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

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Mission Critical — Know How to Close Before Starting the Surgery

Tuesday, October 30 | 10:30 AM – 11:30 AM

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Table of Contents

• I. Introduc tion
• A. Ba nkruptc y Co de a nd He a lthc a re
• B. Ba nkruptc y Co de a nd No t-F
• r-Pro fit He a lthc a re Busine sse s
• II. Closure / T

ra nsfe r of Not- F

• r- Profit He a lthc a re F

a c ilitie s

• A. Clo sure / T

ra nsfe r Co nside ra tio ns

• i. Ca se Studie s
• B. Re a l E

sta te a nd Zo ning Co nc e rns

• C. “Cha rita b le Missio n” Co nside ra tio ns in Appro va l o f T

ra nsfe r

• 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 F . Pro vide r Ag re e me nts 4 6 7 9 13 14 15 16 17

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Introduction

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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.

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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

• 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 Prio rity Rule to No npro fit E nte rprise s in Bankruptc y, 118 YAL E L . J. 1231, 1237 n.31 (2009).

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Closure/Transfer of Not-For-Profit Healthcare Facilities

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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.

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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
• 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
• 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 .

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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

fo r future re -d e ve lo pme nt, fa vo re d b y mo rtg a g e c re d ito rs.

• L

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, re spe c tive ly.

• 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

lo st, with ina d e q ua te “a b so rptio n” o f the se rvic e s b y

• the r pro vid e rs. As a re sult, re g ula to ry b o d ie s o ppo se d

c lo sure .

• Clo sure Co sts wo uld ha ve b e e n ve ry sig nific a nt:
• Pa tie nt pla c e me nt wo uld b e time -c o nsuming
• No a va ila b le a lte rna tive b e d s fo r in-pa tie nts
• 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

• utpa tie nt)
• Me d ic a l re c o rd s sto ra g e c o sts
• Sa int Vinc e nt's he a lth c a re missio n wo uld ha ve b e e n

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.

• E

nsure d pa tie nt sa fe ty a nd c o ntinua tio n o f c a re .

• Avo id e d e xte nsive c lo sure -re la te d c o sts.
• Ma rke ting pro c e ss re sulte d in o nly o ne via b le he a lth c a re

pro vid e r willing to purc ha se the b usine ss.

• 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

re a l e sta te tha t c o uld sa tisfy the ir c la ims. Ho we ve r, sta te re g ula to rs wo uld no t a ppro ve c lo sure . Sa int Vinc e nt’ s We stc he ste r put to g e the r a c re a tive so lutio n sinc e o nly

• ne -ha lf o f the pro pe rty wa s use d b y the ho spita l.
• T
• 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 to b uy b a c k the re a l e sta te tha t the ho spita l d id no t use .

• Ma rke ting pro c e ss a nd b id pro c e d ure s fo r the re a l

e sta te o ptio n we re e sta b lishe d with the ho spita l b uye r se rving a s the sta lking ho rse .

• If a hig he r b id e me rg e d fo r the o ptio n the n the
• ptio n c o uld b e purc ha se d fro m the ho spita l b uye r,

sub je c t to c e rta in c o nd itio ns.

• 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

the o pe ra tio ns in a g o ing c o nc e rn sa le .

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Case Study: Gardens Regional Hospital and Medical Center, Inc.

• Ga rde ns Re g io na l Ho spita l a nd Me dic a l Ce nte r, I

nc . (“Ga rde ns”), a no t-fo r-pro fit ho spita l in Ha wa iia n Ga rde ns, Ca lifo rnia , file d fo r b a nkruptc y fo llo wing fina nc ia l diffic ultie s.

• Within the first two mo nths o f the c a se , the Co urt a ppro ve d a sa le o f the o pe ra ting Ho spita l to Stra te g ic

Glo b a l Ma na g e me nt, I nc . (“Stra te g ic ”), a fo r-pro fit e ntity, fo r $19.5 millio n.

