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Indiana Family and Social Services Administration v. Saint Catherine Hospital of Indiana, LLC

United States District Court, S.D. Indiana, New Albany Division

May 30, 2014




This cause is before the Court on appeal from the decision of the United States Bankruptcy Court for the Southern District of Indiana, which entered summary judgment for Appellee Saint Catherine on September 19, 2013. For the reasons set forth below, the decision of the bankruptcy court is AFFIRMED in part and REVERSED in part.

Factual and Procedural Background


The facts of this case, as the Bankruptcy Judge noted, are undisputed by the parties. Docket No. 21 at 6.[1] Appellee Saint Catherine Hospital of Indiana ("Saint Catherine") is a regional health care facility in Charlestown, Indiana. The hospital is classified as a general acute care facility that treats some Medicaid patients; according to the testimony of its President and CEO Merlyn Knapp, however, Saint Catherine specializes in senior care, and the majority of its patients are insured through Medicare. Docket No. 19 at 4-5. Like other hospitals in the state, Saint Catherine receives reimbursement from the state and federal governments for its treatment of Medicaid patients; the United States Department of Health and Human Services Center for Medicare and Medicaid Services (CMS) provides two dollars of funding for every one dollar provided by the state government. Appellee's Br. 4. Appellant Indiana Family and Social Services Administration ("FSSA") administers Indiana's Medicaid Program.

On April 29, 2011, the Indiana General Assembly adopted Public Law 229, 2011, Section 281 ("Section 281"), a measure designed to facilitate increased reimbursement for hospital care to Medicaid patients, to be paid for by an assessment known as the Hospital Assessment Fee ("HAF") levied on Indiana hospitals. Appellant's Br. 3. A committee appointed by the legislature determined that the total HAF fund must reach $559, 100, 000 for inpatient services and $87, 676, 084 for outpatient services. See Docket No. 26 at 2. Each individual hospital's share of the fee was determined by an Indianapolis auditing firm on a pro rata basis, employing a hospital's patient data from the period May 1, 2010 through April 30, 2011. Docket No. 39 at 11. The "fee period" for the assessment on hospitals spanned from July 1, 2011 to June 30, 2013 (fiscal years 2012 and 2013), but collection of the HAF for fiscal year 2012 was delayed until the program received the required approval from the U.S. Department of Health and Human Services. The federal government issued its approval on May 21, 2012; thereafter FSSA began assessing the HAF on hospitals, retroactively dated to July 1, 2011. See Docket No. 26 Ex. A; Docket No. 29 at 3. On May 22, 2012, FSSA issued Provider Bulletin BT201217, which informed Indiana hospitals of the HAF collection process and announced the timeline that would govern the assessments and FSSA's collection methods. See Docket No. 26 Ex. B.[2]

As an acute care hospital serving Medicaid patients pursuant to Indiana Code § 16-21-2, Saint Catherine was eligible for HAF assessments. The committee determined that Saint Catherine owed $1, 107, 038.51 for fiscal year 2012, and roughly the same amount for fiscal year 2013. See Appellant's Br. 4 (citing Docket No. 1 Ex. 1). FSSA sent Saint Catherine the bill for its fiscal year 2012 HAF on May 29, 2012. Docket No. 1 at ¶ 10. Shortly thereafter, FSSA commenced withholdings from its Medicaid reimbursements to Saint Catherine in order to recover the approximately $1.1 Million that Saint Catherine owed retroactive to July 1, 2011. On June 5 and June 12, 2012, FSSA withheld from Saint Catherine a total of $781, 041.30. Docket No. 12 (Joint Pre-Trial Statement) at 6, ¶¶ 10-11. FSSA subsequently remitted a portion of this amount, leaving the total net withholdings on June 5 and June 12 at $615, 912.64.[3]

Saint Catherine filed for Chapter 11 bankruptcy protection on June 19, 2012. FSSA continued its withholdings in service of the fiscal year 2012 HAF debt for two more weeks: it withheld $53, 470.57 on June 19 and $105, 582.67 on June 26. Docket No. 29 at 4. The withholdings for the 2012 HAF that occurred after Saint Catherine petitioned for bankruptcy thus totaled $159, 053.24. Id.

On July 28, 2012, FSSA issued Saint Catherine its $1, 127, 296.44 HAF for fiscal year 2013-a period spanning July 1, 2012 to June 30, 2013. Appellant's Br. 5. Saint Catherine did not pay the fee during fiscal year 2012, and after July 1, 2013, FSSA began withholding sums from its regular Medicaid reimbursements in satisfaction of this debt. All told, FSSA withheld $989, 738.78 in satisfaction of the fiscal year 2013 HAF; all of these withholdings were made after Saint Catherine had filed its bankruptcy petition. Docket No. 29 at 5.

Procedural History

Saint Catherine filed an Adversary Complaint against FSSA on March 14, 2013, seeking an injunction against further collection of the HAF and recovery of sums withheld by FSSA both before and after the Chapter 11 bankruptcy position. After oral argument, Bankruptcy Judge Basil H. Lorch III of our court granted Saint Catherine's motion for a preliminary injunction and issued an order enforcing the automatic post-petition stay. See Docket No. 21. Saint Catherine then moved for summary judgment on July 5, 2013, seeking recovery of the $615, 912.64 withheld by FSSA before its bankruptcy petition in service of the fiscal year 2012 HAF, the $159, 053.24 withheld in service of the fiscal year 2012 HAF after the bankruptcy petition, and the $989, 738.78 withheld post-petition in service of the fiscal year 2013 HAF. Appellant's Br. 2.

On September 19, 2013, the Bankruptcy Court granted Saint Catherine summary judgment on all of its claims. See Docket No. 29. The Court ruled that the pre-petition withholdings constituted preference payments under 11 U.S.C. § 547 and were not subject to the exemption for payments made in the "ordinary course of business." Docket No. 29 at 6-7. As to the post-petition withholdings, the Court concluded that all of them-for the 2012 and 2013 HAFs alike-constituted "act[s] to collect, assess, or recover a claim against the debtor that arose before the commencement of the case" pursuant to 11 U.S.C. § 362(a)(6). Id. at 9. Lastly, the Court rejected FSSA's argument that the post-petition withholdings were "recoupment" exempt from the operation of Section 362's automatic stay, and it ordered FSSA to repay Saint Catherine the full amount it had withheld. Id. at 10-11. FSSA filed a timely notice of appeal from the Bankruptcy Court's final judgment on October 3, 2013. Docket No. 30.

Legal Analysis

Standard of ...

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