Medicare and Medicaid payments make up a significant amount of total revenue for many healthcare providers. The question of whether a federal or state agency can terminate a Medicare or Medicaid provider agreement for a healthcare provider going through bankruptcy is an important one. So far, the answer is a conditional yes depending on jurisdiction and how the bankruptcy court attempts to stop the termination.
A bankruptcy court has two ways it can attempt to halt the termination: through an automatic stay pursuant to the Bankruptcy Code, or by ordering an injunction to maintain the status quo throughout the bankruptcy proceedings (thus keeping the provider agreement in place at least temporarily). An automatic stay is simply an automatic injunction that prevents creditors from taking actions to collect debts from a debtor who has declared bankruptcy. However, there are certain statutory exceptions to an automatic stay, including one for actions falling within the government’s use of “police and regulatory power.”
Regarding the second method (a separate court-ordered injunction), there is some question as to whether government actions pertaining to the Medicare and Medicaid Act are even within a bankruptcy court’s jurisdictional powers to begin with.
The Eleventh Circuit Court of Appeals (encompassing Florida, Georgia, and Alabama) has addressed the question of jurisdiction. According to the Eleventh Circuit, a bankruptcy judge does not have the authority to stop a government action related to the Medicare and Medicaid Act.
As to the automatic stay, the First Circuit Court of Appeals (encompassing Maine, New Hampshire, Massachusetts, and Rhode Island) found that the government could still terminate the Medicare and Medicaid provider agreements based on the statutory exception for police power. Meanwhile, the Supreme Court has so far not taken the opportunity to weigh-in.
As things stand now, there are only two definitive answers to the question of whether bankruptcy is a shield against the government terminating a provider agreement: maybe, and wait and see.