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The El Paso Children’s Hospital Financial House of Cards

El Paso Children’s Hospital has a very troublesome history in El Paso. El Paso deserves a children’s hospital. But at what expense? Having a children’s hospital is not the remedy because ultimately the job of a children’s hospital is to cure the children and not to hurt them more by medical failures or the quest to fund a hospital just for the sake of saying El Paso has a children’s hospital.

From the moment the children’s hospital for El Paso was conceived, the underlining quest was about how to fund it, because El Paso deserved a children’s hospital. How the children’s hospital was to help El Paso’s children and their families was lost along the way because the driving force was about “El Paso deserves a children’s hospital.”

It took five financial feasibility studies [1] to show a business model for a viable El Paso children’s hospital. The fourth study was the Kurt Salmon Study. The first two reports showed that an El Paso children’s hospital was not financially feasible. [6] Private hospitals understood the two reports’ financial models and declined to pursue their own standalone children’s hospitals.

Yet, several individuals persisted.

The third report by the Katz Consulting Group concluded that for a children’s hospital to succeed in El Paso, it needed “preferential reimbursements” from the Medicare and Medicaid federal programs. Using donations from philanthropy and property taxes were insufficient according to the Katz report. [6]

The Kurt Salmon Study, the fourth study, concluded that the number of patients admitted to Thomason Hospital, now UMC, “would not be sufficient” to support a stand-alone children’s hospital. The proposed children’s hospital would be financially feasible if the “number of pediatric patients can be increased.” [6]

In other words, the children’s hospital would have to siphon patients away from the other hospitals and clinics in the city.

In 2004, Providence Memorial Hospital had 41.12% of the pediatrics market share in El Paso. Del Sol had 19.02% and Las Palmas had 11.83%. UMC had 23.67% of the El Paso pediatrics patients. [6]

The Kurt Salmon Study surmised that the proposed children’s hospital would need to take patients away from the for-profit hospitals. Specifically, the Kurt Salmon Study concluded that “shifting market share from other area hospitals” was “essential” to a viable children’s hospital in El Paso. [6]

This was in addition to expecting the El Paso taxpayers to pay $3.9 million annually to the children’s hospital. [6]

It was this financial model that led to the 2007 bond request to fund the building of a children’s hospital for El Paso.

The November 2007 Ballot To Fund The Children’s Hospital

On November 6, 2007, El Paso taxpayers were asked to approve “the issuance of $120,100,000 hospital bonds to provide funds to construct and equip a children’s hospital as part of the hospital system of El Paso County Hospital District.” [5]

A total of 44,461 votes were cast on the bond request. It passed with a margin of 733 votes – 50.87% (22,617) to 49.13% (21,844).

The 2007 bond election was what created the children’s hospital.

The Taxpayers Own El Paso Children’s Hospital

Throughout its history, the El Paso Children’s Hospital has sustained the narrative that it is a “stand-alone” and a non-profit organization governed by its own board. The non-profit designation is how the children’s hospital portrays itself. It is true that the El Paso Children’s Hospital is a non-profit with its own board of directors, however it is owned by the El Paso taxpayers through UMC.

It is a blended entity of UMC.

According to the Amended Bylaws of El Paso Children’s Hospital Corporation dated September 10, 2015, the “sole member,” also known as the owner is the “El Paso County Hospital District d/b/a University Medical Center”. UMC “shall be the sole corporate member of Hospital.” [4]

As UMC is owned by the taxpayers of El Paso and because UMC is the sole owner of El Paso Children’s Hospital then the taxpayers not only own the children’s hospital by extension, but are liable for any monies that children’s hospital cannot pay in case of another bankruptcy.

The children’s hospital bylaws reserve 15 items that must be approved by UMC’s Board of Managers in addition to the children’s hospital board. Among them are the annual budget (a), and the selection and removal of the children’s hospital CEO (d). [4]

The El Paso Children’s Hospital may vote on a CEO or its budget, but the Board of Managers of the University Medical Center of El Paso must approve both.

The Financial House of Cards

There were five economic studies looking into the feasibility of a children’s hospital for El Paso. The 1993 study by Ernst & Young was commissioned by Providence Hospital. The 1995 study, also by Ernst & Young was commissioned by Columbia HCA. In 2003, the El Paso Children’s Hospital Foundation commissioned the Katz Group to study the financial feasibility of a children’s hospital for El Paso. In 2004, Thomason Hospital, now UMC commissioned Deloitte to study whether a children’s hospital was financially feasible for El Paso. [1]

Each of those studies demonstrated that a children’s hospital was not financially feasible for El Paso, including the one by the El Paso Children’s Hospital Foundation that was proposing the children’s hospital. [1]

In 2007, Thomason Hospital commissioned Kurt Salmon to study the feasibility again. According to a 2007 Powerpoint presentation arguing for the children’s hospital, the Kurt Salmon Study utilized a model that the previous studies had not. [1]

Slide number 7 of the 2007 slide show presentation makes the distinction that the only reason a children’s hospital in El Paso was feasible is the “ability to use tax backed debt subsidies.” [1] In other words, the children’s hospital needed the taxpayers to make it financially sound.

