Kansas City, Mo ? Atty. Gen. Jay Nixon reached an agreement with Health Midwest on Wednesday allowing the sale of the nonprofit hospital system to HCA Inc., but the deal was criticized by Kansas officials.

The agreement between the hospital system and Nixon calls for the creation of a single foundation that would distribute the expected $700 million in sale proceeds to charities.

Of the initial 25 foundation board members, six would be from Kansas. The deal also guarantees at least 10 percent of the funds would benefit Kansas residents.

“Today’s agreement will ensure the continuation of the health-care safety net in this region,” Nixon said, adding that it would be done “without regard to state lines.”

Kansas officials, however, said the agreement should have guaranteed their state more money and provided for a separate foundation for their state. Atty. Gen. Phill Kline believes Kansas is due between 15 percent and 25 percent of the sale proceeds.

Late Wednesday, Kline won a temporary restraining order in Shawnee County District Court that would prevent the proceeds of any sale of Health Midwest’s assets in Kansas from ending up in a foundation based in Missouri.

Health Midwest operates 13 hospitals and clinics. Most of the system’s facilities are on the Missouri side of the Kansas City metropolitan area, but two hospitals are located in suburban Johnson County, Kan., and one in Iola, Kan.

AG questions Kline’s efforts

Asked about Kline’s efforts to derail the agreement with Nixon, Chuck Hatfield, assistant attorney general in Missouri, said, “I don’t know how he could restrain the attorney general of Missouri.”

Health Midwest spokesman Chris Whitley said pending litigation in Kansas prevented him from commenting on the concerns of Kansas officials.

The attorneys general in both states have claimed authority about the sale of Health Midwest to Nashville, Tenn.-based HCA, the nation’s largest for-profit health care company.

Hatfield said under the agreement, the foundation will distribute funds based on need, not geography.

“We think that’s the best way to go, and other people may disagree with that,” Hatfield said.

In a prepared statement, Bernard Erdman, chairman of Health Midwest board of directors, said the agreement preserved the board’s priorities.

“Those include a timely closing of the transaction so that the many benefits the sale will bring to this region can be preserved and realized, as well as a foundation with a metropolitan wide focus, governed by a diverse and local board that will assess and serve the needs of those in the areas now served by our hospitals, regardless of the state line,” Erdman said.

Senate acts

In response to the deal, Kansas Senate leaders introduced a bill Wednesday that would create a foundation in that state whenever a nonprofit organization is sold to a for-profit company. The House and Senate were expected to vote today on the measure, which would apply to the Health Midwest sale.

Kansas senators said Missouri was taking money that rightfully belonged on the other side of the state line.

“It was a grab,” said Senate Majority Leader Lana Oleen, R-Manhattan. “We’re going through this to make our statement.”

Several senators said they had concerns about what they saw as the Legislature acting too quickly and not giving the public enough input on the bill.

“What I’m worried about is: Do we fully appreciate the consequences of what we’re doing?” said Sen. David Adkins, R-Leawood.

Adkins also questioned why Kansas needed such a law to protect its interests, when Missouri apparently did not.

“I don’t understand how we got so neutered in this deal,” Adkins said.

But Sen. Steve Morris, R-Hugoton, said it was “the arrogance of Missouri” that led to the legislation.

As part of the agreement, Health Midwest dismissed its lawsuit asking to clarify the scope of Nixon’s involvement in the sale process. Nixon, in turn, dismissed his lawsuit seeking to dissolve the Health Midwest board.

The deal, however, does not affect similar lawsuits in Kansas.

“What they want to do in their litigation, they’re certainly entitled to do,” Nixon said.

The agreement also requires Richard W. Brown, chief executive officer of Health Midwest, to give half his 2002 salary — or more than $517,000 — to the foundation. Nixon said that will deal with his concerns that the compensation may have been excessive.