Houston Community Hospital v. Blue Cross & Blue Shield of Texas, Inc.

United States Court of Appeals

Fifth Circuit

F I L E D

IN THE UNITED STATES COURT OF APPEALS

March 9, 2007

FOR THE FIFTH CIRCUIT

Charles R. Fulbruge III

Clerk

No. 05-50454

HOUSTON COMMUNITY HOSPITAL,

Plaintiff-Appellee,

versus

BLUE CROSS AND BLUE SHIELD OF TEXAS, INC.,

Defendant-Appellant.

Appeal from the United States District Court

For the Western District of Texas, Austin

(USDC No. 1:04-CV-288)

Before GARWOOD, HIGGINBOTHAM, and CLEMENT, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

Houston Community Hospital admitted and treated three federal

employees covered by health benefits plans administered by Blue

Cross and Blue Shield of Texas, Inc. under the Federal Employees

Health Benefits Act. BCBST allegedly misrepresented the level of

health care coverage of each patient and then refused to pay

accordingly. In March 2004, Houston Community Hospital filed three

separate state actions against BCBST for negligent

misrepresentation and violations of the Texas Deceptive Trade

Practices Act and the Texas Insurance Act. BCBST removed the cases

to federal court and moved for summary judgment claiming official

immunity, federal sovereign immunity, and preemption. The district

court denied the motion and BCBST appealed the now consolidated

cases.

I

The Federal Employees Health Benefits Act1 (“FEHBA”) charges

the United States Office of Personnel Management (“OPM”) with

negotiating contracts with private insurance carriers to provide

health benefit plans to federal employees who may enroll in a

Service Benefit Plan (“the Plan”) pursuant to OPM regulations.2

OPM issues all enrollees a Statement of Benefits (“the Brochure”).

Blue Cross and Blue Shield Association, a private insurance

carrier, entered into a contract, known as CS 1039, and which

incorporated the Brochure, with OPM to provide the Plan to

enrollees.3 Appellant Blue Cross and Blue Shield of Texas

(“BCBST”) administers the Plan in Texas. As appellee Houston

Community Hospital (“the Hospital”) is not a party to the contract

and has no contractual agreement with BCBST; it is not a

1

5 U.S.C. §§ 8901-14.

2

The government and the enrollees are responsible for the premiums and

Blue Cross draws its funds directly from the Federal Employees Health Benefits

Fund. The Fund is not the property of Blue Cross and any surplus is placed in

the Plan’s contingency reserves, which may be used only at OPM’s discretion.

Blue Cross is paid from a negotiated service charge. See Empire Healthchoice

Assurance, Inc. v. McVeigh, 126 S.Ct. 2121, 2126 (2006).

3

See 5 U.S.C. § 8903.

2

participating provider. This means that under FEHBA, BCBST

reimburses the Hospital up to a federal employee’s coverage level,

costs of medical care above that level to be paid by the employee.

According to the hospital, in 2003, three federal employees

covered by a FEHBA health insurance plan issued by BCBST sought

medical treatment at the Hospital. Before treating each patient,

the Hospital contacted BCBST to verify the patients’ coverage. On

each occasion, BCBST allegedly represented to the Hospital that:

(1) the patient’s $300 deductible was met; (2) the patient was

covered at either 70% or 100% up to an unlimited lifetime maximum

amount; and (3) no preexisting conditions applied to the patient’s

admission. After the patients were admitted and treated, BCBST

refused to pay the Hospital more than a fraction of the bill.4

BCBST refused requests for payment and the Hospital filed three

suits against BCBST in Texas state court for damages resulting from

each misrepresentation made by BCBST. In addition to negligent

misrepresentation, the Hospital alleged violations of the Texas

Deceptive Trade Practices Act and the Texas Insurance Code.

In May 2004, BCBST removed all three cases to federal court.

Although BCBST is a private insurance carrier, BCBST asserted that

in performing the contract with OPM to provide health coverage to

4

Patient Services Payment:

Paula V. Jackson: $8,688.12 of $89,021.00;

Elizabeth A. Jones: $8,688.12 of $50,487.96;

Carol Wilkerson: $8,688.14 of $56,775.38.

3

federal employees in Texas, it is an arm of the federal government

vested with governmental immunity. BCBST moved for summary

judgment based on: (1) official immunity; (2) sovereign immunity

of the United States; and (3) preemption of the state torts by

FEHBA.

The district court denied summary judgment, and BCBST timely

filed a notice of appeal. Not seeking leave from the district

court to file an interlocutory appeal under 28 U.S.C. § 1292(b),

BCBST maintains that we have jurisdiction under the collateral

order doctrine as well as pendent appellate jurisdiction.

II

The collateral order doctrine is a “practical construction” of

the final judgment rule of 28 U.S.C. § 1291.5 This narrow doctrine

permits a federal appellate court to review the “small category of

decisions that, although they do not end the litigation, must

nonetheless be considered ‘final.’”6 That small category “includes

only decisions that are conclusive, that resolve important

questions separate from the merits, and that are effectively

unreviewable on appeal from the final judgment in the underlying

action.”7

5

Swint v. Chambers County Comm’n, 514 U.S. 35, 41–42 (1995).

6

Id.

7

Id.; Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546

(collateral order review for orders “too important to be denied review and too

independent of the cause itself to require that appellate consideration be

deferred until the whole case is adjudicated”).

