A number of threads that I have been following this past year or so came to a head this last month. These include a guilty verdict in federal court for a cardiologist in Ashland, Kentucky who had been accused of falsifying billing records to secure payment for performing medically unnecessary invasive procedures. The Leapfrog organization published its updated list of hospital safety grades. Additionally, and certainly not least, there are worsening signs of a dysfunctional and perhaps disintegrating relationship between the University of Louisville and KentuckyOne Health, the unit of Catholic Health Initiatives (CHI) that in Louisville owns Jewish and Sts. Mary and Elizabeth Hospitals, and manages the University of Louisville Hospital and its James Graham Brown Cancer Center. Although these themes are not necessarily unrelated to each other, in this article I will comment on the UofL/KentuckyOne situation and deal with others subsequently. First some background for what promises to be a major change in the alignments of the downtown medical center.
Selected background and commentary.
It has not been a community secret that the business relationships between KentuckyOne Health and the University of Louisville have not been working out as hoped for. Difficulties in merging the traditional medical staffs of Jewish and University Hospitals emerged immediately. Financial losses in KentuckyOne’s new statewide system led to hundreds of employee layoffs judged to be responsible for unacceptable declines in quality at University Hospital to the point of threatening its Medicare participation. Recent evaluations of hospital quality by Medicare and of safety by Leapfrog place all of KentuckyOne’s Louisville Hospitals at the very bottom of the lists for Kentucky. No doubt efforts are being made to improve things, but it is not yet evident that the necessary corners have been turned. In the meantime, other existential complications have emerged. The senior executives of UofL’s Health Science Center and its Hospital have escalated their concern over their three-year-old contractual relationship using language that evokes dissolution of their partnership. Indeed, it has been suggested to me that separation may be the desired end-goal. It is clear to me that even though there has been no discussion at public meetings, that medical center officials would not be going down this path without at least the tacit approval of the Board of Trustees. (Below are pages from the recent Compliance Audit of the University that represent the University’s understanding.) This is a big deal!
Is it really only about the money?
As reported elsewhere, the October 4 letter to KentuckyOne CEO Ruth Brinkley claims among other things that KentuckyOne has not made the required payments to the University that it promised, and highlights a decline in hospital quality and reputation. Perhaps most critically, the letter reveals that the University’s Obstetrics and Gynecology program received correspondence from its accrediting organization expressing concern that both the volume and variety of clinical procedures and services available were insufficient to support a residency training program. Loss of accreditation would provide the University a contractual basis to claim contractual default. (More on this below.)
It is being reported that KentuckyOne claims to have paid $524 million to UofL since March 2013. That is a stunning figure and I suspect a reporting error. If not, I would like to see a breakout of where the money actually went. For its part, KentuckyOne admits it has not made at least some promised payments to the University, and uses as a justification that it does not know what the University is doing with the money. (We have heard these kinds of claims and counter-claims before in recent disputes within the downtown medical center!) I must admit that it is not clear to me to what extent the University is contractually accountable to KentuckyOne for how it uses at least some categories of monies. The letter describes the different pots of funds using language not duplicated in the Joint Operating or the Academic Affiliation Agreements that define the relationship. Certainly it was clear from the start that at least some of the contractual payments were tied to contingencies and limitations that included mutual agreement on how the money would be spent. If past history is any guide, it would take an army of lawyers and several years to sort out who owes who what based upon these contracts. It is not even clear that KentuckyOne has the cash available to pay. I have insufficient information to render a personal opinion about the dispute over money, but I do believe that the University was so enamored by the possibility of $mega-millions to fuel its research and other commercial interests that it gave away an unacceptable control over its financial, academic, clinical, research, and even its ethical responsibilities. As a community, we may all be paying the piper now.
Aside from issues of reputation and quality, the reference to a decline in the volume and scope of services available to the University’s OB/GYN training program is of great concern to me. How can a medical school exist without one? Note that strictly speaking, KentuckyOne does not run a women’s health program at University Hospital. Those services were spun off into a “hospital within a hospital” so that KentuckyOne Health could claim that it is not involved in contraception, sterilization, or termination of pregnancy in any way. I argued early and strongly that even to attempt such an artificial division of care is antithetical to contemporary medicine. Ultimately the community has come to believe the same thing. In any event, since women’s reproductive care is the responsibility of University Medical Center, Inc., (the University of Louisville’s corporate hospital entity) how can it be argued that any decline in its volume or quality can be laid at the feet of KentuckyOne?
Women’s and reproductive healthcare were always the Achilles’ heel of the arrangement. When KentuckyOne came to Louisville, it promised to build a major women’s health program. It entered management agreements with several of the most prominent private OB/GYN practices throughout the city. I was always a little puzzled by this, because the only KentuckyOne facility in Louisville that delivered babies would have been at University Hospital. Although strictly speaking, the physicians involved were not employees of KentuckyOne, intrusive efforts were made to control the nature of their practices to conform to religious directives. As I write this, it is my understanding that most or all of these OB/GYN practices have severed their relationships with KentuckyOne. It is my understanding that the straw that broke the camel’s back was a request/demand that the physicians become employees of KentuckyOne. It has always been my opinion that in a city where women have a choice of where to obtain their reproductive care that KentuckyOne’s practice restrictions would be noncompetitive. Alas, women in other communities throughout Kentucky may not have the same choices available.
