The El Paso Children’s Hospital Joint Chapter 11 Plan of Reorganization Dissected
As you likely know, UMC and the El Paso Children’s Hospital submitted a joint plan to the bankruptcy court in order to take the children’s hospital out of bankruptcy. As you know, UMC is the largest debt holder. The plan was submitted on Wednesday night. Most of the news media has reported on the salient points of the agreement already, but I thought you might want to read the actual plan yourself so I am posting it online. [link] I am also taking this opportunity to breakdown what I consider to be the important parts of the proposed agreement.
UMC will become the sole owner of the new hospital. The “Amended Bylaws of the El Paso Children’s Hospital Corporation” state that the “El Paso County Hospital District d/b/a University Medical Center…shall be the sole member of Hospital.” [Article III – Member, section 3.1 of the Amended Bylaws of the El Paso Children’s Hospital Corporation] Although on paper the El Paso Children’s Hospital remains a stand-alone hospital with its own board of directors it nonetheless is a department of UMC as you will see as I breakdown the rest of the agreement for you.
Before, I go on; I should point out that the reconstituted children’s hospital, the one that emerges out of bankruptcy will remain a non-profit organization, one owned by a public hospital, UMC. This is important on two specific items I have written about before.
The first is the issue of intergovernmental transfers, the so-called IGTs that I wrote about previously. [link] It is still my belief that the while fiasco rested on UMC’s ability to leverage IGTs from the children’s hospital. The merging of the two entities eliminates the problem with using IGTs but it does not increase the revenue pool, which is what the Kurt Salmon Study identified as the reason why the children’s hospital would not be a burden to the taxpayers. As you will see, not only does the merging of the two entities not solve the need for more Medicaid funds it still leaves the hole in UMC’s pediatrics funding.
The other issue has to do with the Texas Public Information Act. As a non-profit, the new children’s hospital remains outside of the open records laws but continues to depend on taxpayer monies to operate. As you might remember, back in December, I submitted an open records request to the children’s hospital asking for the contract between them and Susie Byrd. The response I received was that they would not release the information to me. [link] For good measure, I followed up with a request to Jo Ann Bernal, asking her to intervene, as the County Attorney on my behalf and compel children’s to release the records to me under the Texas Public Information Act. Bernal did not give me the courtesy of a response and much less actually asking children’s to release the records to me. [link]
As you can see, not only does the Children’s Version 2 continue to use public funds, more so now than before but also it continues to be outside of the Texas Public Information Act.
As some of you know by now, Andrew Krasfur, a frequent critic of the El Paso Children’s Hospital filing for bankruptcy protection and frequently interviewed by the El Paso Times and KVIA is prohibited from serving on the reconstituted board. This clause is part of section 6.2.2 of the “Transfer of Powers.” [page 28]
Besides the fees to the consultants and the lawyers, UMC is assuming the debt owed by children’s. They are listed on the reorganization plan as follows:
1. AmerisourceBergen Drug Corporation: $34,563.87 (three equal monthly payments) [page 20]
2. ASD Specialty Healthcare, Inc. d/b/a Oncology Supply, Inc. $1,183.95 (three equal monthly payments) [page 21]
3. Cardinal Health: $201,355.78
4. Texas Tech Unsecured (Texas Tech Agreements) $9,861,809.49 First payment due is $2,000,000 [page 15] and equal monthly payments with interest of 4.5% over three years until the balance is paid off. [page 23]
5. Patient Credit Balance claims: estimated at $74,551.87 for refunds to be paid in equal quarterly payments.
6. Payments and credit balances of $74,760.13, also to be paid quarterly until paid off. [page 22]
7. Unsecured creditors: $4,143,413.42 also to be paid in full.
UMC is assuming almost $15 million in debt. This amount does not include the $15 million that UMC has asserted a secured claim upon plus the additional $33 million in “general unsecured” claims. In total, about $48 million is owed to UMC, aka the taxpayers, according to UMC filings. The plan calls for that amount to be paid “after all other debts are satisfied.” Additionally, the plan adds that payment of those funds are contingent upon “any recoveries involving the Causes of Action and future operations as determined by the Reorganized Debtor’s board of the directors consistent with the duties of such directors to preserve the financial viability of the Reorganized Debtor and fulfillment of its mission.” [pages 22 & 24]
UMC has already allocated about $7 million [Flores, Aileen B., “UMC, Children’s settle and present plan,” El Paso Times, October 14, 2015] in funds advanced by UMC to settle the debts. [page 6]
In the best-case scenario, the children’s hospital has about $7 million in cash, taking into account media reports from August. In addition to the $7 million already put up by the taxpayers, through UMC, it is likely that UMC will have to spend an additional $1 to $2 million to meet the debt obligations it is assuming. In total, the El Paso taxpayers are paying about $8 to $9 million, not including the amounts they have already paid in the 2007 bonds, or the amounts that are allegedly owed in services and rent.
