is not disputed and the question for this court is whether the bankruptcy court below correctly applied the law to the facts so let's look at what's at issue here it is complicated as some medicare and medicaid rules are virtually impenetrable this case exemplifies that to some degree what the court below said was the doctrine of recruitment is satisfied because the countervailing obligations all arise as the ninth circuit has told us it must out of the same transaction or occurrence the ninth circuit's instructed us that the doctrine of recoupment is only satisfied if the obligations on both sides arise out of the same transaction occurrence and have a logical relationship and that logical relationship has to arise according to the ninth circuit out of the same aggregate set of operative facts the courts are required to analyze the essential facts of the various claims you have to look at the facts of the claims that are offset by the side by the here the state of california so let's look at the facts here first there's three different kinds of payments at issue one is the obligation from the hospital to the state that is called the hospital called insurance fee and it is a the hospital is obliged to pay it because of a single fact the operative underlying fact is that the hospital has a license it doesn't have to participate in the medical program it doesn't have to happen that everybody who's not exempt asked to pay out correct that's correct or under the obligation arises out of the existence of the hospital having a license no medical provider agreements require participation in medical programs not required and produce based in the hospital quality assurance v program let me let me put it slightly different aren't you kind of saying that one set simply subsumes the other i mean once there's a large set of people who have to pay  no logical relationship between the fee and for example the next kind of payment will that that's a calculation issue right now that's a different question you know let's keep those separate you're under the you have to look at the underlying facts that  rise to the liability that has to be offset so the underlying fact for the hospital quality assurance fee is the existence of a license if you have a license in the state of california you pay the fee now the obligations from the state to the hospital that were set off offset were two different kinds one is these direct payments that's the state's term and we'll use it here the direct payments are payments made by the state to the hospital for treatment of medicare beneficiaries they're paid according to a few schedule they're paid because the hospital treats medicare beneficiaries they are in fact these kind of obligations are what we normally see in health care bankruptcies they are the kinds of discussions that the ninth circuit's had t l c hospitals for example the second set of payments from the state that were offset were the supplemental payments under the hospital quality assurance fee program that calculations are complicated one of the primary factors is the number of medic kalb patient days in the hospital to figure it out but what is clear is that when you look at the underlying as the court has told us the underlying fa aggregate set of operative facts that give rise to each liability they're not the same the fee is paid because you have a license the direct payments are paid because you treat medicare beneficiaries and are calculated off of a few schedule and the supplemental payments are based on a completely different set of calculations under the quality assurance the previous see if i'm with you so far as part of what you're saying that there may be some relationship between the supplemental payments from the age group and there's none the fee and supplemental payments come out of the same underlying statute the hospital quality as you know if it were not matter but that anybody break down what that what those numbers work with tween the supplemental fee and the direct way it didn't matter at this point doesn't matter anyway ok but i believe that there is significantly more in the hospital quality sure the supplemental payment than there was on that oh really ok i think it's more ok can i ask you about the  fee i don't want you try to explain the formula would tell me a second i want to her the one of the primary determinants one of the variables that primarily drive the amount of the age to a fee that hospitals pay with is the fact that it doesn't matter for purposes of what's the underlying of then giving rise to liability when you look at the operative claim what's it based on it's based on one determining factor and that is the existence of the hospital fly since the rest is is as you described it you're on a calculation issue and that isn't what this ninth circuit has told us when you look at cases like t l c hospitals they didn't go through those issues when the ninth circuit in t l c hospital said that the federal government was entitled to recruitment first of all the facts are much better for the government there was over payments for patient care here we call find a logical relationship we can find it here and in fact really easily because what happens is that you're paying on an estimated basis and you can't true it up every day so you necessarily have to turn up at the end of a rational accounting period and because that true up happens you know will this is an easy case we can find at the same logical relationship was there anything in that case suborn if we didn't have these facts we'd never get there well you know your honor they did not there was i mean there's no rule that says gee without this we wouldn't be talking about this if they what they applied they monies under this program and not paying your girl and i think that's what what what sort of driving what drugs underlying core diane i understand your argument which is it's a more sophisticated we also know that because recruitment is a non statutory exception of the general principles of bankruptcy law courts have repeatedly said that it should be applied