KentuckyOne Health CEO Chuck Neumann told employees that the health system “is not planning for the closure of Jewish Hospital” after Insider reported Friday that the deal to save the hospital is in trouble, and some parties are preparing for the facility’s closure.
“As I have said before, the only source of factual information is from those of us involved in the actual discussions,” Neumann told employees Friday afternoon. “Let me start by clarifying one important point: We are not planning for the closure of Jewish Hospital.”
The latter part of the statement, which the health system shared online Monday, was printed in bold.
Jewish Hospital, a 462-bed facility in downtown Louisville that provides services primarily to the poor and elderly, has been for sale since May 2017, along with other Louisville assets owned by KentuckyOne. The system in December entered exclusive negotiations with BlueMountain Capital Management, a New York-based hedge fund.
In a talking points memo that was updated Sunday, KentuckyOne acknowledged that “our timeline for completion of this process is extending past our initial, and even revised goals.”
However, it said the transaction “is extremely complex and in many ways unique within the industry. There are many stakeholders at the table and a commitment to successfully completing this transaction in a way that guides the future of care in a positive way.”
Beyond BlueMountain and KentuckyOne, those stakeholders include KentuckyOne’s parent, Denver-based Catholic Health Initiatives; the University of Louisville, whose medical students conduct some of their training at KentuckyOne’s facilities; and the University of Louisville Physician, whose doctors staff and work at some of those facilities.
Neumann said that BlueMountain and KentuckyOne “remain active in discussions, and we hope to reach an agreement soon.” The parties are meeting weekly, if not more frequently, he said.
Jewish Hospital, opened in 1905, develops “leading-edge advancements in hand and microsurgery, heart and lung care, orthopedics and sports medicine, neuroscience, organ transplantation and outpatient care,” according to KentuckyOne. It performed the world’s first successful hand transplant, and its transplant program “is strong and growing,” having performed “more kidney transplants in September than any previous month in the program’s history.”
In the statement to employees, Neumann said, “Our purpose when we began the evaluation of potential buyers was to ensure the ongoing legacy, excellence and stability of the Louisville operations.”
However, Neumann on Friday also acknowledged that the system was working on contingency plans that were “still in development, and will continue to evolve.”
Closure ‘has to be’ a contingency
Four sources told Insider last week that the deal is in trouble and that some of the affected parties were preparing for Jewish Hospital’s closure. Some of the sources asked to remain anonymous as they would be directly affected by the outcome of the negotiations.
Dr. Peter Hasselbacher, emeritus professor of medicine at the University of Louisville, told Insider Monday that Neumann’s statement did not allay his fears regarding the hospital’s fate.
“It appears to me that closing the hospital is one of the possible contingencies that Mr. Neuman talks about. It has to be,” Hasselbacher said in an email. “Closing the hospital, therefore, remains a distinct possibility, as disappointing as that would be. KentuckyOne/CHI does not have a strong negotiating position.”
That’s primarily because Jewish Hospital is losing money: Jewish and Sts. Mary & Elizabeth hospitals through the first nine months of fiscal 2018 were incurring operating losses of more than $1 million per week — before structuring, impairment and other losses, according to CHI.
That means that the longer negotiations take, the more money KentuckyOne loses, putting ever greater pressure on the system to shed Jewish Hospital and the other Louisville assets. If the deal with BlueMountain fell through, it would weaken the system’s position further. Negotiations with a new partner would take even more time, which would mean more losses for KentuckyOne and even more pressure to accede to the potential acquirer’s demands.
Even if a sale goes through, Hasselbacher said, BlueMountain’s track record on keeping health care facilities open is, at best, mixed.
In 2015, a company owned by BlueMountain took over management of a nonprofit California hospital system, pledging hundred of millions in investments, but the nonprofit filed for bankruptcy in August — though BlueMountain had sold the management company in July of last year.
“Blue Mountain and friends promised to keep the six California hospitals open, but that did not happen,” Hasselbacher said. “I do not have a feel for what (they) hope to get out of a purchase of Louisville assets, but their goals may or not be concordant with the best long-term interests of Louisville or my medical school.
“Going out of business three years from now is any hardly better than going out of business now,” Hasselbacher continued. “One cannot help but to feel sympathy for the employees, patients, and professionals facing such an uncertain future.”
Hasslebacher and other sources interviewed by Insider have voiced concerns particularly about where the hospital’s current patients would get care. The majority of the hospital’s patients are on government insurance programs, and some of them likely would struggle to find a place for care if Jewish Hospital closed or stopped taking patients with acute care needs.
Hasselbacher said he still hopes that the university can “take control of at least some of the Jewish Hospital functions.”
KentuckyOne, meanwhile, wrote in its memo that next steps in the second half of this year, include continued exclusive negotiations with BlueMountain and that it “remains confident in (their) successful completion.”
“The concerns and questions from employees, physicians and members of the community are valid, they are acknowledged, and we will do all that we can to address them and provide specific updates as they are available,” the memo said. “We will provide an update on anticipated timing for completion of the transaction as soon as possible and maintain communication of important milestones as they are met.”
CORRECTION: This post was updated to correct information about BlueMountain’s involvement in the California hospital system transaction.