Task: songer_stpolicy

What follows is an opinion from a United States Court of Appeals. You will be asked a question pertaining to issues that may appear in any civil law cases including civil government, civil private, and diversity cases. The issue is: "Did the interpretation of state or local law, executive order, administrative regulation, doctrine, or rule of procedure by the court favor the appellant?" Answer the question based on the directionality of the appeals court decision. If the court discussed the issue in its opinion and answered the related question in the affirmative, answer "Yes". If the issue was discussed and the opinion answered the question negatively, answer "No". If the opinion considered the question but gave a mixed answer, supporting the respondent in part and supporting the appellant in part, answer "Mixed answer". If the opinion does not discuss the issue, or notes that a particular issue was raised by one of the litigants but the court dismissed the issue as frivolous or trivial or not worthy of discussion for some other reason, answer "Issue not discussed". If the opinion considered the question but gave a "mixed" answer, supporting the respondent in part and supporting the appellant in part (or if two issues treated separately by the court both fell within the area covered by one question and the court answered one question affirmatively and one negatively), answer "Mixed answer". If the opinion either did not consider or discuss the issue at all or if the opinion indicates that this issue was not worthy of consideration by the court of appeals even though it was discussed by the lower court or was raised in one of the briefs, answer "Issue not discussed".

OPINION OF THE COURT
ROTH, Circuit Judge:
These consolidated cross-appeals by plaintiffs, University Medical Center (“UMC”) and the Official Creditors’ Committee, and defendant Louis W. Sullivan, Secretary of Health and Human Services, require us to delineate the appropriate relationship between a Medicare provider and the Department of Health and Human Services (“HHS” or “the Department”) from the time of the provider’s bankruptcy petition filing until its cessation of business — a relationship shaped by the intersection of the Medicare Act and the Bankruptcy Code. Specifically, UMC raises the question of whether HHS, seeking to recover pre-petition Medicare provider reimbursement overpayments, may withhold payments for Medicare services rendered post-petition without controverting the Bankruptcy Code’s automatic stay. The Secretary appeals the order of the district court, affirming the bankruptcy court’s finding that HHS violated the automatic stay by withholding such payments. UMC has filed a cross-appeal based on the district court’s reversal of the bankruptcy court’s award of attorneys’ fees and costs to UMC. The district court'found that the Department’s violation of the automatic stay was not “willful,” as is required for such an award under Bankruptcy Code section 362(h).
We agree with the district court that the Secretary’s withholding of UMC’s Medicare reimbursement, due for services rendered post-petition, in an attempt to recover pre-petition Medicare overpayments, violated the Bankruptcy Code’s automatic stay. We further find that this violation was not willful as required for a section 362(h) award of attorneys’ fees and costs. We will, therefore, affirm.
I. STATUTORY AND REGULATORY BACKGROUND
UMC was a participant in the Medicare program, 42 U.S.C. §§ 1395-1395cec (1988 & Supp. I 1989), which provides health insurance for the elderly and disabled. As a general care hospital, UMC serviced Medicare beneficiaries pursuant to a “provider agreement” filed with HHS. This agreement, executed in 1966 between the Broad Street Hospital and the Secretary of Health, Education and Welfare, the predecessors in interest to UMC and HHS respectively, is similar to provider agreements entered into by hospitals and health care facilities across the country. Through executing the provider agreement, Broad Street Hospital became eligible to receive reimbursement payments, in accordance with the terms of the Medicare statute, for services rendered to Medicare beneficiaries. In exchange, the hospital agreed to charge these beneficiaries only as allowed by statute and to comply with certain civil rights laws in providing these services.