4

Of course we have jurisdiction to determine our jurisdiction,8

and we must, then, first determine whether BCBST’s claims of either

official or sovereign immunity are sources of jurisdiction. BCBST

asks for even more. It urges that having asserted a substantial

claim of immunity, it is entitled to invoke our pendent appellate

jurisdiction over its preemption claim. Whatever the merits of

this hook-and-ladder approach, it fails at the outset: we find no

substantial claim of immunity, and we dismiss for lack of

jurisdiction.

A. Official Immunity9

8

Cerveceria Cuauhtemoc Moctezuma S.A. de C.V. v. Mont. Bev. Co., 330

F.3d 284, 286 (5th Cir. 2003) (noting the “universally recognized truism that

we have jurisdiction to determine our own jurisdiction”).

9

There is disagreement over whether BCBST’s claim is for absolute

official immunity or qualified immunity. The disagreement is semantic.

Westfall can be read as providing either (1) absolute immunity, to the extent

that the official could reasonably have believed her conduct was within the

scope of her duty or (2) qualified immunity for conduct reasonably within the

scope of a federal official’s duties. See Seth P. Waxman & Trevor W.

Morrison, What Kind of Immunity?, 112 YALE L.J. 2195, 2243 (2003). We must

also distinguish the present immunity question, federal immunity from state

tort, from our qualified- and absolute-immunity doctrine as it applies to

state actors sued under section 1983 for violations of the federal law, as

well as from our congruent doctrine that applies to federal officials sued for

constitutional violations under Bivins. See Butz v. Economou, 438 U.S. 478,

495 (1978). Our Westfall doctrine pre-dates section 1983, see Spalding v.

Vilas, 161 U.S. 483 (1896), and sounds in implied conflict preemption. See

Waxman & Morrison, supra.

5

While a denial of official immunity is an appealable order,10

the claim of immunity must be “substantial” to justify an appellate

court’s collateral order review.11

Federal officials long enjoyed immunity from suit based on

state-law torts when their conduct was “within the scope of their

official duties and . . . discretionary in nature.”12 The

application of this Westfall test to federal officials was

superseded by Congress’s passage in 1988 of the Federal Employees

Liability Reform and Tort Compensation Act, also known as the

Westfall Act, which eliminated the requirement that the acts be

discretionary.13 The Westfall test, with the stricture of

discretionary acts, remains the framework for determining when

non-governmental persons or entities are entitled to the same

10

See Westfall v. Erwin, 484 U.S. 292 (1988); Shanks v. AlliedSignal,

Inc., 169 F.3d 988, 991 (5th Cir. 1999).

11

There is confusion about whether a claim, in order to sustain an

interlocutory appeal, need be “substantial” or merely “colorable.” Citing

Malina, BCBST suggests that the standard is colorable. Malina v. Gonzales,

994 F.2d 1121, 1124 (5th Cir. 1993). This is an error. The Malina court

borrowed this incorrect standard from a case applying the officer removal

statute, section 1442(a)(1), which requires the assertion of a colorable

federal defense. Williams v. Brooks, 945 F.2d 1322,1325 (5th Cir. 1991).

However, the Supreme Court and earlier panels of the Fifth Circuit have

required a “substantial” claim of official immunity. Mitchell v. Forsyth, 472

U.S. 511,525 (1985); NF Indus., Inc. v. Export-Import Bank of the United

States, 846 F.2d 998, 1000 (5th Cir. 1988).

12

Westfall, 484 U.S. at 297-98; Evans v. Wright, 582 F.2d 20, 21 (5th

Cir. 1978).

13

See 28 U.S.C. § 2679(d).

6

immunity.14 The Hospital contends that BCBST, as a private

insurance carrier, has no substantial defense of official

immunity. We agree.

1

The Hospital first argues that BCBST was not here performing

an official government function.15 The district court agreed, first

acknowledging that “a number of courts have held private

contractors may enjoy official immunity when performing official

14

See Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 73 (2d Cir.

1998) (citing Mangold v. Analytic Servs., Inc., 77 F.3d 1442, 1446-50 (4th

Cir. 1996); Slotten v. Hoffman, 999 F.2d 333, 336 (8th Cir. 1993)).

15

The Hospital does not contest that BCBST acted within the scope of

its discretionary duty as an insurance carrier. In considering whether a

claim is based on acts taken within a federal official’s scope of authority,

we have held that it is only necessary that the conduct be “within the outer

perimeter of the line of duty.” Norton v. McShane, 332 F.2d 855, 859 (5th

Cir. 1964). Here, the Hospital’s focus is upon on two acts: first, the

alleged relaying of guidance on coverage in a phone call and, second, paying

the claims in a manner inconsistent with the oral guidance. There are

provisions in the Plan requiring that providers contact the carrier to

precertify hospital stays (2003 Statement of Benefits at 12-13, 113), as well

as terms in the Plan requiring carrier responsiveness to inquiries about the

Plan (2002 CS 1039 § 1.9(b)). Given these provisions, BCBST acts within the

perimeter of its duties in responding to an inquiry about coverage; and, given

that the carrier’s main task is to determine and pay claims, a carrier’s act

of paying a claim (whether for the right or wrong amount) constitutes its

duties.

With respect to discretion, BCBST argues that the carrier must assess

the facts and apply the Plan provisions when answering questions about

coverage; it must do the same when ultimately deciding the amount to pay. As

a result, BCBST contends that its acts are “more or less connect[ed] with the

general matters committed by law” to BCBST’s discretion. Norton, 332 F.2d at

859. Whether the conduct at issue in the instant case, simply relaying

coverage information, constitutes discretionary action is not clear, but we

will assume so for purposes of our analysis. Thus, the present dispute does

not present the question of whether BCBST acted beyond the scope of its

authority in allegedly misrepresenting coverage information.

