In every bankruptcy of a "health-care business" as defined in the Bankruptcy Code, the court must consider appointing a patient care ombudsman pursuant to section 330 of the Bankruptcy Code. A patient care ombudsman is an uncharacteristic and, as of 2005, new player in the bankruptcy arena. Before then, the statutory objectives of the participants in the arena were to maximize the value of the estate for creditors. The patient care ombudsman, in contrast to other traditional players in the bankruptcy arena, is focused solely on the patients' well-being in the health-care facility.

This article will discuss (1) how bankruptcy courts determine whether to appoint a patient care ombudsman; and (2) the responsibilities assumed by a patient care ombudsman, once she is appointed in a bankruptcy case.

Appointing a Patient Care Ombudsman

Under 11 U.S.C. §333, if a debtor is a health-care business as defined in the Bankruptcy Code (i.e., under 11 U.S.C. §101(27A)), the court shall order the appointment of a patient care ombudsman within 30 days, unless the court finds that the appointment of a patient care ombudsman is not necessary for the protection of patients under the specific facts of the case.

The Bankruptcy Code does not provide courts with a roadmap for how to determine whether a patient care ombudsman is needed. One case, which has been cited with some degree of regularity and in a variety of circuits on this issue, proposes nine factors for the court to consider in determining whether to appoint a patient care ombudsman:

1. The cause of the bankruptcy;
2. The presence and role of licensing or supervising entities;
3. The 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 reduces its level of patient care;
8. The presence and sufficiency of internal safeguards to ensure appropriate level of care; and
9. The impact of the cost of an ombudsman on the likelihood of a successful reorganization.

See In re N. Shore Hematology-Oncology Assocs., 400 B.R. 7, 11 (Bankr. E.D.N.Y. 2008). See also; In re Barnwell County Hosp., 2011 Bankr. LEXIS 5679 at *12 (Bankr. D.S.C. 2011); In re Valley Health Sys., 381 B.R. 756, 761 (Bankr. C.D. Cal. 2008); In re Alternate Family Care, 377 B.R. 754, 758 (Bankr. S.D. Fla. 2007).

The weight to be accorded to each of the above nine factors is left to the sound discretion of the court. N. Shore Hematology, 400 B.R. at 11 (citing Valley Health, 381 B.R. at 762). Additional factors to be considered 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 patients, 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.

See id. (citing Valley Health Sys., 381 B.R. at 762).

Patient Care Ombudsman's Duties

Per the Bankruptcy Code, a patient care ombudsman is required to:

1. Monitor the quality of patient care provided to patients of the debtor, to the extent necessary under the circumstances, including interviewing patients and physicians;
2. Not later than 60 days after the date of appointment, and not less frequently than at 60-day intervals thereafter, report to the court after notice to the parties in interest, at a hearing or in writing, regarding the quality of patient care provided to patients of the debtor; and
3. If such ombudsman determines that the quality of patient care provided to patients of the debtor is declining significantly or is otherwise being materially compromised, file with the court a motion or a written report, with notice to the parties in interest immediately upon making such determination.

11 U.S.C. §333(a)(1).

Although the role of a patient care ombudsman is important for obvious reasons, the costs incurred by the estate are unlikely to be offset by value being added to the estate. In re Renaissance Hosp.—Grand Prairie, *9. Therefore, it is "incumbent upon the court to ensure that the patient care ombudsman, while fulfilling his statutory role, does not create a serious drain on estate assets." Id. at *9-10.

Frequently, a patient care ombudsman's fiduciary duties will not coincide with the economic interests of other case participants. As one court has put it, a patient care ombudsman's "very job is to ensure that his constituents—patients—are well cared for by the debtor in possession (or trustee). He may press the debtor in possession (or trustee) to take costly measures that will deplete rather than enhance the estate and the ultimate recovery of creditors." In re Renaissance Hosp.—Grand Prairie, 2008 Bankr. LEXIS 3493 at *9 (Bankr. N.D. Tex. 2008).

One issue that has arisen with respect to the balance between the patient care ombudsman's important role in health care bankruptcies and the Bankruptcy Code's overall goal of maximizing the value of the estate is whether a patient care ombudsman should have the power to employ professionals. In the Grand Prairie case, the court determined that authorizing employment of counsel and other professionals by a patient care ombudsman is, pursuant to section 105(a) of the Code, "necessary [and] appropriate to carry out the provisions of [the Code]." Id. at *16. With respect to striking a balance, the court noted:

A patient care ombudsman is an important new party in those cases in which appointment of such a person is warranted. The court must ensure that an ombudsman has the tools—including, as appropriate, professionals—necessary and appropriate to performing his statutory duties and so protecting and assisting the patients who are his constituency.

That said, the duties of professionals employed by an ombudsman should be carefully circumscribed, and employment of a professional by an ombudsman should be authorized only upon a clear showing of need; the ombudsman is not intended to hire others to perform his monitoring and assessment duties, nor is an ombudsman a necessary participant in most aspects of a bankruptcy case. Representation of ombudsmen ought not to become a new profit center for law firms and other professionals. Estates … are not so flush with funds that adding an additional layer of administrative expense to the ordinary costs of chapter 11 is without consequence for the economic constituencies who are the focus and principal intended beneficiaries of the bankruptcy process.

Id. at *16-17.

Conclusion

Given that hospital bankruptcies are on the rise (at least 30 U.S. hospitals filed for bankruptcy relief in 2019), the role of the patient care ombudsman is becoming more necessary and commonplace.  See Lauren Coleman-Lochner and Jeremy Hill, Hospital Bankruptcies Leave Sick and Injured Nowhere to Go, Bloomberg Law (Jan. 9, 2020). The key challenge the courts face is striking a balance between ensuring ongoing proper patient care while maximizing the bankruptcy estate.

Warren J. Martin Jr. is a principal of Porzio, Bromberg & Newman in Morristown, and co-chair of the firm's Bankruptcy and Financial Restructuring Department. Rachel H. Ginzburg is an associate at the firm and a member of the Bankruptcy and Financial Restructuring Team.