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Insiders: Hospital merger may turn on original University Hospital agreement between state and U of L

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(Editor’s note: This post was updated at 7:50 p.m. on November 30.)

Insiders are telling Insider Louisville executives at the three hospital systems are preceding as if the Kentucky mega-merger is a done deal.

We’re being told by people with direct knowledge of the deal that December 15 is still the working date for the merger of Jewish Hospital & St. Mary’s Healthcare, Catholic Health Initiatives’s Kentucky hospitals and University of Louisville Hospital /J. Graham Brown Cancer Center into Kentucky Statewide Network.

Which, of course, ignores the fact Gov. Steve Beshear still hasn’t approved the deal.

So, what do the hospital executives know we don’t know? (Besides everything.)

In the year since Insider Lousiville broke the news  of the pending hospital merger, opponents and supporters have asked key questions that have never been answered.

Local government officials are reduced to suing U of L, trying to get information.

Our question is, “Does the merger even need the approval governor and the Kentucky attorney general? After all, federal regulators signed off on the deal months ago.”

Various insiders have told us it doesn’t, referring us to the origins of University Hospital including the original debt instruments issued by the state.

But our legal insiders are telling us the merger does require the approval of the state’s top executive officer because Kentucky owns the land under University of Louisville Hospital and the building, which it leases to University Medical Center, the non-profit entity controlled by U of L that actually operates the hospital.

But what is this based on? And does the state really “own” the hospital?

Insiders are telling us the short answer is, “Yes.”

In 1995, U of L/UMC took over what had been Columbia HCA hospitel.

This is from the 2007 renewal of the original 1995 Affiliation Agreement that created University of Louisville Hospital:

  • Section 30.1 states that “neither UMC nor University shall sell, transfer, or assign (including by operation of Law) its interest in the Hospital without the consent of the other, subject to the Commonwealth’s right to transfer the Hospital to another state entity, provided that this shall not reduce UCM’s rights hereunder.”
  • Section 30.1.2, states, “None of the parties shall sell, transfer or assign (including by operation of Law) its interest in this Agreement without the prior approval of the other parties.”

But there are major complications, such as where the Commonwealth of Kentucky ends and the University of Louisville begins. Because the state and its state school are partners in the original agreement that created University Hospital. But, they’re potentially legally at odds over the merger, with U of L claiming the hospital is operated by a private, non-profit entity, University Medical Center.

To understand how obscured the basic issues are because of the paucity of information, the Courier-Journal’s Patrick Howington reported yesterday that Jefferson County Attorney Mike O’Connell is suing U of L after school officials refused to give him merger documents under the Kentucky Open Records Act.

O’Connell ‘s position, according to the CJ, is that public has a right to know the financial details of the merger because University Hospital, the city’s safety-net hospital, is a public institution. Since the public is paying for most of what University Hospital does, including educating U of L medical students, we have the right to know, right?

We went to Kentucky Auditor Crit Luallen to find out if this is true.

We got referred to the governor, with this statement:

“The review of the merger by the attorney general continues at the request of the governor. The auditor’s office is providing support for that effort.”

At the AG’s office, we got a “the AG has the legal authority to review the merger, end of story.” Then they sent us the original affiliation agreement from 1995 that created University Hospital.

Which doesn’t differentiate between the state and U of L, both of which are listed as “lessee” to UMC.

So, the question becomes, what do U of L officials and UMC do about the University Hospital partnership should the governor veto the deal? Would UMC legally be able take its equipment inside the University Hospital buildings, then try to strike a separate (original) deal as a lessee of the foundering Jewish system (controlled by CHI) and expand into JHSMH’s vacant downtown campus space?

(A source tonight told Insider Louisville there may be a new KSN structure that would allow UMC to remain as an autonomous entity after the merger, requiring state officials to honor the University Hospital lease.)

But the common sense question is, why would our friends inside the three systems be proceding with the merger if they had any inkling the governor intends to nix the deal?

For those of you who enjoy contract language (spellings are correct), here are highlights from the Affiliation Agreement;

3. LEASE AND OPERATION OF ULH FACILIIES

Contemporaneously with the execution and deliveiy of this Agreement,
Commonwealth and University as “Lesser” have agreed to lease to UMC as “Lessee” ULH on
the terms and conditions of the Lease Agreement, substantiaiìy in the fomi of Exhibit 3 attached
hereto and incorporated herein. The parties specifically affirm that the sole purpose of the Lease
is to operate ULH in conformity with this Agreement, that the Lease is an integral part of the
overall agreement set forth herein the provision of support by UMC to University for education,
research, indigent care, and that accordingly, the rights and obligations of UMC as Leseee of
ULH shall be as Set forth herein and in the Lease, rather than as conventionally applied in
Lesser/Lessee transactions.
4. GOVERNANCE OF UMC
UMC was organized on June 27, 1995 by Jewish Healthcare and St. Mary’s
Healthcare (“JHHS”) and Norton Healthcare Services, luc. (formerly known as Alliant
Healthcare Services, Inc. (“AHS”) as a Kentucky nonprofit corporation for the purpose of
responding to the RFP and, if successful, providing the operation and management services
relating to ULH as contemplated in this Agreement. JHHS and AHS have withdrawn from
membership in UMC effective May 1, 2007.

3. LEASE AND OPERATION OF ULH FACILITIES
Contemporaneously with the execution and deliveiy of this Agreement, Commonwealth and University as “Lesser” have agreed to lease to UMC as “Lessee” ULH on the terms and conditions ofthe Lease Agreement, substantiaiìy in the fomi of Exhibit 3 attached hereto and incorporated herein. The parties specifically affirm that the sole purpose of the Lease is to operate ULH in conformity with this Agreement, that the Lease is an integral part of the overall agreement set forth herein the provision of support by UMC to University for education, research, indigent care, and that accordingly, the rights and obligations of UMC as Leseee of ULH shall be as Set forth herein and in the Lease, rather than as conventionally applied in Lesser/Lessee transactions.
4. GOVERNANCE OF UMC
UMC was organized on June 27, 1995 by Jewish Healthcare and St. Mary’s Healthcare (“JHHS”) and Norton Healthcare Services, luc. (formerly known as Alliant Healthcare Services, Inc. (“AHS”) as a Kentucky nonprofit corporation for the purpose of responding to the RFP and, if successful, providing the operation and management services relating to ULH as contemplated in this Agreement. JHHS and AHS have withdrawn from membership in UMC effective May 1, 2007.

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