Court Punts in Dispute Over Bankrupt Nursing Home’s Medicare Agreement

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Matthew Loughran

The Medicare agency can’t seek federal trial court review of a bankruptcy court’s order blocking its efforts to terminate a bankrupt nursing home from the program ( Home Care Providers, Inc., v. Hemmelgarn , 2017 BL 221059, 7th Cir., No. 16-2054, 6/27/17 ).

Judge Joel M. Flaum of the U.S. Court of Appeals for the Seventh Circuit June 27 said the challenge to the court order was moot because the bankruptcy court’s order had expired before the federal trial court took up its review. The appeals court’s decision doesn’t reinstate the expired injunction, but it does vacate the trial court’s analysis of whether the bankruptcy court had jurisdiction to issue the injunction in the first place.

The Seventh Circuit’s decision leaves unsettled an issue that has been followed by health-care and bankruptcy lawyers alike: whether a bankruptcy court has the authority to stop the Centers for Medicare & Medicaid Services from terminating a bankrupt nursing home’s provider agreement. Resolution of that question reflects a tension between the purpose of bankruptcy laws to allow an orderly reorganization of a failing company and Medicare laws allowing governmental authorities to revoke agreements to protect patient safety.

The U.S. Department of Justice declined Bloomberg BNA’s requests for comment, citing a policy on avoiding comment on pending matters. Representatives for the nursing home didn’t respond to Bloomberg BNA’s requests for comment.

Decision Doesn’t Add to Circuit Split

Earlier this month, the U.S. Supreme Court refused to review an Eleventh Circuit decision ruling the bankruptcy court didn’t have jurisdiction to block the CMS from terminating a bankrupt Florida nursing home’s provider agreement ( Bayou Shores SNF, LLC v. Fla. Agency for Health Care Admin., U.S., No. 16-967, review denied 6/5/17).

Bankruptcy attorneys who spoke to Bloomberg BNA at the time said the Supreme Court’s action left in place a split of authority between the Eleventh Circuit and the Ninth Circuit, with the latter permitting a bankruptcy court to halt the CMS effort to terminate a bankrupt nursing home’s provider agreements.

After the Supreme Court’s rejection of the Bayou Shores appeal, health-care and bankruptcy attorneys turned their eyes to the Seventh Circuit, which had already heard oral arguments in this case. In this case, the district court agreed with the Eleventh Circuit’s reasoning in denying bankruptcy court jurisdiction over Medicare provider agreements.

If the Seventh Circuit upheld the district court, it would strengthen the Eleventh Circuit’s view on the split; otherwise, it would give more ammunition to attorneys who supported the Ninth Circuit’s view.

However, the Seventh Circuit decided to do neither. It reversed the district court’s decision, thus wiping out the reasoning supporting the Eleventh Circuit, but refused to advocate for the Ninth Circuit perspective, saying instead the district court shouldn’t have heard the challenge in the first place as the challenged injunction had expired.

Attorneys Question Court’s Reasons

Bankruptcy attorneys who spoke to Bloomberg BNA questioned whether the Seventh Circuit applied the correct standard in evaluating the injunction. “The cases relied on by the Seventh Circuit as precedent to determine mootness all appear to have involved appeals where the issue on appeal was whether the trial court correctly issued an injunction, not whether the trial court lacked subject matter jurisdiction to issue the injunction and this distinction isn’t clearly addressed in the opinion,” A. Davis Whitesell, a bankruptcy attorney with Casner & Edwards in Boston, told Bloomberg BNA.

Elizabeth Green, a bankruptcy attorney with BakerHostetler LLP in Orlando, Fla., who argued on behalf of Bayou Shores before the Eleventh Circuit, expressed her disappointment in the court’s reasoning. “While I think the result is correct, it is unfortunate that the question of the bankruptcy court jurisdiction over provider agreements will remain unanswered,” she told Bloomberg BNA.

“It effectively leaves unanswered whether the bankruptcy court has jurisdiction over an entire business sector which Congress included in the Bankruptcy Abuse Prevention and Consumer Protection Act amendments to the code and which has no access to swift determinations in the current administrative process,” she added.

Whitesell also wondered why the court didn’t consider that the injunction could be repeated as a basis for not finding the review moot. “Given the likelihood of recurrence of the jurisdictional issue, I wonder whether the federal government argued for application of the ‘capable of repetition, yet evading review’ exception to the mootness doctrine,” he said. That exception applies where there is a reasonable expectation that the party aggrieved by the mooted court order would be subjected to the same action again.

“Given the probability that bankruptcy judges outside the Eleventh Circuit might continue, over the government’s objection, to issue preliminary injunctions early in Chapter 11 bankruptcy cases to preserve the status quo pending debtors’ exhaustion of administrative remedies, perhaps the exception could have applied in this case,” Whitesell said, noting that the government may have argued that point, but that the Seventh Circuit didn’t address the exception in its decision.

The decision, in which Judges William J. Bauer and Michael S. Kanne joined, also dismissed federal constitutional rights claims brought by the nursing home owner against state surveyors who allegedly targeted him on the basis of his national origin.

The CMS is represented by the Department of Justice. The nursing home is represented by Jefferson & Brewer LLC in Indianapolis and Cohen & Malad LLP in Indianapolis. Indiana is represented by the state attorney general’s office.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

The court's opinion is at http://src.bna.com/qi3.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law