In re Medico Associates, Inc.
| Decision Date | 21 September 1982 |
| Docket Number | Bankruptcy No. 76-1414-L. |
| Citation | 23 BR 307 |
| Parties | In re MEDICO ASSOCIATES, INC., Debtor. Frederick G. FISHER, Jr., James M. Langan, Richard Maguire, Receivers, Plaintiffs, and New Medico Associates, Inc., Plaintiff-Intervenor[*], v. J. Henry SMITH, Commissioner of the Department of Social Services of the City of New York, and Phillip Toia, Commissioner of the Department of Social Services of the State of New York, and Robert P. Whalen, M.D., Commissioner of the Department of Health of the State of New York, and Peter C. Goldmark, Director of the Budget of the State of New York, Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Robert Somma, Goldstein & Manello, Boston, Mass., for plaintiffs-receivers.
Barry M. Portnoy, Sullivan & Worcester, Boston, Mass., for debtor and plaintiff-intervenor.
Bradley A. Sacks, Brooklyn, N.Y., for defendant City of New York.
Mark L. Silverstein, New York City, for defendant State of N.Y.
Before the Court are several performance and accounting issues relating to the measure of damages sustained by the above-named plaintiffs, a Debtor and its Receivers, respectively, in arrangement proceedings under Chapter XI of the Bankruptcy Act commenced on May 26, 1976 (hereinafter, collectively "Medico"). In the Court's Memorandum and Order partially granting plaintiffs' motion for summary judgment, I found (1) that a fixed price contract requiring New York City (the "City") to pay $7.50 per patient per day over and above the basic Connecticut Medicaid rate was in existence and embodied in an April 13, 1973 letter (the "Contract") from the City to Medico; (2) that the fixed price Contract was not in violation of applicable Federal and State Medicaid/Medicare law; and (3) that Medico and its affiliate Connecticut nursing homes1 had substantially performed in accordance with its obligations under that Contract.
While the Order granting partial summary judgment decided three specific aspects of this litigation, several issues relating to Medico's performance under the Contract and the appropriate measure of damages were not decided therein because they presented factual disputes which were incapable of resolution when ruling upon a motion for summary judgment. Accordingly, the Court held several days of trial to resolve these issues. Having heard the testimony presented at trial and having reviewed the pleadings, legal memoranda, affidavits and voluminous exhibits submitted by the parties, I make the following findings of fact and conclusions of law.
The defendants question whether Medico's performance under the Contract entitles the plaintiffs to any reimbursement for the patient care provided by Medico to the New York patients or, alternatively, whether there should be an offset from any damages awarded herein for alleged defects in Medico's contractual performance. In the Court's Order partially granting plaintiffs' motion for summary judgment, I found that, except for certain specific performance issues, there was no genuine issue as to any material fact regarding the fact that Medico's performance was in accordance with the Contract.
Before discussing these performance issues, I first consider what law to apply. In the Court's partial summary judgment Order, at 12, in keeping with the ruling of Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1940), I applied the Massachusetts conflicts decisions and determined that New York, as the place of the making of the Contract, governed the nature, validity and interpretation of this Contract and New York law will govern issues relating to Medico's performance under this agreement.
Treating the reserved performance issues in turn, I find as follows:
A MEDICARE PART A BENEFITS
Medicare, title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq, is a national health insurance program for the aged and disabled. Under Medicare certain expense monies are paid to patients who are enrolled in the Medicaid program and the physicians who render services to these Medicaid patients. Medicare Part A benefits, § 1395c-1395i, provides federal insurance for basic in-patient hospital services and post-hospital services at home or in nursing homes for the patients' room and board and other items within that category for the first 100 days of their institutionalization. New York City asserts that Medico failed to reimburse and report to the City certain Medicare Part A benefits and Social Security benefits Medico was to have collected on behalf of the New York City Medicaid patients in the Connecticut Homes. The defendant further argues that Medico's failure to reimburse and file reports with the City with respect to these benefits constituted a material breach of Medico's obligation under the Contract. Medico disputes these allegations and asserts that at all times they have been in compliance with the agreement.
