The Need for an Examiner in Hospital Bankruptcies

In the wake of the COVID-19 pandemic, hospitals in the United States are grappling with unprecedented challenges, raising concerns about the financial viability of many healthcare institutions. Despite the critical role healthcare plays, numerous factors such as reduced elective procedures, a shift to telehealth, escalating technology costs, and declining government reimbursement rates have pushed several hospitals towards the inevitability of chapter 11 bankruptcy. However, the current bankruptcy code, while effective in many respects, reveals a critical flaw that demands attention and rectification.

The Unique Dynamics of Hospital Bankruptcies:

Hospital bankruptcies are inherently intricate, entwined with emotional ties, political considerations, and conflicting self-interests. Elected officials often shy away from supporting a local hospital's closure, regardless of its necessity, due to the presumption that saving the hospital aligns with the community's best interests. Simultaneously, lenders, concerned about reputational damage, might hesitate to advocate for closure, even when it might be the most pragmatic option. Bankruptcy judges, acting as part social worker, lawyer, mediator, and financial analyst, are inclined towards reorganization over liquidation, striving to preserve both the going concern value of assets and jobs, especially during times of high unemployment.

The Need for Objective Decision-Making:

While these considerations are understandable, the amalgamation of these factors sometimes obstructs the making of tough decisions essential for the long-term well-being of the community. The existing oversight mechanism, through creditors' committees, falls short in ensuring outcomes align with the broader public interest rather than specific stakeholders.

Proposed Solution:

To address these issues, it is imperative to introduce a pivotal change to Chapter 11 bankruptcy proceedings for nonprofit hospitals. This proposed amendment advocates for the mandatory appointment of an examiner with a distinct mandate akin to a public advocate or ombudsperson. This examiner would provide impartial and unvarnished assessments of what is truly in the long-term best interests of the community and the public at large.

Roles of the Examiner:

The appointed examiner would play a crucial role in evaluating the appropriateness of relief sought by secured lenders, the necessity of relief from collective bargaining agreements, and the merit of confirming a reorganization plan or approving a sale. The examiner would consider macroeconomic and social factors and opine on whether involuntarily reducing or extending secured debt is essential for the hospital's long-term feasibility, including the maintenance of high-quality care.

In conclusion, the proposed revisions to Chapter 11 would empower bankruptcy judges to make informed decisions with independent advice from an examiner whose primary mandate is the protection of the public interest. Recognizing that the myriad self-serving interests in bankruptcy cases often do not align with the best outcome for the community and public policy, the appointment of an examiner acting as a public advocate or ombudsperson is crucial. The outcome of Chapter 11 proceedings for a single hospital has a ripple effect on the cost and delivery of healthcare for an entire community, emphasizing the necessity of this proposed amendment.