What is Happening at Louisville’s Norton-Kosair Children’s Hospital?

Louisville’s Messiest Divorce Ever.kids-balloon

Last August, the Louisville public was treated to a gloves-off confrontation between the University of Louisville and Norton Healthcare (and their respective allies) over the physical control of Norton-Kosair Children’s Hospital. Tough-talk was punctuated by threatening lawyer-letters and an all-stops-out public relations effort to capture the hearts and minds of us citizens. Some motivations were partially exposed. State government was drawn in. At least one court action was set in motion. Then, nuclear options having been wielded, cooler heads prevailed and the promise of continuing “discussions” was made. The matter moved behind closed doors and perhaps even out-of-state. Security has been tight. Not even long-standing medical staff know what is going on.

When Norton Healthcare and the University of Kentucky announced their intention to cooperate more effectively in providing children’s hospital services to Kentuckians, it was reported that they hoped to conclude negotiations by the “end of the year.” Obviously that has not happened but that milestone allows us a rationale for asking the question, “what is going on?”  Reports are filtering up from employees that negotiations have collapsed and that the sides are back to square one. Although I have good reason to believe that things are not going well, spokespersons at both Norton and UofL tell me that talks are still  continuing. That would be the diplomatic, albeit unrevealing thing to say.

This seeming hiatus, real or perceived, is a good time to inform the broader constituencies of these organizations and the public at large about what the difficult issues are. After all, “We the People” have a child in this fight, and are paying the bills to boot. Based on my long career in academic healthcare, I have some ideas about what the most problematic issues probably are, but on behalf of the public for which I consider myself an advocate, I invite the parties involved to enlighten us as they construct public policy that will effect everyone.

No one will be surprised at my claim that the issues revolve around (as they always do in such commercial enterprises) money and control, with a healthy dose of academic politics and pride thrown in. It is more about control of the local healthcare market than control over what medical trainees might be learning. The evident bad-blood between the institutions is not helping either.

It Wasn’t a Shotgun-wedding in the Beginning.
Who would have imagined 33 years ago that we would be in this situation today? Several of the University’s major clinical training programs were conducted in Norton Hospital along with the lion’s share of private faculty practice. With the Louisville Veterans and the Louisville General Hospitals, Norton was a major teaching hospital for the University. At that time, in the absence of a stand-alone Children’s Hospital, the pediatric training program was a floor of Norton Hospital. Based on a little more then a handshake and Kentucky gentlemen’s agreements, plans were made to build a freestanding pediatric children’s hospital – the only one in Kentucky today.

No couple gets married with the expectation of divorce. The quarrel over Children’s Hospital is part of an ongoing separation of the University and Norton and which is far from amicable. In divorces of the traditional kind, civic and legal structures protect the interests of joint children. I have come to the conclusion that we need the same kind of supervision and protection here.

Cardinals versus Cats.
Although I do not believe it is the major obstacle, the traditionally deep rivalry between the University of Kentucky and the University of Louisville is setting the tone for the current negotiations. I have commented before about my belief, based upon 30 years of up-close participation, that the athletic rivalry, amplified by urban/rural tensions in the state, distorts the academic missions of the schools and their ability to cooperate. Attempting to refute this claim, the only example the University trotted out was the two university’s participation in lung cancer research. I participated in the birth of that program which was forced upon the schools by a powerful state legislator. That is apparently what it takes. UofL has long winced when UK is referred to as the Commonwealth’s flagship University. When UK received the nod as the state’s premier University, UofL asked for and received an offsetting designation as the state’s major Urban University.

Supervision of Students and Residents.
If UK and Norton collaborate more closely in Kosair Hospital and the University of Kentucky Hospital, it is certain that students and trainees from both institutions will be spending time in each other’s wards and clinics. There is no question that having trainees from more than one institution in a given hospital complicates matters somewhat but there are many precedents for this, especially in urban centers with more than one medical school. If the two Kentucky schools really wanted to do this, any problems would melt away. There is a long tradition of sending students and trainees out around the country for rotations in other hospitals. It’s actually a desirable thing to do to broaden the perspectives of trainees. Why shouldn’t students and trainees at the University of Kentucky be able to benefit from the patient population and teaching in Louisville? Why not include Pikeville School of Medicine in the bargain? I don’t really think it’s about education, do you? It is already clear that UofL is uncomfortable in having physicians not under its direct control practicing and competing in the hospital. The truth, in my opinion, is that UofL just does not want to share its pediatric hospital with UK.

