Kansas City Health Foundation Could Get $434 Million In Damages From HCA
The Health Care Foundation of Greater Kansas City is looking at a potential windfall that could add hundreds of millions of dollars to its coffers, vastly expanding the pool of money it has to fund and promote community health programs.
Although legal appeals could delay its receipt of the money for several years, the foundation’s long-running lawsuit against local hospital giant HCA Midwest Health is coming to a head. And court documents show HCA is on the hook to the foundation for at least $319 million and possibly as much as $434 million.
By way of comparison, the foundation was established with $400 million when it was created more than a decade ago.
The legal case is complicated, but here’s the background leading up to the possible court judgment:
The foundation, whose mission is to fund community health programs in the Kansas City area, was created with proceeds from the $1.1 billion sale in 2003 of Health Midwest’s hospitals to HCA. Those hospitals included Menorah Medical Center, Overland Park Regional Medical Center and Research Medical Center.
About six years after the sale, the foundation sued HCA over what it said was the company’s failure to fund hospital improvements and charitable care it agreed to in connection with the sale.
Specifically, HCA had pledged to expend $450 million over five years as part of an agreement with then-Missouri Attorney General Jay Nixon, now the state’s governor. Because the deal involved the purchase of non-profit Health Midwest by HCA, a for-profit company, Nixon stepped in to make sure the proceeds were used for a public benefit.
Basically, the dispute between the health care foundation and HCA boils down to two fundamental issues: 1) whether HCA’s construction of new hospitals, as opposed to renovating existing ones, met its $450 million capital outlay obligation; and 2) whether HCA had met its commitment to provide care to non-paying patients.
In 2013, Jackson County Circuit Judge John M. Torrence concluded that HCA had not met its capital commitment and awarded the foundation $162 million. A later forensic accounting found that HCA owed another $78 million on top of that.
Then, earlier this year, HCA settled the charitable-care portion of the lawsuit for $15 million.
Collectively, those figures add up to $255 million. Along with the foundation’s attorneys’ fees and costs of nearly $18 million, that’s a tidy $273 million that HCA owes the foundation.
But that isn’t the end of the matter, and this is where things get dicey.
Torrence in October directed both sides to jointly draft a proposed final judgment for him to sign. There was just one problem: They couldn’t reach agreement on two significant, if somewhat legalistic, issues.
First, HCA insisted the foundation is entitled to only 80 percent of the damages. That’s because two foundations were set up with the proceeds of HCA’s purchase of Health Midwest’s assets in 2003: The Health Care Foundation of Greater Kansas City on the Missouri side and the Reach Healthcare Foundation on the Kansas side. The former got 80 percent of the proceeds, the latter 20 percent.
HCA says that means the Health Care Foundation of Greater Kansas City is entitled to only 80 percent of whatever it’s awarded.
Nonsense, says the foundation: First, HCA never raised this issue in six years of litigation. And second, in 2011, Reach expressly renounced its claims to any recoveries by the health care foundation. (Reach could have joined the lawsuit against HCA but chose not to do so.)
The other major point of contention between the foundation and HCA: HCA says that simple interest rather than compound interest should be accrued on the amounts awarded so far. That seems like a piddling matter, but the difference between the two is significant:
- Simple interest at Missouri’s statutory rate of 9 percent, based on HCA’s assumption that the foundation is only entitled to 80 percent of the amounts, comes to about $106 million.
- Compound interest, based on the foundation’s assumption that it’s entitled to 100 percent of the amounts, comes to about $167 million.
Then there’s the interest on the nearly $18 million in attorneys’ fees charged by the foundation’s lawyers: By the foundation’s calculation, that amounts to $4.8 million; by HCA’s calculation, it comes to $4 million. (And to further complicate matters, those interest figures don’t include the $4.4 million in attorney’s fees incurred by the foundation’s lawyers so far in 2015.)
Bottom line: When added up, the foundation’s figures come to nearly $434 million. HCA’s come to about $319 million. That’s a difference of $115 million.
Torrence has given no indication when he will rule and which side he’s likely to favor – although so far, the foundation has been successful with most of its arguments.
Jennifer Sykes, a spokeswoman for the foundation, said the foundation would issue a statement after Torrence rules but not before then.
But here’s the kicker: Torrence’s ruling won’t spell the end of the case, now more than six years old. HCA has reserved the right to appeal. The company disputes that it reneged on its commitments and further questions whether the foundation had standing to bring the lawsuit in the first place.
In other words: This case is likely to continue for years to come.
Editor’s note: The Health Care Foundation of Greater Kansas City provides funding for Heartland Health Monitor.
Dan Margolies, editor of the Heartland Health Monitor team, is based at KCUR. You can reach him on Twitter @DanMargolies.