District Court Overturns Bankruptcy Court’s Orders Preventing The Termination Of Local Skilled Nursing Facility From Medicare And Medicaid Programs

Tampa, FL – U.S. Attorney A. Lee Bentley, III announces that the U.S. District Court has reversed a series of orders entered by the local bankruptcy court that had impeded efforts by the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS), to terminate a skilled nursing facility from the Medicare programs.  In its appeals from those orders, the United States argued that the bankruptcy court lacked the judicial power to enjoin the administrative authority of CMS over who may participate in Medicare.  The district court adopted that argument in full and, in doing so, cleared the way for the administrative termination of the facility from the federally subsidized health program.

Bayou Shores SNF, LLC (Bayou Shores), provides services to patients with serious psychiatric conditions at its Rehabilitation Center of St. Petersburg.  The facility had operated under Medicare and Medicaid provider agreements until surveys by the Florida Agency for Health Care Administration (AHCA) found that conditions at the facility constituted immediate jeopardy to the patients’ health and safety. CMS acted on these findings by sending a letter to Bayou Shores advising that the facility would be terminated from Medicare effective August 3, 2014. Under federal law, a state is required to terminate its Medicaid provider agreement when CMS terminates a provider from Medicare.

On August 1, 2014, Bayou Shores filed suit in district court and sought a temporary restraining order (TRO) preventing CMS from terminating the provider agreements.  Bayou Shores sought and received a TRO enjoining the termination.  On August 15, 2014, and at the request of the United States, the district court vacated the TRO and dismissed Bayou Shores’ complaint, finding that it had no power to grant relief before Bayou Shores had fully pursued the administrative appeal process established to resolve challenges to CMS termination decisions.

Immediately after the district court entered its order dissolving the TRO, Bayou Shores filed a voluntary Chapter 11 bankruptcy petition with the bankruptcy court.  Bayou Shores requested the same relief from the bankruptcy court that had been denied by the district court, and sought an emergency order enjoining the termination decision by CMS.  The bankruptcy court entered the injunction, finding that the Bankruptcy Code authorized it to do so.  The bankruptcy court later found that Bayou Shores’ provider agreements were executory contracts that could be assumed in bankruptcy and confirmed Bayou Shores’ plan of reorganization with an order that required assumption of the provider agreements that CMS had terminated.

The United States appealed these bankruptcy court orders to the district court. The district court found that “the Bankruptcy Court was without jurisdiction to interpose itself in the [administrative] process [of CMS], including entering an injunction to enjoin the provider agreements’ termination.”

The United States was represented in all the above cases by Assistant United States Attorneys Sean Flynn and Christopher Emden.

Bayou Shores SNF LLC v. Burwell, et al.

Case no. 8:14cv1849-T-33MAP (M.D. Fla.)

In re: Bayou Shores SNF LLC,

Case no. 8:14cv2816-T-30 (M.D. Fla.)