Financial Reports Tells The Story

El Paso Children’s Hospital opened its doors on February 14, 2012.

Prior to opening, the non-profit filed three IRS Form 990 reports for 2010, 2011 and 2012. According to the IRS reports, the children’s hospital generated more money than it spent in 2009 and 2010. In 2009, the non-profit showed it generated $50,932. In 2010, it generated $189,302 after expenses in both cases.

In 2011, the children’s hospital reported to the IRS that it had spent $22,943,314 more than it had generated. It lost money in 2011. In 2012, according to its IRS report, the hospital lost $36,231,833. In 2013, the children’s hospital reported losing $41,328,467. In 2014, the hospital again reported losing $100,042,902.

In May 2015, the El Paso Children’s Hospital declared bankruptcy.

In its 2015 IRS filing, the children’s hospital reported generating $3,618,108 more than it spent. This is the first time the hospital reported generating more than it was spending since 2010.

In 2016, the hospital again lost money. This time it was $12,410,260. In 2017, it lost $21,190,977.

Pediatric Growth Rate

One of the driving factors that the proponents of the El Paso Children’s Hospital argued for its financial feasibility was an anticipated growth in the pediatric population. El Paso Politics was unable to find where the slide show presentation derived its data arguing that pediatric population was projected “to increase by 3.60% between 2005 and 2010, and 2.67% between 2010 and 2015.” [1]

It was argued that the population growth would bolster the finances of the children’s hospital. Although we were unable to determine where the study derived its growth projections, we found that El Paso population growth rate dropped from 4.36% in 2010 to less than one percent in 2018, according to the U.S. Census American Community Survey data.

With El Paso’s population declining over the last ten years, it is likely that the corresponding pediatric population has also declined making an element of the children’s hospital financial model improbable.

However, the Kurt Salmon Study concluded that for the children’s hospital to be financially feasible, it also needed to siphon pediatric patients away from other local medical facilities. [6]

It needed to take pediatric patients away from the other hospitals.

The Essential Timeline

In February of 2009, the El Paso Children’s Hospital broke ground on its new building. It opened on February 14, 2012.

On April 4, 2014, the El Paso public first became aware of the children’s hospital financial issues. The children’s hospital blamed a change in the Medicaid reimbursement formulas and low patient volumes. Readers should note that these two items were essential for the children’s hospital success.

As a result of the financial problems faced by the children’s hospital, then County Judge Veronica Escobar (D-TX) appointed Ron Acton to head the Strategic Planning Committee to assess the financial problems.

Only three meetings were held by Acton. The Strategic Planning Committee suspended further meetings on June 10, 2014 because they could not reach a consensus with UMC and other stakeholders.

On May 19, 2015, the El Paso Children’s Hospital filed for bankruptcy protection.

Veronica Escobar

As a result of the bankruptcy, on December 5, 2014, Veronica Escobar demanded the resignations of the chair and vice-chair of the University Medical Center Board of Managers. In a letter to Chair William Hanson and Vice-chair Laura Ponce – Escobar, then the County Judge, wrote that a recent “offensive” launched by Jim Valenti, then UMC CEO and Hanson labeling the “Commissioners Court’s concerns were more about a ‘political landscape,’ ‘political posturing,’ and ‘political agendas’” necessitated Escobar having to ask for their resignations. [2]

The following day, Hanson replied via a letter that his answer to Escobar’s demand for him to resign was “a flat out, loud and clear: No.” [3]

In his response letter, Hanson wrote that Escobar “should be more upset about the fact that a third party [The Children’s Hospital] owes your county and taxpayer supported hospital $81M, and is still not paying for services that UMC provides, and that there is no resolution in sight.” [3]

Hanson was referring to the children’s hospital inability to pay for rent and services owed to UMC. However, it should be noted that the children’s hospital was housed in a UMC building paid for by the 2007 taxpayer bonds designated for a children’s hospital and used to build the building’s addon for the children’s hospital.

