Who Paid UofL’s Legal Bills In Its Dispute With Norton Healthcare?

Why does it matter?

[The University responds. See Addendum and comment.]

The dispute over control if not ownership of Children’s Hospital was a traumatic event for our community. It damaged the reputation of the hospital. The cost of the consequent litigation must also have been great. My guess is that the financial cost to both parties must have been in the millions of dollars.  Although details of the legal strategies are masked behind attorney-client privilege, as a state institution, the amounts paid by the University of Louisville to its attorney, Stites and Harbison of Louisville, are subject to open records inquiry – and so I asked. What I learned was both surprising and of concern. Even with heavily discounted legal fees, the cost of their confrontational and ultimately unsuccessful initiative was more than the University anticipated.  Additionally, the bills provide insights  into the internal financial management of the University.

In short, the University admits to paying for only about one third of the many months of formal court proceedings itself, all of which were within the first 15 months of a 29 month period. The University has not yet been willing to disclose where the money for the majority of billing periods came from, or who wrote the checks. I have been dependably informed, but have not yet confirmed, that the money came from the University of Louisville Foundation and University of Louisville Physicians, Inc. (ULP).  This litigation came at a time of considerable turmoil at the University of Louisville, including the turnover of senior administrative personnel.  It is possible to speculate that lack of consensus over the University’s path in this matter played a significant role.  How this litigation was directed and financed offers a window into the administrative and financial workings of the University and illustrates the background from which today’s lack of confidence in the presidency of Dr. James Ramsey arose.

What I asked for, and what I got.
Attached is the request for information I submitted to the University. I wanted to be able to track the amounts billed and paid over the 29-month life of the formal litigation from 20 August 2013 through December 2016. What I received were copies of 10 monthly bills, all except the first for services provided during the single preceding calendar month.  These were broken down into legal fees and additional charges. Also provided were the number of hours spent on the case by individual attorneys and other employees of Stites. In general, bills were dated between the 19th and the 21st of the month for services rendered in the preceding calendar month, but several breaks in the sequence of dated bills submitted were revealing.

State oversight?
The use of an outside legal firm by the University requires approval of a Personal Service Contract (PSC) from the Legislative Research Commission (LRC) Government Contract Review Committee in Frankfort. Two separate PSCs covered the span of the litigation. The first, for a maximum amount of  $75,000, was prepared August 23, 2013.  This was one day after the letter of intent between the University of Kentucky and Norton Healthcare to cooperate over children’s healthcare was signed, and five days before the University of Louisville delivered its notice of default on the land lease underlying Kosair Children’s Hospital and announcing the University’s intention to take physical possession of Children’s Hospital.  (The University was already on record for having expressed its intent to transfer its pediatric affiliation to KentuckyOne Health.)  LRC approval for payment was granted 9 Sept 2013 and slated to expire on 30 June 2014.  The first bill paid against this contract was dated 28 Oct 2013 for services provided in August and September. (See Table 1 below.)  This initial amount was spent before the end of the second month requiring an amended request for $100,000 which was approved on 11 Dec 2013.  Even this proved insufficient to carry the project beyond February 2014.  (Click here for an expanded table containing additional information.)

Table I

It is clear that the University was rapidly exhausting its approved financing and that the timing of its bills from Stites was being cooperatively adjusted to allow the University to seek additional sources of money. A second supplemental amendment in the amount of $200,000 was prepared in early April 2014, but it is not clear that it was submitted, let alone approved by the LRC.  In any event, the University itself did not pay another bill under its first PSC for any services rendered after February 2014 . During the term of this initial PSC, one or more other entities paid the bills for five full months.

Second Service Contract.
In July 2014, a second PSC was approved, this time for a maximum of $350,000 expiring at the end of June 2016.  Bills were paid under this contract through a University account for only the next five months beginning July 2014.  The final bill paid by the University of Louisville was for services provided in the month of November 2014 even though some $150,000 of authorized money had not yet been spent.  For the next 13 months through December 2015 when a settlement was signed, some other entity paid the bills for UofL.  I suspect that in those final months that monthly legal expenses increased markedly.

Who was the client?
If UofL was not paying the bills, were the other party or parties being given the benefit of the state discount on attorney fees which were capped at $125/hour for a partner and correspondingly less for other employees?  How was the money transferred (if it was at all) to the University – gifts, loans, “private” donations?  Who wrote the checks to Stites?  It is obvious that I have not yet been able to follow the money. Does any of this effect the issue of who is the client, or who gets to call the shots? After all, he who pays the piper calls the tune.

How much did it cost in dollars or reputation?
According to an internal accounting summary from the Office of University Counsel, a total of $330,192 was spent under the authority of the two state-approved Personal Service Contracts.  If this burn rate remained level over the increasingly complex later stages of the litigation, an extrapolated total would be $924,583, but the final amount is almost certainly much more than that. Until and unless additional information is made available, my guess is that the total would exceed $3 million with or without the benefit of the two thirds discount for legal services enjoyed by the University!