7

functions,”16 but then explaining that no controlling authority

provides blanket immunity for actions taken in the course of

performing government contracts,17 and finally rejecting BCBST’s

argument to extend immunity here, ruling that BCBST is not entitled

to official immunity because “carriers do not perform ‘official

functions’ in administering FEHBA benefits.” The District court

concluded that OPM’s duties comprised “the approval of and

contracting for benefits plans,” not the actual administration of

the Plan and that FEHBA carriers were not exercising any

governmental function because “it is not apparent that they

themselves perform any functions the OPM is itself charged with

performing.”

BCBST acknowledges that we have previously granted immunity to

private entities and, in so doing, emphasized the entity’s

“quasi-governmental” capacity.18 BCBST contends that FEHBA carriers

exercise just such a “governmental function” for the purpose of

official immunity. We are not persuaded.

16

See Mangold v. Analytic Servs., Inc., 77 F.3d 1442, 1446-48 (4th Cir.

1996) (deciding that immunity shields a government contractor from liability

arising from statements it made in response to government investigators during

an official investigation); see also Slotten v. Hoffman, 999 F.2d 333, 335-37

(8th Cir. 1993).

17

See Boyle v. United Techs Corp., 487 U.S. 500, 505 n.1 (1988)

(declining to extend official immunity to all government contractors).

18

Austin Munic. Secs., Inc. v. Nat’l Ass’n of Secs. Dealers, Inc., 757

F.2d 676, 689 (5th Cir. 1985) (granting official immunity to administrative

prosecutors and the nonprofit agency for which they work); cf. NF Indus.,

Inc., 846 F.2d at 1000 (dismissing the interlocutory appeal from a denial of

official immunity because private party had not sufficiently proved “that it

was serving a governmental function”).

8

Our extension of official immunity to contractors and other

private parties is an application of the presumption that “immunity

attaches to particular official functions, not to particular

offices.”19 We recognize that “[i]f absolute immunity protects a

particular governmental function, no matter how many times or to

what level that function is delegated, it is a small step to

protect that function when delegated to private contractors,

particularly in light of the government’s unquestioned need to

delegate governmental functions,” and that those functions are “no

‘less important simply because they are exercised by officers of

lower rank in the executive hierarchy.’”20

BCBST contends that the issue is not whether it performs

functions that Congress delegated to OPM, but whether “the

functions which the private parties performed pursuant to contract

are functions which governmental employees would perform had the

government not contracted them out.”21 In support, BCBST points to

19

Westfall, 484 U.S. at 296 n.3.

20

Mangold, 77 F.3d at 1447-48 (quoting Barr v. Mateo, 360 U.S. 564,

572-73 (1959)).

21

DeVargas v. Mason & Hanger-Silas Mason Co., 844 F.2d 714, 722 (10th

Cir. 1988) (holding that a private corporation performing under a contract

with a federal government agency may bring an interlocutory appeal from a

denial of qualified immunity and that such a corporation is entitled to

qualified immunity from an alleged constitutional deprivation compelled by

contractual obligation), distinguished in NF Indus., Inc., 846 F.2d at 1001

(“But in Devargas, the company was performing security services at an army

installation-a function that is undeniably governmental and that, absent the

private contract, would have been performed by a governmental agency.”); see

also Boyle, 487 U.S. at 512 (“To put it differently: It makes little sense to

insulate the government against finiancial liability for the judgment that a

particular feature of military equipment is necessary when the Government

produces the equipment itself, but not when it contracts for the

9

FEHBA’s legislative history, which shows that Congress’s purpose

was “to establish a health benefits program for Federal employees,”

so as to compete for the best talent with private companies.22 To

achieve that end, Congress sought to set up a partnership between

OPM and private carriers. OPM is “responsible for the overall

administration of the program while sharing the day-to-day

operating responsibilities with the employing agencies and the

insurance carriers.”23 In Doe v. Devine, then-Judge Ginsburg

examined Congress’s choice to use government contractors, rather

than the government itself, to provide FEHBA health benefits and

determined that Congress designed the program as it did in order to

“ensure maximum health benefits for employees ‘at the lowest

possible cost to themselves and to the Government.’”24 With a

number of options offered by different carriers, rather than one

plan administered solely by the government, Congress created a

production.”).

22

H.R. Rep. No. 86-957, at 2 (1959). Congress stated:

Availability of this health protection program to Government

employees will be of material assistance in improving the

competitive position of the Government with respect to

private enterprise in the recruitment and retention of

competent civilian personnel so urgently needed to assist in

maintaining and improving our strong national defense and in

the operation of other essential Government programs.

Id.

23

Id.

24

703 F.2d 1319, 1330 n.41 (D.C. Cir. 1983)(quoting H.R. Rep. No. 86-

957, at 4).

10

“system in which insurers compete vigorously for employees’

subscription dollars.”25 Thus, Congress intended for there to be

a national health benefits program to serve the public interest of

attracting the best possible workforce. BCBST argues that carriers

have an official role in the government program because Congress

thought that delegating responsibility to carriers was the most

efficient means to achieve the necessary ends. Furthermore, BCBST

notes that had it been more efficient to provide the benefits

directly, Congress would have employed the federal workforce itself

to do the task. In short, BCBST argues that the District court’s

approach violated Westfall’s rule that official immunity attaches

to functions, not particular offices.

