United States v. Consumer Health Services of America, Inc. And Roger Schlossberg, Trustee
108 F.3d 390
D.C. Cir.
1997
Check Treatment

*3 into an agreement ... liquidation SILBERMAN, Circuit Judge: overpayment.” agreement envisaged appeals States the district regulation quite simple: court’s affirmance of court’s vider will keep performing Medicare ser- denial of its prior motion to deduct vices, and intermediary deduct will from overpayments from reimbursement other- periodic payments its applied amounts wise due appellees. We reverse. liquidation overpayment. In determining deduct, how much to the inter-

I. mediary objectives: balances two it wants to liquidate debt, but it also wants to en- Consumer Health Services of America was sure that has sufficient incen- a of home health care services. In tive to continue performing needed services. signed a agree- Medicare provider ment qualified it to participate in Medi- In Consumer’s fiscal A, care Part compensates providers which concluded its audit for 1981-82 and deter- certain health care services elderly in mined that it had overpaid Consumer regulations accordance with promulgated by $81,000. approximately Pursuant to an the Secretary of Health and Ser- “agreement Human ... liquidation of the over- 1. See 1395x(v)(l)(A) §§ 1395g(a), U.S.C. 405.373(a)(2), 413.20(b), 413.24(f)(2)(i), 413.64(f) (1994); 405.370(a)(1), (1995). §§ C.F.R. rejected, how- The court right.” deducting contractual intermediary began payment,” post- ever, that Consumer’s argument amounts periodic Consumer’s from con- provision of Medicare petition In excess. necessary to recover It relied of the contract. assumption its busi- reorganize stituted petitioned Consumer operat- Bankruptcy that a debtor view prevailing 11 of Chapter on ness under time, owed over “assume” Chapter still cannot ing Consumer under At that Code. Oper- approval formal executory without $82,000 the 1981-82 contract continued court, the parties Consumer which ating by the under to receive sought nor received. provide Medicare neither agreed had been not, intermediary did Its government’s payments. rejected the periodic also at- amounts however, to deduct continue recoupment,” “equitable claim be- overpayment, 1981-82 tributable may a deduct creditor *4 legal concerning the uncertain it was cause post-petition ser- for payments from debt such deductions ease—whether in this if) issue (and the ser- vices, only the debt and auto- Bankruptcy Code’s violate the would Ac- single “transaction.” part of a vices are pre-petition to recover stay of actions matic court, the under Medicare cording to the year a of than more a little After debts. the amount due regulations, “the and statute con- Chapter Consumer operation under [i.e., pre-petition- year the provider for one liquidation a case into bankruptcy verted its completely unre- from services stems debt] it submit- Chapter and under proceeding [i.e., years later provided in to lated those for Medicare for reimbursement claims ted It thus conclud- post-petition services].” the period it was during the performed services overpay- claim government’s ed that the Assuming no Chapter under operating calculated and made in 1981-82 ments the overpayments, for the 1981-82 deduction as transaction the part of same 1984 was not claims that these intermediary estimated ser- compensation claim Consumer’s $15,000.2 govern- The to about amounted Finally, relying in 1987-88. performed vices bankrupt- in the brought a motion then ment Bildisco, 465 U.S. Bildisco & NLRB v. affirm the court “that requesting cy court (1984), 79 L.Ed.2d 104 S.Ct. to account due right to reduce [its] even that bankruptcy court determined the overpayments.” prior provider the under though performance record, from the apparent not For reasons assumption of amount agreement not did bankrupt- the pending before was the matter to the “reason- it, still entitled was Consumer then, after the years, and for six cy court it services Medicare able value” virtually identical a decided Third Circuit Chapter 11. under operating vided while Center, University Medical case, In re see to the appealed district government The (3d Cir.1992), bankruptcy the order in one-sentence court, a affirmed motion. government’s the court denied bankruptcy reasoning the of embracing the auto- Bankruptcy Code’s the court assumed appeal followed. This court. claim government’s to the stay applied matic it and so overpayments, pre-petition government as whether the issue saw II. on the recoupment” “to make entitled was is contention primary government’s and Consumer agreement between provider recognize failed court characterized Secretary. The court substantive of Medicare’s amount contract,” i.e., a “executory as an agreement (including any rendered liability for services from due performance is on which contract operating under by a debtor rendered those if Con- recognized and it parties, both ac- 11) take into must to have “assumed” be said sumer could In the alterna- prior count contract, would be enforceable contract “the be it argues that should tive, government pay- withholding of Secretary’s ... and under overpayments to deduct able of merely exercise ments would may services, have appears that petition initially estimated Although the $21,000. $15,000 post- revised estimate performed worth that Consumer equitable recoupment, doctrine of since tracting party those generally subject to the overpayments post-petition and the stay, automatic and since the court viewed part single were of a transaction. We prior see overpayments arising pre- as a debt arguments these not two as true “alterna- petition, it saw the issue as whether closely tives” but rather as related. government could stay. avoid the The Third Circuit thus considered whether the debtor provides The Medicare statute had agreement” “assumed its provider the amount due for Medicare services be whether Secretary “was entitled to re- calculated as follows: coup overpayments through Secretary periodically shall determine withholding post-petition [the debtor’s] reim- the amount paid which should be bursement.” Id. at 1075. And like the bank- part each ruptcy below, court the Third Circuit an- respect it, services furnished swered questions both these negative, paid, services shall be at concluding that its resolution best “harmon- such time or as Secretary times be- iz[ed]” the “poli- (but appropriate lieves not less often than cies.” at 1084. Id. monthly) to audit or settlement ... determined, the amounts so with nec- Circuit, We think the Third and the bank essary adjustments on previ- account of ruptcy below, impor overlooked the ously made overpayments *5 underpay- language tance of the Medicare statute. Those courts assumed of the substantive § ments. 