Medicare reimbursement of inpatient hospital services is governed by the Prospective Payment System (“PPS”). Under PPS, each discharged patient is classified into a Diagnosis Related Group (“DRG”). Providers are paid most reimbursable expenses pursuant to predetermined, national and regional rates that are fixed for each DRG. See 42 U.S.C. § 1395ww(d). HHS makes these reimbursements through fiscal intermediaries, such as the Blue Cross Association. To insure that providers are paid promptly, the Medicare statute requires that payments be made at least monthly and otherwise at the discretion of HHS. 42 U.S.C. § 1395g(a). Under the usual reimbursement procedure, periodic interim payments, which are estimates of actual expenditures, are made by the intermediary upon application of a provider at the discharge of each Medicare patient. Providers are also entitled to receive additional estimated payments based on their actual costs for capital expenses, outpatient services, and certain other costs. 42 C.F.R. § 412.113 (1991). Actual expenditures of each provider are audited by the intermediary annually to determine whether the provider has been over or underpaid for that cost-year. HHS then adjusts the provider’s subsequent Medicare reimbursement payments to account for prior over or underpayments. 42 U.S.C. § 1395g(a). Such adjustments are mandated by Medicare’s PPS.
. II. FACTS AND PROCEDURAL HISTORY
On January 1, 1988, UMC filed a voluntary petition under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 101-1330 (1988 & Supp. II 1990). After this filing UMC continued to serve Medicare patients as a debtor-in-possession. One week later, on January 8, 1988, Blue Cross of Greater Philadelphia (“Blue Cross”), UMC’s fiscal intermediary, informed UMC by letter that the hospital had been overpaid $276,042 for Medicare services provided in 1985. This letter stated that Blue Cross would begin 100% withholding of interim reimbursement payments unless UMC made repayment or agreed to a long-term repayment schedule. UMC did not respond. On February 8, 1988, Blue Cross sent a second letter, again stating that 100% withholding of interim payments would begin unless other arrangements for return of the overpayment were made. Blue Cross subsequently withheld a $58,000 payment on February 18.
Prompted by this action, UMC officials met with a Blue Cross representative and orally agreed to provide Blue Cross with documentation detailing UMC’s need for an extended repayment schedule. In the interim, UMC agreed to repay the 1985 overpayment at a rate of $15,000 per month over a period of 18 months. The UMC officials apparently consented to this arrangement in order to maintain the hospital’s flow of Medicare reimbursement, which it required to meet its payroll obligations. On March 4, 1988, UMC remitted $15,000 to Blue Cross, after which Blue Cross released the $58,000 it had withheld. However, UMC neither sought court approval of this arrangement nor advised any other interested party, including the Creditors’ Committee, of this repayment plan. UMC failed to supply Blue Cross with the documentation needed to formalize the repayment agreement. On March 28, 1988, Blue Cross announced that it would resume 100% withholding. Three days later, UMC closed its doors and ceased doing business.
HHS, through Blue Cross, withheld from UMC a total of over $312,000 in reimbursement for Medicare services provided by UMC after it filed its petition in bankruptcy. Meanwhile, Blue Cross determined that, in addition to the 1985 overpayment, UMC had been overpaid by $470,894 in 1986 and by $65,447 in 1987.
On June 17, 1988, UMC brought an adversary proceeding against HHS in the Bankruptcy Court for the Eastern District of Pennsylvania, alleging that the Department’s actions, in demanding payment for pre-petition Medicare overpayments and in withholding post-petition reimbursement to recover the amounts overpaid, violated the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. UMC requested turnover of these funds, pursuant to Bankruptcy Code sections 542 and 543, and an award of attorneys’ fees and costs under Code section 362(h). HHS answered by claiming the affirmative defense of contractual recoupment.'On July 8, 1988, HHS filed a separate motion for relief from the automatic stay.
