United States: Medicare's Jurisdictional Bar And The Bankruptcy Code

Last Updated: May 23 2017
Article by Leslie Berkoff and Krista L. Kulp

One of the many issues that hospitals and other health care providers face when they become insolvent is addressing their Medicare provider agreements and the prohibitions contained within the Medicare Act. There is currently a split among the circuits regarding whether or not § 405 (h) of the Medicare Act bars a bankruptcy court from adjudicating Medicare-related issues. This topic is critically important given the ongoing distressed state of the health care industry and continuous bankruptcy filings by health care providers. The circuit courts have developed three different approaches to these issues: Several circuit courts have aligned themselves with one form of interpretation, one circuit has held to the contrary, and a recent decision from the First Circuit has taken a much different approach. Further, the recent filing of a petition for writ of certiorari to the U.S. Supreme Court might finally lead to a resolution of these various circuit approaches.

To be eligible for payments from Medicare and/or Medicaid, health care providers must enter into "provider agreements" with federal and state governments. These provider agreements provide for reimbursement to health care providers who provide medical services to Medicare and Medicaid patients.1 However, in order to qualify, health care providers must satisfy certain regulatory requirements.2 If a health care provider fails to comply and there is a finding of immediate jeopardy to patient safety, the Department of Health and Human Services (HHS) may terminate the provider agreement without a pre-termination hearing.3 Terminating the provider agreement immediately ceases the flow of income to the provider, which often creates a cash crisis. Medicare is a large — if not the largest — source of income for many providers. For this reason, providers (like many other cash-strapped entities) may turn to bankruptcy to reorganize and hopefully stave off this loss of income.

However, the power of bankruptcy courts to adjudicate issues involving the Medicare Act is unclear. In 2016, the Eleventh Circuit joined the Third,4 Seventh5 and Eighth6 Circuits in holding that bankruptcy (and district) courts lack jurisdiction over Medicare claims. The Eleventh Circuit expressed concerns that a bankruptcy court lacks "institutional competence or technical expertise of [the HHS] to oversee the health and welfare of nursing home patients or to interpret and administer a 'massive, complex health and safety' program such as Medicare."7 It appears that only the Ninth Circuit holds that § 405 (h) permits bankruptcy court jurisdiction over Medicare claims under 28 U.S.C. § 1334.8 The First Circuit chose not to "add its voice to the circuit split on this particular issue" and instead chose to decide the matter "on narrower grounds," finding that the termination of the provider agreement was not a violation of the automatic stay based on the police and regulatory power exception under § 362 (b) (4) of the Bankruptcy Code.

This legal conflict stems from an amendment to § 405 (h) of the Medicare Act.9 In the aforementioned Third, Seventh, Eighth and Eleventh Circuit cases, the health care providers argued that a plain reading of § 405 (h) of the Medicare Act did not preclude district or bankruptcy courts from having jurisdiction over Medicare-related claims. In fact, the Ninth Circuit adopted this very position.10 However, the Third, Seventh, Eighth and Eleventh Circuit Courts found that although the plain reading of § 405 (h) did not preclude bankruptcy court jurisdiction under 28 U.S.C. §§ 1332 and 1334, it was a merely a result of a codification error. Currently, 42 U.S.C. § 405 (h) provides for the following:

(h) Finality of Commissioner's decision. 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 herein provided. 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 this subchapter.

Although this section on its face does not seem to bar bankruptcy jurisdiction under § 1334 of title 28,11 as it specifically references only §§ 133112 and 1346 of title 28,13 the pre-amendment language of § 405 (h) of the Medicare Act specifically barred bankruptcy court jurisdiction. Originally, § 405(h) of the Medicare Act provided for the following:

(h) The findings and decisions of the Board after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Board shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Board, or any officer or employee thereof shall be brought under section 24 of the Judicial Code of the United States to recover on any claim arising under this title.

As the Eleventh Circuit stated in Fla. Agency for Health Care Admin v. Bayou Shores SNF LLC (In re Bayou Shores SNF LLC), it is "undisputed that under the original text of § 405 (h), bankruptcy court jurisdiction over Medicare claims was barred."14 The issue arose in 1948 when § 24 of the Judicial Code was re-codified under title 28 of the U.S. Code and split the different types of jurisdiction into multiple sections, including §§ 1331, 1332, 1334 and 1346.

