What if Lights Go Out in a Hospital Due to Bankruptcy: Appointment of Patient Ombudsman

by Salene Mazur Kraemer, Esquire and Matthew Smith, Associate 

Your loved one is in a hospital or nursing home that just filed for Chapter 11 bankruptcy.   Should you be concerned about care?

A patient ombudsman will be appointed any time a “health care business”(i.e., a hospital or nursing home facility) files for bankruptcy.   Specifically, Rule 2007.2 of the Federal Rules of Bankruptcy Procedure provides that the bankruptcy court “shall order the appointment” of the ombudsman unless a party in interest or the United States trustee files a motion within 21 days of the commencement of the case (unless the court sets another deadline).   See Fed. R. Bankr. Proc. 2007.2.

It is questionable whether some facilities are classified as “health care businesses”.

The Bankruptcy Code defines “health care business at 11. U.S. C. § 101 (27A):

The term “health care business”—

`(A) means any public or private entity (without regard to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for—   (i) the diagnosis or treatment of injury, deformity, or disease; and  (ii) surgical, drug treatment, psychiatric, or obstetric care; and 

 (B) includes—   (i) any—   (I) general or specialized hospital;  (II) ancillary ambulatory, emergency, or surgical treatment facility;   (III) hospice;   (IV) home health agency; and   (V) other health care institution that is similar to an entity referred to in subclause (I), (II), (III), or (IV); and  (ii) any long-term care facility, including any—   (I) skilled nursing facility;   (II) intermediate care facility;  (III) assisted living facility;   (IV) home for the aged;   (V) domiciliary care facility; and   (VI) health care institution that is related to a facility referred to in subclause (I), (II), (III), (IV), or (V), if that institution is primarily engaged in offering room, board, laundry, or personal assistance with activities of daily living and incidentals to activities of daily living.

A patient ombudsman is appointed to ensure the quality and continuity of medical care provided and to represent the interest of patients. During a chapter 11 bankruptcy of a health care business, Section 333(a)(1) requires the Court to appoint an ombudsman to monitor the quality of patient care “unless the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case.”   Such a finding is largely a factual determination, and should be made only after an evidentiary hearing. See generally, In re Alternate Family Care, 377 B.R. 754, 758, 58 Collier Bankr. Cas.2d 1531 (Bankr. S.D. Fla. 2007).

The Alternate Family Care Court laid out “nine salient factors” for examining whether a patient ombudsman was required. Id. These factors have subsequently been adopted by other courts. In re Valley Health System, 381 B.R. 756, 761 (Bankr. C.D. Cal. 2008); In re North Shore Hematology-Oncology Associates, P.C., 400 B.R. 7, 11 (Bankr. E.D.N.Y. 2008). Some of these salient factors include: ”

• the cause of the bankruptcy
• debtor’s past history of patient care
•  the ability of patients to protect their rights;
• the presence and sufficiency of internal safeguards to ensure appropriate level of care
• the impact of the cost of an ombudsman on the likelihood of a successful reorganization.”

In re Alternate Family Care, 377 B.R. at 758.

Other factors include:

• adequate internal protocols for protecting patient information.
• revenue projections through the bankruptcy would allow for a maintaining of the current quality of patient care
• additional administrative cost of an ombudsman was not justified as it may impair the ability of debtor to reorganize. Id.
• whether current operations were very limited.

See In re William L. Saber, M.D., P.C., 369 B.R. 631, 637–38 (Bankr. D. Colo. 2007)(avoiding appointment of ombudsman where sole practitioner filed for bankruptcy as a result of contractual dispute with a former employee).  See also In re Banes, 355 B.R. 532, 536 (Bankr. M.D.N.C. 2006) (court declined to appoint patient care ombudsman where debtor had ceased operations and closed her dental practice).

If your local hospital files for Chapter 11 bankruptcy and you have any concerns regarding patient care, contact the attorney for the debtor.  His or her information will be listed on the docket which should appear in a google search of the name of the debtor.  Or, call the Bankruptcy Court in which the case is pending.