In re Gardens Regional Hospital & Medical Center, Inc.

MEMORANDUM OF DECISION DENYING THE DEPARTMENT OF HEALTHCARE SERVICES’ MOTION FOR ALLOWANCE OF AN ADMINISTRATIVE PRIORITY CLAIM

At issue is whether an exaction assessed against the estate by the California Department of Health Care Services (“DHCS”), pursuant to the hospital quality assurance fee program, is properly characterized as a tax entitled to payment as an administrative priority claim pursuant to § 503(b)(1)(B)(i), or whether instead the exaction is a fee not entitled to administrative priority status. 1 The Court finds that the exaction is a fee, not a tax. Further, the Court finds that even if the exaction did qualify as a tax, DHCS’ claim on account of the exaction would not be entitled to administrative priority, because the claim arose prepetition.

I. Facts

Gardens Regional Hospital and Medical Center (the “Debtor”) commenced a voluntary Chapter 11 petition on June 6, 2016. As of the filing of the petition, the Debtor operated a 137-bed general acute care hospital located in Hawaiian Gardens, California (the “Hospital”). The Hospital served a high number of indigent patients and was operated as a non-profit entity.

On January 20, 2017, the Court granted the…