The bankruptcy court held that HHS had violated the Bankruptcy Code’s automatic stay provision. This conclusion was based upon the court’s finding that UMC had not assumed its provider agreement and that as a consequence the Department’s demand that UMC repay the pre-petition over-payments as a condition of receiving future Medicare reimbursement constituted the type of governmental discrimination against debtors prohibited by the anti-discrimination provision of the Bankruptcy code, 11 U.S.C. § 525(a). In re University Medical Center, 93 B.R. 412, 416-417 (Bankr.E.D.Pa.1988). In reaching this decision, the bankruptcy judge relied heavily on his opinion in an unrelated case, In re St. Mary Hospital, 89 B.R. 503 (Bankr.E.D.Pa.1988), which was decided while the present action was pending. Because the bankruptcy court held the withholding to be impermissible under section 525(a), it also refused to grant relief from the stay under 11 U.S.C. § 362(d). and ordered HHS both to return the $15,000 payment made by UMC in accord with the tentative repayment agreement and to pay UMC the amount due for post-petition Medicare services. University Medical Center, 93 B.R. at 417-18. In addition, the court awarded UMC prejudgment interest, attorneys' fees, and costs, on the ground that the Department’s decision to press this litigation after that court’s decision in St. Mary Hospital amounted to a willful violation of the automatic stay. Id. at 418-19.
HHS appealed this decision to the United States District Court for the Eastern District of Pennsylvania. In a published opinion, the district court affirmed the holding that HHS had violated the automatic stay but disavowed the reasoning of the bankruptcy court, adjudging the record inadequate to support a finding of discrimination in violation of Bankruptcy Code section 525(a). University Medical Center v. Sullivan, 122 B.R. 919 (E.D.Pa.1990). Instead, the district court anchored its af-firmance on its conclusions (1) that UMC had not assumed the provider agreement because, as an executory contract, assumption of that' agreement had to receive formal court approval, (2) that the Department’s withholding did not fall within the equitable doctrine of recoupment because the pre-petition overpayments arose from different transactions than did the post-petition Medicare reimbursement, and (3) that equity controls the relationship between debtor and creditor if, during the period between a bankruptcy filing and the assumption or rejection of an executory contract, performance under the contract continues. However, the district court reversed the bankruptcy court’s award of attorneys’ fees and costs to UMC, finding that the Department’s violation of the automatic stay was not willful as is required for such an award made under Bankruptcy Code section 362(h). The district court also denied the parties’ motions for reconsideration. University Medical Center v. Sullivan, 125 B.R. 121 (E.D.Pa.1991). Judgment was stayed pending appeal.
Both parties filed timely notices of appeal to this court. We review the district court’s decision under the same standards employed by the district court in reviewing the bankruptcy court’s decision. Thus our review of the district court’s conclusions of law is plenary. We review findings of fact under the clearly erroneous standard. In re Nelson Co., 959 F.2d 1260, 1263 (3d Cir.1992).
III. JURISDICTION
The Secretary now takes issue with our ability to exercise jurisdiction over this case and contends that neither the bankruptcy court nor the district court properly had jurisdiction over UMC’s claims. In particular, he contends that UMC’s claims arise under the Medicare statute and points to 42 U.S.C. § 405(h), made applicable to Medicare claims by 42 U.S.C. § 1395Ü, which precludes judicial review of any “claim arising under” the Medicare statute prior to the exhaustion of administrative remedies. Because we agree with UMC that the Bankruptcy Code supplies an independent basis for jurisdiction in this case, we reject the Secretary’s arguments and find that-the district and bankruptcy courts properly had jurisdiction under 28 U.S.C. §§ 157, 158 and 1334 and that we may properly exercise jurisdiction over this appeal under 28 U.S.C. §§ 158(d) and 1291.
The Medicare Act establishes an administrative channel of redress for health care providers dissatisfied with their reimbursement determinations. If a provider disputes an intermediary’s final determination of the reimbursement due for a fiscal year and the amount, in controversy exceeds $10,000, the provider can, within 180 days, request a hearing before the Provider Reimbursement Review Board. 42 U.S.C. § 1395oo (a). The Board’s decision is then subject to review by the Secretary. After exhausting these procedures, a provider may seek judicial review of the final agency determination. 42 U.S.C. § 1395oo (f)(1). See, e.g., Abington Memorial Hosp. v. Heckler, 750 F.2d 242, 244 (3d Cir.1984), cert. denied, 474 U.S. 863, 106 S.Ct. 180, 88 L.Ed.2d 149 (1985). Prior to the exhaustion of this administrative channel of review, no court has jurisdiction over claims arising under the Medicare Act.
