(Editor’s note: Oscar Bryant III contributed to this story.)

On-going negotiations could lead to Jewish Hospital, St. Mary’s Healthcare Inc., University Medical Center Inc. and Catholic Health Initiatives coming together to form Kentucky’s largest healthcare system, a move that would dramatically alter the state’s healthcare landscape.

Insiders tell Insider Louisville the plan is for the three non-profit systems to combine to create an as yet unnamed regional system, with the Jewish Hospital and University Hospital brands remaining.

All three entities are set to sign a memorandum of agreement, and the deal may become public at a meeting of the University of Louisville‘s Board of Trustees, scheduled for November 11.

The university’s Board of Trustees and the Board of Overseers still would have to sign off on the proposal.

If consummated, the deal would give Denver-based CHI, which already has a joint venture with the Jewish Hospital system, the dominant presence in the region. Insiders say CHI would inject a significant amount of operating capital  – about $200 million – into the new system through what essentially would be an acquisition of Jewish Hospital assets.

And the most difficult negotiations, such as the structure of a new board of directors, would follow the memorandum of agreement, the first step toward merging the three operations.

How the new entity would be structured is unclear, though sources tell Insider Louisville that there would be a CEO of the system, as well as a CEO of operations at the downtown medical complex.

CHI would have a 70-percent equity stake in the overall company, according to sources.

Mary Elise Biegert, CHI’s Louisville-based director of Communication Services, said all three organizations “are still in discussions,” and declined to discuss deal details such as whether CHI will make a direct investment.

Asked if the memorandum of agreement would be a start of creating the new entity, she said, “Generally speaking, in a transaction, that’s true.”

Currently, CHI operates 73 hospitals in 19 states including St. Joseph Hospital in Lexington, Ky., Biegert said.

In the past, Jewish and U of L officials have confirmed negotiations, which extends to CHI as a minority partner in the Jewish Hospital system.

Jeff Polson, vice president, JHSMH marketing and communications, said negotiations are on-going, but declined further comment.

Gary Mans, director, Health Science Center communications and marketing, also acknowledged the negotiations but declined comment.

Insiders say the memorandum of agreement will be signed once details such as the makeup of the new entity’s board of directors and how the academic mission of the U of L’s physicians will be discharged and protected.

Such a deal could resolve the shaky finances of the JHSMH.

(In April, Insider Louisville broke the story that U of L and JHSMH executives had been discussing a merger since 2007. See that story here.)

JHSMH posted an 2009 operating loss of $7.47 million, then lost $10.3 million during first quarter of 2010. As Insider Louisville reported last April, much of the losses in the Jewish system are due to a heavy reliance on coronary procedures for revenue, procedures that have decreased due to the increasing use of non-invasive surgery and medically coated stents.

And insiders say the deal would give University Hospital space in Jewish Hospital’s downtown campus, space in the Frazier Rehab Institute that’s essentially empty, and that U of L needs badly.

The new system also would be one of Louisville’s largest employers, with about 10,000 employees, comparable to Humana Inc., the Louisville-based health insurer.

U of L and JHSMH officials and doctors increasingly have worked together over the years in medical specialties and research.

The two systems operate the Cardiovascular Innovation Institute in the downtown medical complex. Jewish Hospital operates – or is affiliated with – 16 facilities including five hospitals in the Louisville area and Southern Indiana. However, affiliations with hospitals in Southern Indiana will lapse.

The deal comes after Jewish rejected a $1 billion offer in June from Community Health Systems Inc., a for-profit, publicly traded healthcare system based in Brentwood, Tenn.

In an unsolicited bid, CHS executives proposed a deal, the terms of which included CHS  acquiring the assets of JHSMH for $400 million.

CHS would have injected millions more after establishing academic affiliation with U of L’s School of Medicine. The Jewish Hospital Foundation would have been able to keep all its cash, about $346 million.

ABOUT CHI (from its website): CHI is the third largest Roman Catholic health care system by revenue.
Nonprofit health organization with headquarters in Denver. The faith-based system operates in 19 states and includes 73 hospitals; 40 long-term care, assisted- and residential-living facilities; two community health-services organizations; and Consolidated Health Services (Home Health) operating in Ohio, Indiana, and Kentucky. Together, those facilities provided $553 million during the 2009 fiscal year in charity care and community benefit, including services for the poor, free clinics, education and research. CHI had $8.6 billion in 2009 annual revenue.

Terry Boyd
Terry Boyd has seven years experience as a business/finance journalist, and eight years a military reporter with European Stars and Stripes. As a banking and finance reporter at Business First, Boyd dealt directly with the most influential executives and financiers in Louisville.

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