Health Care

Sonnenschein's Corporate Reorganization & Bankruptcy Practice Group, together with the firm's Health Care, Financial Institutions & Lending, Corporate, Real Estate, Labor & Employment and other practice groups, works on a variety of matters across the nation relating to troubled or distressed situations in the health care industry.  Areas in which Sonnenschein has significant expertise include:

• Chapter 11 reorganizations
• Medicare and other government program overpayment issues
• Purchases or sales of distressed health care assets, both in bankruptcy and outside of bankruptcy
• Enforcement of non-competition and nonsolicitation agreements
• Restructuring and negotiation of covenant amendments, waivers and forebearance agreements
• Receiverships, conservatorships and interactions with regulatory authorities
• Licensure, certificates of need and related issues
• Facility closures
• Health care financing and sales of receivables

Representative Engagements

The following is a summary of certain of the matters in which we have been actively involved for the party or parties noted in the descriptive text and that are of a public nature.  There are also representations in non-public matters that are not discussed by name herein. 

Representation of Chapter 11 Debtors or Bankruptcy Trustees

Maxicare Health Plans, Inc. (and 47 affiliates) (C.D. Cal.):
These cases were and remain one of the largest health plan bankruptcies.  Members of Sonnenschein's New York bankruptcy group represented the debtors and debtors-in-possession in these cases.  In addition, prior to joining the firm, a member of our Los Angeles office served as Special Health Care Counsel to the Providers' Creditors Committee.

Mission Independent Practice Association Medical Group, Inc. (N.D. Cal.): 
We served as debtor's counsel in this Chapter 11 case.  Mission IPA had 32,000 covered lives and was the only material health maintenance organization in Monterey County, California.  Issues in the case included negotiating a stipulation with providers for continuing services.  We also negotiated a stipulation with the health plans on payment of capitation payments and related adequate protection issues.  Sonnenschein also represented Mission IPA in pre-petition disputes, including a purported class action suit with former providers.

Granada Hills Community Hospital (C.D. Cal.): 
We served as special healthcare, ERISA and labor counsel to the Chapter 7 trustee in this matter.

Santa Paula Community Hospital (C.D. Cal.): 
We also served as special healthcare, ERISA and labor counsel to this hospital in its successful reorganization under Chapter 11.

AbTox, Inc. (N.D. Ill.): 
We represented an operating Chapter 11 trustee for this medical sterilization equipment manufacturer.  There were significant issues in this case regarding FDA licensure and patent infringement litigation.

Representation of Chapter 11 Creditors Committees and Physician/Trade Creditors

Fountain View, Inc. (C.D. Cal.): 
We represented the Official Committee of Unsecured Creditors in these cases involving a chain of skilled nursing care facilities and assisted living facilities.  A plan was confirmed providing trade creditors with the option to cash out at a small discount or accept payment in full over time.  In a subsequent refinancing of the debts of the reorganized debtor, we represented Development Specialists, Inc., as Claims Agent.  In that matter, all pre-petition creditors were paid in full with interest.

Mid-Island Hospital, Inc. (E.D.N.Y.): 
Mid-Island Hospital is an acute-care community hospital serving parts of New York's Nassau and Suffolk Counties.  We represented one of Mid-Island's largest creditors in this case, Medline Industries, Inc., which served as chair of the Official Committee of Unsecured Creditors.  Medline Industries, Inc. is the nation's largest privately-held manufacturer and distributor of health care supplies, manufacturing and distributing more than 70,000 products to hospitals, nursing homes and home health agencies throughout the world. 

Mid-Island confirmed a plan of reorganization after extensive negotiations among the debtor, its ultimate acquiror, WCNCHS North, Inc., and the creditors committee.  As counsel for Medline, we worked closely with counsel for the Committee, Mid-Island Hospital and WCNCHS North, Inc. toward confirmation of the parties' jointly proposed consensual plan of reorganization. 

In the course of this representation, we advised on several issues unique to healthcare insolvencies, including:  (i) issues relating to the terms of the hospital's post-petition receivables financing arrangement, (ii) recoupment and set-off matters raised by private insurers and New York State regulated hospital pools, and (iii) treatment of unliquidated medical malpractice claims in the hospital's plan of reorganization.

