DOJ's lawsuit against provider can proceed despite bankruptcy filing

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A federal lawsuit claiming a Tennessee-based skilled nursing operator provided “grossly substandard care” can proceed despite the provider's bankruptcy filing, a judge ruled on Monday.

Vanguard Healthcare LLC, along with a former director of operations, were named in a lawsuit filed by the U.S. Department of Justice and the state of Tennessee in September. The suit includes false claims allegations against Vanguard, as well as claims that it submitted pre-admission documents with forged physician and nursing staff signatures.

The six Vanguard facilities named in the suit filed for Chapter 11 bankruptcy in May.

Filing a bankruptcy petition typically stays judicial proceedings that began prior to the petition's filing, as well as those that could have commenced before the bankruptcy case began, according to a memorandum opinion from U.S. District Judge Kevin H. Sharp. That stay in proceedings gives debtors a “breathing spell from creditors,” as well as a chance to organize their financial affairs.

The DOJ filed a motion in September requesting an exception from the automatic bankruptcy stay, noting that government agencies are not blocked by bankruptcy cases from exercising their “normal police and regulatory powers.”

Sharp sided with the DOJ in Monday's memo, finding that Vanguard's arguments that the exemption shouldn't apply in their case were “unpersuasive.” Sharp granted the DOJ's motion; the case will continue while Vanguard is engaged in bankruptcy proceedings.