Control of Graduate Medical Education (GME) Funding.
After the hospitals of the University of Kentucky, UofL, and the VA, Norton Healthcare operates the largest teaching hospital in the state as measured by the number of medical residents. The majority of these are at Kosair Children’s. Teaching hospitals get an immense financial bonus from Medicare that is well in excess of the actual cost to the hospital of resident salaries and associated educational costs. Whole hospital systems and mergers are structured to maximize this financial bonus that accrues directly to the hospital and not the medical school.  No doubt UofL and Norton both have their eyes on this ball. The more Medicare patients and the more residents per hospital, the higher the bonus.  (To Medicare, Kosair and the other Norton Hospitals are a single entity.)  Less transparent but also financially important, are separate GME payments administered through state governments and Medicaid that provide additional special funding to teaching hospitals both for medical education and presumed service to the poor. (It is money from these latter sources that was partially in play during the Passport audit scandal a year ago.) Because stand-alone children’s hospitals have very few Medicare patients on which to base the extra payments, recent federal law funnels special pediatric hospital graduate medical education funding to them.

These graduate medical education monies go directly into the general funds of the hospitals, which may or not reach agreements with their academic partners to transfer some of the money to the schools. Most faculty members, including myself, had no idea how the millions of dollars that are supposed to subsidize education are being used, nor the degree to which these channels of funding have distorted the nature of medical education. (What medical educator is willing to assert that the majority of medical training should occur on the inpatient services of hospitals– the only route through which the GME money flows?) This is a big-money issue. If the University of Kentucky becomes a player in Louisville, what happens to the division of spoils? How is a food-fight to be avoided?

Who Is at the Table?
It is possible that the principal negotiators physically at the table are representatives of the University of Louisville and Norton Healthcare. However, they are most certainly not there alone. If UK does not have an actual seat, Norton will be representing their mutual interests. Additionally, it cannot possibly be claimed that KentuckyOne Health (or its parent company Catholic Health Initiatives) is not at the table. Dr. David Dunn, Vice-President for Health Sciences of the University of Louisville is also a member of the Board of Directors of KentuckyOne Health! This matter appears to me to be managed by the President’s office and up to now, Dr. Dunn has been the lead player for the University. UofL is contractually bound by its agreements with KentuckyOne to advance the interests of Norton’s competitor. Promised payments to the University are contingent upon financial success of KentuckyOne. Indeed, KentuckyOne is in control of much of the University’s clinical enterprise and appears to be calling most of the shots.

I would like to think that representatives of Louisville and Kentucky government would be at the table. My guess is that state officials are handling this like a hot potato and trying to avoid taking sides against either major state university, and otherwise to avoid the appearance of conflict of interest. I do believe some public entity needs to be involved, even if only as a mediator to ensure that the interests of the public are being protected.

Other Clinical Revenues.
It is my understanding that neonatal intensive care beds are the most profitable service in a Children’s Hospital and subsidize other services.  Control of neonatal beds is a highly competitive and even more highly contested activity in Kentucky.  Which entities or physicians control the flow of clinical income is certainly on the table. I have written about this earlier.

Control of Medical Staff and Hospital Services.
When the discussion was still out in the open, we heard complaints from the University that Norton was not paying the salaries of pediatric faculty. Indeed, this issue seems to be part of the basis of the University’s claim of default by Norton. We were never given to understand why Norton might have such an obligation.

Academic medical staff issues can be complicated, so I will take a few lines for background. Recall that Norton Kosair Hospital is currently the only general inpatient facility for children in Louisville. I cannot imagine that the local medical community would stand for qualified licensed pediatricians not having access to the medical staff and up to now, that has apparently not been a problem. Full-time clinical faculty of University become de facto hospital staff members even if it requires special medical licensure exemptions to be able to do so.

