IN RE ADVANCED PRO. HOME HEALTH CARE, INC.

• Decision Date: 24 January 1988
• Docket Number: Bankruptcy No. 86-05769-G,Adv. No. 86-1052.
• Citation: 82 BR 837
• Parties: In re ADVANCED PROFESSIONAL HOME HEALTH CARE, INC., Debtor. ADVANCED PROFESSIONAL HOME HEALTH CARE, INC., Plaintiff, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, a Michigan non-profit corporation; Otis R. Bowen, Secretary of the Department of Health and Human Services; C. McClain Haddow, Acting Administrator Health Care Financing Administration, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

82 B.R. 837 (1988)

In re ADVANCED PROFESSIONAL HOME HEALTH CARE, INC., Debtor ADVANCED PROFESSIONAL HOME HEALTH CARE, INC., Plaintiff, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, a Michigan non-profit corporation; Otis R. Bowen, Secretary of the Department of Health and Human Services; C. McClain Haddow, Acting Administrator Health Care Financing Administration, Defendants.

Bankruptcy No. 86-05769-G, Adv. No. 86-1052.

United States Bankruptcy Court, E.D. Michigan, S.D.

January 24, 1988.

Robert B. Weiss, Judy B. Calton, of Honigman, Miller, Schwartz & Cohn, Detroit, Mich., for debtor in possession.

Roy C. Hayes, U.S. Atty., Karl Overman, Asst. U.S. Atty., Detroit, Mich., for the Secretary of the Dept. of Health & Human Services.

AMENDED MEMORANDUM OPINION

RAY REYNOLDS GRAVES, Bankruptcy Judge.

Advanced Professional Home Health Care, Inc., ("Advanced"), brought this action, Adversary Proceeding No. 86-1052, under 11 U.S.C. § 541, to recover monies withheld from post-petition partial interim payments by Blue Cross and Blue Shield of Michigan ("Blue Cross") and the Department of Health and Human Services. Subsequently, Blue Cross was dismissed as a defendant. The Debtor in Possession also seeks sanctions under 11 U.S.C. 362 (h) for willful violation of the automatic stay provision. In response, the defendant submits that the withholdings were recoupments and, thus, not violations of the automatic stay. Based upon official records, exhibits, briefs of the parties, and oral arguments of counsel at trial, as well as the Court's own research, the Court enters the following findings of fact and conclusions of law.

The facts of the case are as follows. At one time Advanced was the second largest home health provider in Southeastern Michigan. It filed a Chapter 11 petition on November 12, 1986. Counsel for the debtor hand-delivered notice of the bankruptcy filing to Blue Cross, the fiscal intermediary through which payments were made to Advanced on November 13, 1986. Despite notice of the Chapter 11 filing, Blue Cross withheld monies it would have paid to Advanced on November 18, 1986 and indicated that it would continue withholding all monies due to Advanced until overpayments in an undetermined amount had been recovered. On November 19, 1986 Advanced filed a complaint to initiate this adversary proceeding, alleging that at least $213,000 in payments were owing from the Medicare program for the 1986 fiscal year. (Advanced Complaint to Compel Turnover, A.P. No. 86-1052, Docket # 1). The United States has stated, on behalf of the Secretary of the Department of Health and Human Services ("Secretary"), that it "has recouped all of the overpayments and is no longer recouping payments to the debtor." (Trial Brief of United States at page 4). The matter came before the Court for trial on October 16, 1987.

Debtor is a provider of home health services, primarily serving individuals sixty-five years of age and older who qualify for benefits under Part A-Hospital Insurance Benefits for Aged and Disabled of the Medicare Act, Title XVIII of the Social Security Act, as amended, 42 U.S.C. §§ 1395 et seq. Prior to the commencement of this Chapter 11 proceeding Advanced had been reimbursed by Medicare for approximately 90 percent of its services under the terms of a "Provider Agreement," receiving payments through Blue Cross, the private fiscal intermediary designated by the Secretary. Subsequent to filing for protection of the Bankruptcy Code, Advanced did not obtain court approval to assume or reject the Provider Agreement, as may have been required by 11 U.S.C. § 365. (Trial Transcript at —). However, Advanced continued to perform as a "provider," to submit claims to the Secretary, and to receive periodic payments from the Secretary.

