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Florida Nursing Home Secures Ch. 11 Bankruptcy to Avoid Regulators

The majority of nursing homes in Florida receive the bulk of their funding from state and federal coffers. One of the ways regulators can ensure these facilities abide by basic care standards is to reduce or revoke Medicaid and/or Medicare reimbursements to providers who fail those standards.

This has historically proven a very effective tool.

Unfortunately, a recent case out of Florida indicates some troubled facilities may have an easy way out: Bankruptcy. Specifically, Chapter 11 bankruptcy, which allows for business reorganization.

According to a Dow Jones report,  a St. Petersburg nursing home facility has emerged successfully from a bankruptcy filing Рwhich erased all of its debts and preserves its plans to continue caring for 110 patients with its Medicare and Medicaid provider agreements intact.

The ruling by a U.S. Bankruptcy Court Judge was a major blow for the government officials who initially filed  Agency for Health Care Administration v. Bayou Shores LLC in Florida Middle District Court in order to penalize the center for providing substandard care and nursing home negligence against elderly patients and those with dementia.

The nursing home filed for bankruptcy after it was facing hefty fines and regulatory sanctions as a result of health care practices and conditions that put patients in danger. Bankruptcy filing was unquestionably a defensive move by the company, which receives 90 percent of its revenue from the government.

Government officials have long held bankruptcy courts don’t have power to stop regulators from severing agreements to provide Medicaid and Medicare reimbursements.

The government notified the facility it would be cutting off its Medicare agreement prior to the bankruptcy filing. However, termination couldn’t be carried out until the appeals process was complete, which meant the agreement was still technically in place when the center filed for bankruptcy.

Some attorneys view this as a potential nightmare – legally speaking – for the government, though it is possible and perhaps likely the agency can seek review from a higher federal court.

One of the primary questions that may be asked is whether the government has the authority to invoke an exception to bankruptcy’s automatic stay under “police power” provisions. The bankruptcy court ruled it could not invoke this exceptions because the government was acting to protect its own financial interests, rather than the safety of the facilities.

If the ruling is supported on appeal, the government is going to have a tougher time collecting on fines from nursing homes that file for bankruptcy protection.

Supporters of the bankruptcy court’s action say this could be a model for other distressed providers to correct compliance failures. Other providers who have lost Medicaid and Medicare funding have found it very difficult to bring themselves back into full compliance and restore those funds.

But that system gave facilities strong incentive to stay compliant in the first place. The concern is if administrators know they will have an option for a second chance through bankruptcy – even if the government takes the rare action of cutting them off – there is little motivation to improve.

Still, it isn’t certain this particular center will stay in business. The one pending action where the government still has control is its license renewal, which is in the hands of the Florida Agency for Health Care Administration. Officials with that agency have indicated they plan to deny the application for renewal.

Freeman Injury Law — 1-800-561-7777 for a free appointment to discuss your rights.

Additional Resources:

Fla. Nursing Home’s Bold Ch. 11 Play Pays Off, Jan. 2, 2015, By Andrew Scurria,

More Blog Entries:

Report: Nursing Homes Not Accountable for Oversedation, Jan. 5, 2015, Broward Nursing Home Abuse Lawyer Blog

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