UMC May Withdraw Offer, Allow Children’s Hospital Closure

For the first time in the often contentious legal battle between University Medical Center (UMC) and the El Paso Children’s Hospital, county officials say UMC may allow the cash-strapped Children’s Hospital to close.

County officials have said Children’s may owe the federal government between $22 million and $66 million, depending on potential penalties, for reporting it paid $27 million in rent to UMC when it really didn’t.

The federal government used those expense reports to determine how much money in medicaid reimbursements Children’s would receive.

“If you have money that you probably weren’t entitled to you probably have to pay that back to the federal government,” said Andy Krasfur, a former bankruptcy attorney and trustee who has been following the case closely.

County Commissioner David Stout said UMC would not be able to take on Children’s debt if it owes that kind of money to the government. “It would be impossible for UMC to assess a $66 million debt. That’s a liability that UMC cannot assume.”

When asked why Children’s reported the unpaid rent as an expense, Children’s CEO Mark Herbers said Children’s followed general accounting principles. “Our cost reports are filed consistent with medicaid guidelines which matches our audit report. We’ve recognized the expense, we’ve accrued the expense so we reported it as such,” Herbers said in an interview Thursday.

Herbers also said he did not believe Children’s exposed itself to liability or penalties by reporting the expense. “The outcome of any significant recovery of that magnitude, any material amount, is not probable and not estimable.”

County officials and Krasfur disagree. “There’s not just civil liability for these things but there’s criminal, potential criminal liabilities. It’s a very serious problem. I wouldn’t just brush it under the rug,” said Krasfur.

Children’s on Wednesday evening filed its restructuring plan. In it, Children’ spells out two options. Option A involves Children’s finding a partner other than UMC that would infuse money into Children’s. Option C: accept UMC’s prior offer with some conditions.

However, Stout said the County is considering withdrawing its prior offer to make Children’s a subsidiary of UMC. “Childrens runs a serious risk of losing the one and only opportunity they have to keep the hospital going,” said Krasfur.

The County on Thursday is slated to send Children’s another offer, allowing it time to solidify an agreement with a strategic partner with the condition the parties stop litigation during that time.

Herbers said there were more than one potential partners Children’s was in talks about entering an agreement with. But he said a deal hinged on how much Children’s was able to lower rent payments to UMC in the future. “Restructuring that lease agreement to something in between gives clarity and certainty to a third party who would say I could work with that I can’t work with that and make their decision from there.” Herbers said confidentiality agreements prohibit the hospital from revealing who the potential partners are.

Children’s current contract with UMC requires about $10 million a year in rent. Herbers said that is the main issue making the Children’s not profitable. UMC officials have said the Children’s board’s unwise decisions to invest too much money in the organization in pricey equipment and high salaries are what drowned the hospital.

Stout said the County is willing to negotiate a more palatable rent for Children’s but said the County would not accept Children’s pay $1 a month as Children’s has suggested.

Children’s also wants to pay UMC only about $12 million of the $106 million UMC says Children’s owes it and the option to move out of the building if it solidifies a deal with another partner. “That’s not acceptable. Taxpayers paid for it and basically taxpayers don’t get any money back from the money that they owe and they want to leave the premises and leave the taxpayers with this shell of a building there,” said Stout.

If Children’s can’t find a partner and UMC withdraws its offer, Children’s may close its doors. “The children’s hospital would have to close it’s doors and UMC would probably open up a pediatric wing. That’s a real possibility,” said Stout.