There are two major classifications of full-time faculty: the traditional tenure-track, and a more recently created clinical track whose members have predominantly clinical and teaching responsibilities and somewhat diminished academic stature or privileges. The second major classification numerically includes so-called gratis, volunteer, or clinical faculty members. Typically these are self-employed physicians or members of outside medical groups who want to participate in the Medical School’s teaching programs. They generally receive no remuneration for this but are recognized with a academic title such as “Clinical Assistant Professor of Medicine.” In the past, this title was held by some physicians who interacted very little academically with the University, but the rules have been tightened up. Volunteer clinical faculty are expected to be qualified to teach and to give something of service to the University in exchange for their academic titles.

Between the full-time and volunteer faculty are part-time faculty, a somewhat less well-defined group of physicians who may receive payment for services that are particularly needed, but who would not be considered members of the executive faculty. I do not believe Kosair Children’s bylaws currently exclude physicians from its medical staff who do not have academic appointments, but the University is currently restricting privileges in its local KentuckyOne hospitals and some fear such a plan is under consideration.

Where Does Salary Money Come From?
Even for full-time faculty, the sources of salaries have traditionally been many.  In general, only a portion of a given faculty member’s salary comes from “hard money” state appropriations. (That is why looking at the public list of state employee salaries is meaningless when it comes to clinical faculty.) Individual salaries are cobbled together from state money, private practice money, Veterans Administration money, indigent care funds, grants, and other sources. Apparently in the Department of Pediatrics, Norton Healthcare has been paying a substantial portion of the salaries of University physicians.

Hospitals, like drug companies, have to be very careful about giving physicians money. A variety of anti-kick back and self-referral laws constrain the kind of arrangements that can be made. There are some exceptions for academic enterprises. The restrictions (and patient protections) fall away almost entirely when physicians are employed directly by hospitals as is now the most common model in Louisville. I have no idea what’s going on behind the scenes in the Department of Pediatrics at the University of Louisville, but it seems apparent that without substantial outside help they are unable to sustain the level of their own enterprise. When the University has been unable to provide new staff members or fill necessary clinical needs at its hospitals, Norton has not been reluctant to hire its own physicians. This conflict of loyalties in the current adversarial situation is not helping. It only amplifies an unhealthy town-gown relationship.

KentuckyOne Children’s Hospital?
University officials became positively apoplectic, or at least feigned being so when Norton announced it was exploring creative ways to collaborate with the University of Kentucky in children’s healthcare. I have written earlier about why that proposal is a reasonable one for the Commonwealth. For reasons I will present below, I suspect that the University was not particularly surprised by this move, and if anything, “drew the foul.” Certainly as the University of Louisville’s presence at Norton Healthcare facilities decreased, the University of Kentucky was already filling the gap.

I am told that the specific issue that caused current negotiations to explode was the unwillingness of the University (or perhaps the Commonwealth) to allow Norton more confidence that the land beneath their hospital would not be pulled out from under them. Norton and the Department of Pediatrics at the University of Louisville had been successful, even model partners for many years. Indeed, Norton has largely underwritten that academic program. What then has changed in the last few years? The most obvious answer is the fact that the University of Louisville has committed itself, virtually exclusively, to Catholic Health initiatives through a management arrangement with KentuckyOne Health. The University is no longer negotiating solely for its own interests, nor even the interests of the Commonwealth. From the day UofL began its plans to merge with Jewish Hospital/ KentuckyOne Health, my friends at University told me that they knew they had a “problem” with Children’s Hospital. That was the single most important arrangement with Norton that they could not simply walk away from. I believe now even more strongly than before, that the framework for the current dispute was baked into the merger and subsequently the partnership agreements with KentuckyOne. Things that did not make academic sense to me at the time are now quite understandable. I predict that if one were to go back through such merger/partnership documents as were released, we would recognize additional preparations for the ongoing power-play to acquire physical possession of Norton-Kosair Hospital and to block access by the University of Kentucky.  Without an affiliated medical school, Norton-Kosair could not remain a teaching hospital.  It is telling that neither the University nor KentuckyOne has excluded such physical displacement as one of their goals.  This is inside academic politics.