For years, § 405 (h) of the Medicare Act still referred to § 24 of the Judicial Code, and thus § 405(h) of the Medicare Act was amended in 1984 to reflect the new jurisdiction section under title 28.15 When Congress eventually amended § 405 (h) to address this issue, it failed to include §§ 1332 and 1334 and instead only referenced §§ 1331 and 1346. Despite this omission, the legislative history indicates that the amendment to § 405(h) was not intended to give bankruptcy courts jurisdiction over issues involving Medicare.16 Thus, Congress's failure to include 28 U.S.C §§ 1332 and 1334 in § 405 (h) of the Medicare Act has been viewed by many courts as inadvertent.17

Courts have supported this conclusion by noting that Medicare claims are highly regulated and recognizing that the underlying issues frequently involve the health and safety of patients; as such, courts have found that administrative agencies are best equipped to make these decisions, rather than bankruptcy courts. In Parkview,18 the First Circuit agreed that because these kinds of claims are highly regulated, they are best left to administrative agencies and there was no violation of the automatic stay. The First Circuit affirmed the bankruptcy and district courts' decisions based on this narrow focus and chose not to address the implications of § 405 (h) of the Medicare Act. The court held that the government's termination of the provider agreement was not a violation of the automatic stay based solely on the police and regulatory exception, and thus did not decide whether the bankruptcy court had jurisdiction to compel the assumption of the provider agreement.19

Parkview Adventist Medical Center was a hospital in Brunswick, Maine, that provided emergency services, inpatient services and outpatient services.20 Parkview maintained the Medicare provider agreement with the Centers for Medicare and Medicaid Services (CMS) (a part of HHS), which contained certain conditions with which Parkview had to adhere to receive reimbursements from Medicare for both inpatient and outpatient services.21

On June 15, 2015, Parkview sent CMS a letter stating that it would be filing for chapter 11, would be closing the hospital, and would no longer participate in the Medicare program, effectively ending its participation in Medicare.22 On June 16, 2015, Parkview filed its chapter 11 petition.23 Three days later, CMS responded to Parkview's letter, stating that it would terminate the provider agreement as of June 18, 2015, because Parkview "no longer meets the definition of [a] 'hospital,' as outlined in Section 1861 (e) of the Social Security Act."24 On June 19, 2015, Parkview informed CMS that "it was not terminating the Provider Agreement and that CMS' [s] decision to terminate the agreement would adversely affect Parkview's bankruptcy transition plan."25 CMS indicated that it would rescind the termination of the provider agreement only if Parkview began admitting patients again for inpatient services.26

On July 9, 2015, Parkview filed a motion to compel post-petition performance of executory contracts,27 including the provider agreement. Parkview argued that the provider agreement was an executory contract under § 365 of the Bankruptcy Code and CMS's termination was a post-petition termination in violation of §§ 362, 365 and 525 of the Bankruptcy Code. Both the bankruptcy and district courts agreed that § 405 (h) of the Medicare Act barred the court from exercising jurisdiction over the motion to compel because Parkview did not exhaust its administrative remedies and CMS did not violate the automatic stay or non-discrimination provision of the Bankruptcy Code by terminating the provider agreement.28

On appeal, the First Circuit chose not rule on whether the bankruptcy court had jurisdiction to determine whether Parkview could assume or reject the provider agreement under § 365 of the Bankruptcy Code. For purposes of deciding the appeal, the court assumed that it had "hypothetical jurisdiction" and denied Parkview relief based on a finding that CMS had not violated the automatic stay by terminating the agreement.29 The First Circuit found that in this scenario, the "police and regulatory power" exception to the automatic stay applies; CMS did not violate the non-discrimination provisions of the Bankruptcy Code.

CMS had argued that (1) the provider agreement was not "property of the estate" in that Parkview did not have a "cognizable property or contractual interest in participating in Medicare without meeting Medicare's conditions of participation"; (2) the automatic stay did not apply because the termination was "non-final"; and (3) even if the automatic stay applied, the "police and regulatory power" exception to the automatic stay would apply.30

To determine whether the exception applied, the First Circuit made two inquires: (1) whether the government action was "designed to protect the public safety and welfare"; or (2) "if the action [was an] attempt to recover property from the estate."31 If the action had a "pecuniary purpose," the court found that it would be subject to the automatic stay.32

Unlike in Bayou where the government found repeated violations of the conditions of the provider agreement that threatened the health and safety of patients, Parkview argued that the government's "termination was not based on a finding of a threat to the health or safety of patients." Therefore, the policy and regulatory exception should not apply.33

The First Circuit found this argument irrelevant because the question was "whether CMS's termination enforces a generally applicable regulatory law or furthers a public policy interest beyond the contractual rights in the Provider Agreement."34 Therefore, the application of the police and regulatory exception to the automatic stay did not depend on whether Parkview's actions threatened the health or safety of the patients. The court noted that Parkview had actively taken steps to disqualify itself as a hospital, rendering it unable to provide necessary services, a required condition under the provider agreement. As such, it would have been a waste of public resources to not terminate the agreement.35

Based on these cases, it is clear that even if the bankruptcy court does have jurisdiction under the statute to bar the termination of the provider agreement, courts are mindful of the precarious issues that are raised in health care and hospital cases. Despite the arguments by both Bayou and Parkview that if bankruptcy courts lack jurisdiction to adjudicate Medicare-related issues, a provider's potential reorganization will be jeopardized, the courts seemed sensitive to substituting the judgment of the bankruptcy courts for that of the administrative agency.

