Kentucky Attorney General Moves to Intervene in Norton- UofL- Kosair Disputes over Children’s Hospital.

[Updated in Comments Aug 23, 2014]

Next week, Kentucky’s Attorney General will plead in Jefferson and Franklin County Circuit Courts to be added as an intervening defendant in the disputes between Norton Healthcare and the University of Louisville over control of Norton Kosair Children’s Hospital, and that between Kosair Charities and Norton over the use of charitable contributions and the right to raise money in the name of the hospital. The outcomes will ultimately determine the relationships (or lack thereof) between Norton, Kosair, and the University. Relations have not been going well in recent years with UofL seeking to switch its pediatric activities from Norton to KentuckyOne Health, and Kosair charities moving to substitute UofL for Norton as a chief beneficiary of its charity.

1. UofL and Norton in their Ultimate Cage-Match.

Last summer, UofL sent Norton a letter claiming that the hospital system was in breach of the lease for the land on which Norton built and improved Kosair Children’s Hospital (KCH). The trigger for the letter was that Norton was in talks with the University of Kentucky about ways to better coordinate clinical and teaching activities related to children’s healthcare. UofL claimed this was a violation of the lease that contains wording stating that the hospital should be operated for the benefit of UofL. (UofL argues that the hospital should be operated for its exclusive use.) In the background were several years of deteriorating overall relationships between the two institutions and disputes about the amount of money Norton was providing to UofL’s Department of Pediatrics for faculty salaries, research, and other academic support. Why Norton should be responsible for financing the bulk of the University’s pediatric program has never been made clear to me. No other hospital of which I am aware has such an expansive obligation.

If the alleged breach was not cured immediately, UofL threatened to evict Norton from the land and take possession of the hospital and its improvements. Not mentioned in UofL’s complaint was that it had already agreed in writing to transfer its pediatric hospital and other clinical activities to KentuckyOne Health (KOH), UofL’s new manager of University of Louisville Hospital. Such an eviction would simultaneously give KHO effective control of a full spectrum of healthcare for its system and to deny Norton the status of sponsoring teaching hospitals. [A subplot of the dispute is who gets to claim the 100+ pediatric residents and thus the system-wide Medicare and other payment bonuses that teaching hospitals enjoy.]

Pediatric medical care is in Norton’s DNA as much as it is in UofL’s. Norton not unsurprisingly did not roll over and play dead. In September 2013, Norton filed a claim for a Declaratory Judgment in Franklin District Court that UofL had no standing to evict Norton, and that in any case, Norton was not in breach of the lease or any other of the 100+ contracts it had with UofL and its Department of Pediatrics. The series of claims and counter claims that followed and a failed trial of court-ordered mediation have been reviewed earlier in these pages. I am compiling available documents on an earlier page.

Given that the land under KCH is owned by the Commonwealth, it was not surprising that UofL tried to formally enjoin the Commonwealth in the case earlier, but the Attorney General’s office (AG) deferred, hoping that the two former close partners could work things out by themselves– which has not happened. The AG is now exercising its option to speak for its own interests and those of the Commonwealth. The specific state signatory on the land lease is the Finance and Administration Cabinet, which is represented in the court on behalf of the AG by Sean Riley, Chief Deputy Attorney General.

What might the new Norton-UofL pleading tell us?
Most of the Commonwealth’s motion to be presented next Wednesday is an exercise in the Rules of Civil Procedure outlining why the Commonwealth has a right to intervene. It is, to a large extent, legal “boiler-plate” evoking the magic words of compliance with the Rules. Because the Commonwealth wishes to intervene as a defendant, it must also respond to plaintiff Norton’s First Amended Complaint. It does so in what I am coming to understand is the common strategy of agreeing with as little as possible, and denying or side-stepping as much as can be done regarding Norton’s claims and positions. However, the Commonwealth’s brief makes some unequivocal statements in its filing that are both interesting and important.

