KC Health Care Foundation wins legal judgment against HCA

The Health Care Foundation of Greater Kansas City has won a $434 million legal judgment in its long-running dispute with health care giant HCA.

If the ruling stands after HCA’s expected appeal, it will virtually double the size of the foundation’s endowment, turning it into a billion-dollar institution funding local safety net health care clinics, social service organizations and health advocacy groups.

The legal wrangling has gone on for six years and could take two more years to resolve. It all revolves around whether HCA, a large national for-profit hospital chain, fulfilled commitments it made a dozen years ago when it bought the assets of struggling nonprofit Health Midwest, at one time the region’s largest hospital system.

The Health Care Foundation was born out of the sale of those hospitals to HCA and stands to gain if the courts continue to rule that HCA didn’t meet its obligations.

In its final ruling Wednesday, the Jackson County Circuit Court said HCA owes the Health Care Foundation $434 million. The money is due, the court ruled, because HCA didn’t come close to making $450 million in promised capital improvements to the aging hospitals it purchased for $1.13 billion from Health Midwest in 2003.

HCA, whose Kansas City area hospitals include Research Medical Center, Menorah Medical Center and Centerpoint Medical Center, will appeal the ruling to the Missouri Court of Appeals and anticipates a decision by the end of 2016, the company said in a written statement.

“We are disappointed that the (circuit) court has issued this judgment,” said Christine Hamele, HCA Midwest Health spokeswoman. “HCA remains committed to providing the people of Missouri and Kansas with high-quality health care, including in the new state-of-the-art facilities we built in Lee’s Summit and Independence.”

Once the appeals court rules, either side could request a review by the Missouri Supreme Court. If both courts consider the appeals, a final ruling will probably take more than two years, the foundation said in its statement.

“When the (foundation’s) board of directors began this lawsuit, our goal was to determine whether or not HCA had complied with its obligations to the people of greater Kansas City with the Health Midwest purchase,” Kenneth Southwick, the foundation’s board chairman, said in the statement.

“After today’s judgment, we are confident we have met that goal. And while we won’t receive any of these dollars until the appeals process is complete, the foundation remains dedicated to serving the vulnerable people in our service area.”

The Health Care Foundation’s endowment now stands at about $550 million, foundation attorney Paul Seyferth said. Since it began making grants in 2005, the foundation has awarded an average of about $20 million each year in grants.

The court’s judgment has already grown to $436 million because interest on the award accrues at more than $100,000 per day, Seyferth said. If the case continues on appeal for two more years, it will grow to more than $500 million, he said.

Health Midwest was struggling financially and lacked resources to maintain and upgrade its hospitals when HCA bought its assets.

Because Health Midwest hospitals were nonprofit institutions, the net proceeds from the sale went to two new nonprofit foundations: the Health Care Foundation of Greater Kansas City on the Missouri side and the REACH Healthcare Foundation on the Kansas side.

The Health Care Foundation received about $425 million and the REACH foundation about $105 million. The REACH foundation did not participate in the lawsuit and will not receive any of the court award.

At the heart of the six-year legal dispute between the Health Care Foundation and HCA is whether the corporation complied with conditions set when it negotiated its purchase of Health Midwest’s assets. HCA was required to invest $450 million in improvements to the hospitals and provide $65.3 million per year in charity care over 10 years. The Health Care Foundation has argued that HCA met neither of the conditions.

In February, HCA agreed to pay the foundation $15 million to settle the charity care claim but maintained that it had exceeded its charity obligations. The capital improvements claim has proved more contentious.

HCA has argued that the $343 million cost of two new hospitals it built should be counted toward fulfilling its capital improvements requirement; that would have put it above the $450 million threshold. The corporation closed two aging hospitals in Independence and replaced them with the new Centerpoint Medical Center on the outskirts of town. It also opened Lee’s Summit Medical Center to replace the old Lee’s Summit Hospital.

“That’s always been their argument: ‘We cleared the bar, if you factor in the (new) hospitals,’ ” said Seyferth, the foundation’s attorney.

But the Health Care Foundation has countered that only improvements made to the original Health Midwest hospitals should be considered toward fulfillment of the $450 million obligation.

“That’s where the money needed to go,” Seyferth said.

So far, the court has agreed with the Health Care Foundation. In January 2013, the circuit court ruled in favor of the foundation and ordered HCA to pay $162 million. A further accounting raised that to $239 million.

The court judgment Wednesday was reached after HCA and the foundation both exhausted their post-trial motions. The court denied HCA’s motions but granted the foundation’s motion to be awarded interest on its claim. The interest, which started accruing when the lawsuit was filed in October 2009, came to $167 million.

The court also awarded the foundation attorney fees and interest on those fees. That brought the total award to $433.7 million.

This story was originally published December 10, 2015 at 9:49 AM with the headline "KC Health Care Foundation wins legal judgment against HCA."