U.S. v. Idaho Falls Associates Ltd. Partnership

Decision Date30 September 1999
Docket NumberNo. 97-00178-E-BLW.,97-00178-E-BLW.
Citation81 F.Supp.2d 1033
PartiesUNITED STATES of America, Plaintiff, v. IDAHO FALLS ASSOCIATES LIMITED PARTNERSHIP; Representatives of Idaho Falls Limited Partnership; ID.7 Valley Care Falls Corporation; Unknown Corporations and Partnerships and Western Health Care Corporation, Defendants.
CourtU.S. District Court — District of Idaho

Amy S. Howe, U.S. Attorney's Office, Boise, ID, Evelyn McChesney, U.S. Dept. of Health & Human Services, Office of General Counsel, Seattle, WA, for U.S.

Karl R Decker, Meacham & Decker, Idaho Falls, ID, for Idaho Falls Associates Limited Partnership.

Karl R Decker, Meacham & Decker, Idaho Falls, ID, James W Marks, Holleb & Coff, Chicago, IL, James M Ellis, Holleb & Coff, Chicago, IL, for ID.7 Valley Care Falls Corp.

Donald W Lojek, Lojek Gabbert & Strother, Boise, ID, Donald W Lojek, Lojek & Strother, Boise, ID, for Western Health Care Corp.


WINMILL, District Judge.

The Court has before it a Report and Recommendation (Docket No. 98) filed by the United States Magistrate Judge Mikel H. Williams. The Court has reviewed the record and examined Report pursuant to 28 U.S.C. § 636(b)(1), and finds, notwithstanding the objections of defendant Western Health Care Corporation, that it accurately sets forth the facts and correctly applies the governing legal standards.

Generally, Western Health Care Corporation (WHC) objects to the recommendation that it's Motion for Summary Judgment (Docket No. 29) be denied. Specifically, WHC objects to the following conclusions of the Recommendation: (1) that a genuine issue of material facts exists as to whether the plaintiff United States' claim is entitled to priority; and (2) that a genuine issue of material facts exists as to whether the United States improperly failed to adjust the Medicare payments to avoid overpayment.

The Court reviewed the record de novo, and considered WHC's arguments in support of it's objections. After such review, the Court arrived at the same conclusions as those set forth in the Report and Recommendation. Accordingly,

NOW THEREFORE IT IS HEREBY ORDERED, ADJUDGED, AND DECREED, that the Report and Recommendation (Docket No. 98) shall be, and the same is hereby, ADOPTED as the decision of the District Court.


(1) Defendant Western Health Care's Motion for Summary Judgment (Docket No. 29) is DENIED;

(2) Defendant Idaho Falls Associate's Motion to Dismiss Western Health Care's Cross Claim (Docket No. 33) is GRANTED;

(3) Defendant ID.7 Valley Care's Motion to Dismiss Amended Complaint (Docket No. 60) is DENIED; and

(4) Defendant Idaho Falls Associate's Motion to Dismiss Amended Complaint (Docket No. 69) is DENIED.


WILLIAMS, Chief United States Magistrate Judge.

This action is before the Court for all pre-trial matters pursuant to 28 U.S.C. § 636(b)(1)(A) and (B) and District Judge Winmill's Order of Reference (Docket # 16), entered January 23, 1998. Currently pending before the Court for its consideration are the following motions: (1) Defendant Western Health Care's Motion for Summary Judgment (Docket # 29), filed October 20, 1998; (2) Defendant Idaho Falls Associate's Motion to Dismiss Western Health Care's Cross Claim (Docket # 33), filed October 21, 1998; (3) Defendant ID.7 Valley Care's Motion to Dismiss Amended Complaint (Docket # 60), filed January 15, 1999; and (4) Defendant Idaho Falls Associate's Motion to Dismiss Amended Complaint (Docket # 69), filed March 8, 1999.

On April 23, 1999, the Court conducted a hearing on the pending motions with all counsel appearing and participating. Having considered the arguments of counsel and having fully reviewed the legal briefing, the Court issues its Report and Recommendation as follows.

I. Background

This is an action by the United States Government to recover the overpayment of Medicare funds disbursed to Valley Care Center ("VCC"), a skilled nursing facility located in Idaho Falls, Idaho, in 1994. The Defendants in this action are: (1) Idaho Falls Associates Limited Partnership ("IFA"), the entity which owned VCC during the period of time in which the overpayments were made; (2) ID.7 Valley Care Corporation ("ID.7"), IFA's general partner; and (3) Western Health Care Corporation ("WHC"), a health care management corporation that was appointed receiver of the VCC facility during the pendency of foreclosure action filed against IFA.

