7th Circuit stops collection of hospital assessment fee

August 28, 2015

St. Catherine Hospital was successful in getting a reprieve from a dispute with the state of Indiana over the hospital assessment fee.   

The Indiana Family and Social Services Agency had determined that the hospital owed a HAF of $1.11 million for fiscal year 2012 and roughly the same for fiscal year 2013. When St. Catherine did not pay, the state agency began withholding Medicaid reimbursements.

In June 2012, the hospital filed a voluntary petition for relief under Chapter 11 of the bankruptcy code. The FSSA continued its withholding and, in July 2012, gave St. Catherine a bill for fiscal year 2013 totaling $1.13 million. When the medical facility did not pay, the state began withholding additional reimbursements.

All told, FSSA withheld $989,783.78 to cover the HAF for fiscal year 2013.

After the bankruptcy court granted its motion for preliminary injunction, St. Catherine sought to recover $615,912.64 withheld for fiscal year 2012 and the $989,738.78 withheld for fiscal year 2013.

The FSSA appealed and the U.S. District Court for the Southern District of Indiana reversed the Bankruptcy Court’s judgment as to the fee imposed for fiscal year 2013, deeming it a post-petition claim.

The 7th Circuit reversed the District Court in Saint Catherine Hospital of Indiana, LLC v. Indiana Family and Social Services Administration, 14-2420 & 14-2546.

The Chicago panel found the 2013 HAF was assessed for St. Catherine’s cost reports from fiscal year 2011 and other financial information on file as of Feb. 28, 2012. All of these activities occurred before the hospital filed for bankruptcy. Therefore, the 7th Circuit determined all of that conduct occurred before the filing of the bankruptcy petition so the claim is subject to the automatic stay.

“Thus, assuming FSSA’s reading of Provider Bulletin BT201217 is accurate, it would simply mean that had St. Catherine ceased to be an eligible hospital prior to the beginning of the fiscal year 2013, a contingency for its 2013 HAF liability would not have been met,” Judge Ann Claire Williams wrote for the court. “It would not mean that the underlying claim did not already exist.”


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