Neither party contends that these administrative procedures were in fact exhausted in this case. Our ability to exercise jurisdiction over this appeal thus turns on whether UMC’s claims actually arise under the Medicare statute. The Supreme Court has construed the “claim arising under” language of section 405(h) broadly to encompass any claims in which “both the standing and the substantive basis for the presentation” of the claims is the Medicare Act. Heckler v. Ringer, 466 U.S. 602, 615, 104 S.Ct. 2013, 2022, 80 L.Ed.2d 622 (1984) (quoting Weinberger v. Salfi, 422 U.S. 749, 760-61, 95 S.Ct. 2457, 2464-65, 45 L.Ed.2d 522 (1975)). According to the Secretary, both requirements are satisfied in this case: the complaint seeks a money judgment in payment for health care services provided by UMC to Medicare beneficiaries and the reimbursement sought by UMC conforms to the rates established by the Medicare Act.
UMC responds that the administrative review channel set forth in the Medicare Act and regulations is available only for claims brought by a provider when dissatisfied with final reimbursement determinations of the fiscal intermediary. See 42 C.F.R. § 405.1841 (1991) (a request for a Board hearing “must identify the aspects of the determination with which the provider is dissatisfied, explain why the provider believes the determination is incorrect in such particulars, and be accompanied by any documenting evidence the provider considers necessary to support its position”). This case, however, does not raise that type of claim, because the parties do not dispute the amount of reimbursement due for any cost reporting period. In fact, the parties stipulated both to the amounts of the over-payments made to UMC and to the separate pursuit of any substantive dispute concerning these amounts through the normal administrative processes set forth in the Medicare statute. Due to the fact that its adversary proceeding was based on the contention that HHS violated the automatic stay provision of the Bankruptcy Code, UMC maintains that its claims arose under the Bankruptcy Code, not the Medicare Act. Thus, the mandate of section 405(h) that the Medicare Act’s administrative review procedures be exhausted before judicial review is sought simply does not apply to this case.
We agree with UMC. Its challenge to the Secretary’s attempt to recover pre-petition overpayments through post-petition withholding is not inextricably intertwined with any dispute concerning the fiscal intermediary’s reimbursement determinations. If UMC had not filed for bankruptcy, there would be no dispute concerning the monies due to HHS or the method for recovering them. Neither party questions the amount of pre-petition overpayments made to UMC nor any other determination of the fiscal intermediary that might be appealed to the Provider Reimbursement Review Board. Nor does either party take issue with the procedure by which the statute provides for making routine adjustments with a non-bankrupt provider for prior over or underpayments. See 42 U.S.C. § 1395g(a). This issue is only before us because UMC filed for bankruptcy and now claims that the withholding violated the automatic stay. We find, therefore, that UMC’s claim arises under the Bankruptcy Code and not under the Medicare statute.
In doing so, we recognize that a broad reading of section 405(h) might accord with Congress’ intent to allow “the Secretary in Medicare disputes to develop the record and base decisions upon his unique expertise in the health care field. The misfortune that a provider is in bankruptcy when he has a reimbursement dispute with the Secretary should not upset the careful balance between administrative and judicial review.” In re St. Mary Hosp., 123 B.R. 14, 17 (E.D.Pa.1991). However, a finding that jurisdiction is proper in this case does not impinge upon this authority of the Secretary protected by section 405(h). Indeed, there is no danger of rendering the administrative review channel superfluous, for there is no system of administrative review in place to address the issues raised by UMC in its adversary proceeding. Thus we agree with the Ninth Circuit that “where there is an independent basis for bankruptcy court jurisdiction, exhaustion of administrative remedies pursuant to other jurisdictional statutes is not required.” In re Town & Country Home Nursing Servs. Inc., 963 F.2d 1146, 1154 (9th Cir.1991). This conclusion advances the congressionally-endorsed objective of “the effective and expeditious resolution of all matters connected to the bankruptcy estate.” Id. at 1155. See also H.R.Rep. No. 595, 95th Cong., 1st Sess. 43-48, reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6004-08. The Secretary’s attack on the ability of the judicial system to resolve UMC’s claims thus fails.
