Health care provider bankruptcies differ from garden variety Chapter 11 cases. They address patient care, record-keeping and privacy rights, sometimes with intermediary oversight by a court-appointed patient care ombudsman. These bankruptcies include disputed bankruptcy court jurisdiction over provider reimbursements and payer claims reconciliation processes relative to exhaustion of administrative remedies, the automatic stay and setoff and recoupment rights, as well as disagreements over the treatment of provider agreement obligations in free and clear sales and assignments of executory contracts under Sections 363(f) and 365 of the Bankruptcy Code.
Receivables owed from payers often are pledged as collateral to providers’ lenders. However, government account receivables are subject to federal and state “anti-assignment rules,” which require Medicare/Medicaid payments be deposited to accounts controlled solely by providers. As such, parties have government receivables deposited directly into providers’ bank accounts, and then government payments are swept daily into a second deposit account under lenders’ control. In bankruptcy, lenders must stop these cash sweeps due to the Bankruptcy Code’s automatic stay. Chapter 11 providers and lenders enter into cash collateral agreements subject to bankruptcy court approval, which provide for adequate protection payments and negotiated budgets.
