Greenberg Traurig, LLP



GT Alert

The Healthcare Bankruptcy Bill

April 2005

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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 bankruptcies.

"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 care.

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 restructuring efforts.


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 Bankruptcy Amendments.

© 2005 Greenberg Traurig

Additional Information:

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.