Court agreement adds $77 million to HCA obligations in Health Midwest deal

04/30/2014 11:43 AM

04/30/2014 9:30 PM

Another $77 million has been added to a previous $162 million judgment against Hospital Corp. of America related to its 2003 purchase of the former Health Midwest hospitals in the Kansas City area.

HCA, in its $1.13 billion purchase of Research Medical Center, Menorah Medical Center, Overland Park Regional Medical Center and other former Health Midwest institutions in the region, had promised to spend $450 million above the purchase price on improvements to the hospitals.

The deal included capital spending obligations from 2003 to 2008 to upgrade the hospitals, which had been nonprofit entities. At the time, the deal was ranked as the nation’s largest transfer of nonprofit hospital assets to a for-profit company.

In 2009 the Health Care Foundation of Greater Kansas City sued HCA, alleging the corporation had failed to meet its obligations to spend the promised amounts.

A three-week, non-jury trial was held in 2011, and in January 2013, Jackson County Circuit Court Judge John Torrence ruled that HCA had fallen $162 million short of its promised spending.

HCA had argued that it had spent more than required, given its $343 million in new construction of Centerpoint and Lee’s Summit medical centers. But the 2013 order ruled that HCA could take credit only for money spent to upgrade the existing facilities bought from Health Midwest.

The judge in 2013 also appointed a special master, a certified public accountant, to review accounting procedures to determine HCA’s actual spending, saying financial records weren’t clear.

That review determined that $77 million should be added to the HCA shortfall, bringing the total to $239 million. On Tuesday, lawyers representing HCA and the foundation agreed on the total shortfall in a stipulation signed by the lawyers and Torrence.

According to the stipulation, HCA and other parties to the lawsuit maintain the right to appeal. None of the shortfall amount has been paid. Meanwhile, the shortfall amount is accruing interest at 9 percent a year, according to the agreement.

Tom Kokoruda, one of three attorneys at Polsinelli on a team representing HCA, referred questions to HCA, which said the stipulation doesn’t change the company’s position that it “met and exceeded” its obligations to the Kansas City area.

The parties “have agreed, for purposes of this stage of the litigation, that there has been a shortfall, based on criteria established in a Kansas City judge’s ruling last year. We intend to appeal that ruling,” said a statement provided by Ashlee Peterson, vice president of marketing and public relations for HCA MidAmerica Division.

Paul Seyferth, one of four attorneys at Seyferth, Blumenthal & Harris who represented the health care foundation, said the stipulation “speaks for itself.”

The health care foundation pursued the case as one of two nonprofit foundations created to receive the proceeds from the HCA sale because the former Health Midwest hospitals were nonprofit institutions. The Health Care Foundation of Greater Kansas City was created on the Missouri side of the state line, and the Reach Healthcare Foundation was set up on the Kansas side.

The foundations use the money from the sale to make grants to health and social service nonprofits in the metropolitan area that provide “safety net” services to uninsured and underinsured people.

The Reach foundation did not participate in the litigation.

The 2003 sale also involved an HCA commitment to provide at least $65.3 million a year in uncompensated charity care. Litigation on the question of a shortfall in charity care spending is set for court consideration in July.

In his ruling last year, Torrence said it was impossible to tell whether the charitable commitments had been met.

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