Mission Critical Know How to Close Before Starting the Surgery - PowerPoint PPT Presentation

Mission Critical — Know How to Close Before Starting the Surgery Tuesday, October 30 | 10:30 AM – 11:30 AM 1

Table of Contents I. Introduc tion 4 A. Ba nkruptc y Co de a nd He a lthc a re 6 B. Ba nkruptc y Co de a nd No t-F o r-Pro fit He a lthc a re Busine sse s II. Closure / T ra nsfe r of Not- F or- Profit He a lthc a re F a c ilitie s 7 A. Clo sure / T ra nsfe r Co nside ra tio ns 9 i. Ca se Studie s 13 B. Re a l E sta te a nd Zo ning Co nc e rns 14 C. “Cha rita b le Missio n” Co nside ra tio ns in Appro va l o f T ra nsfe r 15 D. F iduc ia ry Dutie s o f Dire c to rs E . Do no r Re stric te d Asse ts / F unds 16 17 F . Pro vide r Ag re e me nts 2

Introduction 3

Intersection of the Bankruptcy Code and Healthcare • Se c tions of the Ba nkruptc y Code Unique to He a lthc a re : • 11 U.S.C. § 101(27A) – De fine s “he a lth c a re b usine ss.” • 11 U.S.C. § 351 – E sta b lishe s pro c e dure s fo r the dispo sitio n o f pa tie nt re c o rds whe re the e sta te ha s insuffic ie nt funds to c o mply with sta te la w re q uire me nts. • 11 U.S.C. § 333 – Appo ints a Pa tie nt Ca re Omb udsma n • 11 U.S.C. § 362(b)(28) – Pe rmits po st-pe titio n e xc lusio n o f pro vide r a g re e me nts fro m Me dic a re , Me dic a id, a nd o the r fe de ra l he a lthc a re pro g ra ms. • 11 U.S.C. § 503(b)(8) – Gra nts a dministra tive prio rity fo r c lo sure c o sts o f a he a lth c a re b usine ss. • 11 U.S.C. § 704(a )(12) – Pro vide s truste e must use b e st e ffo rts whe n tra nsfe rring pa tie nts fro m a c lo sing he a lth c a re b usine ss. • 11 U.S.C. § 525(a ) – Pro hib its g o ve rnme nt disc rimina tio n a g a inst a de b to r so le ly b e c a use the de b to r file d fo r b a nkruptc y. • 28 U.S.C. § 959 – Go ve rns truste e ’ s o b lig a tio n to ma na g e a nd o pe ra te in a c c o rda nc e with a pplic a b le sta te la w. 4

Application of Bankruptcy Code to Not-For-Profit Healthcare Businesses • Adhe re nc e to Sta te L a w : Se c tio n 1129(a )(16) a pplie s the re q uire me nts o f 363(d)(1) a nd 541(f) to c o nfirma tio n o f a pla n. • Involunta ry F iling s / Conve rsions : No t-fo r-pro fit ho spita ls ma y no t b e sub je c t to invo lunta ry c a se s unde r Cha pte r 7 a nd 11, inc luding invo lunta ry c o nve rsio n. • No te : No pro te c tio ns a g a inst dismissa l, a ppo intme nt o f a truste e , o r liq uida tio n in Cha pte r 11. • Absolute Priority Rule : T ypic a lly ina pplic a b le to no t-fo r-pro fit b usine sse s. • “T his [e xc e ptio n] a ssume s tha t the dire c to rs a re c o mplying with the ir fiduc ia ry dutie s. T o the e xte nt tha t dire c to rs vio la te the ir dutie s a nd ina ppro pria te ly ma na g e the no npro fit’ s re so urc e s fo r the ir o wn g a in, e ve n the dire c to rs o f a n e ntre pre ne uria l no npro fit ma y b e se e n to vio la te c e rta in po lic y g o a ls o f se c tio n 1129.” Ame lia Ra wls, Applying the Ab so lute nte rprise s in Bankruptc y , 118 YAL E L . J. 1231, 1237 n.31 (2009). Prio rity Rule to No npro fit E 5

Closure/Transfer of Not-For-Profit Healthcare Facilities 6

Considerations for the Closure/Transfer of Not-For-Profit Healthcare Facilities • Ordina ry Course : I s the c lo sure o f a ho spita l a no n-o rdina ry c o urse tra nsa c tio n? T e xt o f 11 U.S.C. § 1108 le a ve s it unc le a r tha t a ppro va l unde r se c tio n 363 o f the Ba nkruptc y Co de is re q uire d. • Ho we ve r, in lig ht o f the inte nse sc rutiny a nd pub lic ity tha t a ho spita l c lo sure is like ly to c a use , de b to rs o fte n se e k c o urt a ppro va l b e fo re imple me nting a c lo sure . • Sta te L a w Conside ra tions : • Se c tio n 363(d)(1) re q uire s tha t no t-fo r-pro fit b usine sse s c o o rdina te tra nsfe rs a nd sa le s in a c c o rda nc e with sta te la w. • Se c tio n 541(f) pro vide s tha t a ny ta x-e xe mpt c o rpo ra tio n ma y tra nsfe r a sse ts to a no nta x e xe mpt e ntity o nly “ unde r the same c o nditio ns as wo uld apply if the de b to r had no t file d a c ase unde r this title .” • T he le g isla tive histo ry indic a te s tha t the Ba nkruptc y Co urt ha s jurisdic tio n to a ppro ve tra nsfe rs o f no t-fo r-pro fit he a lthc a re b usine sse s in a c c o rda nc e with no n-b a nkruptc y la w. • De b to r ne e ds to c o nside r po te ntia l c o nflic ts b e twe e n the Ba nkruptc y Co urt’ s se c tio n 363 re vie w a nd the sta te c o urt re vie w sta nda rd. 7