The April 3, 1973 Contract provides that: Medico agrees that it will apply immediately for Medicare A benefits and will not bill us for such benefits until a determination has been made. In the event that the individual is eligible for Medicare A benefits during the first 100 days, Medico will bill us only for the difference between $26.75 and the Medicare benefits. If there is other income available such as Social Security benefits, Medico will also deduct from the $26.75 after passing along $24.50 to the patient for his personal needs.
After considering the evidence, I am convinced that Medico has properly applied for and credited to the defendants the Medicare Part A benefits and Social Security benefits received by the patients. The defendants, by affidavits or otherwise, do not seriously challenge that Medico has credited the City with the monies received under this program.2 Medico did not bill the defendants for services eligible to be covered by the Part A program, but rather billed the defendants therefore at the end of the 100 day period only upon a determination that the patient was not eligible for Part A reimbursement.
The defendants also contend that Medico was deficient in filing reports with the City and the State regarding the Social Security and Part A benefits. As noted in the Court's Order granting partial summary judgment, at 17, the parties are in accord that the Contract between Medico and the City is subject to the provisions of governing Federal Medicaid Law, 42 U.S.C. § 1396 et seq., and New York Medicaid Law, N.Y.S.S.L. § 363 et seq. Medicaid law requires that a state plan for medical assistance must provide for agreements with every person or institution providing services under the plan. These agreements must contain a provision requiring the institution to "furnish the State agency or the Secretary with such information, regarding any payments claimed by such person or institution for providing services under the State plan, as the State agency or the Secretary may from time to time request; . . ." (emphasis added). 42 U.S.C. § 1396a(a)(27).
The City of New York alleges that Medico's failure to regularly and systematically report the receipt of the Medicaid Part A and Social Security benefits impaired the City's ability to pay benefits under the subject provider agreements. Medico disputes these allegations and asserts that at all times it has been in conformance with the Contract and applicable Medicaid law.
I find that Medico's treatment and reporting of the Medicare Part A and Social Security benefits was in conformance with the Contract and applicable law and was recognized and accepted by the City. The City's acquiescence to Medico's mode of performance and the lack of any expression of the City's dissatisfaction with the procedure enunciated by Medico with regard to these benefits in the letter dated January 10, 1974 from Bernard S. Ampel, Director of Human Services for Medico, to Henry J. Rosner, Assistant Commissioner of New York City Department of Social Services, precludes the City's present assertion of Medico's noncompliance with respect to these benefits. Medico has fully performed its duties regarding these monies.
The Contract also contains a provision whereby Medico agreed that the "physicians, physiotherapists and psychiatrists employed by Medico will also submit claims for Medicare, which claims are to be paid to Medico and thereafter paid over to the Department of Social Services as a refund." The parties are in accord that this is a reference to the so-called Medicare Part B benefits, 42 U.S.C. § 1395j — § 1395w, which establishes a voluntary supplementary insurance program for physicians and various other providers of medical services who render to qualified patients services not covered by the basic Medicare plan. The City contends that under the Contract, Medico was responsible for billing Medicare for the Part B benefits and not charging the City for services rendered for which Medico could recover payment under the Part B program. As a result of Medico's failure to do so, the City claims damages to the extent that it reimbursed Medico for Part B services. Medico argues that under the Contract Medico was itself not obligated to file claims for the Part B reimbursements. Medico further contends that at no time did it employ the types of medical personnel listed in the Contract, but rather that these medical personnel were independent physicians who only rendered services when needed by the patients.
These two disparate contractual interpretations came to a head in April, 1976. At that time, Medico agreed that thereinafter it would file for, collect and reimburse to the City the Part B monies. Medico further agreed that, to the extent possible, it would back-file for the Medicare Part B benefits and turn over these benefits to the City. However, Medico informed the City that due to Medicare regulations3 it could...
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