In re North Shore Hematology-Oncology Associates, 400 B.R. 7 (Bankr. E.D.N.Y. 2008)

In re North Shore Hematology-Oncology Associates, 400 B.R. 7 (Bankr. E.D.N.Y. 2008)

A Bankruptcy Court Will Not Appoint a Healthcare Ombudsman Without Evidence of Patients' Dire Circumstances

In re North Shore Hematology-Oncology Associates held that appointment of a healthcare ombudsman is not necessary unless patients' rights to quality care and privacy have already been violated. The threshold for appointing a healthcare ombudsman is very high and requires evidence that patients are already in dire circumstances when a bankruptcy case is filed. This commentary discusses the import of this decision.

Excerpt:

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The United States Bankruptcy Court for the Eastern District of New York has declined to appoint a healthcare ombudsman in the chapter 11 case of a physician-owned, for-profit healthcare practice with five offices located in the state of New York. The decision, In re North Shore Hematology-Oncology Associates, P.C., 400 B.R. 7 (Bankr. E.D.N.Y. 2008), suggests that the threshold for appointing a healthcare ombudsman under 11 U.S.C. § 330(a) is very high and requires evidence of dire circumstances. The Court declined to appoint an ombudsman for the North Shore practice based upon evidence that the business was operating successfully and had a low ratio of patient complaints to patients served.

Background

Section 330(a) of the Bankruptcy Code provides that a court will appoint an ombudsman to "monitor the quality of patient care and to represent the interests of the patients" no later than 30 days after a healthcare provider files a bankruptcy petition. 11 U.S.C. § 330(a)(1). The court need not appoint an ombudsman within the first 30 days, however, if it finds that the debtor's patients do not need protection given the circumstances of the case. Id. A court can instead, on the motion of the United States Trustee or a party in interest, appoint an ombudsman at any time during the case that such appointment becomes necessary. See Fed. R. Bankr. P. 2007.2(b). Because the Code does not provide guidance on the circumstances under which ombudsmen should be appointed, courts have begun developing their own tests. The United States Bankruptcy Court for the Southern District of Florida, for example, has laid out a list of non-exclusive factors for a court to consider:

(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 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 appropriate level of care; and

(9) The impact on the likelihood of a successful reorganization.

See In re Alternate Family Care, 377 B.R. 754,758 (Bankr. S.D. Fla. 2007). Courts can exercise discretion in determining how much weight to give each of these factors. See In re Valley Health Sys., 381 B.R. 756, 762 (Bankr. C.D. Cal. 2008).

The debtor, North Shore Hematology-Oncology Associates, was a physician-owned healthcare practice that provided treatment for cancer and blood disorders. See In re North Shore Hematology-Oncology Assocs., 400 B.R. at 9. The debtor provided all of its services, including radiation therapy and chemotherapy, on an out-patient basis. See id. at 12. After filing its chapter 11 petition, the debtor remained in possession of its assets and continued to operate its business. See id. at 9. The court scheduled a hearing on the need for an ombudsman approximately two weeks after the case commenced. See id. Prior to the hearing, the debtor filed a statement that an ombudsman was not necessary. See id. The United States Trustee also stated its position that the debtor was a health care business, as defined by 11 U.S.C. § 101(27A), and that an ombudsman was not necessary. See id. at 10. [footnote omitted]

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