loosely it should not be broadly expanded and while the bankruptcy  said repeated the ninth circuit's language saying that the doctrine should be the logical relationship test should be applied liberally and flexibly it also then ignored the ninth circuit's statement t l c hospitals  why isn't it why is it fair or not fair in the concent to this case i mean is or is there something unfair about as i understand it you were paid you provide services for which you were paid no your honor i mean that's the point to recruitment we provided it to talk about fairness this hospital provided care and the record i don't think is in dispute that it's a much was was a much needed hospital poor community and i think the point was the sound of her cooking was twenty percent of what was patients come from government pay or it's like medicare medicaid so a twenty percent reduction in a country where the average hospital profit margin if there is one is less than one percent if you take twenty percent out of eighty percent of your patient base you're in the red for patient care provided by the hospital to medicare beneficiaries if the court wants to discuss where the fairness issue is i would suggest it is grossly unfair to the hospital and its creditors now to allow the state to self help a itself for medical care that there's no dispute the medical care was provided ok i have a maybe this will come up more in the rebuttal i have a philosophy problem with this it's not your right this is this is not in the statute it's an equitable doctrine it's not really written down anywhere in courts try to apply it so we get to this problem are we talking about the essence of something or the attributes of something and i think a lot of what we're talking about here is the attributes of something which is why t l c only helps me so far if you know in this you have to try to delve into the underlying facts of the obligations that were offset here and decide do they have a logical relationship with the ninth circuit tells us is that means do they arise out of the same aggregate set of  facts and if they don't know then recoupment should not be allowed that's the problem here now can console you not three minutes left but i want you to ask just stupid good question why does this arise under this kind of motion supposed to a motion to assume the contract or something like that well first of all your honor we're i'm not conceding this is a contract but the issue came up late in the case because there was efforts to sell the hospital that eventually for lots of reasons proved unsuccessful so the hospital was closed and then sold closed that resulted in a different appeal to the district court but it came up late because while until the resolution of the hospital for grounds and the statues the debtor had to pay a quality quarterly quality assurance fees to this day through the department that is set forth in welfare institutions called one to pay the quality assurance fees the department we prove the money the four point three million dollars is the amount of quality assurance fees the debtor failed to pay post petition the statutory requirement was also the debtor fail to pay the quality assurance fees or the debt every fees to pay that fee the debtor would never have become a medical provider my client that the kind of health care services were never have allowed the debtor to become a medical provider to we see medicare payments so those two things go hand in hand but let me go let me go take a step back and show how the fees and the payments are related the fees are paid by the hospitals and then matching federal matching dollars after the federal matching the payments are made to the hospitals b f through gran to public hospitals were supplementals payments to the private hospitals so that is a one stream flow of funds the fees are necessary order to statutory framework that is what california legislature require the hospitals that pay the fee so let's look at the t l c let me let me let me just ask you a quick question here i mean basically what you're saying you're saying two things on the contracts i did was a contract remedy that they acknowledged right back to well i mean a sell off as a contractor may they acknowledge too but so what i mean you can't do a sell off so what is it other than you saying there's this gating issue they never would have been allowed in we don't have any evidence of what and who wa the connection between the funds q a fees and the payments that the stander to determine whether or not there is a valid recruitment and under the statutory framework under the payment system or med account there is a relationship between the fees coming in and the payments to go out to the hospitals that's just all i'm saying is that's a totally different question from whether the contract says you can deduct something that's a contract going to th people who agreed to and that could have been a sell off that's a different question from what the relationship is what i'm trying to show that there is a relationship based upon the funding system medica agree to mate the quality assurance fee paid so this is why this why this is valid based upon the statutory requirement and also based upon the trash back in the form of medical payments is that true i mean they pointed you to provide services and payments long after they stopped making the payments so apparently it wasn't a condition that you enforced they continued to provide services with that they knew without paying the cat fee they had to provide is now going on for months and months they provide the services and then they bill the department partition part of not been paid by the time the bankruptcy case was filed so there must have been a period of time when medicare was not fully deducting as much as it could up to kind of keep up right i mean otherwise there would be that pre positioned ye go to the federal government and say we've got this money match it yes and then you turn around and give it back to the hospitals yes so this is just a device to increase the amount of federal