Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), a number of special provisions were enacted for "healthcare businesses". One provision in particular requires the appointment of a patient care ombudsman in a case under chapter 7 (liquidation) or chapter 11 (reorganization) if the debtor is a healthcare business. The role of the patient care ombudsman is to monitor the quality of patient care and to represent the interests of the patients of the healthcare business, unless the court finds that the appointment of the ombudsman is not necessary for the protection of patients under the specific facts of the case.
The definition of healthcare business is quite broad. The term includes "any public or private entity … 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."
There have now been two recent cases addressing the necessity to appoint a patient care ombudsman, particularly in businesses which are not clearly "healthcare businesses". First, the bankruptcy court for the Middle District of Georgia considered whether an ombudsman was necessary for a chapter 11 debtor which was a professional corporation engaging in the practice of medicine. The debtor’s only employee was the physician CEO. The court avoided deciding specifically what constituted a healthcare business, and instead noted that the debtor had the equipment necessary to treat patients at the premises; that the CEO physician was actively seeing patients and had maintained the same staff. The court noted further that the primary debts of the debtor were taxes. As a result, the court determined that, under the facts of the case, the appointment of an ombudsman was not necessary.
The bankruptcy court in the Middle District of Florida, on the other hand, directly addressed the definition of a healthcare business. In this case, the debtor was established to provide administrative support to a group of doctors. The debtor provided, in general, non-medical services such as billing, insurance, human resources and related financial services. However, the debtor also provided laboratory support to its member doctors sharing the cost of lab equipment. The court found that the debtor’s business was not "primarily" in offering to the general public facilities and services for the diagnosis or treatment of injury, deformity or disease. Rather, the debtor was primarily engaged as administrative support to a group of doctors. The court concluded that the support organization was not a healthcare business as defined under the Bankruptcy Code, but, even if it was, the appointment of a patient care ombudsman was not necessary for the protection of patients under the facts of the case.
Interpretations of the new BAPCPA provisions are still in the early stages. However, these two cases reflect a practical approach by these bankruptcy courts in the appointment of a patient care ombudsman. It is important to note that, because in each of the cases the court found that the specific facts did not justify the appointment of an ombudsman even if the debtor was a healthcare business, it is still possible that a physician’s practice or physician’s support organization could qualify as a healthcare business and be subject to the other healthcare provisions in BAPCPA (for example: disposal of patient records, transfer of patients and providing administrative expense priority for the cost of closing a healthcare business).
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