• Certainly the promise to give KentuckyOne first dibs on hosting its pediatric service when the current affiliation agreement with Norton expired was bizarre, given that Jewish/KentuckyOne does not even have a pediatric service in Louisville. I wondered where the partners expected to find a suitable facility? Now we know.

• The agreement prohibited UofL from entering any academic arrangement with other medical schools or universities without the permission of KentuckyOne. I could not then believe that my University would give away its academically sacred prerogative in such a causal manner. For an academic institution, that is like giving up free speech. Now we know.

• Similarly, I did not understand why UofL would agree not to give academic clinical appointments to any physicians except those on KentuckyOne’s medical staff. (In a university teaching hospital academic appointment is often a prerequisite for medical staff privileges.) Given the evident push to put clinical services at the current Jewish Hospital under University control, and the turmoil over control of the medical staff and services at Children’s Hospital, this agreement may now be explainable.

• On the other hand, having control of a children’s’ hospital (or a cooperative partner with one) is essential if KentuckyOne wants to promote itself as a comprehensive state-wide healthcare system. Before its takeover of University Hospital, KentuckyOne did not even have an obstetric service in Louisville (although that did not stop it from trying to call the shots about what constitutes contemporary ethical medical practice)! Given its reported difficult financial circumstances, building a new children’s hospital from scratch might be a stretch.

• Norton Healthcare must have seen this coming too. Would it have built a different new inpatient children’s hospital at its Suburban Hospital location or outpatient facility at Brownsboro if it felt its partnership with UofL was stable? Has the potential for loss of its downtown hospital and traditional University partner led to a duplication of services, or is the new hospital building spree merely part of the ongoing transfer of medical facilities from downtown to the more lucrative suburbs? Norton has been as active as any other Louisville hospital system in this regard.


Enough of this!
My friends in the more traditional media advise me that I write too long and for a too limited technical audience. I am willing to concede they may be right and use my academic upbringing as an excuse. There is always much more that can be said. It is hard for me to follow the adage– write for one hour and stop! Now it is your turn.

• What do you think underlies this particularly messy divorce?

• Do you agree with me that both parties should show us the disputed “term sheet” for their affiliation agreement that both refer to as the obstacle that could not be overcome.? Please allow us decide who is being unreasonable in your dispute over who provides hospital care for our children?

• Does anyone know the status of the Franklin County Court Action requested by Norton to address the legality of the default claim by the University?

• Might the University intentionally be blowing this process up if it has already decided on a preferred path? Unfortunately this possibility enters my mind unbidden. Do you agree with me that Norton and UofL (d.b.a KentuckyOne) need an “intervention” from an entity with actual responsibility to the public and no connection to the institutions or the law firms representing them?

• What do you know about issues being discussed? Feel free to email me confidentially. I have never revealed a source.

Finally, have I made any errors of fact or interpretation in the above? I want to know.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
Jan 5, 2014 (Happy New Year!)

3 thoughts on “What is Happening at Louisville’s Norton-Kosair Children’s Hospital?”

  1. The Complaint for Declaratory Relief filed by Norton Healthcare against the University of Louisville last September was scheduled for a hearing on Jan 2, 2014, but the date been postponed more than once until April 17. I do not know if was an option for Norton to pause the process while it was “in discussions” with UofL, or if the postponements are usual and customary in a crowded court docket.

    Addendum Jan 27. UofL and Norton both agreed to put the court proceedings on hold. They jointly filed to restart the proceedings again.


  2. Last Friday, Chris Kenning of the Courier-Journal reported on a letter from a Norton Executive to unnamed lawmakers confirming that talks had broken down, almost certainly over issues discussed above. Apparently though, the two sides have agreed to continue talking for at least another 30 days. It is said that an $830 million financial commitment over 20 years is on the table, but there is no mention of what the money would be used for or how much would be transferred to UofL. I am frankly stunned at the amount! Details are needed.

    I am jealous of the contacts of my more professional journalist colleagues. I need some help too! How about it?

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