Case Document 86 Filed in TXSB on 03/10/15 Page 1 of 5

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1 Case Document 86 Filed in TXSB on 03/10/15 Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: UNIVERSITY GENERAL HEALTH SYSTEM, INC., et al., Debtors. 1 Chapter 11 Case No Jointly Administered DEBTORS EXPEDITED MOTION TO REJECT EXECUTORY CONTRACT WITH UNITEDHEALTHCARE INSURANCE COMPANY THE DEBTORS REQUEST A HEARING BE CONDUCTED ON THIS MATTER ON MARCH 23, 2015 AT 1:00 P.M. IN COURTROOM 401, 515 RUSK AVENUE, 4 TH FLOOR, HOUSTON, TEXAS. IF YOU OBJECT TO THE RELIEF REQUESTED, YOU MUST RESPOND IN WRITING, SPECIFICALLY ANSWERING EACH PARAGRAPH OF THIS PLEADING, UNLESS OTHERWISE DIRECTED BY THE COURT, YOU MUST FILE YOUR RESPONSE WITH THE CLERK OF THE BANKRUPTCY WITHIN TWENTY-THREE DAYS FROM THE DATE YOU WERE SERVED WITH THIS PLEADING. YOU MUST SERVE A COPY OF YOUR RESPONSE ON THE PERSON WHO SENT YOU THE NOTICE; OTHERWISE THE COURT MAY TREAT THE PLEADING AS UNOPPOSED AND GRANT THE RELIEF REQUESTED. EXPEDITED RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EXPEDITED BASIS, THEN YOU WILL HAVE LESS THAN 23 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EXPEDITED CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. To the Honorable Letitia Z. Paul, United States Bankruptcy Judge: University General Health System, Inc., UGHS Autimis Billing, Inc., UGHS Autimis 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: University General Health System, Inc. (7964), UGHS Autimis Billing, Inc. (3352), UGHS Autimis Coding, Inc. (3425), UGHS ER Services, Inc. (6646), UGHS Hospitals, Inc. (3583), UGHS Management Services, Inc. (4100), UGHS Support Services, Inc. (3511), University General Hospital, LP (7964), and University Hospital Systems, LLP (3778).

2 Case Document 86 Filed in TXSB on 03/10/15 Page 2 of 5 Coding, Inc., UGHS ER Services, Inc., UGHS Hospitals, Inc., UGHS Management Services, Inc., UGHS Support Services, Inc., University General Hospital, LP, and University Hospital Systems, LLP (collectively, the Debtors ), debtors and debtors-in-possession in the abovecaptioned cases, file this Expedited Motion to Reject Executory Contract with UnitedHealthcare Insurance Company (the Motion ). NATURE OF THE MOTION 1. The Debtors seek authority under 365(a) of the Bankruptcy Code to immediately reject that certain Facility Participation Agreement effective February 15, 2014 (the Agreement ), by and between UnitedHealthcare Insurance Company, contracting on behalf of itself, United Healthcare of Texas, Inc., UnitedHealthcare Benefits of Texas, Inc., UnitedHealthcare Community Plan of Texas, L.L.C. and the other entities that are United s Affiliates (collectively, United ) and University General Health System ( UGHS ). The Debtors do not believe that the services provided by United pursuant to the Agreement are beneficial to the Debtors or that continuing to pay for such services would be in the best interests of the Debtors estates and their creditors. EXPEDITED CONSIDERATION 2. The Debtors seek expedited consideration of the Motion. The Debtors believe the Agreement has resulted in a drastic reduction in the UGHS s prepetition revenues and is among the contributing factors in the Debtors filing for chapter 11. If UGHS is forced to continue honoring the Agreement on a post-petition basis, the Debtors believe revenues will continue to be negatively affected at a time when the Debtors are attempting to stabilize their businesses and begin the process of formulating a chapter 11 plan. As they have broad discretion to reject executory contracts under 365 of the Bankruptcy Code, the Debtors do not believe any party is 2

