El Paso Children’s Hospital board approves joint plan with UMC, details of plan revealed

Oct. 14, 2015 Late Afternoon Update: El Paso Children’s Hospital’s board has accepted help from University Medical Center.

Details of the joint plan, approved by Children’s board, UMC’s board, and El Paso County Commissioners Court were revealed Wednesday afternoon after being filed with the U.S. Bankruptcy Court.

Children’s filed for bankruptcy protection on May 19 after several rounds of failed negotiations with UMC.

So a deal was reached to settle the $100 million Children’s reportedly owes UMC and it keeps Children’s open for business.

The plan requires Children’s to pay back $15 million — an $85 million loss.

UMC says in the document that it will be paid back last, after all of Children’s other debts are paid.

The plan also states the entire board at Children’s will be replaced and a new CEO chosen.

It also states UMC’s board will have a say in the selection process

Along with Children’s board, UMC will have oversight over Children’s budgets.

UMC, along with Children’s board, has approval over any contract over $250,000.

Children’s other debts include $10 million to Texas Tech, which will have to be paid in full, with a $2 million down payment.

The rest will be paid back over a three year period with a 4.5 percent interest rate.

“This has been an extremely long road for all of us, especially for the people of El Paso. While there were many obstacles along the way, everyone stayed positive,” UMC board chairman Steve DeGroat said in a statement released Wednesday afternoon.

El Paso County Judge Veronica Escobar told ABC-7 expects a closing bankruptcy hearing by mid-November.

She also expects Children’s to exit bankruptcy by December.

Escobar also expects the new plan, and Children’s new CEO and board will be in place by January.

Oct. 14, 2015 Afternoon Story: County Judge Veronica Escobar confirms with ABC-7 the El Paso Children’s Hospital board approved the joint plan with University Medical Center Tuesday night.

ABC-7 has reached out to Children’s officials for confirmation from them, but has yet to hear back from them.

Escobar said the joint plan should be filed with the bankruptcy court Wednesday afternoon, making the details of the deal available to the public. Look for that update on ABC-7 at 5 and 6.

University Medical Center and Commissioners Court had a joint meeting Tuesday to discuss what to do next with a proposed deal with El Paso Children’s Hospital.

Commissioners Court voted to approve a joint plan with Children’s and to submit the plan to a federal bankruptcy court.

After the meeting, County Judge Veronica Escobar said they are committed to a free-standing Children’s hospital.

“We made concessions and vice versa,” Escobar said.

Escobar confirmed there will be “Changes to governance” of Children’s and she expressed her hope that the Children’s board will vote on the plan tonight.

On Friday, the two hospitals will file a disclosure form, or a five-year-outlook that predicts EPCH’s finances, streams of revenue and different scenarios the hospital may undergo. Escobar said there will be a hearing on the disclosure form Oct. 19.

Escobar expects a hearing in mid-November to close the bankruptcy case. She said Children’s could exit bankruptcy as soon as December with the new plan, new CEO and and board, in place by January.

It hasn’t been easy for the two hospitals and El Paso Commissioners Court to reach a deal.

ABC-7’s I Team discovered the Children’s Hospital financial woes in spring 2014, when Children’s stopped paying UMC for services.

The debt Children’s owes to UMC has been in dispute. UMC said the debt was more than $90 million by the end of 2014, and more than $106 million in documents filed last month. Children’s has said that amount is not accurate, accusing the county hospital of forcing it to accept lopsided contracts with amounts above market rate.

“Since its inception, University Medical Center’s inflated cost and oppressive approach has not worked for EPCH,” stated Children’s hospital in the lawsuit it filed against UMC — a paralell case to the bankruptcy filing.

Both parties certified in September 2014 that the debt was $81.3 million.

Children’s filed for bankruptcy on May 19 , 2015 after a proposed deal between UMC and Children’s fell through.

Children’s CEO Mark Herbers said at the time that the decision was made to restructure the financial obligations of the hospital and that it was not in the best interest of Children’s that the hospital fall under a county hospital whose priority is adults with acute, medical care.

Herbers repeatedly assured, “this is a non-patient care event,” meaning services to patient would not be affected. “It is not our preferred choice, but it is our only choice.”

Before Children’s declared bankruptcy, the two hospitals had engaged in several rounds of mediation.

They came so close to an agreement, that on March 10 , 2015, UMC issued a news release titled “Success! UMC , Children’s Hospital reach agreement, major step forward.”

However, the deal fell through, and more negotiations between the two hospitals proved fruitless.

Then in May, the announcement UMC and county officials described as a disaster: bankruptcy.

“It seems that their intent was never to come to an agreement or to pay what they owe UMC or other creditors,” UMC Board Chairman Steve DeGroat said in May. “It never had to be this way, and that is a tragedy for our community.”

“This is the most sustainable option for the Children’s Hospital and what the taxpayers voted for,” Herbers said about bankruptcy at the May 19 news conference. “This is not the easy way out.”

Herbers said the plan was to restructure their debt, financial components, and it is anticipated Children’s can emerge from this process by the end of the year.

Disclosure statements and Herber’s own testimony showed the Children’s hospital was losing money every month and would be out of money by December.

Since Herbers, a consultant employed by AlixPartners, took over as the troubled hospital’s CEO and Chief Restructuring Officer, the hospital’s losses decreased, but Children’s has yet to turn a profit.

Herbers is optimistic that will change soon.

“Since February, the financial performance of El Paso Children’s Hospital has improved significantly,” Herbers told ABC-7 last week. “We are marching closer and closer, month by month by month toward a break-even (point).” And he added, “The Children’s Hospital will not be a burden in any way shape or form to any of the taxpayers in El Paso County. It’s performing well.”