First Oral Arguments in Norton Healthcare vs. University of Louisville

Last Wednesday, I made a field trip to Frankfort for what is to my knowledge, the first face-to-face extended oral argument between the University of Louisville and Norton Healthcare over Norton Kosair Children’s Hospital. It is easy for me to get lost in the sequence of the legal proceedings, but nominally the hearing was over Norton’s motion to dismiss UofL’s counterclaims to its original motion of last year for Declaratory Relief from UofL’s attempt to seize physical control of its Children’s Hospital. (You see what I mean?) As I understand it, even if Norton were to succeed this week, the legal dispute between the two parties would not be over. Nonetheless, the two-hour hearing laid out the major positions and tenor of both parties and was instructive.

A representative of the Office Of the Attorney General weighed in with an opinion that the Cabinet was interested in a resolution of this matter, but opined that it was “premature to dismiss” U of L’s counterclaims. Much was covered, more than I am competent to deal with. Both parties kindly provided me with copies of their briefs and some exhibits so you can read these documents for yourself. [See below.] My take-away based on the arguments of the two parties, the input from the Attorney General’s office, and comments by the Judge, is that this matter is far from over. Judge Wingate is being asked to make a judgement of Solomon. I do not envy him.

Norton leads off.
Norton’s case was presented by David Bradford (of Jenner & Block, LLP from Chicago) in a formal and legally restrained manner that focused on the specific language of the land-lease and supporting documents that permitted Norton to build a Children’s Hospital on state land. He argued that nothing in the language of the agreements obligated Norton to operate the hospital exclusively for the benefit of the University of Louisville, to restrict its use only to physicians from the University, or to indemnify the Department of Pediatrics for its self-determined operational expenses. He pointed out that Norton gives UofL over $30 million yearly in salary and general support. He claimed that UofL had created and maintained the appearance of a rift so that it could manufacture a breach in its attempt to force Norton to surrender its hospital.

Bradford rebutted what he referred to as “quasi-legal arguments” advanced by U of L for which he claimed there was no basis in the law. He emphasized language in the lease that the hospital was to be operated for the benefit of the Commonwealth, not exclusively for UofL. In response to complaints that Norton was hiring some of its own physicians, Bradford commented that no one says Norton has to hire UofL doctors when they were not doing their job— “That obligation does not exist.” [The gloves were beginning to come off at this point and one wonders what the history between the two parties really contains.] He emphasized that Norton’s plan to collaborate more effectively with the University of Kentucky would in no way alter its commitments to UofL, although I can see why UofL might be nervous. He asked that the clouds hanging over the future of the hospital be lifted so that it could continue in its mission of treating the children of the Commonwealth.

UofL’s turn.
My long-time acquaintance Phillip Collier (of Stites & Harbison in Louisville) presented UofL’s case. I think it is fair to say that the language used was more colorful and that parts of the attack were more personal than what was heard earlier. In rebutting what Norton characterized as “quasi-arguments,” Collier returned frequently to the phrase, “This is not just a strip-mall lease.” He characterized Children’s hospital as a public asset in the literal sense. He claimed that Norton had a “fiduciary obligation” to UofL to place the University’s interests over its own. He spoke of longstanding “partnership” and “covenants” between the two organizations. He interpreted the language of the lease very differently. He spoke of a betrayal of partnership by Norton’s making secret plans with UK. He asked the rhetorical question of “how did we get there” in characterizing the current adversarial positions of the parties having gone bad “inch by inch.”

Its not about the money, is it?
Collier claimed that Norton was making historic profits from the operations of the hospital and not sharing with the Department of Pediatrics. Much of the complaint revolved around UofL wanting more money out of the deal. He characterized the income of Norton’s CEO and other executives as excessive. He accused Norton of paying “cash bonuses” to its doctors for referrals, prompting the Judge to interrupt with a comment, “Is that legal?”
In what I judged to be over-the-top, Collier characterized Norton as “preying on its partner.” There was a lot more covered in UofL’s hour. To me the emotional and scatter-gun approach obscured what the underlying legal arguments might be. Frankly, I also found elements of hypocrisy in the claims of the University.

What is really going on?
Mr. Bradford had 7 minutes of rebuttal at the end. He used it to answer UofL’s rhetorical question about how the parties had arrived at their impasse. Responding to the nature and tenor of the accusations made against Norton, Bradford pointed out that the real breach occurred three years ago when Catholic Health Initiatives took over the University’s medical system, and that Norton’s principle competitor was now pulling the strings to take over their children’s hospital instead of building the new one it needs. He spoke of the University hiring a lobbyist to change the Governor’s position. In earlier briefs, and following the Commonwealth’s joining the lawsuit on UofL’s side, Norton expressed concern that the University was being represented by the Governor’s old law firm which still employs the Governor’s son. There are obviously some very sensitive commercial and political issues in the background.

The word hypocrisy was not used in the hearing, but I will do so.
It is incontrovertible that UofL promised in writing to give its pediatric services to KentuckyOne Health, CHI’s subsidiary in Kentucky. Why is this not the real breach of covenant or partnership? I watched Norton and UofL’s relationship worsen over a much longer period than three years, but I have no doubt about what UofL is trying to do. According to its strategy, all it has to do is hold out on any agreement to win its ultimate prize. It seems to me this is what is happening. Seems also to me most of the arguments about violation of special relationship that UofL uses against Norton can be turned back equally on UofL!