IV. DISCUSSION
Having determined that we do have jurisdiction to hear this appeal, we must next consider whether the Department’s withholding of UMC’s post-petition payments violated the automatic stay provision of the Bankruptcy Code. To resolve this question we undertake a multiple-step analysis. First, does the automatic stay apply to government entities. Second, if it does, did UMC, after it filed for bankruptcy, assume its provider agreement. An important aspect of this second issue is whether formal court approval is a prerequisite to assumption of an executory contract pursuant to section 365 of the Bankruptcy Code. Third, even if the automatic stay is applicable and the agreement was not assumed, did HHS’s withholding fall within the scope of the recoupment doctrine. Finally, if we find that the recoupment doctrine does not apply, does equity control the post-petition relationship between UMC and HHS; and, if it does, is HHS permitted under the provisions of the Medicare Act to reimburse a provider without making adjustments for past overpayments.
A. The Automatic Stay
The automatic stay is one of the fundamental debtor protections supplied by the Bankruptcy Code. In re Atlantic Business & Community Corp., 901 F.2d 325, 327 (3d Cir.1990). Codified in section 362, the stay “prohibits, inter alia, the commencement or continuation of a judicial or administrative proceeding against the debt- or that could have been initiated before the petition was filed, or to recover on a claim that arose pre-bankruptcy.” United States v. Nicolet, Inc., 857 F.2d 202, 207 (3d Cir.1988). The stay
gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits a debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.
In re Schwartz, 954 F.2d 569, 571 (9th Cir.1992) (quoting H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6296-97). Thus, it is designed to replace the “unfair race to the courthouse” with orderly liquidation that treats all creditors equally. Nicolet, 857 F.2d at 207.
In drafting the Bankruptcy Code, Congress subjected the government, acting as creditor, to the limitations of the automatic stay provision. By its terms, section 362(a) applies to “all entities.” 11 U.S.C. § 362(a). The Bankruptcy Code defines the term “entity” as including governmental units. 11 U.S.C. § 101(14). See, e.g., In re Pearsori, 917 F.2d 1215, 1216 (9th Cir. 1990), cert, denied, — U.S.-, 112 S.Ct. 1291, 117 L.Ed.2d 514 (1992); In re Parr Meadows Racing Ass’n, 880 F.2d 1540, 1545 (2nd Cir.1989), cert, denied, 493 U.S. 1058, 110 S.Ct. 869, 107 L.Ed.2d 953 (1990); Penn Terra Ltd. v. Department of Envtl. Resources, 733 F.2d 267, 271-72 (3d Cir. 1984) (“the fact that Congress created an exception to the automatic stay for certain actions by governmental units itself implies that such units are otherwise affected by the stay”). Government agencies are only excepted from the reach of the automatic stay when proceeding “to enforce such governmental unit’s police or regulatory power.” 11 U.S.C. § 362(b). Congress intended this exception to apply
where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such law.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 343 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6299; S.Rep. No. 989, 95th Cong., 2d Sess. 52, reprinted in 1978 U.S.C.C.A.N. 5787, 5838. Neither the language of section 362(b) nor its legislative history indicates that this exception was intended to permit government agencies to enforce contractual rights against a debtor without first seeking relief from the automatic stay. See In re Corporacion de Servicios Medicos Hospitalarios, 805 F.2d 440, 445 (1st Cir.1986). The Department’s withholding of UMC’s Medicare payments certainly did not fall within this police power exception to the stay, and the Secretary does not contend as much. Thus, unless we can conclude either that UMC assumed its provider agreement or that HHS was entitled to recoup the pre-petition over-payments through withholding UMC’s post-petition reimbursement, HHS was constrained by the automatic stay.
