In re St. Mary Hosp.
| Decision Date | 23 August 1988 |
| Docket Number | Adv. No. 88-0836S.,Bankruptcy No. 88-11421S |
| Citation | 89 BR 503 |
| Parties | In re ST. MARY HOSPITAL, Debtor. Roger B. HISER, Trustee in Bankruptcy, Plaintiff, v. BLUE CROSS OF GREATER PHILADELPHIA, Otis R. Bowen, M.D., Secretary of Health and Human Services, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Marc J. Sonnenfeld, Richard D. Gorelick, Morgan, Lewis & Bockius, Philadelphia, Pa., for Blue Cross.
Jim Newman, Deputy Chief Counsel, Reg. III, HHS, Philadelphia, Pa., for HHS.
Michael L. Molinaro, Katten, Muchin, Zavis & Mannino, P.C., Chicago, Ill., Thomas E. Sweeney, Chadds Ford, Pa., Jos. T. Sebastianelli, Ernest T. Tsoules, Jr., Sebastianelli Law Assoc., Paoli, Pa., for Franciscan Health Ser.
Jeffrey B. Schwartz, Mark H. Gallant, David S. Fishbone, Philadelphia, Pa., for trustee.
Roger B. Hiser, East Greenville, Pa., trustee.
Henry F. Siedzikowski, Daniel Carrigan, Jonathan Vipone, III, Baskin, Flaherty, Elliott & Mannino, P.C., Daniel E. Farmer, Harris B. Savin, Peter Rosenthal, Diamond, Polsky & Bauer, Philadelphia, Pa., for debtor.
Howard T. Glassman, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for Nurses, Inc. Henry Sommer, Richard P. Weishaupt, Louis S. Rulli, Community Legal Services, Inc., Philadelphia, Pa., for Community Parties.
James J. O'Connell, Kevin Callahan, Office of U.S. Trustee, Philadelphia, Pa., U.S. Trustee.
Bryna L. Singer, Cohen, Shapiro, Philadelphia, Pa., for Professional Health Care.
Stephen F. Gold, Philadelphia, Pa., for adversary plaintiffs.
Harold Berzow, Finkel, Goldstein & Berzow, New York City, for Hospital Supply Co.
Virginia R. Powel, Asst. U.S. Atty., Philadelphia, Pa., for USA, HUD and HHS.
Charles M. Golden, Philadelphia, Pa., for Nurse Finders.
George Miller, CPA, Philadelphia, Pa., Examiner.
Seymour Kurland, City Solicitor, Richard Gold, 1st Deputy, Cynthia E. White, Chief Asst. City of Philadelphia, Philadelphia, Pa., for City of Philadelphia.
Gary M. Schildhorn, Mark J. Packel, Philadelphia, Pa., for Creditors' Comm.
Nathalie D. Martin, Dean M. Schwartz, Philadelphia, Pa., for UMEDCO.
The several matters before us in this bankruptcy case, which has been problematical ever since its filing just a little over three months ago,1 all revolve around the right of the federal Department of Health and Human Services (hereinafter referred to as "HHS") to recoup pre-petition over-payments of Medicare reimbursements for services against post-petition Medicare advances and remittances otherwise payable to the Debtor hospital. This is an issue which has arisen in several other cases involving health providers, and the results and reasoning in the cases in this area have varied widely.
Resolution of such a difficult problem, which implicates various Code sections which conflict to some degree with each other, prompts us to return to basics. We believe that the two fundamental principles pervading all bankruptcy law — equality of treatment of creditors and providing a "fresh start" to a beleaguered debtor — cut strongly in the favor of the Debtor. We therefore conclude that, principally due to the impact of 11 U.S.C. § 525(a) upon this controversy, the Debtor cannot be compelled to pay pre-petition obligations to HHS as a condition for continued participation by HHS in the Medicare program at the Debtor-hospital. In so reasoning, we acknowledge adding yet another new reasoning process in this area to the analogous cases which have come before this.
The instant Chapter 11 case was filed on April 27, 1988. As our May 9, 1988, Opinion documents, a combined effort of several doctors on the Debtor's staff, the City of Philadelphia, and numerous community groups and individuals, although opposed by management and at least initially by the Official Unsecured Creditors' Committee, convinced us to halt the plans of the then-management of the hospital to close immediately, without thorough review of alternatives, the doors of an institution which was immensely popular with the low-income community which it served. Unfortunately, the actions of past management directed towards closing the facility created a severe, immediate cash-flow problem for the Trustee appointed by us to manage the Debtor.