These figures do not include monies that HHSC may demand that they be refunded to the State Medicaid funds because of reports stating that “rent” had been paid that were filed by children’s. UMC assumes the liabilities for that liability that is to “be determined later.” [pages 6 & 21]
The plan states that the El Paso Children’s Physicians Group’s claim of $2,065,570.53 was “disallowed.”
The greatest point of contention between UMC and children’s has been the “rent” payments. Many have argued that the taxpayers paid for the building through the 2007 bonds while UMC argues that the “rent” payments are payments to offset the depreciation and maintenance of the building.
I have argued that the “rent” was intended as IGT transfers to offset the loss of pediatric Medicaid funds that UMC gave up to the children’s hospital.
Under the proposed plan, the new children’s will be paying $500,000 per month in rent. [page 33]
Part of the bankruptcy proceedings included allegations levied by children’s that the cost of services provided by UMC were too high and that the rent was inappropriate. They filed a related lawsuit making those allegations.
The proposed plan calls for dismissing the lawsuits. “The UMC Litigation and the EPF Litigation shall be dismissed with prejudice.” [page 39] “With prejudice” means the case has been settled and that the allegations cannot be used again in another lawsuit.
In other words, the issues of overcharging and rent payments will not be argued in court and thus we will not be privy to the underlining facts. Allegations of the improper levying of “rent” has been argued. I have tied the “rent” issue to the IGTs but the termination of lawsuits will not give us an opportunity to explore the facts on these issues.
As I have written previously, it was the pending court hearings that precipitated Veronica Escobar’s rush to end the litigation, at whatever cost necessary.
All the other “Causes of Action that are already pending, or that are accruing to the Debtor, shall become assets of the Reorganized Debtor. The Reorganized Debtor shall have the authority to prosecute, in the exercise of its sole discretion, such Causes of Action on behalf of and for the benefit of the Debtor’s estate and its creditors. The Reorganized Debtor shall have the authority to compromise and settle, otherwise resolve, discontinue, abandon or dismiss all such Causes of Action without approval of the Bankruptcy Court. All cash received by the Reorganized Debtor as a result of the prosecution or settlement of any Cause of Action shall be the property of the Reorganized Debtor to be distributed in accordance with the terms of the Plan.” Any excesses in cash received, after all distributions are made, “shall be retained by the Debtor in furtherance of its nonprofit mission.” [pages 24-25]
This brings us to the governing board of the new hospital.
According to the proposed agreement, the current El Paso Children’s Hospital board members “shall be replaced.” [page 28]
On the date the plan is put into motion, if accepted by the court, the new entity’s board will be composed of seven members. Two current board, Rosemary Castillo and Sadhana Chheda will be part of two board members known as the “Transitional Board Members.” [pages 28-29]
The reconstituted hospital’s Board of Directors will be composed of seven members. This add two new board members to the hospital. The last amended bylaws, dated June 16, 2015 called for a five-member board. One of the members is required to be “a pediatric physician licensed by the State of Texas who is a member of the Medical Staff of the Hospital and who has been nominated by the Medical Executive Committee of the Hospital.” [Article 4.1] Four board member will be selected and appointed by UMC, as the owner of the children’s hospital.
Within ten days, the two Transitional Board Members shall nominate at least one person to “serve a full term” in the reorganized entity. The rest of the new board members must approve the nominees. [page 29] They have 20 days in which to approve or reject the nominees. This back and forth between nominations and approvals can go on up to three nominees. If the new board is unable to approve a nominee, then the county commissioners will vote on the three nominees previously put forth by Castillo or Chheda. If county commissioners cannot get a consensus, then the Transitional Board will continue to nominate another individual until the county commissioners approve of a nominee. There are 20-day cycles built in between the nominations and when commissioners are to vote on them. [page 29]
It is important to note that UMC controls four board members, regardless of who replaces Castillo and Chheda. Even though the physician board member may side with the two appointments from the left over board, they are still outnumbered by one vote from the UMC side. It is likely that the UMC appointees will represent the interests of UMC, over children’s.
As you can clearly see, through the pending agreement, it will be the taxpayers that will now be paying to keep the El Paso Children’s Hospital open. For Veronica Escobar this is the best scenario possible. Escobar gets to keep the secret about the IGTs intact and she gets to have a private organization funded directly by the taxpayers of El Paso.
Note: The page numbers, referenced in this post, are the page numbers of the document linked to this article according to the PDF reader. They are not the page numbers at the footer of each page.