On June 26, 2015, the District Court for the Middle District of Florida issued an opinion on consolidated appeals arising from the Bayou Shores SNF, LLC bankruptcy case with potentially broad implications for healthcare bankruptcy cases. At the heart of the dispute before the District Court was whether the Bankruptcy Court had jurisdiction to enjoin the termination of, and subsequently authorize the assumption of, certain Medicare and Medicaid provider agreements in the bankruptcy case. As discussed below, the District Court held the Medicare jurisdictional bar set forth in 42 U.S.C. § 405(h) precluded the Bankruptcy Court from taking any action with respect to the provider agreements. This case highlights some of the challenges a healthcare facility or provider may face in using bankruptcy as a tool to enjoin the termination of its provider agreements.
Bayou Shores SNF LLC (Bayou) operated a Florida skilled nursing facility, known as the Rehabilitation Center of St. Petersburg (Nursing Home Facility). Bayou was a party to a provider agreement with the United States Department of Health and Human Services' (HHS) Centers for Medicare and Medicaid Services (CMS), and with the State of Florida Agency for Healthcare Administration (ACHA). Between February and July 2014, CMS and ACHA determined that the Nursing Home Facility was noncompliant with the Medicare and Medicaid program requirements and cited Bayou for deficiencies three separate times. On July 22, 2014, CMS sent Bayou a letter stating its provider agreements would be terminated on August 3, 2014 (Termination Notice).
On August 1, 2014, two days before the provider agreements were to be terminated, Bayou filed a lawsuit in the District Court for the Middle District of Florida seeking an injunction to prohibit the termination of the provider agreements. On August 1, 2014, the District Court entered a temporary restraining order (TRO) prohibiting the termination of the agreements until August 15, 2014. On August 15, 2015, the District Court denied an extension of the TRO and dissolved it; holding that it lacked subject matter jurisdiction because Bayou had not exhausted its administrative remedies pursuant to 42 U.S.C.§ 405(h) before bringing a claim under the Medicare statute in the District Court.1 Within hours of the District Court dissolving the TRO, Bayou filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Middle District of Florida.2
Bankruptcy Court's Injunction
After the bankruptcy petition was filed, Bayou, now operating as a debtor-in-possession (Debtor), filed an emergency motion in the Bankruptcy Court seeking to enjoin and prohibit any action by ACHA or CMS to terminate the Debtor's Medicaid and Medicare provider agreements. The Bankruptcy Court entered an order granting the motion (Injunction Order). The United States of America, on behalf of the Secretary of HHS (Secretary), and ACHA, appealed, and argued as part of the appeal that the Bankruptcy Court lacked jurisdiction to enjoin the termination of the provider agreements.