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James Ramsey, University of Louisville President
University of Louisville President James Ramsey, left, shares a laugh with Gov. Steven Beshear at the Nov. 14 announcement of the JOA.

Regional News/South: CHI deal revived in Kentucky

University of Louisville Hospital to join partnership

By Ashok Selvam
Posted: November 17, 2012 - 12:01 am ET

Ten months after Kentucky Gov. Steven Beshear threw cold water on the University of Louisville Hospital's plans to be part of a three-way merger with two affiliates of Catholic Health Initiatives, the governor appeared at a news conference announcing that an extensive process of requesting and reviewing bids for alternatives led to a joint operating agreement with the same partner.

Beshear and other state officials repeatedly rejected the university medical center's attempts to be part of KentuckyOne Health, which brought together 14 hospitals operated by Jewish Hospital & St. Mary's HealthCare, Louisville, and St. Joseph Health System, Lexington, in a $320 million deal. Englewood, Colo.-based CHI owns an 83% stake in KentuckyOne.

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“The governor's exact words were: You need to cast your net more widely,” said Dr. David Dunn, the University of Louisville Hospital's executive vice president for health affairs.

Although the wider net yielded the same catch, the terms of the joint operating agreement have satisfied the concerns voiced by the governor and other officials.

Under the deal, KentuckyOne would invest $543.5 million in the University of Louisville Hospital over the first five years, and that figure could increase to $1.4 billion over 20 years. The agreement cedes day-to-day operations of the hospital to KentuckyOne. However, operation of the hospital's Center for Women and Infants would remain with the University of Louisville Hospital. There's no transfer of assets, and the agreement is expected to go into effect on or before March 1.

“This likely will become immediately a model that is viewed on the national stage as something that other people will want to embark on,” Dunn said during the news conference.

Dunn said they received two “very strong proposals” when hospital officials solicited bids this year—one from KentuckyOne and the other from for-profit Health Management Associates, Naples, Fla. The proposals needed to satisfy Beshear and Kentucky Attorney General Jack Conway's main gripes: that Kentucky shouldn't cede control of a state-funded asset to a company outside the state; that the availability of reproductive services shouldn't be affected; and that the hospital should be protected if the partnership goes south and has to be unwound.

If the partnership dissolves, the University of Louisville Hospital would gain access to capital from a 10-year note from KentuckyOne that would cover the hospital's operating costs, Dunn said.

The current hospital's board will remain intact and managerial control will stay local. Three University of Louisville Hospital members will be added to the KentuckyOne board, under the stipulation that current hospital board members can't also sit on the KentuckyOne board. KentuckyOne CEO Ruth Brinkley and Dunn would share the responsibility of deciding how to spend the money KentuckyOne invests in the hospital. Brinkley said the size and scope of the deal positions KentuckyOne as the only system in the state that “can truly address population health management in a meaningful way.”

The deal is unusual because it brings together two not-for-profit organizations in a joint operating agreement with Jewish and Catholic sponsors, Dunn said. Brinkley said KentuckyOne is looking for expansion partners that are “value-compatible,” no matter the religious affiliation. “This makes us very diverse, and as we look across the country, our country is becoming very diverse in many ways,” Brinkley said.

Much of the backlash against the hospital's plans to be part of KentuckyOne last year arose because Catholic ethical and religious directives would have eliminated reproductive services. The proposed solution was to provide transportation to other affiliated facilities for women seeking abortions and other services.

“No one's going to be shuttled, and everyone is going to receive the same care in this community,” Kentucky Attorney General Jack Conway said. “It means the process worked.”

Under the joint operating agreement, officials said the availability of reproductive services would remain the same, and $15 million from KentuckyOne would go toward renovations of the Center for Women and Infants.

After the governor's rejection, hospital officials maintained that as a safety net facility they needed an investment partner or else the hospital faced deep service cuts.

The Archdiocese of Louisville released a statement saying that “there does not appear to be moral roadblocks to continuing recognition of KentuckyOne Health by the church.” Louisville Archbishop Joseph Kurtz has the option of officially recognizing KentuckyOne as a Catholic health system. The church wasn't involved in developing the new agreement.

“We are hopeful that this effort will benefit patients through improved care, better access, lower cost, and a commitment to care for the poor and marginalized,” the archdiocese said in the statement.

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