I used the word hypocritical earlier in this article. One need not be an attorney to notice that the pot is calling the kettle black. Did not UofL plan to transfer its pediatric service to KentuckyHealth in secret? The University claims Norton wants to exclude its doctors from the hospital, but UofL wants a closed shop at Children’s hospital for itself just as it has signed a deal with KentuckyOne for a closed shop on other medical services! It even went so far as to promise KentuckyOne that it would not give clinical appointments to Norton or Baptist physicians without KentuckyOne’s permission! UofL has agreed to a closed academic shop of its own! It agreed with KentuckyOne not to form any affiliations with the University of Kentucky without permission. UofL is on the record of planning to put pressure on its doctors to refer only to other University doctors with financial implications attached to their referrals. In my opinion, supported by the comments of others, UofL and KentuckyOne want to corner the downtown market.

How much is too much?
UofL makes claims of excessive salaries and diversion of money by Norton to support its demand for an outside financial examination of Norton. Will it acquiesce to one of its own financial operations? Pediatric faculty members have made million-dollar salaries that certainly seemed excessive to me. UofL has one of the largest departments of Pediatrics in the nation— all billing for their clinical services. Perhaps excessive salaries is the reason Pediatrics and other clinical departments of the medical school are in such financial distress. Certainly a reciprocal audit of the kind UofL consistently rejects or fails to reveal would help the public to sort out the facts behind the claims and counter-claims of waste or impropriety. In all fairness, I would like to know.

Is it durable negotiated outcome even possible?
Have the two parties gone past the point of possible reengagement? UofL has already wooed Kosair Charities away from Norton Healthcare! Regaining mutual trust may be an insurmountable barrier. It’s not “just business” any more. I suspect the legal battlefield has been fogged over sufficiently, and that because of the the input of the Attorney General’s office, that the case will be allowed to continue. Indeed, conditional plans were already being made on how to go forward by the end of the hearing. Things would then only get worse– if that is possible.

Other implications.
The UofL School of Medicine is already on probation. One of the positives in its last accreditation was the relationship with and financial support from Children’s Hospital. How is that going now? Surely we are going to be looked at very carefully if not critically. From my perspective– experiences at the four medical schools in which I trained or worked, from what I learned during my year on the U.S. Senate Finance Committee staff that oversees medical education payments to teaching hospitals, and as a former lobbyist under the auspices of the American Association of Medical Colleges– I am unaware of any medical school in the nation that has the relationship with its teaching hospitals that UofL is demanding of Norton.

What do our students, trainees and patients think about all this?
My conversations with students these days affirms that there is much good teaching going on in the Department of Pediatrics. More than its fair share of the best students are going on to careers in pediatrics. Nonetheless, I am not happy about the examples currently being placed before our students by the administration of the University. Our students and trainees are being taught from the “hidden curriculum” in medical schools that is commonly said to bury the enthusiasm and altruistic impulses that drive so many into the healing professions.

Equally, it cannot be comforting to the parents of children watching UofL and Norton struggling for control of the economic and physical control of the only Children’s hospital in Louisville. How is the financial and moral support of the public for Children’s Hospital being used? For overhead of clinical care? For care of the disadvantaged? For unjustifiable salaries? For faculty research projects or perks? For inappropriate transfers within Norton Healthcare or University slush-funds?

What, for example, is so bad about cooperating with the University of Kentucky? Why is UofL so fearful of UK’s presence? Why should not the pediatric cardiac or transplant surgery programs join forces and cooperate? From the perspective of a student or parent, and certainly from my perspective, any other outcome is selfish. I am for fuller transparency and accountability from both parties. As much as I would like to see these wasteful and destructive lawsuits go away, it may be that the discovery of trial is the only way to let healing light in.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
November 17, 2014

• Norton’s Motion to Dismiss UofL’s Counterclaims, 6/6/14, (PDF 1.2 MB.)
• Attachment A, Affiliation Agreement of 2008. (PDF 1.5 MB.)
• Attachment B, Letter of Intent Norton & UK 8/22/13, (PDF 1.9 MB.)

• UofL’s Response to Norton’s Motion to Dismiss, 8//29/14, (PDF 0.9 MB.)
• UofL Suplemental Response to Norton’s Motion, ?Date, (PDF 0.2 MB.)

Earlier, Norton filed to withdraw its own earlier motion to enforce UofL to follow what was a disputed oral agreement that would have settled their dispute. Central to this withdrawing this motion was a position taken by the Commonwealth that it would not necessarily agree to modify the land-lease, a part of any agreement that is central to Norton. Otherwise the same scenario of claimed default made by the University could be trotted out all over again. The brief itself is short, but there are many Exhibits that give insight into the negotiations leading up to the current lawsuit as well as reference to the deposition of Dr. David Dunn. I will post these as soon as I get a moment.

• Norton Motion to withdraw claim of breach by UofL. 10/22/14. (PDF 0.1 MB.)
•Exhibits 1-11. (PDF 6.5 MB.)

See also a page containing links to many other documents in this dispute.