UofL not a signatory to the land-lease.
The motion to intervene and its accompanying response to Norton’s complaint states that the Cabinet’s interests are not adequately represented by either Norton or UofL, and that the Commonwealth needs and is entitled to its own seat at the table. The AG strongly asserts that UofL was not a party to the land lease, and that that the land is owned by the Commonwealth which is also the “Lessor” in the lease). Furthermore, the Commonwealth has “not formally asserted any breach of the ground lease.”Even if a breach were found to have occurred, the land and its contents would revert to the control of the Commonwealth’s Finance and Administration Cabinet, not UofL. The Commonwealth has an interest in protecting not just its land and its University agency, but also the health of the children of the Commonwealth. [Bravo for the AG!]

Norton must have an affiliation agreement with UofL.
On another contested issue, the AG declares several times that the language of the lease requires Norton have an ongoing academic affiliation agreement with UofL, but also recognizes that such an agreement from 2008 is still valid. Of course, this requirement cuts both ways.  UofL must have one too.  I do not see that the Attorney General takes any position on whether KCH must operate exclusively in the interest of UofL. Norton and UofL have had difficulty coming to agreement on an update to their current affiliation agreement, relying by default on the existing one. Although UofL claims that it is Norton that is dragging its heels on a new agreement, if UofL wants to deliver the children’s hospital that it promised to KentuckyOne, it may be in UofL’s interest not to come to a new agreement with Norton. [Talk about Machiavellian thinking on my part!]

Request for Special Master Commissioner or Expert Witness.
A new wrinkle introduced in the AG filings is a request for a “full and fair accounting for operations and finances of Kosair Children’s Hospital and the plaintiff Norton Healthcare in order to aid the court and the parties in resolving the case.” This bunker-busting demand seeks to examine not just Children’s Hospital, but also the entire multi-hospital Norton Healthcare system in Louisville?

I do not fully understand the justification for requiring Norton to make such a sweeping disclosure of its entire hospital operation. Financial information that is relevant can be obtained under the mutual protections of discovery within the existing litigation. The demand seems triggered by UofL’s allegation that Norton has not reimbursed UofL for some nonspecifically-described accumulated cost deficits, and that it hid the finances of its children’s hospital by incorporating it into Norton’s greater hospital system as a single administrative system for Medicare purposes. To accomplish such an audit, the AG requests the appointment of a Special Master Commissioner (or alternatively an expert witness) to examine the management and books of Norton Healthcare. Such an examination is also part of the AG’s pleading with respect to the Kosair Charities case discussed below. Although the Kosair Charities case is separate from the Norton-UofL one, it looks like a tag-team match to me!

Equal treatment under the law?
I find it ironic that UofL, which has bent over backwards from having to reveal to the public even routine internal matters, and which continues to fight in court against having to reveal is finances to the AG and other state authorities, is now in a partnership with the AG demanding sweeping disclosures from Norton that will presumably be made public. In my opinion, any such approved review of Norton should be paired with a similar requirement for UofL. What, for example, has UofL done with the multi-millions Norton has given it? Are the salaries demanded reasonable ones? Who in the University benefited and for what purposes?

What is good for the goose is good for the gander.
To my knowledge, UofL has never submitted to such a financial audit even in the presence of illegal and inappropriate dealings that hid behind its iron curtain. No such sweeping demand for financial accountability was made of the University of Louisville when it was accused of mis-managing QCCT funding for indigent care or of Medicaid Passport money. Seems to me that several parallel issues are involved in this current case. UofL did not come out looking very good in the limited state audits that were done.

Further comment:
It appears to me that the AG gives each side one of the bones they seem to be demanding. In Norton’s favor, the AG states that UofL does not have the independent authority to declare that Norton is in default of its land-lease, nor to evict Norton from the property. No default would then exist at present. Even in the case of any future default, the Hospital is not UofL’s to give away at its pleasure. The well-being of the children of Kentucky is also a factor, and UofL cannot claim sole responsibility for that.

In UofL’s favor the AG concludes that the language of the lease requires that Norton have an affiliation agreement with the University. If we are to believe their words, an affiliation agreement is what UofL is demanding. (The court will also need to decide whether the verbal affiliation agreement that Norton claims was reached on Jan 20, 2014 (denied by UofL) is enforceable!)