United Health Care (N.J.): 
We also represented Medline Industries, Inc. as one of the major trade creditors in the United Health Care Chapter 11 case.  Prior to its closure, the debtor was one of the nation's premier nonprofit inner-city (Newark) safety net health care systems.  It owned and operated the principal acute care hospital for children in New Jersey.  One of the major issues in this case involved a bankruptcy court order refusing to approve a Section 363 sale of certain of the debtor's assets to another inner-city children's hospital, whose bid was several million dollars less than the bid of a less experienced rival bidder.  These assets included the hospital's goodwill and certificate of need.  The bankruptcy court issued an order directing the New Jersey commissioner to issue a temporary certificate of need that was transferable to the higher bidder.  On appeal the district court reversed the decision, finding that the commissioner is better suited to judge the bidders' qualifications.  The court directed the bankruptcy court to approve the sale to the lower bidder, who had greater expertise, as approved by the commissioner.

Other Key Creditor Engagements

MedPartners Provider Network, Inc. (C.D. Cal.): 
Members of our Chicago and Los Angeles offices represented SCAN Health Plan and certain health care providers in the matter of MedPartners Provider Network, Inc.  SCAN served as a member of the Official Committee of Unsecured Creditors in the case. 

Columbus Community Hospital (N.D. Ohio): 
We also represented a member of the creditors committee in the Columbus Community Hospital case.  Our client in that case provided outsourced rehabilitation services for the hospital. 

Winona Community Hospital (N.J.): 
In this Chapter 11 case, we represent a trade creditor who is a large national provider of diagnostic imaging services.

Representation of Other Parties in Chapter 11 Cases

Vencor, Inc. (Del.): 
We represented the outside directors of the board of this large national nursing home chain pre-petition and throughout these Chapter 11 cases.  We were involved throughout the process of negotiating the plan of reorganization.  In addition, members of our New York group represented HSBC Bank as a member of the creditors committee.  Vencor is now operating under the name Kindred. 

FPA Medical Management (Del.): 
Members of our firm represented Blue Cross/Blue Shield, Maxicare, and also three doctors, who are employed by one of FPA's Sterling Group subsidiaries, in these Chapter 11 cases.  FPA was a national physician practice management organization that administered and managed primary care physician networks under contract with HMOs and other prepaid insurance plans and provided contract management support services to hospital emergency departments.  FPA provided these services to 7,900 primary care physicians with 1.4 million enrollees in 29 states.  FPA's Sterling Group provided similar services, specializing in emergency medicine practitioners. 

Phyamerica (Md.): 
Phyamerica was the ultimate purchaser of FPA's assets.  We represented a physicians' organization in this company's subsequent Chapter 11 case.

PHC Health Care (Del.): 
We represented the physicians in an oncology center in connection with the bankruptcy of their management company.  Ultimately, we helped them to purchase their practice back, free and clear of the burdensome management agreements.  They also secured related contracts.

Charter Behavioral Health Systems (Del.): 
Prior to joining Sonnenschein, members of our firm represented the United States in connection with the bankruptcy of this chain of 100 psychiatric hospitals.  A substantial Medicare fraud claim contributed to the complexity of this case.  Ultimately, the case led to the sale of the chain's hospitals to various purchasers, which involved requests to transfer provider numbers.

Pharmacy Fund Receivables, Inc. (S.D.N.Y.): 
This Chapter 11 debtor was a factoring company that specialized in pharmacy receivables.  Upon the filing of the bankruptcy petition, PFR's primary secured lender argued that it had an interest in and lien upon certain pre-petition and post-petition receivables, which PFR had not paid for.  We represented Medicine Shoppes International, a nationwide chain of pharmacies, who had over 100 of its pharmacy franchisees factoring their receivables through PFR.  For these and all other pharmacies factored by PFR, the cash flow implications of the lender's position were enormous.  A settlement was quickly reached.  The settlement directed payors to pay post-petition receivables directly to the pharmacies.  It also provided for a prompt reconciliation of pre-petition receivables paid to PFR, which it had not paid to the pharmacies.  Issues relating to concerns of PFR and its lender about overpayments or chargebacks to the pharmacies also were resolved as part of the settlement.  Our client was appointed to the pharmacy creditors committee.  We assisted the committee in actively monitoring compliance with implementation of the settlement, including initiating an adversary proceeding against various payors to ensure they fulfilled their obligations.

USA Healthcare d.b.a. Elastar (C.D. Cal.): 
We represented the professional liability carrier in this hospital's Chapter 11 bankruptcy case and eventual shutdown.

