How Close Really Is KentuckyOne Health To Selling Its Louisville Assets?

Catholic Health Initiatives (CHI) just published its financial report for the first quarter of Fiscal Year 2018– the three months ending Sept 31, 2017.  One initial media report led with what CHI would no doubt wish to emphasize, that the company has cut its “quarterly operating loss by more than half.”  The actual reported system-wide loss from operations in Q1-FY2018 was $77.9 million compared to a loss of $180.7 million in Q1-FY2017. This change is being attributed chiefly to more efficient purchasing and to decreased labor costs.  Indeed, CHI reported a decrease of 2,667 full-time-equivalent employees over the quarter.  Whether such cuts are healthy for the company in the long run remains to be seen.  I await more expert financial analysis than I am able to offer and to see how the financial markets or potential new partners or asset-purchasers react.  It appears these latter are not being hasty.  As I plow through the numbers, I see many other measures going in what appear to me to be the wrong directions.

The report gives special attention to what has been going on here in Kentucky.  [I extracted all mentions of Louisville or Kentucky from the 61-page report into a separate document available here.]  The percent of operating revenues contributed from the Kentucky Region was 7.5% this last quarter compared with 16.2% in 2013. This represents a drop from 2d place to 5th place among the 11 or 12 regions or operational segments.  Perhaps the most newsworthy item is the first notice of which I am aware that the anticipated (hoped for?) date for a closing on the sale of CHI’s KentuckyOne Health facilities in Louisville has been put off six months to June 30, 2018.  A reasonable person might conclude that KentuckyOne is having a difficult time finding a motivated buyer for its hospitals, outpatient medical centers, and physician practices here in Louisville.  I am not surprised. The return of control of University of Louisville Hospital to the University has not improved the financial performance of Jewish/Sts Mary & Elizabeth Hospitals.  With respect to apparently continuing discussions between CHI and Dignity Health to align their activities, the report uses the same language it did at the beginning of this year.  No substantive indication is given as to how things are going.  Although some media reports use the word “merger” to describe the process, that word seems to be carefully omitted in accounts by CHI itself. Continue reading “How Close Really Is KentuckyOne Health To Selling Its Louisville Assets?”

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.”

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.”

KentuckyOne Poised To Announce Layoffs of Senior Executives.

I have been advised by two sources that KentuckyOne Health will soon announce the elimination of several system-wide or senior executive positions designed to improve efficiency, reduce costs, and emphasize local leadership.  The as-yet unconfirmed names of the individuals currently in those positions include clinical and operational executives at the highest level.  I am unaware if the names of included leadership comprise a complete list or represent the tip of the iceberg of things to come.  Perhaps as an early indicator, the senior physician executive at Jewish and Sts. Mary & Elisabeth Hospitals left that position a few weeks ago.  As a company outsider, it is impossible to know all the reasons for changes in personnel.  These often include the personal career plans of the employee, but also concerns about the fit between employer and employee in meeting the goals of the particular corporation.  KentuckyOne may well once again be feeling financial pressures that cannot be denied. It has laid-off employees in the past to decrease expenses – a strategy that in the longer run was not entirely successful at University Hospital.

On the other hand.
One of the most common complaints I hear from my University of Louisville colleagues reflects what is considered to be unwanted and disruptive outsourcing or other “outsider intrusion” on the part of Catholic Health Initiatives or KentuckyOne management that does not allow for appropriate local initiative or control, or which treats all hospitals the same no matter where they are located, or fails to acknowledge the particular needs of their patient population. From this perspective, a diminution of the role of system-wide executives might be considered a worthwhile result. On the other hand, I suppose it is possible that a state-level KentuckyOne system control might be replaced by even more direct CHI control from Colorado!  The desire for local control is, however, at odds with current national and local policy, or financial pressures for hospital and health system consolidation and coordination.  The health of KentuckyOne and its partnership with the University of Louisville is a matter of critical concern for Jefferson County and the Commonwealth.  Things have not been going well so far. Continue reading “KentuckyOne Poised To Announce Layoffs of Senior Executives.”

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.”

Potpourri of Health Policy Issues in June.

My cup runneth over with potential issues to explore.

June has been a busy month both locally and nationally insofar as things I like to write about. The shame-on-me is that I have not carved out enough time to do so!  In part I am still picking up the pieces after my early spring travels. Exploring how to unpack and deal with the new Medicare prescription drug data base also took a lot of time.  The truth is that I am a slow writer handicapped by a default and probably over-wordy professorial style.  I haven’t even been able to update the Institute’s Facebook and Twitter pages!  What follows is a list of things that occured during the month that I wanted to write about and hope to do so in more detail later.  These are not necessarily in chronological order or of importance.

The Supremes Rock & Rule!
We were presented with two back-to-back major decisions by the U.S. Supreme Court. The first, King v. Burwell, allows federal subsidies of health insurance premiums for low income individuals and their families to continue even if their insurance was purchased in states that chose to allow the federal government to operate their health insurance exchanges.  The lawsuit brought by Obama/Obamacare-haters to limit premium support to insured individuals in states like Kentucky that chose to operate their own exchanges would have essentially gutted the Affordable Care Act (ACA) and tossed millions back into the uninsured category. For the time being, Obamacare stands intact for at least the next year and a half, despite promises by opponents to throw up additional challenges. All our legislators should be working together to deal with a major remaining deficiency of the ACA.  The Act has been very successful in decreasing the number of uninsured people, but it makes little headway against the exploding costs of unnecessary, marginally effective, or for that matter even necessary medical care.  Continuing to forbid the federal government to negotiate over the prices of drugs is a case in point. Subsidies were deemed necessary for a reason! Continue reading “Potpourri of Health Policy Issues in June.”

Family and Medical Leave Act Provisions Extended to All Same-Sex Married Couples.

Regardless of what the U.S. Supreme Court decides in resolving the lower court differences over whether individuals of the same sex can marry in all states, the tidal wave of change in both public opinion and law sweeping over the country only gets higher. The U.S. Supreme Court recently found in U.S. v. Windsor that gay and lesbian couples that were legally married could not be denied the ability to file their federal income taxes jointly from other states, even those which refused to recognize that marriage. To do so for federal tax purposes was found to be a denial of equal protection under the law and therefore unconstitutional. Since marriage status is relevant to a multitude of other civil matters, it is not surprising that other regulations or laws might be revised. So it came to pass last week when the U.S. Department of Labor (DOL) published its final rule on eligibility to take advantage of the Family and Medical Leave Act (FMLA). The rule goes into effect March 27, 2015.  A Fact Sheet and Frequently Asked Questions are available on the DOL website. Continue reading “Family and Medical Leave Act Provisions Extended to All Same-Sex Married Couples.”

University of Louisville Appeals Finding That Its Hospital is a Public Entity.

Appeals court documents available.

[Addendum:  Case has been further appealed to KY Supreme Court.]

I recently was able to obtain some of the court documents related to University Medical Center, Inc’s appeal of a lower court’s finding that it is a public institution and not the private corporation it claims to be. You can read some of the background on this case in an earlier article to which I have also added the links below. Continue reading “University of Louisville Appeals Finding That Its Hospital is a Public Entity.”