B. Assumption of the Provider Agreement
Bankruptcy Code section 365 empowers a trustee or debtor in possession, “subject to the court’s approval,” to “assume or reject any executory contract or unexpired lease of the debtor.” 11 U.S.C. § 365(a). This section is designed to “allow[ ] the trustee or debtor in possession a reasonable time within which to determine whether adoption or rejection of the exec-utory contract would be beneficial to an effective reorganization.” In re Whitcomb & Keller Mortg. Co., 715 F.2d 375, 379 (7th Cir.1983). During this period, the terms of an executory contract are temporarily unenforceable against the debtor. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 532, 104 S.Ct. 1188, 1199, 79 L.Ed.2d 482 (1984).
Assumption of the executory contract requires the debtor to accept its burdens as well as permitting the debtor to profit from its benefits. Consequently, if UMC assumed its provider agreement, there is no question that HHS could withhold UMC’s post-petition reimbursement in order to recover pre-petition overpayments without violating the automatic stay. Through executing a provider agreement, a hospital accepts the “burden” of allowing HHS to recover the amount of prior over-payments from Medicare reimbursement currently due. Rejection, on the other hand, both cuts off any right of the contracting creditor to require the estate to perform the remaining executory portions of the contract and limits the creditor’s claim to breach of contract. Leasing Serv. Corp. v. First Tennessee Bank Nat’l Ass’n, 826 F.2d 434, 436 (6th Cir.1987). The district court concluded that formal court approval is required to effect an assumption of an executory contract in accord with the terms of section 365. Because UMC never sought court approval of its assumption of the provider agreement, the court found that this agreement was never assumed and, as a result, that its reimbursement overpayment provisions could not be enforced against UMC. We agree with this conclusion.
The Secretary contends, however, that, due to the detailed Medicare statutory scheme, a provider agreement is a unique type of executory contract that a debtor should be deemed to assume in accord with section 365 whenever performance under the agreement is continued beyond the filing of a bankruptcy petition, regardless of whether formal court approval is sought. Because, in the Secretary’s view, court approval was not required to effect UMC’s assumption of its provider agreement, the over-payments to UMC were properly withheld; UMC impliedly assumed the agreement, and a debtor that assumes the benefits of an executory contract cannot escape shouldering the burdens of that contract as well.
To buttress this argument, the Secretary points to the text of the Medicare statute and its implementing regulations. These state that a provider agreement remains in effect until either the provider ceases to do business or the agreement is formally terminated by the provider or the Secretary. This requirement, the Secretary explains, is designed to ensure that important Medicare interests are not compromised by uncertainty concerning a hospital’s status as a Medicare provider and to preserve the Department's statutory authority to enforce prescribed standards covering patient care, quality control, reimbursement, and coverage.
We cannot agree that the complexity of the Medicare scheme mandates a finding that court approval is unnecessary for the assumption of a provider agreement pursuant to section 365. By its terms, section 365 “includes all executory contracts except those expressly exempted.” Bildisco, 465 U.S. at 521, 104 S.Ct. at 1194. No express exemption exists for contracts formed with the government, and courts often have assumed, without discussion, that the ability of a debtor to assume or reject an executory contract pursuant to section 365 extends equally to contracts formed with the government. See, e.g., United States Dep’t of Air Force v. Carolina Parachute Corp., 907 F.2d 1469, 1472 (4th Cir.1990) (analyzing the government’s contract with the debtor under section 365); In re West Electronics, Inc., 852 F.2d 79, 82 (3d Cir.1988) (commenting, in the context of a debtor’s contract with the government, that “in general... under 11 U.S.C. § 365 West as a debtor in possession could assume an executory contract with court approval”); In re Harris Management Co., 791 F.2d 1412, 1414 (9th Cir.1986) (same).
