bankruptcy lawSection 351 of the Bankruptcy Code permits a health care business in bankruptcy to dispose of patient records if it lacks sufficient funds to pay to store the records in accord with applicable state or federal law.  Although section 351 was enacted in 2005, the provision appears to be little used.  That’s because the procedures required before patient records may be destroyed are time consuming, onerous and, in all likelihood, more expensive than storing them.

If the health care business in bankruptcy has insufficient funds to pay for patient records storage under applicable law, section 351 requires that it promptly publish notice in one or more appropriate newspapers that patient records not claimed by patients or insurers within one year will be destroyed.  Within six months after the publication, it must notify each patient by mail at the patient’s most recent known address, or the address of a family member or contact person for the patient, to claim his/her records within the one-year period.   The insurer for each patient must also receive notice by mail to claim the records or suffer their destruction.  For any patient records not claimed within the one-year period, the debtor health care business must send written requests to each “appropriate” federal agency asking permission to deposit the unclaimed records with the agency.  Whatever patient records remain in the possession of the health care business following this procedure must be shredded or burned, if they are written records, or destroyed, if magnetic, optical or electronic.  Bankruptcy Rule 6011 provides further guidance that the notice must be sent to patients and family members or contact persons for patients, and the Attorney General of the state where the health care facility is located.

In addition to being time consuming and somewhat vague, these requirements would be onerous for all with the possible exception of health care businesses with few patients.  A large physician practice group will have thousands or tens of thousands of patient records, many of which may be written.  The administrative effort to review each of them for patient addresses, family members and others such as health care proxies, and prepare and send the notices, will likely be time consuming, expensive and difficult.  A hospital will likely have tens or hundreds of thousands of patient records. The time, effort and expense needed to comply with section 351 for a hospital of any size would be herculean.

A number of hospitals which have filed chapter 11, ceased operations and confirmed plans of liquidation without a going concern sale of their business or assets in which the buyer that acquired the patient records, found an easier, much faster and more inexpensive alternative to section 351.  The buyer paid a records storage company to take all of the patient records.  The records storage company took possession of the records, converted paper records to electronic form, maintained them pursuant to applicable state and federal law, culled out and destroyed old records when state and federal law permitted, and, for a fee, provided access to the records to patients and litigation parties, in actions and proceedings where the records were relevant.  In this writer’s experience, there have often been several records storage companies willing to store and maintain the records and the debtor hospital has been able to obtain competing bids from them.  These hospitals had sufficient funds to pay a records storage company to take and administer the patient records.  Query whether they had sufficient funds to comply with section 351.

Debtor health care businesses that are insolvent on a post-bankruptcy basis, and intend to or are forced to shut down their operations and liquidate without a confirmed plan or in chapter 7, might consider disposing of patient records under section 351.  Except possibly for small businesses, however, the time, effort and expense of following the procedure mandated by section 351 will likely be much greater than the records-storage- company alternative, so long as this alternative is available.  Although it is not clear how such insolvent health care businesses would pay for records disposal under section 351 or, alternatively, pay to transfer the records to a records storage company, the latter will likely be less time consuming, take much less administrative effort and be less expensive.