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Federal health regulators who moved to cut off Medicaid payments to a Georgia nursing home after finding broken toilets during a January inspection have been stymied by the nursing home's bankruptcy, which put the dispute in front of a judge, Dow Jones Daily Bankruptcy Review reported today. In court papers, Department of Health and Human Services officials told Judge Nicholas W. Whittenburg that the agency has the power to end the provider agreement with Jeffersonville Healthcare & Rehab LLC despite the legal protections the 120-worker facility got after filing Jan. 22 for chapter 11 protection. Officials threatened to cut off that agreement after they found the facility's plumbing system had broken down, flooding patient rooms.

When a community hospital closes or is sold to a for-profit operator, there is a loss to the community, according to a commentary by Kenneth Rosen in the Wall Street Journal Bankruptcy Beat Blog. 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., according to Rosen, and it should play a role in the allocation of proceeds from the sale of a nonprofit hospital. The nonprofit hospital that operates in chapter 11 in order to effect a sale for the benefit of the debtor’s creditors (like most chapter 11s today) continues to receive services rendered by the community. Without those valuable services, the hospital may not be able to operate post-petition, according to Rosen. Read more. (Subscription required.) 

A panel of experts will gather tomorrow on an abiLIVE webinar to examine issues that arise in the restructuring of continuing care retirement communities. Register for free! (CLE available for $25 administrative fee). 

For more on hospital and health care insolvencies, be sure to pick up a copy of the ABI Health Care Insolvency Manual, Third Edition, from the ABI Bookstore. 

The operator of 13 nursing homes in Tennessee, Georgia and Ohio got permission from a bankruptcy judge to spend restricted money while its lawyers come up with a survival plan, Dow Jones Daily Bankruptcy Review reported today. With his signed court order, Bankruptcy Judge Nicholas W. Whittenburg approved the spending request from New Beginnings Healthcare & Rehab LLC officials. The Hixton, Tenn.-based company sought bankruptcy protection on Jan. 22. The nursing-home operator, which employs about 1,300 people, blamed its financial troubles on Georgia health regulators who have withheld Medicaid money that pays for some of the 800 residents at its nursing homes. Read more. (Subscription required.) 

Participate in a free abiLIVE webinar next Wednesday examining the restructuring of continuing care retirement communities. Click here to register. 

Biomedical company Nuo Therapeutics Inc., which makes a gel to treat skin ulcers, filed for bankruptcy and plans to sell its assets to health care-focused hedge fund Deerfield Management, Dow Jones Daily Bankruptcy Review reported yesterday. The Maryland company, which filed for chapter 11 protection in U.S. Bankruptcy Court in Wilmington, Del., said that it expects Deerfield to serve as the stalking-horse bidder for its assets at a bankruptcy-court-supervised auction. Those assets include the company's flagship, Aurix, a "hematogel" that uses a patient's own platelets and plasma as a catalyst for healing. It is the only therapy of its kind cleared by the Food and Drug Administration for use for the treatment of a variety of ulcers and wounds, according to David E. Jorden, the company's acting chief executive.

HealthSpot Inc. filed for a chapter 7 bankruptcy liquidation on Wednesday, two weeks after ceasing operations, Columbus (Ohio) Business First reported on Friday. The Dublin, Ohio, startup that founders predicted would be a billion-dollar breakout had raised about $48 million over four years for its telemedicine kiosks for quick, convenient access to a doctor. The filing listed assets of $5.2 million, about $3.5 million of it tied up in inventory, and $23.3 million in liabilities. The largest single debts listed under unsecured creditors are convertible notes of $10 million from Atlanta-based broadband Internet provider Cox Communications and $6 million from investor Xerox Corp. Convertible notes are a form of investment in which a loan is to be converted to an equity stake at a later stage of fund-raising, acquisition or IPO. The investments had been announced but their amounts were not previously disclosed.

Four Connecticut nursing homes run by Affinity Healthcare Management Inc. filed for bankruptcy protection, blaming a slower intake of patients and a multimillion-dollar payment dispute with state health care officials over Medicaid money, Dow Jones Daily Bankruptcy Review reported today. Executives who put Affinity Healthcare's nursing homes, including the 105-bed Ellis Manor in Hartford, Conn., into chapter 11 protection on Wednesday said that its facilities are seeing record-low numbers of patients, "like most of the other nursing homes in Connecticut." The 550-worker health-care company has struggled since emerging from bankruptcy in August 2010. Affinity Healthcare officials borrowed money at the end of its case that was "substantially more expensive than anticipated [in] costs and fees," draining a large amount of cash, according to documents filed in U.S. Bankruptcy Court in New Haven, Conn. Read more. (Subscription required.) 

For further analysis of health care bankruptcy cases, be sure to pick up a copy of the ABI Health Care Insolvency Manual, Third Edition.