• As re q uire d unde r sta te la w, Ga rde ns so ug ht the Ca lifo rnia Atto rne y Ge ne ra l’ s (the “AG”) a ppro va l to se ll

its a sse ts. T he AG a ppro ve d the sa le unde r c e rta in o ne ro us c o nditio ns, whic h Ga rde ns a nd re pre se nta tive s o f two unio ns sub se q ue ntly so ug ht to mo dify. T he AG de nie d the mo dific a tio n re q ue sts, c a using the b uye r to te rmina te the sa le c o ntra c t.

• By this time , Ga rde ns ha d e xha uste d ne a rly a ll o f its DI

P fina nc ing , a nd fa c e d immine nt liq uidity e xha ustio n. T hus, Ga rde ns re c e ive d a ppro va l o f a n e me rg e nc y mo tio n to c lo se the ho spita l.

• Afte r c lo sure , Ga rde ns fo und a purc ha se r fo r a numb e r o f its a sse ts fo r sub sta ntia lly le ss tha n the o rig ina l

purc ha se pric e . Ga rde ns a sse rte d it wa s no t re q uire d to o b ta in AG c o nse nt b e c a use the Ho spita l wa s c lo se d.

• T

he Ba nkruptc y Co urt a g re e d, no ting tha t Ga rde ns no lo ng e r q ua lifie d a s a “ho spita l fa c ility” unde r se c tio n 1250 o f the Ca lifo rnia He a lth & Sa fe ty Co de , whic h de fine s he a lth fa c ility a s “a fa c ility . . . tha t is

• rg a nize d, ma inta ine d, a nd o pe ra te d fo r the dia g no se s, c a re , pre ve ntio n, a nd tre a tme nt o f huma n

illne ss . . . to whic h the pe rso ns a re a dmitte d fo r a 24-ho ur sta y o r lo ng e r . . . .”.

• T

he AG a ppe a le d to the Distric t Co urt. Ho we ve r, the Distric t Co urt dismisse d this a ppe a l a s sta tuto rily mo o t.

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Case Study: St. Francis’ Hospital

• A fe w mo nths shy o f its 100th b irthda y, St. F

ra nc is’ Ho spita l, a no t-fo r-pro fit ho spita l in Po ug hke e psie , Ne w Yo rk, file d Cha pte r 11 in De c e mb e r 2013.

• I

n c o nne c tio n with se le c ting He a lth Que st (the de b to r’ s c ro ss-to wn riva l) a s the sta lking ho rse b idde r fo r the de b to r’ s a sse ts, the de b to r e ng a g e d in disc ussio ns with the U.S. a nd Ne w Yo rk sta te a nti-trust re g ula to rs fo r a ppro va l o f the sa le .

• F
• llo wing sig nific a nt ne g o tia tio ns, the de b to rs we re a b le to e sta b lish a n unde rsta nding with the

re g ula to rs tha t: (i) no o the r pa rty c o uld b e in a po sitio n to b e sta lking ho rse b idde r o n the time line re q uire d to se e k b a nkruptc y pro te c tio n a nd a va il the ho spita l o f de b to r-in-po sse ssio n fina nc ing , a nd (ii) the de b to r’ s a g g re ssive po st-pe titio n ma rke ting pro c e ss c o uld po te ntia lly re sult in a n a lte rna tive b uye r tha t wo uld pre se rve the c o mpe titive la ndsc a pe .

• T

he re g ula to rs re se rve d the ir rig hts, b ut a g re e d no t to o b je c t a t the o utse t o f the b a nkruptc y c a se .

• T

hro ug ho ut the po st-pe titio n ma rke ting pro c e ss, We stc he ste r Me dic a l Ce nte r (“WMC”) e me rg e d a s a n inte re ste d pa rty a nd sub mitte d a sig nific a nt o ve rb id in e xc ha ng e fo r the de b to r’ s a g re e me nt to c a nc e l the a uc tio n a nd de c la re WMC the suc c e ssful purc ha se r. Ac c o rding ly, the de b to rs c a nc e lle d the a uc tio n.

• Ho we ve r, a t the he a ring to a ppro ve the sa le to WMC, the c o urt e xpre sse d sig nific a nt c o nc e rn o ve r the

de b to r’ s de c isio n to c a nc e l the a uc tio n witho ut first se e king c o urt a ppro va l. Upo n he a ring furthe r te stimo ny fro m the pa rtie s, the c o urt ultima te ly a ppro ve d the sa le , a c kno wle dg ing tha t the de b to r ha d a c c e pte d the hig he st o r o the rwise b e st o ffe r fo r its a sse ts.

