses at Jewish Hospital likely to be taking a toll on one of the headline partnerships between the Hospital and the University of Louisville. Increasing dependence on Medicaid patients and a blossoming load of uncompensated care may be blocking access for the medically indigent and recipients of color for at least some solid organ transplants such as heart and liver.


Since the middle 1980s when I came to Louisville, Jewish Hospital has branded itself as a high tech “Heart Hospital.” It promotes the early adoption of high-technology. Indeed, a few years ago it received a special designation as a heart hospital in Kentucky from U.S. News & World Report that it would not have received had it not had a cardiac transplant program. In the middle 1990s, the University of Louisville formally shifted the private practice activities of its cardiologists to Jewish Hospital. The transplant surgeons at Jewish, to my knowledge, all have formal University faculty appointments. Jewish Hospital and the University of Kentucky Hospital are the only two hospitals in the state with a Certificate of Need (CON) for adult human solid-organ transplantation. (The University of Louisville does not own this CON for transplant.) Accordingly, this high-profile program is both important for, and a marker of the institutional health of both Louisville institutions.

For this and for other reasons, I have been writing about Kentucky’s transplant programs for the last few years. Most medical schools with a major clinical medical center consider having a transplant program as an important part of their service profile. I became concerned that although in the 1990s through 2010, Jewish Hospital performed the most such organ transplants in Kentucky, that a steadily-growing UK program overtook our own as early as 2010. My academic pride was injured. My concern included that a weakening Jewish Hospital was losing the resources or the will to continue this important program. It is after all an expensive undertaking. Continue reading “Louisville’s Human Organ Transplant Program Stagnates As Lexington’s Grows”

Catholic Health Initiatives Gives Investors an Update: Substantial Challenges Ongoing.

Senior executives from Catholic health initiatives (CHI) hosted a webcast and teleconference on May 31 to respond to questions about their FY17 3d Quarter Fiscal report. My colleagues at Insider Louisville have already commented on the update. You can read the slides that accompanied the presentation yourself. The following items were particularly significant to my listening.

1. Except that it was going to occur on July 1, nothing was said about the transfer of University of Louisville Hospital back to University control. Successful relationships with academic medical centers including at Baylor and Creighton were claimed.

2. Little was said about the sale of assets in Kentucky other than the process was “evolving,” that the company was moving with its advisors, that there is “a fair amount of interest,” and that they were “moving as quickly as possible” and “ready to move forward.” However, there has been no release of a Request For Purchase (RFP) so apparently no formal process has yet begun. I have no feeling on how rapidly things are moving or not. I suspect it will be challenging to find buyers for all the properties, certainly all at one group.

CHI will focus on regrouping around its “Legacy Lexington” facilities. I interpret this to imply that those hospitals are not currently on the chopping block. Where KentuckyOne will keep its administrative headquarters was not mentioned at this level of discussion. Continue reading “Catholic Health Initiatives Gives Investors an Update: Substantial Challenges Ongoing.”

Catholic Health Initiatives Third Quarter Financial Report, FY 2017

Is it good enough to turn the tide for CHI?

Catholic Health Initiatives released today its most recent quarterly report covering the first 9 months ending March 31, 2017. Making sense out of the raw financial numbers is for me probably like having a banker decipher a complicated clinical trial or biochemical research paper. I will leave it to the financial experts to explain it to us. To my first pass and naive evaluation, it looks like CHI is hanging on, but not improving to the extent needed to deal with its $8.8 Billion dept. I suspect this is not going to help their bond rating very much. This report reveals much about why CHI is taking the drastic downsizing actions in Kentucky that we are now seeing unroll. This may be an existential move for the company.

At the end of this article, I show extracted verbatim text from the report that I think will be of interest to us here in Louisville and Kentucky. You can read the full report yourself here.

In summary:

• It is very clear that KentuckyOne Health is the weak sister of the CHI regions.

•In Louisville, University Medical Center (UMC) making a profit. (This is not the same as University of Louisville Hospital, is it?) On dissolution of the UofL partnership. CHI expects to incur a loss of $279.4 million, but I have no understanding what that means. Who can help us?

•CHI hopes to close on its facilities that have been designated for sale by the end of 2017. Those facilities lost $61 million in the first three quarters. The estimated total assets for the KentuckyOne operations being divested as of March 31 2017 is $534.9 million. KentuckyOne/CHI hopes to complete the sale(s) by the end of the year.

•The possible merger with Dignity is not a sure thing.

