Mid-Atlantic Health Law TOPICS

A version of this article was published in The Daily Record on July 18, 2016.

Until the United States Supreme Court rules on the issue, the answer to the foregoing question is "maybe." Outside of bankruptcy, health care providers that want to contest a termination of their Medicare or Medicaid provider agreements by the Secretary of Health and Human Services (or a state agency counterpart) are required to exhaust their administrative remedies before obtaining judicial review.

As a practical matter, the delay inherent in the administrative review process may force the provider to shut down its business for lack of income even though the termination is later found by a court to have been improper. To avoid this result, some health care providers have filed Chapter 11 bankruptcy cases and immediately sought an injunction from the bankruptcy court to prevent the termination of the provider agreement, before the court has decided whether the termination is proper, and without first seeking administrative review.

A. Two Cases/Two Legal Conclusions

Whether this bankruptcy strategy ultimately works is unclear as illustrated by two recent decisions.

In Florida Agency for Healthcare Administration v. Bayou Shores SNF, a bankruptcy court stopped a termination of Medicare and Medicaid provider agreements even though Bayou Shores had not first exhausted its administrative remedies. However, that holding was reversed on appeal. The appellate court held that a bankruptcy court should not be allowed to stop the termination of the provider agreements as a matter of law.

Nevertheless, the terminations of Bayou Shores' Medicare and Medicaid provider agreements are still on hold pending the next level of judicial appeal, as a matter of "human dignity." While Bayou Shores may not admit any new patients, the termination of its provider agreements has not yet been implemented to avoid disrupting the lives of Bayou Shores' residents.

Shortly after the Bayou Shores decision, another bankruptcy court in Nurses' Registry and Home Health Corp. v. Burwell, also enjoined the suspension of Medicare payments to the provider, ruling that the bankruptcy court could as a matter of law stop the termination even though the provider failed to exhaust its administrative remedies.

B. The Law

At issue here is a provision in the applicable federal statute that specifically states that federal district courts may not exercise jurisdiction over Medicare or Medicaid decisions until parties have exhausted administrative remedies. However, that statute does not specifically mention whether bankruptcy courts have or do not have jurisdiction to get involved before administrative remedies are exhausted.

Basically, some courts have read the prohibition literally, meaning that, since bankruptcy courts are not specifically prohibited from getting involved, they are free to get involved. On the other hand, other courts have looked to Congressional intent to conclude that Congress wanted no court involvement before administrative remedies were exhausted.

C. In the Meantime

The termination of a provider agreement can result in the shutdown of a provider's business even if the provider shows after the fact that the government was wrong. Outside of bankruptcy, the federal jurisdictional statute bars judicial review before administrative remedies are exhausted. As a result, obtaining a favorable decision from a court later can be a hollow victory if the provider has shut down its business in the interim.

Whether a bankruptcy court has the jurisdiction to change this result is an open question that will not be finally resolved until there is a United States Supreme Court decision. In the meantime, it is likely that health care providers, when faced with a loss of their business due to the government's termination of a provider agreement, will continue to seek recourse in bankruptcy to achieve a result unobtainable outside of a bankruptcy proceeding, whether such relief is permanent or only temporary.