Goal for University of Kentucky medical complex: regional powerhouse

University of Kentucky Chandler Hospital and Kentucky Children's Hospital.  Photo by Pablo Alcala | Staff
University of Kentucky Chandler Hospital and Kentucky Children's Hospital. Photo by Pablo Alcala | Staff Lexington Herald-Leader

The $592 million hospital bed tower at the University of Kentucky medical complex now stands tall on the Lexington skyline, but no one is looking at the view from the tower because most of the top floors are empty.

The next stage of construction will cost an additional $264 million over the next five years, requiring a complicated sequence of moving beds from the Kentucky Children's Hospital and the old Chandler Hospital into the new tower, what UK officials call Pavilion A. That will fill most of Pavilion A and leave space to retrofit the Kentucky Children's Hospital next door.

The head of UK HealthCare, Executive Vice President Michael Karpf, has a vision for the entire system that will in the end cost $1 billion and, he says, turn the University of Kentucky's health care system into a regional powerhouse for Kentucky and parts of West Virginia, Ohio and Tennessee.

It's about health care for the future, Karpf says, where larger medical centers will have to provide lots of very specialized, high-end services.

"In the future, only specialized programs will survive," Karpf said. "You have to be a substantially sized program, and Kentucky can only support one. It's an important economic engine, but you need major research infrastructure to have these kinds of regional referral centers. You have to have appropriate facilities to recruit people who do this high-end stuff."

In five years, Pavilion A will be filled, as will a modernized Kentucky Children's Hospital. At the end of 10 years, Karpf estimates, the old Chandler building will be turned into offices. At that point, UK can decide whether it still needs hospital beds at Good Samaritan or whether that space can be redeveloped.

Karpf said that in the next 18 to 36 months, UK HealthCare will try to float bonds for $200 million, then raise $64 million through philanthropy and cash flow.

"In the end, we will have spent $870 million, all financed by UK HealthCare, with no state or federal dollars," Karpf said. "We will still need to spend $160 million to finish out the rest of the stuff."

UK HealthCare's cash flow, however, has had some hiccups. A report of UK's debt capacity revealed that UK HealthCare had borrowed $87 million from UK's cash reserves this year, partly to finish out the new emergency rooms in Pavilion A. In addition, that money was used to fill holes caused by late payments with Kentucky's new Medicaid and Medicare billing system.

UK keeps about $400 million in cash reserves, and any loans will be paid back with interest, officials said. This year, the hospital took in about $900 million in revenues.

"Rather than cash out stock, we decided to have a revolving line of credit (at UK) so we can continue to grow our reserves to get the bond issues," Karpf said.

Nonetheless, the loan shook many people's views of UK HealthCare as an economic powerhouse, and it has exacerbated some tensions between the two sides of campus.

The medical side has hired plenty of new clinical faculty at high salaries, while the academic side, including the College of Medicine, laid off 1 percent of its employees earlier this summer because of budget problems and is bracing for more cuts in the next few months.

"I think some faculty were concerned about the loan the university was able to make recently; on the other hand, others feel the university is getting a good rate of return on it," said Lee Blonder, chairwoman of the UK University Senate Council. "I think some faculty are confused about it."

Ernest Yanarella, former faculty trustee and chairman of the political science department, says that while he understands the medical side has the power to bond money because it can pay it back, the academic side of campus has even more pressing needs.

"I will say of Mike, at least he has a well-articulated vision, yet I do worry about the relative power and influence of the medical center versus the main campus," Yanarella said. "The campus needs a new chem-physics building, and I would say ... a much higher priority is bringing our laboratory infrastructure into the 21st century."

Karpf said he hears much less about disparities on campus than he used to because he thinks there is more collaboration between the two sides. He said revenues from the hospital have helped the College of Medicine and the College of Pharmacy; he's helped raise money for programs and professors in the schools of music and communications.

"People understand that we're not siphoning resources, we bring resources," he said. "We've gotten much more efficient, and the university is under (UK President Eli) Capilouto, who is also getting ready to rebuild the infrastructure to allow the university to grow.

"I think Capilouto is essentially doing what I did here, saying 'I have to rebuild the infrastructure to be something special.' When that happens, people will feel better about what's happening on main campus."

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