“Not I,” the Foundation appears to claim.
After I was informed that the University of Louisville Foundation was involved in funding the litigation, I sent the same Open Records request to the Foundation that I sent to the University. I received from the former a notice that that “no responsive records exist with respect to this request.”  Frankly, I do not know what to make of that reply. I have heard Dr. Ramsey tell faculty that having the support of the Foundation allows the University to do things that are not possible as a state institution, and that furthermore, the Foundation does only what the University asks for.  Perhaps I did not ask the right questions in my request.  I am open to suggestions on how to proceed.

No response yet from the University.
On April 12, I provided the University with a copy of the Table I above and requested an interview with someone who could explain what had happened and who was paying the bills. So far, no one has been identified for me. On April 14, in preparation for publishing this article, I simplified my request and offered the University an opportunity to deny that funding was received from the University of Louisville Foundation, University of Lousiville Physicians, Inc., or from funds provided for the use of the Health Sciences Center by KentuckyOne Health. I have not yet had a response.

What about ULP?
I am not clear if the faculty medical practice of my colleagues, UofL Physicians, Inc., is subject to Kentucky’s open record laws, or even if the question has ever been broached.  Certainly its Board is populated with University leadership, its activities subject to at least some University supervision and accountability, and its purposes fully in alignment with those of the University.  However, ULP by all accounts offered to me, is facing substantial financial constraints of its own and would be hard pressed to foot the million-dollar legal fees associated with what in my opinion was a misguided adventure that cost the University and its community more than dollars alone.

Why not just tell me?
Perhaps there is a simple and defendable explanation, but if that is so, why has not the University offered it?  I would like to know who authorized expenditures for this dispute, and who was juggling the bills.  Did President Ramsey or University Counsel grow weary of mounting expenses and an increasingly unsuccessful legal strategy and require Executive Vice President for Health Affairs Dr. David Dunn to find other sources of funding?  Certainly Dr. Dunn was explicitly the point-person for the University in this matter.  In my opinion it is relevant that the dispute was settled within days after Dr. Dunn was sidelined following public disclosure that he was under FBI investigation for alleged misuse of Federal funds.  Chief University Counsel Angela Koshewa, under whose term in office the litigation began, left the University in April 2014 after signing an agreement of non-disclosure.  Did she approve of the path Dunn and Ramsey were following, or might her advice been unwelcomed?

Why is all this important?
One of the major concerns of our community and which undermines confidence in the leadership of President James Ramsey and his administration is the lack of transparency and accountability in financial dealings between the University of Louisville, the University of Louisville Foundation, and other corporate entities affiliated or associated with the University or doing business with it.  At least one Kentucky legislator supporting cuts in funding for state universities points to alleged overuse of Personal Service Contracts as an justification to further cut state funding.  Misuse of state or federal money by the University has gotten it into hot water several times in the past few years. Is it possible that in some perhaps even unintentional way that federal or state money was used to improperly finance this civil litigation?  Would donors to the Foundation be happy if their contributions were being used to finance disruptive hospital wars?  Surely the University should want to put any such possible speculation to bed.  Nevertheless, in my opinion, the mystery of how these bills for litigation were paid is a typical example of University intrigue and which must only reinforce community concern and demands for change. I will attempt to utilize approaches available to me and will ask for assistance from more experienced investigators and from my readers to try to fill in the gaps. In my opinion, and that of many others, President James Ramsey’s University and Foundation, are reflexively hesitant to reveal much of their inner workings – especially when they are embarassing.  Perhaps the mystery of the missing bills will provide a window to allow additional cleansing light to enter.

[Addendum 19 April 2016:  Yesterday the University’s response to my queries of last week was conveyed by a spokesperson.  In brief, my underlying question of “who provided the money to pay the [legal] bills of the University, and through what mechanism of money transfer?” – remains unanswered. It is impossible for me to believe the University administration does not know.

Was it the Foundation?
As to my query if the University might “deny that the University of Louisville Foundation was the source of at least some of the money, by whatever transfer mechanism might have been used?”, I received the following response:

“The University does not have any records to contradict or reason to believe that the University of Louisville Foundation funded the legal fees of Stites & Harbison in connection with the litigation Norton Healthcare filed against the University involving Kosair Children’s Hospital.”

I found this language curious and believe it can be interpreted to imply – ‘we don’t have any records to say it isn’t so.’  I wish I was confident that I asked the right questions.

Who else was involved?
The University spokesperson clarified that the University “cooperated with co-counsel for the Commonwealth of Kentucky, Finance and Administration Cabinet, as well as with counsel for University of Louisville Physicians, Inc. (the Department of Pediatrics’ clinical practice entity), during the litigation.”