But the district court ruled against BCBST because it

disagreed that theirs was a government function. As we see it,

Congress did not with the FEHBA hand off a government function;

rather Congress decided to get into the insurance business. Not

every activity in which government might decide to engage is a

function of government in private hands.26 BCBST’s argument would

extend official immunity to all contractual delegations of

authority by the government. The district court correctly assessed

the function assigned to OPM by Congress.

25

Id. at n.43 (internal quotations omitted).

26

Cf. Reeves v. William Stake, 447 U.S. 429 (1980).

11

Nor is this conclusion in tension with Austin Municipal

Securities, in which we held that a private, nonprofit organization

policing the securities field, including the stock exchanges,

enjoyed immunity.27 In that case, Congress delegated the authority

to enforce securities laws directly to the non-governmental

organizations, such as the NASD, pursuant to the Maloney Act.28

Here Congress granted to the OPM, not the private carrier,

authority to regulate. And while NASD performs a

quasi-prosecutorial function in enforcing compliance with SEC

regulation and related ethical standards,29 BCBST cannot be viewed

as a quasi-judicial entity in making underwriting decisions. Our

case law frustrates the premise that insurance policy writing by a

private insurer amounts to governmental policymaking.30

We also have denied official immunity to a consortium of

private companies providing insurance to American exporters under

an affiliation with a federal government agency.31 BSBST urges that

the same characteristics of the insurance relationship that were

dispositive in that case lead to the opposite result here. Finding

27

757 F.2d 676.

28

Id. at 679-80 (citing 15 U.S.C. § 78o-3).

29

Id. at 693.

30

NF Indus., 846 F.2d at 1001 (stating “FCIA has made no showing here

that its duties require the exercise of governmental policymaking as

distinguished from insurance policy-writing”).

31

846 F.2d at 1002.

12

that the private companies had “made no showing . . . that its

duties require the exercise of governmental policymaking,” the

Court in NF Industries stated:

FCIA [i.e., the insurers] is engaged primarily, if not

exclusively, in the private business of insurance for

profit. Its companies are paid by its customers, the

insureds. The companies appear to act only as insurers,

sharing in the profits and losses generated by the sale

of their policies. They sell policies like those sold by

other companies, not in privity with Eximbank, with whom

they compete. And unlike most governmental agencies,

which have mandated duties and a fixed “clientele,” they

are free (like any private company) to choose with whom

they shall deal.32

BCBST argues that, in contrast to NF Industries, BCBST does not

operate a “private business of insurance,”33 but instead administers

a federal program based on terms set by OPM, and profits solely

through a service charge that OPM establishes. Rather than being

“paid by its customers, the insureds,”34 BCBST is paid from a

Treasury account in which the government pools premium funds.

Also, unlike the insurer in NF Industries, BCBST contends that it

has “a fixed ‘clientele’” and is not “free . . . to choose with

whom they shall deal,”35 for the Plan and OPM’s regulations mandate

32

NF Indus., 846 F.2d at 1001-02.

33

Id. at 1001.

34

Id. at 1002.

35

Id.

13

that BCBST provide benefits to all who meet eligibility

requirements and enroll.36

But the fact that BCBST operates for profit, although not

under the typical paradigm, only weakens its argument, further

distinguishing it from the caselaw on which it relies. BCBST

freely enters into the market, in which, by its own admission,

carriers “compete vigorously” with other providers for customers

within the pool of federal employees.37

BCBST’s reliance upon the Medicare line of cases is also

misplaced. As the district court noted, the governing statutes

differ in a significant respect. The Center for Medicare and

Medicaid Services (“CMS”) delegates a portion of its statutory

functions to private carriers under 42 C.F.R. § 421.5(b), which

provides, for example, that “CMS is the real party of interest in

any litigation involving the administration of the program.”38 No

analogous delegation of authority exists here. Second, even

assuming that BCBST and Medicare intermediaries are similarly

situated — i.e. the Congressional grant of authority via the

relevant administrative agency is analogous — BCBST fails to

36

CS 1039 § 2.1(a)(2); 5 C.F.R. § 890.101.

37

See supra note 25.

38

42 C.F.R. § 421.5(b)

14

persuade us that providing it with official immunity would do more

good than harm, as we will explain.39

Finally, BCBST cites a recent unpublished decision, which

purportedly confirms that FEHBA carriers should be treated the same

for official immunity purposes as Medicare carriers.40 The Eleventh

Circuit relied on our Medicare immunity case law to hold that a

FEHBA carrier is an agent of the government, so as to permit the

carrier to remove its case under the officer-removal statute.41

Finding itself bound by our earlier precedent on Medicare carriers,

the Eleventh Circuit stated:

A health plan insurer contracting with a government

agency under a federal benefits program is considered a

‘person acting under’ a federal officer. See Peterson,

508 F.2d at 56-58 (finding § 1442(a)(1) jurisdiction over

a claim by a physician against a health insurer operating

under Medicare”).42

BCBST, thus, contends that because the Eleventh Circuit has

concluded, for the purpose of the officer removal statute, that

they are “a person acting under a federal officer,” then we should

conclude, for the purpose of official immunity, that they perform

a government function.

39

Westfall, 484 U.S. at 299.

40

Anesthesiology Assocs. of Tallahassee, Fla., P.A. v. Blue Cross Blue

Shield of Fla., Inc., 133 Fed. Appx. 738 (11th Cir. 2005) (unpublished).

41

28 U.S.C. § 1442(a)(1); Id. at 4.

42

Id.

