By: Felicia Rovegno
St. John's Law Student
American Bankrupcty Institute Law Review Staff
Following a growing trend, the California Bankruptcy Court in In re Valley Health System
declined to appoint a patient care ombudsman under section 333(a)(1).
[2]
Although the “shall order the appointment … unless the court … finds” construction of section 330(a)(1) suggests that patient care ombudsmen should be the rule, courts appear to be avoiding such appointments.
[3]
Consistent with this approach, the Valley Health opinion appears to place the burden on the proponent of the appointment to show that an ombudsman is needed because of specific problems at the facility.
[4]
More importantly, the Court overlooked the arguments that an ombudsman functions as an advocate to warn the court if patient care is being compromised and that because financial concerns drove the facility into bankruptcy, patients are placed at a greater risk.
[5]
Instead, the Court considered the “nine non-exclusive factors”
[6]
articulated in In re Alternate Family Care
[7]
[8]
to hold that a patient care ombudsman was not needed under “the specific facts and circumstances of this case.”
[9]
Applying the nine factor balancing test, the Court found that two factors favored appointment of an ombudsman, while seven factors weighed against the appointment.
[10]
Section 333(a)(1), which was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”),
[11]
granted bankruptcy courts the power to appoint a patient care ombudsman when a health care business files for chapter 7, 9, or 11 bankruptcy relief unless the court finds, under the given circumstances of the case, such appointment to be unnecessary for the protection of patients.
[12]
By allowing the appointment of a patient care ombudsman, Congress intended to guarantee patients protection during the bankruptcy process
[13]
and a fair bankruptcy process.
[14]
Under section 333, a patient care ombudsman functions as a “friend, advocate[,] and mediator”
[15]
by monitoring the quality of patient care and by representing the patients’ interests.
[16]
The court uses a two-step approach to determine whether appointment of a patient care ombudsman is necessary; the court first asks whether the debtor qualifies as a health care business under section 101(27A), and then, asks whether the specific facts and circumstances of the case make such an appointment necessary.
[17]
In order to determine the latter step, nine factors, established in the case In re Alternate Family Care are used to “examine the totality of the circumstances surrounding the bankruptcy filing and the operations of the debtor.”
[18]
The Valley Health opinion and others like it suggest that the “unless” clause of section 333(a)(1) has become the general rule rather than the exception. As a result, health care businesses are avoiding the appointment of a patient care ombudsman.
[19]
Valley Health failed to recognize the role of the ombudsman as an advocate for patients in the bankruptcy process and viewed the appointment of an ombudsman as an unnecessary expense to the estate.
[20]
However, the question remains whether courts have forgotten to keep the big picture in mind, the protection of patients, or whether courts have focused on trying to prevent further financial burden on the debtor, which essentially defeats the whole purpose of section 333(a)(1).
[21]
[3]
See Nancy A. Peterman & Suzanne Koenig, Patient Care Ombudsman: Why So Much Opposition?, 25 Am. Bankr. Inst. J. 22, 22 (2006) (“The focus has been on how to avoid the appointment of the ombudsman” because appointment of ombudsman “has been attacked as an additional, unnecessary cost[,] and possibly a hindrance to the administration of the bankruptcy case.”).
[4]
See In re Valley Health Sys., 381 B.R. at 765 (referring to UST’s burden to prove appointment of ombudsman is needed).
[5]
See
[6]
In re Valley Health Sys., 381 B.R. at 761 (defining nine factors as: “1. [t]he cause of the bankruptcy; 2. [t]he presence and role of licensing or supervising entities; 3. [d]ebtor’s past history of patient care; 4. [t]he ability of the patients to protect their rights; 5. [t]he level of dependency of the patients on the facility; 6. [t]he likelihood of tension between the interests of the patients and the debtor; 7. [t]he potential injury to the patients if the debtor drastically reduced its level of patient care; 8. [t]he presence and sufficiency of internal safeguards to ensure appropriate level of care; and 9. [t]he impact of the cost of an ombudsman on the likelihood of a successful reorganization”).
[8]
See In re Valley Health Sys., 381 B.R. at 761 (citing 3 Collier on Bankruptcy ¶ 333.02, at 333–4 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. 2007). These four other factors include: “(1) the high quality of the debtor’s existing patient care; (2) the debtor’s financial ability to maintain high quality patient care; (3) the existence of an internal ombudsman program to protect the rights of patents, and/or (4) the level of monitoring and oversight by federal, state, local, or professional association programs which renders the services of an ombudsman redundant.” In re Valley Health Sys., 381 B.R. at 761.
[11]
See Samuel R. Maizel, The First Year of the Patient Care Ombudsman in Review: Part 1, 26 Am. Bankr. Inst. J. 18, 18 (2007) (referring to date in which section 333 became effective).
[12]
11 U.S.C. § 333(a)(1) (stating “[i]f the debtor in a case under chapter 7, 9, or 11 is a health care business, the court shall order, not later than 30 days after the commencement of the case, the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients of the health care business unless the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case”).
[13]
See Timothy M. Lupinacci & Eric L. Pruitt, New Player at the Health Care Reorganization Table: Practical Implications of the Patient Care Ombudsman, 24 Am. Bankr. Inst. J. 26, 56 (2005) (citing 105 Cong. Rec. S3129 (daily ed. Apr. 2. 1998) (statement of Sen. Grassley)).
[15]
Lupinacci & Pruitt, supra note 13, at 56 (quoting Elizabeth B. Herrington, Strengthening the Older Americans Act’s Long-term Care Protection Provisions: A Call for Further Improvement of Important State Ombudsman Programs, 5 Elder L.J. 321, 334 (1997)).
[17]
See In re William L. Saber, 369 B.R. 631, 634, 637 (Bankr. D.
[18]
In re Alternate Family Care, 377 B.R. at 758 (stating courts will use nine factors to encompass totality of circumstances in determination of appointment of patient care ombudsman under section 333(a)(1)).
[19]
See Peterman & Koenig, supra note 3, at 22 (arguing “focus has been on how to avoid the appointment of the ombudsman”).
[20]
See In re Valley Health Sys., 381 B.R. at 762, 764 (holding ombudsman was not necessary because “District ha[d] adopted extensive and redundant internal procedures to ensure the highest level of patient care and to resolve expeditiously complaints that may arise concerning patient care” and “[t]he appointment of a patient care ombudsman may result in substantial administrative expense to the estate”).
[21]
See Nancy A. Peterman, Sherri Morissette, & Suzanne Koening, Why So Many Excuses to Avoid the Appointment of a Patient Care Ombudsman?, ABI Health Care Comm. eNewsletter, August 2007, http://www.abiworld.org/committees/newsletters/health/vol4num3/HealthCar... (stating “[p]atient care issues cannot be shortchanged in a health care bankruptcy case given their importance” “[a]nd, thus, a patient care ombudsman, whose role is to provide the patients with a voice in the bankruptcy case, cannot be avoided simply due to a concern over cost”).
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