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Case Study: Daughters of Charity

• Da ug hte rs o f Cha rity He a lth Syste m (“DCHS”) o pe ra te d va rio us ho spita ls in Ca lifo rnia . It und e rto o k a ne a rly two ye a r sa le

pro c e ss, prima rily b e c a use o f the rig o ro us a ppro va l pro c e ss.

• T

he DCHS sa le pro c e ss time line :

• 2013: T

he DCHS b o a rd a nno unc e s tha t witho ut a sa le , c lo sure o r b a nkruptc y wa s ne c e ssa ry.

• Oc tobe r

2014: F

• llo wing re c e ipt o f multiple b id s, DCHS a nno unc e s pro po se d sa le to Prime He a lthc a re Se rvic e s

(“Prime ”).

• F

e br uar y 2015: T

he Ca lifo rnia Atto rne y Ge ne ra l a ppro ve s the pro po se d sa le to Prime b ut impo se s 78 pa g e s o f c o nd itio ns tha t inc lud e d re q uiring a c q uire r to ke e p 4 o f 6 ho spita ls o pe n fo r 10 ye a rs a s a c ute ho spita ls a nd o pe ra te a fifth ho spita l a s skille d nursing a nd e me rg e nc y se rvic e fa c ility – no ne o f whic h we re pro fita b le pa rts o f the b usine ss.

• Mar

c h 2015: Pro po se d sa le to Prime c o lla pse s a s a re sult o f Ca lifo rnia Atto rne y Ge ne ra l’ s “impo ssible ” c o nd itio ns. M&A

a nd b a nkruptc y pre pa ra tio n e ffo rts re sume .

• De c e mbe r

2015: Ca lifo rnia Atto rne y Ge ne ra l a ppro ve s a lo ng -te rm ma na g e me nt a g re e me nt (with a purc ha se o ptio n)

with a n a ffilia te o f Blue Mo unta in Ca pita l Ma na g e me nt. A ke y fa c to r in the Atto rne y Ge ne ra l’ s a ppro va l wa s a re q uire me nt o f the b uye r to ma inta in the syste m’ s e sse ntia l se rvic e s fo r a t le a st 10 ye a rs a nd o pe ra te the syste m a s a no t-fo r-pro fit ho spita l fo r up to 15 ye a rs. DCHS is re na me d a s Ve rity He a lth Syste m (“Ve rity”).

• De spite re c a pita liza tio n o f the ho spita l syste m’ s o pe ra tio ns, Ve rity c o ntinue d to strug g le a nd file d fo r b a nkruptc y o n Aug ust

31, 2018. T he De b to rs c ite d a numb e r o f fa c to rs le a d ing to its b a nkruptc y filing , inc lud ing , b e lo w ma rke t ra te pa yme nts o n its pa yo r c o ntra c ts, inc re a se o f $65 millio n in pa yro ll c o sts, $66 millio n in e xpe c te d pe nsio n fund ing re q uire me nts, $50 millio n in re q uire d IT inve stme nts, $150 millio n in re q uire d se ismic a nd e ne rg y e xpe nd iture s a nd d e la ys in a ppro va l a nd re c e ipt o f lo we r tha n e xpe c te d a mo unts o f Ho spita l Qua lity Assura nc e F e e s. Ve rity se e ks to se ll a ll six o f its ho spita ls po st-pe titio n in a sa le und e r se c tio n 363 o f the Ba nkruptc y Co d e .

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Real Estate and Zoning Considerations in Closure/Transfer of Healthcare Facilities

• Whe n e va lua ting a distre sse d he a lth c a re b usine ss, the va lue o f the unde rlying

re a l e sta te (o fte n the mo st luc ra tive a sse t) is a n impo rta nt c o nside ra tio n.

• Ho we ve r, re a l e sta te use d b y ho spita ls is o fte n spe c ific a lly zo ne d fo r he a lth c a re

purpo se s o nly, the re b y re q uiring re zo ning fo r a n a lte rna tive use .

