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U.S. District Court In Pennsylvania Holds Qui Tam Relator Failed To Prove False Claims Allegations


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).

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