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(1) Pursuant to the language in the Bankruptcy Code and rules, the bankruptcy court must appoint a patient care ombudsman unless (1) the debtor does not qualify as a health care business under the Code, or (2) the court finds that the appointment is not necessary for the protection of patients under the specific facts of the case.
(2) Four elements must exist for a debtor to qualify as a health care business: (1) the debtor must be a public or private entity, (2) the debtor must be primarily engaged in offering to the general public facilities and services, (3) the debtor's facilities and services must be offered to the public for the diagnosis or treatment of injury, deformity, or disease, and (4) the debtor's facilities and services must be offered to the public for surgical care, drug treatment, psychiatric care, or obstetric care. To qualify as a "health care business" under the Code, a debtor need not engage in direct and ongoing contact with patients while providing shelter and sustenance, or other inpatient treatment. Based on a plain reading of the Bankruptcy Code, debtors in jointly administered Chapter 11 cases, which operated 19 dental clinics, likely qualified as "health care businesses" where debtors' businesses were private entities, debtors offered various dental and orthodontic services at the clinics, all of which were openly advertised to the general public, including through a publicly available website, and in addition to general dentistry functions, such as annual cleanings and x-rays, debtors' orthodontic practices focused on diagnosing and treating orthodontic deformities, and the array of available services included various surgical procedures, such as root canals, the removal of wisdom teeth, and tooth extractions. (3) Bankruptcy Code's exception to the mandatory appointment of a patient care ombudsman affords a court considerable discretion to weigh the facts of each case when determining whether an ombudsman is required. Under the nine-factor Alternative Family Care test used in determining whether the burden of the party opposing appointment of a patient care ombudsman has been satisfied, courts consider the following: (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 patients to protect their rights, (5) the level of dependency of patients on the facility, (6) the likelihood of tension between the interest of patients and debtor, (7) the potential injury to patients if 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 of the cost of an ombudsman on the likelihood of a successful reorganization. In addition to the nine- factor Alternative Family Care test, courts determining whether the burden of the party opposing appointment of a patient care ombudsman has been satisfied may consider the following: (1) that the facility's patient care is of high quality, (2) that the debtor has adequate financial strength to maintain high-quality patient care, (3) that the facility already has an internal ombudsman program in operation, and (4) that the situation at the facility is adequately monitored by federal, state, local, or professional association programs so that the ombudsman would be redundant. Assuming that Chapter 11 debtors, which operated 19 dental clinics, qualified as "health care businesses," patient care ombudsman was not necessary for protection of patients because debtors' bankruptcy filings appeared to have been caused by cash-flow problem resulting from changes to Medicare reimbursement practices for orthodontics, not by malpractice, debtors' businesses required licenses and insurance coverage, all of which were represented to be current and in accord with state requirements, there was evidence that debtors currently maintained mix of electronic and paper medical records for patients and that the paper records were adequately
©2014 William L. Norton III
