A debtor healthcare provider without significant resources is unlikely to survive any prolonged disagreement with private or government payors. This challenge may be exacerbated by a debtors’ bankruptcy filing if a payor may refuses to make certain payments owed to the debtor. Therefore, whether a payors’ withholding of funds owed to a debtor hospital is considered an impermissible setoff or a permissible equitable recoupment is crucial.
This memorandum will explore whether a Medicaid/Medicare payor can withhold payments owed to a debtor, or whether such withholding violates the automatic stay. Part A will discuss withholding in healthcare bankruptcy scenarios generally. Part B will compare and contrast setoff and recoupment. Part C will analyze the two different tests that circuits use in determining whether the “same transaction” requirement of recoupment is satisfied.