Opposition Brief — Pani v. Empire Blue Cross Blue Shield

ee eee

Supreme Court, U.S

ne Ge BE aek y'

DEC 17 1998

No. 98-661

OFFICE OF THF CLERE

In The

Supreme Court of the United States

>

October Term, 1998

KAILASH C. PANI, M.D. and KAILASH C. PANI, M.D., P.C.,

Petitioners,

VS.

EMPIRE BLUE CROSS BLUE SHIELD,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

RESPONDENT?’S BRIEF IN OPPOSITION

JEFFREY D. CHANSLER

Counsel of Record

KATHLEEN L. AMES

JOYCE TICHY

EMPIRE BLUE CROSS BLUE SHIELD

Attorneys for Respondent

622 Third Avenue

New York, New York 10017-6758

(212) 476-3207

150309 ©) Counsel Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 + (800) 359-6859

i

QUESTIONS PRESENTED

1. Are Medicare carriers and intermediaries entitled to

official immunity under this Court’s holdings in Westfall y.

Erwin, 484 U.S. 292, 108 S. Ct. 580 (1988) and Richardson vy.

McKnight, 521 U.S. 399, 117 S. Ct. 2100 (1997)?

2. Do the Westfall Act or the Medicare Act prohibit official

immunity for Medicare Carriers?

3. Does the “discretionary function” exception to the

Federal Tort Claims Act (“FTCA”) apply to this case?

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TABLE OF CONTENTS

Questions Preewmied... os kc ik

Table af Comienit ok 5 eee

Statement of Jucisdiouoe | 3 cee oc iw eek he

Statutory and Regulatory Provisions ...............

Statement OF the Case ok eee eee ee

A.

B.

é.

D.

The Medacare PrOgeet ike cscs Goss ies

Previous Litigations Involving Pani .........

The District Court’s Decision ..............

The Second Circuit’s Decision .............

Reasons for Denymay the Wit 2.2 Oi es

I.

Il.

III.

The Court Of Appeals’ Decision Is Correct. ..

The Court Of Appeals’ Decision Is Not In Conflict

With Richeranens is kes ea ees

Neither The Westfall Act Nor The Medicare Act

Precludes Official Immunity For Medicare

CORR os CE aC ee

Page

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1]

12

18

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Contents

_

Page

IV. There Is No Conflict Between The Ftca And

Common Law Immunity Doctrine As To The

Meaning Of “Discretionary” Conduct. ....... 20

ZS

CN oe ee AAs ek ake ERENT OCA

iv

TABLE OF CITED AUTHORITIES

Page

Cases:

Barr v. Mateo, 360 U.S. 564, 79 S. Ct. 1335 (1959)

Oe wee P ew k AE a a 13,18

Berkovitz v. United States, 486 U.S. 531, 108 S. Ct. 1945

CF 6 ee eee a es 22

Bodimetric Health Servs. v. Aetna Life & Cas., 903 F.2d

Mae CTR GP ir es ee 15

Bushman vy. Seiler 755 F.2d 653 (8th Cir. 1985) ..... 18

Butz v. Economou, 438 U.S. 478, 98 S. Ct. 2894 (1978)

ep ae BAe ee Ra EPS ae Pe a 13

Group Health Inc. v. Blue Cross Ass'n, 739 F. Supp. 921

Ce ae oO ie Rees ho 9 Ba eS Te hee 18

Harlow v. Fitzgerald, 457 U.S. 800, 102 S. Ct. 2727

PEAS 5 no ices ob 9 Ces on ee eae Oe 13, 16

Heckler v. Ringer, 467 U.S. 51, 104 S. Ct. 2218 (1984)

aE a tere Tires Wee Pane Bo ore a ed Se tee Ghee 2

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

SE sori res Che ee ee a ee 8, 21

Midland Psychiatric Ass'n. Inc. v. U.S., 969 F. Supp. 543,

551 (1997), aff'd, 145 F.3d 1000 (8th Cir. 1998)

OIE PO EO eel NN IOP Mee Oe ET ECR Be 10, 18, 19, 20

Cited Authorities

Page

Molzof v. United States, 502 U.S. 301, 112 S. Ct. 711

FES sas eke ee ee 21

Nixon v. Fitzgerald, 457 U.S. 731, 102 S. Ct. 2690 (1982)

RENEE LE SH SE Dy Pee MOL Neen ee PE Teer eI ee 13

Pani v. Empire Blue Cross and Blue Shield, 93 Civ. 8215,

1996 WL 734889 (S.D.N.Y. Dec. 23, 1996) ...... 7

People v. Pani, 138 A.D. 2d 532, 525 N.Y.S. 2d 912 (2d

Cheat, PROG 5 is is se ee es Oe ee 6

Peterson v. Blue Cross/Blue Shield, 508 F.2d 55 (Sth

Cir.), cert. denied, 422 U.S. 1043, 95 S. Ct. 2657

CET E es Sais tes ce ee oe eee 17,18

Peterson v. Weinberger, 508 F.2d 45 (Sth Cir.) cert.

