Bankruptcy judge leaning towards mediation in El Paso Children’s Hospital case

The first bankruptcy court hearing for El Paso Chidren’s Hospital took place today in Austin.

Present at the hearing were Children’s CEO Mark Herbers and University Medical Center (UMC) CEO Jim Valenti.

Honorable Judge H. Christopher Mott, of the U.S. Bankruptcy Court, Western District of Texas in Austin, is presiding over the case.

Mott is inclined to consider a motion for mediation and has set a date for June 11 in El Paso to further discuss that motion.

Valenti released the following statement after the hearing:

“Today, UMC saw the start of what will be a complicated process that never should have occurred. As hard as we worked to come to a satisfactory agreement with El Paso Children’s Hospital, we are now watching the first statements of an extremely tragic situation for our El Paso community.

“This is not what any of us envisioned. The court has indicated that mediation will likely begin again. We are certainly open to mediation as suggested by Judge Mott in this case. It is our hope that, should these meetings take place, that we will finally have an agreement that works for all parties, especially the patients and families we serve in El Paso.

“In subsequent hearings, UMC will ensure that its interests are articulated and defended. I have been asked numerous times about the allegations made by El Paso Children’s Hospital.

“As we stated previously, we dispute virtually all of their allegations. We will address each of those allegations in our upcoming filings with the court. Until that time, UMC’s operations remain intact and moving forward. Our Associates in El Paso are working hard and caring for El Paso families, as they have done for the last 100 years, and will continue to do so for the next 100 years. We will have more statements in the coming weeks.”

After the hearing, Herbers issued the following statement:

“We accomplished all of our objectives and all of our motions that were heard today were approved. We will continue to operate as we have been for all daily operations and management.

“The families of our region can rest assured that El Paso Children’s Hospital will continue to provide their children the highest level of pediatric and neonatal care as we navigate through this restructuring process. We are grateful to all of our physicians, nurses, and staff for their continued commitment and support to our hospital and to serving the health needs of the children of this region.

“Hearings have been scheduled for the next month and a half. Half of the hearings will be held in El Paso and half will be held in Austin.”

The proposed deal between UMC and Children’s fell through earlier this week when Children’s filed for Chapter 11 bankruptcy protection.

ABC-7’s I Team discovered the Children’s Hospital financial woes more than a year ago, when Children’s stopped paying UMC for services.

The debt has been in dispute, although both parties certified in September 2014 the debt was $81.3 million.

UMC says the debt was more than $90 million by the end of the year. Children’s has said that amount is not accurate, but has not provided an alternative amount.

Children’s CEO Mark Herbers said on Tuesday 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, medial 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.”

Prior to the press conference, Herbers briefed Children’s senior staff, including managers and directors, as well as the hospital’s physicians. Formal communication has been sent to employees, vendors, and physicians within a 200-mile radius. All patients and their family members will be notified electronically or by a personal visit from Children’s leaders, according to a news release.

During a news conference, Herbers said there were two key points that made it impossible for the Children’s hospital to sign on to the terms offered by UMC. He would not explain, and said only the issue was not relevant given the bankruptcy filing.

The Children’s Hospital CEO went into a timeline of how the negotiations took place:

Herbers said that in March, and once the parties had gone through mediation, Children’s entered into an agreement with UMC with the deadline of April 30.

When that date passed, Children’s repeatedly told UMC the new deadline had to be May 15.

The hospitals kept exchanging amended term sheets, until the last one, made public May 18 by UMC. Children’s said it was vastly different from the terms negotiated during mediation and its board finally turned it down.

In a letter to Children’s hospital supporters and friends, Herbers wrote, “Since its inception, University Medical Center’s inflated cost and oppressive approach has not worked for EPCH.”

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

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

He added that it will not be an easy process but it is the right thing to do.

UMC will continue to serve as landlord of Children’s and provide some services but there will not be any oversight by UMC over Children’s Hospital.

“This is a very difficult time for all of us who have worked to present alternatives to Children’s Hospital over the last year, in an effort to ensure the financial health of this important institution,” Steve DeGroat, UMC Board of Managers Chair, said in a statement.

“UMC acted in good faith. (Tuesday), EPCH announced its intention to file for bankruptcy protection. Their filing states that their board authorized bankruptcy as early as February 11. All this while, EPCH gave us the impression that an agreement might be acceptable to them. It seems that their intent was never to come to an agreement or to pay what they owe UMC or other creditors,” said DeGroat. “It never had to be this way, and that is a tragedy for our community.”

DeGroat disputed several of Children’s assertions.

UMC, since the inception of El Paso Children’s Hospital, has acted in good faith in all its transactions with EPCH.
UMC is an excellent steward of its resources and understands how to manage the operations and financial stability of a hospital.
EPCH says its billings to UMC were unfair, yet they were based on contracts signed by EPCH and UMC. At the end of the day, EPCH chose to pay nothing but demanded services continue for free.
EPCH failed to take advantage of important reimbursement programs that would have improved its financial condition.
At no time did UMC cease services it provides EPCH.
At no time did UMC cease ANY critical care services.

“It is especially appalling for Children’s Hospital to blame its lack of payment to UMC based on the agreements they executed with UMC,” he added. “EPCH leadership stated today that UMC’s billing processes, based on agreements signed by EPCH, were unfair; that EPCH was charged too much for services. All the while, throughout the last year, EPCH continued to receive services and use of a county-owned building but saw fit to pay nothing. Not a single penny in the last year was paid by EPCH for services it readily accepted.”

Read DeGroat’s full statement here.

El Paso County Judge Veronica Escobar tweeted the following regarding the bankruptcy announcement by Children’s:

EPCH CEO Mark Herbers claims they were left with no choice but to declare bankruptcy and that is untrue. They chose the worst option
The decision by the EPCH board to declare bankruptcy is a tragedy for the hospital, the community and the taxpayer
Bankruptcy by EPCH may now force UMC and taxpayers to continue funding their services for free
The deadline for UMC to finalize the due diligence was a consequence of EPCH not giving UMC early access to information.

Watch ABC-7’s full interview with Escobar here.

ABC-7 reported last year that UMC in late May 2014 filed Uniform Commercial Code (UCC) documents that show property, equipment, accounts and contracts are among the collateral for the lien.

Liens are typically used when a creditor wants to protect its interests.

The documents don’t show the amount of the lien.

Children’s then-CEO Jim Dziesinski interpreted the UCC filing in June 2014 as a possible precursor to UMC taking over Children’s.

Asked about the status of the lien, Herbers said it would be something that will be addressed during the bankruptcy proceedings.

Bankruptcy Chapter 11 allows an organization or corporation to stay in business and come up with a play to pay its creditors in time.