HLD, v. 31, n. 4 (April 2003)
U.S. District Court In Pennsylvania Holds Qui Tam Relator
Failed To Prove False Claims Allegations
In 1990, Connecticut General Life Insurance Co. (CGLIC) became a
Medicare carrier for three states, and in 1993 it contracted with the Heath
Care Financing Administration (HCFA, now the Centers for Medicare &
Medicaid Services) to process durable medical equipment claims (DMERC). CGLIC
could not earn a profit as a Medicare carrier, but its DMERC contract provided
for "limited performance-based incentives." CGLIC did not apply for any
incentive payments, and it was never penalized for failure to comply with the
contract requirements, which could have resulted in reduced fees. In 1994,
Michael Watson (relator) entered into two contracts with CGLIC to be an
independent hearing officer for the Medicare claims appeals process. One
contract was for the DMERC process, the other for the Medicare claims. Relator
received no employee benefits from CGLIC and was an independent contractor. The
contracts were terminated in May and June of 1998. In 1998, Watson filed a qui
tam action under the False Claims Act (FCA) against CGLIC, including a claim of
wrongful termination. In early 2000, the government decided not to intervene.
In April 2002, CGLIC filed a summary judgment motion, arguing that Watson had
not presented sufficient evidence to support his FCA allegation, that as an
independent contractor he could not bring a wrongful termination claim because
he lacked standing, and that Watson could not establish he had the right to
fair procedure before his termination.
The U.S. District Court for the Eastern District of Pennsylvania
granted CGLIC's motion for summary judgment. The court explained that the
burden was on Watson to establish that CGLIC made claims it knew were false but
submitted them anyway, which resulted in a loss to the government. Watson's
complaint alleged several instances of CGLIC's deceptive conduct. First, Watson
claimed CGLIC encouraged resubmission of claims after a claim was returned or
denied, rather than encouraging providers to have the claims reviewed,
allegedly giving the appearance that there were more "new" claims than actually
existed, and resulting in an increase in budgeted funds under HCFA contracts.
CGLIC admitted it encouraged providers to resubmit claims, but it argued that
the practice was not a violation of the FCA. Rejecting Watson's contention that
it was less expensive for CGLIC to process resubmissions than to conduct
reviews, the court explained that any increase in the number of claims had no
bearing on the amount the government paid CGLIC as a Medicare carrier and
contract modifications based on interim payments made during the year had to be
verified by the end of the year for the Medicare costs to be reimbursed. The court
held that any contract modifications increasing interim payments did not
support Watson's resubmission theory. Watson also argued that CGLIC increased
its claims volume by artificially decreasing its Budgeted Bottom Line Unit
Costs (BLUC), and the government granted an increase in CGLIC's budget based on
the BLUC. The court agreed that Watson had shown that CGLIC's BLUC decreased,
but found that he failed to show that the decrease resulted in the budget
increase. On the record, said the court, there was sufficient evidence that the
BLUC had no effect on HCFA's budgeting decisions, and therefore Watson failed
to prove all of the elements of a FCA claim on his allegation that CGLIC had a
"scheme" to encourage resubmissions.
Watson's second contention was that CGLIC manipulated its ViPS
Medicare System (VMS) computer software, which is supposed to catch duplicate
claims, and failed to correct errors in the program resulting in duplicate
claims being submitted. The court reviewed the documents Watson submitted to
support his claim and found that Watson had selectively excerpted information
from CGLIC memoranda and e-mails and that a full reading of the documents
showed that CGLIC was making efforts to improve the efficiency and accuracy of
the program. Watson failed to demonstrate that, even if CGLIC had manipulated
the software, it had done so knowingly, said the court, and therefore Watson's
software manipulation claim was not actionable under the FCA.
Next, the court rejected Watson's argument that CGLIC's failure
to impose late fees was done in an effort to increase the benefits paid out by
the government. The court noted that Watson relied on an expert report that
determined that CGLIC failed to collect $30,661 in late fees. According to the
court, the expert's deposition testimony served to undermine his report,
because he admitted he failed to account for the fact that the late fees could
have been waived for good cause or administrative error. Not only did the
expert testimony fail to support Watson's position, he also failed to show that
CGLIC had acted knowingly, recklessly or with deliberate ignorance in failing
to assess the late fees. Therefore, the court held that the allegations of
misconduct by CGLIC were insufficient to support FCA liability.
Addressing Watson's retaliatory discharge claim under the FCA,
the court noted that the plain language of the FCA limits relief to employees.
Looking to the description and responsibilities of Watson's job, the court
found that Watson was an independent contractor, and granted summary judgment
to CGLIC on that issue.
Watson also argued that he was wrongfully terminated under state
law in violation of public policy, and in breach of the covenant of good faith
and fair dealing. Based on its prior determination that Watson was an
independent contractor, the court held that Watson had no cause of action for a
public policy violation because the California law making wrongful discharge
actionable applies only to employees and not to independent contractors.
Watson's final argument was that his termination violated the
California whistleblower statute, which provides that an employee cannot be
terminated for disclosing information to the government. Again the court noted
that the protections in the statute only apply to employees and not independent
contractors, and Watson failed to identify for the court any cases in which an
independent contractor sustained a claim under the statute. Accordingly, the
court granted CGLIC's summary judgment motion in its entirety.
United States ex rel. Watson v. Connecticut Gen. Life
Ins. Co., No. 98-6698 (E.D. Pa. Feb. 11, 2003) (48 pages).