42 1395g(a) U.S.C. (emphases added). post-petition that the amount due on quite clearly says gov- by regulations was to be determined ernment is liable particular for Medicare ser- detaffing provider normally gets how much a vices only the amount that paid,” “shall be Only then, for the services rendered. after and that amount consists of what the Secre- deterniination, inquire did the courts tary has paid” determined “should be for prior overpayments into whether the be deducted from the amount due. And in could services, those adjustments less for overpayments. court’s deci- completing inquiry, the courts looked to sion, which did not focus on the statute’s principles governing pre-assumption perfor language, actual had the effect eliminating executory by op mance of contracts debtors from the statute the words necessary “with erating 11. As we have ex adjustments on account of previously made plained, disagree premise we with the overpayments” when a seeks the the "amount due" should be calculated with protection of law. reference to the fee schedule set out in the The Third Circuit’s decision in In re Uni regulations. only That fee schedule deter versity Medical Center had the same effect. paid"; mines what "should be the amount In evaluating Secretary’s claim to deduct actually due under the statute is the amount prior overpayments from the amount due on paid"-which which "shall be includes "nec post-petition services, began its essary adjustments prior overpayments." for discussion an overview of Bankrupt case, then, In this the amount due is the cy stay,” Code’s “automatic see U.S.C. approximately $15,000Consumer "should be 362(a) § (1994), which the court rightly ex paid" post-petition rendered, less plained stops attempts collection in order “to "necessary" adjustment as-yet- for the replace the ‘unfair race to the courthouse’ unremitted To conclude oth with orderly liquidation that all treats credi erwise, think, Bankruptcy we would allowthe equally.” tors 973 F.2d at 1074 (quoting modify explicit statutory Code to scheme Nicolet, Inc., States 857 F.2d defining ilabifity particular services. Nei (3d Cir.1988)). The court noted that the trustee, bankruptcy court, ther the nor stay by automatic its terms applies to “all University the Third Circuit in In re Medi entities,” which “governmental includes authority prop cal Center has offered units.” (citing 362(a) Id. § 11 U.S.C. and Bankruptcy osition that the Code can act to 101(14)). § government Since as a con- explicit statutory override an limitation on particular Even under the Third Circuit's stricter government owes what standard,3 question is limitation That the service. we believe that Consumer's claim has government post-petition pre-petition by the amount defined services and the does overpayments qualify. (overpaid previously Unlike the Third Cir view, analysis. cuit, frequency not, alter the in our we do not think the appropriately audit defines the "transaction." simply by signifi The audit is the mechanism which analysis differ Nor our does re- determines whether and equitable doctrine under the cantly ought adjust subsequent peri how much it exempts a debt from coupment, particular provider. inextricably odic to a Its stay debt when automatic frequency Secretary, is determined gener claim. See post-petition up in the tied presumably (10th in the interests of an efficient Oil, ally re B&L In scheme; reimbursement it would seem to III, Cir.1986); C. Bushman Howard Benefits conceptualizes have little to do with how one Post-Petition and Burdens: Performance past overpayments the relation between and Contracts, 5 Bankr. Executory Unassumed compensation current due. It is the statute (1988). 341, 352-53 Dev. J. regulations which dictate the effectof the provider's participation audit on the in Medi exception recoupment Whether nothing snap care. An audit is more than a turns on whether particular ease applies in a monthly, annual, shot in time-whether it is claims respective and debtor’s the creditor’s is, view, or decennial in our irrelevant. “transaction,” what of the same arise out determining is not In whether the a “transaction” exactly constitutes post-petition thought services should be In re caselaw. In from the readily apparent transaction, key of as one to us is the Center, reject the court University Medical requires Medicare statute. Since it retary the Sec of “transac “open-ended” definition ed an *6 pre-petition to take into account over- that requirement a “stricter” in favor of tion” payments post-petition in order to calculate a integrat single out of a ... arise debts “both claim-as we have described above-Con inequitable be so that would ed transaction gress clearly rather indicated that it wanted that enjoy benefits of the for the debtor provider's a stream of services to be consid meeting obli its also without transaction purposes any ered one transaction for of at 1080-81. 973 F.2d gations.” government against claim the would have account reconcilia annual that concluded provider. "{t]he The Third Circuit said that defined above process described tion [pre-petition] overpayments ... cannot be Medi any single transaction under scope of provider's [the deemed advance thought that The Third Circuit Part A. care subsequent] services." Id. at 1081. That was reconciled account provider’s since observation, view, contrary in our is to mani month year, any particular each congressional sum, fest intent. In it does not thought apply to be ly payment should govern prior matter whether we consider the any that month rendered statutory ment's claim in terms of its sub “retro given rise to a had overpayment that liabffity equitable stantive or in terms of the could not payment adjustment.” The active recoupment analysis, doctrine. Under either payment[ ]” as an “advance construed be stay consequence. the automatic is of no Ac Thus, “post- provider’s future services. Harmon, 421, (9th cord In re 188 B.R. 425 of trans beginning were the petition services 1995). Cir. BAP future, but into the stretch that would actions that this conclusion contends The trustee trans [pre-petition] part of the they were not Medicare prioritizing of the effect will have F.2d at 1081-82. 973 actions.” Aquavella, 615 Compare United States 3. The trustee did not embrace the Third Circuit's Cir.1979) (2d (government’s claim F.2d 22 here, opting standard for a standard drawn from compulsory counter overpayments is a prior 13(a), Federal Rule of Civil Procedure compensation for provider’s claim a governs compulsory very claim to counterclaims-the ar- gunlent Secretary made, lost, rendered). but in In re University Medical Center. See 973 F.2d at 1080- 396

