Still Another Hospital “Merger” in Louisville Kentucky

Potential Questions and Issues Related to the Proposed  Acquisition or Merger of University of Louisville Hospital with Catholic Health Initiatives.

I am very troubled with the way this vaguely defined proposal has been revealed to the public.  I cannot avoid the impression that important elements of the deal have been intentionally hidden.  There is a lot to cover and these initial thoughts just scratch the surface.  If I had an opportunity to ask clarifying questions, I would start with these.  I ask them from my perspective as a life-long medical educator, physician to both the rich and poor, and a lobbyist for higher education.  What do you think?

Nature of the Proposed Arrangement:
Is a true merger of hospitals planned, or simply an acquisition by another hospital chain?  For example, will the new entity have a single Medicare Provider number?  If a true full merger is not planned, why not?  Which, if any, hospitals will be truly merged, or is University Hospital just being put in play once again by another hospital chain?  What will be new?  For what is the University of Louisville, its Hospital, and the Commonwealth of Kentucky giving up precious independence and control?

University Hospital has been managed by at least 5 outside corporate chains or partnerships of hospitals in the last 25 years.  All failed.  Other existing or contemplated partnerships, programs, or mergers with Louisville Hospitals have also failed.   What were the reasons for those failures?  What plans have been made to ensure a better outcome?  Where can we see those plans?  Why not?

Public Access to Planning Documents:
Why has the University of Louisville not released its planning documents to the public for their examination and comment the way they have internally?  What is there that you do not want the rest of us to see?  Why should the proposed business arrangement not be put on hold until you resolve your legal dispute with the Commonwealth and Jefferson County courts over whether your records should be made public?  Given the rash of major misappropriations of public money by the University and its employees (such as the Passport and Education Department scandals, why should we simply trust you?  Is not “Trust but Verify” a better public policy?   I will write separately why I think the University feels compelled to continue to hide its clinical operations from public view.  Can anyone provide the KHPI any relevant  documents or internal presentations?  As a member of the Executive Faculty, I deserve some access anyway.  Contact me confidentially if you wish using the link on the Home Page.

Teaching Hospital Status:
Will you create a new Teaching Hospital Entity?  How will you manage the existing ones?  When Jewish Hospital & St. Mary’s Health Care merged a few years ago it took a single Medicare Provider number (180040) and is currently classified as a minor teaching hospital with 3.3 residents per 100 beds.  By resident-to-bed ratio, it ranks 788 out of the 1047 teaching hospitals nationally in its teaching intensity.  In contrast, University Hospital has 60 residents per 100 beds and ranks 96th; and Norton Hospitals, Inc. has 11 residents per 100 beds and ranks 482d.  Baptist Hospital East is not a teaching hospital.

Will more medical residents and students be placed at Jewish Hospital or St. Mary’s Hospital?  Will there be true teaching services at those hospitals with interns and residents having true responsibility for a group of patients comparable to a true teaching hospitals like University Hospital, Children’s Hospital, or the Veterans Hospital?

Having Teaching Hospital status opens a candy store of additional payments and supplements from Medicare, Medicaid, and the Commonwealth of Kentucky.  It is estimated nationally that the presence of each medical resident brings in an additional $100,000 to their hospital employer. Recently, $9.5 Billion was distributed as “educational” supplements to 1047 hospitals that were classified as teaching hospitals.  That is an average of $8.7 million for each teaching hospital from Medicare alone.  However, since the great majority of hospitals have only a handful of residents, the major teaching hospitals receive many times more.  Some hospital mergers are driven by the desire to extract better Graduate Medical Education payments.  It is well recognized that the present system has produced bizarre or unjustifiable results and warped our system of medical education.