• F
• r e xa mple , re q ue sts fo r re zo ning in Ne w Yo rk City a re sub je c t to the c ity’ s

Unifo rm L a nd Use Re vie w Pro c e dure (“UL URP”) pro c e ss. T he UL URP pro c e ss ta ke s a ppro xima te ly 200-215 da ys a nd re q uire s e xte nsive re g ula to ry a nd po litic a l re vie w.

• Case Study:
• Saint Vinc e nt’s Manhattan: T

he ho spita l unde rto o k a ma rke ting pro c e ss o f the ma in Ma nha tta n ho spita l c a mpus. T he ke y c ha lle ng e wa s tha t the re a l e sta te wo uld re q uire re zo ning if use d fo r no n-he a lth c a re purpo se s. T

• a ssist in this

pro c e ss, the de b to rs re q uire d tha t a ny la nd purc ha se r pro vide a “he a lth c a re so lutio n” fo r pa rt o f the fo rme r c a mpus. Sa int Vinc e nt’ s se c ure d a purc ha se r tha t pa id $260 millio n fo r the re a l e sta te (no t c o nditio ne d o n zo ning o r re g ula to ry a ppro va l) a nd a g re e d to de ve lo p the first fre e -sta nding e me rg e nc y de pa rtme nt in Ne w Yo rk City o n o ne pa rc e l. I t to o k the purc ha se r 200 pub lic me e ting s o ve r the spa n o f o ve r o ne ye a r to ultima te ly o b ta in re zo ning .

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Bankruptcy Court Consideration of Charitable Mission in Approval of Transfer of Not-For-Profit Healthcare Facilities

• Cha rita ble Mission: Co urts will c o nside r the c ha rita b le missio n o f a no t-fo r-pro fit he a lthc a re

b usine ss in a sse ssing whe the r to a ppro ve a sa le o r tra nsfe r o f its a sse ts.

• Hig he st or Be st: Co urts ha ve uphe ld the no tio n tha t hig he r pric e do e s no t ne c e ssa rily yie ld

the b e st use o f he a lthc a re a sse ts.

• I

n I n re Unite d He althc are Sys., I nc ., the Distric t Co urt o f Ne w Je rse y fo und tha t pre se rva tio n o f the a c ute he a lthc a re c e nte r’ s missio n a s a n inte g ra te d c hildre n’ s ho spita l wa rra nte d a ppro va l o f a sa le tra nsa c tio n a nd tha t the Ba nkruptc y Co urt e rre d in a ppro ving a no the r, purpo rte dly hig he r c o mpe ting tra nsa c tio n.

• T

he Ba nkruptc y Co urt re je c te d the sa le to Sa int Ba rna b a s (c o mmitte d to c o ntinuing c hildre n’ s ho spita l in o ne lo c a tio n), ruling tha t the tra nsa c tio n hinde re d the a b ility to

• b ta in a fa ir pric e fo r the a sse ts fo r the b e ne fit o f c re dito rs. T

he Ba nkruptc y Co urt fo und tha t a c o mpe ting b id wa s hig he r a nd b e tte r a nd pre se rve d mo re jo b s a nd pro te c te d mo re physic ia ns. I n re Unite d He althc are Sys., I nc ., 1997 Ba nkr. L E XI S 2358, *24-25 (Ba nkr. N.J. Ma rc h 5, 1997).

• On a ppe a l, the Distric t Co urt o f Ne w Je rse y re ve rse d the Ba nkruptc y Co urt a nd fo und

the “[c ]o urt must no t o nly we ig h the fina nc ia l a spe c ts o f the tra nsa c tio n b ut a lso lo o k to the c o unte rva iling c o nside ra tio n o f a pub lic he a lth e me rg e nc y.” I n re Unite d He althc are Sys., I nc ., 1997 WL 176574, a t *5 (D.N.J. Ma r. 26, 1997).

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Fiduciary Duties of Directors Prior to and During Transfer of Healthcare Facilities

1. Duty of Ca re

• Dire c to rs o f no t-fo r-pro fits a nd fo r-pro fits must a c t with the dilig e nc e , c a re a nd skill tha t a n
• rdina ry prude nt pe rso n wo uld e xe rc ise unde r simila r c irc umsta nc e s.

