SNF's bankruptcy protected Medicare certification, judge rules in 'nightmare decision' for govt

A controversial decision could be a "nightmare" for the government, a legal expert says.
A controversial decision could be a "nightmare" for the government, a legal expert says.

The government cannot cut off reimbursements to a nursing home that entered bankruptcy while appealing the termination of its Medicare and Medicaid certification, a federal judge recently ruled. The controversial decision could lead other nursing homes to enter Chapter 11 to preserve reimbursements, according to legal experts.

After inspectors cited Bayou Shores SNF LLC for endangering residents in 2013 and 2014, the Centers for Medicare & Medicaid Services decided to revoke the facility's participation in the government health plans. At the same time that CMS was pursuing this action, Bayou Shores entered bankruptcy, which typically prevents any changes to existing contracts.

Under a Dec. 31 ruling, the 160-bed facility can emerge from Chapter 11 with its provider agreements in place, according to Law360. One question was whether the Medicare and Medicaid certification was terminated before Bayou Shores entered Chapter 11. The termination never was completed, Judge Michael Williamson determined.

“Although [CMS] gave the debtor notice it was terminating its Medicare provider agreement prepetition, that termination was not complete and irreversible until the appeals process was complete. And the appeals process was not completed prepetition,” Williamson said, according to Law360. “Because the debtor's Medicare and Medicaid provider agreements remain in effect, the court concludes the debtor's plan is feasible and should be confirmed.”

That plan reportedly has been approved by Bayou Shores' creditors, which are owed more than $13 million. They have agreed to let the reorganized facility prove that it is in regulatory compliance and continue to fund itself through continuing operations. The facility currently is still open, and the judge emphasized that it likely is the only facility in the area equipped to serve many of its residents, according to Law360.

Judy Waltz, a Foley & Lardner LLC attorney not connected with the case, told Law360 that the ruling is a “nightmare” for the government. However, Bayou Shores' ultimate fate is uncertain, given that CMS is appealing.

The federal agency argues that it has the authority to cut off Medicare and Medicaid participation at any time, Law360 reported. And Florida's Agency for Health Care Administration has indicated it will not approve Bayou Shores' pending license renewal, another strike against the facility remaining open.