Bankruptcy Affects Nearly All Medicare Operations

140.2.4 Bankruptcy Affects Nearly All Medicare Operations (Rev. 13825; Issued: 06-11-26; Effective: 07-13-26; Implementation: 07-13-26) Bankruptcy can affect every aspect of the interaction between the Medicare program and a debtor. Each Contractor staff member who may encounter a debtor, is effectively a part of the Medicare "bankruptcy team" for that case. The Contractor point of contact must ensure that all potential bankruptcy team members notify the servicing CMS Office of any anticipated actions regarding the debtor and coordinate those actions with the CMS Bankruptcy Analyst or the assigned CMS Counsel. In bankruptcy, both inaction and inappropriate action hurt Medicare's chances of recovery. Some commonly affected areas are: 1. Overpayment Recovery Medicare's right to recover pre-petition and post-petition overpayments varies by federal jurisdiction. (see discussion on set-off and recoupment in section F below). If the Contractor has overpaid a debtor, they shall consult the servicing CMS Office and take appropriate action to maximize recovery of Medicare overpayments. Contractor overpayment staff shall not send any manual letters to the debtor until the CMS Office approves them for release, with the exception of NPRs and revised NPRs. 2. Fraud and Abuse The Contractor shall ensure consultation with the CMS Program Integrity staff and the CMS Bankruptcy Analyst before suspending an entity for fraud and/or abuse, recovering fraud overpayments, or continue suspensions. If there is evidence that the provider filed for bankruptcy due to fraud it committed, advise the CMS Bankruptcy Analyst handling the bankruptcy. 3. Reimbursement Contractor reimbursement staff shall suspend payments if the provider does not timely file a cost report, unless the CMS Office or CMS Counsel contacts the Contractor that suspension is not appropriate due to circumstances requiring further review. DO NOT issue tentative settlement payments in bankruptcy cases unless explicitly requested by the CMS Office. Unless otherwise directed, Contractor reimbursement staff should continue to review and audit cost reports following their usual procedures. The CMS Office will inform the Contractor of any stipulations or settlements that may affect the review or audit process. In such situations, the CMS Office will evaluate the costs and benefits of auditing cost reports when recovery is unlikely and will provide appropriate guidance. Contractors are no longer required to submit notices of program reimbursement (NPRs) or revised NPRs to the CMS Office for review and approval when dealing with bankrupt providers. However, if the CMS Office determines that a bankruptcy case is unique or exceptional, it will provide written direction requesting the Contractor to submit NPRs or revised NPRs for the CMS Office’s review and approval prior to issuance to the provider. Once a final cost report settlement has been determined, Contractors shall ensure the required language is included in the NPR or revised NPR before issuing it to the provider. If needed, Contractors may contact the CMS Office to confirm any necessary actions for proper handling of the determination in the Health Integrated General Ledger Accounting System (HIGLAS). a. Cost Report Overpayment Letters shall include the following language: Note: If you have filed a bankruptcy petition or are involved in a bankruptcy proceeding, please follow the instructions found at the end of this letter. If You Have Filed a Bankruptcy Petition If you have filed a bankruptcy petition or are involved in a bankruptcy proceeding, Medicare financial obligations will be resolved in accordance with the applicable bankruptcy process. Nothing in this letter should be considered as a request or demand for payment. Accordingly, we request that you immediately notify us about this bankruptcy so that we may coordinate with both the Centers for Medicare & Medicaid Services and the Department of Justice to assure that we handle your situation properly. If possible, when notifying us about the bankruptcy, please include the name the bankruptcy is filed under, the docket number, and the district where the bankruptcy is filed. If you have already notified CMS of the bankruptcy, the purpose of this letter is to inform you of the overpayment owed to Medicare. Due to the automatic stay in bankruptcy, this letter does not demand that you submit payment at this time. Because of the bankruptcy, recovery of Medicare financial obligations will be resolved in accordance