The Health Care Foundation of Greater Kansas City has won a $162 million judgment against Hospital Corp. of America, owner of the largest hospital system in the Kansas City area.
Jackson County Circuit Judge John Torrence issued the decision Thursday in a lawsuit that the foundation filed against HCA in 2009.
The lawsuit contended that HCA hadn’t spent what it promised on capital improvements to the former Health Midwest hospitals that HCA bought for $1.13 billion in 2003. The lawsuit further claimed that HCA had not met its charitable health care commitments to help pay for treating indigent people.
The amounts that HCA agreed to spend within certain deadlines were part of the deal transferring the nonprofit Health Midwest hospitals to the for-profit HCA.
HCA representatives have consistently said the company met or surpassed its obligations, and on Thursday they said the company would appeal the decision.
The $162 million judgment represents a shortfall in the promised capital improvements spending, as determined at trial.
But in his decision Thursday, Torrence said HCA’s financial accounting made it impossible to tell whether the company had met its charitable health care commitments. HCA was to provide at least $65.3 million a year in uncompensated, or indigent, care.
Torrence said research presented at the trial revealed accounting discrepancies in HCA Midwest’s annual reports.
“The Annual Reports include multiple instances of double counting, where the same alleged capital expenditures and/or commitments were erroneously recorded twice,” his decision said.
The judge appointed an independent auditor to track what HCA claimed to have spent in the Kansas City area.
The decision was “a huge victory for the uninsured and the underinsured of Kansas City — about 900,000 people, according to the Mid-America Regional Council,” said Michael Blumenthal, of Seyferth, Blumenthal & Harris, one of the lawyers representing the foundation. “The proceeds from this lawsuit will be used by the foundation to help people who need the area’s health care safety net.”
As agreed to by parties to the 2003 sale, the for-profit HCA was to make $450 million in capital improvements to the existing Health Midwest hospitals, which had been nonprofit institutions and needed significant upgrades.
The $162 million judgment includes $112.5 million that HCA used for new construction instead of capital improvements to existing hospitals. The rest — $49.4 million — represents commitments to capital expenditures not proven to have been made.
The judge ruled that HCA had continued to make capital improvements in the existing hospitals that it kept open. But during the period in question it also closed some hospitals and facilities, and spent about $343 million to build two hospitals, Centerpoint and Lee’s Summit medical centers.
“Rather than simply put money into the repair of old facilities, we built two new hospitals, spending hundreds of millions of dollars to ensure this community has high-quality care,” said Susan Kaufmann, spokeswoman for HCA Midwest. “We believe we have complied with our agreement, exceeded our promises, and we continue to spend millions for the benefit of a community we love.”
HCA’s purchase of the Health Midwest hospitals ranked as the largest transfer of nonprofit hospital assets to a for-profit entity in the United States.
HCA had agreed under terms of the sale to spend more than $650 million on charity health care in the Kansas City area, the judge noted in his decision. How far HCA has gone toward meeting that obligation will be scrutinized in the court-ordered audit.
“This decision has incredible implications for adding to the assets available for charity care and for restoring the charity care that I would say was sold out in this transaction,” said Landon Rowland, a Kansas City area business leader who has served on the foundation’s investment committee.
Because Health Midwest hospitals were nonprofit institutions, the net proceeds from the 2003 sale went to two newly created 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 award.
From their asset bases, the foundations make grants to health and social service nonprofits in the metropolitan area. They serve as primary sources of funds for the area’s “safety net” organizations that serve the uninsured and underinsured in the Kansas City area.
The judge’s decision was critical of HCA’s community involvement in connection with its spending.
“At trial, HCA was unable to present any evidence that it consulted with the community boards of Medical Center of Independence, Independence Regional Health Center or Lee’s Summit Hospital before HCA used capital expenditure monies … to close those hospitals and build new hospitals in those communities,” Torrence wrote.
Since it began making grants in 2005, the Health Care Foundation has given more than $160 million to agencies in its service area of Jackson, Cass and Lafayette counties in Missouri, and Johnson, Wyandotte and Allen counties in Kansas.
Health Care Foundation board members said they thought they had a fiduciary duty on behalf of Kansas City area residents to file the lawsuit.
“We look forward to continuing our work eliminating barriers and promoting quality health for the uninsured and underserved in our service area,” said foundation board chairwoman Karen Cox.
Torrence presided over a three-week trial, without a jury, in the fall of 2011.
Shawn Fox, a certified public accountant at RSM McGladrey Inc., was appointed special master to review the HCA books for the court.