{"id":5770,"date":"2017-11-14T11:44:25","date_gmt":"2017-11-14T16:44:25","guid":{"rendered":"http:\/\/www.khpi.org\/blog\/?p=5770"},"modified":"2017-11-18T13:02:39","modified_gmt":"2017-11-18T18:02:39","slug":"how-close-really-is-kentuckyone-health-to-selling-its-louisville-assets","status":"publish","type":"post","link":"http:\/\/www.khpi.org\/blog\/how-close-really-is-kentuckyone-health-to-selling-its-louisville-assets\/","title":{"rendered":"How Close Really Is KentuckyOne Health To Selling Its Louisville Assets?"},"content":{"rendered":"

Catholic Health Initiatives (CHI) just published its financial report<\/a> for the first quarter of Fiscal Year 2018\u2013 the three months ending Sept 31, 2017.\u00a0 One initial media report<\/a> led with what CHI would no doubt wish to emphasize, that the company has cut its “quarterly operating loss by more than half.” \u00a0The actual reported system-wide loss from operations in Q1-FY2018 was $77.9 million compared to a loss of $180.7 million in Q1-FY2017. This change is being attributed chiefly to more efficient purchasing and to decreased labor costs. \u00a0Indeed, CHI reported a decrease of 2,667 full-time-equivalent employees over the quarter.\u00a0 Whether such cuts are healthy for the company in the long run remains to be seen.\u00a0 I await more expert financial analysis than I am able to offer and to see how the financial markets or potential new partners or asset-purchasers react. \u00a0It appears these latter are not being hasty. \u00a0As I plow through the numbers, I see many other measures going in what appear to me to be the wrong directions.<\/p>\n

The report gives special attention to what has been going on here in Kentucky. \u00a0[I extracted all mentions of Louisville or Kentucky from the 61-page report into a separate document available here<\/a>.] \u00a0The percent of operating revenues contributed from the Kentucky Region was 7.5% this last quarter compared with 16.2% in 2013. This represents a drop from 2d place to 5th place among the 11 or 12 regions or operational segments. \u00a0Perhaps the most newsworthy item is the first notice of which I am aware that the anticipated (hoped for?) date for a closing on the sale of CHI’s KentuckyOne Health facilities in Louisville has been put off six months to June 30, 2018.\u00a0 A reasonable person might conclude that KentuckyOne is having a difficult time finding a motivated buyer for its hospitals, outpatient medical centers, and physician practices here in Louisville.\u00a0 I am not surprised. The return of control of University of Louisville Hospital to the University has not improved the financial performance of Jewish\/Sts Mary & Elizabeth Hospitals.\u00a0 With respect to apparently continuing discussions between CHI and Dignity Health to align their activities, the report uses the same language it did at the beginning of this year. \u00a0No substantive indication is given as to how things are going.\u00a0 Although some media reports use the word “merger” to describe the process, that word seems to be carefully omitted in accounts by CHI itself.<\/p>\n

The good and not as good.<\/strong>
\nI must confess that to my reading, CHI is in the same system-wide ballpark in which I perceived it at the end of FY2017<\/a>.\u00a0 I welcome other analysis or opinion, but the EBIDA accounting numbers do not help me understand what is going on under the hood. CHI’s financial bottom line is being supported by a decrease in employees and a continuing sale of brick-and-mortar facilities. In my opinion this is like selling your seed corn.\u00a0 [Layoffs led to a quality- and accreditation scare at UofL Hospital last year.]\u00a0 Patient volumes continue to decrease. There is no follow-up on what happened to the $719 million loss in the physician operations of FY2017 other than that investments in physician activities continue to be made in anticipation of future gains.\u00a0 Total operating revenues increased only 1% compared to one year ago. \u00a0Cash-on-hand, liquidity, and total current assets are less than in the preceding three months. \u00a0\u00a0Compared to June 30, 2017, total debt is unchanged at $8.6 billion. The ratio of debt to capitalization is increasing. Last season’s hurricanes and the loss of its relationship with the University of Louisville both delivered hits to CHI’s financial performance. [Louisville appears to have done more damage than nature!] \u00a0I do not interpret comparisons to the same quarter of one year ago or the three months ending last June as uniformly rosy.\u00a0 I will leave it to financial gurus and the bond-rating companies to figure it all out.\u00a0 If I am misreading anything, I trust someone will help me make appropriate corrections.<\/p>\n

