Put the ‘Community’ Back Into Community Hospital Bankruptcies

By Kenneth A. Rosen

When a community hospital closes or is sold to a for-profit operator, there is a loss to the community. Despite protestations by for-profit operators, a community loses something of value by the conversion of a nonprofit hospital to a for-profit hospital. The mission statements are different. The question is how the loss gets valued and whether the community is compensated for the loss.

Societal benefit played a role in the development of bankruptcy law in the U.S. And it should play a role in the allocation of proceeds from the sale of a nonprofit hospital. According to an article by University of New Mexico law professor Nathalie Martin, the U.S. bankruptcy system is among the many social programs that address society’s ills. Our bankruptcy laws recognize the impact of a chapter 11 case on society and vice versa. Thus, the impact of society (aka the “community”) on a chapter 11 case and the impact of a chapter 11 case on society are appropriate considerations for how assets are divided in a bankruptcy case....