The demand that Norton expose its private parts to the public without a similar disclosure from UofL, the state’s own agency, will likely be a bitter pill placed in the hand of Norton. Wednesday’s hearing will reveal how Norton will to choose deal with this.

2. Motion to Intervene in Kosair Charities v. Norton Healthcare.

I am much less familiar with the ins- and outs of this case which has not been in the public eye very long. I do not have a copy of Kosair Charity’s initial complaint. [I did but forgot! PH]  It is clear that Kosair Charities and UofL have entered a new and very much closer relationship. Kosair is financing a new office building for the private practices of the Department of Pediatrics, and UofL is renaming its new Translational Research building after Kosair Charities. In my opinion, UofL has weaned KC away from Norton and is anticipating big bucks of clinical and research support!

The basic structure of the filing is similar to the previous one. Asserting that the Commonwealth has an interest in supervising and protecting the Commonwealth’s charitable assets, the Attorney General’s office works through the legal criteria to justify its request to intervene as a plaintiff with Kosair Charities Committee, Inc. (KC). By other reports, KC argues that Norton has misused its charitable contributions over many years by merging its contributions with those of the parent company, Norton Healthcare. KC claims that Norton entities other than its Children’s hospital are benefiting from KC’s money. From this perspective AG’s request to intervene is not unreasonable.

Is it improper for hospitals to merge? Certainly not in Louisville!
Some years ago, and well after its relationship with KC began, Norton merged its Louisville hospitals into a single economic unit for a variety of reasons. One of these must have been to capture the extra Medicare revenue that results from having medical residents in your hospital. KCH has lots of residents but few Medicare patients. By combining its hospitals into one administrative unit, the financial benefits of having residents in your program are spread over hospitals that have lots of Medicare patients.

Merging hospitals is not nefarious in itself. There are other reasons for combining hospitals into a single administrative unit. Jewish Hospital and Sts. Mary and Elizabeth Hospital did so a few years ago. Jewish and Sts. Mary & Elizabeth Hospital are now a single teaching hospital for Medicare purposes. In addition to strategic reimbursement issues related to teaching hospitals, there a host of other of financial and management efficiencies that can be gained by eliminating redundancy. Even University of Louisville Hospital put itself and its residents up for merger!  Profits from University Hospital are currently being used to prop up other hospitals in the KentuckyOne system.  Is the pot calling the kettle wrong?

[I forgot to mention that one of the major reasons hospitals seek to merge is to strengthen their clout with insurance companies when reimbursement rates are negotiated. They hope to be too “big to be excluded” from provider networks, especially as the push is towards narrower ones. For example, University Hospital and the University Physicians’ Practice group have both  been excluded from Humana networks, at least in the past. If the University entities come to the table as a bargaining entity with KentuckyOne, exclusion might be harder to demand for both adult and pediatric services.]

What might the AG know that we do not?
On the face of it, the AG’s petition to intervene as a plaintiff against Norton comes across as very critical of Norton. I do not know if this means that the AG actually believes the claims of Kosair Charities against Norton, or if the AG is only restating Kosair’s claims as part of the protocol of asking to intervene as a plaintiff. Perhaps we can be educated on protocol by some of the lawyers among us. Neither am I familiar with the accounting rules imposed upon recipients of charitable donations. Presumably it will not be too difficult to sort such bookkeeping things out. However, given the relatively small amounts of money Kosair Charities donates each year to Children’s Hospital for naming rights of the hospital ($3 and more recently $6 Million yearly) compared to what I understand from public reports is a much greater amount of charity care provided by Norton in their children’s hospital, its hard to believe there has been any “surplus” charitable funds to rake off the top to add to the budgets of Norton’s other hospitals.

Norton’s responses.
Norton responded publically to this news last week and sent an announcement to its employees.

Text of last week’s press release by Norton:
Although the Attorney General’s filings today are riddled with inaccuracies and misinformation, we welcome an independent assessment of how funds are used by all parties involved. A review of U of L’s finances will reveal questionable practices that are already under public scrutiny, and that Kosair Charities has broken their contractual agreement to provide financial support to the hospital that bears their name. We are confident an independent review will find that Norton Healthcare is compliant with all IRS, regulatory and financial reporting standards maintained by health systems nationwide.

