Opinion ID: 474027
Heading Depth: 1
Heading Rank: 3

Heading: Can the Debtor's Accounts Receivable Collateralize the

Text: 23 Bank's Loans? 24 The most far-reaching argument made by the Trustee is that the Debtor's accounts receivable could not serve as collateral for the Bank's loans. The Trustee relies for this proposition on provisions of state and federal law purportedly prohibiting the assignment or attachment of medical care payments. Resolution of this issue will determine the disposition of many of the other matters raised on appeal. 25 Title XIX of the Social Security Act (42 U.S.C. Secs. 1396 et seq.) specifies the conditions under which the federal government makes grants to the states through medical assistance programs. Participating states must have state plans that meet the requirements of the federal statute, see 42 U.S.C. Sec. 1396a. One of these requirements is that 26 A State plan for medical assistance must-- 27 .... 28 ... provide that no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise, except that-- 29 (A) in the case of any care or service provided by a physician, dentist, or other individual practitioner, such payment may be made (i) to the employer of such physician, dentist, or other practitioner if such physician, dentist, or practitioner is required as a condition of his employment to turn over his fee for such care or service to his employer, or (ii) (where the care or service was provided in a hospital, clinic, or other facility) to the facility in which the care or service was provided if there is a contractual arrangement between such physician, dentist, or practitioner and such facility under which such facility submits the bill for such care or service; and 30 (B) nothing in this paragraph shall be construed (i) to prevent the making of such a payment in accordance with an assignment from the person or institution providing the care or service involved if such assignment is made to a government agency or entity or is established by or pursuant to the order of a court of competent jurisdiction, or (ii) to preclude an agent of such person or institution from receiving any such payment if (but only if) such agent does so pursuant to an agency agreement under which the compensation to be paid to the agent for his services for or in connection with the billing or collection of payments due such person or institution under the plan is unrelated (directly or indirectly) to the amount of such payments or the billings therefor, and is not dependent upon the actual collection of any such payment.... 31 42 U.S.C. Sec. 1396a(a)(32) (emphasis added). 6 32 The federal statute does not prescribe the precise language that states are to use in meeting its requirements. Indeed, Within the confines of the statute, rules, and regulations, the states enjoy considerable flexibility in fashioning their own reimbursement systems. Danvers Pathology Associates, Inc. v. Atkins, 757 F.2d 427, 428 (1st Cir.1985). In attempting to meet the requirements of 42 U.S.C. Sec. 1396a(a)(32) Texas has adopted the following provisions: 33 (a) Neither medical assistance nor payments to providers of medical assistance under this chapter are transferable or assignable at law or in equity. 34 (b) No money paid or payable under the provisions of this chapter is subject to execution, levy, attachment, garnishment, or any other legal process, or the operation of any insolvency law. 35 Tex.Hum.Res.Code Ann. Sec. 32.036 (Vernon 1980). 36 Chapter 32 of the Texas Human Resources Code begins with a General Provisions section describing the purpose of the chapter and indicating how it is to be construed. The chapter's purpose is to enable the state to provide medical assistance on behalf of needy individuals and to enable the state to obtain all benefits for those persons authorized under the Social Security Act or any other federal act. Section 32.001. As for its construction, 37 (a) This chapter shall be liberally construed and applied in relation to applicable federal laws and regulations so that adequate and high quality health care may be made available to all children and adults who need the care and are not financially able to pay for it. 38 (b) If a provision of this chapter conflicts with a provision of the Social Security Act or any other federal act and renders the state program out of conformity with federal law to the extent that federal matching money is not available to the state, the conflicting provision of state law shall be inoperative to the extent of the conflict but shall not affect the remainder of this chapter. 39 Section 32.002. 40 Armed with this guidance from the Texas legislature we return to a comparison of 42 U.S.C. Sec. 1396a(a)(32) and Tex.Hum.Res.Code Sec. 32.036. As the Trustee correctly notes, The Federal statute is not worded exactly like the state statute and in fact the state statute is broader and more rigid in its prohibitions. Appellant's Reply Brief at 1. It is apparent from a facial examination of the two statutes that cases decided under them could indeed come out differently, depending upon which applied. To the extent that a state statute conflicts with the federal Social Security Act, the former must yield to the latter. Rinefierd v. Blum, 412 N.Y.S.2d 526, 66 A.D.2d 351 (1979). Further, it appears that Tex.Hum.Res.Code Sec. 32.036 is in conflict with the stated overall purpose of Chapter 32 (to enable the state to provide medical assistance on behalf of needy individuals, Section 32.001), because it would undercut a vital means of financing medical assistance for the needy: 41 Nursing homes, as are other providers under Medicaid, are reimbursed for services already furnished. This inevitably presents cash flow problems. The confidence of creditors in nursing homes which participate in the Medicaid Program, and their willingness to deal with such nursing homes on other than a cash-on-the-barrelhead basis, would be severely shaken if this Court were to interpret 42 U.S.C. Sec. 1396a(a)(18) as mandating the suspension of the effectiveness of New York's lien laws with respect to Medicaid Program providers. 42 Sasse v. Ottley, 432 F.Supp. 440, 443 (S.D.N.Y.1977). Part (a) of Section 32.002 counsels us that the provisions of Chapter 32 shall be liberally construed and applied ... so that adequate and high quality health care will be available for the needy. Part (b) instructs us that in cases of conflict or non-conformity with federal law, the Texas provision will be read out of Chapter 32 and replaced with its federal counterpart. Under either approach, then, it appears that Section 32.036 cannot be interpreted to prevent the kind of loan financing at issue in this case. 43 Viewed in terms of the federal standard, the Bank's reimbursement agreement with the Debtor passes muster. 42 U.S.C. Sec. 139a(a)(32) provides that nothing in this paragraph shall be construed ... to preclude an agent of [the person or institution providing the care or service involved] from receiving any such payment so long as a factoring arrangement is not used. 7 The 1977 committee report elaborates that The bill ... would not preclude the agent of a physician or other person furnishing services from collecting any medicare or medicaid payment on behalf of a physician, and states further that 44 Nor is it the committee's intention that this provision preclude the legitimate transfer of accounts receivable from these programs by an individual or an institution upon the sale of the individual's practice (for example upon retirement) or as part of the sale of all the assets of an institution. 45 H.R.Rep. No. 393, 1977 U.S.Code Cong. & Ad.News at 3051-52. 46 Under the procedures used in this case, a warrant, or non-negotiable voucher for payment, was issued by the cognizant officer of the state agency making payment to the Debtor for medical services and treatment already rendered. 8 Capital National Bank in Austin presented the warrant for payment to the State Treasurer in Austin, thereby receiving in return a negotiable instrument, which it would then wire-transfer to the Debtor's account at the First National Bank in Lubbock. The bankruptcy court found that 47 After the Capital National Bank made its presentment to the State Treasurer each month and received the negotiable instrument the monies represented by the warrant were wire-transferred to the MSC Associates account at the First National Bank at Lubbock. The testimony at trial reflected that those monies were initially deposited in the MSC account in order to facilitate debtor's bookkeeping procedures and then those monies immediately were removed by the bank and credited to the line of credit. 48 Memorandum and Order at 6. The bankruptcy court found further that The warrant was payable to the debtor. When it was paid by the State Treasurer ... those proceeds were wire-transferred to the debtor's account at First National Bank.... Id. at 17. 49 There is nothing in these arrangements to suggest a violation of 42 U.S.C. Sec. 1396a(a)(32). We therefore affirm the decision of the district court and hold that the Bank took a valid security interest in the Debtor's accounts receivable. 50