When a provider decides to participate in the Medicare program, it agrees to accept medical reimbursement rates as a full payment for Medicare benefits. Medicare reimburses participating providers 100% of the Medicare pricing plan, 80% of Medicare and 20% of the patient. Own receivables are usually paid within 14 days of receipt. Medicare providers have until December 31 of each year to change their participation decisions. The participation agreement (CMS460) is initially submitted to The Medicare Suppliers` Application for Registration and takes effect until December 31 of each year. The contract is automatically renewed each year for the next 12 months, unless the provider noted the affected Medicare contractor that the provider wishes to terminate the contract at the end of the current period, or that CMS finds an opportunity to terminate the program provider. For this reason, health care providers who are in debt to the government find it difficult to sell their Medicaid and/or Medicare provider agreements and associated assets, or the amount to be paid for their assets is reduced to inherited liability. Verity Health System of California (Verity) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Central District of California.
Subsequently, Verity sought approval for a sale of the bulk of the assets of four hospitals, including hospital provider agreements. Verity requested that the Bankruptcy Court authorize the sale after a certain section of the Bankruptcy Act, which provides that assets can be sold freely and without any pledge, receivables and other interest, provided certain conditions are met. Under current legislation, when a health care provider sells a Medicare or Medicaid provider contract in connection with the sale of health care provider assets, the purchaser of these assets must be liable for amounts owed by the previous owner to the government, such as overpayments and civil fines. If a provider decides not to participate in the Medicare program, they have the option of accepting the assignment of rights. When a non-by-provider accepts the assignment, Medicare pays the provider 95% of the authorized Medicare, 80% coming from Medicare and 20% from the patient. If a non-by provider does not accept, then Medicare will pay the patient directly and the provider must charge and collect from the patient for the services provided.