United States v. Consumer Health Services of America

Consumer Health Services of America (Consumer) (defendant) provided home-healthcare services under a Medicare provider agreement. Consumer received interim reimbursement payments for services rendered, which were then audited and adjusted annually for overpayment or underpayment by Medicare. In 1984, Medicare determined that Consumer had been overpaid by approximately $81,000. Consumer entered into a liquidation-of-the-overpayment agreement with Medicare (plaintiff), pursuant to which Medicare deducted a portion of Consumer’s interim reimbursement payments to cover the overpayment debt. In 1987, Consumer filed for Chapter 11 bankruptcy. Consumer continued to provide Medicare services and continued to receive interim reimbursement payments during bankruptcy proceedings; however, concerned about violating the bankruptcy proceeding’s automatic stay on collecting against pre-bankruptcy-petition debts, Medicare stopped taking deductions from Consumer’s ongoing interim payments to cover Consumer’s outstanding overpayment debt. When Consumer submitted reimbursement claims for services rendered during the bankruptcy proceeding, Medicare moved for an affirmation of its right to deduct the outstanding overpayment debt from the amount owed to Consumer for services rendered. The bankruptcy court denied Medicare’s motion, ruling that the automatic stay on collecting against pre-petition debts applied to Consumer’s pre-petition overpayment debt. On appeal, the district court affirmed. Medicare appealed to the United States Supreme Court, arguing that (1) Medicare’s liability to a provider for services rendered must be calculated in consideration of prior overpayments made to the provider; and (2) equitable recoupment allows the government to recover Consumer’s pre-petition overpayment debts from post-petition services rendered because the pre-petition debt and the post-petition services were part of the same transaction.