Upset Someone’s Plans

“It’s very similar to the joint plan that’s always been on the table,” she (Veronica Escobar) said of a settlement that would make Children’s a subsidiary of UMC and delays repayment of its debt to taxpayers for at least five years.

We found this quote from Veronica Escobar in recent El Paso Times article very interesting.  The implication is that the bankruptcy was unnecessary and that the consultants and lawyers hired by El Paso Children’s Hospital pushed the board into declaring bankruptcy so that they could leech more money out of EPCH and El Paso.  So, we decided to compare the term sheet that was published earlier this year and the plan that we currently have to see how “very similar” the 2 are (you can see the term sheet from March here and the plan that was agreed to by both parties in October here):

  •  Separate Entity:
    • From the March plan:  “For a minimum of four years, EPCH would remain a separate corporate entity and maintain a separate board, CEO, license, medical staff, and provider number.” (emphasis added)
    • From the October plan: “After the Effective Date, the Reorganized Debtor shall continue to maintain its corporate existence. “
    • Note there is no longer a timeline associated with how long Children’s would remain a separate entity.  
  • The Board:
    • From the March plan: “The EPCH Board would be composed of five individuals (“EPCH Board Members”). One of the EPCH Board Members shall at all times be a licensed physician who is a member of the EPCH medical staff and who is not employed directly or indirectly by UMC or Texas Tech. The UMC CEO and UMC CFO would be ex-officio members of the EPCH Board without vote.”
    • From the October Plan: “The Board shall consist of seven (7) members (“Board Members”), one of whom shall at all times be a pediatric physician licensed by the State of Texas who is a member of the Medical Staff of the Hospital and who has been nominated by the Medical Executive Committee of the Hospital (“Physician Board Member”). “
    • Note that the number of board members had increased and that the physician is a pediatric physician and the limitation that they cannot be from either UMC or Texas Tech has been removed.  Also, the Medical Executive Committee (i.e. the physicians) get to choose who that physician should be.  Additionally, the UMC CEO and CFO are no longer ex-officio members of the Children’s Board.
  • EPCH CEO:
    • From the March plan: “The EPCH Chief Executive Officer (“CEO”) would be jointly selected by the EPCH Board and the UMC Board. The EPCH CEO would report to the EPCH Board. The EPCH CEO shall have a dotted line reporting relationship to the UMC CEO, which means a duty to seek input from and consultation with the CEO of UMC.”
    • From the October Plan: “The Board shall appoint a Chief Executive Officer (“CEO”), who is qualified by training and experience to be the administrator of the Hospital. The CEO shall not be under contract with or employed by the El Paso Hospital District or University Medical Center. The CEO shall serve at the pleasure of the Board of Directors and shall be reviewed at least annually by the Board. The CEO shall be held accountable for the management of the Hospital and affiliates, in all activities within the limits prescribed by law and the policies adopted by and instructions of the Board. “
    • Note that the CEO is now selected solely by the EPCH board and does NOT have a dotted line to the UMC CEO
  • Outstanding Debt:
    • From the March Plan: “The parties will agree, as a matter of compromise, that, as of 12/31/14, the sum of $49.3 million remains due and owing as an obligation of EPCH to UMC…”
    • From the October Plan: “Allowed Secured Claim of UMC in the amount of $15 million secured by a perfected lien on the UMC Collateral. Transactions not secured by the UMC Collateral which Claim shall be Allowed as a general, unsecured claim in the amount of $33 million.”
    • Note the difference in the amount of outstanding debt EPCH has in the October plan vs the March one.  We’ve already addressed secured vs non secured debt here.  Essentially the amount owed went from $49.3 million to $15 million – that’s a HUGE difference.
  • Services:
    • From the March Plan: “The parties agree that (i) UMC services to EPCH shall be furnished at UMC’s actual costs, and (ii) UMC shall rescind the notice to EPCH of termination of services, dated February 24, 2015.”
    • From the October Plan: There is no mention of how services will be provided.
    • Note: We’ve done several articles on the services that were being provided by UMC to EPCH and the costs that were associated with them.  It would appear that, as those services are not explicitly stated in the new plan, these services will be renegotiated and possibly outsourced.
  • Rent:
    • From the March Plan:  There is no mention of reducing rent.
    • From the October Plan: “the Base Rent (as defined in the Lease) shall be reduced to $500,000 per month.”
    • Note the huge difference in the rent.

It would appear that the two plans are similar in that they are both plans between EPCH and UMC that addressed the same items but in vastly different ways.  In the first plan, UMC took over the El Paso Children’s Hospital, its board and CEO for at least 4 years.  After which, it would be able to completely absorb it.  The amount due to UMC was reduced, but nothing was done to reduce the rent, an expense that was so large, there was no way EPCH would be able to climb out from under it.  Services were to be provided to EPCH at cost, but there was no mechanism in the plan to ensure that what UMC stated was cost were their actual costs.  We’ve heard multiple times that UMC was providing services to EPCH with just a “5% over charge”, however we have proven that was certainly not the case on most of the contracts we have looked at.

One final note, interesting that the 4 years for independence was in the original plan.  Anyone who has looked at the pro forma that was recently filed with the court will see that El Paso Children’s Hospital only has a few years left before it becomes profitable.  However, under that first plan, UMC would have completely taken control of the hospital and would be in a prime position to assume total control over it (and it’s money).

“What do they expect that is any better than 50 cents on the dollar?” County Judge Escobar asked. In May of this year – apparently they expected and received the ability to maintain the El Paso Children’s Hospital as a separate entity.

 

 

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