The instant controversy was initially brought to our attention by the Trustee's filing the above-captioned Adversary proceeding on June 17, 1988. The Complaint recited two claims arising from the refusal of Defendant BOWEN's Health Care Financing Administration (hereinafter referred to as "HCFA") and its fiscal intermediary, Defendant Blue Cross of Greater Philadelphia (hereinafter referred to as "Blue Cross"), to continue to remit payments to the Debtor pursuant to the periodic interim payments (hereinafter "PIP") schedule that had been utilized previously: (1) A request for a turnover of payments withheld; and (2) A prayer for an injunction preventing the Defendants from effecting setoffs against the PIP payments. A preliminary injunction hearing was requested and scheduled on June 23, 1988.
On June 21, 1988, Defendant Bowen, as Secretary of HHS, filed four motions of his own seeking the following relief: (1) A declaration that the Debtor should be deemed to have implicitly assumed its allegedly executory Medicare provider contract with HHS, thereby allowing HHS to recoup overpayments pursuant to the contract terms; (2) In the alternative, an order compelling the Debtor to assume or reject the provider contract, presumably forthwith; (3) An order granting relief from the automatic stay to pursue its right of recoupment, which HHS alleged was brought in an abundance of caution despite an already-existing right to do so; and (4) An order permitting it to pay funds otherwise presently payable to the Debtor into an escrow account, pending determination of its right to recoup overpayments from same.
The hearing of June 23, 1988, focused solely on the Debtor's right to continue receiving payments pursuant to the PIP schedule after its suspension, on May 19, 1988, followed by its termination, on June 9, 1988. Required to rule immediately, we announced our intention to require the Defendants to remit payments to the Debtor pursuant to the previously-established PIP schedule, i.e., $249,691.00 bi-weekly through June 30, 1988, pending a final hearing on this Adversary proceeding and on HHS' four motions on July 20, 1988.
On June 24, 1988, we filed a brief Memorandum explicating our ruling of the previous day. We stated therein that our decision on the element of the Debtor's "reasonable probability of ultimate success" in this litigation was based on three grounds: (1) The Defendants appeared to have acted without just grounds, contrary to one regulation, 42 C.F.R. § 413.64(h)(4), and pursuant to another of doubtful enforcibility in a bankruptcy context, 42 C.F.R. § 413.64(i);2 (2) In acting unilaterally, without according the Debtor a prior hearing, the Defendants had violated the Debtor's right to due process of law; and (3) We doubted that the Defendants' conduct could be "justified as an aspect of the assumption of an executory contract between the Debtor and Defendant Bowen" because it seemed to us that, . Memorandum, at 4.
The final hearing, scheduled for July 20, 1988, was continued until July 28, 1988. The parties announced, on the latter date, that they had resolved the PIP issue, by the Debtor's agreeing that this schedule could be suspended for the time being, subject to subsequent reinstitution. This resolution apparently prompted HHS to withdraw the fourth of its motions recited at page 505 supra, requesting that future payments be paid into an escrow account.
Hence, the remaining differences swirled solely around the Defendants' right to recoup in excess of $353,000.00 in Medicare overpayments that had arisen in the Debtor's 1986 fiscal year (which ended June 30, 1986) from current advances to the Debtor. At the close of the hearing, the parties, having submitted lengthy Briefs prior to the June 23, 1988, hearing, and prior to this hearing, presented spirited oral argument and then agreed to submit the matter to us for disposition without further briefing.3
Several significant facts were developed at the hearing. First, HHS relied, as the contractual basis for its right of recoupment, upon a Health Insurance Benefits Agreement which its records showed that the Debtor had executed on May 5, 1966, but which it could not locate. Instead, it provided a facsimile copy of the contract form which it contended must have been executed by the Debtor on that date.
Secondly, on September 8, 1987, HHS accepted a new Health Insurance Benefit Agreement from the Debtor. A HCFA official claimed that the 1987 Agreement was required solely to alert providers to certain obligations appended in 1986 legialation, was totally insignificant, and that the 1966 Agreement was therefore the document under which it considered the parties to be proceeding at all times.
Thirdly, during the Debtor's 1987 fiscal year, HHS agreed that it had underpaid the Debtor by at least $77,518.00 (the Debtor claimed that it was owed over $500,000.00), and it had remitted that sum to the Debtor.
Finally, it was noted that the Commonwealth of Pennsylvania, in administering the Medicaid program, had agreed not to seek any recoupments at all against the Debtor at this time. In fact, the Commonwealth had recently remitted $320,000.00 to the Debtor from sums owed from the 1985 fiscal year.
At the close of the hearing, the Debtor articulated a fall-back position. Assuming arguendo that...
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