Kosair for Web*304

Reporter’s note: This post will be updated with comment from University of Louisville officials.

In the Monday Business Briefing, we double verified that the U of L/Norton mediator will file notice this week with Franklin Circuit Court Judge Thomas Wingate that the differences are irreconcilable.

Which means a stay in the case is lifted. With the suit back on, Norton Healthcare officials have released a flood of documents from the dispute, which started last September when Norton and the University of Kentucky signed a letter of intent to discuss collaborating in the management of the downtown Kosair Children’s Hospital.

Those documents include an amended complaint that gives a detailed – if subjective – look behind the scenes since lawsuits only tell one side of the story

The 32-page amended Norton complaint states Dr. David Dunn, U of L executive vice president of Health Affairs, proposed last Jan. 16 settling the dispute if Norton paid a $10.75 million lump sum financial settlement in addition to continuing its support of Kosair Children’s Hospital.

But on Jan. 21, U of L backed out of the deal, according to the amended complaint.

From the document:

Dr. Dunn, in phone conversations with and then an email to (Norton CEO Steve) Williams demanded that Norton agree to an “addendum” that would address numerous additional issues hat were not part of the Settlement Agreement.”

Now, Norton officials are seeking to implement the basic terms of that aborted deal, which their Chicago-based Jenner & Block legal team states was a final deal. Norton wants an affiliation agreement with U of L that “clarifies the confusion over the land lease agreement and forever removes any possible threat of evicting us from our own hospital,” according to a source.

The reference is to U of L’s contention the state, which owns the land under Kosair Children’s Hospital, stipulates the operation of the hospital must be “in the best interests of U of L’s School of Medicine,” and that U of L has the right to evict Norton in the event of a breach.

From Norton:

We want to continue operating KCH for the benefit of the U of L School of Medicine and for the Commonwealth. We don’t want our agreement to be exclusive to the point that no one other than a U of L doctor can work in the children’s hospital. And we want to continue to partner with the UK Children’s Hospital to the benefit of children across the state. (That even benefits U of L. Look at where the UK pediatric cardiovascular patients went – to U of L.) Collaboration benefits everyone.

Here are the main points from the amended complaint:

• The parties agreed to continue operating under the existing 2008 Master Affiliation Agreement, as is, and roll it over into a five-year agreement beginning Jan. 1, 2014, with auto-renewals every five years.

• Norton agreed to pay U of L a lump sum of $10.75 million, which U of L agreed will cover all claims of any payments U of L believes Norton owes or committed to U of L. The agreed-upon amount of $10.75 million includes approximately $3.3 million in retroactive payments that was recently paid, and an additional approximately $7.4 million to be used for pediatrics.

• U of L agreed to Norton’s last proposal for amending the Ground Lease, and to jointly propose that amendment to the commonwealth for approval. The parties agreed that the amendment would include the “sequential” process for litigation that Norton had requested, and make clear that: a) if U of L discontinues the affiliation agreement with Norton, U of L cannot use that as basis for asserting a breach of the Ground Lease and attempt to take the hospital property; and b) Norton must continue to make the hospital available to U of L.

• There would be nothing in any agreement that would prohibit Norton from proceeding with the UK letter of intent, with the understanding that Norton would continue its commitment to include U of L appropriately in statewide initiatives, etc. U of L agreed to cooperate and to release its people to plan for pediatric coverage on the St. Matthews campus.

• The parties agreed to “stand down” on litigation, with U of L withdrawing the Notice of Breach, and Norton withdrawing its complaint.

The amended complaint makes clear the relationship between Norton and U of L had soured long before Norton and UK signed the Kosair co-management agreement last August.

The amended complaint amps up allegations, including contentions the University of Louisville is “mired in controversy,” with issues related to the accreditation of the medical school.

The Norton complaint also introduces charges that Dunn is linked to a contractor who received overpayments from U of L, as well as the departure of U of L executives who’d questioned Dunn’s expenditures.

To refresh your memory, Norton Healthcare filed essentially a preemptive strike last September against U of L, suing just in case U of L officials followed through with threats to evict Norton doctors from the downtown Kosair Children’s Hospital after Norton signed the UK agreement.

In their motion for dismissal, Norton attorneys charge the two institutions’ 32-year relationship changed in 2013 following U of L’s 2012 affiliation with Catholic Health Initiatives, a Norton competitor.

U of L, the motion states, demanded a “transformational change” in the parties’ relationship.

U of L executives responded instantly that the UK co-managment agreement was in violation of both Norton’s land lease on the Hospital at 231 E. Chestnut St. as well as the 1981 operating agreement between Norton and U of L.

Dunn threatened to expel Norton doctors from Kosair, going so far as to state the Norton/UK deal was a “blatant attempt to create a virtual monopoly for themselves in high-end, lucrative neonatal care. This end run will bankrupt the U of L Department of Pediatrics and threaten the viability of the entire U of L School of Medicine.”

U of L executives and their counterparts from Norton met twice in mediation sessions during the past few weeks, according to our insiders. Those sources tell us U of L Department of Pediatrics executives told staffers Norton was negotiating “too aggressively,” using the hard-nosed tactic of taking money off the table at each meeting. Norton officials said they’re “disappointed” U of L walked away from mediation.

For IL, the documents are interesting in that they confirm much of what we reported from sources on both sides, including multiple negotiations, a four-day retreat in Covington, Ky., attended by Norton and U of L senior executives, transactional counsel, and litigation counsel.

What’s not in the documents is an explanation of what, exactly, caused the series of talks and negotiations to break down. Was it the structure of staffing at Kosair? Was it money? Or was it years of bad blood and Alpha Dog posturing between two groups of high-powered executives who simply detest each other?

Last year, we turned to insiders for insights, and this helped simply the dispute:

I cannot connect the dots of how the UK and NHC agreement leads to a “virtual monopoly” of neonatal care.

Neonatal care is one of the few aspects of pediatric care that does not lose money; it often is used to fund other lose leaders within a division.

Currently NHC and UL both have groups that practice in the NICU at KCH. There have always been non-UL doctors providing care in that unit. How an affiliation with UK would change this is something I can not comprehend despite my intimate knowledge of the issues at hand..

Terry Boyd

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.