UNIVERSITY OF CINCINNATI JUNE 30, 2008
Hospital revenues and expenditures are recorded by the Alliance. The University has reported its pro rata share
($14,149,000 and $50,658,000 for the years ended June 30, 2008 and 2007, respectively) of the Alliance’s
increase in unrestricted net assets as part of the change in the fair value of investments as included in the
accompanying financial statements.
The University provides various shared services, consisting mainly of security and various administrative
services, to the Alliance for which the University is reimbursed on a cost basis. The total cost of these services
for the years ended June 30, 2008 and 2007 were approximately $4,810,000 and $4,695,000, respectively.
In response to The Christ Hospital’s expressed intent to withdraw from the Alliance, the Alliance initiated
litigation (The Health Alliance of Greater Cincinnati v. The Christ Hospital, et al. (Case No. A0601969)) on
March 1, 2006 in the Court of Common Pleas of Hamilton County, Ohio (the “Court of Common Pleas”) to
obtain a declaratory judgment that there were no circumstances that would permit The Christ Hospital to
withdraw from the Alliance. St. Luke Hospital joined the suit as a defendant in order to obtain an adjudication of
whether it was permitted to withdraw from the Alliance. On April 16, 2007, the Court of Common Pleas made a
post-trial entry following a bench trial that The Christ Hospital and St. Luke Hospital had the right to terminate
the contractual relationship with the Alliance. The Alliance appealed from the trial court’s judgment. On
September 30, 2008 the Ohio First District Court of Appeals sustained the judgment of Judge Nelson.
In the final judgment entry on June 13, 2007, the Common Pleas Court denied the request of The Christ
Hospital and St. Luke Hospital to dissolve the Alliance and ordered an accounting for the purpose of
determining, among other things, the value of the respective interests of The Christ Hospital and St. Luke
Hospital under the Joint Operating Agreement in anticipation of their departure from the Alliance. In addition, on
July 31, 2007, The Christ Hospital and St. Luke Hospital filed an action in the Court of Common Pleas seeking
to dissolve the Alliance and asking that a receiver be appointed to oversee the break-up. On February 19,
2008, the Court granted summary judgment to the Alliance holding that the Alliance was not required to
dissolve. The Christ Hospital and St. Luke Hospital subsequently amended the complaint and are now seeking
damages in the amount they otherwise would have received in dissolution in lieu of actual dissolution.
The effect of the denial of the appeal on the University is difficult to ascertain with certainty. Under the Joint
Operating Agreement, the possibility exists that the Alliance will be required to pay certain amounts to the
departing members or that such departing members may be required to make payments to the Alliance. The
report of an independent consultant ordered by the Court of Common Pleas indicates that payments by the
Alliance to at least one departing member would be required. The Court of Common Pleas has not made any
further rulings with respect to the report.
In early September 2008, St. Luke Hospital and the Alliance reached an agreement in principal to allow St. Luke
Hospital to withdraw from the Alliance and dismiss all pending action by St. Luke Hospital against the Alliance
and remaining Participating Entities. On September 23, 2008, the University of Cincinnati received approval
from its Board of Trustees for delegation of authority to approve final separation agreements for the termination
of St. Luke Hospital in The Health Alliance and to approve amendments to the Joint Operating Agreement to
reflect the departure of St. Luke Hospital as a participating entity. St. Luke Hospital had a 12.8% share in the
Alliance.
A trial date of January 20, 2009 has been set to address The Christ Hospital’s claim for damage in lieu of
dissolving the Health Alliance. Meanwhile, a mediator has been assigned to the case.
In addition, a number of factors may result in a diminution of the demand for services by the Alliance and its
remaining members, including the University, and may result in a reduction of clinical training opportunities for
students in the University’s College of Medicine. Pursuant to the Operating and Affiliation Agreement between
the Alliance and the University dated January 25, 2006, the Alliance provides financial support to the University
for academic programs that directly or indirectly support patient care at the University Hospital or the Alliance.
The Alliance also pays the University an annual education and research payment that must be used exclusively
for Academic Health Center purposes. The total of these payments for the years ended June 30, 2008 and
2007 were $9,084,000 and $9,038,000, respectively. Currently, the University is unable to determine whether
and to what extent, if any, the receipt of such amounts in the future could be materially and adversely affected.
The ultimate result of the current litigation, as well as the financial and operational effects thereof on the
University, is extremely difficult to quantify or assess until such litigation is resolved. Accordingly, no amounts
have been reflected in the accompanying financial statements for this litigation.