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Persistence pays: U of L President James Ramsey turns failed hospital merger into new $1.4 billion joint operating agreement with CHI/KentuckyOne

by Terry Boyd

U of L President James Ramsey smiled in the spotlight as he announced a joint operating agreement with CHI/KentuckyOne after years of negotiations.

If there’s a takeaway from two years of drama as the University of Louisville tried to do a deal with CHI, it’s this: “Never underestimate U of L President James Ramsey.”

Remember Ramsey’s failed attempt to merge University of Louisville Hospital and University Medical Center with CHI?

It’s now a joint operating agreement.

U of L officials announced they’ve chosen KentuckyOne – which incorporates Denver-based Catholic Health Initative’s Kentucky operations and the former Jewish Hospital & St. Mary’s HealthCare system – for a joint operating agreement over Naples, Fla.-based Health Management Services. CHI and HMS were the two systems that replied to a U of L request for proposal last March.

So the CHI merger is not only back, it’s done, though apparently minus U of L having to abide by the Religious and Ethical Directives of the Roman Catholic Church.

Kentucky Attorney General Jack Conway, who approved the new joint operating agreement after nixing the proposed merger, was among many at this morning’s press conference noting Ramsey’s persistence on doing a deal with CHI.

If you tell Ramsey “no,” Conway said, Ramsey will just go out “and find another way to do (a deal.)”

Which is precisely what happened.

Except CHI officials blinked.

They apparently gave up demands that Roman Catholic bishops have the final say in treatment restrictions and prohibitions while still agreeing to inject huge amounts of money into the 330-bed University Hospital, as well as into university research and physician training programs.

Dr. David Dunn got credit for seeing to fruition nine months of negotiations.

Sources Insider Louisville interviewed this morning believe CHI’s need for a guaranteed pipeline of graduating U of L doctors to its rural hospitals – part of the JOA – trumped its desire to control U of L’s policy on reproductive procedures.

Moreover, officials conceded that the nitty-gritty details of the deal – and how they’ll affect the relationship between the religious hospital system and the publicly-funded safety net hospital – are far from resolved.

But the story here is the numbers, and they are huge if CHI lives up to its part of the deal.

Highlights of the joint operating agreement include CHI, through its wholly owned KentuckyOne system in Kentucky, injecting $543.5 million of investment into the university medical operations during the first five years of the JOA, expanding to $1.4 billion over 20 years, including:

  • $75 million annually for academic and program investments and another $95 million over the first three years for “key service lines and departments”;
  •  $70 million for IT infrastructure upgrades at UMC;
  • $15 million for discretionary spending by U of L for each of the first three years, targeted on statewide health efforts;
  • and $3 million dedicated for research annually and $7.5 million per year in capital investment for technology.

CHI, through its KentuckyOne subsidiary, will maintain University Hospital’s current levels of charity care by supporting the Quality and Charity Care Trust agreement supplemented by hospital operations, according to a news release.

UMC provides about $20 million in indigent care services each year over and above any source of reimbursement from QCCT and other sources. The indigent care trust is overseen by U of L.

Terms of the new deal appear much more generous to U of L than the thwarted merger last year. Under the merger, CHI would have invested an initial $200 million in what was termed the “Academic Health Center,” the giant downtown complex that includes University Hospital,  Jewish Hospital, J. Graham Brown Cancer Center and Frazier Rehab Institute, and a total of $800 million over a number of years.
This merger would have taken pressure off U of L, Louisville-Jefferson County Metro Government and the State of Kentucky, which must cover projected indigent care budget shortfalls at University Hospital.
The new joint operating agreement allows the current U of L Hospital Board of Trustees to remain in charge of University of Louisville Hospital, with hospital President and CEO Jim Taylor and KentuckyOne CEO Ruth Brinkley overseeing the funding from CHI.

Kentucky Gov. Steve Beshear said the joint operating agreement, as opposed to a full merger, allows University Medical Center to remain a public entity instead of being absorbed into CHI. A joint operating agreement that allows U of L and state government to retain management control of the hospital, medical center and Brown Cancer Center while ensuring funding for indigent care “is within the legal and policy framework” of state law.

But opponents of the original merger proposal aren’t so sure. They tell IL they see the joint operating agreement as a way for CHI to get in the door.

“This UL ‘partnership’ is the old proverb of ‘Once a camel gets his nose in the tent, his body will soon follow,’ ” wrote Honi Goldman in an email response to a query. “So beware of KentuckyOne’s nose.”

Goldman and other women’s rights leaders opposed the initial merger proposal because U of L would have had to observe Roman Catholic Ethical and Religious Directives that would have forced U of L Hospital to move birth control and reproductive procedures to Baptist East Hospital in suburban Jefferson County.