Congress imposes upon the Secretary of the Department of Health and Human Services the responsibility for determining the amount owed to providers such as Advanced and for paying them, prior to an audit and on at least a monthly basis, from the Federal Hospital Insurance Trust Fund. Congress also authorizes the Secretary to make "necessary adjustments" to account for prior overpayments or underpayments to providers. 42 U.S.C. 1395g. Any overpayment must be reclaimed from current and future payments to the provider. In re Yonkers Hamilton Sanitarium Inc., 22 B.R. 427, 429 (Bankr.S.D.N.Y.1982). At least one court has described similar financial arrangements under a Medicare Provider Agreement as "current financing" which provides "working capital" with which to run the provider's business. Matter of Monsour, 8 B.R. 606, 609 (Bankr.W. D.Pa.1981), aff'd, 11 B.R. 1014 (W.D.Pa. 1981).

The defendant states the policy of 42 U.S.C. § 1395g as being an expression of Congressional recognition "that providers would have difficulty operating for a year without receiving payments" and that "Congress's (sic) solution to this problem was to authorize the Secretary to make estimated interim payments with a year-end accounting to make adjustments for overpayments or underpayments." (Trial Brief of United States at page 2).

Counsel for the Secretary acknowledges that "there is no factual dispute that the United States has recouped Medicare funds that were due to the debtor post-petition . . . The real issue is the legal issue of whether or not this is permissible." (Trial Brief of United States at page 4). Thus, this court must decide three questions. Did the doctrine of recoupment permit the Secretary to withhold funds due the debtor for post-petition services as credit against a pre-petition debt? Further, even if the doctrine did permit the withholding, did the filing of the Chapter 11 petition operate as a stay against the Secretary's withholding procedures under 11 U.S.C. Section 362 (a) of Title 11? Finally, if the automatic stay provision did require a motion and order lifting the stay in favor of the Secretary, does § 362 (h) mandate the imposition of sanctions against the Secretary?

The commencement of a case under the Bankruptcy Code creates an "estate" which includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541 (a)(1). The Code includes executory contracts, agreements which obligate both parties to continuing performance, in the newly formed estate. 11 U.S.C. § 365(a). In order to protect the debtor's interest in property of the estate, an injunction arises, by operation of law, at the moment of filing under § 301, 302, or 303 of Title 11. That injunction applies "to all entities", including governmental units, and prohibits:

§ 362 (a)(1)

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

. . . . .

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

. . . . .

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor;

11 U.S.C. § 362 (a)

Thus, the Code plainly states that the automatic stay prohibits ALL actions to recover prepetition claims, 11 U.S.C. § 362 (a) (1). A "claim" is defined as a "right to payment" in § 101 (4) (A). Also, to the extent a claim "arises before the order for relief in a bankruptcy proceeding," the holder of that claim is a "creditor" in the proceeding under Sec. 101 (9), and eligible to file a proof of claim under § 501. Clearly, the automatic stay provision applies to governmental units such as the Department of Health and Human Services, 11 U.S.C. § 101 (14), unless excused from the restraints of the injunction by § 362 (b).

Further, the Code prohibits any act to obtain possession or to exercise control over property belonging to the estate. 11 U.S.C. § 362 (a)(3). Monies representing payment for services rendered by a Chapter 11 debtor clearly fall into this category. Furthermore, the Code prohibits "any act" to collect, assess, or otherwise "recover" a claim against a debtor that arose before the commencement of the bankruptcy case. 11 U.S.C. § 362 (a)(6).

Any act setting off a debt owed to the debtor which arose before the filing of the petition against a claim against the debtor arising pre-petition is also prohibited by the automatic stay. Thus, absent court authorization, even set-off procedures permitted by 11 U.S.C. § 553 are forbidden after the filing of the chapter 11 petition. 11 U.S.C. § 362(a)(7).

The automatic stay has several statutory exceptions, all of which Congress listed in § 362 (b) of Title 11. At trial counsel for the Secretary contended that the recoupment procedure constituted the "commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power" and therefore was not prohibited by the injunction. This court finds that Congress did not intend § 362 (b)(4) to apply to a governmental action such as that of the Secretary's withholding funds from Advanced's weekly interim payments. As Senator DeConcini stated,

"This section is intended to be given a narrow construction in order to permit governmental units to pursue actions to protect the public health and safety and not to apply to actions by a governmental unit to protect a pecuniary interest in property of the debtor or property of the estate." (emphasis added).

124 Cong.Rec. S17409 (daily ed. Oct. 6, 1978).

This court finds no mention of the recoupment doctrine in the Bankruptcy Code or its legislative history. Some construe...