Moreover, to circumscribe a debt- or’s power of assumption Congress has legislated special treatment for the assumption and rejection of collective bargaining agreements, 11 U.S.C. § 1113, and for the rejection of certain real property leases, 11 U.S.C. § 365(h). See, e.g., Sharon Steel Corp. v. National Fuel Gas Distrib. Corp., 872 F.2d 36, 40 (3d Cir.1989). Congress’ failure to legislate special treatment for the assumption or rejection of Medicare provider agreements indicates that assumption of these agreements, like that of other executory contracts, should be deemed subject to the requirements of section 365, unless and until Congress decides otherwise. Cf. Bildisco, 465 U.S. at 522, 104 S.Ct. at 1194 (concluding that because Congress did not draft an exclusion for collective bargaining agreements from the terms of section 365, Congress intended section 365 apply to those agreements). Thus, a provider agreement can only be assumed by a debtor hospital in accord with the terms of section 365. But see In re Advanced Professional Home Health Care, Inc., 94 B.R. 95, 97 (E.D.Mich.1988) (holding that through continuing to serve Medicare patients a debtor hospital obviates the need for strict compliance with the terms of § 365).
We have generally treated court approval as a prerequisite to a debtor’s assumption of an executory contract. See e.g., Counties Contracting & Constr. Co. v. Constitution Life Ins. Co., 855 F.2d 1054, 1060 (3rd Cir.1988) (finding court approval “mandated for effective assumption under [§ 365(a) ]”). Formal court approval of assumption of the provider agreement was neither sought nor granted in this case. As a result, UMC maintains that the agreement was never assumed but that such approval is necessary to effect the purpose of section 365(a). UMC’s position is consistent with the interpretation we have given to section 365(a) in cases such as Counties Contracting. In order to insure that a debtor has the opportunity to assess the advantages and disadvantages of assuming a contract, assumption must be approved. It cannot be presumed. As will be developed below, we acknowledge that the interests articulated by the Secretary are integral to the Medicare system and cannot merely be jettisoned in the wake of a provider’s filing in bankruptcy. At the same time, however, there are definite interests protected by Bankruptcy Code section 365 that HHS completely discounts.
In particular, the Secretary asserts that no purpose contemplated by Congress is advanced by requiring court approval of the assumption of a provider agreement when the debtor, without objection from creditors, voluntarily continues to render Medicare services. By so doing, the debtor hospital manifests its decision that continuation of the agreement is in the best interest of the estate. Thus, the Secretary contends, no further opportunity is needed for the exercise of the debtor’s business judgment in deciding whether the contract is beneficial. Moreover, the Secretary opines that creditors would suffer no discernible prejudice if continued performance by a debtor hospital were adjudged an implied assumption of the agreement. Rather than removing money from the estate and thus decreasing the funds available for distribution to a hospital’s creditors, the assumption of a provider agreement insures that additional Medicare revenues will flow into the estate. For these reasons, the Secretary claims that creditors are in no way harmed by such an assumption.
These arguments misapprehend the interests of creditors that can be implicated through the assumption of a provider agreement. Indeed, it is conceivable that creditors of a debtor hospital may well benefit from a decision to reject such an agreement. Rejection or assumption of an executory contract determines the status of the contracting creditor’s claim, namely whether “it-is merely a pre-petition obligation of the debtor, or is entitled to priority as an expense of administration of the estate.” Leasing Serv. Corp., 826 F.2d at 437. Prior to assumption, HHS is. in a position equivalent to general unsecured creditors: its recovery of pre-petition debt depends upon the amount left in the bankrupt’s estate after secured and priority creditors.are satisfied, and so is unlikely to be one hundred cents on the dollar. In contrast, if the provider agreement.is assumed, HHS, like other parties to assumed executory contracts, effectively “gains an administrative priority” against the estate. 1 COLLIER BANKRUPTCY MANUAL § 365.01, at 365-2 (Lawrence P. King ed., 3rd ed. 1992). See also, In re Taylor, 913 F.2d 102, 106-07 (3d Cir.1990).