However, as soon as Beshear and Conway killed the merger back in late December, 2011, U of L officials and CHI executives started new discussions, according to IL sources.

By July, sources say, more than one deal was on the table. But those sources said the CHI deal was by far the most favorable to U of L.

Multiple sources told us then that KentuckyOne executives were having conversations with community leaders and opinion shapers, conversations many believe are a prelude to the announcement of a second, modified KentuckyOne partnership proposal with U of L.

Those sources say Dr. Gregory Postal, chairman of University of Louisville Physicians Inc. and Dr. David Dunn, U of L’s executive vice president for Health Affairs, led the effort.

The resulting deal with CHI is a major coup for Dunn, whom Ramsey, Beshear and others credited with overseeing the negotiations.

Here are the terms of the partnership from the news release:

The partnership will be structured as a joint operating agreement between UMC and KentuckyOne in which KentuckyOne will oversee most of the day-to-day operations. UMC will retain ownership of its assets and will operate the Center for Women and Infants.

UofL, UMC and KentuckyOne Health have entered into an academic affiliation agreement. This agreement ensures the continued training and education of the next generation of health care providers. At the same time, the agreement also provides UofL the resources necessary to recruit and retain the highest quality faculty who serve as teachers, researchers and clinicians.

“My staff and I reviewed the final term sheet and it appears to address the concerns raised in our December 2011 report. The University followed the request for proposal process and entered into a joint operating agreement that did not transfer ownership of a state asset,” said Attorney General Jack Conway. “Moreover, the executive branch of the Commonwealth of Kentucky retains authority to oversee the new agreement. It also appears that the same health services will continue to be available on-site at University Hospital. This partnership will help University Hospital secure financial stability, protect care for the indigent and continue the excellent research and teaching that is conducted at our hospital.”

 More information about the new partnership can be found at: http://www.university-hospital.org/partnership.

 Women’s Health Services:

UMC heard and took action on the concerns raised by the community. UMC made clear from the start of negotiations that the scope of women’s health services would not be diminished. Those services will take place at the CWI, at the same location and by the same staff. UMC will retain $17 million for UMC to operate the CWI and continue all services currently offered there. The CWI is already self-sustaining and with this funding, those services will grow and benefit through the continued oversight, and funding, by UMC. CWI will also undergo approximately $15 million in physical upgrades and renovations.

The clinical programs and services currently available at UMC will not change as a result of this partnership, including women’s reproductive health, pharmacy and end of life services. Existing Commonwealth law prohibits elective abortions at University Hospital.

 Employee insurance will include coverage for reproductive services and related prescription medicine, as required under federal law.

Partner Profiles

University of Louisville Hospital: Established in 1817, the hospital is a 404-bed facility and the primary adult teaching hospital for the UofL School of Medicine. It operates the region’s only adult Level 1 trauma center and operates Kentucky’s first certified stroke center and first hospital-based telemedicine network. Aligned with the hospital, the James Graham Brown Cancer Center offers the area’s most advanced cancer treatment with specialists working in multidisciplinary teams who have received national recognition for research and participation in clinical trials, as well as translating research into today’s medical practice. The center is home to the first nationally accredited breast center in Kentucky and the first nationally accredited radiation oncology program in Louisville.

University of Louisville Health Sciences Center is the city’s only academic medical center. Approximately 1,000 faculty members are involved in education, research and clinical care. The UofL HSC is home to more than 650 medical and dental residents, 3,000 students pursuing degrees in health-related fields within the Schools of Dentistry, Medicine, Nursing and Public Health and Information Sciences, as well as 14 interdisciplinary centers and institutes. Approximately $140 million in extramural funding enables researchers to uncover the causes of disease and better ways to prevent, treat and cure those diseases. Patients are seen at the Ambulatory Care Building, The James Graham Brown Cancer Center, the UofL Health Care Outpatient Center, and University Hospital, which is the primary adult teaching hospital for the School of Medicine. University Hospital’s public mission is steeped in history and now is most clearly visible through its provision of nearly $90 million of health care to the uninsured annually.

Kentucky One Health: KentuckyOne Health was formed in 2012 when two major Kentucky health care organizations came together. KentuckyOne Health combines the Jewish and Catholic heritages of the two former systems – Jewish Hospital & St. Mary’s HealthCare and Saint Joseph Health System. The nonprofit system is committed to improving the health of Kentuckians by integrating medical research, education, technology and health care services wherever patients receive care. KentuckyOne Health has nearly 200 locations including hospitals, physician groups, clinics, primary care centers, specialty institutes and home health agencies, with more than 13,600 employees across the state of Kentucky and southern Indiana. With the new partnership, KentuckyOne Health has more than 2,700 licensed beds and is the largest health system in Kentucky.

 

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