AUSTIN >> El Paso Children’s Hospital is in bankruptcy and its chief executive has said it only has enough cash to operate through the end of November.
But the hospital’s leaders sought last week to ease worries that the pediatric institution â€” which only opened its doors in 2012 â€” won’t be able to keep them open into 2016.
The hospital’s management appears to be focused on finding a buyer or some other “strategic partner.”
Children’s Hospital, a nonprofit corporation, is in a nasty fight with its government sponsor, University Medical Center of El Paso, the county’s tax-funded hospital district.
UMC owns the building in which Children’s Hospital operates.
The hospital filed for bankruptcy protection in May after a history of financial problems. It is disputing the prices UMC charges for services and whether it should have to pay its $860,000-per-month base rent.
The hospital might not be able to dispute the issue for long.
In a sworn statement July 16, the institution’s chief operating and restructuring officer said that even in bankruptcy protection and without paying its lease, Children’s Hospital only has enough cash to stay open through November. Even so, the hospital has filed a motion to extend its exclusive right to submit a reorganization plan into next year.
Critics of the bankruptcy have said that the consulting firm running the hospital, AlixPartners, and the law firm representing it, Jackson Walker, know that UMC can’t allow Children’s Hospital to fail because it could blow a hole in UMC’s finances, possibly harming its bond rating and forcing a tax increase.
The professionals representing Children’s Hospital, critics have said, are extending the bankruptcy so they can continue to collect hefty fees.
“They’re taking hostages,” said Andy Krafsur, an El Paso businessman who practiced bankruptcy law and has been a bankruptcy trustee in El Paso for years.
El Paso County Judge Veronica Escobar said she was worried about how long the hospital would remain a going concern even before Children’s Hospital CEO Mark Herbers said the hospital would be out of cash by the end of the year.
“This is a question we’ve been asking the Children’s Hospital board members for well over a year,” said Escobar, who heads a county Commissioners Court that appoints the UMC board and approves its budget. “The (Children’s Hospital) board was unsuccessful in managing (Children’s Hospital) before (bankruptcy) and have made no management decisions since the bankruptcy filing, despite having costly expert help, to prevent their continued operating losses.
“This do-nothing approach only means that Children’s will burn down its cash, which will unfortunately ultimately harm Children’s. UMC and the county are doing everything possible to prevent that.”
However, an attorney for Children’s Hospital said in court Thursday that it was UMC that is trying to protract the bankruptcy and starve the hospital into submission so that UMC could take it over.
The lawyer, Patricia Tomasco, said that UMC’s strategy is to force Children’s Hospital to exhaust its cash before the court can determine whether the hospital is bound by its lease or determine whether its bills from UMC are fair.
Attorneys for UMC denied the claim.
In a statement last week, Herbers said he was confident that the hospital would not be forced to shut its doors. He appeared to be focused on finding a partner or a buyer for the hospital.
“We … want to allay fears that EPCH will not be able to operate in a few months,” Herbers said. “As part of our restructuring process we have applied to the Bankruptcy Court to retain Miller Buckfire & Co. as its investment banker. Miller Buckfire will work with the board of directors to evaluate and implement value â€” maximizing strategic alternatives, which may include the solicitation of interested parties for affiliation, merger or acquisition as El Paso Children’s Hospital seeks to complete its chapter 11 restructuring process.”
In his July 16 deposition, Herbers said that last summer, Children’s Hospital sent out requests for proposals to 11 companies to determine whether they could become “strategic partners.” None worked out.
Now, Herbers and the investment bankers are talking to more than two but fewer than 10 possible buyers, Herbers said in answers to questions from a lawyer for UMC.
For his part, Bankruptcy Judge H. Christopher Mott has made several statements that seem to show that he’s determined to keep Children’s Hospital open.
“Nobody in this room wants this hospital to close,” he said.