In his letter, Hanson added that Veronica Escobar wanted “a board that does what you [Escobar] and Vince Perez wants” the board to do.” Hanson continued, “This is a clear example of political manipulation.” [3]

Hanson then added, “Judge Escobar, your kind of behind the scenes political intrigue and intimidation have done more to harm UMC, more to harm the Children’s/UMC relationship and more to harm our relationship and the quality of trust with the Court than any other single factor.” [3]

Pending Malpractice Lawsuits

Although the El Paso Children’s Hospital is reporting financial stability publicly, its finances remain opaque. On November 17, 2020, El Paso Politics asked for the IRS Forms 990 for the years 2018 and 2019. The IRS Form is a tax disclosure form, like a tax return that non-profit organizations are required to file and make available to the public.

The 2018 report was filed shortly after we asked for it. The 2019 report has not been filed as of January 18, 2021, according to the IRS.

The 2018 report shows a positive cash flow for the children’s hospital. They received more money than they spent.

The El Paso Children’s Hospital was sued on August 10, 2020 for the death of a three-year-old girl. Several other recent malpractice lawsuits have come to light since then. Among the issues revealed by the lawsuits includes allowing certain doctors to practice at the hospital in return for their pediatric patient load. [7]

To accommodate the need for pediatric patients, the El Paso Children’s Hospital has bypassed its standards of care, according to a pediatric physician that witnessed firsthand the El Paso Children’s Hospital violations of medical credentialing. [7]

So egregious is the children’s hospital accommodations to increase patient load that one physician, Roberto Canales “presents a real danger to his patients and should be removed from the practice of medicine,” according to his peer. [7]

Footnotes:

  1. Dennece Knight, El Paso Children’s Hospital Powerpoint Slide Show Presentation, University Medical Center of El Paso, July 26, 2007. (See comments section. We corrected the author’s name on January 19, 2021 because Ms. Knight clarified she is the author.)
  2. Veronica Escobar, County Judge, letter to William Hanson and Laura Ponce, December 5, 2014.
  3. William Hanson letter to Veronica Escobar, December 6, 2014.
  4. Amended Bylaws of El Paso Children’s Hospital Corporation, dated September 10, 2015.
  5. El Paso County Children’s Hospital District Bond Election, Bond Ballot, November 6, 2007.
  6. Kurt Salmon Study, University Medical Center of El Paso (Thomason Hospital), March 2007.
  7. Thomas C. Mays, M.D. Sworn Affidavit, April 21, 2020.

3 replies »

  1. #2
    Author of PowerPoint

    Mr. Paredes,
    While I may not wholly agree with every nuance, predisposed assumption, or conclusion drawn, I am personally a true admirer of your consistently factually supported research and writing.

    I was hired in June 2006 to create UMC Foundation, support Katz as needed as they conducted their study and, ultimately, when the organization decided to move ahead, I was tasked with the coordination of the ultimately successful community campaign for the Childrens Hospital that was supported by hundreds of volunteers and elected officials including now Congresswoman Veronica Escobar.

    I am the author of the PowerPoint
    which was used to present the case for Childrens to over 200 community organizations, companies and notable community citizens. I was surprised in your footnotes to see the name of my husband Brian Kennedy on the PowerPoint. During time-pressed days, the presentation was primarily created and refined on a home computer gifted to me by my husband so I can only presume his name was perhaps derived from metadata? While a consistent sounding board and loving supporter, he was not the author. If you could please make that correction.

    The 3% population growth number was provided by Katz.

    Until El Paso Children’s Hospital broke ground in 2012, El Paso was the largest city in the United States without a Childrens Hospital, a dubious distinction. Today, the number of pediatric specialists has more than quadrupled compared to the 19 that were here at the time. Many specialties were not represented at all. Several of the 19 were teaching professors with little time for patients.

    Ideally pediatric specialties would have predominantly been at EPCH allowing for focus, research and medical education. We originally saw this demonstrated in the early certification of the coveted Childrens Oncology Group certification…one of only 170 in the world at that time…a great achievement.

    Instead the organization devolved into an internal territorial power grab and lost focus on the interests of our children that could have driven cooperation, expansion of services, mutual success and financial stability among for profits and not for profits in pediatric services.

    I retired in June 2019 as Executive Director of UMC Foundation and El Paso Childrens Hospital Foundation. I haven’t given up hope. To quote Euripides, “There is in the worst of fortunes the best of chances for a happy change.”

    Liked by 1 person

  2. Why would Saucedo send out an email blast as you described ?? He has no case, and is trying his case in the press. Don’t his lawyers advise him that it is not ethical ? Maybe they don’t have ethics like the “want to be Mayor” !!!!

    Liked by 1 person

  3. Why was EPCH paying UMC rent to occupy a building that was paid for with taxpayer funds? Many people believe that EPCH was set up to fail by UMC CEO Jim Valenti so he could force it into bankruptcy and he could take over the building to expand UMC. UMC has been short of space for years with no money build a new tower. Here was an opportunity to do it at the taxpayer’s expense. But it backfired.

    Liked by 1 person

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