U.S. Bankruptcy Judge H. Christopher Mott on Thursday refused to extend El Paso Children’s Hospital’s period to file a restructuring plan and came down hard on the hospital’s overall administration.
Mott said the hospital’s business plan from the beginning has failed, it must change if it wants to survive and that its current administration is hoping to win its lawsuit against University Medical Center of El Paso to continue.
“EPCH basically admitted at the hearing that EPCH has not developed a strategy to exit bankruptcy. It’s apparent that EPCH does not have a plan of reorganization yet other than just litigate with UMC and hope for the best,” Mott said.
“Basically, EPCH is betting to hit a grand slam in the UMC litigation and if EPCH is not successful in the UMC litigation, then the company, EPCH, may cease to exist. At that point, EPCH would be out of money and most likely not able, capable of reorganizing, which will be a tragedy for El Paso, its citizens, the patients, the doctors and everyone else who put so much effort in creating the Children’s Hospital in El Paso,” he added.
He said Children’s Hospital appears to operate well from the standpoint of patient care and governmental compliance. The hospital’s problems appear to be primarily financial, not operational, he said.
Mott also denied UMC’s request to terminate Children’s Hospital’s exclusivity, or the sole right to file a restructuring plan.
Children’s Hospital has until Sept. 15 to file a reorganization plan, Mott said. Then Children’s Hospital would have until Nov. 16 to get creditors to accept the plan.
If Children’s Hospital is unable to file a plan, or its plan is not approved by creditors, then UMC will be able to file its restructuring plan for Children’s Hospital â€” which could result in competing plans, Mott said.
Children’s Hospital was seeking to have the sole right to file a restructuring plan until Jan. 13.
During a ruling that lasted about 40 minutes Thursday afternoon, Mott made it clear that he does not see how Children’s Hospital will be able to come up with a reorganization plan without winning its litigation against UMC.
Children’s Hospital is accusing UMC of acting fraudulently and it’s disputing about $100 million in rent and services to UMC. A trial is set for Oct. 22 and 23.
Mott urged Children’s Hospital and UMC to work things out and to come up with a joint plan.
Mott said Children’s Hospital does not need until Jan. 13 to file a restructuring plan because it has capable professionals and a chief restructuring officer to present a plan sooner.
In addition, Children’s Hospital does not appear to have the cash to wait that long, he said.
Evidence presented in a hearing Tuesday demonstrated that money Children’s Hospital has is projected to decrease by about $11 million by January and at that point it will only have approximately $366,000 in cash, Mott said.
He said that the ramifications of running out of cash would be horrendous.
Mott said the court clearly understands the Children’s pediatricians’ concerns, including the possibility of losing the hospital’s independence and losing pediatric subspecialist.
“Yet at some point, the economic reality must set in,” he said.
Mott said that while the court is not endorsing UMC’s proposed plan, “at least UMC has put something on the table.”
If approved, UMC’s plan at least would allow Children’s Hospital to survive, Mott said.
Under UMC’s proposed plan, Children’s Hospital would continue as an independent hospital with its mission of providing health care to children, but UMC would have some oversight of its organization and operation.
On Wednesday, UMC filed an amended proposed plan in which UMC agrees to pay all creditors of Children’s Hospital and take over operations.
UMC CEO Jim Valenti said that UMC’s proposal is basically to negotiate with Texas Tech, the second biggest creditor, and pay about $5 million to unsecured creditors utilizing whatever cash Children’s Hospital has available.
“Our plan calls for Children’s Hospital to go through a financial reorganization. We want to be a safety net for Children’s Hospital to allow them to improve their operations and continue operating as a children’s hospital,” he said.
When asked if the $100 million debt will go away under the proposed plan, Valenti said “the debt amount is for the future. We first have to stabilize Children’s Hospital.”
In a statement, Children’s Hospital officials said the hospital is positioned to complete a plan by Sept. 15.
And as Mott suggested, Children’s Hospital plans to reach out to UMC and make a fourth attempt to resolve the issues between both parties.
“EPCH is optimistic that we will be able to present a viable plan for reorganization in the coming weeks. Our priority always has been and will remain to maintain the highest level of quality care to our patients. Their well-being will most certainly be reflected in that plan,” Mark Herbers, CEO of El Paso Children’s Hospital, said in the written statement.
Children’s Hospital can file a plan, but that doesn’t mean it will be accepted, said Andy Krafsur, a former Chapter 7 bankruptcy trustee in El Paso and a businessman who practiced bankruptcy law for years.
“I personally don’t see how a plan gets confirmed over UMC’s objection, and that’s the fundamental point here. This has to get resolved. None of this was necessary because the same issues that impact them in the bankruptcy, impacted them outside of bankruptcy,” Krafsur said. “We spent a lot of money and time, really, for nothing.”