Board Selection & Nominating Process

Some interesting blog posts lately on how UMC chose their 4 board members for the El Paso Children’s Hospital:

Martin Paredes talks about what he found at as a result of his FOIA records request here.

Jim Tolbert talks about a friends of his who actually submitted an an application here.





“We did that,”  “We saved a hospital, and I’m proud of it. -Veronica Escobar in her 2015 State of the County Address.

But did they actually save a Children’s Hospital or did the County Commissioners succeed in adding another burden on the tax payers?  We’ve covered the Medicaid/Medicare rules regarding Hospitals that occupy the same space (HwH) in other posts, so we thought we would summarize the County’s Options:

  1.  Remove the overseeing governance from the plan:  among other things, get rid of the interlocking board member, the UMC approval of the new EPCH CEO and the oversight that UMC has over EPCH spending (you can read our blogs on these herehere,  here and here).  In other words, they can fulfill their promise to have El Paso Children’s be an independent Children’s Hospital.  This will allow EPCH to bill Medicare/Medicaid at a higher rate and make the hospital self-sustaining.
  2. Leave the additional governance language in the plan and the oversight in the Children’s Hospital.  By doing this, they walk away from $5 million – $20million a year.  The picture at the beginning of this article shows the projections for the El Paso Children’s Hospital; that $5 million to $20 million will DEFINITELY make the difference between El Paso Children’s Hospital being self-sustaining or a burden on the tax payers. This option would complete the hostile take-over they have already started and would result in UMC finally absorbing El Paso Children’s Hospital so that it is just a wing of the county hospital.  In this option they have sneakily squandered our $120 million on a new building for UMC as well as increased taxes.
  3. Leave the language and the additional oversight in place and bill Medicare/Medicaid as if the El Paso Children’s Hospital is an independent hospital.  As we covered in another post, this could result in bankruptcy for both hospitals as well as fines and jail time for all involved.

Now that UMC and the County Commissioners finally have the keys to the El Paso Children’s Hospital, what do they intend to with them?

The Best-Laid Plans

Today is the day that the Judge approves the plan for El Paso Children’s Hospital.  We now know who the new interim CEO will be, George P. Caralis, a consultant with Deloitte CRG , and that he will be paid $170,000 PER MONTH PLUS EXPENSES (read the KVIA story here).  As we do not have the contract, we do not know if this is capped amount or an estimate and that they will pay him based on his billing.  Will the County Commissioners be watching his billing and expenses with the same diligence that they have used on the current CEO or was all of that just their lawyers trying to wrack up billable hours and SPEND YOUR MONEY?

Also, we noticed that an updated plan has been filed with the court and the language baring Andy Krafsur from serving has been removed (read the plan here, document page 25).  Why aren’t the El Paso Times, Bob Moore and Veronica Escobar shouting it from the rooftops?  Why aren’t they proclaiming this a win for truth, justice and the American Way?  It would appear that the honeymoon is now over.


More Ways UMC and CCC are Violating Medicare & Medicaid Rules

If EPCH and UMC follow the HwH model it will allow the El Paso Children’s Hospital to have a higher reimbursement rate from Medicare and Medicaid and will keep it off of the tax payer’s bill.  However, if UMC or the County Commissioners do not follow the rules set forth, do not maintain a separate organizational structure, one of the following could occur for BOTH Hospitals and the individuals involved:

  1. At the Hospital level: “The CMPL authorizes penalties of up to $50,000 per violation, and assessments of up to three times the amount claimed for each item or service, or up to three times the amount of remuneration offered, paid, solicited, or received.”  That means that the hospitals would be seriously fined to the point where both of them would end up in bankruptcy.
  2. “Providers and health care organizations that commit health care fraud risk exclusion from participation in Federal health care programs and the loss of their professional licenses.” One or both hospitals could lose their ability to get ANY reimbursements for Medicare and Medicaid as well as lose the ability to file for federal money to support Children’s Hospitals and indigent care. Again, this could push both hospitals into bankruptcy.
  3. “Committing Medicare fraud exposes individuals or entities to potential criminal and civil remedies, including imprisonment, fines, and penalties.”  Those who were involved in this could  have their careers destroyed and could end up in JAIL.

You can read about Medicare Fraud and Abuse here.

So, apart from the interlocking board member, we’ve discovered other parts of the plan between EPCH and UMC that also violate the HwH model (as a reminder, the HwH model REQUIRES that both hospitals maintain organizational separation):

  1.  “Final selection of the Reorganized Debtor’s new CEO shall be a joint decision of the UMC and EPCH board.” (pg 26). This means that UMC boards ALSO gets to select the new CEO for the El Paso Children’s Hospital. How can you argue separate organizations when the Host Hospital is ‘helping’ to select the new CEO?
  2. “For a minimum period of two (2) years following the Effective Date, any increases or decreases in the Reorganized Debtor’s services shall be implemented only with the prior approval of CCC.” (pg 26).  This means that the Commissioners Court, who is part of the Host Hospital UMC, will get to make operational decisions regarding services at the Children’s Hospital.  If one entity is controlling how services are implemented and taken away, then these are NOT SEPARATE ORGANIZATIONS!
  3. UMC gets to appoint 4 board members but they also get final approval over the people that the EPCH physicians and the outgoing board members appoint. (pg.25-26).  If they can’t come to an agreement, then the County Commissioners get to make the decision on who ultimately serve.  Does that sound separate to you?  Yeah, it didn’t to us, either.
  4. Interlocking board member Miguel Fernandez – we feel we have adequately covered this one, so refer you to our other posts for more information.
  5. Service contracts that exceed the 15% rule – we have also addressed this item in other posts.