Financial stresses at both KentuckyOne and CHI.
University Hospital has become quite profitable in its own right as a result of the Affordable Care Act which dramatically decreased the volume of uninsured patients. The hospital always made money, but it was siphoned off for research and other purposes. The Hospital was not allowed to accumulate capitol. KentuckyOne Health’s financial reports have shown it to be struggling from the beginning including at Jewish Hospital. Profits from University Hospital are currently being used to shore up operations at Jewish Hospital. This is contractually allowed and certainly defensible within healthcare systems. CHI has been expanding by aggressive acquisitions of additional hospitals and systems– but doing so at the expense of taking on so much debt that its bond ratings have been falling. In fact, CHI and Dignity Health, another very large Catholic Hospital chain with financial issues of its own, just announced that they are exploring an “alignment”, which others are calling a merger, to create the largest non-profit hospital system in the country. Whether or not this will improve the financial or clinical performance of either entity is for others to ponder, but there are clauses in the agreements between UofL and KentuckyOne specifying that changes in ownership or corporate identity of KentuckyOne or CHI would be grounds for default and dissolution of the contract. This is another matter for lawyers to argue.
Is Jewish Hospital for Sale?
The willingness of any system to subsidize nonperforming units may be necessarily limited. CHI has already demonstrated its willingness to dispose of poorly performing assets. For the past year or so, a number of individuals closer to KentuckyHealth than I am have shared with me what seemed like more than rumors of a sale of Jewish Hospital to another hospital system. One earlier candidate familiar with the situation in Louisville was Community Health Systems. That obviously did not happen. The more recent rumor involves Ascension Health of St. Louis. Although these possibilities seemed believable to me, I have no first-hand knowledge of their veracity. However, I believe that the fact that such possibilities are even included in the internal rumor-mill indicates the current state of anxiety within the company. Employees do not know what is going to happen, but they anticipate change. A regular meeting between Louisville KentuckyOne physicians and management was just postponed due to unspecified ongoing corporate changes. (There has been a lot of that these past three years.) It is no secret that dispute-resolution procedures specified in the controlling partnership contracts are underway and have not necessarily been smooth. The discussions themselves are said to being conducted under a tight lid, but that only fuels employee anxiety and generates new rumors. The most recent one is that KentuckyOne will turn Jewish Hospital over to the University or control by the Commonwealth. I have always maintained that this might be the University’s ultimate Plan B. It has long desired a hospital for the private patients of its faculty physicians which could also be a place to expand its teaching services. University Hospital by itself is not big enough for either. KentuckyOne had originally hoped to be the recipient of those patients– and the University promised to use its best efforts to make it so– but with limited success. If CHI really needs to unload, this may be one way to do so.
What would happen to Sts. Mary and Elizabeth?
From the perspective of Medicare and Medicaid, and therefore for critical federal financial purposes, the hospital shares a provider number and is joined the hip with Jewish Hospital. (This formal relationship with CHI was forged as an earlier and ultimately not fully successful attempt to shore up the financial status of both hospitals.) In the event that Jewish is sold or changes management hands, whether Sts. Mary and Elizabeth would be part of the deal is unclear at best. As part of their ministries, the local Catholic community or another Catholic hospital organization might wish to reclaim the last remaining Catholic hospital in our major metropolitan city. The current combined Jewish Hospital and Sts. Mary & Elizabeth provides a very large amount of Medicaid and uncompensated care– in fact shouldering the third largest such obligation in the state. Any financial stresses that exist now will be greatly magnified if the retreat from the Affordable Care Act promised by both Kentucky Governor Bevin and President-Elect Trump is honored. I do not believe our community would allow University Hospital to fail, but I do not believe the same can be said for any other hospital in Louisville. I think that CHI or any potential buyer of Jewish Hospital would come to a similar conclusion.
This musing has gone on long enough. There is much more that can be written about how we have come to where we are, and why the promises of the KentuckyOne-University partnership have not been more successful. You can read my analyses of the Joint Operating Agreement and the Academic Affiliation Agreement at their respective links below. This past decade has been a turbulent one for the university community of Louisville. Of course, KentuckyOne, CHI, and the University may yet successfully mend their fences and soldier on. I think we will know in short order in what direction this project will go.
As always, if I have made an error of fact or rebuttable opinion, please help me clarify for the record. If you have information you are able to share publically, do so below. If you wish to communicate with me confidentially, please do so at: ph@ khpi.org
Peter Hasselbacher, MD
Kentucky Health Policy Institute.
14 November 2016
Addendum: On Dec 22, 2016, the Joint Operating Agreement and the Academic Affiliation Agreement of 2012 were rewritten. Those documents can be found together with related materials on the UofL website of the Executive Vice President for Health Affairs.
My analyses of the agreements in November 2012, along with the original Joint Operating Agreement and Academic Affiliation Agreement materials relevant to the partnership are available at the bottom of this linked page. I maintain that our current problems were not completely unexpected.
Here are three pages from the UofL Financial Audit released at a UofL Board Audit Committee meeting on Nov 7 that, from the University’s point of view, describe transfers of money from KentuckyOne to UofL over the last two fiscal years. For your interest, the entire set of documents from that meeting are available here. (37 MB .jpg). There is a lot of information there about the University and all its associated corporations .