In re Healthback, LLC, Bankruptcy No. 97-22616-BH.
| Decision Date | 31 July 1998 |
| Docket Number | Bankruptcy No. 97-22616-BH. |
| Parties | In re HEALTHBACK, L.L.C., Debtors. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Western District of Oklahoma |
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James Vogt and Timothy C. Dowd, Reynolds, Ridings, Vogt and Moran, Oklahoma City, OK, for Healthback, L.L.C.
John A. Cogan, Jr., Department of Health and Human Services, Dallas, TX, and Patrick M. Ryan, United States Attorney by Kay Sewell, Assistant United States Attorney, Oklahoma City, OK, for Department of Health and Human Services.
Kiran A. Phansalker, Conner and Winters, Oklahoma City, OK, for Bernard G. Ille and Horace G. Rhodes.
J. Clay Christensen and Joel W. Harman, Day, Edwards, Federman, Propester and Christensen, P.C., Oklahoma City, OK, for the Unsecured Creditors Committee.
MEMORANDUM OF LAW ON DEBTOR'S MOTION FOR THE UNITED STATES SECRETARY OF HEALTH AND HUMAN SERVICES TO SHOW CAUSE WHY HER ACTIONS DO NOT VIOLATE THE AUTOMATIC STAY
The Chapter 11 debtor, Healthback, L.L.C., has moved for an order determining that the actions of the Secretary of the Department of Health and Human Services1 violate the automatic stay of 11 U.S.C. § 362 and has requested that the Secretary be held in contempt.2 The Secretary has responded and argues, essentially, that, pursuant to the Medicare Act, the bankruptcy court does not have jurisdiction to determine the issue; that the Medicare Act provides an exclusive process for administrative review of payment claims, and, in any event, her actions do not violate the stay for she seeks recoupment, not a setoff.
The debtor is a home health care agency pursuant to 42 U.S.C. § 1395b and 1395d and is in the business of providing home health services to the elderly in their homes. Its costs are reimbursed by the Secretary as a part of the federal Medicare program established by Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq.
Through her administrative regulations the Secretary has put in place a payment scheme which provides that: (1) providers, such as the debtor, are paid on an interim basis before an audit is conducted at the end of the cost year to determine the precise amounts owed and that, (2) over and under payments are corrected through ongoing adjustments to the amounts owed the provider in future Medicare reimbursement. The interim payments are made during the 12 month year, based on the provider's projections for the entire year which may then be adjusted depending on the audits. 42 C.F.R. § 413.64(b),(e).
Medicare requires the Secretary to recompute the interim payment rate no less than four times a year and she may make adjustments to the rate based on various factors. 42 C.F.R. § 413.64(e),(f). If interim payments made during a fiscal year are determined to be higher than the provider's current reasonable costs, the Secretary may adjust the interim rate in keeping with the provider's costs. As part of the adjustment process, overpayments are recovered by a downward adjustment of current payments. 42 U.S.C. § 1395(g)a; 42 C.F.R. § 413.64(f). The idea is to make these adjustments during the year to approximate the actual reimbursement determined at the final settlement. 42 C.F.R. § 413.64(e),(f).
Because the interim payments are made on the basis of estimated costs, the actual reimbursable costs cannot be fixed until the final cost report is presented, reviewed and finally settled. Thus, a retroactive adjustment is made after the cost report is completed to make the actual and interim payments balance. This cost report is completed following the end of each cost year.
According to the Secretary there are two grounds for the recovery of any overpayments determined by the interim and retroactive adjustments. The first treats the recovery as part of the ongoing stream of payments made during the year. In these cases current payments are adjusted so that no overpayment will exist at the end of the cost year. 42 C.F.R. § 413.64(f).
The second ground for recovery of overpayments relates to providers who are debtors in bankruptcy. In that case the regulation requires that payments to the debtor-provider "will be adjusted by the Secretary, notwithstanding any other regulation or program instruction regarding the timing and manner of such adjustment, to a level necessary to insure that no overpayment to the provider is made." 42 C.F.R. § 413.64(I).
The Medicare scheme then provides a procedure for review of reimbursement issues which includes various provisions for appeal and review.