denied, 423 U.S. 830, 96 S. Ct. 50 (1975) ........ 17

Pine View Gardens, Inc. v. Mutual of Omaha Ins. Co.,

B65: 3 26 1673 1D.C. Ce TR oS ee 17

Richardson v. McKnight, £21 U.S. 399, 117 S. Ct. 2100

UST avis toa vcore ees : O10, 32. $5, 14.15; 16, 36

Westfall v. Erwin, 484 U.S. 292, 108 S. Ct. 580 (1988)

Pe sa gia os ae tae tk A ei ere aa i, 8, 10, 11, 14, 20, 21

United States v. Erika, Inc., 456 U.S. 201, 102 S. Ct.

pags) SRR ane arene M ter er eA sane gh! Paces og a 2

vi

Cited Authorities

Page

United States v. Gaubert, 499 U.S. 315, 111 S. Ct. 1267

CUSED cdc cchs ekeedareede? Ci canes eervoeere 22, 23

Wyatt v. Cole, 504 U.S. 158, 112 S. Ct. 1827 (1992) . 13

Statutes:

IS USL..6 207 ...cccddieiei<xisgs evusosewe 5

USC. 6641 o50c50ici eee fas

BB U.S.C. 6 156) on vic vsccavasacTeeheaceive ues. 5

1S U.S. § 139628 oi ceisecvnsiitclsieaveteneee 5

PBUSL. § 1441 onan ccescacsvsvavdaoueeene 6

ZEUSL. 8 260) oi cidccide tested 21

cp RUS. om ky). Serene eet peur terry 5 6

42 USAC. 66 1393 OF IO. 6.o6 se kei sa hesan Sanemen 2

42 U.S.C. ES LISS C1SG oii cise ee AS ese 2

42 USS. % 13966 6 is convent cintgastcoaeee 2

42 U.S.C..6 TS95RMS) onc cas ch cece insebuaaeeveeen 3

A2 USL. 3 19986... oiciecs as 6406 Senne4eee eset 2

a lin RNs Als Mia Me

vil

Cited Authorities

Page

42 U.S.C. §§ 1395j-1395w .... 2... cece eee eee eee 2

Pv ys Sk ob.’ RA een ere rrr es Parr rt 2

ry Zit Som bs eee enn eer reryer ye rt er ee 2

> RGR om Bk. Sipe perrrrrer or rer ras errs 2

rySte Jom Bk (| Tere Perr eee 3

43 U.S.C. 6 FSGS) in ons os is res eh eke iva eds l

42 U.S.C. & US9SACOA) onions sec eke ca saa es 3

Pe gik Tame Bk A rr reer wr eer eres 2

Po ASR Vode 2. eer ry ae ere 12, 13, 14, 16

Rule:

Federal Rule of Civil Procedure 12(b)(6) ........... 7

Other Authorities:

ribak £ Ye Wb) ene pr ry Terre rar ere 2

42 CFR. § 405.37) 2c wi ccc enc cc cc ceeses 2,6

rueen f ME +i eC) re errr Terr eer 3

>a on 2 eT vie | i errr r reer eres eee eer 3

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Cited Authorities

Page

Oe Seat i es oa Cetin ieee ees 1,6

Department of Health and Human Services, CFO Audit

Action 1998 WL 213154 (Apr. 24, 1998) ......... 3

S. Rep. No. 404, 89th Cong., Ist Sess., reprinted in 1965

U.S. Code Cong. & Admin. News 1943, 1992-95 .. 15

1

STATEMENT OF JURISDICTION

The petition for a writ of certiorari erroneously represents

that it is based upon a judgment of the United States Court of

Appeals for the Ninth Circuit, when in fact it is the Second

Circuit which affirmed the decision of the United States District

Court for the Southern District of New York, 93 Civ. 8215

(SHS) (S.D.N.Y. Dec. 20, 1996).

STATUTORY AND REGULATORY PROVISIONS

42 U.S.C. § 1395u(b) provides, in pertinent part

Contract with carrier under subsection (a) may be

entered into without regard to section 3709 of the

Revised Statues [41 USCS § 5] or any other

provision of law requiring competitive bidding...

42 C.F.R. § 421.200 Carrier Functions

A contract between HCFA and a carrier . . . specifies

the functions to be performed by the carrier which

must include, but are not necessarily limited to, the

following:

(2) [the] carrier takes appropriate action

to reject or adjust the claim if —

(i) Carrier determines that the

services furnished were not

reasonable, not medically

necessary, or not furnished in the

most appropriate setting;

(ii) Carrier determines that the claim

does not properly reflect the

kind and amount of services

furnished.

2

42 C.F.R. § 405.371(b) provides in pertinent part:

[W]here the intermediary or carrier has reliable

evidence that the circumstances giving rise to the

need for a suspension of payments involved fraud

or willful misrepresentation, . . . the intermediary

Or carrier may suspend payments without first

notifying the provider or other supplier of an

intention to suspend payments.

