In recent years, Chapter 11 has increasingly become a merger-and-acquisition practice. Debtors regularly “reorganize” by selling some (e.g., Nortel, Lehman Brothers) or all (e.g., Chrysler, GM) of their business. The health-care industry is not exempt from this trend. Sound Shore Medical Center filed its Chapter 11 bankruptcy case intending a sale of its business and assets to Montefiore Health System—a sale that closed last fall. Similarly, St. Francis Hospital of Poughkeepsie, N.Y., filed its Chapter 11 bankruptcy petition on Dec. 17, 2013, with the stated goal of selling its business and assets to Health Quest Systems (which owns Vassar Brothers Hospital in Poughkeepsie) or the bidder making the highest and best offer.

The sale of so-called “covered entities” that are subject to the Health Insurance Portability and Accountability Act (HIPAA) and the HIPAA Privacy Rule (45 CFR §§ 164.500, et. seq.), particularly health-care providers like hospitals, necessarily includes the sale or transfer of the protected health information (PHI) of patients to the purchaser. However, the HIPAA Privacy Rule generally conditions the sale of PHI on the prior written authorization of each affected patient (or the patient’s personal representative). 45 CFR § 164.508(a)(4). Obviously, a blanket application of the HIPAA Privacy Rule to the sale of a covered entity, or even a part thereof, would effectively preclude such sales. Obtaining authorizations from all of a covered entity’s patients—or even the patients of only a division of the covered entity—would be impossible, particularly because HIPAA’s protection of PHI extends for 50 years after the patient’s death. See 45 CFR § 164.502(f).

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