Acquisition Update

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UofL to assume KentuckyOne Louisville assets

In an effort to prevent the closure of struggling Jewish Hospital and other vital Louisville-area medical facilities, the University of Louisville has reached an agreement to assume KentuckyOne Health’s Louisville-area assets.

UofL will pay $10 million to acquire the assets from KentuckyOne’s parent company, CommonSpirit Health. As part of the agreement, CommonSpirit will forgive $19.7 million in outstanding promissory notes from University Medical Center Inc. UofL will receive more than $76 million of working capital in the form of accounts receivable and cash to meet future operating expenses.

The purchase includes:

•    Jewish Hospital, including the Outpatient Center, Rudd Heart and Lung Center, offices and parking garages 
•    Frazier Rehab Institute 
•    Sts. Mary & Elizabeth Hospital 
•    Our Lady of Peace hospital
•    Jewish Hospital Shelbyville 
•    Jewish Medical Centers East, Northeast, South and Southwest
•    Physician groups affiliated with KentuckyOne

“These medical facilities and the thousands of professionals who work there have for decades provided high quality medical care to patients throughout our community and beyond,” said UofL President Neeli Bendapudi. “We are proud to protect that legacy and to ensure the continuation of that care as we acquire and enhance these facilities.”

To help secure the purchase, Kentucky Gov. Matt Bevin and Economic Development Cabinet Secretary Vivek Sarin have pledged support for a $50 million, 20-year loan, half of which will be forgiven if the university meets certain criteria in areas of employment or service to currently underserved areas of the community and commonwealth. Kentucky Senate President Robert Stivers and Speaker of the House David Osborne also expressed support for the loan.

“We are grateful to the University of Louisville, CommonSpirit Health, and our legislative leadership for their joint efforts to preserve healthcare programs, services and jobs that are vital to the University of Louisville, the UofL Medical School, Metro Louisville, and the entire Commonwealth,” said Gov. Bevin. 

“UofL’s acquisition of the KentuckyOne facilities will maintain more than 5,000 jobs in the healthcare sector and ensure that our healthcare delivery system in Metro Louisville is preserved,” Bevin added. “I am confident that this acquisition will further the incredible medical research occurring at these facilities, while simultaneously meeting the growing demand for quality, cutting-edge healthcare services.” 

Two local foundations, the Jewish Heritage Fund for Excellence and the Jewish Hospital and St. Mary’s Healthcare Foundation, also are investing in the future of the facilities, contributing $10 million and $40 million, to be paid over four years, respectively.

The outside investment is vital to the agreement, as it helps offset the significant financial risk such a purchase poses to the university, Bendapudi said. While acknowledging the risk, she stressed the upside of the acquisitions, noting that the additional medical facilities will strengthen UofL’s academic medical center, providing more opportunity for residents and students at the university’s Health Sciences Center. The additional facilities and resources also will provide venues in which to conduct leading-edge research and entice more clinical trials, external funding and renowned faculty to the university.

“This has been an arduous process, and it took an outstanding team and hard work to get us to this point,” Bendapudi said. “I want to thank our governmental leaders, our trustees, the foundations and, of course, our team.” 

Approved by the UofL Board of Trustees at its meeting this morning, the sale is expected to close Nov. 1, pending regulatory approvals and the consent of the Catholic Church, which must approve the sale of Sts. Mary & Elizabeth and Our Lady of Peace. As part of the agreement, the facilities will be branded under the UofL Health umbrella.
UofL will assume management of the facilities upon closing.
 

View the executive summary

 

1.    Q: What is UofL Health?

A: UofL Health is currently under development and will be the managing entity of UofL Hospital, UofL Physicians and the acquired KentuckyOne assets. The University of Louisville is acquiring KentuckyOne but will assign the assets to UofL Health after it is developed and approved by the Board. As the CEO of UofL Health, Tom Miller and the UofL Health executive team will led the integration of the KentuckyOne assets under the mission and vision of the new organization.

2.    Q: What is the purchase price? Which KentuckyOne assets will be included?

A: UofL is acquiring the following assets: Jewish Hospital (including Rudd Heart and Lung Center, Outpatient Care Center and two parking garages); Frazier Rehab and Neuroscience Center; Sts. Mary and Elizabeth Hospital; Jewish Hospital Shelbyville; Our Lady of Peace hospital; Medical Centers Jewish East, Northeast, South and Southwest; and the KentuckyOne Medical Group. The purchase price is $10 million. In addition, CommonSpirit Health, parent company of KentuckyOne, will cancel two notes amounting to $19.7 million.

3.    Q: Why now? What happened since the deal was called off earlier this year?

A: The Commonwealth of Kentucky and private foundations stepped up to help with the acquisition. Kentucky officials have pledged a $50 million loan, half of which will be forgivable if the facilities meet certain criteria. The Jewish Heritage Fund for Excellence is contributing $10 million, and the Jewish Hospital and St. Mary’s Foundation is contributing $40 million over four years.

4.    Q: Are there any other financial considerations?

A: CommonSpirit will provide about $76 million in net working capital/accounts receivable. This will provide needed start-up capital for the new organization.

