CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
Writing for the CourtDAVID H. PATTON
Citation9 BR 644
PartiesIn the Matter of CLAWSON MEDICAL, REHABILITATION AND PAIN CARE CENTER, P.C., a Michigan Professional Corporation, Debtor. Alexander G. ANDREWS, Trustee v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN and Patricia Harris, Secretary of the Department of Health and Human Services.
Docket NumberBankruptcy No. 80-05705-P.
Decision Date18 February 1981

9 B.R. 644 (1981)

In the Matter of CLAWSON MEDICAL, REHABILITATION AND PAIN CARE CENTER, P.C., a Michigan Professional Corporation, Debtor.
Alexander G. ANDREWS, Trustee
BLUE CROSS AND BLUE SHIELD OF MICHIGAN and Patricia Harris, Secretary of the Department of Health and Human Services.

Bankruptcy No. 80-05705-P.

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

February 18, 1981.

9 BR 645

Honigman, Miller, Schwartz & Cohn by Sheldon S. Toll, Detroit, Mich., for trustee.

August, Thompson, Sherr, Clarke, Schafer & Shefman, P.C. by Irving A. August and Diane Ash, Birmingham, Mich., for debtor; Frimet, Bellamy, Gilchrist & Jehle, P.C. by Gilbert M. Frimet and Andrew B. Wachler, Southfield, Mich., of counsel.

Ralph D. Gilpin, Detroit, Mich., for Blue Cross and Blue Shield of Michigan.

Karl Overman, Asst. U.S. Atty., Detroit, Mich., for the Department of Health and Human Services.


DAVID H. PATTON, Bankruptcy Judge.

On October 7, 1980 Clawson Medical, Rehabilitation and Pain Care Center, P.C. filed a petition for reorganization under Chapter 11 of the newly revised Title 11, United States Code, thereby commencing a case before this Court.1 A Trustee was appointed and authorized to continue the operation of the debtor's business.

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The matter presently before the Court arises from a request by the Trustee that Blue Cross and Blue Shield of Michigan (B.C.B.S.) and the Secretary of the Department of Health and Human Services (H.H.S.) be ordered to discontinue certain practices which the Trustee alleges have decreased Medicare reimbursement payments to the debtor. That request has been vigorously opposed by both B.C.B.S. and H.H.S. on the merits and on procedural grounds. A motion filed by those entities requests dismissal on jurisdictional grounds under Civil Procedure Rule 12(b)(1) and will be treated as part of this proceeding. This memorandum contains the findings of fact and conclusions of law necessary to resolution of the issues presented.


With the exception that the Medical Center is a debtor under Title 11, the factual context of this dispute is one which is becoming increasingly familiar to the courts. The debtor is a medical facility certified to provide services under the provisions of the Social Security Act referred to as Medicare.2 As a certified Medicare provider it has, since beginning operations in 1978, provided services, consisting mainly of outpatient physical therapy treatments, to patients in its service area. Approximately eighty-five percent of these patients are Medicare beneficiaries and as a result a preponderance of the revenue derived from the Medical Center's operations consists of payments for costs reimbursable under Medicare programs.3

B.C.B.S. acts as the fiscal intermediary between the Medical Center and H.H.S. As part of this relationship it is responsible for the initial processing and review of claims for cost reimbursement submitted by the Medical Center. It is also responsible for making payments to the Medical Center for claims which are approved for reimbursement.4

The relief sought by the Trustee in this proceeding is an order restraining B.C.B.S. from certain actions which he alleges have reduced the debtor's revenues below levels at which its business can be operated. The actions complained of take two basic forms. As presented, it appears that B.C.B.S. has changed its review procedures and standards with the result that a substantially greater percentage of the claims for cost reimbursement submitted by the debtor are rejected at initial stages of the B.C.B.S. processing/reviewing process. These rejections, combined with delays in the secondary stages of the reviewing procedure, have produced a huge backlog of unpaid claims representing several hundred thousand dollars in potential revenue for the debtor's business. In addition, B.C.B.S. has substantially reduced the per treatment rate at which interim compensation payments to the Medical Center are calculated.5 These actions have caused a substantial reduction in the amount paid by B.C.B.S. to the debtor as reimbursement for services performed for Medicare beneficiaries.

This reduction is not disputed by either B.C.B.S. or H.H.S. Their position is that their actions are authorized and in most instances required by the Medicare Act and

9 BR 647
applicable regulations. This position has been challenged by the debtor in an action presently pending before this Court following its removal from the District Court pursuant to 28 U.S.C. § 1478. The Trustee's request is that he be protected from the impact of the practices complained of until the dispute is resolved


Initially it must be determined whether this Court has subject matter jurisdiction. Resolution of this issue presents a question of first impression with regard to the scope of the jurisdictional provisions of the Reform Act, 28 U.S.C. § 1471.6

Section 1471 grants extensive jurisdiction of matters connected with cases under Title 11 to federal district courts and provides that such jurisdiction shall be exercised by the federal bankruptcy courts. 28 U.S.C. § 1471(b), (c); Matter of Epps, 2 B.R. 737, 2 C.B.C.2d 368, 370 (D.C.S.D.N.Y.1980). It also grants the bankruptcy court in which the Title 11 case is filed exclusive jurisdiction of the debtor's property. 28 U.S.C. § 1471(e).

