The Healthcare Bankruptcy Bill
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In view of the continuing frequency of healthcare bankruptcy cases and
the potential risks to patients who become involuntarily involved in these
cases, on April 20, 2005, the Healthcare Bankruptcy Bill was enacted (the
“Healthcare Bankruptcy Amendments”). The Healthcare Bankruptcy Amendments
are part of the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 that has gained much notoriety for its sweeping reform of consumer
|"The Healthcare Bankruptcy Amendments
are intended to encourage healthcare companies to consider the patients’
rights and interests when administering their bankruptcy case."
The Healthcare Bankruptcy Amendments are intended to encourage healthcare
companies to consider the patients’ rights and interests when administering
their bankruptcy case. Specifically, these Amendments address the following
issues: (1) disposal of patient records, (2) transferring patients to new
facilities, (3) appointment of a patient ombudsman, and (4) exclusions of
a debtor from Medicare and other federal healthcare programs.
Disposal of Patient Records
The Healthcare Bankruptcy Amendments implement a mechanism for disposing
of medical records when a healthcare facility is closing. For a patient,
it is important that a healthcare provider maintain his or her records because
often a doctor cannot make an accurate diagnosis of the patient’s health
problems without reviewing the past medical history. Furthermore, a patient
may have difficulty with insurance companies who may not pay for medical
services without appropriate back-up or who may not insure a person without
full knowledge of pre-existing health problems.
In bankruptcy cases where a healthcare facility is being closed, a healthcare
facility may be unable to maintain or store patient records for the required
time periods under federal or state law because there may not be sufficient
monies available to pay the storage costs.
Under the Healthcare Bankruptcy Amendments, a healthcare company must
comply with any existing federal or state laws concerning the storage and
disposal of patient records, if possible (e.g., if the healthcare company
has sufficient monies to do so). If the healthcare company is unable to
comply with existing federal or state laws, then it must publish notice
in appropriate newspapers informing patients and insurance providers (if
appropriate under state law) that they may claim their medical records and
that if such medical records are not claimed within 365 days after the publication
notice (the “Publication Notice Period”), the records will be destroyed.
In addition, during the first 180 days of the 365-day Publication Notice
Period, the healthcare company must attempt to notify each patient and each
insurance company directly to inform them of their right to claim the medical
records and the impending destruction of such records. If the medical records
are not claimed during the Publication Notice Period, the healthcare company
must send a written request, by certified mail, to any appropriate federal
agency seeking permission to deposit the records with such agency.
If the records remain unclaimed after following the foregoing procedures,
the healthcare company may destroy the records. It must shred or burn all
written materials contained in the records and must ensure that no optical,
magnetic or other electronic records can be retrieved.
Duty of Trustee to Transfer Patients
When closing a healthcare business, a critical issue is locating an appropriate
new facility for patients. The Healthcare Bankruptcy Amendments impose a
duty on healthcare companies to use their reasonable and best efforts to
transfer patients from a closing healthcare facility to another healthcare
business that is in the vicinity of the closing healthcare facility, provides
the patient with services substantially similar to those provided by the
closing healthcare facility and maintains a reasonable quality of patient
Appointment of an Ombudsman to Act as Patient Advocate
In healthcare bankruptcy cases, patients often are affected or have concerns
about their quality of care during the bankruptcy case. However, patients
typically have no standing to appear before the Bankruptcy Court. The Healthcare
Bankruptcy Amendments require the appointment of an ombudsman within 30
days after the commencement of a bankruptcy case by a healthcare business,
unless the court finds that the appointment of an ombudsman is not necessary
for the protection of patients under the specific facts of the case. The
ombudsman is required to monitor the quality of patient care and report
to the bankruptcy court every 60 days regarding patient care issues. In
the interim, if any serious matters arise and the quality of patient care
declines significantly or is otherwise materially compromised, the ombudsman
may notify the court, by report or motion, with notice to the appropriate
parties. The ombudsman is required to maintain as confidential all information
relating to the patients and their medical records.
Exclusion from Program Participation Not Subject to Automatic Stay
Finally, the Healthcare Bankruptcy Amendments allow the Secretary of
Health and Human Services to exclude a healthcare company from participation
in the Medicare program or any other federal healthcare program. Presumably,
this Amendment is intended to ensure that any issues concerning exclusion
from the Medicare program or other healthcare programs are handled by the
appropriate administrative body and not the Bankruptcy Court. However, the
full implications of this provision will be developed by the Courts and,
given the broad language, could be detrimental to a healthcare company’s
This Alert was written by
Keith J. Shapiro,
Nancy A. Peterman and
Sherri Morissette, in the
Chicago office. If you would like more information regarding the Healthcare
Bankruptcy Amendments, please contact Mr. Shapiro or Ms. Peterman at 312.456.8400,
both of whom were principal drafters of this legislation. In addition, Mr.
Shapiro testified before the United States Senate Committee on the Judiciary,
Subcommittee of Administrative Oversight and the Court, concerning the Healthcare
© 2005 Greenberg Traurig
For more information, please review our Business Reorganization and Bankruptcy
Practice description, or feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.