Considerations for the Closure/Transfer of Not-For-Profit Healthcare Facilities (Continued) • Coordina tion with Re g ula tors : Co o rdina tio n with fe de ra l, sta te a nd lo c a l re g ula to ry b o die s is a must fo r c lo sure / tra nsfe r o f no t-fo r-pro fit a nd fo r-pro fit he a lthc a re fa c ilitie s. • F o r-pro fit o r no t-fo r-pro fit pro vide rs ma y b e re q uire d to o b ta in a ppro va l o f a Ho spita l Pla n o f Clo sure fro m re le va nt sta te a g e nc ie s. • So me sta te s re q uire no t-fo r-pro fit o rg a niza tio ns to o b ta in writte n c o nse nt o f the a tto rne y g e ne ra l prio r to a ny sa le / tra nsfe r/ c lo sure . • Sta te lic e nse s must b e re vie we d individua lly fo r tra nsfe r/ a ppro va l re q uire me nts. • E xa mple : T he Sa int Vinc e nt’ s b a nkruptc y, c lo sure , a nd tra nsfe r o f se rvic e s invo lve d c o o rdina tio n with o ve r twe lve a g e nc ie s, inc luding b ut no t limite d to , N.Y. De pt. o f He a lth, N.Y. Sta te L iq uo r Autho rity, N.Y. Sta te De pt. o f Mo to r Ve hic le s, U.S. Nuc le a r Re g ula to ry Co mmissio n, a nd N.Y. De pt. o f E nviro nme nta l Pro te c tio n. • I n a no t-fo r-pro fit to fo r-pro fit c o nve rsio n, pro vide rs must b e mindful o f no n-b a nkruptc y la ws e ve n if the pro vide r ha s file d fo r b a nkruptc y. • Se c tio n 704(a )(12) re q uire s a truste e to use re a so na b le b e st e ffo rts fo r tra nsfe r o f pa tie nts to a ne a rb y fa c ility o ffe ring sub sta ntia lly simila r se rvic e s a nd to ma inta in re a so na b le q ua lity o f c a re . 8

Case Study: Saint Vincent’s Westchester • Sa int Vinc e nt’ s We stc he ste r (inpa tie nt / o utpa tie nt b e ha vio ra l he a lthc a re ) fa c e d two o ptio ns – (1) c lo se the ho spita l / se ll the re a l e sta te fo r no n-he a lth c a re use o r (2) se ll the ho spita l to a n a c q uire r tha t wo uld c o ntinue to o pe ra te the fa c ility. Closur e Option Going Conc e r n Sale  Clo sure wo uld a llo w fo r sa le o f 66 a c re re a l e sta te pa rc e l  E nsure d pa tie nt sa fe ty a nd c o ntinua tio n o f c a re . fo r future re -d e ve lo pme nt, fa vo re d b y mo rtg a g e  Avo id e d e xte nsive c lo sure -re la te d c o sts. c re d ito rs.  L  Ma rke ting pro c e ss re sulte d in o nly o ne via b le he a lth c a re ie ns o n re a l e sta te a nd the b e ha vio ra l he a lth b usine ss we re $170 millio n a nd $320 millio n, pro vid e r willing to purc ha se the b usine ss. re spe c tive ly.  Mo rtg a g e c re d ito rs b e lie ve d tha t the re wa s va lue in the  Critic a l b e ha vio ra l he a lth c a re se rvic e s wo uld ha ve b e e n re a l e sta te tha t c o uld sa tisfy the ir c la ims. Ho we ve r, sta te lo st, with ina d e q ua te “a b so rptio n” o f the se rvic e s b y re g ula to rs wo uld no t a ppro ve c lo sure . Sa int Vinc e nt’ s o the r pro vid e rs. As a re sult, re g ula to ry b o d ie s o ppo se d We stc he ste r put to g e the r a c re a tive so lutio n sinc e o nly c lo sure . o ne -ha lf o f the pro pe rty wa s use d b y the ho spita l.  Clo sure Co sts wo uld ha ve b e e n ve ry sig nific a nt:  T o pro vid e the mo rtg a g e c re d ito rs with upsid e , the Buye r a g re e d to ma ke a n o ptio n a va ila b le to Se lle r  Pa tie nt pla c e me nt wo uld b e time -c o nsuming to b uy b a c k the re a l e sta te tha t the ho spita l d id no t - No a va ila b le a lte rna tive b e d s fo r in-pa tie nts use .  Ma rke ting pro c e ss a nd b id pro c e d ure s fo r the re a l - No pa rty willing to ta ke o ve r ma ny o f the tre a tme nt pro g ra ms (b o th inpa tie nt a nd e sta te o ptio n we re e sta b lishe d with the ho spita l o utpa tie nt) b uye r se rving a s the sta lking ho rse .  Me d ic a l re c o rd s sto ra g e c o sts  If a hig he r b id e me rg e d fo r the o ptio n the n the o ptio n c o uld b e purc ha se d fro m the ho spita l b uye r,  Sa int Vinc e nt's he a lth c a re missio n wo uld ha ve b e e n sub je c t to c e rta in c o nd itio ns. a b a nd o ne d . As suc h, its no t-fo r-pro fit sta tus pro vid e d fle xib ility in a sse ssing a lte rna tive s. • Ultima te ly, with the suppo rt o f Ne w Yo rk Sta te a nd the c o mmunity, Sa int Vinc e nt’ s We stc he ste r tra nsfe rre d 9 the o pe ra tio ns in a g o ing c o nc e rn sa le .