This jurisdictional issue is ripe for resolution by the Supreme Court. Indeed, on Feb. 2, 2017, Bayou filed a petition for writ of certiorari asking the Court to determine whether § 405 (h) of the Medicare Act bars bankruptcy and district court jurisdiction over Medicare claims.36 The time to file a response to the petition has been extended to May 5, 2017. Even so, the Supreme Court's ruling may not be dispositive. Based on the First Circuit's decision in Parkview, if the Supreme Court sides with the Ninth Circuit and decides that § 405 (h) of the Medicare Act does not bar bankruptcy jurisdiction, CMS might still be able to terminate provider agreements without bankruptcy court approval as a result of the police and regulatory powers exception to the automatic stay.


1 Parkview Adventist Med. Ctr. v. United States, 842 F.3d 757, 761 (1st Cir. 2016).

2 Id.

3 See 42 U.S.C. § 1395(i)-3(h)(2)(A).

4 Nichole Med. Equip. & Supply Inc. v. TriCenturion Inc., 694 F.3d 340 (3d Cir. 2012).

5 Bodimetric Health Servs. Inc. v. Aetna Life & Casualty, 903 F.2d 480 (7th Cir. 1990).

6 Midland Psychiatric Assocs. Inc. v. United States, 145 F.3d 1000 (8th Cir. 1998).

7 Fla. Agency for Health Care Admin. v. Bayou Shores SNF LLC (In re Bayou Shores SNF LLC), 828 F.3d 1297, 1330 (11th Cir. 2016).

8 See In re Town & Country Home Nursing Servs., 963 F.2d 1146, 1155 (9th Cir. 1991) (holding that "Section 405(h) only bars actions under 28 U.S.C. §§ 1331 and 1346; it in no way prohibits an assertion of jurisdiction under section 1334").

9 Section 405(h) applies to the Medicare Act through 42 U.S.C. § 1395ii.

10 See In re Town & Country Home Nursing Servs. Inc., 963 F.2d 1146, 1155 (9th Cir. 1991). 11 See, e.g., 28 U.S.C. § 1334 (conferring upon district courts original and exclusive jurisdiction over bankruptcy cases).

12 See, e.g., 28 U.S.C. § 1331 (conferring upon district courts original jurisdiction over federal questions).

13 See, e.g., 28 U.S.C. § 1346 (conferring upon district courts concurrent jurisdiction regarding civil claims against the U.S.).

14 Fla. Agency for Health Care Admin v. Bayou Shores SNF LLC (In re Bayou Shores SNF LLC), 828 F.3d 1297, 1305 (11th Cir. 2016).

15 See 42 U.S.C. § 405.

16 See Pub. L. 98-369, § 2664(b), 98 Stat. 1171-72 (1984).

17 See Bayou Shores, 828 F.3d 1297; Nichole Med. Equip. & Supply, 694 F.3d 340; Midland Psychiatric Assocs. Inc., 145 F.3d 1000; Bodimetric Health Servs., 903 F.2d 480 (7th Cir. 1990).

18 842 F.3d at 757.

19 See Bayou Shores at 760.

20 Parkview Adventist Med. Ctr., 842 F.3d at 761.

21 Id. at 761.

22 Id.

23 Id.

24 Id. at 762.

25 Id.

26 Id.

27 Id.

28 Id. at 757. 29 Id. at 760.

30 Parkview Adventist Med. Ctr., 842 F.3d at 763. The policy and regulatory power exception to the automatic stay is embodied in § 362 (b) (4), which provides that the automatic stay does not apply to "an action or proceeding by a governmental unit ... to enforce such governmental unit's ... police and regulatory power." 11 U.S.C. 362(b)(4).

31 Parkview Adventist Med. Ctr., 842 F.3d at 763.

32 Id.

33 Id.

34 Id. at 764.

35 Id.

36 Petition for Writ of Certiorari, Bayou Shores SNF LLC v. Fla. Agency for Health Care Admin., No. 16-697 (2016).

Previously published in ABI Journal May 2017

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Leslie Berkoff
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.