Tulare hospital district keeps state from staking $5.6m claim in bankruptcy court

The Tulare Local Healthcare District has successfully prevented the California Department of Healthcare Services from making a $5.6m claim in the district’s bankruptcy proceedings.

The district filed Chapter 9 bankruptcy on September 30, 2017 and had its bankruptcy plan approved on August 16, 2019. That plan is the district’s blueprint for how it would repay portions, or entire, debts to its different creditors.

The state’s department sought $5.6m to reconcile what it stated were overpayments of “supplemental reimbursement[s] under Medi-Cal,” but initially filed a claim with no amount. State officials came back after a deadline to file claims, and after the district’s bankruptcy plan was approved, to fill that claim in with a $5.6m amount.

U.S. Bankruptcy Court Judge Rene Lastreto II barred the state from lodging its $5.6m claim in the case in a decision on April 27, 2021.

“The ruling means that the [department’s] claim will not dilute what other creditors who timely filed their claims will receive under the plan,” Sandra Ormonde, the Tulare Local Healthcare District CEO said.

The Medi-Cal reimbursements that state officials sought to claw back were specifically for hospitals operated by cities, counties, or healthcare districts, meant for costs that are “in excess of the payments the hospital receives for outpatient hospital services from any source of Medi-Cal reimbursement.”

The state calculates any amount outstanding to, or due from, those entities based on reports provided by the hospitals. At the time the state filed its open-ended claim — on April 6, 2018 — a state worker wrote in a declaration at the time that reconciliations were still ongoing for records as far back as 2002. The deadline to file a claim was April 10, 2018.

“Final reconciliations [were] still pending for [the Tulare Local Healthcare District] for all program years beginning in State Fiscal Year 2002-03 until the bankruptcy filing in 2017,” the declaration read.

District officials stated that through the regular course of business, the state had been provided with the reports they required — any delay in the process was not caused by a lack of timeliness on Tulare’s part.

The judge agreed.

“DHCS reported no final reconciliations to District for at least thirteen fiscal years.  This delay occurred though it is undisputed District timely provided cost reports for all those fiscal years.  This tenacious reticence continued after the Chapter 9 case was filed.  DHCS did not file their first motion to amend the claim until two years after the claim deadline,” Lastreto wrote.

Allowing the state to fill in the proverbial blanks after multiple deadlines, when it had all the data necessary to reach its $5.6m amount before those deadlines, would prejudice the district and other creditors who met those deadlines, Lastreto wrote in his decision.

In Depth: Tulare Regional Medical Center

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