Borrego Adds a New Tool to the Health Care Debtor's Toolbox

Bankruptcy attorneys Tyler Layne and Morgan Allred co-authored an article for the American Bankruptcy Institute Journal about a recent Chapter 11 case that strengthens protections for healthcare debtors and offers additional leverage when negotiating with regulatory authorities. The case involves Borrego Community Health Foundation, a Federally Qualified Health Care Center that serves low-income and rural patients. After filing for Chapter 11 bankruptcy, the foundation commenced an adversary proceeding against the California Department of Health Care Services (DHCS) to enforce the automatic stay and prevent the suspension of Medi-Cal payments on which it relied for income. The U.S. Bankruptcy Court for the Southern District of California, relying on the True Health decision in Delaware, determined that DHCS' threatened suspension of payment did not qualify as an exception to the automatic stay. In this article, the authors outline the True Health case, Borrego case and the implications of both decisions for health care debtors.

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