MIAMI – The U.S. Court of Appeals for the 11th Circuit now is the third circuit court to deny bankruptcy courts any involvement in Medicare-related bankruptcy issues.

In Fla. Agency for Health Care Administration v. Bayou Shores SNF LLC, the 11th Circuit ruled that bankruptcy courts lack jurisdiction over Medicare disputes, which means providers facing bankruptcy reorganization may not use bankruptcy court to address outstanding Medicare issues. In Fla. Agency for Health Care Administration v. Bayou Shores SNF LLC, the provider received three survey citations finding immediate jeopardy. This prompted the Florida Agency for Health Care Administration (AHCS) to terminate Bayou Shores' provider agreements for Medicare and Medicaid.

Bayou shores tried to enjoin enforcement of the termination in the district court before filing for bankruptcy two days before the termination would have taken effect. However, the bankruptcy court determined it could preside over the Medicare issue and overruled AHCA's termination of the provider agreements, which it declared as assignable in bankruptcy proceedings. But the AHCA appealed to the district court for the Middle District of Florida, which overruled the bankruptcy court's ruling. Bayou Shores then appealed.

The root of the problem is that there is a conflict in statutory language of the Social Security Act. Meredith Larson, health attorney with Ober Kaler, said 42 U.S.C. § 405(h) establishes that courts do not have jurisdiction over claims arising under the Social Security Act except as noted in the act. However, 28 U.S.C. § 1334 establishes authority of the federal courts regarding bankruptcy matters. This prompted the 11th Circuit to conclude that Congress didn't intend to alter the exclusive jurisdiction of the federal courts over Medicare claims.

The 11th Circuit reviewed the legislative history of the provisions and reviewed Supreme Court cases, noting that in 2000, long after the technical updates to the statute, the court stated that section 405(h) “demands the channeling of virtually all legal attacks through the agency” despite the omission. 

Larson said she doubts the Supreme Court will hear the case.

"Technically, there is a circuit split here, as the opinion notes," Larson told The Florida Record. "Though this case makes the split more explicit, the issue has been open for long enough that it seems unlikely that the court will take notice of this particular case. The split has existed since 1991, when the 9th Circuit took a different position from the 7th on the question of whether a federal court can exercise jurisdiction over an issue arising under Medicare where the basis for federal jurisdiction is not explicitly identified in the statute granting Medicare plenary jurisdiction. It’s also notable that, as the 11th Circuit indicates, the 9th Circuit appears to have moved away from its earlier position on the issue and more towards the position of the other circuits."

However, Larson said she anticipates cases will continue to be filed in lower courts on this matter.

"It’s always possible that another case could arise in another circuit leading to a larger split that the court would view as requiring resolution," Larson said. "Anything that requires a legislative solution is unlikely in the current climate. Congress could act to amend section 405(h) to explicitly clarify that bankruptcy courts do not have jurisdiction over matters arising under Medicare or, alternately, that they do. Absent a very high-profile case or a concerted lobbying effort, I doubt such a change would occur."

Unfortunately for providers facing bankruptcy, they shouldn't count on the court to intervene. Larson said there aren't many options now.

"For a provider facing high civil monetary penalties, CMS (Centers for Medicare & Medicaid Services) will sometimes enter into a repayment agreement that allows a provider to remain in business while paying the fine over time," Larson said. "In the case of Bayou Shores, once the Medicare survey appeals process is complete, that would more or less be that for the facility." 

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