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Bankruptcy Sometimes an Option for Homes Facing Mounting Lawsuits

When a nursing home has been accused of derogating its duty to properly care for a resident or residents, or suffers allegations of not just neglect but abuse, it can be subject to all types of legal action. This includes regulatory sanctions by the state or federal government (if the home accepts Medicare or Medicaid federal dollars), criminal prosecution against a staffer for abuse, a civil lawsuit by a state attorney general, or a civil lawsuit by a victim of neglect or abuse or that victim’s family or guardian. Some nursing homes or holding companies that own chains of nursing homes have seen multiple claims against them, and jury awards or settlement figures that can truly rack up. Yet many can survive because they are financial juggernauts – particularly the bigger, more corporate-owned facilities. This is not always the case, however. If faced with a burgeoning of lawsuits, a nursing home’s owners and administrators may decide it needs protection under bankruptcy law.

California Nursing Home Entity Goes Bankrupt

In recent news, it was reported that a nursing home owner in California filed for bankruptcy because it could be on the hook for millions of dollars if lawsuits against it go against them if there are jury awards or expensive settlements. North American Healthcare owns over thirty nursing homes in the western United States, and one of its facilities in California just faced fines levied by California for providing poor care to its residents on top of numerous lawsuits against them by residents or their families. That particular facility was reportedly fined $100,000 back in 2013 when a patient died from an overdose of a blood thinner, and has been the subject of numerous complaints to the state – one of its current lawsuits stems from a patient’s fall and subsequent death at the facility.

Increase in Health Provider Bankruptcies

As the New York Times has reported, from 2010 to 2014 there was a 38% increase in bankruptcy filings by healthcare providers across the country, presumably due to the types of lawsuits brought by patients as well as lawsuits and enforcement-type actions brought by the government for poor care or for accusations of health insurance (e.g. Medicaid) fraud. The health care entities making these filings include hospitals, home health care services, and nursing homes. Typical filings are under Chapter 11 of the bankruptcy code, which allows for reorganization by an entity in order to shed debt, pay off certain debt, and become leaner yet remain functioning. Creditors, including those awaiting payments from a litigation award, must get in line to split what is available, and that could mean a smaller payout than what they were supposed to have received. As the article states, Chapter 11 filings overall dropped 60% during that 2010-2014 time, indicating the even starker difference between the need for bankruptcy protection between the health care industry and other industries.

Ulterior Motives?

Some critics ascribe bankruptcy filings not to an effort to become fiscally solvent and viable again, but rather as an escape mechanism to avoid the possible judgment awards or settlement payments that could happen. Proponents and the facility owners simply see it as a last ditch resort of self-preservation. In this particular case, the defendant company is still profitable, but anticipates it will not be if it loses too many lawsuits, therefore it is preemptively seeking bankruptcy protection.

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