Medicaid Provider Agreements

The Verity decision opens the door to the sale of public supplier agreements and related assets by suppliers who, due to the supplier`s liability to the government, have not been able to sell their assets or sell them at fair market value. However, the insolvency court has decided that a supplier agreement is a “legal right”, similar to a licence that can be sold freely and without any claims. The Tribunal`s conclusion focused on the fact that a State agreement on suppliers is not a contract at all. Instead, a service provider`s right to refund services is imposed by law and not contractually. While the bankruptcy court found that its conclusion that public offer agreements are not contracts was contrary to several decisions of the insolvency court of other jurisdictions, the court found that these decisions were “not convincing” because none of them discussed whether a state agreement on suppliers was a legal right against a contract. While the decision does not bind other jurisdictions, health care providers, if followed elsewhere, have the opportunity to freely and freely sell their assets in the event of insolvency, which should have the effect of paying a higher price than that obtained outside bankruptcy. Verity Health System of California (Verity) has filed a Chapter 11 insolvency application in the U.S. Bankruptcy Court for the Central District of California. Subsequently, Verity sought approval for a sale of most of all of the assets of four hospitals, including the hospitals` supply agreements. Verity requested that the bankruptcy court allow the sale in accordance with a specific section of the Bankruptcy Act, which provides that assets may be sold freely and without rights of pledges, claims and other interest, provided certain conditions are met. If a state supplier agreement is an executable contract, any amount owed by the supplier to a government authority such as DHCS must be paid before the supplier agreement can be assigned. In fact, DHCS claimed that more than $55 million had to be paid before Medicaid provider agreements could be allocated to hospitals. However, when the same sale of assets takes place in the event of insolvency, a recent decision decided that a Medicaid provider agreement and, implicitly, a Medicare provider agreement can be sold “freely and clearly” from the liability inherited under bankruptcy law.

A version of this article titled “Medicaid, Medicare Provider Agreements in Bankruptcy” was published online by The Daily Record on July 30, 2020. The bankruptcy court authorized the sale through the opposition of the California Department of Health Care (DHCS). DHCS argued that Verity`s Medicaid supplier agreements should not be transferred freely and without money owed to DHCS, given that a supplier agreement is an enforceable agreement, that is, a contract in which both parties have not performed essential obligations and another section of the insolvency law provides that an enforceable contract cannot be assigned; unless it is first accepted by a debtor, and all defaults in the contract are immediately cured. In addition, the Tribunal held that, even if the supply agreement was a contract, it was not an “enforceable” contract, since it did not impose obligations on the DHCS and the only obligations imposed on hospitals were obligations already imposed by law. . . .