15

To the extent that our officer-removal doctrine is relevant to

the instant question, we are still unpersuaded. Indeed, our

Peterson case, on which the Eleventh Circuit relied, extended

“federal officer” status to a BCBST employee who was sued for

malicious prosecution, in discharging a function that, as we have

explained, enjoys a long tradition of immunity.43 The unpublished

Eleventh-Circuit opinion falls well short of demanding that we

extend official immunity to every FEHBA insurer contracting with

the government.

2

Even if BCBST performs a governmental function for purposes of

official immunity, the district court independently concluded that

the “costs of granting official immunity to FEHBA carriers would

outweigh the potential benefit.” The district court’s ruling

followed the Supreme Court’s holding in Westfall that “absolute

immunity for federal officials is justified only when ‘the

contributions of immunity to effective government in particular

contexts outweigh the perhaps recurring harm to individual

citizens.’”44

BCBST argues, contrary to the District court’s holding, that

a weighing of the costs and benefits of immunizing FEHBA carriers

from similar suits favors official immunity. BCBST offers three

43

Peterson v. Weinberger, 508 F.2d 45, 51–52 (5th Cir. 1975).

44

Westfall, 484 U.S. at 295-96 (quoting Doe v. McMillan, 412 U.S. 306,

320 (1973)).

16

justifications of immunity. First, it argues that immunity would

preserve the incentive enrollees have to use preferred and

participating providers that save the government money. It

explains that the availability of negligent misrepresentation

actions would threaten to erase any requirement that the enrollee

pay the difference between the Plan’s payment and the

non-participating provider’s charge, since that difference would be

obtained from the carrier in successful litigation. We are not

persuaded. Any such hypothetical enrollee could seek remuneration

only to the extent represented by BCBST, independent of the plan’s

payment scheme. Indeed, here the hospital seeks only the

remuneration that it says was explicitly promised.

Second, BCBST contends that official immunity would benefit

enrollees. Absent immunity, carriers may become “unduly timid in

carrying out their official duty” and, as a result, might respond

in only a limited way or not at all to provider inquiries about

coverage.45 As a consequence, without sufficient information from

the carrier to determine future payment terms, the provider might

refuse to perform services or the provider might compel the

enrollee to agree in advance to immediate payment. Again, we are

not persuaded. Carriers such as BCBST compete for federal

employees’ subscription dollars. This profit motive is sufficient

to mitigate any timidity that might result from legal

45

Pani, 152 F.3d at 74.

17

responsibility.46 Indeed, as the district court noted, “FEHBA

carriers receive their contracts as a result of a competitive

bidding process” and “competition between carriers is sufficient to

protect th[e government’s monetary] interest.”

Third and most persuasively, BCBST argues that immunity would

further FEHBA’s goal of uniformity in plan administration, since it

would negate the prospect of state law establishing the standards

for carrier conduct, leaving that task solely to OPM. As BCBST

explains, “[P]roviders would not be permitted to pursue lucrative

state law remedies for alleged negligent misrepresentations during

coverage inquiries.” Providers still would have a remedy, however,

potentially available to them: an appeal at OPM, followed by

judicial review, based on an assignment from an enrollee.

Moreover, any wrongful actions on the part of a carrier could also

be corrected through OPM’s police power, with OPM using its

expertise to weigh the potential benefits and burdens to the

program of penalizing a carrier and affording relief to the

enrollee or provider. This benefit is far from controlling, but we

will credit it in our balancing. BCBST has not persuaded us that

uniformity would be exceptionally beneficial to the discharge of

its purported governmental function. And whatever unexceptional

benefits attend uniformity are inherent in every use of official

46

See Austin Munic. Securities, 757 F.2d at 693 (stating “[u]ntil this

potential disincentive is proven to be more than a possibility, it is too

tenuous to warrant the grant to these firms of absolute immunity”).

18

immunity to displace state tort law through implied conflict

preemption and are properly excluded from our balance. The Supreme

Court could not have intended, by its directive to balance the

costs and benefits of official immunity, for this court to rehash

Professor Shapiro’s Federalism: A Dialogue.

A final consideration, Congressional intent, also weighed

heavily in the District court’s denial of official immunity. The

District court opined that, since Congress did not indemnify the

carriers for torts, such as the one the Hospital alleges, it also

must have intended to deny official immunity. This reasoning

follows from, and situates our case in contrast to, the Medicare

cases. The Medicare regulations indemnify intermediaries and

interpose CMS as the real party of interest. BCBST argues that it

would be reimbursed for a judgment in this case,47 but that fact is

unclear. In the absence of clear expression of Congressional

intent, we decline to make the policy decision to extend official

immunity to BCBST on these facts.

The Supreme Court has counseled that a court should not expand

the scope of governmental immunity unless the interests involved

47

BCBST argues that it may charge the government for all reasonable

costs incurred while administering the plan, without exception for court

judgments. Under the reimbursement rules applicable to the Service Benefit

Plan, the carrier draws from the Treasury amounts to cover “cost[s] . . .

[that are] actual, allowable, allocable, and reasonable.” 48 C.F.R. §

1652.216-71(b); see also 2002 CS 1039 § 3.2(b). In particular, the governing

regulations and the contract provisions permit the carrier to charge to the

government “payments made and liabilities incurred for covered health care

services” as well as “legal expenses incurred in the litigation of benefit

payments.” 48 C.F.R. § 1652.216-71(b)(2)(i)-(ii) (emphasis added); see also

2002 CS 1039 § 3.2(b)(2)(i)-(ii).

19

greatly outweigh the costs.48 Immunity comes at a “great cost”

because an “injured party with an otherwise meritorious tort claim

is denied compensation simply because he had the misfortune to be

injured by a federal official.”49 The Hospital argues that this

cost would clearly outweigh any potential benefits from extending

official immunity to protect private insurance carriers like BCBST.

