Health Diagnostic granted approval for continued Medicare payments

By Kali Hays

New York, June 18 – Health Diagnostic Laboratory, Inc. obtained interim approval to enter a stipulation with the U.S. Department of Health and Human Services Centers for Medicare & Medicaid Services (CMS) that will allow for the continued processing of Medicare payments, according to a motion filed Tuesday with the U.S. Bankruptcy Court for the Eastern District of Virginia.

As previously reported, CMS said it intended to place an administrative freeze on the processing of all Medicare payments owed to Health Diagnostic in order to preserve the setoff and/or recoupment rights of the United States after Health Diagnostic filed for Chapter 11.

As this freeze would “severely impact” the revenue stream of the company and its ability to continue operations, Health Diagnostic entered negotiations with CMS, resulting in a settlement that will allow for continued payment processing while preserving the recoupment rights of the United States going forward, according to the motion.

Payments currently owed to the company from CMS related to the processing total $2.6 million.

Under the settlement, the United States will have setoff rights against all amounts CMS owes to Health Diagnostic, and any amounts that are insufficient to protect these rights will be considered an allowed secured claim, according to the motion.

The company has also agreed to notify CMS within one business day if its weekly Medicare billings drop below 20% of average weekly billings or if the debtors terminate participation in Medicare programs, seek conversion of its case to Chapter 7 or lose authority to use cash collateral.

The order also reiterated Heath Diagnostic’s interim authorization to access to cash collateral that was initially granted on June 10.

Branch Banking & Trust Co. and BB&T Equipment Finance Corp. are providing the collateral.

A hearing on final approval of the collateral is set for June 30.

Health Diagnostic, a Richmond, Va.-based blood testing company, filed for bankruptcy on June 7. The Chapter 11 case number is 15-32919.

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