MINUTES OF THE SPECIAL MEETING OF THE
EXECUTIVE COMMITTEE OF THE BOARD OF TRUSTEES
UNIVERSITY OF LOUISVILLE

IN OPEN SESSION

The members of the Executive Committee of the University of Louisville Board of Trustees met at 1:30 p.m. on December 11, 2003, in the Board Room, University Club, with members present and absent as follows:

I. Call to Order

Having determined a quorum present, Chairman Bridgeman called the meeting to order at 1:40 p.m.

II. Information Item: Need for Captive Malpractice Insurer

Dr. Kaplan reported that currently all clinical faculty at the University are commercially insured, through their Departments or PSC, for malpractice purposes. The University of Louisville Hospital staff is insured through a self-insured trust. Students at the medical and dental schools, and residents and fellows in the medical school are commercially insured by the University. Students and faculty at the School of Nursing are commercially insured through individual policies, and staff in University who run clinics are uninsured, except to the extent they have purchased individual policies.

He said that over the past several years, commercial insurance rates have risen substantially. Many departments incurred increases of 50-100% or more last year, and have quotations indicating similar increases in 2004. Some departments have had problems getting insurance at any cost; e.g., the Department of Obstetrics, Gynecology, and Women’s Health has had to go to New York to get coverage. In addition, for its students and residents, the medical school has been told to expect increases of approximately 100% for the next academic year, with indications there will be new limitations on coverage. Even if meaningful tort reform were enacted in the next session, it would be years before reductions are reflected in commercial insurance rates. Also future tort reform discussion is speculative at this time. Finally, a number of formerly major commercial insurers (including the St. Paul companies) have withdrawn from the market altogether.

Dr. Kaplan stated that the cumulative effect of these issues has caused the University, along with its faculty, to explore the possibility of a captive insurance company for approximately the past nine months. The Medical School Practice Association engaged a consultant, who reviewed our circumstances and recommended a captive insurer as a prudent financial action for the school and its faculty. Although a statutory fund is available for the University, it would not be available to faculty under current law, and even if amended, would not be of assistance in Indiana where a number of departments have extensive clinical teaching affiliations. Dr. Kaplan summarized the reasons for choosing a captive insurer:

1). By combining all of the University affiliates, including University Medical Center, Inc. with a single carrier, a coordinated defense is much easier if a claim is made; in addition, a coordinated risk management approach is available between the doctors and our hospital.

2). Because the captive proposal will, by definition, include only University associated individuals, the malpractice exposure is limited to occurrences over which the University will have some control.

3). Actuarial estimates from the University’s consultant indicate that the premiums which the captive proposal will need to charge will in many cases be substantially lower than those available commercially, and, more importantly, renewals will be available.

4). The captive proposal can also offer insurance, such as for University employed technicians, clinics, and research activities, which is either unavailable or could be obtained only with substantial difficulty and at substantial cost in the commercial market.

Dr. Kaplan reported that although the Hospital Board approved Hospital participation in the captive proposal, the Hospital did not have funds available to capitalize the captive. The various physician groups also did not have funds. The School, however, did have available $3,000,000, which had been granted to UofL Health Care from restricted medical school funds, and also had access to a grant from Passport Health Plan for the delivery of care to Medicaid beneficiaries. The School determined that funding the malpractice captive was the most important use that could be made of these funds at this time since new clinical undertakings as well as current engagements meet the security of malpractice insurance. It is believed no equally attractive option to the captive is available commercially. Because approximately 25% of the Medical Center’s patient base is eligible for Medicaid, the School believes that up to 25% of the total capitalization of the captive is a legitimate Medicaid resource. Since the consultants have indicated $4,000,000 is the total necessary capitalization, $1,000,000 of the capital would come from this Medicaid source.

Dr. Kaplan described agreements with the Hospital and faculty, noting that prior to any dividends or other distributions to shareholders, the $4,000,000 will be repaid, respectively, to UofL Health Care and Passport, and there would be a comparable restriction on liquidation (which is similar to the provisions of the University of Louisville Foundation Grant to Passport when Passport was established).

Dr. Cook emphasized the urgency, noting the obstetrics/gynecology physicians could not obtain insurance coverage in the local market and were forced to pay exorbitant prices with a New York insurer. He stressed the importance of providing ongoing insurability for the University’s clinics. Ms. Abrams noted the report was provided to the Executive Committee as an information item. President Ramsey acknowledged ongoing discussions with the UMC board over the last six months. The Board of Trustees Finance Committee approved, and the Board of Trustees subsequently acted in November to grant up to $3,000,000 of restricted funds to the School of Medicine University Physicians’ Group, Inc. d/b/a UofL Health Care (the “Grantee”), a not-for-profit corporation of which the University is the sole member, in order to further the initiation and development of clinical and educational opportunities at the Health Sciences Center. University Counsel Ms. Koshewa felt it critical to inform the Board about the clarification of the intent and purpose for the transfer of funds. Ms. Abrams expressed her appreciation to the administrative team for clarifying their intent and pursuing a solution to the problem. Ms. Abrams retired from the meeting.

III. Executive Session

Pursuant to KRS 61.810(1)(c) and (f), Ms.Hagen made a motion, which Mr. Green seconded, to go into executive session to discuss personnel matters and possible litigation. The motion passed unanimously.

IV. Open Meeting Reconvenes

Chairman Bridgeman reported that during the executive session the Executive Committee discussed personnel matters and possible litigation. He noted the possible litigation required no action.

Personnel Recommendations
Mr. Porter made a motion, which Mr. Sticklen seconded, to approve the

President’s recommendations for the following personnel actions:
ADMINISTRATION

Ralph Fitzpatrick, Ph.D.; change of appointment from Special Assistant to the President for Minority Affairs to Associate Vice President for External Affairs and Community Partnerships, December 19, 2003. The appointment as Associate Vice President is at the pleasure of the Board of Trustees.

Dana B. Mayton, J.D., University of Arkansas; Associate Vice President for Governmental Relations and Special Assistant to the President, January 1, 2004. The appointment as Associate Vice President/Special Assistant is at the pleasure of the Board of Trustees.

The motion passed unanimously.

V. Action Item: Approval of 2004 Grawemeyer Awards

Chairman Bridgeman reported the Executive Committee discussed the 2004 Grawemeyer nominees. He noted the nominees are well-respected scholars in their fields and have agreed to make presentations to the University as part of the award process in the Spring. Mr. Sticklen made a motion, which Mr. Porter seconded, to approve the

President’s recommendation of the following nominees for the 2004 Grawemeyer Awards:

Music: Unsuk Chin
World Order: John Braithwaite and Peter Drahos
Religion: Jonathan Sacks
Psychology: Aaron Beck

The motion passed unanimously.

VI. Adjournment

Mr. Porter made a motion, which Mr. Sticklen seconded, to adjourn the meeting at 3:13 p.m. The motion passed unanimously.