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
No. 031639 (3d Cir. Jan. 16, 2004).