P.R. Health Care Providers Must Wait for Bankruptcy Stay Before Modifying Reimbursement Claims

Medical care providers may not modify Medicaid reimbursement claims against the Puerto Rican government until a bankruptcy court lifts a stay issued under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), according to a Friday opinion from the First Circuit authored by Judge Sandra L. Lynch.

The appellate court laid out the pertinent facts as follows: When a commonwealth receives Medicaid funding, the commonwealth must provide underserved—and usually low-income—residents with medical care, but may only authorize facilities meeting certain federal healthcare quality standards to provide said care. Once a federally-approved facility, referred to officially as Federally Qualified Health Centers (FQHC), provides the care, the FQHC may receive Medicaid reimbursement for the services rendered directly from the Commonwealth. 

Beginning in 2003, numerous FQHCs in the Commonwealth of Puerto Rico commenced multiple now-consolidated legal actions against the federal government and Puerto Rico, alleging that the Commonwealth failed to provide Medicaid reimbursement as authorized by the federal Medicaid Act. In 2016, in response to this and similar litigation, Congress passed PROMESA, which allowed Puerto Rico to file for bankruptcy for unpaid Medicaid reimbursements sought by FQHCs. Once the commonwealth met the requirements for bankruptcy relief under PROMESA, the federal law additionally initiated an automatic stay for modification of claims for Medicaid reimbursements against Puerto Rico. Puerto Rico received such a stay with an effective date of May 3, 2017.  

Seven days after the stay’s effective date, the consolidated plaintiffs-FQHCs sought an injunction to lift the current stay and modify existing claims for reimbursement, seeking a higher rate of reimbursement from Puerto Rico. In July 2018,  a judge in the District of Puerto Rico lifted the stay to accommodate the requested modifications, an order now being questioned for legal validity on the present appeal. 

The appellate panel held that the court would not be addressing the merits of the claim for or against releasing the PROMESA stay, as the District of Puerto Rico lacked the jurisdiction to lift the stay. The court explained that federal law only gives a bankruptcy court the ability to lift a stay in “unusual or unusually compelling circumstances” whenever the removal/alteration of the stay would have any kind of retroactive impact. In conclusion, the court ruled, as the FQHCs sought to modify reimbursement claims prior to the stay, such a retroactive impact exists and the district court order must become void, and thus “without legal effect,” leaving the 2017 stay in place. 

The plaintiffs are represented by Reno & Cavenaugh and Feldesman Tucker Leifer Fidell