I doubt that the Commonwealth ponied up money to pay bills not authorized by state Personal Service Contracts. The only signatories to the amended Land-Lease Agreement were UofL, Norton, and Kentucky’s Secretary of Finance & Administration.  The only signatories to the Settlement document itself were UofL, Norton, and the Attorney General.  The signatories to a new Academic Affiliation Agreement in pediatrics between Norton and the University were Norton, the Chairman of the Department of Pediatrics, the Dean of the Medical School, and Associate University Counsel.  University of Louisville Physicians Inc. was not a formal party to the litigation or any of the settlement-related documents.

I asked specifically, “does the University of Louisville deny that University of Louisville Physicians, Inc. was the source of at least some of the money, by whatever transfer mechanism might have been used?”  No further information was offered to me at this time other than the “cooperation” mentioned above.  It may be noteworthy that the Registered Agent for University of Louisville Physicians, Inc is the law firm of Stites & Harbison.

Who started it?  What was it all about?
It was fairly pointed out to me that the litigation was initiated by Norton, and that “as part of the negotiated settlement with Norton, UofL received an $8M payment to settle amounts we claimed were past due from Norton to UofL and our department of pediatrics (none of those funds would have been recovered by the university had it not been for the litigation).”

It is correct that the longer dispute between UofL and Norton did not enter the court system until Norton requested a judicial determination that the University did not have standing to evict Norton from its hospital.  Norton did so only after having the proverbial gun put to its head. It grew from there.  The $8 M extra payment referred to reflected one of many claims and accusations of varying apparent validity against Norton. I can understand the University’s assertion this was a fruit of the settlement. Whether or not this amount would have been recovered without litigation will never be known.

This long litigation had little or nothing to do with whether or not Norton contractually owed the University more support money to pay salaries of a few of if its faculty. I predicted from the first notification of the University’s intent to sell University Hospital to Catholic Health Initiatives that the University was going to have an issue of control over its pediatric hospital.  It was commonly assumed among faculty that the University’s intent in this litigation was to take physical control of Children’s Hospital to enable its pediatric services to transfer to CHI/KentuckyHealth. The goal was a University/KentuckyOne-controlled, statewide, full-service network to serve as a foundation for both a healthcare provider and an insurer. That is what this litigation was about.

Who was in charge?
I was told that” “To clarify any mistaken understanding, as the Executive Vice President for Health Affairs, Dr. David Dunn was the official authorized to represent the University of Louisville and its School of Medicine in the litigation.”

Is the University throwing the out-of-action Dr. Dunn under the bus, thereby absolving itself of any responsibility, accountability, or blame in this matter?  It seems that way to me.  The fact is that Dr. Dunn was designated, empowered, and supported by his immediate supervisor, President James Ramsey, to conduct the University’s chosen strategy in divorcing itself from Norton. It is inconceivable to me that Dr. Ramsey would not have known what was going on.  Indeed, it is inconceivable to me that the Office of University Counsel would not have known – it is their job to supervise University litigation. Surely the UfoL Board of Trustees would have been kept informed over the 29 months of formal litigation. Dr. Dunn might be blamed for some things, but the consequences of any inadequate supervision cannot be dumped in his lap altogether.

Dr. Dunn would have had considerable discretion in financial matters at the Health Sciences Center of the University. Money is famously miscible there, and unless one has access to University-wide accounts, it would be impossible for a mere mortal to trace any putative movement of money to pay legal bills through the maze of special accounts.  I invite the Kentucky State Auditor or other appropriate oversight agency to try.

Some good things have emerged from the rubble.
Throughout sometimes vituperative posturing by the University in its legal proceedings, the people with boots on the ground – doctors, nurses, teachers, and other employees – worked cooperatively and effectively in patient care and teaching at Children’s hospital.  The battle raged over their heads but must have effected morale. This dispute had to be settled for the good of the community.  I am told that it is a new day on the corner of Chestnut and Floyd.  All things should now be possible!!

Next up.
I made a field trip to the courthouse last week. Children’s Hospital is still being hobbled by the lawsuit filed by local Kosair Charities Committee as it apparently seeks to withdraw from its contractural obligations for naming rights to the hospital.  I did not have time to review the 4 boxes containing 19 large volumes of documents. The most recent filing of March 11 contains 62 additional requests for documents describing the operations of Norton Healthcare throughout its entire system. I have no idea whether these discovery demands are relevant, a fishing expedition, or intended to delay.  This must be one more fantastically expensive lawsuit!  Wouldn’t the money be better spent on children?  I don’t see much charity in this matter. Who at the top is driving this?  Divorce is sometimes painful.  Take the lesson from the University/Norton partners and settle.  It will be good for the Hospital.  I would want to know that my donated money is going to kids and not lawyers, wouldn’t you?
PH]

p.s.  I always stand ready to correct errors. Opinions are mine alone.

Peter Hasselbacher, MD
Emeritus Professor of Medicine, UofL
17 April 2016