On June 30, 2019, Philadelphia-based Hahnemann University Hospital and St. Christopher’s Hospital for Children filed for bankruptcy protection in the US Bankruptcy Court for the District of Delaware. As part of the bankruptcy process, Hahnemann won the court’s approval to sell its Medicare provider agreement, which primarily consisted of the right to receive the Medicare funding associated with each of Hahnemann’s more than 550 Medicare-funded residency positions. The sale, however, is unlikely to close, as CMS, which opposed it from the outset, has appealed the court’s order on the grounds that the sale is “contrary to law” and amounts to an “illegal transfer” of the CMS reimbursement rights. CMS has also already announced the application process for the permanent award of Hahnemann’s funded Medicare slots to other hospitals through the Affordable Care Act’s Section 5506 redistribution process.

Since the hospital’s closure, Hahnemann’s residents have successfully transferred to other residency programs. Unfortunately, however, CMS’s endeavor to have the sale order overturned may end up costing the residents dearly. The sale order required the purchaser to provide tail malpractice insurance coverage to each of Hahnemann’s former residents. With the sale now unlikely to close, the residents will need to look elsewhere for coverage, as Hahnemann has informed its former residents that it will cease providing tail insurance after January 10, 2020. 

While Hahnemann’s former residents can request that their new residency training programs provide tail insurance coverage, their new programs are not required to take on these additional costs. The Hahnemann residents could also choose to pay for tail coverage themselves, but the cost can be significant, depending on both the physician’s specialty and the duration of coverage. The residents’ ability to obtain tail coverage is critical, though. In most states, tail malpractice insurance is required for a physician to qualify for supplemental state-provided malpractice insurance coverage. Further, many employers will not hire a physician without proof of tail insurance from the physician’s former employer. Accordingly, this insurance issue is very serious and concerning for the former Hahnemann residents. 

While no answer to the tail coverage issue has yet emerged, various organizations serving the medical community are in discussions in an attempt to discover creative solutions. In late November, the American Medical Association (AMA) met and adopted a new policy specifically intended to ensure that residents who lose their jobs due to unexpected hospital closure are protected from such risks. The policy calls for the AMA to partner urgently with interested parties to identify viable options to secure tail coverage for residents impacted by the Hahnemann closure and residents impacted by any future hospital closures at no cost to the displaced residents. In addition to these new policies, industry groups can also return to the bankruptcy court to pressure Hahnemann or its affiliated hospital, St. Christopher’s, to fund a solution, in whole or part, from the proceeds of any remaining assets of the estate.

The bankruptcy and health care teams at Dentons are happy to answer any questions you may have about the Hahnemann bankruptcy, the application process for closed hospital slots, or broader inquiries about Medicare funding of graduate medical education.