Liberty Medical negotiates settlement of $160 million Medicare claim

By Kali Hays

New York, Oct. 24 – Liberty Medical Supply, Inc. reached a settlement agreement with the Centers for Medicare & Medicaid Services (CMS) resolving a $160 overpayment million claim by CMS, according to a Friday motion with the U.S. Bankruptcy Court for the District of Delaware.

CMS alleges that it made excess payments to Liberty in 2008, 2009 and 2010 totaling about $160 million related to enrollment agreements between the parties and an audit of patient claims conducted in 2010.

Under the settlement, the claim has been reduced to $31.8 million, and CMS agreed to drop all litigation against the company.

The reduced claim will be considered paid in full with $14.8 million of payments already made by Liberty, a $1 million cash payment upon a plan effective date and $16 million paid over five years, according to the agreement.

Liberty’s asset buyer will also be able to assume its current enrollment agreements with CMS, according to the motion.

As previously reported, Liberty’s stalking horse bidder for the sale of substantially all company assets is Liberty Medical Operations, Inc. with an offer totaling $46 million.

Liberty said that it has been negotiating with CMS on a resolution of its claim from the outset of the bankruptcy proceedings as it has been “one of the major obstacles to an exit from these cases.”

CMS’s claim has also limited the pool of possible buyers for the company’s assets due to the possibility of exposure to such a large claim and being unable to assume the current enrollment agreements, according to the motion.

“While a buyer could apply for new enrollment agreements instead of taking an assignment of Liberty’s enrollment agreements, the process is very long. A buyer would undoubtedly lose significant revenue while applications were pending.”

Liberty said that the settlement will save the company from litigation that is “time-consuming, risky and expensive” and is in the best interests of its creditors.

A hearing to consider the settlement is set for Nov. 13.

Liberty Medical, a Port St. Lucie, Fla.-based health-care products home delivery provider, filed for bankruptcy on Feb. 15, 2013. The Chapter 11 case number is 13-10262.

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