Each teaching hospital receives a fixed, hospital-specific DGME payment to pay for resident salaries and for some faculty salaries [which I have never seen budgeted that way].  The IME system pays by a different mechanism.  For every Medicare patient discharge, a teaching hospital receives a percentage supplement derived on the Resident-to-Bed Ratio described above.  This is not chump-change.  Currently, University Hospital receives a 28% boost,  Jewish Hospital & St. Mary’s  2%,  Norton Hospitals 6%, and Baptist East 0%.  In a world where profit margins on Medicare patients comes in small single digits, such bonuses give a tremendous competitive advantage to the hospitals receiving them.  Cheap labor, extra money, status, branding & market share, recruiting advantages, another lobbying group to work for them, and other benefits give teaching hospitals a competitive advantage in the marketplace.  In more recent years, teaching institutions have added commercial research to their list of advantages:  University Hospital and Jewish Hospital are involved in such research.

The proposed merger offers an opportunity to juggle or redistribute  these bonuses among a larger number of hospitals and beds.  What financial predictions have you assumed for existing or new Direct Graduate Medical Education Payments (DGME), Indirect Medical Education Payments (IME), or State Medicaid supplements for medical education?  How will any increased payments be spent?  Will they be used for medical care for the indigent, for commercial research by the University and Hospitals, for medical education, or simply disappear into general revenues where its specific budgeted uses can no longer be traced?

These special benefits are the fruit of extraordinary lobbying by the hospital industry and medical school lobbies. [Disclaimer:  As a former lobbyist, I helped do it.]   It is well recognized that the amounts of these special payments are more than double the actual added costs of medical education for hospitals.  For these and other reasons of fairness and equity, the special payments are on the chopping block in all major plans for health care reform.  What effect will such cuts have on your proposed business plan?  For that matter, what is your business plan?

Funding for Indigent Care
Providing  funding for medical care of the indigent and medically underserved is claimed by daily full-page ads to be a major justification for the proposed business arrangement.  How specifically is that going to happen?  Where is that money going to come from?  What are your financial projections?  Will Catholic Hospital Initiatives put actual new money into University Hospital, or is the success of the enterprise dependent on University generating more revenue through increased clinical services, or supplemental federal and state supplements for medical education and indigent care [such as discussed above and elsewhere]?

Medicare provides  supplemental payments to hospitals depending on their indigent patient population as quantified by their Disproportionate Share Ratio (DSH Ratio). The measurement is a largely based on the number of Medicaid patients and serves as a proxy for total indigent care.  As with the education supplements, the total payment for any individual Medicare patient discharge is multiplied by a DSH supplemental amount.  For example, University Hospital has a DSH ratio of 0.50, ranks 344 out of all 3503 Acute-care hospitals in the nation, and gets a 30.5% supplement for each Medicare patient discharged.  In comparison, Jewish -St. Mary’s has a ratio of 0.44, rank of 467, and bonus of 25.7%.  The Norton Hospitals havea ratio of 0.41, a rank of 594, and supplement of 22.8%.  Baptist Hospital East has a ratio of 0.07, a rank of 3200, and for this gets supplement of 1.6%.  It is clear that the first three of these Louisville Hospitals can be proud of the roughly comparable indigent care they provide, at least as measured by this federal program.  What then is the justification for the proposed major realignment?  What specific changes will be made to provide more care to the underserved?  Both hospitals currently have an occupancy rate less than 75%.  Is a redistribution of licensed beds planned?  If so, how will this increase indigent care?  How will we know if more indigent care is being provided?

Having a high-enough DSH Ratio permits hospitals to take advantage of a special federal drug purchasing program, the 340B program, that was originally set up to benefit hospitals and selected outpatient clinics that take care of unusually large numbers of indigent patients. The law was changed a few years ago to permit many more hospitals and entities to participate.  The savings are staggering but do not necessarily have to be passed on to patients or insurers.  Applying for and managing a 340b hospital program is now a big business.  University Hospital benefits as a high-DSH hospital.  Will its status be compromised in the proposed business entity?  Does the business plan include a new application by Jewish and St. Mary’s , or the creation of a new stand-alone cancer hospital which might also be eligible.

