Chapter 9: an Rx for health care districts and public hospital authorities?

Four (4) recent chapter 9 cases by a public health care district in the Northern District of California and by local hospital authorities in Kentucky, Oklahoma and Texas—raise the issue whether chapter 9 may increasingly be seen as a means for public hospitals facing financial distress to restructure (or adjust) their debts. Since the beginning of 2003, seventeen (17) health care districts and hospital authorities have sought to adjust their debts through chapter 9 proceedings.1 Seven (7) of those cases have been filed since June 1, 2011. Of the seventeen health care district and hospital authority chapter 9 debtors who have filed since the beginning of 2003, eleven (11) successfully confirmed a plan of adjustment, one was dismissed as being ineligible to file for chapter 9, one was dismissed after nearly nine (9) years of chapter 9 protection for failure to prosecute, and four others were either recently filed or have not yet confirmed a plan. Further highlighting the possibility of an increase in chapter 9 filings by public hospital authorities and health care districts is a recent letter to Congress from the National Rural Hospital Association, warning that a proposed recommendation contained in an August 15, 2013 report by the Office of the Inspector General of the Department of Health and Human Services could cause many rural hospitals to lose their designation as critical “necessary providers,” which in turn would result in those hospitals no longer being eligible to receive preferential (i.e., 101%) Medicare reimbursements.2