2. Duty of L

• ya lty
• Dire c to rs o f no t-fo r-pro fits a nd fo r-pro fits must put the o rg a niza tio n’ s inte re sts b e fo re the ir
• wn.

3. Duty of Obe die nc e (“Cha rita ble Mission”)

• No t-fo r-pro fit dire c to rs po sse ss a duty o f o b e die nc e to e nsure tha t the c ha rita b le missio n

is c a rrie d o ut sinc e the ultima te o b je c tive o f no t-fo r-pro fits is pe rpe tua tio n o f pa rtic ula r a c tivitie s tha t a re c e ntra l to the raiso n d’ e tre o f the o rg a niza tio n.

• T

he c ha rita b le missio n c a n b e a ke y c o nside ra tio n fo r the sa le o r tra nsfe r o f a sse ts a s the de b to r’ s b o a rd o f dire c to rs b a la nc e s the ne e d to ma ximize va lue fo r the e sta te ’ s c re dito rs, o n the o ne ha nd, with pre se rva tio n o f the de b to r’ s he a lthc a re missio n, o n the

• the r ha nd.

4. Duty During Zone of Insolve nc y

16

Treatment of Charitable Donations in Closure/Transfer of Not-For-Profit Healthcare Facilities

• No t-fo r-pro fits o fte n re c e ive g ifts a nd b e q ue sts whic h ma y b e pro pe rty
• f the e sta te , de pe nding o n whe the r the re a re re stric tio ns o n use .
• Ge ne ra lly, re stric te d do na tio ns, de line a te d fo r a spe c ific purpo se , ma y
• nly b e use d fo r the purpo se de line a te d b y the do no r.
• A he a lth c a re institutio n ma y utilize the sta te la w do c trine o f c y pre s to

a llo w fo r a re stric te d do na tio n to b e use d fo r a no the r simila r purpo se o r tra nsfe rre d to a no the r institutio n tha t c a n pro mo te the te sta to r’ s inte nt.

• T

hre e c o nditio ns tha t g e ne ra lly ha ve to b e sa tisfie d b e fo re the a pplic a tio n o f c y pre s a re : (a ) the g ift o r trust is c ha rita b le in na ture ; (b ) the do no r de mo nstra te d a g e ne ra l inte nt ra the r tha n spe c ific ; a nd (c ) c ha ng e d c irc umsta nc e s a fte r the b e q ue st o r g ift re nde r c o mplia nc e with the te rms impo ssib le o r impra c tic a b le .

17

Assignment of Provider Agreements

• Pr
• vide r

Agr e e me nts as Impor tant Sour c e of Re ve nue :

• I

n o rde r to re c e ive Me dic a re a nd Me dic a id re imb urse me nts, he a lth c a re pro vide rs must e nte r into “pro vide r a g re e me nts.”

• Pro vide r a g re e me nts a re the prima ry so urc e o f re ve nue s fo r mo st he a lthc a re pro vide rs (no t-fo r-pro fit

a nd fo r-pro fit). T he a b ility o f the g o ve rnme nt (o r o the r pa yo rs) to re c o up, o ffse t o r re duc e pa yme nts c a n ha ve a n imme dia te a nd de trime nta l impa c t upo n a distre sse d pro vide r’ s a b ility to o pe ra te .

• Pr
• vide r

Agr e e me nts as E xe c utor y Contr ac ts:

• I

f a de b to r wa nts its Me dic a re Pro vide r Ag re e me nt a ssig ne d, c o urts c o nside r whe the r the a g re e me nt is a n “e xe c uto ry c o ntra c t.”

• T

he o ve rwhe lming ma jo rity vie w is tha t pro vide r a g re e me nts a re e xe c uto ry c o ntra c ts, a nd c a n b e a ssume d a nd a ssig ne d unde r se c tio n 365, a nd tha t the b uye r is ultima te ly re spo nsib le fo r a ll pre - a ssig nme nt e xpo sure (e xc e ptio n b e ing Me dic a re “supplie rs”).

