CMS Pub. 100-06, ch. 3, § 140.3.3

Jurisdiction Over the Bankruptcy

(Rev. 13825; Issued: 06-11-26; Effective: 07-13-26; Implementation: 07-13-26)

Contractors shall proactively establish a relationship with the CMS Office that handles bankruptcy

cases. This is important because bankruptcy laws may differ significantly from one jurisdiction to

another, due to the structure of the federal court system.

In the federal system, a party may appeal lower-level court decisions to a higher court, which has the

power to affirm or reverse the lower court. In order of increasing rank and authority, the federal system

is comprised of Bankruptcy Courts, District Courts, Courts of Appeals, and the Supreme Court. Each

court on this list generally hears appeals from the court immediately preceding it. Although the Supreme

Court has the final word, it hears a highly limited number of cases each year. This permits conflicts

between lower court decisions to continue for many years until they are resolved by the Supreme Court.

As a result, absent a Supreme Court decision, the most authoritative precedents that may exist (and

which may conflict with one another) are issued by the Courts of Appeals. There are 11 Courts of

Appeals (known as Circuits) covering various States, plus a District of Columbia Circuit. The decision

of each Court of Appeals is controlled within the States covered by that Circuit.

As discussed in greater detail below, the CMS may want to take different actions in a bankruptcy case

for different providers, including suspending payments, or recouping overpayments. In addition, the

CMS may have taken such actions before the provider filed for bankruptcy. Whether the CMS can

legally take or leave in place such actions may well depend on where the provider filed for bankruptcy,

and the existing legal precedents within that Circuit.

For example, at the time of this writing there is conflict in the Circuits about whether the CMS may

recoup pre-petition overpayments from post-petition payments without obtaining relief from the

automatic stay. The Third Circuit (covering Pennsylvania, New Jersey, Delaware, and the Virgin

Islands) forbids recoupment over different fiscal years without such relief. By contrast, the Ninth

Circuit (Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, Oregon, and Washington) and

the District of Columbia Circuit permit such recoupment. No other Court of Appeals has decided the

issue. There are various District Court decisions going both ways.

There are also conflicting decisions by District Courts on whether the CMS may continue to suspend

payments due to suspected fraud when the provider files for bankruptcy.

For these reasons, the Contractors shall neither initiate nor discontinue significant action affecting

payment without first contacting the CMS Office.