CHAPTER 2, D. Circuit Splits over Medicare Claims

• Jurisdiction: United States

D. Circuit Splits over Medicare Claims

ABI Journal

December 2019

Leslie A. Berkoff

Moritt Hock & Hamroff LLP

New York, N.Y.

Medicare is a vital source of funds for hospitals, providing health insurance for the elderly and the disabled.¹ It enables hospitals to help care for a significant ailing segment of the population. Hospitals servicing Medicare beneficiaries do so under a provider agreement filed with the Department of Health and Human Services (HHS). The government reimburses a hospital for Medicare services provided, and each year the government's fiscal intermediary audits the hospital in order to determine whether it has been over or underpaid. At times, for various reasons, the intermediary might determine that a hospital has been overpaid, and the hospital often disputes this overpayment. For a struggling hospital with limited resources, resolving this dispute while continuing to operate is difficult and often leads to bankruptcy. The question then becomes: When can the bankruptcy court exercise jurisdiction over a dispute involving HHS and Medicare claims?

A complicated split among the circuits exists on this issue² involving two federal statutes: the Social Security Act (SSA), and the Bankruptcy Code and its related jurisdictional provisions. The question is whether the SSA precludes any other court from exercising jurisdiction over the dispute by its specific language, until such time as all administrative appeals have been exhausted, and whether the nature of the dispute alters the analysis. Does § 405(h) of the SSA require all administrative appeals to be exhausted before a bankruptcy court can hear a dispute, or is there an independent basis for bankruptcy jurisdiction?

A recent Fifth Circuit decision follows the majority position holding that the SSA does not prevent bankruptcy courts from exercising jurisdiction over disputes concerning Medicare claims when an independent basis for bankruptcy court jurisdiction exists, such as a violation of the automatic stay. The minority position has found that any dispute involving a fiscal intermediary's reimbursement determination must first go through an administrative review channel before a bankruptcy court may exercise jurisdiction. Section 405(h) of the SSA³ states that certain claims under the SSA — and, by extension, the Medicare Act — may not be filed in court until the plaintiff has exhausted all administrative appeal remedies:

The findings and decision of the Commissioner of Social Security after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as [provided in § 405(g)]. No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under [subchapter II of the SSA].

The "certain" claims are those brought under 28 U.S.C. §§ 1331 (federal question) and 1346 (the U.S. as a defendant). However, § 1334 (bankruptcy cases and proceedings) is not included in the actual language of the statute, raising the question of whether exhaustion of administrative remedies is required where bankruptcy jurisdiction exists.⁴

Exhausting administrative remedies is problematic for a distressed hospital because it requires four levels of appeals before review in a federal district court.⁵ In bankruptcy, where time and money often are scarce, adhering to this process effectively "kills" the hospital. In a case where HHS has withheld funds because of alleged over-payments, the court noted that "if the bankruptcy court were to suspend the proceedings before it and permit HHS to exercise its administrative proceedings, then the entire bankruptcy scheme would be disrupted."⁶

The Circuit Split

Third Circuit

The Third Circuit has held that bankruptcy courts may exercise jurisdiction over actions by HHS and Medicare claims if an independent basis for bankruptcy court jurisdiction exists. However, the court may not exercise jurisdiction over the underlying Medicare overpayment dispute.⁷ In University Medical Center v. Sullivan, after a Medicare provider filed for chapter 11, the fiscal intermediary began withholding Medicare payments, arguing that the provider had been overpaid.⁸ The provider later ceased doing business.⁹

The hospital commenced an adversary proceeding to recover the withheld funds, alleging that HHS's actions violated the automatic stay.¹⁰ HHS opposed, sought stay relief and asserted a right to recoupment.¹¹ HHS argued that§ 405(h) precluded bankruptcy court jurisdiction over the provider's claims.¹² The bankruptcy court found that HHS had violated the stay.¹³

On appeal, the Third Circuit affirmed the holding that the Bankruptcy Code provided an independent basis for jurisdiction under § 1334.¹⁴ The court looked to the nature of the dispute and found that the dispute did not involve the amount of the overpayments, because the parties had stipulated to the sums in question; rather, the only issue in dispute was whether the automatic stay had been violated, and this issue fell within the court's jurisdictional authority to determine.¹⁵

The court found that § 405(h)'s mandate that all administrative processes be exhausted prior to judicial review simply did not apply, as there was no aspect of administrative process in the Medicare Act to address a stay violation.¹⁶ The court noted, however, that if the dispute had concerned Medicare law, the bankruptcy court would not have been able to exercise jurisdiction over the claims of the provider.¹⁷ In such an instance, the court acknowledged that all administrative processes had to be exhausted before any court could exercise jurisdiction over the claims.¹⁸

Fifth Circuit

The Fifth Circuit held that bankruptcy courts may exercise jurisdiction over Medicare claims if an independent basis for bankruptcy court jurisdiction exists, but may not exercise jurisdiction over Medicare overpayment disputes.¹⁹ In Benjamin v. United...