That under the FEHBA preemption clause, BCBST is already protected

from any claims by plan participants who have been denied health

benefits under the plan cuts in favor of both parties.50 The only

claims to be protected by an extension of immunity are the claims

filed against BCBST resulting from its tortious conduct. Not

protecting BCBST from liability for tort claims will indirectly

increase the costs of BCBST’s services, and BCBST will shift these

costs to its customers. That is to say, BCBST has the usual market

incentives to keep its negligence to a minimum and its costs low.

These incentives animated the outsourcing at issue.

Finally, we note that the district court’s ruling also

reflects the public policy considerations that underpin the

assertion of immunity. BCBST is not entitled to assert official

immunity because it does not establish a “firmly rooted” tradition

of immunity for private insurance carriers who provide health

48

See Westfall, 484 U.S. at 295-96.

49

Id. at 295.

50

See 5 C.F.R. 890.107(c).

20

benefit plans to federal employees. There is no evidence that

insurance companies were immune from suit at common law.

This is in contrast with the Medicare cases. Courts have

extended official immunity to carriers and intermediaries

administering Medicare,51 but those cases have involved the

reporting of Medicare fraud, which implicates common law principles

of immunity protecting witnesses in government-sponsored

investigations and adjudications.52 In Seiler, for example, the

question presented was whether a Medicare consultant could be

accountable for libel in reporting potential Medicare fraud.53 And

in Pani, the Second Circuit considered whether a nonprofit

corporate insurance carrier investigating Medicare fraud could

assert official immunity. Pani’s holding, explicitly constrained

to the case’s unique facts,54 depended on the nature of the conduct,

the investigation of Medicare fraud, which more readily aligns with

51

See Pani, 152 F.3d at 72-74 (citing Peterson, 508 F.2d at 58);

Midland Psych. Assocs., Inc. v. United States, 145 F.3d 1000, 1003-05 (8th

Cir. 1998); Bushman v. Seiler, 755 F.2d 653, 655-56 (8th Cir. 1985).

52

See Mangold, 77 F.3d at 1448; see also Group Health Inc. v. Blue

Cross Ass’n., 625 F. Supp. 69, 78 (S.D.N.Y 1985) (“These cases demonstrate

that a court must scrutinize the particular conduct at issue and weigh whether

it is appropriate under the circumstances to protect the private party. In

each case where a government contractor was involved such status was not

significant in the outcome. Rather, the circumstances surrounding the

particular conduct at issue were important to the determination that official

immunity would apply.”).

53

755 F.2d 653.

54

“Because our review is limited to the allegations made in Pani’s

complaint pertaining to the reporting of fraud, we do not reach the issue of

whether official immunity would apply to other conduct of a Medicare carrier

or fiscal intermediary.” Id. at 74.

21

the traditionally protected prosecutorial function of government.

Unlike these Medicare defendants, BCBST’s function is not

prosecutorial or testimonial, both government functions that, in

several different contexts, have been held to cover the social cost

of immunity.

Likewise, the public policy underlying official immunity for

federal officials is not implicated here. The Supreme Court

identified two public policy justifications for the doctrine of

official immunity: (1) the injustice, particularly in the absence

of bad faith, of subjecting to liability an officer who is

required, by the legal obligations of his position, to exercise

discretion; and (2) the danger that the threat of such liability

would deter his willingness to execute his office with the

decisiveness and judgment required by the public good.55 Neither

of these public policy goals are furthered by extending official

immunity to BCBST. Private parties are not required to enter into

contracts with the federal government. They do so for a profit

and, thus, are not required to use discretion in a way that might

unfairly expose them to lawsuits. And, unlike the federal

government, a private party is governed by self interest, not the

public interest. BCBST does not face the dilemma of being required

55

Scheuer v. Rhodes, 416 U.S. 232, 240 (1974), overruled on other

grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982); Davis v. Scherer, 468

U.S. 183 (1984).

22

by law to use its verification-of-coverage discretion in a

policymaking manner that might unfairly expose it to lawsuits.

Ultimately, BCBST does not make a substantial claim. Thus,

the order denying BCBST the protections of official immunity cannot

be reviewed under the collateral order doctrine.

B. Federal Sovereign Immunity

Again invoking the collateral order doctrine, BCBST attempts

to rely on the denial of its assertion of federal sovereign

immunity in order to create both a substantial claim of immunity56

and jurisdiction in this Court. A threshold issue arises: whether

the denial of sovereign immunity is amenable to interlocutory

appeal.

BCBST argues that the circuits are divided over whether a

denial of sovereign immunity is immediately appealable.57 If true,

such a split would provide good evidence of a substantial claim of

immunity. The Hospital contends nevertheless that BCBST is not

entitled to appeal the district court’s adverse ruling on sovereign

56

The Hospital argues that FEHBA waives sovereign immunity and that the

government is not the real party in interest. Four dissenting Justices have

recently expressed the opinion that the federal government is the real party

in interest under FEHBA. See Empire Healthchoice Assurance, Inc., 126 S.Ct.

at 2142 (BREYER, J., dissenting).

57

Compare MCI Telecomms. Corp. v. Alhadhood, 82 F.3d 658, 661 (5th Cir.