debts, at a result which is odds with the struction’ of the statute.” Consumer Fed’n Bankruptcy stay Code’s automatic as well as America and Public Dep’t Citizen v. U.S. of listing explicit Servs., with its of what debts have Health and Human of (D.C.Cir.1996) priority following bankruptcy petition. a (quoting See 1503 Chevron U.S.A 362(a), hold, § § Council, U.S.C. We do not Inc. v. Natural Resources Defense Inc., however, 837, 842-43, all Medicare claims for 467 U.S. 104 S.Ct. 2781-82, overpayments stay. (1984)). avoid the automatic A 81 L.Ed.2d 694 provider longer providing that is no Medicare Secretary’s regulation permits in- services, in Chapter whether or not it is is termediary, situation, in overpayment ei- subject remedy by to a collection defined ther to seek to recover the full extent of regulation. See 31 U.S.C. prior overpayments threatening suspend — 3701, 3711, (1994); §§ 3716-18 C.F.R. provider’s a participation in § purport 405.374. Our decision does not pay does not agreement to enter into an —or govern petition effect of a (which with provider is what occurred on a claim Medicare for reimbursement of here) whereby continues its ser- prior overpayments when the appropriate vices with deductions for the question provide does not continue to ser- past See C.F.R. post-petition. vices 405.373(a)(2). § sure, To be the latter alter- contract, native an executory forms but it is III. not to be treated as would post-petition apparent, analysis As is our is driven performance ordinary of an executory con- explicit statutory that, directive com- law; tract it is the statute pensation post-peti- for its services rendered which sets forth the govern- extent of the tion, paid” Consumer “shall be the amount obligation ment’s only imple- contract —the Secretary has determined it “should be timing ments the pace payment paid,” necessary adjustments “with on ac- obligation. If we were to oth- conclude previously count overpayments.” made erwise, Secretary might be forced to 1395g(a). § U.S.C. The amount Consumer insist on provider’s repayment immediate paid” $15,000. “should approximately of the full amount once then, paid,” What it “shall be turns on what government determined the overpaid —which adjustments “necessary.” are jeopardize could operation gram. We do not think government comports would have us de- *7 statute, sought “necessary” adjustment protect cide that to in the tax- this payer’s yet provide interest outstanding Secretary case is the entire balance on the with flexibility overpayments, $32,000. necessary operate 1981-82 Such a de program. duction would leave the owing ap trustee proximately $17,000, a debt which pre would us, On the record before say we cannot sumably be treated pre as a run-of-the-mill what the “necessary” is, deduction petition claim. The statute itself does not parties have not included in the docu- record really government’s mandate reading, mentation explaining exactly how much the It entirely however. is not clear what Con intermediary deducting was from Consum- gress or, by “necessary,” meant put periodic payments er’s to account for the way, necessary any another what is in given overpayments 1981-82 at the time Consumer may ease drawing involve a balance between petitioned remand, 11. On quickest