•CHI has been selling other of its physical assets to raise money to the tune of over $1 billion in gross proceeds. (Does this go to its current bottom line and make matters look better in the current year?) It now must pay rent to the new owners of $52.7 million yearly.

•KentuckyOne Health won its first few cases in the litigation over unnecessary angioplasties in St. Joseph London, but began to lose the most recent cases with high monetary verdicts. Settlements are now being made for at least some cases. I suspect this is not going to be cheap.

What does the statement say to you? I expect many others in the business world are going to help us tomorrow. If I have made mistakes in reading this report, help me fix them.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
May 19, 2017 Continue reading “Catholic Health Initiatives Third Quarter Financial Report, FY 2017”

KentuckyOne Health To Sell Its Major Assets In Louisville.

Beginning last Thursday, word began trickling out to journalists and the public that KentuckyOne Health, a major regional unit of Catholic Health Initiatives (CHI), was preparing to announce plans to sell almost all its hospitals and medical centers in Louisville and a handful elsewhere in the state. I had been told earlier in the week that the announcement would be made today, Monday, but there were so many leaks that KentuckyOne sent an email to its employees outlining its plans.  I presume KentuckyOne wanted take control of the message before the reportage dam broke. The email can be read here.

For those of us in Louisville, the only major facility not being sold is Our Lady of Peace, a psychiatric hospital.  Both of KentuckyOne’s acute care hospitals, (Jewish Hospital and Sts. Mary and Elizabeth Hospital), the Frazier Rehabilitation Institute, and all four outpatient Medical Centers (Jewish East, South, Southwest, and Northeast) are on the chopping block. Nearby Jewish Hospital Shelbyville, which recently underwent a critical review by the Inspector General for an EMTALA violation, is also for sale.  KentuckyOne employs many physicians. The fate of individual owned- or contracted medical practices in Louisville and elsewhere is not clear to me from the email. Continue reading “KentuckyOne Health To Sell Its Major Assets In Louisville.”

Additional Details About Separation of UofL and KentuckyOne Health Emerge.

Much remains to be worked out.  University of Louisville Hospital Profitable but CHI and KentuckyOne Health suffering major financial losses.

Claimed to be effective as of Dec 14, an initial document initiating the separation and anticipated divorce of the University of Louisville and KentuckyOne Health became available today, December 22.  Given the complexity of the existing contractual partnership and some earlier hints of marital conflict, the 3-page document submitted as an amendment to the original Joint Operating Agreement (JOA) is surprisingly both short and bland.  The principal function of the amendment is to change the term length of the original agreement from 20 years to an ending date 6 months away on June 30, 2017 at which time University Medical Center, Inc. (UMC) resumes its pre-marital control of the entirety of University of Louisville Hospital and the James Graham Brown Cancer.  It is obvious that many consequent details remain to be revealed or worked out. Indeed, the document anticipates that additional counterparts to the amendment will be added.

A 6-month wind-down period for one spouse to leave the house in an orderly manner is specified by the conflict resolution agreements of the JOA.  Although not specifically mentioned in the amendment, the change of termination date triggers a cascade of other important actions of which the most important is that the complex interlocking operational Academic Affiliation Agreement (AAA) also becomes void on June 30.  A new AAA has been prepared well ahead of schedule.  It has reverted to a traditional Affiliation Agreement used between UofL and its hospital partners and returns control of all academic, clinical, educational, research, financial, and hopefully ethical matters back to the University where such belongs.  Hooray! Continue reading “Additional Details About Separation of UofL and KentuckyOne Health Emerge.”

Dr. David Dunn Receives $1.15 Million While Parting From UofL

A lot happened today at the Executive Committee meeting of the UofL Board of Trustees.  I was unable to attend. It is being reported that UofL and KentuckyOne Health are dissolving the Joint Operating Agreement under which KentuckyOne managed most of the clinical activities of University of Louisville Hospital. I do not yet have access to the details of the dissolution process which had a myriad of contractural agreements to settle including penalties and non-compete clauses. I hope to be able to provide an analysis in coming days. Much may be revealed in the fine print, including why KentuckyOne will continue to put money into University Hospital.  The two entities have agreed to prepare new Academic Affiliation Agreements that would allow UofL faculty and trainees to interact at Jewish Hospital, and for Jewish Hospital to capture the financial, research, and reputational advantages of being a teaching hospital.

