UofL, KentuckyOne leaders see challenges

University of Louisville President James Ramsey is for the first time publicly acknowledging that the school's 16-month-old alliance with the financially-struggling hospital giant KentuckyOne Health "has had its challenges."

"We knew when we entered the partnership, (getting money promised to UofL) would be slow and the partnership would have its ups and downs. And it has been slow and has had its challenges," Ramsey said in a recent interview.

The partnership, finalized early last year after a controversial failed merger attempt, calls for KentuckyOne to invest $135 million in UofL over three to five years to support public health, nursing and other areas — $44 million of which has been paid so far. While the company has met its contractual obligations, Ramsey said he would have preferred having more money up front so it could be invested in programs more quickly or programs could be launched with the knowledge that the money is there.

"They looked at these as expenditures. We looked at them as investments," he said, adding that nevertheless,"we continue to believe (the partnership) will meet our expectations."

Ramsey is voicing the issue as KentuckyOne works to close a $218 million deficit in a rapidly-changing health care environment. In February, the company laid off about 500 workers and leaders said other large cost-cutting moves are possible, including hospital closures. Recently, company officials worked to squelch what they called rumors that KentuckyOne's parent company, Catholic Health Initiatives of Denver, might want to sell it.

Chief Executive Officer Ruth Brinkley paints an optimistic picture. She said the company has eliminated more than half of its deficit and is on track to close the gap completely by June 2015. She also pointed out that the $44 million it's paid to UofL is only part of $200 million given to the university in the first 15 months of the partnership, around 30 percent of the agreed-upon five-year investment, which is also targeted toward areas such as academics, research and infrastructure.

"Has everything gone exactly the way we would've wanted it? No ... But overall, we are pleased with how it's gone," Brinkley said, acknowledging that she understands Ramsey's viewpoint. "Academic health sciences centers are different from community hospitals," focusing on research and education in addition to patient care. "Given their mission, it's predictable that there would be some bumps in the road."

Beverly Glascock, a Louisville lawyer and former nurse who has closely watched the partnership unfold, said the university should have discussed exact timing of payments before finalizing the agreement with KentuckyOne.

"This is a total failure by the university. They went to such lengths to keep the public in the dark about the details of this plan, and now it turns out they were as much in the dark as the public," she said. "The university was too eager to believe KentuckyOne's promises of big money. The promises were empty and, given KentuckyOne's mounting losses, the promises are likely never to be fulfilled."

But Dr. David Dunn, UofL's executive vice president for health affairs, dismissed such criticism and said UofL and KentuckyOne talk regularly about the pace of investments. "KentuckyOne has made good on all its commitments," he said. Compared with when the partnership began, "I'm more optimistic because I've got a lot of money in the bank."

A time of change

KentuckyOne was formed in 2012 by the merger of Jewish Hospital & St. Mary's HealthCare and St. Joseph Health System of Lexington. The companies united after Gov. Steve Beshear rejected a proposed merger that would have included UofL Hospital, citing church-and-state issues and the loss of a public asset.

KentuckyOne subsequently partnered with UofL Hospital through a separate agreement, turning over management of most of the hospital while keeping the facilities under public control. The company, which calls itself the largest health system in Kentucky, had nearly 15,000 employees in Kentucky and Southern Indiana working in more than 200 locations, including hospitals and physician's offices.

University officials cited financial difficulties at UofL Hospital as a big reason for the partnership, which calls for investing $1.4 billion over 20 years at UofL and its hospital.

But almost immediately, KentuckyOne, which has a budget of about $2.5 billion, began having financial struggles of its own. When Brinkley announced the layoffs, she also said the company wouldn't fill 200 open positions, would seek to consolidate and realign services, and would even consider closing hospitals if necessary.

Brinkley pointed out that layoffs and other cost-cutting moves are common at hospitals across the nation these days. Challenger, Gray and Christmas, a Chicago-based global outplacement and career transitioning firm, has seen a rise in health care job cuts in recent years, with 52,637 in 2013, compared with 27,373 in 2011.

Brinkley attributes the tide of change to a trend away from sick care, which revolves around hospitals, to a greater focus on wellness and disease prevention — which preceded the federal Affordable Care Act but was reinforced by the law.

Experts also point out that hospitals are adjusting to lower Medicare reimbursements and cutbacks in Medicaid funding. At the same time, the ACA has gotten more people insured, giving them access to primary care doctors so fewer wait for care until they are so sick they need to be hospitalized.

Squelching "rumors"

Brinkley said her company's finances are improving, and she doesn't anticipate more large-scale layoffs any time soon.

"We are sustainable, and we will be sustainable into the future," she said. "We are experiencing some very important growth. ...We are consolidating things. We are building a system."

But company officials have recently had to address what they called "online rumors" about the potential sale of KentuckyOne. A June 30 post on the website Insider Louisville cited anonymous "sources in the Jewish Hospital community... alerting us to a possible deal brewing between CHI and (Nashville-based) Community Health Systems."

"That is absolutely, unequivocally, not true," Brinkley said.

But Terry Boyd, founder and correspondent with Insider Louisville, stood by his post.

Employees were concerned. In an email obtained by The Courier-Journal, Jeff Murphy, vice president for marketing and communications at KentuckyOne, told workers the company "has the full support of CHI as we continue our mission to improve the health of the Commonwealth. Our relationship with CHI is strong and there are no plans to sell KentuckyOne.

"Even though we continue to face challenging times in health care and at KentuckyOne, we are making progress. ... As we continue to make changes and improvements as KentuckyOne, rumors may emerge or questions may be asked. It is important to remain focused on our priorities."

Dr. Damian P. "Pat" Alagia, chief physician executive with KentuckyOne, also addressed his colleagues — in another email message obtained by The Courier-Journal — about the rumors and whether the company will remain viable.

"...We have a strong partner in CHI who sees KentuckyOne as a unique health care organization; one that can make tremendous impact on the health of the people in the Commonwealth," he said, noting the company's "strong foundation of clinical and academic excellence.

"... KYOne will neither be crushed nor will we go away," he wrote. "We will continue to build on those strengths which distinguish us from the others. ... We have the commitment, the resources, the energy and the vision to create something great."

Dunn agreed, saying he's not concerned that KentuckyOne's money troubles will imperil the partnership; instead, he said, investments and improvements at UofL will help the company "grow its way out of this."

But Glascock disagreed. "Fortunately, the partnership has a provision to unwind this deal," she said. "Now is the time for the university and/or the commonwealth to initiate that process and put this behind us — before the level and quality of care at the hospital and education at the medical school suffers any more."

Dunn and Brinkley countered that quality is not suffering; it's improving. Brinkley pointed to several KentuckyOne initiatives, such as Healthy Lifestyle Centers to help patients stay fit and healthy, and Anywhere Care, offering round-the-clock phone or video chats with doctors or nurse practitioners. She said these sorts of efforts, which take advantage of the trend away from sick care, will help cut costs and further shore up KentuckyOne's finances.

"No one expected us to be profitable in the first year. Most mergers take four to five years. ... It's going to take two to three years at least for us," Brinkley said. "We're transforming the very way we deliver health care in this commonwealth, and that's not easy."

Reporter Laura Ungar can be reached at (502)582-7190 or on Twitter @laura_ungar.