These are just a few of the items we have found, we have no doubt that there are others.

We have no desire to see the El Paso Children’s Hospital fail.  However, we also do NOT want to have to continue to pay for it.  We understand why the County Commissioners and UMC may have felt the need to put these provisions in.  HOWEVER, in their zeal to ‘take the keys’ of the hospital, they have not only set it up for failure, they are headed into some illegal territory that could result in bankruptcy of BOTH UMC AND EPCH AS WELL AS PERSONAL LEGAL RAMIFICATIONS FOR THE COUNTY COMMISSIONERS.

If you need a refresher, you can read the entire joint plan here.

The Rules of the Game

What happens if you violate the CMS rules, if you don’t follow the Hospital-within a-Hospital rules that they’ve set forth?  If you, for example, have board members that serve on both the El Paso Children’s Hospital Board and the UMC board?

“The OIG (Office of Inspector General) also has the discretion to impose exclusions on a number of other grounds. Excluded providers cannot participate in Federal health care programs for a designated period. An excluded provider may not bill Federal health care programs (including, but not limited to, Medicare, Medicaid, and State Children’s Health Insurance Program [SCHIP]) for services he or she orders or performs. At the end of an exclusion period, an excluded provider must affirmatively seek reinstatement; reinstatement is not automatic.” (underlining added).  (

This means that, at the discretion of the Office of the Inspector General, one or BOTH UMC and El Paso Children’s Hospital could lose the ability to participate in Federal Programs for a designated period of time.  Without those federal funds, either the hospitals would have to close their doors OR THE TAX PAYERS WOULD HAVE TO PONY UP MORE MONEY TO KEEP THEM AFLOAT!

With all of the choices presented to them through the 19 applicants that they received, why would the UMC and County Commissioner search committee elect to put both hospitals at risk by having an interlocking board member?

New Rabbit, Same Hat

In 2007 the tax payers of El Paso passed a $120 Million bond to establish an independent and separately licensed Children’s Hospital.  At the time, it was decided to build the El Paso Children’s Hospital on the UMC campus and to employ a Hospital-Within a-Hospital (HwH) concept. However, if the rules of the HwH model are not followed, EPCH could lose some of its funding from Medicare and Medicaid which would no longer make it viable and it could lose its separate license.  If that happens, the intent of the bond would not be satisfied and UMC could have to pay it back.

Hospital-Within A-Hospital (HwH) is an interesting concept.  To ensure that two hospitals occupying the same location are not trying to ‘game’ the system by transferring a patient back and forth, CMS (the Centers for Medicare and Medicaid Services) has put some regulations into place:

  1.  “CMS regulations require a high level of organizational separation between host hospitals and HwHs, including separate governing bodies, separate chief medical and chief executive officers, and separate medical staffs” (
  2. CMS also requires financial independence “the cost of services that an HwH obtains from its host hospital must not exceed 15% of the HwH’s total inpatient operating costs.” (

UMC and EPCH need to have COMPLETELY separate boards and they need to quickly straighten out the service contracts.  Having an interlocking board (i.e. one or more members who are on both boards) is playing with fire.  Service contracts that exceed 15% of the inpatient operating costs are tempting fate.  Charging rent and not using that money to pay down the bond is just criminal. Doesn’t it behoove UMC to use the EPCH rent money to pay down the bond as quickly as possible to protect the El Paso Tax Payers?

Bankruptcy is supposed to be a clean slate for the organization, an opportunity to correct the mistakes that were made before.  To us it would appear that old mistakes are be propagated into the future and new ones are being added.

The Appearance of Impropriety

We learned a new term today:  hospital-within-a-hospital (“HwH”).  This is where a separately licensed and certified hospital is co-located with another hospital. For example, El Paso Children’s Hospital would be considered a HwH because it is separately licensed and certified but is located at the same location as UMC.  Since how a hospital is licensed and certified affects the reimbursements that it gets, the Center for Medicare and Medicaid Services (CMS) has established some rules for HwH hospitals, specifically about separate control:

“CMS has long recognized the difference between ownership and control. In CMS’s view, separateness is established by control. If the host hospital is not in a position to directly or indirectly control the HwH, than the two hospitals are considered separate.” )  This means that both hospitals must have a separate governing body, separate chief medical officer, separate medical staff and a separate CEO.  Specifically about the governing body:  “The HwH must have a governing body that is not under the control of the host hospital or a third party that controls both the host hospital and the HwH”.

