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Third Circuit Affirms Dismissal Of Whistleblower's FCA Action Against Medicare Carrier


HLD, v. 32, n. 3 (March 2004)

Third Circuit Affirms Dismissal Of Whistleblower's FCA Action Against Medicare Carrier

In a ruling January 16, the Third Circuit affirmed a lower court decision granting summary judgment to a Medicare carrier that was the subject of a qui tam action for allegedly defrauding Medicare. The appeals court found no evidence that the carrier's policy encouraging the resubmission of incomplete claims violated any Medicare rules or that the carrier inflated performance scores to augment its compensation and ensure Medicare renewed its contracts. In addition, the whistleblower, a former hearing officer for the carrier, lacked standing to bring a retaliation claim under the FCA because he was an independent contractor and not an employee, the appeals court concluded.

Connecticut General Life Insurance Co. (CGLIC) is a Medicare carrier under contract with the Centers for Medicare and Medicaid Services to process durable medical equipment claims (DMERC). In this capacity, CGLIC may receive performance-based bonuses or suffer penalties for non-compliance with the terms of its contract, although, it has never applied or qualified for the incentive payments or been penalized for failure to comply with contract requirements.

In 1994, Michael Watson contracted with CGLIC to be an independent hearing officer for the Medicare Part B and DMERC appeals process. After CGLIC terminated his contract, Watson brought a qui tam action under the False Claims Act (FCA) against CGLIC, alleging CGLIC artificially increased the number of claims it processed to augment its compensation from the government by encouraging the resubmission of incomplete claims and by manipulating its performance evaluations. Watson also claimed that CGLIC wrongfully terminated him in retaliation for having reported its alleged misconduct. The district court granted summary judgment in CGLIC's favor, finding that Watson failed to make a prima facie case that CGLIC violated the FCA and holding that Watson lacked standing to bring a retaliatory termination claim under the FCA because he was an independent contractor, not an employee. See HLD, v. 31, n. 4. Watson appealed.

The Third Circuit affirmed. The appeals court found no evidence that CGLIC's resubmission policy was wrongful or violated any Medicare regulations. In fact, the appeals court noted, the Medicare Carriers Manual (MCM) specifies that when an incomplete claim is denied the provider has the option of resubmitting the claim as a new claim or correcting the claim and/or seeking appellate review. Watson presented no evidence that CGLIC encouraged resubmission in inappropriate circumstances, the appeals court said.

The appeals court also found unavailing Watson's claim that CGLIC manipulated its performance scores by inflating its claims count and fraudulently certified its compliance with the MCM to ensure its full payment without penalties, its contract renewal, and its bonus eligibility. Specifically, the appeals court noted, Watson provided no evidence that CGLIC's scores would have been deficient absent a higher claims count; that the performance scores determined whether the government renewed CGLIC's contracts or issued penalties; or that CGLIC's certification of its evaluations influenced the government's payment or renewal decisions. The failure to present such evidence is dispositive, the appeals court said, because "liability under the FCA only exists if certification of compliance influenced the government's payment decision." The appeals court also found significant the fact that CGLIC had never received an incentive bonus.

Likewise, the appeals court concluded that the district court properly held Watson was an independent contractor rather than an employee and therefore not protected under the FCA's anti-retaliation provisions. The appeals court held that the lower court properly considered and weighed a number of factors, including the fact that Watson provided most of his own supplies, largely controlled where he worked, could accept or decline additional projects at his discretion, set his own hours and vacation time, was paid for the volume of the services he performed based on a fee schedule, did not receive employee benefits, and filed taxes as a self-employed individual. Thus, the appeals court agreed that Watson lacked standing to bring a retaliatory termination claim under the FCA.

United States ex rel. Watson v. Connecticut Gen. Life Ins. Co., No. 031639 (3d Cir. Jan. 16, 2004).

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