What communication or assurances from the Commonwealth or Louisville Mayor’s Office have been made with respect to state spending for medical education and indigent care?  In the vulnerable recent election months, the Governor’s office has been silent, although his Attorney General and Auditor General have made it clear they have some major problems with the proposed arrangements that have been revealed, or rather not revealed.  Will the Governor and Mayor wait for the reports from these two major elected Commonwealth officers, or make their recommendations and decisions based on the old fashioned politics of influence?  What do the hospitals receive now from state and local governments, and what are your projections.  What will happen to the remnants of the old city-county-state agreement that was put in place in the old Humana days?  University Hospital has received millions of dollars annually from the state and Metro governments for indigent care.  What have those governments signaled with respect to those sources of indigent care funding?  Will they be lost?  University will lose its special status in the state as an independent entity.  Can state and local government even make such payments to the new religious organization?

I obtained the hospital-specific numbers above from the most recent Medicare Impact File that Medicare uses to determine the effect of proposed changes.  You can download an Excel document containing the data for Kentucky Hospitals here.  It is fairly technical but the description of variables is included.  Contact me if you want to know more about it.

Changes to Faculty and Protection of Trainee Interests:
Will the hospitals in the proposed merger have a unified (single) medical staff?  How will the interests medical students and housestaff be protected.

The large majority of the existing medical staffs of the hospitals in play have no experience as medical faculty: indeed, many, if not the majority, do not have the credentials or qualifications for a faculty position.  How will the management of the proposed hospital [system] protect the interests of its professional students and its graduate medical trainees?  Trainees are vulnerable to abuse as cheap labor, or to make life easier for staff physicians, with little or no reciprocal benefit to their training experience.  Will any staff physician be able to admit a patient to any of the existing hospitals?  Is the University of Louisville prepared to allow any community physician to admit a patient to University Hospital and the care of its housestaff?     What plans have been made to ensure that the quality of medical education and patient care is enhanced rather than degraded?

The University of Louisville has announced plans to increase the size of its medical student class.  Will the size of its housestaff also be increased? Where will those additional residents be placed?  The University has signaled its intention to increase class size and tuition yields by enrolling more out-of-state students.  As the University well knows, Kentucky state law limits out-of-state medical students to 15%.  If the University cannot convince the state legislature to change the law, what would be the consequences on its staffing plans for the proposed new entity if he majority of house staff are graduates of the medical school?  Why would the University even announce such plans knowing they were illegal?  What are the implications of this on trustworthiness?

Prevention of Further Marginalization of University Hospital
University Hospital is in the financial condition it now finds itself because it has not been a hospital of choice for the public of Louisville, nor even for its faculty and their private patients.  Truly merged hospitals or well-integrated hospital systems have a unified medical staff that can admit patients to any of the entities for efficiency and quality of care.  Emergency room patients (following stabilization of course) can more easily be transferred to other partner entities.   The proposed merger will make it even easier for University faculty to continue to admit their private patients to a hospital other than University Hospital.  Conversely, there will be fewer hurdles to sending indigent, underinsured, homeless, or minority patients to University Hospital.  What plans have been made to keep University Hospital from becoming even more of a less-diverse hospital of last resort than it already is?  Where can we see those plans.

