When Should the Appointment of a Patient Care Ombudsman for a Health Care Business in Bankruptcy Be Excused?
January 22, 2019
When a health care business files for bankruptcy, the appointment of an ombudsman to monitor the quality of patient care and represent the interests of the patients is required unless the bankruptcy court finds that an ombudsman “is not necessary for the protection of patients under the specific facts of the case.” Bankruptcy Code §333(a)(1). Because many health care businesses which file for bankruptcy believe a patient care ombudsman is not necessary to ensure their quality of care and the cost of an ombudsman (which is paid by the debtor) may be material, motions for a determination that a patient care ombudsman is not required are fairly common.
Neither the Bankruptcy Code nor the Bankruptcy Rules provide a guide for the bankruptcy court’s analysis of whether an ombudsman is needed. The bankruptcy courts have developed standards that examine the operation of the health care business using a number of non-exclusive factors. One frequently cited decision listed and analyzed the following factors: (1) the cause of the bankruptcy; (2) the presence and role of licensing or supervising entities; (3) the debtor’s history of patient care; (4) the ability of patients to protect their rights; (5) the level of dependency of the patients on the facility; (6) the likelihood of tension between the interests of the patients and the debtor; (7) the potential injury to the patients if the debtor drastically reduced its level of patient care; (8) the presence and sufficiency of internal safeguards to ensure the appropriate level of care; and (9) the impact of the cost of an ombudsman on the likelihood of a successful reorganization. In re Alternate Family Care, 377 B.R. 754 (Bankr. S.D. Fla. 2007). The Bankruptcy Court for the Eastern District of New York adopted the Alternate Family Care factors in In re North Shore Hematology-Oncology Associates, P.C., 400 B.R. 7, 11 (2008). The North Shore decision listed an additional four factors found in a 2008 California bankruptcy court decision: (1) the quality of the debtor’s current patient care; (2) the debtor’s financial ability to maintain quality care; (3) whether the debtor has an internal ombudsman program; and (4) the level of oversight of the debtor by governmental and professional association programs which might make the services of an ombudsman duplicative. The weight to be accorded each of the factors, according to the North Shore decision, is left to the sound discretion of the reviewing court.
A leading bankruptcy treatise concludes that, based on the language of the patient care ombudsman provision of the Bankruptcy Code, the court should conduct an evidentiary hearing on the motion. However, the bankruptcy courts in the Eastern District of New York more often decide the motions after argument on the motion papers, including the consideration of evidence through fact declarations, without live testimony. For the motion to succeed, the debtor must overcome the presumption in the statute in favor of appointing ombudsmen in health care bankruptcies, as well as the bankruptcy court’s likely conservative approach that an ombudsman will be appointed unless there is no realistic possibility that the quality of care will be compromised in any way, especially if the debtor provides in-patient services.
 A health care business is broadly defined in the Bankruptcy Code to mean any entity that provides medical or psychiatric services, or long-term care.