Originally published in the New York Law Journal

Voters in eight states, including California and Florida, recently approved ballot initiatives to legalize the recreational and medical use of marijuana. Presently, 28 states permit the use of marijuana to different extents.

The coming year will likely continue to be a tumultuous year for health care providers, suppliers, and payers, as they adapt to meet new challenges and market forces, particularly in light of the open questions as to the viability and continued existence of the Affordable Care Act (ACA) and recent comments made by members of the incoming Trump administration.

Like most companies that file for chapter 11 protection, many debtors in the health care industry may have outstanding liabilities that have not been finally adjudicated as of the petition date. This can include tort claims based on allegations of medical malpractice, elder abuse, patient dumping, violations of a patient’s bill of right or various other allegations of improper care. Bankruptcy courts can estimate the value of these claims to facilitate the speedy confirmation of a debtor’s plan without subjecting the debtor to a lengthy trial during its restructuring.

Overview

This article considers the state of the care homes industry, certain issues that arise when dealing with the imminent insolvency of care homes and initial considerations about what to take into account when determining sales strategy.

General concerns

In the Q3 2014 edition of Global Insight, we discussed the merits of bankruptcy sales for distressed hospitals in the United States. In many ways, the challenges facing healthcare companies in America have been mirrored in the UK care home sector in recent years. Unlike the US, the majority of health service provision in the UK is via the publicly funded National Health Service. An exception exists however in the provision of residential care to the elderly which has seen large scale private sector involvement.

CONSIDERABLE RISKS FOR PRIVATE INVESTORS

The financially challenged NHS trust which in July became the first to be put into the Regime for Unsustainable NHS Providers should be dissolved, according to its special administrator.

Care providers in the UK are under considerable financial strain. Costs of care continue to rise. The fees from local authorities have failed to keep pace with the actual cost of delivering care despite the growing demand for care and for such care to meet the expected fundamental standards. It is therefore not surprising that some care providers are buckling under the strain. What should the directors of a provider do if the provider is buckling under the strain?

It has been reported that “medical bankruptcies” have been on the rise since 2001. There is no clear-cut definition for “medical bankruptcy,” but it has been summarily defined by the following terms:

INTRODUCTION

St. Mary's Hospital is the first hospital in New Jersey to emerge from Chapter 11 bankruptcy and did so in less than one year. Since 2007, six hospitals have filed for bankruptcy, five of which have either closed or sold their assets in bankruptcy.