• E

ve n if a c o urt we re to find pro vide r a g re e me nts a re no t e xe c uto ry c o ntra c ts, de b to rs a nd purc ha se rs must still me e t re q uire me nts o f se c tio n 363(f) in o rde r to se ll suc h a g re e me nts fre e a nd c le a r o f lie ns, c la ims a nd inte re sts o f CMS.

• As a pra c tic a l ma tte r, pro vide r a g re e me nts c a nno t b e “so ld” to a ne w o wne r “fre e a nd c le a r”
• f inte re sts pursua nt to 11 U.S.C. § 363 b e c a use no ne o f the re q uire me nts o f § 363(f)(1)-(5) c a n

b e me t.

• Ag a in, whe n pro vide r a g re e me nts a re a ssig ne d to a ne w o wne r, the ne w o wne r is re spo nsib le

fo r o ve rpa yme nts inc urre d unde r the sa me pro vide r a g re e me nt b y the pre vio us o wne r.

18

Assignment of Provider Agreements (Continued)

• Whe the r the g o ve rnme nt ha s e xc lude d o r te rmina te d the de b to r’ s pro vide r a g re e me nts is

a n impo rta nt c o nside ra tio n in a tra nsfe r o f a he a lthc a re fa c ility.

• Provide r E

xc lusion a nd T e rmina tion of Provide r Re imburse me nt Ag re e me nts

• Ac tua l o r thre a te ne d lo ss o f pro vide r a g re e me nts ha s c a use d b a nkruptc y c a se s a s

pro vide rs se e k the pro te c tio n o f the a uto ma tic sta y.

• I

n g e ne ra l, e xc lusio n o f a pro vide r 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 b y the U.S. HHS I G is pe rmissib le pursua nt to Se c tio n 362(b )(28) o f the Ba nkruptc y Co de .

• T

e rmina tio n o f g o ve rnme nt pro vide r a g re e me nts is no t e xpre ssly e xe mpt fro m the a uto ma tic sta y b ut fa lls unde r the Go ve rnme nt’ s po lic e a nd re g ula to ry po we r e xc e ptio n. 11 U.S.C. § 362(b )(4).

• Parkvie w Adve ntist Me d. Ctr. v. Unite d State s, 842 F

.3d 757 (1st Cir. 2016) (T e rmina tio n o f Me dic a re pro vide r a g re e me nt wa s no t vio la tio n o f b a nkruptc y a uto ma tic sta y b e c a use po lic e a nd re g ula to ry po we r e xc e ptio n to the sta y o f the Ba nkruptc y Co de a pplie d).

• I

n re Bayo u Sho re s SNF , L L C, 828 F .3d 1297, 1322 (11th Cir. 2016) (Pursua nt to 42 U.S.C. § 405(g ), (h), Ba nkruptc y Co urts la c k jurisdic tio n o ve r issue s “a rising unde r” the Me dic a re Ac t, inc luding whe the r to sta y te rmina tio n o f Me dic a re pro vide r a g re e me nt; ra the r, a ny suc h issue s must b e pursue d e xc lusive ly thro ug h the a dministra tive pro c e ss).

19

Recoupment of Medicaid/Medicare Overpayments

• He a lthc a re pro vide rs ma y b e sub je c t to re c o upme nt o f the ir g o ve rnme nt

re c e iva b le s due to o ve rpa yme nts fo r se rvic e s re nde re d a ffe c ting liq uidity a nd se c urity inte re sts.

• T

he ma jo rity o f fe de ra l c irc uits ha ve fo und tha t the Me dic a re syste m o f e stima te d pa yme nts a nd la te r a djustme nts q ua lifie s a s a sing le tra nsa c tio n fo r purpo se s o f re c o upme nt a nd the re fo re the re a re no limita tio ns o n re c o upme nt. Only the T hird Circ uit limits Me dic a re to re c o uping within the sa me c o st re po rt ye a r (e .g ., vie ws a s se pa ra te tra nsa c tio ns). Ho we ve r, o nc e a pro vide r a ssume s its pro vide r a g re e me nt, Me dic a re ’ s re c o upme nt rig hts (inc luding fo r prio r

• ve rpa yme nts fo r diffe re nt c o st ye a rs) a re no t limite d.