1996) (holding that the denial of a sovereign immunity defense under the

Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2), is a collateral

order subject to interlocutory appeal) and In re Sealed Case No. 99-3091, 192

F.3d 995, 999 (D.C. Cir. 1999) (holding that where a district court rejects a

federal agency’s “claim of sovereign immunity,” the “district court’s ruling

is immediately appealable as a collateral order”) with Alaska v. United

States, 64 F.3d 1352, 1356 (9th Cir. 1995) and Pullman Constr. Indus. v.

United States, 23 F.3d 1166, 1168 (7th Cir. 1994).

23

immunity because the sovereign immunity of the United States is not

“a right not to be sued” and may be effectively reviewed on

appeal.58

It is, of course, axiomatic under principles of federal

sovereign immunity “that the United States may not be sued without

58

The Hospital also asserts that BCBST is not asserting a right not to

be sued. This assertion is unavailing. The Hospital argues that BCBST does

not assert an immunity from suit because BCBST asserts that the Hospital

should have to pursue “an administrative appeal at OPM raising a grievance,

with judicial review against OPM after the agency reaches a final decision.”

BCBST contends that the Hospital is required to follow its administrative

claims process:

Federal Employees Health Benefits (FEHB) carriers resolve

FEHB claims under authority of Federal statute (5 U.S.C.

chapter 89). A covered individual may seek judicial review

of OPM’s final action on the denial of a health benefits

claim. A legal action to review final action by OPM

involving such denial of health benefits must be brought

against OPM and not against the carrier or the carrier’s

subcontractors.

5 C.F.R. § 890.107(c). In addition, BCBST’s Service Benefit Plan expressly

provides for judicial review:

If you do not agree with OPM’s decision, your only recourse

is to sue. If you decide to sue, you must file the suit

against OPM in Federal court by December 31 of the third

year after the year in which you received the disputed

services, drugs, or supplies or from the year in which you

were denied precertification or prior approval.

Thus, BCBST actually argues that the Hospital should be permitted judicial

review in federal court—just not at this time. The Hospital argues that this

is not an immunity from suit and maintains that the plain language of the

regulation only permits a “covered individual” to seek administrative and

judicial review—not a third party such as the Hospital. The immunity asserted

by BCBST, the Hospital contends, is akin to “a failure-to-exhaust-

administrative-remedies defense,” not an absolute right not to be sued at all.

See Lauro Lines, 490 U.S. at 501.

This argument is problematic in that the statute authorizes suit against

OPM, not BCBST; it expressly exempts the carrier from suit. Though the point

is well taken that the Hospital would have a remedy if the contested issue

were a standard coverage dispute and that no immunity exists for claims that

fit properly within the statutory framework, the argument is not dispositive

as to whether a suit against BCBST may proceed in an alternate forum; it

clearly cannot. This last argument does not assist the Hospital in defeating

BCBST’s assertion of federal sovereign immunity.

24

its consent and that the existence of consent is a prerequisite for

jurisdiction.”59 Yet the Hospital contends that unlike a state’s

Eleventh Amendment immunity or a foreign sovereign’s immunity from

suit, the sovereign immunity of the United States is not a right

not to be sued.60 In Pullman Construction Industries, Inc. v.

United States,61 the Seventh Circuit reviewed whether an order

denying federal sovereign immunity constituted a collateral order

subject to immediate review under Cohen. In that case, a

bankruptcy debtor brought an adversary proceeding against the

United States to recover, as preferential transfers, approximately

$500,000 in federal taxes paid to the United States during the

90-day period before bankruptcy.62 The United States moved to

dismiss the claim based on its federal sovereign immunity.63 The

district court denied the motion, and the United States filed an

appeal.

On appeal, the Seventh Circuit considered the nature of the

immunity of the United States to determine whether it was an

59

See United States v. Mitchell, 463 U.S. 206, 212 (1983).

60

See Alaska, 64 F.3d 1352; Pullman Constr. Indus., Inc., 23 F.3d 1166;

see also CSX Transp., Inc. v. Kissimmee Util. Auth., 153 F.3d 1283, 1286 (11th

Cir. 1998) (“Because Florida’s state sovereign immunity is only immunity from

liability, it is analogous to federal sovereign immunity. . . . To be

immediately appealable, [the] denial of immunity must have been a denial of an

immunity from suit.”); but see In re Sealed Case No. 99-3091, 192 F.3d 995.

61

23 F.3d 1166.

62

Id. at 1167.

63

Id.

25

absolute right not to be sued, subject to immediate review under

the collateral order doctrine. The United States insisted that its

right not be sued was well settled. The court of

appeals disagreed:

If this is all so clear, one wonders why, in the entire

existence of the United States, the federal government

has never before taken an interlocutory appeal to assert

sovereign immunity. Our case appears to be the first.

Before today the United States has occasionally sought

and received permission to take an interlocutory appeal

on this question under 28 U.S.C. § 1292(b), a puzzling

step if the federal government could appeal of right.64

The Seventh Circuit concluded that federal sovereign immunity from

damages is all that remains:

[T]he United States is no stranger to litigation in its

own courts. Congress has consented to litigation in

federal courts seeking equitable relief from the United

States, . . . and U.S.C. § 106 gives consent in limited

circumstances to litigation seeking money. Indeed, the

United States Code is riddled with statutes authorizing

relief against the United States and its agencies—the

Federal Tort Claims Act, 28 U.S.C. §§ 2671-80; the Tucker

Act, 28 U.S.C. §§ 1346(a), 1491(c); the whole

jurisdiction of the Court of Federal Claims, 28 U.S.C. §§

1491-1509; dozens if not hundreds of sue-and-be-sued

clauses; the list can be extended without much effort.

