Governor Beshear Rejects Proposed Louisville Hospital Merger

On Dec 29,  the last business day of 2011, Kentucky’s Governor Steve Beshear rejected the acquisition of University of Louisville Hospital by the Catholic Health Initiatives hospital chain of Colorado. If you have read any of my recent entries in this Policy Blog it will be clear that I agree wholeheartedly with his decision. I confess to being more than a little surprised, given the enormous expenditure of money, marketing, and political pressure that drove this steamroller of a business deal.

The Governor acknowledged much input from a wide range of community actors both for and against the acquisition. In his statement (reprinted here) he referred largely to the legal and policy advice of Attorney General Jack Conway’s office, which was assisted in its analysis by State Auditor Crit Luallen. I am immensely proud of these three state officers. They deserve our thanks for protecting the interests of all Kentuckians. I urge you to write to them and thank them, as I will. (Addresses available here.)

A sufficient objection to the acquisition/merger hinged on the fact that an important state and public treasure was being sold unilaterally to a private entity by the University and its hospital subsidiary, University Medical Center (UMC). The University claims that UMC is itself a private company and therefore beyond control by the state. This obviously fallacious argument was soundly and logically rejected by the Attorney General.

A “host of legal and public policy issues” were also raised in the Attorney General’s report. The argument that the University itself was not a party to the consolidation was rejected as a “distinction without a difference.” The consequences to a potential “Unwind of the Consolidation” were judged to be inappropriate and unfair to the citizens of Kentucky and the University. [Indeed, as I feared, the potential financial benefits to the University’s commercial research enterprise were actually golden handcuffs that would have made it difficult to part ways with CHI even should that be desirable.] The agreement attempts to give away the Commonwealth’s independent rights and privileges: “From any perspective, the proposed arrangement represents a significant erosion of the University and Commonwealth’s control over a major public asset.” The agreement of the University and its self-designated private hospital to honor the Ethical and Religious Directives of the Catholic Church was also problematic to the Attorney General’s office on constitutional grounds. Lengthy and expensive litigation to settle the matter of excessive entanglement between state and religion were predicted. The Attorney General was troubled that the proposed agreement would allow the University to further ignore its open-record and transparency obligations. Improper distributions of money to the sponsors such as occurred in the Passport scandal were feared. Not-for-profit assets were seen as potentially being transferred out of Kentucky without a corresponding identifiable benefit in return. The restrictive covenants against other clinical and academic partnerships were not thought appropriate for a public University. A material change in level of services at a historically public hospital was obvious. Finally, but neither last nor least, the Attorney General scolded the University of Louisville and its Trustees for plunging ahead “without fully or timely engaging or consulting with the appropriate agencies of the Commonwealth…”

Disappointingly and perhaps not unexpectedly, the University and Jewish and St. Mary’s Hospitals have fallen back on their common marketing strategy by criticizing the Attorney General’s report as full of inaccuracies and misunderstandings. They seem to believe that they and they alone know what is in the best interests of Kentuckians. They promise to continue to press ahead with their plans for merger. A sample of their statements is available here.

Certainly these organizations have put a lot of effort into their own acquisition. I am told that Jewish Hospital put $5 million into planning and promoting the deal and I suspect the University ponied up more than that. (Given the continuing resistance of the University to disclosing such information, we may never know how much.) Certainly some of the players have a vested personal interest for the plan to have gone through. I suspect they were as surprised as I was by the decision. [I am told that one clinical department has just been called together at Jewish Hospital and told to expect that an entire major clinical service was gong to be transferred from University Hospital to Jewish Hospital on January 1 accompanied by a big check for new equipment. So much for maintaining the stature of University Hospital.]

I wish I could say that this current plan is dead and that the community could move ahead to deal with the real issues. That would be premature.  I am, however, confident that there are options available to us other than the sell-out that we almost had forced upon us. Other hospital entities have already expressed their interest in helping, should such outside assistance be thought necessary. I would like to think however, we could solve our own problems, and be the masters of our own destiny.

Peter Hasselbacher, MD
President, KHPI

Emeritus Professor of Medicine,
University of Louisville

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