Bankruptcy judge rules EP Children’s Hospital pay UMC $1.2M+ per month; debate over rent dominates hearing

Federal bankruptcy judge H. Christopher Mott placed limits Thursday on fees that could be collected by El Paso Children’s Hospital’s management consultant, AlixPartners. He also order EPCH to pay $1.2 million toUniversity Medical Center for services, and $150,000 for rent.

The purpose of the cash collateral hearing is to establish parameters on what Children’s Hospital is allowed to spend its cash reserves on as it attempts to emerge from bankruptcy.

Children’s lease calls for approximately $860,000 a month. But the terms of the lease dominated most of the hearing.Former Children’s Hospital CEO Ray Dziesinski said he agreed to pay out-of-pocket expenses, but could not pay the rent in full. He told Mott, “The payment of $150K a month would have cost an immediate shut down of the hospital. It was going to potentially a death knell for the institution when we were basically living paycheck to paycheck.”

Former EPCH Board Chair Sam Legate also took the stand, telling the judge the board never agreed to paying a lease. He said he believes EPCH owes UMC nothing, saying, “I never, ever, ever agreed to a lease,”but said he was ultimately convinced to agree to it.

The misunderstanding between the two parties became apparent during cross examination by UMC attorneys. Legate said, “We didn’t have money. UMC has all the money. We didn’t have a lot of say in what went on. Were the agreements what I wanted? No Were the agreements what we had to enter into to get the doors open? Yes.”

Dziesinski testified that the Children’s Hospital’s lease from UMC was never formally modified to reflect to let it forego lease payments. He said that was contingent upon finding a strategic partner, which has not happened.

As UMC and EPCH attempted to renegotiate a lease that reflected Children’s cash flow problems, Dziesinski says he rejected a UMC request that Children’s pay $150,000 a month.

After several hours of testimony from two of the six witnesses identified by EPCH, the proceeding was adjourned and a hearing on the issue will resume on Aug. 31.

Mott also authorized making payments to AlixPartners and the Jackson Walker law firm, but charges by AlixPartners will have to be approved by the court and are subject to objection. An attorney for Children’s said AlixPartners’ fees are unlikely to remain under the contracted rate of $180,000 per month, because of long hours being worked.

Dziesinski took the stand, and testified about the challenges the hospital faced, including high turnover, poor morale, finding a strategic partner, and stabilizing the institution.

Dziesinski was hired as the Children’s Hospital’s Chief Financial Officer, and was promoted to interim Chief Executive Officer in April 2014, upon the departure of original CEO Larry Duncan. He announced his resignation in August, 2014.