The Medicare program is authorized by Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395ccc, and is administered by the Health Care Financing Administration ("HCFA"), an agency within the United States Department of Health and Human Services. Under the Medicare Program, skilled nursing facilities such as the VCC are reimbursed for patient care services on the basis of their actual costs. However, interim payments are made throughout the year based on an estimate of what the facility's actual costs will be. In order to accomplish this, Medicare providers are required to submit year end cost reports to a fiscal intermediary charged with handling the day-to-day claims. From this cost report, the intermediary determines whether the interim payments resulted in an overpayment or underpayment for the period in question. Following this determination, the intermediary is required to furnish the provider a Notice of Program Reimbursement ("NPR"). The NPR advises the provider of the exact amount due to or from Medicare.

In this case, VCC participated in the Medicare program from 1987 until 1994, pursuant to a Medicare Agreement signed by an IFA representative. IFA obtained ownership of the VCC in 1987 when Donald R. Bybee, d/b/a DRB Holdings ("DRB"), sold the facility to Southmark Corporation. Southmark immediately deeded the VCC to IFA who took the property subject to a promissory note and deed of trust executed in favor of DRB. Unfortunately, IFA was unable to fulfill its financial obligations and became delinquent in its payments to DRB by early 1990.

In the spring of that year, Donald Bybee approached Keith Holloway, the President of WHC, and asked him if WHC would act as a receiver of the VCC facility if Bybee filed an action to foreclose on the VCC property. Holloway had several years of experience in the nursing home business, and he and his wife had previously managed financially distressed nursing homes through their corporation, WHC. Bybee knew of Holloway's experience and indicated that he wanted the VCC to remain an on-going licensed health care facility. Mr. Holloway agreed that WHC would act as a receiver should Bybee institute a foreclosure action.

Subsequently, on April 13, 1990, DRB commenced an action in state court against IFA to foreclose on the VCC property. On May 1, 1990, the court appointed WHC as receiver of the VCC.1 As receiver, WHC managed and controlled all aspects of the VCC until the property was sold at a foreclosure sale on July 29, 1994. Thereafter, WHC continued to control the facility until it was ordered to deliver physical possession of the property to the new owner on September 30, 1994. The receivership was ultimately terminated in September of 1997, when WHC presented a final accounting.

During the period of receivership, WHC submitted claims for Medicare reimbursement to Medicare Northwest, the fiscal intermediary that reimbursed VCC for its patient care services. WHC received interim payments on behalf of VCC and, until 1994, submitted year end cost reports to Medicare Northwest as required. WHC also reimbursed Medicare Northwest for various overpayments which were made to VCC during the period of the receivership. However, in 1994 it failed to do so.

In April of 1994, Medicare Northwest conducted a rate review to determine the appropriate interim Medicare payment to be made to VCC. In order to make that determination, Medicare Northwest relied on the VCC's 1993 cost report and on the VCC's provider statistics for the first three months of 1994. Based on that information, Medicare Northwest advised WHC that the VCC would be reimbursed for 90% of its Medicare Part A charges and 100% of its Medicare Part B charges. This meant that VCC would receive 90% of whatever Part A charges it claimed and 100% of whatever Part B charges it claimed. However, if the charges claimed were in excess of the VCC's actual costs, an overpayment would result, and WHC would be required to reimburse Medicare Northwest for that amount. That is exactly what happened.

On July 29, 1994, the VCC was sold at a trustee sale. However, the property was not actually delivered to the new owner until September 30, 1994. Pursuant to 42 C.F.R. § 413.24(f)(2)(iii), the VCC's 1994 cost report was due 45 days after the facility experienced a change of ownership. Thus, at the outset, the VCC's cost report was due no later than November 13, 1994. However, WHC did not submit the cost report until September 21, 1995, eleven months after it was due. The cost report, as filed by WHC, indicated that the VCC had received an overpayment in the amount of $221,116. WHC did not remit this amount with the report. On October 26, 1995, Medicare Northwest issued its official Notice of Program Reimbursement indicating that the VCC owed Medicare $240,194. WHC did not pay this amount. However, it did continue to satisfy the claims presented by other VCC creditors.

On April 25, 1997, the United States instituted the present suit to recover the approximately $300,000 in Medicare overpayments made to VCC.2 However, on August 27, 1997, having learned of this action, the judge presiding over the state court foreclosure proceedings ordered WHC to pay all receivership funds in its possession to the United States. Thus, the debt was reduced by approximately $126,000.3 The United States now seeks to recover the balance of the sums due. The Amended Complaint, filed on July 8, 1998, alleges that each of...

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    ...were denied by the government. See United States v. Aquavella, 615 F.2d 12, 20 (2d Cir.1979); United States v. Idaho Falls Assocs., 81 F.Supp.2d 1033, 1049-50 (D.Idaho 1999). The objective of the scheme, however, provides no support for the proposition that it therefore precludes the govern......
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