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From Health Law Daily, July 12, 2016

Jurisdiction bankrupts provider’s attempt to avoid Medicare and Medicaid termination

By Bryant Storm, J.D.

A bankruptcy court cannot exercise jurisdiction over Medicare claims prior to the exhaustion of administrative remedies, the Eleventh Circuit ruled, in a case deciding whether a skilled nursing facility (SNF) could avoid the termination of its Medicare and Medicaid provider agreements through the protection of bankruptcy proceedings. The Eleventh Circuit determined that there is no statutory authority granting bankruptcy court jurisdiction over Medicare claims because Congress expressed no intention to create such an authority (In Re: Bayou Shores SNF, LLC v. Florida Agency for Health Care Administration, July 11, 2016, Clevenger, R.).

Noncompliance. HHS notified Bayou Shores by letter on July 22, 2014, that its Medicare provider agreement would be terminated, effective August 3, 2014, as a result of noncompliance that posed immediate jeopardy to residents’ health and safety. A survey of Bayou Shores’ SNF revealed poor patient hygiene, unsecured expired medications, and failures to track residents’ "Do Not Resuscitate" orders. A subsequent survey revealed that the provider placed a "known sexual offender" in a room with a disabled patient without informing that patient. The placement led to an allegation of sexual assault, which the SNF, allegedly, improperly handled. A final survey discovered that the SNF allowed a mentally impaired resident to leave the facility unaccompanied. The Florida Agency for Health Care Administration (AHCA) determined that some of the noncompliance rose to the immediate jeopardy level and constituted grounds for termination.

Termination. The termination of the Medicare provider agreement also triggered the termination of Bayou Shores’ Medicaid provider agreement. Two days before the termination deadline, Bayou Shores sought protection from termination in bankruptcy court. The United States Bankruptcy Court for the Middle District of Florida assumed authority over the provider agreements, determining that they were property of Bayou Shores’ debtor estate. At a subsequent evidentiary hearing, the bankruptcy court determined that the SNF remedied its deficiencies and that patients were no longer in immediate jeopardy. As a result, the bankruptcy court enjoined HHS from terminating the provider agreements. HHS and AHCA separately appealed the bankruptcy court’s decision.

District court. On appeal before a federal district court, HHS and AHCA succeeded on jurisdictional challenges. The agencies argued that 42 U.S.C. § 405(h) denied the bankruptcy court jurisdiction over the provider agreements because the SNF had not exhausted available administrative remedies. The district court agreed and held that because the SNF had failed to exhaust administrative remedies, there was no other basis for the assumption of the provider agreements by the bankruptcy court. Bayou Shores appealed that decision to the Eleventh Circuit.

Statutory construction. The Eleventh Circuit agreed that bankruptcy court jurisdiction, under 28 U.S.C. § 1334, was precluded by 42 U.S.C. § 405(h). Although Bayou Shores argued that 42 U.S.C. § 405(h) only precluded jurisdiction under the statutory provisions it expressly referenced—28 U.S.C. §§ 1331 and 1346—the government and the Eleventh Circuit agreed that the lack of reference to Section 1344 in that statute was the result of a codification error. As a result, the court held that when the statute was properly construed, jurisdiction by any federal district court, including bankruptcy courts, required a prior exhaustion of administrative remedies.

History. The court explained that the codification error resulted from multiple revisions to the original 1939 version of 42 U.S.C. § 405(h). Through a comprehensive review of the statute’s legislative history, the court demonstrated that the absence of a reference to Section 1344 in 42 U.S.C. § 405(h) was the result of a technical oversight, rather than a substantive decision by Congress to change the jurisdiction of the bankruptcy courts. The court plainly rejected the SNF’s assertion, explaining that there is no evidence Congress intended "to reverse decades of Medicare and Social Security Act policy and give bankruptcy courts parallel jurisdiction with HHS to adjudicate Medicare claims."

The case is No. 15-13731.

Attorneys: Jeffrey A. Clair, U.S. Department of Justice, for Agency for Health Care Administration. Roberta Josephina Bodnar, U.S. Attorney's Office, for the United States. Elizabeth A. Green (GrayRobinson, P.A.) for Bayou Shores SNF LLC.

Companies: Bayou Shores SNF, LLC

MainStory: TopStory CaseDecisions CMSNews CoPNews MedicaidNews PartBNews ProgramIntegrityNews ProviderNews QualityNews

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