In this case, HHS has asserted a right to recover overpayments to UMC totaling more than $800,000 for the period 1985 through 1987. However, after UMC negotiated the oral repayment arrangement with HHS on February 18, 1988, UMC survived as a going concern for only six weeks. Given UMC’s precarious financial position in February of 1988, the realistic result of an assumption of the provider agreement might have been to enhance temporarily UMC’s post-petition coffers by a few hundred thousand dollars. At the same time, this assumption would significantly improve the status of the Secretary’s pre-petition debts at the direct expense of all other unsecured creditors. Alternatively, though a rejection of the agreement would preclude the receipt of long-term future Medicare revenues, HHS still would have been required to pay for any services rendered post-petition. Moreover, HHS then would have been treated in a manner equal to other unsecured creditors in the asset - distribution for pre-petition debts. Thus, it is disingenuous to conclude that the interests of UMC’s other creditors would not be affected if a provider agreement is automatically assumed when a debtor hospital continues to treat Medicare patients after filing for bankruptcy.
Furthermore, such a holding would thrust a Medicare provider contemplating bankruptcy into a dilemma. Immediately upon filing a bankruptcy petition and without the benefit of a reasonable period for financial reflection as contemplated by section 365, a hospital would be forced to decide whether to assume or reject its provider agreement. If the provider chooses to continue service of Medicare patients for any period of time, regardless of its prospects for a successful reorganization, it would be deemed to have assumed the provider agreement, thereby assuring HHS an administrative priority over all general creditors. Alternatively, the provider could choose to terminate Medicare services and immediately reject the agreement, thereby in all likelihood abandoning any hope for a successful reorganization. Despite the Secretary’s protestations, we cannot deem such a result to be mandated by the Medicare statutory scheme; nor is it one contemplated by the Bankruptcy Code. Accord In re Memorial Hosp. of Iowa County, 82 B.R. 478, 484 (W.D.Wis.1988) (“Recognition of an exception to the requirement of court approval of assumption of exec-utory contracts nullifies • the clear and unambiguous statutory language of sections 362 and 365”).
We also find it significant that Bankruptcy Code section 365(d)(2) enables a creditor, at any time after a bankruptcy petition is filed, to move the court to compel the debtor’s assumption or rejection of an exec-utory contract. Congress intended this provision to “prevent parties in contractual or lease relationships with the debtor from being left in doubt concerning their status vis-a-vis the estate.” S.Rep. No. 989, 95th Cong., 2d Sess. 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845. Here the district court specifically noted that HHS never moved the bankruptcy court to compel UMC either to assume or reject the provider agreement. See University Medical Center, 125 B.R. at 124. Particularly in this situation, where the creditor has failed to avail itself of the procedure supplied by the Bankruptcy Code for compelling a debtor’s decision on an executory contract, we find it inappropriate to announce a new rule that a debtor hospital’s continued treatment of Medicare patients results in an implied assumption of its provider agreement. Thus, we conclude that UMC did not assume its provider agreement at any time after filing its petition in bankruptcy. As a result, the Department’s withholding of UMC’s post-petition reimbursement did violate the automatic stay.
C. Recoupment
HHS contends, however, that under the equitable doctrine of recoupment, it still should be able, without violating the automatic stay, to recover pre-petition over-payments by withholding UMC’s post-petition reimbursement. The Secretary is correct that recoupment is an equitable exception to the automatic stay. Thus, if the Secretary’s acts come within the scope of this doctrine, the withholding of UMC’s post-petition Medicare reimbursement to recover prior overpayments would be proper, even though the provider agreement was not assumed. The district court found that the Department’s withholding could not be deemed to fall within the purview of recoupment, and we agree. As a consequence, this attempt to circumvent the automatic stay also fails.
To grasp the scope of the recoupment doctrine, it is helpful first to distinguish recoupment from a creditor’s ability to set off certain claims. The doctrine of setoff, as incorporated in Bankruptcy Code section 553, gives a creditor the right “to offset a mutual debt owing by such creditor to the debtor,” provided that both debts arose before commencement of the bankruptcy action and are in fact mutual. In re Davidovich, 901 F.2d 1533, 1537 (10th Cir.1990). “Setoff, in

Question: Did the interpretation of state or local law, executive order, administrative regulation, doctrine, or rule of procedure by the court favor the appellant?
A. No
B. Yes
C. Mixed answer
D. Issue not discussed
Answer:

Answer: D