The Children’s Hospital was officially formed on August 8, 2007. It was accredited as a hospital on March 8, 2012. Medicaid authorized it as a provider of services in June 2012. It is a nonprofit under the 501(c)(3) IRS designation. According to its IRS filing in 2010, the hospital “opened” on February 14, 2012.
The first IRS filing I could find for the hospital were two filings in 2010. The first one covered the period between January through September 30, 2010. For that period, the hospital filed a Form 990-EZ. It then filed a full Form 990 for the period between October 1, 2010 through September 30, 2011. Therefore, its fiscal year is October through September. For example, in 2011 it would be reporting its financial activities between October 2011 through September 2012.
I was able to review four financial statements, the two for 2010 and one each for 2011 and 2012. The reason the hospital filed two returns in 2010 is because it changed its fiscal period.
Because it is a not-for-profit organization it does not report income, rather it shows income as an “excess” on its report. In 2010, the Children’s Hospital showed an excess of $330,902. However, at that time the hospital was still starting up its operations and had not started generating any revenues yet, although it was spending some money. Its “income” at the time came from grants and donations.
The hospital has an affiliated non-profit named El Paso Children’s Physician Group (45-5465061). It serves as the hospital’s pediatric management organization, akin to an employment agency for the hospital, albeit one that handles the pediatric doctors for the Children’s Hospital.
In its 2012 Form 990 filing the Children’s Hospital filed its first audited financial statements. The period covered was for October 1, 2012 through September 30, 2013. This is the latest financials I have access to. I must point out though, that this is the first audited financials for the hospital and as such it is the first time that the hospital’s viability was publicly acknowledged.
On page 9, of the audited report, the auditors included a note titled; “Note 3 – Going Concern”. In the note, the auditors point out that the hospital incurred losses in 2012 and 2013. The note added, “These factors create uncertainty about the Hospital’s ability to continue as a going concern.”
According to the auditors, the hospital borrowed money from the University Medical Center (UMC) twice. It is important to note that the UMC is a taxpayer-funded organization and as such, the money was borrowed from the taxpayers of the community.
In 2012, the hospital borrowed about $6 million as a “Phase I Funding Loan” from UMC. The funding loan was started on February 14, 2012 and was based on an agreement where the hospital was paying UMC for “a portion of funds expended by UMC for the development of the Hospital”. It had a 4.8% interest rate and was supposed to mature on February 16, 2018.
According to the auditor’s statement, this loan was paid in full by the Children’s Hospital in 2013.
The second loan was titled “Phase II Working Capital Loan”. It was effective on February 10, 2012. This loan was an agreement by the hospital to repay UMC “an additional portion of funds expended by UMC for the development of the hospital“. This agreement also included a provision that allowed the Children’s Hospital “to borrow funds for use as working capital in an amount not to exceed $25,000,000”.
The auditor’s report goes on to explain the loan terms.
“The Hospital was required to make two partial payments of $6,000,000 on August 1, 2012 and September 1, 2012, with payments first applied to accrued interest and then to the principal balance. The remaining balance of principal and interest were payable in four monthly installments, beginning March 2013 through June 2013. During 2012, the Hospital made partial payments totaling $4,950,000. At September 30, 2012, the Hospital was in default of the agreement for failure to pay the full amounts due at August 1, 2012 and September 1, 2012. The principal amount outstanding as of September 30, 2012 was approximately $15,989,000, which excludes interest of approximately $399,000.”
Then the auditors go on to write, “The loan was paid in full during 2013.” It appears that the hospital paid off both construction loans in 2013.
The auditors go on to state that in 2012 “UMC agreed to various cancelable and non-cancelable agreements with the Hospital”. This is where the current financial debacle rests on. The nine agreements include facilities leasing, information technology leasing among others.
In 2012, the hospital owed UMC $21,884,813 and in 2013, that liability increased to $53,327,020. According to a letter sent to the hospital by UMC dated, June 16, 2014, the Children’s Hospital is now $71 million in arrears, as of May 2014.
In other words, UMC recovered what was owed to it for its expenses in building the Children’s Hospital. However, what is currently owed by the hospital is the leases it agreed to in 2012.
Reviewing the financial statements shows us that in 2011 (October 2011 to September 2012) the Children’s Hospital took in about $2 million in government ($65k) and grants, etc. ($2 million). In 2012 (October 2012 to September 2013) those revenue sources dropped to just under $1 million.
However, the hospital has also reported another revenue source titled “Patient Care Revenues” of about $45 million in 2011 and $89 million in 2012. The hospital reported losses of about $23 million in 2011 and $13 million in 2012. These losses include the amounts owed to UMC.
What is unclear to me at this point, because I’m used to standard profit and loss statements, is how much of the losses reflect the amounts owed to UMC. Likewise, the accounts receivables part is confusing because it is not clear, at least to me at what point, whether the uncollectable revenues are included in the financial statements.
Interestingly the Medicare revenue portion appears to be only $97,356 in 2011. The majority of the revenues appear to be from third-party insurers or self-payers but it is difficult to discern how much of the total is actually collected and for how long the amount are shown as an asset in the financial statements.
There is no doubt that for the next few weeks the future of the Children’s Hospital will occupy the community. In order to fully understand the issue I thought it would be important to share what I know about their financials. As I become more aware of other information or I have a better understanding of the financial statements, I will update you.
In the meantime, tomorrow I’m going to connect some dots for you between some individuals so that you can begin to discern how the “movida” is being played out with this latest community debacle. Remember, it is about political control.