5.    Q: When do you anticipate closing the transaction?

A: We plan to close on the transaction on Nov. 1, 2019, and UofL Health will assume operations immediately. 

6.    Q: KentuckyOne Health is losing millions of dollars a year; how can UofL and UofL Health afford to take on these assets?

A: UofL and UofL Health leadership have spent thousands of hours analyzing the opportunity to transition operations and firmly believe that it will offer UofL Health the opportunity to broaden the referral network, increase overall market share, secure critical programs offered at our facilities and allow the opportunity to become a true competitor in the Kentuckiana region. We have a well-thought-out plan to increase quality, broaden services and stabilize the bottom line at the facilities.

7.    Q: Will any of the KentuckyOne Health assets be sold or closed?

A: There are no plans to close facilities or reduce services at this time.

8.    Q: How will this transaction change the benefits for KentuckyOne employees? Will longevity be recognized?

A: KentuckyOne Health employee benefits will continue through this calendar year. They will join UofL Health employees on 2020 annual enrollment and transition to UofL Health employee benefits for 2020. Employee longevity will be recognized.

9.    Q: Do you anticipate any employee reductions or expansion of clinical staff as a result of this transaction for current UofL Hospital, UofL Brown Cancer Center, UofL Physicians or KentuckyOne?

A: Throughout the UofL Health system, we anticipate no overall reductions in staff. Indeed, we do anticipate an increase in our clinical staff.

10.    Q: Will physicians become part of the UofL faculty?

A: Transition of physicians in the new structure of care continues to be developed. Updates and information will be shared with physicians as it becomes available.

11.    Q: What will be the name of the new organization? How will facilities be renamed?

A: The KentuckyOne operations will be branded under the UofL Health brand. Marketing and Communications will be working with the leadership at each facility to develop the name of the facility and how the brand will be incorporated.

12.    Q: Will the organization remain non-profit?

A: Yes, UofL Health is and will remain a not for profit, 501(c)(3) organization.

13.    Q: How will Ethical and Religious Directives be managed going forward? Will the Catholic facilities retain their names?

A: The Archdiocese of Louisville and UofL Health jointly decided that the facilities will no longer follow the Ethical and Religious Directives of CommonSpirit and the Catholic Church. Because the hospitals will not be following the directives of the Catholic Church, we are required to remove the religious aspects from the names of Our Lady of Peace and Sts. Mary & Elizabeth. We are working with our leadership team and others to develop names for those hospitals. The hospitals have a rich culture and a time-honored heritage associated with many Catholic traditions. UofL Health is committed to honor this rich history and to support the hospitals, their employees, physicians and community in keeping the traditions that make them unique and special. We have formed a culture work group to help ensure that each facility will maintain the traditions they cherish and celebrate the heritage of each individual hospital.

14.    Q: Will Jewish Hospital retain its name and commitment to health care in the Jewish faith traditions?

A: Because Jewish Hospital will be aligned with UofL Hospital, sharing management staff and a joint strategic vision, we are anticipating a change in the name of Jewish Hospital. Since 1905, the Jewish Hospital name has stood for excellence in health care. Working in collaboration with Jewish Heritage Fund for Excellence we will develop a new name to honor this rich history and reflect the new alignment. Any new name change will be announced before the final transition. While the hospital has not been managed by the Jewish faith, UofL Health will honor the traditions and culture of Jewish Hospital. (updated 10-24-19)

15.    Q: Do you anticipate any reduction or change in services available to the community at these facilities?

A: We do not anticipate any changes or reduction in services.

16.    Q: Will CommonSpirit continue to provide any operational services for these facilities?

A: We anticipate that some operational and IT services will be contracted with CommonSpirit for continuity of care until UofL Health can incorporate those services into existing infrastructure.

17.    Q: Who is responsible for maintaining communication with employees, patients and the community?

A: UofL Health and KentuckyOne will work together to ensure that all affected parties receive timely and transparent updates. If you have any questions, please email UofLHealth@ulp.org

UofL Family, 

Neeli BendapudiToday is a historic day for the University of Louisville. In an effort to preserve and enhance health care in our community, UofL has agreed to purchase the Louisville-area assets of KentuckyOne Health (KOH), including the struggling Jewish Hospital. The acquisition of these assets will enable us to grow our academic medical center, providing many new opportunities for our students and faculty and potentially attracting new funding, research and clinical trials to the community. Additionally, we will be able to serve thousands of patients, our neighbors, from Louisville and across the commonwealth who otherwise would not have access to the care they desperately need.

What are the terms of the deal?
Here are the highlights.  UofL will acquire all the Louisville-based assets of KentuckyOne Health (Jewish Hospital, Frazier Rehab, Sts. Mary and Elizabeth Hospital, Our Lady of Peace, Jewish Hospital Shelbyville, Medical Centers Jewish East, Northeast, South, and Southwest as well as all the KentuckyOne Health physician practices, and two parking garages) from KOH parent company CommonSpirit Health (CSH).  We will pay $10 million for these assets.  In return, CSH will forgive UofL debt of $19.7 million.  We also will receive estimated net working capital of $76.4 million from CSH.  This will provide some of the critical start-up working capital needed to transition and turn around this struggling system.  We will close the deal on Nov. 1, 2019.  

