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Bankruptcy Judge Robert D. Drain in New York indicated yesterday that he would permit Purdue Pharma’s proposal to remake itself as a nonprofit company to be put to a vote by thousands of plaintiffs, who have sued to compel the maker of OxyContin to help pay for the terrible costs of the opioid epidemic, the New York Times reported. The restructuring plan is at the centerpiece of an intensely negotiated blueprint for a collective settlement with more than 600,000 claimants who contend that for two decades the company falsely and aggressively marketed its prescription opioid OxyContin as a nonaddictive painkiller, and as a result contributed to hundreds of thousands of opioid-related overdoses and deaths. Besides protecting the company from further legal action over opioids, the plan includes a blanket release from civil lawsuits for Purdue’s owners, members of the billionaire Sackler family. The issue of the Sacklers’ liability has been perhaps the most contentious in the proceedings, ever since Purdue filed for bankruptcy protection in 2019, seeking a shield against rapidly accruing lawsuits. The individual Sacklers, members of one of the wealthiest families in the U.S., did not seek bankruptcy protection, but they argue that they should be covered by the same release from all present and future lawsuits that their company would be given if the plan is confirmed. In return, the Sacklers have agreed to relinquish ownership of Purdue and contribute $4.5 billion to the settlement, including $225 million to the federal government. The money would be paid in installments over nine or 10 years, most of it going to a national opioid abatement trust fund, which would then be disbursed to states and municipalities to support addiction prevention and treatment programs. Judge Drain said that the plan provisionally cleared the legal hurdles of sufficiency, and that he was waiting for a handful of issues to be resolved before the plan is distributed. Purdue is expected to mail out information packets next week that describe the reorganization plan to the roughly 614,000 claimants in the bankruptcy case, with voting to conclude by July 14.

When hospitals’ lenders come under scrutiny, their patients feel the pain, too. Facilities whose lenders underwent regulatory stress tests were more likely to readmit patients and forgo some timely or needed treatments, according to a new paper dramatically titled “Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes,” Bloomberg News reported. The study, part of a National Bureau of Economic Research working paper series, highlights how tighter credit to hospitals may be an unintended consequence of the stress tests, which were created to prevent another runaway bout of bank failures and bailouts. It also shows how precarious hospital financing can be. These facilities carry “a substantial amount of debt,” the authors wrote, and are “particularly risky borrowers” with greater-than-average yields and higher municipal-bond defaults. That means they’re a logical place for lenders to cut back if they’re seeking to improve their credit profile. “Affected hospitals exhibit significantly lower attentiveness in providing timely and effective treatment and procedures, and are rated substantially lower in patient satisfaction,” according to the report. Hospitals in that group had a “significant increase” in readmitting patients within a month after discharge, considered a key quality gauge, and in deaths from pneumonia, heart attacks and heart failure. The study examined 3,658 hospitals from 2010 to 2016. Of those, 537 hospitals had lenders undergoing stress tests in the period. They held loans worth an average of $737 million, with maturities of just under five years. The American Hospital Association called the study “dramatically oversimplified” and “riddled with wild assumptions” that don’t reflect the complexity of hospital financing and operations.

The U.S. Health and Human Services Department cannot erase its $24.5 million debt to a defunct Colorado health co-op under one provision of the Affordable Care Act by treating it as an offset to the insurer’s $42 million debt under a separate ACA program, a federal appeals court held yesterday, Reuters reported. Nothing in the ACA, its implementing regulations, or Colorado law allows the government to use offsets to “leapfrog other insolvency creditors” of the former Colorado Health Insurance Cooperative, the U.S. Court of Appeals for the Federal Circuit said, agreeing with the liquidator’s attorneys at Crowell & Moring. “The Supreme Court has never suggested the government has a common-law right to offset broader than that of an ordinary creditor,” wrote Circuit Judge Kimberly Moore, joined by Circuit Judges William Bryson and Raymond Chen. “And we will not create a new rule of federal common law that would allow HHS to offset.” The Federal Circuit affirmed a 2019 judgment by the U.S. Court of Federal Claims in favor of Colorado Insurance Commissioner Michael Conway, as liquidator of the insurer known as Colorado HealthOP. Colorado HealthOP was a nonprofit formed in 2013 to offer ACA-qualified health plans in the individual and small group markets. It participated in the ACA’s “3Rs” of premium-stabilization programs: the permanent “risk adjustment” program; the temporary “reinsurance” program; and the temporary “risk corridors” program. Yesterday’s opinion centered solely on the risk adjustment and reinsurance programs, which were managed by HHS but funded by insurers. At the time of its liquidation in 2016, Colorado HealthOP owed HHS $42 million in risk adjustment payments, while HHS owed the insurer $24.5 million under the reinsurance program. HHS indicated that it intended to keep the $24.5 million and seek payment of the balance through the state-court insolvency proceeding. Conway, the liquidator, sued HHS in the federal Claims Court and obtained a money judgment for the $24.5 million. On appeal, HHS argued that its right to an offset was authorized by Colorado’s insurer insolvency law or, in the alternative, that the ACA and its implementing regulations preempted the state law. The Federal Circuit said the Colorado law authorized offsets of obligations “arising out of one or more contracts” and did not apply to obligations arising out of a statute, like the ACA programs here.

