A California nursing home fined by the state for substandard care and facing multiple lawsuits by patients and their families has taken the extreme measure of filing for bankruptcy protection in the face of millions of dollars in potential payouts, the New York Times reported today. The action, taken by North American Health Care, which operates more than 30 homes in California and other Western states, is being derided by plaintiffs’ lawyers as a legal maneuver to avoid what could be catastrophic legal verdicts, while defenders of the strategy say that they are facing mounting lawsuits from overly aggressive trial lawyers. Last year, another California chain filed for bankruptcy for similar reasons and in Florida, a bankruptcy judge forced Medicaid officials to continue paying a nursing home while it was under bankruptcy protection. North American’s step comes at a time of rising bankruptcies in the health care industry. Filings were up by 38 percent between 2010 and 2014, according to indexes maintained by the law firm Frost Brown Todd, which tracks such data. Overall filings for chapter 11 bankruptcy protection, by contrast, fell by about 60 percent over the same period. Bobby Guy, who oversees the bankruptcy data for Frost Brown Todd, said the increase in filings among health care providers — like hospitals, nursing homes, surgical centers and home health agencies — reflected broader turmoil in the industry, including changes in the competitive landscape and the impact of the new health care law. The threat of major litigation is a common reason health care companies file for bankruptcy, Guy said, albeit an extreme one.
For further analysis of issues surrounding health care insolvencies, be sure to pick up a copy of ABI’s Health Care Insolvency Manual, Third Edition, from the ABI Bookstore. Mr. Guy was a major contributor to the book and one of its four primary editors.