Under this grant this Court has jurisdiction over all property of the debtor and over "civil proceedings arising under title 11 or arising in or related to cases under title 11." This proceeding seems clearly within the scope of such jurisdiction. It is initiated by a trustee whose appointment7 and actions are regulated by the Code and by this Court as specified in the Code.8 Its resolution will have a considerable impact on the Medical Center's estate and on its prospects for effecting a successful reorganization. Under the Code, all legal or equitable interests in property become part of the estate established at the commencement of the case. 11 U.S.C. § 541(a). This includes property held by other entities. Under certain conditions this Court can require turnover of such property for use in reorganizing the debtor and the operation of its business. 11 U.S.C. §§ 542, 543, 363. Determination of what, if anything, is owing to the Trustee is thus a crucial question in the administration and disposition of this case. A proceeding connected to a Title 11 case in this way relates to the case and can be heard in the bankruptcy court. 28 U.S.C. § 1471(b), (c).9 In re Griffith, 6 B.R. 750, 2 C.B.C.2d 387 (Bkrtcy.D.N.M.1980).

9 BR 648

Exercise of this jurisdiction is not barred by the incorporation of § 405(h) of the Social Security Act into the Medicare Act by 42 U.S.C. § 1395ii.10 As construed in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed. 522 (1975), § 405(h) bars federal district courts from exercising federal question jurisdiction in disputes to which it is applicable. It may also condition review under other statutes by requiring that nonjudicial statutory review mechanisms be utilized as a prerequisite to judicial review. Whitecliff, Inc. v. U.S., 536 F.2d 347, 351 (Ct.Cl.1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1652, 52 L.Ed.2d 361; Pacific Coast Medical Enterprises v. Harris, 633 F.2d 123 (9th Cir. 1980).

However, no mention of § 1471 is made in the third sentence of § 405(h), which the Court in Salfi interpreted to bar jurisdiction. Such omission has been found to permit review under other sections of Title 28, White v. Matthews, 559 F.2d 852 (2nd Cir. 1977), Whitecliff, Inc. v. U.S., supra, Arkansas Society of Pathologists v. Harris, CCH Medicare/Medicaid Guide, para. 30,706 (E.D.Ark.1980), Fox v. Harris, 488 F.Supp. 488 (D.D.C.1980),11 and is indicative of Congressional intent not to preclude jurisdiction. The Reform Act extensively amended existing law but did not include § 1471 in § 405(h). Without such action, the best construction of § 405(h) seems to be that it does not bar § 1471 jurisdiction.

The exhaustion requirement embodied in the first two sentences of § 405(h) is similarly inapplicable. Jurisdiction to hear proceedings related to Title 11 cases is conferred "Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts . . ." This language is seen as authorizing bankruptcy court jurisdiction "irrespective of congressional statements to the contrary in the context of specialized legislation." 1 Collier on Bankruptcy, para. 3.01 (15th ed. 1979). The main check on jurisdiction was seen as abstention12 and in the absence of "clear and convincing evidence" of legislative intent to preclude or condition this Court's jurisdiction, no further barriers will be erected. Chelsea Community Hospital, SNF v. Michigan Blue Cross Association, 630 F.2d 1131 (6th Cir. 1980); Wayne State University v. Cleland, 590 F.2d 627, 632 (6th Cir. 1980); Johnson v. Robison, 415 U.S. 361, 373, 94 S.Ct. 1160, 1168, 39 L.Ed.2d 389 (1974).13

Even without the prefatory language, an interpretation of § 405(h) as inapplicable to § 1471 is consonant with Congressional intent with regard to post-Code jurisdiction expressed in the legislative history. One of the primary purposes of revising the statutory grant of jurisdiction to the bankruptcy courts was the elimination of "frequent,

9 BR 649
time-consuming and expensive litigation of the question whether the bankruptcy court has jurisdiction of a particular proceeding." H.R. at 45, U.S.Code Cong. & Admin.News 1978, p. 6007. In the Committee's view, "A comprehensive grant of jurisdiction to the bankruptcy courts over all controversies arising out of any bankruptcy or rehabilitation case would greatly diminish the basis for litigation of jurisdictional issues," a change which was "essential to a healthy bankruptcy system." H.R. at 46, 48, U.S. Code Cong. & Admin.News 1978, 6007

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