Supreme Court Ends Nursing Home Provider Agreement Dispute

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By Matthew Loughran

A bankrupt Florida nursing home can’t stop the federal government and state 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 ).

The U.S. Supreme Court June 5 denied a petition by Bayou Shores SNF LLC seeking review of a ruling by the U.S. Court of Appeals for the Eleventh Circuit allowing the agreements to be canceled despite the company’s ongoing bankruptcy proceedings. The appeals court ruled a bankruptcy judge didn’t have the authority to stop government authorities from canceling the provider agreements as part of a corporate reorganization.

The case 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 Eleventh Circuit said the effort to revoke the agreements arose under the Medicare Act and was thus exempt from the bankruptcy court’s jurisdiction.

The Florida Agency for Health Care Administration, which serves as the state’s Medicaid agency, applauded the high court’s decision to deny review in the case. “This is positive news for our agency,” AHCA communications director Mallory McManus told Bloomberg BNA. “We have worked for over a year with our federal partners at CMS to hold this facility accountable to the patients they served. Our mission is better health care for all Floridians, and we will continue to ensure that the facilities we regulate are maintaining proper standards and providing the best care possible to patients,” she added.

Circuit Split?

The high court’s decision not to take the case potentially leaves in place a split of authority between two federal appeals courts: the Eleventh Circuit, which governs federal trial courts in Florida, Georgia, and Alabama; and the Ninth Circuit, which governs federal trial courts in Montana, Idaho, Washington, Oregon, California, Nevada, Arizona, Alaska, and Hawaii.

The Ninth Circuit in, Sullivan v. Town & Country Home Nursing Servs., Inc., 963 F.2d 1146 (9th Cir. 1991), found that a bankruptcy court could assert jurisdiction over Medicare Act claims, even if the provider hadn’t exhausted its administrative remedies.

However, the Eleventh Circuit disagreed with that position in its decision against Bayou Shores last year.

The court said the Ninth Circuit’s 1991 ruling was mitigated by that court’s later opinions, which seemed to reflect an understanding that the jurisdictional bar in the Medicare Act was broader than that and could encompass provisions of federal law—like the bankruptcy code—that aren’t specifically named.

The attorney for Bayou Shores reflected this apparent authority split when reacting to the high court’s decision not to accept the appeal of the Eleventh Circuit’s decision.

“We are disappointed in the Supreme Court’s denial today,” Lindsay C. Harrison of Jenner & Block LLP in Washington told Bloomberg BNA. “As a result, 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.”

Precedent May Be Limited

A pair of bankruptcy attorneys with Foley & Lardner LLP agreed that the high court’s decision not to take the case could lead to different results depending on where the bankrupt parties are situated geographically.

“The practical outcome of the Supreme Court’s decision is that bankruptcy courts in the Eleventh Circuit are bound by precedent established by the Eleventh Circuit that they do not have jurisdiction over termination of provider agreements where administrative remedies have not been exhausted,” Jack G. Haake, from Foley’s Washington office told Bloomberg BNA.

“Outside of the Eleventh Circuit, circuits that have not addressed the issue have the choice of following the Eleventh Circuit or deciding the jurisdictional issue on more narrow grounds as we saw the First Circuit do in Parkview Adventist Medical Center v. United States, 842 F.3d 757 (1st Cir. 2016),” he said.

In Parkview, the First Circuit sidestepped the jurisdictional question altogether and instead determined the Bankruptcy Code's automatic stay provisions didn’t apply to efforts by the Centers for Medicare & Medicaid Services to terminate a Medicare provider agreements.

Judith A. Waltz, a bankruptcy attorney in Foley’s San Francisco office agreed that the Eleventh Circuit’s decision could be limited.

“I think Jack is correct that the precedent would reasonably be limited to a situation in the Eleventh Circuit involving termination of a provider agreement based upon the secretary’s determination that the conditions of participation were not met,” she told Bloomberg BNA.

“In my view, that may be a significantly different jurisdictional analysis from a situation involving more traditional bankruptcy issues like a dispute over a claim or dispute over a collection mechanism in bankruptcy,” she said.

Effect on Pending Litigation

The high court’s denial of review could also have some effect on a case that is before the U.S. Court of Appeals for the Seventh Circuit. That court, which governs federal trial courts in three midwestern states—Indiana, Wisconsin, and Illinois—is considering an appeal from an Indiana nursing home that has similarly challenged the termination of its Medicare and Medicaid provider agreements.

The case, United States v. Nightingale Home Healthcare, Inc., reached the Seventh Circuit on appeal from a decision by the U.S. District Court for the Southern District of Indiana. The trial court used the Bayou Shores decision as the primary reason to overturn a bankruptcy court’s order blocking the state and federal government from terminating the nursing home’s Medicare and Medicaid provider agreements.

According to the court, the Eleventh Circuit’s decision was “exhaustively researched and compelling” and provided sufficient reason to overturn the bankruptcy court’s order in the absence of any binding authority from the Seventh Circuit.

A three-judge panel of the Seventh Circuit heard oral arguments on the appeal May 16 and is expected to rule on the case in the coming months.

The petition for review was filed on behalf of Bayou Shores by Jenner & Block LLP.

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 Eleventh Circuit's opinion is at http://src.bna.com/gF3.

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