with the applicable bankruptcy process, and pursuant to applicable jurisdictional and other provisions of the Medicare Act and regulations. Please note that in bankruptcy, CMS may still exercise recoupment rights, which constitute a defense to payment. Thus, we do not believe that the bankruptcy petition prohibits Medicare’s recoupment rights, subject to the limitation on Medicare recoupment at section 1893(f)(2) of the Social Security Act and the implementing regulations at 42 C.F.R. § 405.379. If you dispute this overpayment determination, please follow the appropriate rebuttal and/or appeals process described elsewhere in this letter. To the extent any of the general instructions in this letter is not consistent with the bankruptcy law and procedures, they may be modified to comport with bankruptcy law. b. Cost Report Underpayment Letters shall include the following language: Note: If you have filed a bankruptcy petition or are involved in a bankruptcy proceeding, please follow the instructions found at the end of this letter. If You Have Filed a Bankruptcy Petition If you have filed a bankruptcy petition or are involved in a bankruptcy proceeding, Medicare financial obligations will be resolved in accordance with the applicable bankruptcy process. Nothing in this letter should be considered as a request or demand for payment. Accordingly, we request that you immediately notify us about this bankruptcy so that we may coordinate with both the Centers for Medicare & Medicaid Services and the Department of Justice to assure that we handle your situation properly. If possible, when notifying us about the bankruptcy, please include the name the bankruptcy is filed under, the docket number, and the district where the bankruptcy is filed. If you have already notified CMS of the bankruptcy, the purpose of this letter is to inform you of the underpayment amount. Because of the bankruptcy, recovery of Medicare financial obligations will be resolved in accordance with the applicable bankruptcy process, and pursuant to applicable jurisdictional and other provisions of the Medicare Act and regulations. Please note that in bankruptcy, CMS may still exercise recoupment rights, which constitute a defense to payment. Thus, we do not believe that the bankruptcy petition prohibits Medicare’s recoupment rights, subject to the limitation on Medicare recoupment at section 1893(f)(2) of the Social Security Act and the implementing regulations at 42 C.F.R. § 405.379. If you dispute this underpayment determination, please follow the appropriate rebuttal and/or appeals process described elsewhere in this letter. To the extent any of the general instructions in this letter is not consistent with the bankruptcy law and procedures, they may be modified to comport with bankruptcy law. 4. Payment Contractor payment staff must receive approval from the CMS Office before taking any action that changes the amounts payable or owed by a debtor. 5. Appeals Contractor staff will be asked about any recent or ongoing appeals involving a provider in bankruptcy, including Redeterminations, Qualified Independent Contractor (QIC) reviews, Administrative Law Judge (ALJ) hearings, Provider Reimbursement Review Board (PRRB) cases and Department Appeal Board (DAB) cases. The Contractor should keep the CMS Office or CMS Counsel informed of material developments related to appeals activity in bankruptcy cases that become known to it in the course of its operational responsibilities that may affect the overpayment amount or CMS’ proof of claim. If an appeal decision is favorable to the provider and reduces the overpayment amount, CMS or CMS Counsel may determine that amendment of the proof of claim is required. In some cases, the CMS Office may also direct the contractor to suspend or freeze outgoing funds. 6. Change of Ownership (CHOW) A debtor may attempt to transfer provider agreements so that both parties may avoid overpayment recovery. The Center for Clinical Standards and Quality (CCSQ) staff will notify the servicing CMS Office when a debtor provider files for a CHOW and immediately notify the CMS Counsel who is assigned the bankruptcy. The CHOW will not be processed until the CCSQ Office obtains the concurrence of the CMS Counsel assigned the bankruptcy. In addition to CCSQ, the Medicare Administrative Contractor’s provider enrollment staff and the Provider Enrollment Operations Group (PEOG) within CPI also coordinate with the CMS Office assigned to the bankruptcy upon learning that a debtor provider has initiated or plans to initiate a CHOW.