December 12, 2020...10:52 am

Medicaid Provider Agreements

While the Bankruptcy Court found that its finding that state supplier agreements are not contracts was contrary to several bankruptcy decisions made by other jurisdictions, the Tribunal found that these decisions were “not persuasive” because none of them debated whether a supplier status agreement was a legal right as opposed to a contract. However, the Bankruptcy Court ruled that a supplier contract is a “legal right,” similar to a licence that can be sold freely and freely from all claims. The Tribunal`s conclusion centred on the fact that a state agreement on the supplier is not a contract at all. Instead, a provider`s right to reimburse services is imposed by law and not by contract. Verity Health System of California (Verity) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Central District of California. Subsequently, Verity sought approval for a sale of the bulk of the assets of four hospitals, including hospital provider agreements. Verity requested that the Bankruptcy Court authorize the sale after a certain section of the Bankruptcy Act, which provides that assets can be sold freely and without any pledge, receivables and other interest, provided certain conditions are met. For this reason, health care providers who are in debt to the government find it difficult to sell their Medicaid and/or Medicare provider agreements and associated assets, or the amount to be paid for their assets is reduced to inherited liability. The Bankruptcy Court authorized the sale against objection from the California Department of Health Care Services (DHCS).

DHCS submitted that Verity`s Medicaid supplier agreements should not be allocated to money owed freely and free of charge by DHCS, since a contract is a contract of execution, that is, a contract in which there are essential obligations not fulfilled by both parties, and another part of the Bankruptcy Act provides that a performance contract can only be awarded if it is first accepted by a debtor that all defaults of the contract are immediately healed. If a contract with a state-owned supplier is a contract of execution, any amount owed by the supplier to a public body such as DHCS should be paid before the supplier contract can be transferred. In fact, DHCS stated that more than $55 million had to be paid before hospitals` Medicaid provider agreements were awarded. A version of this article, entitled “Medicaid, Medicare Providers Bankruptcy Agreements,” was published online by The Daily Record on July 30, 2020. The verity decision opens the door to the sale of agreements from public suppliers and related assets by suppliers who, because of the supplier`s responsibility to the government, have not been able to sell their assets or sell them at fair value. In addition, the Tribunal found that, although the supplier agreement was a contract, it was not an “execution contract” since it had not imposed obligations on DHCS, and that the only obligations imposed on hospitals were obligations that must already be met by law. While the decision is not binding on other courts, health care providers, if followed elsewhere, have the opportunity to sell their assets freely and without state liability in the event of bankruptcy, which should result in a higher price than would be achieved outside of bankruptcy. Under current legislation, when a health care provider sells a Medicare or Medicaid provider contract in connection with the sale of health care provider assets, the purchaser of these assets must be liable for amounts owed by the previous owner to the government, such as overpayments and civil fines. However, if the same asset sale occurs in the event of bankruptcy, a recent decision has decided that a Medicaid provider agreement and hence a Medicare supplier agreement can be sold “freely and clearly” of hereditary liability under the Bankruptcy Act.