Now that 5 U.S.C. § 702 exposes the United States to

equitable relief, it is difficult to speak of federal

sovereign immunity as a “right not to be sued.” It is

quite unlike the eleventh amendment . . . . The only

portion of the United States’ original immunity from suit

that Congress continues to assert is a right not to pay

damages-a right circumscribed by statutes such as §

106.65

64

23 F.3d at 1168.

65

Id. at 1168.

26

The court concluded that federal sovereign immunity “today is

nothing but a condensed way to refer to the fact that monetary

relief is permissible only to the extent Congress has authorized

it” and “does not imply that the United States retains a general

‘right not to be sued’ in its own courts for civil litigation in

general or taxation in particular.”66 The court dismissed the

interlocutory appeal for want of jurisdiction.67

In Alaska v. United States, the Ninth Circuit reached an even

stronger conclusion.68 In that case, the state of Alaska filed an

action to quiet title to three river beds against the United

States.69 The United States moved to dismiss the action based on

its sovereign immunity. On appeal, the court noted that “[a]t first

glance, federal sovereign immunity seems to fit comfortably among

the types of immunities for which immediate appeal is

appropriate.”70 However, upon closer inspection, the court found

otherwise:

We hold that, despite the label “immunity,” federal

sovereign immunity is not best characterized as a “right

not to stand trial altogether.” . . . Like immunity from

service of process (leading to lack of personal

jurisdiction), federal sovereign immunity is better

viewed as a right not to be subject to a binding

66

Id.

67

Id. at 1170.

68

64 F.3d 1352 (9th Cir. 1995).

69

Id. at 1353-54.

70

Id. at 1355.

27

judgment. Such a right may be vindicated effectively

after trial.71

The court then dismissed the United States’s appeal for want of

jurisdiction.

The Court of Appeals for the District of Columbia has reached

the opposite conclusion, yet under circumstances too

distinguishable to create a circuit split. When a district court

ordered the Department of Justice to prosecute the Office of

Independent Counsel (“OIC”) for criminal contempt,72 the In re

Sealed Case court held that an order denying federal sovereign

immunity may be reviewed under the collateral order doctrine.73

There the OIC allegedly violated the federal grand jury secrecy

rules by leaking information regarding a possible indictment of

President Clinton for perjury and obstruction of justice in the

Paula Jones case. In its ruling, the D.C. Circuit distinguished

Pullman Construction and Alaska. First, the court noted that

Pullman Construction and Alaska were civil cases (for which

Congress has extensively waived federal sovereign immunity). As

the court of appeals observed, “it is far from clear that Congress

has waived federal sovereign immunity in the context of criminal

71

Id.

72

See In re Sealed Case No. 99-3091, 192 F.3d 995, 997 (D.C. Cir. 1999).

73

Id.

28

contempt.”74 Second, after discussing the rationale that federal

sovereign immunity can no longer be considered an absolute right

not to be sued, the court openly doubted “that federal sovereign

immunity is so limited, especially in the unique circumstances

presented here.”75

We are persuaded by Pullman Construction and find In re Sealed

Case distinguishable for the very reasons identified by the D.C.

Circuit. The federal government’s extensive waiver of forum

immunity, as detailed in Pullman Construction, simply does not

extend to criminal proceedings against federal officers.

Moreover, the special considerations at play in In re Sealed Case

— a special prosecutor facing down the justice department — do not

exist in the instant case. Indeed, Congress has waived sovereign

immunity in the FEHBA context as to coverage disputes brought by

federal employee patients.

Finally, BCBST draws our attention to this court’s recent en

banc decision in In re Supreme Beef Processors, where we

interpreted a provision of the bankruptcy code purporting to waive

federal immunity as a waiver of forum immunity only. BCBST argues

that Supreme Beef’s recognition of federal immunity from suit

forecloses our reliance on Alaska. We agree that our reasoning in

74

Id. at 999-1000 (“We know of no statutory provision expressly waiving

federal sovereign immunity from criminal contempt proceedings.”).

75

Id. at 1000 (emphasis added).

29

Supreme Beef is in tension with Alaska’s holding that Federal

sovereign immunity is an immunity from damages only. However,

Supreme Beef is consistent both with Pullman Construction and In re

Sealed Case. Indeed, the Congressional waiver of forum immunity

identified in Supreme Beef is but one of many provisions in the

U.S. Code authorizing suit against the United States. And as the

Seventh Circuit explained in Pullman Construction, these waivers,

in aggregate, have overwhelmed the United States’ forum immunity,

such that “the only portion of the United States’ original immunity

from suit that Congress continues to assert is a right not to pay

damages.”76 Hence, in accord with the Seventh Circuit, we hold that

a denial of federal sovereign immunity is not subject to immediate

review under the collateral order doctrine in the present context.

We pass no judgment on the merits of BCBST’s assertion of sovereign

immunity.

C. Pendent Appellate Jurisdiction

Since neither assertion of immunity creates an independent

basis for review — no substantial claim of official immunity and

no presently justiciable claim of federal sovereign immunity — we

need not entertain BCBST’s invitation to exercise pendent appellate

jurisdiction over any claim not otherwise amenable to interlocutory

appeal.

DISMISSED.

76

Pullman Construction, 23 F.3d at 1168.

30

31