University Medical Center of El Paso Economic Outlook

The University Medical Center of El Paso (UMC) has a strong economic outlook despite the pandemic, according to a recent Fitch Ratings analysis posted on October 8. Fitch updated the Series 2013 and 2017 UMC bonds from “stable” to “positive”. The bonds are paid for by El Paso taxpayers in the form of property taxes levied by the hospital district. Fitch argues that although UMC is facing “weaker” operating ability, its ability to levy more taxes, outweigh the risk, “which would otherwise result in a lower rating,” says Fitch.

Fitch states that UMC has “limited operating flexibility in relation to potential shifts in revenue,” mainly from its almost 33% dependence on Medicaid and self-pay combined revenues. Another 14%, or $111 million, of UMC’s revenues come from property taxes. The potential revenue shortfalls because of the economic volatility is offset by its taxing ability.

Regardless of the economic crisis brought on by the pandemic, “Fitch believes the tax base is very unlikely to suffer losses that would meaningfully erode repayment capacity.”

The El Paso taxpayers makes UMC’s financial condition sustainable, argue the bond analysts.

As of 2019, UMC owed $385.7 million. All of it is bond money from 2013 and 2017 bonds.

The El Paso Children’s Hospital

Although the El Paso Children’s Hospital is a non-profit with its own board of managers, UMC owns it. As such, the children’s hospital finances are tied to UMC.

According to Fitch, the El Paso Children’s Hospital’s financials were first consolidated into UMC’s during its 2016 fiscal period.

The tax returns filed by the children’s hospital (IRS Form 990) in 2016 show that the children’s hospital reported a net income of about $11 million. The 2017 return show that the hospital posted a $16 million loss. In 2018, the losses for the El Paso Children’s Hospital were $10 million. The report for 2019 is expected sometime later this year.

Between 2016 and 2018, UMC’s performance was volatile, because of its absorption on the children’s hospital, said the Fitch report.

In May, KFOX News reported that the children’s hospital saw a decrease of $4.3 million “net patient revenues” in April. That loss was part of UMC’s overall revenue decrease of $9.1 million due to the shutdown on elective medical procedures ordered by the state due to the Coronavirus.

According to the rating firm’s analysis, El Paso Children’s Hospital’s revenues are 63.6% from Medicaid. The children’s heavy reliance on Medicaid payments weakens UMC’ finances. However, the taxing ability of UMC mitigates this.

On May 6, 2020, Veronica Escobar, who represents the 16th Congressional District, announced via a press release that $1.5 million in federal grants from the Coronavirus Aid, Relief, and Economic Security Act or the CARES Act were awarded to the El Paso Children’s Hospital.

David Stout, precinct 2 county commissioner, penned an editorial for the El Paso Times on December 13, 2019. In it Stout (no relation to the children’s CEO) wrote that the children’s hospital was showing a $2.6 million profit for 2019.

However, financially, both the El Paso Children’s Hospital and UMC continue to be reliant on federal funds for viability. UMC is also reliant on self-pay patients. With a looming election partly driven by keeping or doing away with the Affordable Healthcare Act the financial viability of UMC remains uncertain. This is in addition to the ongoing Coronavirus pandemic.

The latest financial reports are due this year. El Pasoans will have a better understanding of their exposure in both institutions.