KentuckyOne to sell its Louisville hospitals to stop losses

Struggling KentuckyOne Health plans to sell its Louisville hospitals to focus on its healthier markets in Lexington and eastern Kentucky, the hospital system announced Friday.

KentuckyOne, a division of Catholic Health Initiatives, said it will seek buyers for Jewish Hospital, Frazier Rehab Institute, Sts. Mary & Elizabeth Hospital, Medical Centers Jewish East, South, Southwest and Northeast, Jewish Hospital Shelbyville, Saint Joseph Martin and KentuckyOne Health Medical Group provider practices in Louisville and Martin.

"Since the creation of KentuckyOne Health in 2012, and through our dedicated employees and physicians, KentuckyOne Health has achieved many accomplishments," said KentuckyOne CEO Ruth Brinkley in a statement. "We have also acknowledged the significant challenges to our integrated vision and our long-term success. The great change and great uncertainty in the healthcare industry has strained our financial health. Market forces have evolved to the point that change is needed to allow ongoing support for health and wellness in Kentucky."

KentuckyOne will concentrate on strengthening care around its other hospitals and facilities, the company said.

They are Our Lady of Peace, Flaget Memorial Hospital, Saint Joseph Hospital, Saint Joseph East, Saint Joseph Jessamine, Saint Joseph Mount Sterling, Saint Joseph London and Saint Joseph Berea, as well as KentuckyOne Health Partners Clinically Integrated Network and KentuckyOne Health Medical Group provider practices in central and eastern Kentucky and Bardstown.

KentuckyOne's parent organization, CHI, is having its own financial problems. It is in affiliation talks with another Catholic-sponsored giant, Dignity Health in San Francisco.

KentuckyOne has faced intense competition in Louisville from the other big systems, including Norton Healthcare, Baptist Healthcare System and the University of Louisville Hospital, said Larry Prybil, a former health system administrator and current professor at the University of Kentucky in Lexington.

Prybil said KentuckyOne is making the tough but right decision to divest its hospitals there. "KentuckyOne has faced major challenges in Louisville from the start and I respect the leadership for taking the steps necessary to deal with the situation," Prybil said.

Brinkley was unavailable to comment beyond KentuckyOne's statement, a system spokesman said.

For years, Louisville has been a stable hospital market. But the city's big four are going through proxisms of change.

In December, the University of Louisville Hospital agreed with KentuckyOne to end KentuckyOne's management of the academic medical center.

The university hospital will begin managing itself in July after the university accused KentuckyOne of failing to make about $17 million in promised program improvements and falling $29 million behind in making capital improvements to the facilities.

Baptist Healthcare System, long a pillar of financial stability, is looking for a new permanent CEO after Steve Hanson resigned in March in the wake of deteriorating operating income. Despite more than 300 recent staff reductions and a turnaround plan, Moody's Investors Service is expecting eight-hospital Baptist to post an operating loss of $70 million in fiscal 2017 after operating gains of $10 million and $24 milion in the previous two years, respectively.

Five-hospital Norton Healthcare remains the healthiest system in Louisville. With children's hospitals in Louisville and Lexington, Norton posted solid operting income of $125 million in 2016 and recently announced the creation of a pediatric cancer institute in partnership with the University of Louisville Hospital.

Kentucky is one of CHI's five-largest markets and also one of the most troubled of the 102-hospital national system.

In its fiscal second-quarter financial report ended Dec. 31, CHI disclosed that in Kentucky its operating earnings before interest, depreciation and amortization had fallen to $17.1 million in the quarter compared wtih $30.5 million in the year-earlier quarter.

CHI cited unfavorable shifts in payer mix plus labor costs that had risen as a percentage of net patient services revenue to 49.4% compared to

44.8% in the same period of the prior fiscal year. That represented $26.2 million more in labor costs for the quarter vs. the year-earlier.

"The Kentucky region is continuing its efforts to address nursing and other staff shortages, which have resulted in increases to overall labor costs, including contract labor costs, and overtime and premium pay," the report said.