Adam C. Rogoff on Property of the Estate in Hospital and Health Care Business Chapter 11 Cases

Adam C. Rogoff on Property of the Estate in Hospital and Health Care Business Chapter 11 Cases

In this Emerging Issues commentary, Adam C. Rogoff discusses the definition of "property of the estate" in the case of the bankruptcy of a hospital or other health care facility. It may include certain unique assets such as certificates of need and provider agreements. He writes:


"A certificate of need ("CON") is a certificate issued by a state agency authorizing a health care provider to construct a new or expanded facility, increase bed capacity, or expand clinical services. The requirement that a provider obtain a CON prior to taking such actions is designed primarily to ensure a proper geographic distribution of health care services."

"To receive reimbursement for services rendered to Medicare and Medicaid beneficiaries, health care providers must enter into a "provider agreement." 5 At least one court has held that a debtor's rights under a provider agreement to participate in the Medicare and Medicaid provider reimbursement program are an estate asset. 6 While the provider agreements may be an asset of the estate, section 362(b)(28) contains an exception to the automatic stay permitting a health care provider to be "excluded" from participating in the Medicare program."

"Continuing care and long-term care facilities will often maintain segregated bank accounts in which they hold residents' personal monies in trust. The funds so held may represent living allowances received by residents from the state government as well as personal funds deposited with the facility for safekeeping. Upon written authorization of a resident, a continuing care or long-term care facility is required by law to hold, safeguard, manage and account for the resident's personal funds, and to ensure that the resident's funds are not commingled with the facility's own funds. 9 Pursuant to section 541(d) of the Bankruptcy Code, the funds on deposit in such resident trust fund accounts will not constitute property of the estate upon a health care facility's bankruptcy filing. 10 Nevertheless, for the avoidance of any doubt as to the trust funds' purpose and uses, a health care debtor should be prepared to seek appropriate first-day relief concerning its resident trust funds so that they may continue to be maintained in accordance with the practices in effect as of the petition date."

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Adam C. Rogoff for more than two decades has focused his practice on complex transactional, litigation and advisory work relating to restructuring, commercial finance, Chapter 11 bankruptcy cases, workouts and "pre-packaged" Chapter 11 matters. He has extensive experience representing a broad range of corporate debtors, creditors (including DIP lenders), creditors' committees, and other parties in Chapter 11 restructurings and out-of-court workouts.