Massachusetts sued a unit of French advertising company Publicis Groupe SA on Thursday, accusing it of fueling the U.S. opioid epidemic by using unfair and deceptive marketing to help the drugmaker Purdue Pharma sell more OxyContin, Reuters reported. The state’s attorney general, Maura Healey, accused Publicis Health of working with drugmakers from 2010 to 2019 on campaigns to persuade doctors to prescribe more opioids for longer periods of time, including to patients who did not need them. She said Publicis collected more than $50 million from Purdue alone, including for efforts to “humanize” opioids and make doctors prescribe them to a wider pool of patients. Publicis Health did not immediately respond to a request for comment. The lawsuit filed in a state court in Boston seeks civil penalties, restitution to victims and a declaration that the unit created a public nuisance. Healey’s lawsuit followed agreements this year by the consulting firm McKinsey & Co to pay $641 million to resolve lawsuits by all 50 U.S. states, Washington, D.C., and five U.S. territories over its role in the epidemic. The U.S. Centers for Disease Control and Prevention has said nearly 500,000 people died from opioid overdoses from 1999 to 2019. Purdue is operating in bankruptcy. In March, it proposed a restructuring plan that would steer profits to opioid victims and require members of the Sackler family who own the company to contribute nearly $4.3 billion.

At least eight buyout firms are preparing offers for Medline Industries Inc., a medical supply company that could fetch about $30 billion, Bloomberg News reported. In a sign that club deals are back, some are partnering up for what could be one of the biggest leveraged buyouts on record. Bain Capital, Advent International and CVC Capital Partners have teamed up on a potential bid. KKR & Co. is working on an offer potentially teaming up with Clayton Dubilier & Rice, the people said. Blackstone Group Inc. has partnered with Hellman & Friedman while Apollo Global Management Inc. is also weighing an offer. First round bids are due in mid-May. Banks are seeking to align with potential buyers to help provide financing that will likely exceed $10 billion. It’s possible a deal won’t be reached and the company could opt to divest a stake or pursue an initial public offering. At $30 billion, a deal for Medline could potentially be one of the top-five leveraged buyouts ever, according to data compiled by Bloomberg.

The New Hampshire attorney general's office will allow Concord (N.H.) Hospital to acquire LRGHealthcare, a two-hospital system in Laconia, N.H., out of bankruptcy, according to an April 20 announcement, Becker's Hospital Review reported. LRGHealthcare filed for chapter 11 protection in October 2020. The bankruptcy was necessary to relieve the health system's debt load of more than $100 million, LRGHealthcare's CEO Kevin Donovan said. He added that filing for bankruptcy was necessary after it became clear its debt would be an impediment to any deal. Concord Hospital had made a $30 million bid to purchase LRGHealthcare's assets out of bankruptcy in December 2020. LRGHealthcare's assets include Lakes Region General Hospital in Laconia, Franklin (N.H) Regional Hospital and a network of ambulatory care networks. The consent of the attorney general's office included some requirements for the deal to move forward, including protections against anticompetitive practices, unfair price hikes and disruptions to clinician referral patterns or contracts. The deal is expected to save the two hospitals as Kevin Donovan, the CEO of LRGHealthcare, warned in February that the facilities could close within two months if the deal fell through.

Citing multiple pressures on liquidity, Delaware's largest outpatient drug and mental health provider filed for chapter 11 protection on April 19, Becker's Hospital Review reported. The embattled Connections Community Support Programs, based in Wilmington, is aiming to induce a bankruptcy-shielded sale of the company, according to court documents. The bankruptcy filing comes days after a third lawsuit was filed against the company by Delaware and federal agencies alleging improper billing practices and violations of the Controlled Substance Act, according to Law 360. The False Claims Act cases are seeking triple damages, according to the report. Connections Community Support Programs has appointed EisnerAmper's Robert Katz as chief restructuring officer to help it through the bankruptcy process and potential sale. In the court documents, Connections Community Support Programs said it has 10,000 to 25,000 creditors and lists assets of $50 million to $100 million and debts of $50 million to $100 million.