Appeals Court Cuts Award To Health Care Foundation From $434M To $188M

Jan 17, 2017

This story was updated at 2:41 to include comments from the Health Care Foundation and HCA.

An appeals court has cut by more than half the $434 million in damages awarded to the Health Care Foundation of Greater Kansas City in its breach-of-contract lawsuit against hospital giant HCA.

In a long-anticipated decision, the Missouri Court of Appeals in Kansas City on Tuesday reduced the judgment to $188 million, finding a capital expenditures commitment HCA made when it acquired the assets of Health Midwest 14 years ago was partly met by HCA’s construction of new hospitals in Independence and Lee’s Summit.  

The decision is a partial victory for both sides: HCA is now on the hook for substantially less than it was before Tuesday, but the Health Care Foundation still stands to reap a substantial reward.

If the award stands, it will represent about a third of the foundation's current $525 million in assets. The foundation uses the money to make grants in the areas of mental, physical and population health. 

In a phone interview Tuesday afternoon, Health Care Foundation President and CEO Bridget McCandless said the foundation was pleased that the appeals court found in its favor for $188 million.

"That certainly gives us more assets to be able to advance our mission to serve the underserved and the uninsured," she said.

McCandless, a physician, said the foundation's board had yet to decide whether to appeal to the Missouri Supreme Court. But she said it would "certainly begin preparations for how we invest those dollars and use them to support the mission of the foundation."

In a statement, HCA said, "We are pleased the Missouri Court of Appeals held 'it is uncontested' that we 'spent in excess of $450 million during the five-year term following closing. . .,' living up to our agreement to do so.  Regarding the remainder of the ruling, we are considering our options."

The hotly disputed case centered on HCA’s pledge to spend $450 million in capital improvements after it bought Health Midwest’s area hospitals in 2003 for $1.125 billion. Those hospitals included Menorah Medical Center, Overland Park Regional Medical Center and Research Medical Center.

The foundation sued over what it said was HCA’s failure to expend $450 million over five years as part of an agreement with then-Missouri Attorney General Jay Nixon. Nixon got involved because the deal involved the purchase of non-profit Health Midwest by HCA, a for-profit company, and the attorney general oversees all charitable institutions in the state. The agreement Nixon negotiated was intended to ensure that the proceeds were used for a public benefit.

The Health Care Foundation of Greater Kansas City in Missouri and the Reach Foundation in Kansas were created with proceeds of the sale. The former got 80 percent of the sale proceeds and the latter 20 percent.

In its lawsuit against HCA, the Health Care Foundation of Greater Kansas City (the Reach Foundation opted not to sue) claimed that HCA’s capital expenditures commitment was intended to cover only existing facilities and that HCA had breached its pledge. HCA argued that it met its commitment by constructing new facilities, specifically Lee’s Summit Hospital and Centerpoint Hospital in Independence.

In December 2015, Jackson County Circuit Judge John Torrence agreed with the foundation’s interpretation of the capital expenditures clause. He found HCA liable for $239.4 million over its failure to fund promised hospital improvements; $167.1 million in prejudgment interest; and more than $27 million in legal fees and expenses.

HCA appealed, and in its decision Tuesday the Missouri Court of Appeals ruled that Torrence erred in not crediting HCA for its expenditures on the Lee’s Summit and Independence hospitals.

“We agree that the term ‘capital expenditure’ in unambiguous and includes new construction,” a three-judge panel of the appeals court ruled.

The court, however, found that HCA had failed to satisfy commitments to make the expenditures within five years of its purchase and let stand $165.7 million of Torrance’s award, as well as legal fees of $22.3 million.

Further reducing Torrance’s judgment, the appeals court struck down the award to the foundation of prejudgment interest. It did allow Torrance’s award of post-judgment interest to stand, but calculated it as simple interest rather than compounded annually, as Torrance had decreed.

Editor’s note: The Health Care Foundation of Greater Kansas City provides funding for KCUR’s health reporting.

Dan Margolies is KCUR’s health editor. You can reach him on Twitter @DanMargolies.