Why do we bring this up?  Last night KVIA reported that Miguel Fernandez will be serving on the El Paso Children’s board AND the UMC board (you can read the article here).  Wouldn’t this violate the separate control requirement by CMS?  Sure, having 1 person on both boards may skirt the corners of this requirement.  However, given the tumultuous relationship between EPCH and UMC and the difficult year both hospitals have had, it would be advisable to avoid even the HINT of violating the CMS rules.  A misstep now could adversely affect all of those reimbursements that the County Commissioners keep talking about.

General Updates

Just a few general updates regarding the UMC/EPCH Plan:

  1.  Only minor objections have been lodged with the court by today’s deadline regarding the EPCH and UMC plan:  “Among the four objections that had been filed Monday, two were from doctors saying the proposed settlement would underpay them by a total of $10,000. Two insurance companies argued that the settlement unfairly changes the terms of their contracts with Children’s and one said it would underpay the insurer by $21,000.”  Read the entire article here.
  2. UMC has named its 4 board members for the new EPCH board.  Just as a reminder, UMC names 4 members, the Physicians at EPCH name a board member and the 2 remaining board members each will serve for 90 days and then name a replacement.  The board members named by UMC are:  “Ronald Acton, for a one-year term; Ted Houghton, for a two-year term; Patrick Gordon, for a three-year term and Miguel Fernandez, for a five-year term.”  Read the article here  Still no word on who the Physicians have nominated.
  3. Confirmation hearing for the plan is next Tuesday, December 8th in El Paso

Please Consult With Me First

“In the plan will be the request to have the old board turn the keys over to the new Children’s board on Jan. 8,” Escobar said. “And at that point they’re out of bankruptcy, they’re post-bankruptcy. The Herbers partners people go away, the Jackson-Walker people go away, and they essentially stop – all the money leaving the estate and going to them will stop.” Veronica Escobar  KVIA November 29th.

The County Commissioners and UMC do not like the consulting firm (specifically Mark Herbers) or the lawyers representing the El Paso Children’s Hospital.  They hate them so much, in fact, they have wasted untold tax dollars having their own lawyers dispute practically every filing that they have made for reimbursement.  There are some things that Veronica Escobar ISN’T telling you:

  1.  There are 2 sets of lawyers involved on the County side – One for UMC and one for the County Commissioners.  The fees that the lawyers for Children’s can charge are capped and come out of El Paso Children’s coffers.  The fees that are being paid to BOTH sets of lawyers are coming out of YOUR pocket and are not capped. Do you know how much money you have spent?  Of course you don’t, the County and UMC have not seen fit to tell you. Note:  After publishing this one of our readers pointed out that UMC also has their own internal legal council as well.  So, there are three sets of lawyers being paid.  The only lawyers EPCH has are the law firm they have hired (i.e. they have no internal legal council).
  2. The fees that are being charged by Mark Herber are likewise capped.  As El Paso Children’s entered bankruptcy, all on-going fees had to be reviewed and approved by the Judge.  The amount that Mark Herbers and team are charging the Children’s Hospital was vetted before a judge who felt the fees was reasonable and approved them.
  3. In January, when Mark Herbers leaves, another CONSULTING firm will be put in place until a permanent CEO is found, this one chosen by UMC and the County Commissioners.  To date, no one has stated who the actual person taking over will be or HOW MUCH THIS NEW FIRM WILL CHARGE.  In fact, at that point, El Paso Children’s Hospital will be out of bankruptcy so their bills will no longer need to be approved by a judge and will no longer be visible to any of the tax payers.  The intimation from the County Commissioners is that they will be lower, but we’ll never know.
  4. When Jim Valenti ends his contract next May he’ll walk away with almost $3 million in tax payer dollars.  Jim, who is equally as culpable as the El Paso Children’s Board for this whole debacle.  The Children’s Board, all volunteers, walks away with nothing.  Valenti, who we have shown approved contracts where UMC was collecting money to pay for the bond but was not using that money to pay down the bond, walks away with a hefty retirement.
  5. There are many other lawyers involved in this case.  The creditors have not one but two law firms representing them.  The Judge allowed this with the understanding that neither law firm could charge for the same thing (i.e. both law firms can’t claim the same work and each get paid for it).  Are the County Commissioners going through these lawyer’s payment claims line-by-line to ensure that there is no double dipping?
  6. Finally, who is going through all of the documents, line-by-line, submitted by the El Paso Children’s Hospital?  Is it the County Commissioners or are they using YOUR money to pay lawyers to go verify every item? Are they paying $100 to save a dime?

Oversight in what the consultants are charging is valuable.  Being good guardians of our tax dollars is what the County Commissioners were elected to do.  However, it is not clear that they are doing that. They yell about the amount of money El Paso Children’s is spending without actually telling you how much of YOUR MONEY they are likewise spending.  Will they be as diligent with the charges when it is their own consulting firm working for El Paso Children’s Hospital?

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.
    • 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.