Another matter that was apparently dealt with at today’s meeting was the status of Dr. David Dunn, one of the principal architects of the agreements with CHI and KentuckyOne, but who has been on the sidelines for many months while he was being investigated by the FBI for possible misuse of federal money,  To my knowledge, the status of that investigation has not been made public.  Dr. Dunn has been being paid one of the very highest salaries in the University even though his contract has reportedly expired.

Today, the status of Dr. Dunn has apparently been settled. The University provided the statement below in response to my request for an update:

“The University of Louisville and Dr. David L. Dunn have reached an agreement related to his employment at the university. As of Dec. 12, 2016, Dr. Dunn is no longer an employee of the University of Louisville. Dr. Dunn leaves the university as a tenured, full professor in good standing. To compensate for his relinquishing his tenured position, Dr. Dunn will receive $1.15 million.”

Some have speculated that the Board has taken no action with respect to Dr. Dunn because it agreed not to take other than “routine” actions in a settlement of a lawsuit by a group of community ministers over the racial make-up of the Board. Perhaps no action was appropriate.  The Board recently prefaces its retirement into executive session by declaring that it is for “routine” matters only. I must say that I felt uncomfortable with the optic earlier this month when the full Board terminated the tenure of an African-American faculty member.  To that person, no matter what the merits of the situation, the termination action was hardly routine. I would argue that an agreement to deal only with routine or non-structural matters no matters longer holds any water and in fact has already been abandoned.  That is as it should be!  Dissolution of the Joint Operating Agreement is no more or less routine than granting degrees, approving a budget, hiring fiduciary auditors, granting or removing tenure, or for that matter, raising tuition. Perhaps there are legal niceties of language to be honored, but this Board is doing exactly  exactly what needs to be done and must be allowed to do in an unfettered manner.

Peter Hasselbacher, MD
Emeritus Professor of Medicine, UofL
President, KHPI.
December 13, 2016

What Is Happening To Our Downtown Louisville Medical Center?

A number of threads that I have been following this past year or so came to a head this last month. These include a guilty verdict in federal court for a cardiologist in Ashland, Kentucky who had been accused of falsifying billing records to secure payment for performing medically unnecessary invasive procedures. The Leapfrog organization published its updated list of hospital safety grades. Additionally, and certainly not least, there are worsening signs of a dysfunctional and perhaps disintegrating relationship between the University of Louisville and KentuckyOne Health, the unit of Catholic Health Initiatives (CHI) that in Louisville owns Jewish and Sts. Mary and Elizabeth Hospitals, and manages the University of Louisville Hospital and its James Graham Brown Cancer Center. Although these themes are not necessarily unrelated to each other, in this article I will comment on the UofL/KentuckyOne situation and deal with others subsequently. First some background for what promises to be a major change in the alignments of the downtown medical center. Continue reading “What Is Happening To Our Downtown Louisville Medical Center?”

Issues of Quality and Safety at University and Other Hospitals.

Is Rome Burning While Nero Fiddles?

Screen Shot 2016-06-07 at 10.24.46 PMKentucky’s Hospitals have not done well in the past on national Hospital Rankings including the Leapfrog Hospital Safety Score.  Things seem to be getting worse. In the most recent iteration last month, once again Kentucky had fewer ‘A’-rated hospitals than the national median and more hospitals rated near the bottom with increasing numbers of ‘D’s.  More troublesome is the observation that 5 of the 6 hospitals receiving a ‘D’ are in the same hospital system. Three of these are in Louisville including two of our major teaching hospitals. Continue reading “Issues of Quality and Safety at University and Other Hospitals.”

Norton vs. UofL Lawsuit on Front Burner Again.

Is accreditation of UofL Medical School hanging on the result?

This case has been slowly grinding through the court system since it was filed in September of 2013.  Although things had been brewing for some time, the trigger event was a letter of agreement between Norton and the University of Kentucky to work more collaboratively at Kosair Children’s Hospital.  An indignant UofL fired off a letter threatening to evict Norton physically from its hospital and retain the hospital’s equipment for itself.  UofL’s self-righteous demand was much discredited when it emerged that the University had earlier promised to turn over its pediatric service to KentuckyOne Health– Norton’s chief downtown rival that badly needs a children’s hospital for its planned statewide system.  Norton responded by filing a lawsuit requesting a judicial determination that UofL had no standing to take over the hospital to use with its new best friends. The festering boil is more than ripe to lance! Continue reading “Norton vs. UofL Lawsuit on Front Burner Again.”