University of Louisville leadership is considering separating the clinical enterprise of its medical center from the university, a step aimed at increasing revenue at University Hospital and decreasing UofL’s exposure to financial risk — all while preserving educational and research collaborations.
UofL’s interim president Greg Postel — who also remains interim executive vice president for Health Affairs — briefed trustees at their meeting on Wednesday about the possible reasons such a governance change would benefit the university, as board chairman J. David Grissom has asked him to begin educating them on the topic. Postel noted that universities are increasingly considering a legal and financial separation from their hospitals, and he invited the heads of the Vanderbilt University and University of Kansas medical centers to give a live video presentation to trustees about why their past separations have helped both schools and hospitals.
Postel urged trustees to consider the concept, which would create “a separate functional business unit for the clinical care provided by the University of Louisville Hospital and the University of Louisville Physicians, and all of the mechanisms that support that clinical enterprise. And the other business, of course, being the university on this campus and all of the non-clinical research and educational activities.”
Noting that the clinical enterprise of medicine is a type of business that is distinct from the educational and research functions of the university, Postel said it requires “specialized leadership” to quickly adapt to financial changes in the health care market and work with a wide variety of partners. He added that such a separation would provide protection for the university in today’s rapidly changing and uncertain health care environment, saying questions about the future of the Affordable Care Act and Medicaid expansion have transformed the landscape in Kentucky.
“Should there be financial difficulty in the clinical enterprise related to some of these changes, that could potentially expose the university itself to financial risk that it may not be willing or able to shoulder,” said Postel. “So the thinking is that a separately structured organization designed to be a better business entity is more likely to be successful, but also is able to protect the university should things not go well.”
After the meeting, Postel told reporters there would be a long process to study such a separation, but added that any governance change involving University Hospital would ensure it maintains a relationship with UofL “as it pertains to educational and research and the non-clinical parts of the mission.”
“No real estate changes hands, the faculty are still faculty members of the University of Louisville, none of those things change,” said Postel. “This is just a way of managing the business of the clinical part of what we do.”
Postel added that it was far too soon to speculate on whether this separate entity would be a nonprofit — as is the case with Vanderbilt’s medical center — or merged with a for-profit company. University Hospital has had a joint operating agreement with KentuckyOne Health for over four years, but that often-turbulent relationship expires July 1, and Postel says the university needs to focus on ensuring the hospital’s revenue is healthy enough to support other parts of its mission.
“We need to make sure that the organization we have managing our clinical enterprises is absolutely as good as it can be and has the ability to continue generating revenue so we can support the university,” said Postel. “Because at these successful institutions, the clinical enterprise supports the university. That’s how the research and education — in part — is paid for. So it’s critically important for us to make sure that we have the ability to do that.”
When the companies that would become KentuckyOne Health first proposed their merger and acquisition of University Hospital in 2011, the effort was blocked by then-Gov. Steve Beshear, who was opposed to giving away such an important “state asset.” Asked about that history, Postel said Beshear was right at the time and the trustees would avoid any similar governance change involving the medical center.
“I don’t like to see history like that repeat itself, so trust me, we’re not going to go down that road,” said Postel. “And the governor was right, he said state entities are not for sale, and he blocked the deal. Nothing even remotely like that is contemplated in what we’re talking about here. This is simply the governance and management of the clinical enterprise. The hospital would still be owned by the state, nothing about that would change.”
Postel added that the office of current Gov. Matt Bevin “is aware that we’re having these conversations and understands, like in a lot of states, that this conversation takes place.” Two of Bevin’s spokespersons did not respond to an email from IL asking about the governor’s opinion on the possibility of such a separation and to confirm if his office is engaged in such talks with UofL leadership.