Text of message to Norton’s employees of July 30:
Yesterday, Norton Healthcare was notified that Jack Conway, the Attorney General for the state of Kentucky, announced his intention to get involved in our legal issues with both the University of Louisville School of Medicine and Kosair Charities. Both of these issues have been generating significant media attention for the past year and both are currently in the court system seeking resolution. Although there had been no conversation between the Attorney General’s office and Norton Healthcare about Mr. Conway’s decision to become an active participant, we remain confident that we have done the right things in the right way. Once all the facts are presented, we are confident the courts will agree with our positions. What follows is the official statement we have given to the media in response to yesterday’s filings.

Concluding remark.
It is a sad business indeed that these three important Louisville institutions have come to the point of interlocking lawsuits, joined at the very least by the demand by the AG for a Special Master Commissioner– or will there be two separate Commissioners? Given that the disputes to date have been presented to the public largely by way of press releases, and interpreted mostly by journalists such as I, it was inevitable and perhaps even best that the matter is now in the hands of the courts. It may be that only when the protagonists are placed under oath that the motivations behind these disputes will become clear, and that an understandable and verifiable story will be available to a public that also has a dog in this fight.

I invite Norton, the University of Louisville, or Kosair Charities to help me correct any errors of fact I may have made.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
August 3, 2014

[Addendum Aug 5: A copy of Kosair Charities’ First Amended Complaint of June 6 has been made available– see below.  The parties have not provided the several affilliation agreements and reports referred to between Norton and Kosair stretching back to the formation of the present Children’s Hospital that are essential to understanding the complex and multi-faceted arguments offered in the Complaint. The Complaint refers to correspondence between Kosair to Norton as early as July 2013 related to notice of material breaches of their various agreements that would be helpful to the public in understanding what is happening to this community resource.  Norton has to my knowledge not yet responded in court to the Complaint. PH]

The full text of the Attorney General’s pleadings can be downloaded here.
• Pleading re. intervening in Norton Healthcare v. University of Louisville.
• Pleading re. intervening in Kosair Charities v. Norton Healthcare

First Amended Complaint by Kosair Charities Committee, Inc. June 6, 2014
Initial Complaint by Kosair, May 8, 2014

• Summary of the relevant Kentucky Rules of Civil Procedure that shape the language and format of the above pleadings.

3 thoughts on “Kentucky Attorney General Moves to Intervene in Norton- UofL- Kosair Disputes over Children’s Hospital.”

  1. Cases moving incrementally. A change in Judges.
    Last Monday, August 18, I attended the hearing before Judge Perry in Jefferson County Circuit Court. Friendly preliminaries were barely in evidence and the session went almost immediately into silent mode. A representative of the Attorney General’s office was present. I subsequently learned that Kosair Charities had sought Judge Perry’s recusal from the case and that the case has indeed been assigned to another judge. In the meantime, the Attorney General’s motion to intervene was not opposed and has been granted.

    In Frankfort, the Norton v. UofL case is also moving along with depositions and further hearings scheduled. I do not have specific information about whether the Atty. Gen.’s request to intervene has been granted. I will try to obtain court documents from both these cases and report further.

  2. Change of Dates.
    The Attorney General’s motion to intervene in the case of Norton v. UofL was originally scheduled to be presented tomorrow, Aug 6, but that date has been changed. On Aug 1, a notice of change was given to the court clerk. The case is on the docket in Franklin Circuit Court for Monday Aug 18, the same morning that Kosair Charities v. Norton is on the docket again in Louisville!

  3. I attended motion hour this morning in Jefferson County Circuit Court in the courtroom of Judge Mitch Perry. Under the best of conditions, hearing anything is difficult from the public section. Immediately after informal greetings and some comments from the Judge, an extended private discussion was held before the bench. There was no subsequent public discussion or announcement, but I learned later that action on the Attorney General’s motion to intervene was deferred until August 18. It was my impression in the courtroom that the parties were being encouraged to talk more with each other, but both parties have subsequently told me there are no ongoing discussions of settlement. I am in the dark, but this is a serious case with serious implications. I am hopeful that the facts will eventually be revealed.

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