Mr. President, I rise today to introduce legislation that would modify our bankruptcy laws to deal with bankruptcies in the health care sector.

As Reported Online at http://www.thomas.gov

Posted by the Amerian Bankruptcy Institute

Mr. GRASSLEY. Mr. President, I rise today to introduce legislation that would modify our bankruptcy laws to deal with bankruptcies in the health care sector. According to testimony I received in the Subcommittee on Administrative Oversight and the Courts, almost one-third of our hospitals could face foreclosure because they are not financially sound. And a number of nursing homes are in terrible financial trouble. I believe that chapter 11 and chapter 9 of the Bankruptcy Code could be vitally important in keeping troubled hospitals in business. The bill we are proposing will ensure that chapter 11 will work fairly and efficiently in the unfortunate event that we face a rash of health care bankruptcies. The bill will also make sure the health care businesses which liquidate under Chapter 7 don't just throw patients by the wayside in a rush to sell assets and pay creditors.

Currently, the Bankruptcy Code does an adequate job of helping debtors reorganize and helping creditors recover losses. However, the code does not provide protection for the interests of patients. This bill contains several important reforms to protect patients when health care providers declare bankruptcy. Specifically, the bill addresses the disposal of patient records, the costs associated with closing a health care business, the duty to transfer patients upon the closing of a health care facility and the appointment of an ombudsman to protect patient rights.

Section 102 covers the disposal of patient records. The legislation provides clear and specific guidance to trustees who may not be aware of state law requirements for maintaining the patient records or the confidentiality issues associated with patient records. Section 102 is necessary given the patient's need for the records and the apparent lack of clear instruction, whether statutory or otherwise, describing a proper procedure in dealing with patient records when closing a facility.

Section 103 brings the costs associated with closing a health care business, including any expenses incurred by disposing of patient records and transferring patients to another health care facility, within the administrative expense umbrella of the Bankruptcy Act.

Section 104 provides for an ombudsman to act as an advocate for the patient. This change will ensure that judges are fully aware of all the facts when they guide a health care provider through bankruptcy. Prior to a chapter 11 filing or immediately thereafter, the debtor employs a health care crisis consultant to help it in its reorganization effort. The first step is usually cutting costs. Sometimes, this step may result in a lower quality of patient care. The appointment of an ombudsman should balance the interests between the creditor and the patient. These interests need balancing because the court appointed professionals owe fiduciary duties to creditors and the estate but not necessarily to the patients. There will be occasions which illustrate that what may be in the best interest of creditors may not always be consistent with the patients' best interest. The trustee's interest, for example, is to maximize the amount of the estate to pay off the creditors. The more assets the trustees disburses, the more his payment will be. On the other hand, the ombudsman is designed to insure continued quality of care at least above some minimum standard. Such quality of care standards currently exist throughout the health care environment, from the health care facility itself to State standards and Federal standards.

Consider the following excerpt from the Los Angeles Times on September 28, 1997 which describes the unconscionable, pathetic, and traumatizing consequences of sudden nursing home closings:

It could not be determined Saturday how many more elderly and chronically ill patients may be affected by the health care company's financial problems. Those at the Reseda Care Center in the San Fernando Valley, including a 106-year-old woman, were rolled into the street late Friday in wheelchairs and on hospital beds, bundled in blankets as relatives scurried to gather up clothes and other personal belongings.

The presence of an ombudsman probably would result in fewer instances similar to what I just described, where trustees quickly close health care facilities without notifying appropriate state and federal agencies and without notifying the bankruptcy court.

Section 1105 requires a trustee to use reasonable and best efforts to transfer patients in the face of a health care business closing. This provision is both useful and necessary in that it outlines a trustee's duty with respect to a transfer of vulnerable patients.

For all these reasons, I urge you to join me and my colleagues in supporting this bill which will protect the interests of patients in health care bankruptcies.

Mr. LEAHY. Mr. President, I am pleased to join Senator Grassley and Senator Torricelli in introducing legislation to protect patient privacy when a hospital, nursing home, HMO or other institution holding medical records is involved in a bankruptcy proceeding that leads to liquidation.

Of course, in the best case scenario any institution holding patient health care records would continue to follow applicable state or federal law requiring proper storage and safeguards. The fact is, however, under current law during a business liquidation an individual would have to wait until there has been a serious breach of their privacy rights before anyone stepped in to ensure that patient privacy is protected. Under current law it is questionable what protection these most sensitive personal records would have during a liquidation.

The reality of this situation and the practical questions of what recourse an individual would have if their personal medical records were not properly safeguarded against a business that is going out of business makes this provision essential. Our legislation would set in law the procedure that an institution holding medical records would have to follow during a liquidation proceeding.

The bottom line is that we do not want to have to wait until there has been a breach of privacy before steps are taken to protect patient privacy. Once privacy is breached--there is nothing one can really do to give that back to an individual.

I have been working on the overall issue of medical privacy for many years. I look forward to working with Senator Grassley and Senator Torricelli on this issue to make sure that patient privacy rights are protected in bankruptcy.