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The Bankruptcy Option – Bankruptcy Jurisdiction over Medicare or Medicaid Disputes
December 19, 2018
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Arnall Golden Gregory LLP
Resting at the intersection of Medicare or Medicaid law and the United States Bankruptcy Code is the issue of whether a provider can prevent the termination of a Medicare or Medicaid provider agreement through the filing of a bankruptcy case under Chapter 11 of the Bankruptcy Code. In the ordinary bankruptcy case, the “automatic stay” provision of 11 U.S.C. § 362(a) prohibits “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate,” and enjoins “the commencement or continuation … of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case.” The automatic stay, therefore, will stop a laundry list of actions that are about to harm a company, such as foreclosure actions by a lender and termination of a lease by a landlord. Whether the automatic stay is as powerful when dealing with governmental payors in the healthcare space, however, is far less certain. Of course, since many healthcare providers rely heavily on Medicare and/or Medicaid reimbursements to offset patient contributions to care, this is a critical issue.

The issue frequently will arise after a State Department of Health (DH) or the Centers for Medicare & Medicaid Services (CMS) finds that patients are in “immediate jeopardy,” gives notice of its intent to terminate the provider agreement if the provider fails to correct the irregularities , and the provider fails (in the view of the DH or CMS) to correct them timely. In such instances, before the termination occurs, various providers have filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code. Indeed, this is what a Florida skilled nursing facility (SNF) did recently. To avoid the consequences of termination of its provider agreements, Bayou Shores SNF, LLC (“Bayou Shores”) filed a bankruptcy case under Chapter 11. The Bankruptcy Court assumed authority over the Medicare and Medicaid provider agreements as part of the debtor’s estate, enjoined the Secretary from terminating the provider agreements, determined for itself that Bayou Shores was qualified to participate in the provider agreements, required the Secretary to maintain the stream of monetary benefit under the agreements, and approved the reorganization of the debtor’s estate by confirming its plan of reorganization. CMS had taken the position that a Medicare jurisdiction-stripping provision, 42 U.S.C. § 405(h), divested the Bankruptcy Court of jurisdiction over the debtor’s Medicare and Medicaid provider agreements. While the Bankruptcy Court disagreed, the two appellate courts -- the District Court and then the Eleventh Circuit Court of Appeals – agreed with CMS. In re Bayou Shores SNF, LLC, 828 F.3d 1297 (11th Cir. 2016) (concluding that § 405(h)’s jurisdictional bar applies to 28 U.S.C. § 1344).

There is, however, a circuit split on the lack-of-jurisdiction holding pertaining to § 405(h). Compare In re Bayou Shores SNF, LLC, 828 F.3d 1297; Nichole Med. Equip. & Supply, Inc. v. TriCenturion, Inc. , 694 F.3d 340, 346–47 (3d Cir. 2012) (concluding that § 405(h) “continues to bar virtually all grants of jurisdiction under Title 28,” and holding specifically that it bars diversity jurisdiction under 28 U.S.C. § 1332); Midland Psychiatric Assocs., Inc. v. United States, 145 F.3d 1000, 1004 (8th Cir. 1998) (holding that § 405(h)’s jurisdictional bar applies to 28 U.S.C. § 1332); Bodimetric Health Servs., Inc. v. Aetna Life & Cas., 903 F.2d 480, 488–90 (7th Cir. 1990) (same), with Do Sungh Uhm v. Humana, Inc., 620 F.3d 1134, 1141 N.11 (9th Cir. 2010) (citing In re Town & Country Home Nursing Servs., Inc., 963 F.2d 1146, 1155 (9th Cir. 1991)); In re Univ. Med. Ctr., 973 F.2d 1065, 1073 (3d Cir. 1992) (holding that § 405(h) did not preclude bankruptcy jurisdiction over an action to bar the offset of reimbursement of post-petition services against pre-petition overpayments because the claim did not “arise under” the Medicare statute). Also, notwithstanding the inclusion of the Seventh Circuit’s decision in Bodimetric above, it is notable that a Bankruptcy Court within the Seventh Circuit recently enjoined CMS from terminating a provider agreement after concluding it had jurisdiction to do so; the Seventh Circuit refused to take up the jurisdictional issue on appeal because it held the appeal was moot because, by the time the District Court took it up on appeal, the Bankruptcy Court had already dissolved the injunction for other reasons. Home Care Providers, Inc. v. Hemmelgarn, 861 F.3d 615 (7th Circ. 2017).

The Medicare jurisdiction-stripping provision may also be inapplicable to the Medicaid statute. This is what a District Court in Maine concluded in Maine Dept. of Health and Human Services v. The Getchell Agency, Civil No. 1:17-cv-cv-00252-JAW, as recently as April 2018. In that case, a small healthcare business providing residential and support services to individuals with physical, emotional and intellectual disabilities had two provider agreements with the Maine Department of Health and Human Services (MDHHS). After the MDHHS issued a Notice of Violation to the provider and sought to recoup overpayments, the provider filed a Chapter 11 bankruptcy case. The MDHHS, in turn, asked the Bankruptcy Court to declare that the automatic stay did not apply to its efforts to terminate the debtor’s provider agreements. The Bankruptcy Court ruled it had jurisdiction over any challenge to MDHHS’s termination of the provider agreements, and that the automatic stay applied. On appeal, the District Court ruled that the Bankruptcy Judge “was likely correct when he determined that there was jurisdiction for the automatic stay because [the Medicare jurisdiction-stripping provision] is inapplicable to the Medicaid statute, which does not contain such a provision.” As the Court pointed out: “It is true that some courts have interpreted the Medicare jurisdiction-stripping provision to cover decisions revoking a provider’s approval under Medicaid in some situations, such as when the provider operates under both Medicare and Medicaid, and the decision to revoke Medicaid approval automatically revokes Medicare approval…. The Bankruptcy Court was likely correct not to extend that logic to cover the situation here, where the provider operates only under Medicaid, because no courts have extended this reasoning as far as MDHHS asks. There have been legislative attempts to add a similar provision to the Medicaid statute, but those attempts have been unsuccessful.” Id. (citations omitted).

While a conclusion that the Bankruptcy Court has jurisdiction over a Medicare or Medicaid provider agreement may not be the end of the disputes between a DH or CMS and a provider, it is a necessary prerequisite to challenging actions of the DH or CMS with respect to the provider agreement. Depending on the jurisdiction in which a bankruptcy case is filed, and on whether the agreements at issue are Medicare or Medicaid agreements, bankruptcy may still be an option to consider when faced with termination of a provider agreement.
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