Effect on Other Hospital Relationships:
The University of Louisville has critical relationships with other hospitals in Louisville.  In the past, the fact that some of the University’s educational partners were themselves fierce business competitors was a real problem.  At times the University did not help matters by, in my opinion, playing one off against the other.  A closer relationship and realignment of University Hospital with Jewish & St. Mary’s will place staggering obstacles in the way of continuing academic and clinical cooperation with the rest of the community, and set the stage for an even greater escalation of hospital wars.  For example, Kosair Children’s hospital is part of Norton Hospitals.  It is staffed by the Department of Pediatrics of the University of Louisville.  Does the University of Louisville and its new partners plan to create a second children’s hospital in Louisville. Do you think that be a good thing for the community?  Will the new entity feel a need to create yet another woman’s hospital in the East End or elsewhere to make up for the loss of its clinical services in the other hospitals? Will it permit Norton Hospitals to continue to be one of its teaching hospitals, or will we see an entire new structure emerge in Louisville in which the University of Kentucky is the sponsoring educational entity.  Does the business plan include any of these or similar considerations.  The University desperately wants to move its clinical operation into the East End.  Will you take some of your excess licensed hospital beds resulting from the unwise overbuilding of the past two decades and create new hospitals without the impediment of Certificate of Need approval?  The University has long talked about building a new medical center at the Shelbyville Road Campus. I believe it would like to have a dedicated cancer hospital. Will it turn University Hospital into a Cancer Hospital?   Jewish Hospital built its East Medical Center fully allowing for its expansion.  Are any such plans part of the proposed new entity?   How would such plans have anything to do with indigent care?  (As the numbers for Baptist Hospital attest, there is not very much demand for indigent care in the eastern county.)   Personally I see the stage being set for an enormous duplication of services that will add dramatically to the cost of health care in our part of the Commonwealth.  This matter  is too important for our community to allow the proposed business plan for its public hospital to remain hidden.

How much money has the University of Louisville, University Hospital, and Jewish Hospital & St. Mary’s Health Care spent on full page advertising in the Courier Journal and other newspapers since the proposed business plan was made public?  Where did those funds come from?  Why do you believe these expenditures were more appropriate than limiting medical care for the underserved as has been announced in recent months.?

If medical care for the indigent is such a high priority and selling point for the proposed business arraignment, why does University turn over millions of dollars of its meager profits to the University for commercial research by its faculty.

Scientific & Ethical:
The new entity has promised that it will follow the Catholic Directives for medical care. This, more than anything, troubles me.  This public hospital and its University School of Medicine is consenting to pass all of their medical treatments and decisions through a filter of a single religion.  They are making this decision for their patients but without their consent.  The Directives are grounded on a doctrine of magical thinking and inerrancy that is antithetical to the both scientific and clinical practice of medicine.   I would like to ask the Dean of the Medical School and other medical officers and faculty how they will justify this position to me, their students, and the patients whose confidence they must secure?  I do not think is can be done without words of scripture, and that is the entire point.  What have you told your faculty and trainees so far?  Why cannot the rest of the community share it?  Your propaganda of newspaper ads is insufficient.

Although the public advertising blitz emphasizes more-and-better services for all, a major goal, and perhaps the major goal of the proposed new entity is to improve the position of the University’s commercial research enterprise in which Jewish Hospital has been a financial investor.  Some 20 years ago, the University of Louisville gave its excellent growing cardiac service to Jewish Hospital in exchange for research money and space.  The housestaff and faculty were told to direct private cardiac patients to Jewish Hospital and others [read poor people] to the University’s teaching service.  [I can’t make this stuff up.  I was in the room.]  University Hospital’s teaching program suffered a major volume decrease as a result of this swap.  Are we seeing a replay of that strategy?  Is this the kind of thing that the $200 million of CHI money will go for?  We have already been told it will not be going to indigent care.

I have already written about the University’s perceived need to increase the number of captive patients on which to draw for commercial clinical research. Another goal is the collection of identifiable personal medical information that can be used to market medical services, troll for patients for research subjects, and to sell to outside partners.  Can the University and its partner hospitals say that this will not happen?  Indeed, can they say it is not happening now?  Given the progressive capture by the University of the Department of Public Health of Louisville, these are not unimportant considerations.

My fear is that this is a done deal, and that as so often seems to be the case for our community, decisions have already been made and shared behind closed doors.  In my opinion, and that of the vast majority of others who have written publicly about this matter, that would be a tragedy with implications for many years.  There has been an amazing amount of lack of candor.  The public of Louisville deserves better than to be considered fodder for economic development and private benefit.

Peter Hasselbacher
Nov 30, 2011