Chapter 11 Relief for a CMS Debt on Appeal?

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The current, ultimate dilemma in the health care reimbursement legal arena is the catastrophically long wait for a hearing with an Administrative Law Judge (“ALJ”) with the Office of Medicare Hearings and Appeals (“OMHA”). The estimated wait time for an ALJ hearing after completing the first two levels of appeal is now more than 1,200 days, and the debt being appealed accrues interest at 10.5% the entire time. Moreover, CMS will continue to recoup against new Medicare claims during the three-year wait for a decision-maker that overturns far more decisions than the first two levels. There are thousands of medical practices and hundreds of millions of dollars trapped in this administrative nightmare. To add insult to injury, it is nearly impossible to get CMS to open a dialogue about negotiating a settlement on the debt if it is in excess of $100,000, which is most of the appeals.

So how can a practice get CMS to the table? While many have tried the extraordinarily expensive and unpredictable option of litigating directly against the government for relief, the question posed is whether an otherwise fiscally healthy medical practice could avail itself of the Chapter 11 of the Bankruptcy Code (“Chapter 11”) to bring CMS into negotiations.

Chapter 11 is designed to help a business reorganize debts while maintaining control of its assets and continuing to do business.  Owners of the business propose a plan that will allow them to become profitable again without significant interruption of operations.

Using Chapter 11 to manage a CMS overpayment could not only potentially reduce the debt, but also help shorten the delay caused by the nightmare of the appeal and resolution process. A Chapter 11 petition includes all assets and liabilities, including a good faith estimate of the overpayment claim listing it as contingent and unliquidated. Thereafter, the practice would propose a plan that pays the estimated debt with interest over a reasonable period of time. Simultaneously, the Chapter 11 Debtor would object to the claim either by the filing of a claim objection or by Adversary Proceeding. The latter allows for reasonable discovery and an efficient schedule for determining the amount of the claim. The parties are free to litigate or resolve the debt in the context of both the objection process and/or through the plan confirmation process.

If the practice is already subject to a recoupment order, the process could get more complicated. The government jealously guards its ability to recoup future payments and has no obligation to voluntarily suspend its recoupment remedy. Nonetheless, the Chapter 11 process should still jump start the resolution process allowing the parties to reach agreements as to the global debt, repayment and life thereafter within a fraction of the time it takes to appeal or litigate the debt.

If the debtor’s plan is fair and reasonable, offered in good faith, and in compliance with the provisions of the Bankruptcy Code, the court will usually confirm it. Under some circumstances the court can confirm a plan over the objection of creditors. The plan may provide for the discharge of claims that existed before confirmation and, under some circumstances, provide for releases for third parties, such as the principals and owners of the Chapter 11 Debtor. This is critical when dealing with a CMS debt, as there are federal regulations that give CMS the ability to pursue owners of practices for business debt.

With the OMHA now dealing with hearings before an ALJ more than 1,000 days, we think using a Chapter 11 strategy might be a smart move for practices to bring CMS to the table, formulate a plan and move on with business.

Ron Jones,Esq. is a Member based inNexsenPruet’s Charleston office, where he focuses his practice on bankruptcy and creditors’ rights. He has extensive experience in debtor and creditor representation and is a Certified Specialist in Bankruptcy and Debtor-Creditor Law, earning specialist distinction from the South Carolina Supreme Court.

Stephen Bittinger, Esq. is a Member of Nexsen Pruet based in Charleston, South Carolina. Stephen is admitted in North Carolina, Ohio and the District of Columbia. He is not licensed to practice law in South Carolina. Stephen has a unique, national practice in health care reimbursement defense and litigation.