Healthcare bankruptcies present unique challenges in addition to financial restructuring. An immediate concern that must be addressed in these cases is the ability of the debtor to provide, and continue to provide, adequate services to existing and future patients. Having been involved in numerous healthcare matters filed under both Chapter 7 and Chapter 11, I know first-hand how important this issue is. Debtors are generally required to employ, at their cost, a specialized professional, i.e., an ombudsman, who will monitor the quality of patient care being provided during the case. This blog dives into the role that ombudsman play in healthcare bankruptcies.

When Is the Ombudsman Issue Addressed?

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). The ombudsman issue is addressed very early in healthcare bankruptcies, usually no later than after the initial creditor’s meeting is held and the acting U.S. Trustee and other interested parties have had the opportunity to question the debtor as to the state of its operations. Most health care debtors will assert that an ombudsman is not necessary to ensure the quality of care and will file motions in this regard. In instances where problems have been identified, interested parties will object and request a hearing on the issue. In any event, the debtor will carry the burden of establishing that mandatory appointment is not necessary.

How Is an Ombudsman Chosen?

Neither the Bankruptcy Code nor the Bankruptcy Rules provide a guide for a bankruptcy court’s analysis of whether an ombudsman is needed. In Texas, bankruptcy courts examine the operation of the healthcare business using the following factors:

  1. the cause of the bankruptcy;
  2. the presence and role of licensing or supervising entities;
  3. debtor’s past history of patient care;
  4. the ability of the patients to protect their rights;
  5. the level of dependency of the patients on the facility;
  6. the likelihood of tension between the interest 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 appropriate level of care;
  9. the impact of the cost of an ombudsman on the likelihood of a successful reorganization;
  10. the debtor’s facility’s patient care quality;
  11. the debtor’s ability to maintain high-quality patient care;
  12. whether the debtor’s facility already has an internal ombudsman program in operation; and
  13. whether the debtor’s facility is adequately monitored by federal, state, local or professional association programs, rendering an ombudsman appointment redundant.

Duties and Obligations of an Ombudsman

Once appointed, the ombudsman becomes responsible for monitoring the quality of patient care and representing the interests of patients. The ombudsman may interview patients, physicians and other health care providers. He/she may also review patient records, subject to obtaining specific court authorization to do so (such information must remain confidential and the ombudsman has a duty to keep all information private). The ombudsman formally reports his/her findings to the bankruptcy court every 60 days. If the ombudsman finds that the quality of patient care is declining or inadequate at any point, he/she must immediately report so to the court, in writing. The court will then require the debtor to address and cure all concerns or face potential shut-down.