High Court’s Rejection May Have Left Authority Split in Nursing Home Bankruptcy Cases


Location, location, location.

For nursing homes looking to reorganize in bankruptcy and maintain their Medicare and Medicaid provider agreements, location may be the deciding factor.

Last week, the U.S. Supreme Court decided not to hear arguments in a case where a bankrupt Florida nursing home tried to stop both the federal and state governments from revoking its Medicare and Medicaid provider agreements (Bayou Shores SNF, LLC v. Fla. Agency for Health Care Admin., U.S., No. 16-967, review denied 6/5/17).

In denying review of the case, the high court may have left in place a split of authority between federal appeals courts. That split could allow nursing homes in certain areas of the country to hold on to their agreements while their bankruptcy case proceeds, while homes in other parts of the country can’t.

The U.S. Court of Appeals for the Eleventh Circuit, which governs federal trial courts in Florida, Georgia, and Alabama, said a bankruptcy judge didn’t have the authority to stop the government from revoking the provider agreements, because the Medicare Act bars bankruptcy courts from asserting jurisdiction.

However, the U.S. Court of Appeals for the Ninth Circuit, which governs federal trial courts in Montana, Idaho, Washington, Oregon, California, Nevada, Arizona, Alaska, and Hawaii, ruled in 1991 that a bankruptcy court could assert jurisdiction over Medicare Act claims, even if the provider hadn’t exhausted its administrative remedies.

The attorneys for the Florida nursing home said the supreme court’s decision not to take their case has set up a situation where “health-care providers that file for bankruptcy in the Ninth Circuit will be able to reorganize effectively while providers filing in the Eleventh Circuit may not.”

However, the Eleventh Circuit considered the Ninth Circuit’s reasoning and decided it had been rejected by later decisions of the same court in the intervening 26 years. If that’s true, then there is no true circuit split and the Eleventh Circuit’s decision reflects a majority view.

But there may yet be another wrinkle to this story. The U.S. Court of Appeals for the Seventh Circuit, which governs federal trial courts in Wisconsin, Indiana and Illinois, heard oral arguments May 16 in the case of an Indiana nursing home, which similarly asked a bankruptcy court to block the federal government from revoking its Medicare provider agreement.

The federal trial court in that case used the Eleventh Circuit’s Bayou Shores decision to explain why the bankruptcy court didn’t have jurisdiction to stop the agreement termination. If the Seventh Circuit rejects that reasoning, there will be a clear, direct split of authority, which may draw the attention of the Supreme Court.

Read my full story about the Eleventh Circuit decision here.

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