Can Bankruptcy Help in Medicaid or Medicare Termination for Healthcare Providers?

Chief of Medicine medical board member from a healthcare provider service discussing Chapter 11 bankruptcy with an attorney, dealing with Medicare/Medicaid service termination

The answer as to whether bankruptcy can help healthcare providers in Medicaid or Medicare termination varies by jurisdiction, but it generally leans towards a conditional yes. It all depends on how bankruptcy courts address the termination.

Medicare and Medicaid payments make up a significant amount of total revenue for many healthcare providers. So you as a healthcare provider may wonder whether you can use Chapter 11 bankruptcy to prevent a federal or state agency from terminating your Medicare or Medicaid provider agreements. 

Recent developments in bankruptcy case law have introduced potential leverage for healthcare providers. Courts have challenged the traditional view that transferees must assume all liabilities when Medicare and Medicaid provider agreements are transferred in bankruptcy. As bankruptcy experts, our team has kept a close eye on these types of cases, and offers free consultations to healthcare providers facing possible terminations.

How the Law Interprets Bankruptcy Considering Medicare/Medicaid 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.”

Cases like those of Center City Healthcare and Verity have seen provider agreements treated as “statutory entitlements” that could be sold free and clear of successor liabilities rather than as “executory contracts” that require the acceptance of all associated liabilities.

Regarding the method of a separate court-ordered injunction, some question 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 guaranteed shield against the government terminating a provider agreement: maybe, and wait and see.

Have any additional questions about bankruptcy? Read our Bankruptcy FAQs here.

Let the Bankruptcy Experts Handle Your Business with Care

Navigating the complexities of Medicare and Medicaid provider agreements can be more than daunting. Our experienced legal team understands the unique challenges faced by the healthcare sector and is adept at leveraging the latest legal developments to protect your interests.

At OlsenDaines, we specialize in providing comprehensive Chapter 11 bankruptcy services tailored specifically for healthcare providers in Oregon & Washington. 

Whether you are contemplating restructuring or need to defend against the termination of provider agreements, our attorneys are here to ensure your business can continue operating without the overwhelming burden of government liabilities. We guide you through every step of the bankruptcy process, from filing to final resolution, ensuring that you have the best possible defense against any adverse government actions.

Don’t let the complexities of bankruptcy law hinder your healthcare business. Contact us today to learn how our specialized services can provide the legal protection you need.