Parkview Adventist Med. Ctr. v. United States — Nov. 2016 (Summary)

A HOSPITAL IN BANKRUTPCY

Parkview Adventist Med. Ctr. v. United States
No. 16-1731 (1st Cir. Nov. 29, 2016)

The United States Court of Appeals for the First Circuit affirmed a district court’s ruling that a termination of a provider agreement between the Centers for Medicare & Medicaid Services (“CMS”) and a hospital in bankruptcy did not constitute impermissible discrimination against a debtor in bankruptcy under federal law.

The hospital had a provider agreement with CMS to receive reimbursements for services provided under Medicare Parts A and B.  The hospital informed CMS that it would be discontinuing its participation in Medicare Part A because it was closing its inpatient services and filing chapter 11 bankruptcy.  CMS sent a response confirming receipt of the hospital’s letter and advising the hospital that it would terminate the provider agreement and payments on the day the hospital ceased to provide inpatient services.  In the interim, however, the hospital obtained a conditional license from the Maine Department of Health and Human Services and continued to provide outpatient services.  The hospital informed CMS that it would continue to provide outpatient services, that it no longer wished to terminate the provider agreement, and that CMS’s rescission of the provider agreement would “adversely affect [the hospital’s] bankruptcy transition plan.”

The court held that the hospital had no property interest in participating in Medicare and that, even if it did, CMS could still terminate the provider agreement because it was exercising its “police and regulatory power,” which is an exception to the general prohibition against filing an action against a debtor in bankruptcy.  To qualify for the exception, a government entity must demonstrate that its action is intended to “protect the public safety and welfare” and is not for any “pecuniary purpose[.]”  The court ruled that CMS had a strong public policy interest in ensuring that public monies were spent on appropriately qualified hospitals to protect patients.  The hospital’s request for exemption from CMS conditions of participation was akin to an attempt to “evad[e] CMS’s efforts to secure compliance with the Medicare statute – exactly the kind of action the police and regulatory power exception is meant to prevent.”  The court further held that CMS’s termination of the provider agreement was in direct response to the hospital’s voluntary decision to withdraw from the Medicare program, not in reference to its bankruptcy proceedings.  Therefore, the termination also did not violate the nondiscrimination provision under the federal bankruptcy statute.  As a result, the court denied the hospital’s request to enforce a stay on CMS’s termination proceedings.