The power of bankruptcy courts to adjudicate Medicare provider agreements has been addressed by several circuit courts in recent years. Given the distressed nature of the health care industry and the continued bankruptcy filings by health care providers, this issue has become more prominent. Insolvent health care providers often have issues with Medicare involving their provider agreements. However, several circuit courts determined that bankruptcy courts lack jurisdiction to adjudicate these issues; and, recently, the First Circuit took an unusual approach.
In order to receive payments from Medicare and/or Medicaid, providers must enter into provider agreements with the federal and state governments. The provider agreements provide reimbursements to providers who provide medical services to Medicare and Medicaid patients. Parkview Adventist Med. Ctr. v. United States, 842 F.3d 757, 761 (1st Cir. 2016). However, in order to qualify, providers must satisfy certain regulatory requirements and, if they do not comply, then the Department of Health and Human Services (DHS) may terminate the provider agreement without a hearing if there is an immediate threat to the health and safety of patients. See 42 U.S.C. §1395(i)-3(h)(2)(A). As Medicare reimbursement is a large or largest source of income, providers may turn to bankruptcy in order to hopefully stave off this loss of income.
However, the power of bankruptcy courts to adjudicate issues involving the Medicare Act is currently unclear. In Fla. Agency for Health Care Admin v Bayou Shores SNF (In re Bayou Shores SNF), the Eleventh Circuit determined the bankruptcy court lacked jurisdiction pursuant to 42 U.S.C. §405(h) and 28 U.S.C. §1334 to resolve claims under the Medicare Act. 828 F.3d at 1304. Bayou Shores SNF was a nursing facility whose income was generated from Medicare or Medicaid. Id. at 1300-01. DHS sent a letter to Bayou stating that it was "not in substantial compliance with the Medicare program requirements, and that the conditions in its facility constituted an immediate jeopardy to residents' health and safety" and that the provider agreements would terminate approximately two weeks later. Id. at 1300. Thereafter, Bayou filed for bankruptcy protection. Id. After the bankruptcy court entered an order assuming the provider agreements, the district court reversed and upheld DHS's jurisdictional challenge; Bayou then appealed. Id. at 1303-04.
The Eleventh Circuit determined that 42...