Health Care Legal Update June 2005
New Bankruptcy Law Impacts Health Care Providers
Publicity surrounding the recently enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 focused on the provisions that will make it more difficult for consumers to shed their debt. Less attention was directed toward the law's impact on health care bankruptcies. Health care businesses in financial distress and the entities that work with those businesses (including their creditors) should become familiar with these new provisions before their October 2005 effective date.
Among other things, the legislation places new burdens on health care debtors by providing procedures for disposing of patient records, transferring patients and appointing a patient care ombudsman. Additionally, the legislation provides an exception to the automatic stay for government action to suspend a debtor from participation in the Medicare program or any other federal health care program. A summary of the law's impact on health care providers is provided below.
"Health Care Business" Bankruptcies
The new law identifies a new type of debtor, the "health care business," to which special rules and regulations will apply. Health care businesses will include "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." Such health care businesses include, but are not limited to, general or specialized hospitals; ancillary ambulatory, emergency, or surgical treatment facilities; hospices; home health agencies; long-term care facilities; homes for the aged; domiciliary care facilities; and related "health care institutions." The phrase "related health care institutions" is likely to be interpreted to include physician practices, medical groups, IPA's, diagnostic imaging facilities and a host of other types of health care providers.
Appointment of a Patient Care Ombudsman
The new law requires the appointment of a patient care ombudsman within 30 days of the commencement of any health care bankruptcy case. The appointment is not required, however, if the court finds that it is not necessary for the protection of patients under the specific facts of the case. The duties of the ombudsman are to monitor the quality of patient care provided to patients of the debtor, interview patients and physicians, report to the court regarding the quality of patient care provided to patients, and inform the court immediately of any issues materially and adversely affecting patient care.
Mandatory Procedure for the Disposition of Patient Records
If a health care business commences a bankruptcy action, and the trustee "does not have a sufficient amount of funds to pay for the storage of patient records in the manner required under applicable federal or state law," a new procedure must be strictly followed. Specifically, the patient ombudsman for such case must: (1) promptly publish notice that if patient records are not claimed by the patient or an insurance provider by a specified date at least one year after issuance of the notice, those patient records will be destroyed; (2) diligently attempt to notify "directly" each patient for whom the debtor maintains patient records and the appropriate insurance carrier at the most recent known address of that patient, or a family member or contact person for that patient during the first 180 days of the required one-year period; (3) notify, by certified mail, at the end of the specified 365-day period, each appropriate federal agency requesting permission from that agency to deposit unclaimed patient records with that agency; and (4) destroy all unclaimed patient records by shredding or burning if the records are written, or mutilating those records so that those records cannot be retrieved if the records are magnetic, optical, or other electronic records. The costs associated with notifying patients, contacting government agencies, and disposing of patient records are potentially enormous. This new provision is likely to have a significant economic impact on health care bankruptcy cases, as the law specifically affords these costs administrative priority status.
Mandatory Procedure for Transferring Patients
The new law will require the bankruptcy trustee to use all reasonable and best efforts to transfer patients from a health care business that is in the process of being closed to an appropriate health care business in the same general vicinity that provides substantially similar services and maintains a reasonable quality of care. This procedure may prove to be very costly, as the law specifically affords all of the costs associated with required patient transfers administrative priority status.
Automatic Stay Modified to Allow Federal Government Maximum Flexibility
The new law will specifically exempt from the automatic stay any action taken by the federal government to exclude the debtor from participation in Medicare and any other federal health care program. Subject only to its own guidelines, policies and procedures, the Center for Medicare and Medicaid Services may, under the new law, exclude any health care business from federally funded programs and impose whatever conditions it deems to be appropriate upon any health care business debtor that wishes to participate in such programs.
If you require our assistance or have any questions please contact Michael Dowell at mdowell@tocounsel.com or the lawyer in the firm who generally handles your health care legal matters.