United States: Patient Care Ombudsman: A New Role In Health Care Bankruptcy

Introduction

Bankruptcies involving health care businesses have been on the rise for several years. Health care businesses who seek bankruptcy protections present creditors, patients and others with distinct problems that are far different from other business bankruptcy cases.

Creation and Appointment of a Patient Care Ombudsman

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCA" or the "Act") for the most part, became effective on October 17, 2005. With BAPCA came certain amendments to title 11 of the United States Code ("Bankruptcy Code") that govern the operation of health care related bankruptcy proceedings.

BAPCA defines a "healthcare business" as a public, private, for-profit or not for profit entity "that is primarily engaged in offering to the general public facilities and services for (a) diagnosis or treatment of injury, deformity or disease or (b) surgical, drug treatment, psychiatric or obstetric care." Specific examples of healthcare businesses are identified in the Act, and include hospitals, nursing homes, skilled nursing facilities and home health agencies, among others including suppliers to healthcare businesses.

The single most significant modification contained in the Act is the creation of a "Patient Care Ombudsman." The Patient Care Ombudsman is an independent professional employed at the expense of the bankruptcy estate, charged with overseeing patient care issues who may intervene, if necessary, in patient crises or, in rare instances, patient care disputes. The appointment is applicable in cases filed under chapters 7, 9 or 11 of the Bankruptcy Code.

Section 333 of the Bankruptcy Code mandates the appointment of a Patient Care Ombudsman within 30 days after the filing of a healthcare bankruptcy. The Bankruptcy Court is required to make such an appointment, unless the court makes a specific finding that the appointment is not necessary for the protection of patients. The Patient Care Ombudsman may be either an individual or a firm

Duties of a Patient Care Ombudsman

The Patient Care Ombudsman is charged with the duty to monitor the quality of patient care and representing the interests of patients in health care bankruptcy cases. The Patient Care Ombudsman may interview patients, physicians and other health care providers. Where the debtor already provides long term care, the long term care ombudsman in place pursuant to state law may serve as the Patient Care Ombudsman. Where the debtor does not provide long term care, the Patient Care Ombudsman is required to assess the facilities.

The Patient Care Ombudsman formally reports his/her findings to the Bankruptcy Court every 60 days. If the Patient Care Ombudsman finds that the quality of patient care is "declining significantly or is otherwise being materially compromised," the ombudsman must immediately report such decline to the Bankruptcy Court, in writing. Interestingly, the Act fails to delineate specific standards to measure decline.

Moreover, ironically, the Bankruptcy Code doesn't automatically grant the Patient Care Ombudsman authority to review patient records. Upon the appointment, in advance of conducting any review (including reviewing the patient names and addresses), the Patient Care Ombudsman must seek and obtain authority to review the patient records from the Bankruptcy Court. All patient information provided to the Patient Care Ombudsman must be kept confidential.

Compensation of the Patient Care Ombudsman

Like other professionals employed pursuant to the Bankruptcy Code, the Patient Care Ombudsman is employed "at the expense of the estate." The Act, however, does not require the Patient Care Ombudsman to file an application authorizing employment as the appointment is one made by the Office of the United States Trustee, an arm of the Department of Justice charged with administrative supervision in bankruptcy cases. A prudent Patient Care Ombudsman, however, would want to file such an application to ensure protections and specifics governing the employment so as to minimize the risks of the employment.

Liability of the Patient Care Ombudsman

Given the extent of existing medical malpractice and other liability claims throughout the United States, the Patient Care Ombudsman will want assurances and protections from future claims. It is strongly suggested that the Patient Care Ombudsman obtain an order from the Bankruptcy Court expressly stating that the ombudsman will only be liable for intentionally and deliberately wrongful acts, and will be exculpated in all other instances. Such provisions should be included within any order authorizing employment as a professional and should be modeled after the standard applied to members of the official committee of unsecured creditors. In a perfect world, the order employing the ombudsman would also provide that the estate indemnifies the ombudsman from all claims, other than intentionally wrongful acts or gross negligence. Finally, the order should provide that any and all claims asserted against the ombudsman in connection with the work in the bankruptcy case, must be brought in the Bankruptcy Court.

Employment of Other Professionals to Assist the Patient Care Ombudsman

Depending upon the specifics and complexities of the case, the Patient Care Ombudsman may also be able to hire professionals (such as lawyers and accountants) to assist in the fulfilling his/her responsibilities. The Act is silent on whether such employment is authorized so the ombudsman may face opposition to such employment in hotly contested cases where competing constituents are fighting over a limited asset pool.

Role of the Patient Care Ombudsman in Asset Sales and Transfers

The job of the Patient Care Ombudsman is to monitor patient care and protect the interests of patients. In any bankruptcy proceeding, the debtor may determine that a sale of all or some portion of its assets is warranted. In healthcare business bankruptcies, the debtor may decide to sell certain or all of its facilities. In such instances, the Bankruptcy Court must consider public health concerns. For example, is the buyer a state licensed health care facility operator? While the Bankruptcy Code generally allows a debtor in chapter 11 to use, sell, or lease its assets with court consent, the Act limits the ability of nonprofit companies, including health care businesses to use the Bankruptcy Code to transfer assets without also complying with applicable nonbankruptcy law.

The Act only expressly mandates that the ombudsman report to the Court on patient care and to advise when such care has substantially declined or has been materially compromised. As a result, the Patient Care Ombudsman may need to make new inroads and become involved in matters outside mere reporting requirements including assets sales, lease acceptance, assignment and rejection and confirmation of plans of reorganization.

Conclusion

The law governing the appointment of a Patient Care Ombudsman is new and evolving. As more healthcare business bankruptcy cases are filed and as more appointments of Patient Care Ombudsman are made, its anticipated that the ombudsman's role will grow and become better defined.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.