\"\"<\/a><\/p>\n

How about Louisville?<\/strong>
\nFor those of us in Louisville, there were other items in the report of considerable practical interest to our community.\u00a0 The separation from the University of Louisville and its teaching hospital were costly to CHI and KentuckyOne in more ways than one.\u00a0 The current quarterly report details a $469 million hit against assets consisting of a $319 million loss from the return of University of Louisville Hospital and the $150 million to buy-out of the Jewish Heritage Fund for Excellence\u2013 the only other non-CHI owner of KentuckyOne Health.<\/p>\n

It has been apparent that University Hospital was a moneymaker for KentuckyOne, propping up its Louisville operations. \u00a0In the current report, no CHI earnings are attributed to University Hospital. \u00a0For Medicare purposes, Jewish and Sts Mary & Elizabeth are a single hospital and are reported as such in the current financial statement. The operating revenues<\/em> of this combined entity from July through September 2017 were $182 million compared with $189 million for the same months in 2016. \u00a0Operating earnings<\/em> even before<\/u> adjustments for restructuring, impairment, and other losses were in the deeper red at $(20.4 million) compared to a loss of $(16.7 million) in the first quarter of FY2017.\u00a0 My understanding is that after the various adjustments that these losses are even more significant.\u00a0 Unless my arithmetic is wrong, these constitute losses of many millions of dollars monthly.\u00a0 This calculus makes me wonder how attractive KentuckyOne’s Louisville facilities might be to a potential buyer.\u00a0 If the leadership of CHI, Jewish Hospital, and the University of Louisville could not make it work over the past decade, who can, and how? \u00a0It remains to be seen to what degree, if any, University Hospital has escaped being wounded following its annulled marriage to KentuckyOne.<\/p>\n

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\nWill cherry-picking be allowed?<\/strong>
\nThat is not to say that there is nothing here worth owning.\u00a0 KentuckyOne holds the license to do solid-organ transplantations, and perhaps financial interest in other medical treatments being developed within the Medical Center. The beds of these hospitals could be valuable to other hospital systems within Jefferson County, but the most likely buyer, Norton Healthcare, would have anti-trust problems in amassing a larger market share than it already enjoys. \u00a0Seems to me that a hospital system with a big emphasis on cardiac disease might be interested in these licenses and the relatively new Jewish Hospital Rudd Heart and Lung Center tower. \u00a0Indeed, doctors-lounge rumors tell me that at least two large national hospital\/insurance systems\u2013 with names everyone knows\u2013 came to kick the tires. The same rumor-mill also tells that these and other lookers left the lot without buying.\u00a0 I have no confirmation that any of rumors suggested to me were verifiably true, but I make mention them here to illustrate the degree of anxiety felt by at least some of the current Louisville employees of KentuckyOne who have no idea what is coming or if they will have a job.\u00a0 Even folks in other Louisville health facilities are nervous about what is going to happen to all the patients cared for in Louisville by KentuckyOne, many if not most of whom are Medicaid or Medicare beneficiaries. \u00a0 It remains my opinion that the institutions most at risk from what is happening to KentuckyOne in these many dimensions is the University of Louisville and its Medical Center.<\/p>\n

In my opinion\u2013 or at least in my fears\u2013 a medical earthquake is going to strike Louisville with a disruptive magnitude approaching that of the New Madrid earthquake of 1811 which changed the course of the Mississippi River. \u00a0That river even ran backwards for a while.\u00a0 Hopefully, Louisville’s medical scene will soon return to a navigable channel, even if not between its former banks. \u00a0I wish the people at the helm the best of luck for all of our parts.<\/p>\n

Peter Hasselbacher, MD
\nPresident, KHPI
\nEmeritus Professor of Medicine, UofL
\nNovember 14, 2017<\/p>\n

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