Representation of Lenders

Flushing Hospital and Medical Center (E.D.N.Y.): 
Our firm represented Medline Industries, Inc. in its capacity as a pre-petition creditor of Flushing Hospital and Medical Center.  Medline also was a secured lender to related entities.

We assisted them with an out-of-court workout of Little Neck Community Hospital, a hospital located in Little Neck, New York.  Little Neck Community Hospital is related to the debtor and also is the lessor of the debtor's facilities.  Medline was a co-mortgagee of the property and therefore was involved in negotiations with respect to the proposed sale of Little Neck Community Hospital.

Doctors' Hospital of Hyde Park (N.D. Ill.): 
We represented the special loan servicer and public real estate investment trust in connection with the bankruptcy proceedings of the tenant borrower, the foreclosure proceedings against the landlord borrower, and related mechanics lien priority litigation.

Experience with Mergers and Acquisitions

PHP Healthcare Corp. (Del.): 
In this matter, we represented a potential bidder for a material portion of the debtors' assets.  PHP Healthcare Corp. and its related debtors are medical management companies, which covered more than 300,000 individuals and had assets with a book value of over $250 million.

Centennial HealthCare Corp. (N.D. Ga.): 
We served as bankruptcy counsel to FCSCD Holdings LLC in its acquisition of Centennial HealthCare Corp. and its affiliates.  FCSCD expressed its interest in Centennial only days before the debtors entered into an agreement with another nursing home operator.  This other transaction had been incorporated into a proposed reorganization plan.  Sonnenschein opened the process so our client would be able to bid for the company in a fair auction process, guided FCSCD's bid through the process until it became the accepted offer and brought the transaction to a successful closure notwithstanding significant hurdles interposed by the debtors, who had lost their opportunity to transfer the business to their handpicked suitor.

Other key engagements: 
Sonnenschein attorneys have extensive experience representing sellers of assets and potential purchasers of assets in both public and non-public transactions.

Experience with Out-Of-Court Restructurings

Long Term Care/Skilled Nursing Facilities (Mo.):
We represent the operator of a portfolio of skilled nursing facilities located in Missouri in connection with a financial and lease restructuring.  The transaction involves negotiations toward a long-term lease extension and possible purchase of the facilities.

Independent Physician Associations (Cal.): 
We represented a troubled IPA in connection with its attempt to restructure its indebtedness and operations out of court, and its attempt to renegotiate payor contracts.  Ultimately, the IPA elected to liquidate through a general assignment for the benefit of creditors.

Governmental Unit (Cal.): 
We represented a governmental unit that owns and operates a rural community hospital in a successful out-of-court restructuring of its indebtedness.  The restructuring included a successful temporary moratorium on payments to trade creditors.

Carlinville Area Hospital (Ill.): 
We represented this rural Illinois community hospital in a restructuring and a settlement with the federal government. 

University of Tennessee Cancer Institute (Tenn.): 
We also represented this physician group in a loan workout and refinancing.

Not-for-Profit Hospital (Mich.): 
Prior to joining the firm, members of our practice represented a not-for-profit hospital in:  (i) restructuring covenants with creditors, and (ii) waiving current defaults to allow the hospital to continue to operate and improve its financial condition.

Tax-Exempt Bond Financings: 
Members of our firm have represented financial institutions and federal government agencies to foreclose or restructure and transfer distressed projects that were financed by tax-exempt bonds supported by letters of credit.  We have been able to preserve the below-market interest rate of the tax-exempt financings, thus bringing in a higher sale price than would have been available for a conventionally financed project because the favorable financing was preserved for the new owner.

Experience with State Law Conservatorships or Proceedings

MedPartners Provider Network, Inc. (Cal.): 
The case began with a takeover of management by a conservator appointed by the State of California Department of Corporations and a Chapter 11 filing that same day.  MedPartners had over 1.3 million covered lives at the time of the filing.  Attorneys from our New York office represented the conservator for the company.

Chartwell Health Care (N.D. Tex./E.D. Mo.): 
We represented the state court receiver for certain nursing home subsidiaries of Chartwell Health Care.  These subsidiaries, which were not in bankruptcy, were taken over by the receiver on behalf of the State of Missouri prior to the parent corporation's bankruptcy filing.  Eventually they were transferred to a more viable operator.  Contributing to the complexity of this engagement was litigation in two jurisdictions between the receiver and Chartwell's secured lender.

Grant Hospital/Edgewater Hospital (Ill.): 
We represented both hospitals in workout efforts and receivership proceedings.  Edgewater ultimately shut down, while Grant was sold.