by Jerry Seelig

A box is checked on the Voluntary Petition—Form B—of the initial bankruptcy filing documents, which states that the debtor is a “health care business.” Health care business, now the health care debtor is defined in the Bankruptcy Code as “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.” This definition spans the spectrum of large and small health care providers, rural and urban hospitals, multiple-specialty practices, nursing homes, sole practice dentists, optometry practices, chiropractors, and physical therapists.1

As in all bankruptcies, the interested parties are now in a fight for who owns what, who gets to control those assets during bankruptcy, who creates the plan to establish postbankruptcy ownership, and how much money the creditors get when the organization emerges from bankruptcy. Yet, be warned: health care debtors are different, very, very, very different.

The readers of this article may some day or have in the past represented a party in health care bankruptcy, therefore it is important that we examine why health care bankruptcy is different. What follows is an explanation of why health care bankruptcy is different, what challenges are created for all parties, and some help that may be available to those involved in health care bankruptcy cases.

Difference Number One: Assets are not an autoparts assembly line or a restaurant stove. General Motors or Rick’s Café do not have the health and safety of patients to worry about nor is their ability to make bumpers or serve hash browns bound by accreditations, licenses and provider numbers, and complex reimbursement methodologies.

 In pleading for the removal of a physician serving as responsible officer, Talitha Gray Kozlowski summarized the differences best when she argued: “While life and death discussions in bankruptcy cases are usually hyperbole, here it is not. In this unique circumstance, denial of the relief sought will endanger lives, place Debtor’s licensure in jeopardy, and render a reorganization improbable.”2 What that means for you is that stakeholders in your health care case, including some very powerful federal and state regulators, could state in writing or loud voices the following:

  • Care has severely declined, 
  • Staffing has gone to hell, 
  • The person who got us in this mess still has the checkbook and will soon kill someone because they do not have enough money and/or they are making bad choices with the few dollars.

You may assume that your health care client would not deliberately set out to harm patients. After all a health care provider is a business whose key mission is for patients to receive quality care delivered by competent personnel (physicians, nurses, pharmacists, etc.). Yet the business end of a health care bankruptcy debtor may very well be driven by cost-containment, which may negatively impact patient safety due to caregivers having fewer resources. What if the financially strapped health care client decides (with or without your input) to cut staffing expenditures as a means of balancing the books? The potential harm to patients has increased significantly and the state and federal regulators and other payers can slow or stop your billing and/or sweep away any cost-savings with demands for new expenditures to support improved patient care.

Difference Number Two: The operating or now shuttered bumper manufacturer or coffee shop does not have to safeguard confidential patient information.

Every one’s medical records, be they paper, electronic or as is the case in most providers a combination of both, contains highly confidential patient information. Looking at your own medical record you will immediately grasp the unique challenge of what I find to be both health care provider’s asset and liability. Every medical record contains vast amount of personal and sensitive information on an individual’s health, history, and financial matters, which is an integral part of a patient’s treatment course.

Virtually everyone knows of HIPAA, the often-misspelled acronym for the federal Health Insurance Portability and Accountability Act of 1996. HIPAA makes confidential client information security and availability enforced by multiple state and federal agencies. The key enforcement agency, Office of Civil Rights for the Secretary of Health and Human Services, can and will make you report when confidential patient information has been breached and they can and will levy large fines for privacy breaches.

Perhaps this first came to your attention in 2007 when a former administrative assistant at Ronald Reagan UCLA Medical Center was indicted by a federal grand jury for selling patient information to the National Enquirer. Sixty-eight current and former staff, including nine doctors, had been sneaking peeks at the records of famous patients.

No rich and famous in your client’s practice, well how about the bad former boy-girl friend, the cousin who cannot be revealed as a drug user, or an employee’s child who is an occasional pot user? Can you count on no one ever taking a chart home from the office for review or to call a patient? Yet doctors and employees do. What about the doctor’s or employee’s laptop containing hundreds, thousand or a million medical records that can be and has been stolen from a car?

Not going to happen to your client? That may be a bad bet in that 29.3 million patient health records were compromised in HIPAA data breaches since 2009.3

The Bankruptcy Abuse and Consumer Protection Act of 2005 require a decision by the court to “Appoint a Patient Care Ombudsman or state that facts make that appointment not necessary.”4 The Bankruptcy Abuse and Consumer Protection Act created the patient care ombudsman and for some cases a consumer privacy ombudsman5 as a way to protect patient’s health care information. Bankruptcy courts often admit to having little understanding of health care rules, regulations, and the risks that health care providers face both in and out of bankruptcy. Therefore, often nationally and in virtually every health care bankruptcy case in the Central District of California, the United States Trustee has made the patient care ombudsman appointment. By appointing a patient care ombudsman or in some instances a consumer privacy ombudsman, the United States Trustee and their attorneys with the support of the court recognize the critical need, from a patient safety perspective, to have an independent monitor.

The ombudsman is neither an employee nor consultant of the debtor and does not have a financial stake in current and post-confirmation operations. Accordingly, the ombudsman provides patients and their caregivers an independent voice that can express patient concerns directly to the court and all parties in interest.

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Jerry Seelig is President of Seelig + Cussigh HCO LLC, which provides consulting services to health care providers and governmental agencies. He has served as a patient care ombudsman 16 times, a consumer privacy ombudsman in four health care cases, Chapter 11 Trustee for a home health nursing company, and most recently first as patient care ombudsman, then as Responsible Officer, and now is in a final role as CEO at Nye Regional Medical Center, Tonopah NV. 

  1. 11 USC § 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.
  2. In re: Primecare Nevada Inc. DBA Nye Regional Medical Center, “Motion To Appoint Responsible Officer And Directors Of Debtor,” Case 13-20348-Led Doc 328, page 4, lines 21-22
  3. Erin McCann, HIPAA data breaches climb 138 percent Posted on Feb 06, Healthcare IT News, print/75256
  4. BAPCPA in 11 USC § 333 (b) states: An ombudsman appointed under subsection (a) shall–(1) monitor the quality of patient care provided to patients of the debtor, to the extent necessary under the circumstances, including interviewing patients and physicians; (2) not later than 60 days after the date of appointment, and not less frequently than at 60-day intervals thereafter, report to the court after notice to the parties in interest, at a hearing or in writing, regarding the quality of patient care provided to patients of the debtor; and (3) if such ombudsman determines that the quality of patient care provided to patients of the debtor is declining significantly or is otherwise being materially compromised, file with the court a motion or a written report, with notice to the parties in interest immediately upon making such determination.
  5. BAPCPA in 11 USC § 332. Consumer privacy ombudsman (a) If a hearing is required under section 363(b)(1)(B), the court shall order the United States trustee to appoint, not later than 5 days before the commencement of the hearing, 1 disinterested person (other than the United States trustee) to serve as the consumer privacy ombudsman in the case and shall require that notice of such hearing be timely given to such ombudsman. (b) The consumer privacy ombudsman may appear and be heard at such hearing and shall provide to the court information to assist the court in its consideration of the facts, circumstances, and conditions of the proposed sale or lease of personally identifiable information under section 363(b) (1)(B). Such information may include presentation of– (1) the debtor’s privacy policy; (2) the potential losses or gains of privacy to consumers if such sale or such lease is approved by the court; (3) the potential costs or benefits to consumers if such sale or sublease is approved by the court; and (4) the potential alternatives that would mitigate potential privacy losses or potential costs to consumers. (c) A consumer privacy ombudsman shall not disclose any personally identifiable information obtained by the ombudsman under this title.