North American Health Care, a California nursing home is turning to bankruptcy amidst claims of providing substandard healthcare.

Bankruptcy to Avoid Payouts

The nursing home, which operates more than 30 homes in California and other Western states, is facing multiple lawsuits from patients and their families. The lawyers for these families feel that filing for bankruptcy is just a way to skirt the millions of dollars of potential payouts. Defenders of the nursing home are claiming the nursing home is being attacked by aggressive trial lawyers.

Rising Number of Bankruptcies

It seems North American is filing for bankruptcy at a time when many other heath care facilities are. According to the law firm Frost Brown Todd, bankruptcy filings in the health care industry are up 38% between 2010 and 2014. This increase reflects greater turmoil in the industry, which includes hospitals, nursing homes, surgical centers and home health agencies.

According to Bobby Guy, who is responsible for tracking data related to health care facilities at Frost Brown Todd, the threat of major litigation is the reason health care facilities turn to bankruptcy. “Bankruptcy is the tool of last resort, but it can be very effective if you have to go there,” he said. This is especially true since filing for bankruptcy halts all pending legal actions.

Avoiding Lawsuits

Lawyers for the families of patients suing North American are frustrated, claiming that bankruptcy laws are in place to help entities that are underwater, but according to court files, North American is highly profitable. North American claims that should the lawsuits be successful, the company would go out of business.

Source: The New York Times, Facing Suits, a Nursing Home in California Seeks Bankruptcy, February 17, 2015