University of Louisville is buying Jewish Hospital after all, with the help of an unusual $50 million loan to be backed by Ky. taxpayers

By Al Cross Published August 15, 2019 HEALTH BUSINESS

The University of Louisvilleis buying Jewish Hospitaland associated facilities after all, with help from the state and two foundations, to head off a threatened closure of the hospital, which is an important transplant center.

“U of L has searched for months for ways to save Jewish Hospital, which has been losing money for years but is also home to valuable clinical and research programs intertwined with U of L’s academic mission,” reports Grace Schneider of the Louisville Courier Journal.

KentuckyOne Health‘s “parent company, CommonSpirit Health, accelerated efforts by U of L and the state to save Jewish when the company’s executives notified them early this month that they intended to shut down the facility in about two months – and to go public with the plans on Thursday, Aug. 15,” Schneider reports. The school’s trustees endorsed the deal Aug. 14.

U of L said in June that it had failed to find a necessary partner to buy the hospital. Now, instead of a partner, it has a friendly lender – the Commonwealth of Kentucky – and two philanthropic benefactors: a foundation controlled by CommonSpirit, and one created when the hospital was bought by the old Catholic Health Initiatives firm in 2012.

Because the hospital’s main tower is estimated to have a life expectancy of only three years, U of L plans to merge Jewish with nearby University of Louisville Hospital. U of L will also own Sts. Mary and Elizabeth Hospital in south Louisville, Our Lady of Peace psychiatric hospital, Jewish Hospital Shelbyville, “four outpatient centers and a 740-employee medical group,” the CJ reports. “The health system has operating losses of about $43 million a year in earnings before interest, taxes, depreciation and amortization.”

“U of L will pay $10 million for the local KentuckyOne facilities and have CommonSpirit forgive a $19.7 million promissory note,” Schneider reports. “The sellers, which include KentuckyOne and certain affiliates, are expected to provide $76.4 million in ‘net working capital,’ including accounts receivable,” and the purchase price is to be adjusted if that amount is different, the CJ’s Morgan Watkins reports in another story.

The two foundations “have committed a total match of $50 million toward the effort,” Schneider reports. “The state is to loan U of L another $50 million,” through an unusual loan from the Kentucky Economic Development Finance Authority.

The loan will be for 20 years, “with no principal payments or interest accrued for the first five years,” and “is contingent on gaining the after-the-fact authorization for an additional appropriation from the fiscal 2019-20 budget with a bill prefiled at the start of the General Assembly’s 2020 session,” Schneider reports.

The authorization is needed because the loan amount “far exceeds the agency’s maximum of $500,000,” as does the length of the loan, and KEDFA “usually doesn’t provide financing up front,” Schneider reports. “Not all Kentucky lawmakers are on board, despite the insistence of House Speaker David Osborne, R-Prospect, that the plans have gained broad bipartisan support.”

Gov. Matt Bevin “said U of L’s search for an industry partner to help buy KentuckyOne’s facilities led to a dead end because the prospective companies took a ‘buffet’ approach,” Schneider reports. “They wanted to pick and choose properties they’d like to own and leave others, and that wasn’t going to work, the governor said. Bendapudi acknowledged that the university’s board of trustees had similar concerns about taking on a money-losing venture and turning it around.”

However, a combined hospital run as “a true non-profit, not subject to the whims of the markets, should [be] less costly to operate and less pressured to post large profits, she said.”

The combined operation will be huge, and the deal is “fueled by an ambitious vision to create a top-notch academic medical center,” Schneider writes. “KentuckyOne’s payroll is 4,539 employees and there are more than 3,100 working at U of L Hospital, for a total of 7,639. KEDFA listed full-time Kentucky resident jobs for the combined venture at 6,736. That doesn’t include Hoosiers and people from other states who work at the facilities. The state list shows that between the years 2025 and 2039, the combined health system should have at least 5,880 full-time Kentucky resident jobs to meet the wage and payroll requirements.”