Rescinded 1981

SSR 69-12: Section 1866.—Provider-Agreement with Nursing Home—Effect of Assumption of Title by Trustee in Bankruptcy

SSR 69-12

Where a provider is adjudged bankrupt, continuation of the provider's enterprise by a trustee in bankruptcy pursuant to court order, held not in itself such a change in ownership as to require the execution of a new section 1866 agreement, since there is neither the purchase of an ownership interest by the trustee nor a correlative transfer of the intrusted property to a new non-obligated party."

After approval as an "extended care facility" within the meaning of section 1861(j) of the Social Security Act, and entering into a Provider Agreement for participation in the Medicare program, a nursing home has been adjudged bankrupt and is being operated by a trustee in bankruptcy acting for the creditors under Chapter 10 of the Bankruptcy Act (Title 11 U.S.C. 501 et seq.). The facility continues to admit Medicare patients on the assumption that it will be paid under the provisions of title XVIII of the Social Security Act governing agreements with providers of services. The trustee's administration is authorized by an "Order Approving Petition and Appointing Trustee," issued by the bankruptcy court. This order explicitly provides that the bankrupt provider be operated without interruption and on a continuing basis. In pertinent part it provides as follows:

9. That said Trustee is hereby vested with power to administer the said property * * *; to continue to operate, manage and control the business of the debtor as heretofore conducted by the debtor for an indefinite period * * *; to perform existing contracts of the debtor and to enter into and perform other contracts in the regular course of the conduct of the business * * *.

An institution or organization which qualifies as a provider of services under section 1861 of the Act may participate and become eligible for payments under the title XVIII health insurance program if it files an agreement with the Secretary pursuant to section 1866 of the Act. Such agreement, which may be terminated by either party as provided under section 1866(b), also ceases to be effective when the contracting party can no longer be required to abide by its terms (e.g., because of a change in ownership). In view of the trustee's assumption of title to the bankrupt nursing home in the instant case, a question is raised as to whether this terminates the 1866 agreement entered into with the provided, so as to require a new survey and certification, title VI clearance, and the conclusion of a new provider agreement.

Where the original contracting provider ceases to exist as a legal entity or as the operating provider, neither the statute nor the section 1866 agreement provides for continuing coverage for Medicare beneficiaries. The reason for this gap in coverage is that the section 1866 Provider Agreement is with a "person" in the legal sense (that is, an individual, a partnership, a corporation or other recognizable entity) and that being personal to the contracting party, it cannot be enforced against another party. The effect of a transfer of ownership of a provider facility is that patients of the facility are not covered under title XVIII unless the facility reapplies, meets the applicable conditions for participation, and concludes a Provider Agreement is accordance with section 1866 of the Act.

However, such is not the situation when there is a mere transfer of legal title to a trustee in bankruptcy. In that situation there is neither the purchase of an ownership interest by the trustee nor a correlative transfer of the intrusted property to a "new," non-obligated party. The effect of bankruptcy and the appointment of a trustee of the bankrupt's estate has been described as follows:

The estate of the bankrupt is devolved upon the trustee, subject to the rights of other person therein. The substance in which those rights inhere is impounded. But * * * it is the same substance, which the same incidents as before. The court takes it into its exclusive dominion and control, and, in harmony with the general principle of law governing the exercise of jurisdiction in such cases, it accords to every person who has an interest in the res the privilege of intervening and establishing his rights in the thing which has been seized. * * * The trustee is the hand of the court. He stands as its agent to liquidate the assets, to protect them, and bring them before the court for final distribution. He is not, in fact, more representative of one creditor or claimant than another. The trustee, in the procedure, because he has the legal title to the assets, and is charged with the duty of saving and protecting them, represents the general fund. He is not a purchaser, but as the title of his office imports, he is trustee for all who have interests, and according to those interests. He himself has no interest and there is nothing in his representation which stands between the court and those who have interests, for the recognition and protection of which they appeal to its authority. In Re Ducker, 134 F. 43 at 46-47 (1905).

There is in the present instance an explicit authorization to continue the operation of the business on the same basis as before. While explicit action (i.e., notice to the Secretary) by the trustee in bankruptcy is needed to terminate the Provider Agreement, he need not formally acknowledge his willingness to continue to be bound by the section 1866 agreement.

Thus, it may be noted that the trustee—having assumed the mutual obligation of the bankrupt—would be deemed to stand in the place of the bankrupt not only with regard to his rights but also as to his obligations under the Provider Agreement. It is accordingly held that the section 1866 Provider Agreement with the nursing home is not terminated by reason of the assumption of title thereto by a trustee in bankruptcy who continues to administer and operate the facility pursuant to a court order issued under chapter 10 of the Bankruptcy Act (Title 11, U.S.C. 501 et seq.).