UK HealthCare plans to operate and manage the newly built Eastern State Hospital under a proposed $43 million contract with the Kentucky Cabinet for Health and Family Services, Gov. Steve Beshear announced Friday.
The University of Kentucky and the state have signed a letter of intent, but details of the agreement must be worked out in the months before the new campus opens, cabinet Secretary Audrey Tayse Haynes said.
The Bluegrass Regional Mental Health-Mental Retardation Board has operated Eastern State Hospital since 1995. Beshear said the state and UK intend for Bluegrass Regional to remain an "integral part" of the new hospital, and would help with the transition, but he provided no details.
David Hanna, interim executive director of Bluegrass Regional, said the agency is "fully committed to working with UK and the cabinet."
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The new $129 million Eastern State Hospital, scheduled to open this summer at UK's Coldstream Research Campus off Newtown Pike, will have 239 beds, a new neuro-behavioral unit for patients with acquired brain injuries, and a long-term-care unit. The hospital provides inpatient psychiatric treatment and acute inpatient behavioral health treatment.
In addition to the hospital, the new campus includes three personal-care homes, each 11,000 square feet and with the capacity to serve 16 people.
The new campus will replace the pre-Civil War-era Eastern State Hospital, the second-oldest psychiatric hospital in the country. That property, at Newtown Pike and Fourth Street, is being reconfigured as a new campus for the Bluegrass Community and Technical College.
Beshear said the new partnership would put Kentucky at the forefront of mental health care because of the clinical expertise that UK brings in neuroscience, psychiatry, pharmacy, nursing and social work.
"This model of an academic medical center partnering with state government to operate a psychiatric hospital is occurring with increasing success in this country," Beshear said. "It represents a new national approach to care that formally integrates behavioral health with physical health, an integration that is more cost-effective and leads to better outcomes."
UK President Eli Capilouto said the partnership would further UK's goal of working with local health providers across the state to improve the lives of Kentuckians.
"Alone, no provider and no payer can ensure the precious renewal of health and hope," Capilouto said. "Our work together ... will help both."
Michael Karpf, UK's executive vice president of health affairs, said Friday that he expects to bring some employees from UK, but he also plans to keep many current Eastern State employees.
Haynes said the state's new contract with UK would probably be for one year, and that in the future, she plans on those contracts being paired with Kentucky's two-year budgets.
"This is going to be a really first-class facility for Kentucky," she said.
In the letter of intent, UK has agreed to meet certain performance standards that would improve the treatment of hospitalized patients and increase the number of people who return to community living after leaving the hospital.
Beshear said talks between the state and UK began before the Lexington Herald-Leader reported in June 2012 on questionable spending at Bluegrass Mental Health. Those reports led to a state audit of Bluegrass Regional. The audit found lax board oversight and lavish spending on executives while front-line workers went without pay raises.
For example, Bluegrass Regional has given more than $2.8 million in executive benefit contributions to its chief executive officer and other top executives since 1997, at the sole discretion of the CEO.
Former Bluegrass Regional CEO Shannon Ware retired at the end of 2012 after four years at the helm. Ware's predecessor as CEO, Joseph Toy, is her husband, and he remained on the Bluegrass Regional payroll through June 2012 as a paid consultant.
The state's most recent contract with Bluegrass Regional to operate Eastern State Hospital was for $37.6 million. Bluegrass Regional officials, whose corporate headquarters are a stone's throw from the new hospital, lobbied the cabinet heavily to renew the contract.
State Rep. Jimmy Lee, D-Elizabethtown, who has been integrally involved with the new hospital, said state officials thought Bluegrass Regional needed help because of the expanded services offered by the hospital.
On Thursday, Bluegrass Regional announced that it would eliminate 60 positions, half of which are filled, but that the layoffs were not related to its Eastern State Hospital contract. The move was aimed at solving an operating deficit of $6 million to $7 million.
In 2012, the state paid Bluegrass Regional $156 million to provide community mental health care, which is the bulk of the non-profit's work, and to manage Eastern State Hospital and Bluegrass Oakwood, a home in Somerset for the mentally disabled.