The Secretary has now withheld funds from current payments owed the debtor to apply against what she calculates to be overpayments made to it in the past. One sum is for overpayment occurring before the petition was filed and the other is for an overpayment which occurred post-petition. One is denominated an interim adjustment and other a retroactive adjustment.
The debtor, apparently and without citation to pertinent authority, wants the Secretary to "release" the payments already withheld and to prevent the Secretary from withholding any more payments. The only justification offered by the debtor for this request is that these funds are needed for the debtor to continue in operation. The debtor argues that without these funds it will not be able to remain in existence, never mind any attempt at reorganization.
Additionally, the debtor's request is procedurally infirm. In its pleadings, the debtor does not request that these funds be released by the Secretary. However, at the hearing, this issue was raised orally by the debtor. Moreover, it seems that for such a request, the proper procedural vehicle is a complaint commencing an adversary proceeding, as opposed to a motion commencing a contested matter. However, given the emergency nature of the debtor's request and the lack of opposition by the Secretary, the matter will proceed as a contested matter, pursuant to Fed. R. Bankr.P. 9014.
The lack of factual and evidentiary material inhibits this court's ability to fully address the issues raised in this motion and at the hearing. Therefore, this decision will make rulings of law based upon the arguments and authorities presented by the debtor and the respondent but will withhold granting any relief until appropriate evidence is submitted in support of any such requests for relief the debtor or respondent may wish to make.
The legal issues are: (1) does the bankruptcy court have jurisdiction to hear this matter and (2) do the actions of the Department of Health and Human Services, making adjustments to reimbursements to the debtor, constitute a bankruptcy claim such that they are equitable recoupment or set-off and do such actions violate the automatic stay?
The Secretary, in her response to the debtor's motion, claims that the bankruptcy courts do not have jurisdiction over any matter concerning the Medicare system, pursuant to 42 U.S.C. § 405(h), until the administrative procedures mandated by 42 U.S.C. § 405(g) have been exhausted. Resolution of this issue is essential to the consideration of the remaining issues raised by the debtor and the Secretary. If the bankruptcy courts do not have jurisdiction to hear this matter, than all the other matters raised, with regard to Medicare, are, at least temporarily, beyond the authority of this court.
First, 28 U.S.C. § 1334(a) provides exclusive jurisdiction over all cases under Title 11 to the district courts, which then may refer the cases to the bankruptcy courts. Further, 28 U.S.C. § 1334(e) provides exclusive jurisdiction over all of the property of the debtor, wherever located, and of the estate. Thus, Congress has provided for exclusive jurisdiction over all bankruptcy cases.
In contrast, the Secretary is arguing that exclusive jurisdiction over all Medicare issues falls, first, under the administrative jurisdiction of the Department of Health and Human Services, pursuant to 42 U.S.C. § 405(g) and (h). 42 U.S.C. § 405(h) states, in pertinent part:
42 U.S.C. § 405(g) allows judicial review only after a final decision of the Commissioner of Social Security. Further, such an application for judicial review must be filed in district court within sixty days of the final decision. 42 U.S.C. § 1395ii incorporates 42 U.S.C. § 405(h) into the Medicare statute and 42 U.S.C. § 1395cc(h)(1) incorporates 42 U.S.C. § 405(g) into the Medicare Act.
The Secretary claims that this court cannot exercise any jurisdiction over the issues of the withholding or reimbursing of Medicare payments until the debtor exhausts its administrative remedies under 42 U.S.C. § 405. Thus, the jurisdictional issue facing this court is resolution of a possible conflict between the exclusive grant of bankruptcy jurisdiction under 28 U.S.C. § 1334 and what is, according to the Secretary, the excluding and exclusive grant of administrative jurisdiction under 42 U.S.C. § 405. There are several perspectives from which to address this dilemma.
First, the specific language of 42 U.S.C. § 405(h) does not state that jurisdiction under 28 U.S.C. § 1334 is subordinate to 42 U.S.C. § 405. It is a primary rule of construction to look to the plain language of the statute. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).3 Thus, under the plain language rule, 28 U.S.C. § 1334 grants bankruptcy jurisdiction over matters involving Medicare.
Second, the Secretary characterizes the exercise of jurisdiction...
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