3 Case Document 86 Filed in TXSB on 03/10/15 Page 3 of 5 harmed by granting expedited consideration. Moreover, the Debtors are requesting a hearing approximately 14 days from the date the Motion is being filed, which the Debtors believe is sufficient notice to creditors and interested parties under the circumstances. JURISDICTION AND VENUE 3. This Court has jurisdiction over this case pursuant to 28 U.S.C This is a core proceeding under 28 U.S.C. 157(b)(2)(A) and (O). Venue of this case is proper in this district pursuant to 28 U.S.C. 1408(1) and (2). BACKGROUND FACTS 4. On February 27, 2015 (the Petition Date ), the Debtors each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to 1107 and 1108 of the Bankruptcy Code. No trustee, examiner, or creditors committee has been appointed in the Debtors cases. 6. UGHS had been out of network with United since opening in In the last half of 2013, UGHS experienced declining reimbursements due, in part, to changes in out-ofnetwork reimbursement methodologies imposed by United both as a matter of policy and the health plans purchased by employers. In February 2014, UGHS executed the Agreement with United. After executing the Agreement, UGHS s volume with United did not increase, contrary to the industry assumption that business would increase after going in network. Instead, United business volume remained essentially unchanged in 2014 when compared with Not only did United s volume not increase, but UGHS s United reimbursement 2 For a detailed description of the Debtors businesses, the Debtors capital structure and the events leading up to these cases, see the Declaration of Edward T. Laborde, Jr. in Support of Chapter 11 Petitions and First Day Pleadings [Docket No. 2]. 3

4 Case Document 86 Filed in TXSB on 03/10/15 Page 4 of 5 also dramatically decreased in UGHS s estimated average United reimbursement decreased from $1.6 million per month prior to the execution of the contract to approximately $460,000 per month following the execution of the Agreement. This significant reduction in revenue was among the contributing factors that resulted in the Debtors chapter 11 filing. RELIEF REQUESTED 8. The Debtors request authority under 365(a) of the Bankruptcy Code to immediately reject the Agreement. The Bankruptcy Court has discretion to determine what constitutes reasonable time for the Debtors to assume or reject an executory contract on a caseby-case basis. In re Enron Corp., 279 B.R. 695, 702 (Bankr. S.D.N.Y. 2002). The decision to reject, however, is within the business judgment of the debtor in possession, not the bankruptcy court. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984). 9. The Agreement, which was meant to bring UGHS in network with United, has not increased UGHS s United business volume as predicted. Further, since executing the Agreement, UGHS has experienced a dramatic decrease in reimbursements. The Debtors believe that continuing under the Agreement, on a postpetition basis, will result in a continued decline in revenues and create undue burden on the estates at this critical juncture in the chapter 11 process. Under these circumstances, the Debtors believe the immediate rejection of the United Agreement is in the best interests of the estates and creditors. 4

5 Case Document 86 Filed in TXSB on 03/10/15 Page 5 of 5 WHEREFORE, for the reasons described herein, the Debtors respectfully request the Court enter an order rejecting the Agreement and granting other relief as is just and proper. Dated: March 10, Respectfully submitted by: PORTER HEDGES, LLP /s/ Joshua W. Wolfshohl John F. Higgins State Bar No Joshua W. Wolfshohl State Bar No Aaron J. Power State Bar No Main Street, 36 th Floor Houston, Texas Telephone: (713) Facsimile: (713) Proposed Counsel for Debtors and Debtors in Possession 5

6 Case Document 86-1 Filed in TXSB on 03/10/15 Page 1 of 1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: UNIVERSITY GENERAL HEALTH SYSTEM, INC., et al., Debtors. 13 Chapter 11 Case No Jointly Administered ORDER GRANTING DEBTORS EXPEDITED MOTION TO REJECT EXECUTORY CONTRACT WITH UNITEDHEALTHCARE INSURANCE COMPANY (Relates to Doc. No. ) The Court has considered the Debtors Expedited Motion to Reject Executory Contract with UnitedHealthcare Insurance Company (the Motion ), and finds that the Motion has merit and should be granted. It is therefore: ORDERED that the Agreement (as defined in the Motion) is hereby rejected pursuant to 11 U.S.C. 365(a); and it is further ORDERED that any claim for damages arising from the rejection of the Agreement must be filed with the Bankruptcy Court within 30 days after the date of this Order, and any claims not filed within such times shall be forever barred. SIGNED this day of, THE HONORABLE LETITIA Z. PAUL, UNITED STATES BANKRUPTCY JUDGE 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: University General Health System, Inc. (7964), UGHS Autimis Billing, Inc. (3352), UGHS Autimis Coding, Inc. (3425), UGHS ER Services, Inc. (6646), UGHS Hospitals, Inc. (3583), UGHS Management Services, Inc. (4100), UGHS Support Services, Inc. (3511), University General Hospital, LP (7964), and University Hospital Systems, LLP (3778).