contributions and that device increased federal contribution so that there would be money to make payments to the hospitals he increased additional payments to the hospital there is somebody but it's about why there's a relationship between the fees on the end of the payments to go out and also redistributes among hospitals right because we wouldn't they wouldn't have been in a contract but for promising to do x well everybody's going to promise to do x i mean is there a scenario in which somebody hasn't paid an h q a fee and they apply for medical status and you say no you can't do it because otherwise what happens is they just don't perform under a contract and after the fact you say well you haven't formed on the contract when we recoup or sell off or whatever but it's not really a gating it's not really treated like a gating issue and that's what you're trying to present to me and other no i'm not sorry if i this is not really getting was owed it was paid on an estimated basis which of course is never entirely accurate and then there was a true up and the ninth circuit said look at the same money and adjustment so if this is going in they didn't say it was an easy case but it was a pretty easy case you're telling me here that money from different sources but it's all kind of the same thing that's a markedly different fact pattern for me from t l c that may not mean that it's outside the standard but it's very different it might be recoupment might be a set off that's what we're trying to figure out here and the difference i think is that that you know we could my case it's not that a money to be and b and therefore b gets to set off a debt because there's there has to be some kind of mutuality that get their rest to be some kind of it equitable reason for b to keep the money because a hasn't done something that they were supposed to do and that's so that's the question that i'm trying to get to get council to address i want you to address is why is this in equitable why is it unfair that this hospital this critical care provider get provided the services to these people they did provide those services today why should an equitable for them to get compensated for that would be equitable for the very reason that hospital needs to pay fees into the system so the state could get money to pay the hospitals for the services provided if every hospital be fused has to pay the quality assurance fees the state will have no money no matching dollars to pay the medical help payments so the entire medical have to assess this against other hospitals in order to generate the matching funds for the fence the the corps the quality assurance fees increases the federal tap into so why do we walk away with this pot of money when it's fairly have this readily available and take away money for other welfare programs  hospitals out there doesn't know we don't want to pay quality or since these although we're medical providers where he want to get payments but we don't want to fulfill our obligation to the system we only want to get a benefit from the system thank of course that this is the only civilized country in which bankruptcy is an option for people for medical debt your honor in every other civilized country that doesn't happen i spent twenty plus years specializing in health care bankruptcies talk about the issues you just heard because they repeat what the bankruptcy court did wrong below first the state argues the statutes provide for recruitment therefore the statutes provides a logical relationship if that were true then every government basically has a get out of jail free card because every government programs have these off separation the tax division would be able to argue recoupment if you held a tax refund to pay the department of agriculture for a payment a prior overpayment agricultural program that's the same thing the bankruptcy court said below the bankruptcy court below said that the the medicare provider supreme creates the sufficient logical relationship the statute creates a sufficient logical relationship neither of those are true if you look at the court in t l c hospitals they could have stopped where the bankruptcy court and the state want you to stop they could have said the medicare provide the medicare statute provides for these offsets therefore they are recoupment because the statutes automatically establish a logical relationship that isn't what the ninth circuit court did you didn't t l c and shouldn't be allowed here the next argument you heard from the state it repeats what the bankruptcy court did wrong below it says the agreement the contract is you referred to the that agreement has a provision that allows the parties to offset so therefore it automatically is recruitment because their existence of an agreement that creates a logical relationship we know that's not true because again in t l c hospitals the ninth circuit  at the existence of the medicare providers agreement it provides the same rights to the government that the state exercised here but the ninth circuit didn't say that was sufficient and it isn't sufficient because if it was every contract every commercial contract that allowed for a party to offset that with then tell the court it is automatically recoupment it's not set off it's automatically recoupment because a provision in a contract or gre of offset coming out of from the other direction this is not your everyday contracting part of the federal in the city governments who have a lot of public policies at stake is it anathema for them to say we look at this this way we look at this as one big package so therefore we  benefit they're contracting for public policy right that's correct you know but that isn't what the courts tell us that that's that is what the bankruptcy court said below what the state argued this morning that because the state needs the money for a lot of good social purposes it automatically qualifies as doctrine of recruitment that isn't right and you know that's not right the motive of the party or the financial purposes of the party seeking to conduct the offset can