Didn’t we walk away from the deal? What changed?
As you know, we tried, unsuccessfully, to find a partner to help us with this purchase and in mid-June we announced we were walking away from the deal. Over the past couple of weeks, we learned that the sale of KOH assets in Louisville and the closure of Jewish Hospital were imminent. We decided that these assets are simply too important to the university and the community to not act. 

BUT, without partners we could not step in to help, no matter how great the need. Our board and our leadership team were always firm on this stance. We are fortunate that the leadership of the state recognized the dire situation and stepped up to assist us.  To help mitigate the significant financial risk, we sought support from the Governor and the General Assembly. Gov. Bevin and Economic Development Cabinet Secretary Vivek Sarin have committed to a $50 million, 20-year loan to UofL. These funds must be authorized by the General Assembly, and I am deeply grateful that Senate President Robert Stivers and House Speaker David Osborne have committed to filing an emergency resolution in the 2020 session. 

In a true expression of the importance of these vital health care assets to our Louisville community, I have been thankful for the bipartisan support for these steps. House Minority Floor Leader Rocky Adkins, Caucus Chair Derrick Graham and Minority Whip Joni Jenkins as well as Attorney General Andy Beshear have all expressed their strong support and advocacy for this deal.

The loan from the state is a 2-1 match, meaning we needed private support of at least $25 million. I am so grateful that two outstanding community foundations, the Jewish Heritage Fund for Excellence and the Jewish Hospital and St. Mary’s Healthcare Foundation have stepped in to provide this support.  JHFE has committed to a $10 million gift and, as part of the KOH deal, the JHSMH Foundation will provide $40 million ($10 million a year for four years). 

Additionally, Mayor Greg Fisher and Metro Council President David James have begun to investigate opportunities for the city to contribute to the success of this endeavor for the benefit of the community.  

These partnerships now give me and my team the confidence that we can successfully take on this important work.

How does this benefit the university?
The financial success of our academic medical center, and particularly of our research enterprise, rely, at least in part, on substantial funding provided by University of Louisville Hospital. When successful, these additional facilities will provide even more financial support for our academic mission.

This expansion of our health care enterprise will allow us to expand and improve our educational opportunities. It secures our resident positions in Jewish Hospital and provides the opportunity to expand residency opportunities for more students in more practices areas in the facilities we acquire.

We also have several important research activities in Jewish Hospital that we can now expand to elevate the UofL research enterprise. I am truly excited about our future opportunities to leverage these assets to increase our impact in the city and commonwealth.

How does this benefit the community?
Across the enterprise, KOH employs more than 5,500 employees with a payroll of more than $300 million. Each calendar year, the KOH system sees nearly 2 million patients, with Jewish Hospital representing the lion’s share of these visits. These jobs are important to the economic health of our city and the commonwealth.

Perhaps the most important benefit to the community is the security that the care provided in these facilities by these physicians will continue without interruption. The closure of Jewish Hospital would have had a devastating impact on the health care of our citizens that in many cases could have led to the loss of life. I am thankful to our current and soon-to-be UofL physicians and staff for their continued support and their work in maintaining and improving the health of our community.

What can you do to help?
This acquisition is only the first step. Over the next several months and years, I need your help to ensure we are successful in integrating our work with our new partners. We are counting on you to make all the employees of KOH that will become UofL employees after the first of the year feel welcome and a critical part of the UofL missions of quality patient care, teaching, research and service.  

I need your help in recognizing the amazing contributions of our partners, because we truly could not have done this alone. Whenever the opportunity presents itself, please be sure to thank the Kentucky General Assembly, Gov. Bevin, Attorney General Beshear and our many state and local officials that have played and will continue to play critical roles in the success of the new UofL Health enterprise.

Additionally, please take an opportunity to thank members of the boards of the Jewish Heritage Fund for Excellence and the Jewish Hospital and St. Mary’s Healthcare Foundation. I am personally incredibly grateful, and I hope you will join me in sharing my deepest thanks to these dedicated community leaders.
Our leaders need your support now more than ever. The leadership of the School of Medicine and UofL Health will today begin the herculean task of leading the transition, turnaround and success of this combined $1.5 billion academic health care enterprise. I am thankful to have a team that I am truly confident in at the university and at the hospital. I know that with their leadership and your commitment we can and we will be successful in our efforts.

I am confident that under the guidance of Tom Miller and his team at UofL Health, we have the expertise to turn around this struggling system. Tom has led an impressive resurgence at UofL Hospital, improving its financial standing by more than $90 million in less than a year. As you know, he has significant experience leading multiple major hospital networks.

I hope you share my excitement about the possibilities around the acquisition of these assets, and I look forward to sharing more information with you as we welcome the more than 5,500 local KentuckyOne employees to our UofL family.

Go Cards!

Neeli