what repayment would be the to the bankruptcy court will be able to calculate the government, give and what would provid amount paid,” Consumer “shall since the er sufficient providing incentive to continue clarify can what it has deter- Congress services. As “spoken has not un mined paid,” “should’be parties and the can ambiguously precise hand,” to the issue at we supplement the record to allow the court to turn agency’s to “the ‘Step action under Two’ determine what “necessary.” deductions are Chevron, agency’s defer to the inter pretation represents ‘permissible con- [******] reversed, and court decision

The district CLEARINGHOUSE, bankruptcy court NATURAL GAS is remanded the case Petitioner, opinion. proceedings consistent ordered. So

FEDERAL ENERGY REGULATORY COMMISSION, Respondent, SENTELLE, Judge, concurring: Circuit Municipal Distributors join majority’s result and I with the concur Group, al., et Intervenors. However, I reasoning. would of its in much No. 96-1140. solely majority’s statu- on the base the result is, although I do not That tory rationale. Appeals, United States Court of doubt, agree I question free from think the District Columbia Circuit. in this case Argued University Jan. in In re Medi- Third Circuit (3rd Cir.1992), Center, F.2d 1065 cal March Decided authority that adequate without concluded modifies the Medicare bankruptcy code gov- defining the explicit scheme statute’s liability providers. to service

ernment’s bankruptcy court under any act of the

While in breach of the source code is in a sense obligation that gives rise to the law that extinguish- bankruptcy court reduces

es, imply that this does not depart empowered the code

court is obligation statutory definition of the

from the extent, I think To that

in the first instance. overreached, I bankruptcy court has reversal.

concur sufficient, I I first rationale is

As think the deciding sec- join majority not

do single constitutes a question as to what

ond I am not convinced

“transaction.” While incorrect, I am majority is neither necessary create a it is

convinced that might arise question which

precedent on that that one reser- With

in some other context.

vation, majority’s opinion and re- join I

sult.