Judge rules El Paso Children’s Hospital must make lease payments to UMC during bankruptcy

Bankruptcy Judge H. Christopher Mott ruled Tuesday afternoon that El Paso Children’s Hospital must make its lease payments to University Medical Center (UMC) during the bankruptcy process.

The hospital has 14 days to from the filing of the order to pay $2,326,452 in back rent to UMC, dating from when Children’s filed for bankruptcy in May to early September.

Children’s also will have to start paying just under $870,000 a month for rent starting on Oct. 10 and the 10 th of every month after that.

Judge Mott categorically denied all objections Children’s made in previous hearings to UMC’s motion that El Paso Children’s be forced pay up, ruling that the lease and master agreement signed by both Children’s and UMC are fully enforceable.

Judge Mott did credit Children’s for money already paid so far during the bankruptcy process. The original total was closer to $3.5 million, but payments of $1 million and $150,000 will be applied to the back rent.

“We will honor the judge’s order, just as we would in any case,” Children’s CEO Mark Herbers said after the hearing adjourned. In response to a question on if the children’s hospital would be able to continue operations, Herbers said “Sure. Absolutely.”

Mott on Tuesday morning also denied Children’s request for Joint Commission filings on hospital performance standards for UMC, ruling that the Joint Commission is not a contractor and not subject to the request from Children’s for the release of the records.

Attorneys representing Children’s on Sept. 3 again tried to convince Mott of why the struggling hospital is not obligated to pay rent to University Medical Center.

UMC has said Children’s owes it about $100 million in rent though the Judge is only slated to rule on about $3 million of rent from the time period starting when Children’s filed for bankruptcy earlier this summer.

Children’s lawyers contend the rent was not really rent, but instead a disguise for obtaining federal reimbursements moneys that never materialized.

“The stated rent under the lease reflects the complex world of healthcare funding but was never meant to be paid if government reimbursements were not available to offset the stated rent. The contingent nature of the rent charged is reflected in various provisions of the lease and the parties’ master agreement all as set forth in EPCH’s pleadings and in the sworn testimony of the witnesses,” said Children’s CEO Mark Herbers in a statement last week.

But County Judge Veronica Escobar said the lease and the rent were issues vetted publicly, not a guise for reimbursements.

“Without the lease, UMC could have kicked them out for not payment. The lease is a very necessary mechanism and they acknowledge that. Because of their very bad management decisions, they don’t have money to pay the rent that was always a part of the plan, that was always a part of the deal,” she said last week.

Children’s has also said it shouldn’t have to pay UMC rent because UMC was an insider in Children’s decisions, UMC had supposedly told Children’s it didn’t need to pay rent in 2015 and because UMC allegedly negotiated in bad faith.

All of those claims were carefully refuted by UMC’s attorneys who said Children’s had no documented proof of that.

“They just don’t want to pay it because they’ve made such bad decisions in the past, such poor financial decisions, they decided to spend more than they were bringing in. They decided not to engage in shared services contracts that could have saved them money, now they’re trying to find a way out. And the way out is ‘UMC is the bad guy and judge please don’t make us pay the rent that we agreed to,” said Escobar.

Judge Mott on Sept. 3 granted Children’s motion to extend time to assume or reject the leases of nonresidential real property until December 15, 2015.

“As we have stated before, EPCH maintains that the citizens of El Paso should not have to pay for the building twice. The building occupied by EPCH is fully funded by revenue bonds to provide for the pediatric population of El Paso,” Herbers said last week.

ABC-7 on Sept. 3 asked Children’s Hospital Board Chair Rosemary Castillo, who has repeatedly refused interviews, what the incentive is to conclude the proceedings promptly when bankruptcy consultants are being paid upwards of $180,000 a month.

“We’re committed to the taxpayers. They gave us a mission and we will fulfill that mission.that is the motivation,” she responded, not addressing the question directly.

Herbers admitted to reporting to the federal government that Children’s had paid the full rent to UMC, when in fact, Children’s hadn’t paid $27 million at the time. The regulated reporting is part of the information the federal government uses to determine some medicaid reimbursements. Herbers characterized the reporting discrepancy as inconsequential but Escobar said Children’s lied to the federal government.