Bankruptcy Not a Shield Against Medicare or Medicaid Termination


Can a federal and state agency terminate a Medicare or Medicaid provider agreement for a health-care provider that is going through bankruptcy?

Three federal appeals courts covering 10 states have taken up some aspect of the issue and, so far, the answer is yes, but with conditions based in part on how the bankruptcy court tries to stop the termination.

There are two avenues for such an order from the bankruptcy court (1) through the “automatic stay” provisions of the Bankruptcy Code, or, (2) by a court-ordered injunction to maintain the status quo throughout the bankruptcy proceedings.

Both types of orders leave the provider agreements in place. The automatic stay method is part of the bankruptcy code and contains certain statutory exceptions, including one for actions that fall within the government’s use of “its police and regulatory power.”

The second method, a separate court-ordered injunction, brings with it the question of whether actions taken pursuant to the Medicare and Medicaid Act are even within the jurisdiction of the bankruptcy court to control.

Only the Eleventh Circuit, which governs federal trial courts in Florida, Georgia and Alabama, has directly addressed the jurisdiction question, saying a bankruptcy judge doesn’t have the authority to stop government actions under the Medicare and Medicaid acts. The Supreme Court refused to consider the case in its last term.

Meanwhile, the First Circuit, which has jurisdiction over federal courts in Maine, New Hampshire, Massachusetts and Rhode Island, has weighed in on the automatic stay method. The court relied on the police power exception to the automatic stay provision to allow the Centers for Medicare & Medicaid Services to terminate provider agreements.

A case now in federal court in Maine may test that decision. In Maine Dep’t of Health & Human Servs. v. Getchell, No. 1:17-cv-252, the Maine Department of Health and Human Services has argued the bankruptcy court didn’t have authority to stop it from terminating a health-care provider’s Medicaid agreement under either the automatic stay provision or through a specific injunction.

Finally, the Seventh Circuit, governing federal trial courts in Indiana, Illinois, and Wisconsin, was expected to consider the question of bankruptcy court jurisdiction in June. However, a three-judge panel of the court refused to rule on that question, saying instead the bankruptcy court’s injunction expired before the federal trial court could consider it.

The health-care provider whose Medicare and Medicaid agreements could be terminated has asked the full Seventh Circuit, all 12 judges, to reconsider the case and rule on the jurisdiction question.

If the Seventh Circuit wades back into the jurisdiction question or if the Maine case makes it up to the First Circuit, any ruling that departs from the Eleventh Circuit’s opinion could draw the attention of the Supreme Court and settle an issue that is being watched by both bankruptcy lawyers and health lawyers alike.

Read my full story about the Seventh Circuit decision here and my full story about the Supreme Court denial here.

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