PCOs and the Ongoing Debate over Cost: 10 Years Later

Publications, Articles, Bankruptcy, Finance, Healthcare

By Suzanne Koenig and Nancy A. Peterman
Originally published in the ABI Journal, Vol. XXXV, No 1, January 2016

 In 2005, the Bankruptcy Code was amended to include the “health care bankruptcy provisions,” which included a requirement that a patient care ombudsman (PCO) be appointed in all chapter 7, 9 or 11 cases filed by a health care business1 “unless the court finds that the [PCO] appointment … is not necessary for the protection of patients under the specific facts of the case.”2 In most health care business cases (even when there is opposition), a PCO is appointed. However, there continues to be significant opposition to the appointment of PCOs due to one of the main criticisms of the bankruptcy process today: cost. 

Chapter 11 offers significant benefits to any small or large business attempting to reorganize — whether through a going-concern sale, a right-sizing of the balance sheet or a combination of both. However, for a small business, the cost of chapter 11 might be a deterrent to seeking such relief. In a health care bankruptcy case, in addition to the cost of debtor’s professionals, committee’s professionals, lender’s professionals and other chapter 11-related costs, these businesses must also cover the cost of the PCO and the PCO’s professionals. While that latter cost is typically a fraction of all other professionals in the case, this concern can often be addressed through careful management of the appointment process and cooperation with the PCO. 

As many debtors are beginning to understand, the PCO can be a valuable ally in the bankruptcy case in helping with a sale process, helping address regulatory issues with governmental agencies or otherwise assisting on key case issues impacting patient care. For example, a PCO may take a position on plan negotiations,3 contract terminations (such as service contracts for an emergency room),4 funding needs5 or a sale process, all of which impact patient care. The PCO’s voice can be very powerful in representing the patient’s interests and helping with the debtor’s reorganization, when those interests are aligned. 

This article highlights some practices developed over the past 10 years to streamline the appointment process for a PCO and help eliminate the perception that the PCO cost will be a concern — primarily by reducing the legal costs otherwise incurred by a PCO. Ultimately, in a health care bankruptcy case, it is highly likely that a PCO will be appointed. Therefore, instead of opposing that appointment or the PCO’s efforts to do his/her job, which will also be a cost to the estate, implement some of these ideas to streamline the PCO appointment process, and cooperate with and view the PCO as your ally. As a health care business, both the debtor and PCO have the same thing in mind: the patient’s interests.

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