STATEMENT OF THE CASE

A. The Medicare Program

Medicare is a vast national health insurance program that

processes and pays the medical claims of tens of millions of

elderly and disabled Americans every year. See United States

v. Erika, Inc., 456 U.S. 201, 210 n.11, 102 S. Ct. 1650, 1655

n.11 (1982). The Medicare program was established in 1965

under Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395

et seq. (the “Medicare Act”). The Medicare Act consists mainly

of Part A, 42 U.S.C. §§ 1395c-1395i, and Part B, §§ 1395j-

1395w. Part A provides major medical insurance coverage for

hospital care and related post-hospital service, and is funded

out of Social Security taxes. 42 U.S.C. §§ 1395d, 13951; see

Heckler v. Ringer, 467 U.S. 51, 104 S. Ct. 2218 (1984). Part B

establishes a voluntary program of supplemental medical

insurance that provides, in general, for reimbursement of 80

percent of the reasonable cost of certain physician services,

outpatient physical therapy, x-ray, laboratory testing and similar

medical services. 42 U.S.C. § 1395/, 42 C.F.R. § 405.231; see

Erika, 456 U.S. at 202. Part B is financed through the Federal

Supplementary Insurance Trust Fund, which, in turn, is funded

by appropriations from the Treasury together with monthly

premiums paid by the individuals who voluntarily enroll. See

42 U.S.C. §§ 1395r, 1395t, 1395w.

3

In order to meet the extensive administrative obligations

imposed by the Medicare program “with maximum efficiency

and convenience for individuals entitled to benefits . . . and for

providers of services,” Congress authorized the Secretary of

the Department of Health and Human Services (“HHS”) to enter

into contracts with private insurance carriers to administer the

claims process. 42 U.S.C. §§ 1395h(a), 1395u(a). These health

insurance companies are called “fiscal intermediaries” when

they administer Medicare Part A claims, and “carriers” when

they administer Part B claims.

Medicare carrier contracts are not conventional

Government contracts. Instead, pursuant to Congress’ specific

legislative scheme, they are unique legal arrangements which

are not awarded on the basis of competitive bidding, see 42

U.S.C. § 1395u(b)(1); 42 C.F.R. § 421.5(a), which contain

automatic renewal clauses for continuation from term to term

unless either party gives notice, see 42 C.F.R. § 421.5(f}, see

also JA 135 (Part B Contract, Article XX VI), which prohibit

the carrier from earning a profit on the contract, and which

require the carrier to pass costs directly on to the Government,

see JA 123 (Part B Contract, Article XV, § A) (“It is the intent

of this contract that the Carrier, in performing its functions

under this contract, shall be paid its cost of administration under

the principle of neither profit nor loss to the Carrier.”).

Fraud and abuse occur within the Medicare program every

day. “Medicare fraud exacts an enormous toll on the public

fisc — estimated losses from fraud and other improper Medicare

payments exceed $20 billion a year.” Pani v. Empire Blue Cross

and Blue Shield, 152 F.3d 67, 73 (2d Cir. 1998) (App. A), citing

Department of Health and Human Services, CFO Audit Action

1998 WL 213154 (Apr. 24, 1998). Another important aspect of

the distinctive relationship between the Government and

Medicare carriers is the Government’s heavy reliance on the

4

Carriers to monitor and report potential fraud and abuse. HCFA

guidelines' require Medicare carriers to alert HHS of possible

instances of fraud and abuse, see, e.g., JA 52 (Medicare Part B

Carriers Manual 1400 (charging carrier with responsibility to

alert HHS of suspected fraud)), and in fact provide fifty-seven

pages of instructions concerning the carrier’s responsibility to

develop programs for detecting and reporting potential fraud

and abuse, and to cooperate with the Government in its fraud

and abuse investigations. (JA 51-108).

The carriers and fiscal intermediaries that administer

the millions of Medicare claims filed annually are

indispensable components of the governmental

program and are in a unique position to combat the

drain on public resources caused by fraudulent

claims.

Pani, 152 F.3d at 73. So great is the Government’s need for

cooperation by carriers and their employees in its anti-fraud

efforts that its contracts with carriers also expressly provide

for indemnification to the carriers in the event of a retaliatory

suit (JA 122-23) (Medicare Part B Contract Article XIV), and

it promises a defense by the United States Attorney’s office to

carriers’ fraud unit employees who may be sued in connection

with their work. Carriers Manual at 14006 (JA 64).

B. Previous Litigations Involving Pani

Petitioner Kailash Chandra Pani (‘Pani’) is one contributor

to the illicit drain on Medicare that occurs through fraud and

abuse. Pani held a license to practice medicine in New York

from 1975 until his license to practice medicine was revoked

1. As indicated by the Joint Appendix (JA 52), these guidelines

are in the public record and available through the Government Printing

Office.

A i a a

5

on August 30, 1989, as a result of criminal and civil convictions

resulting from his submission of false Medicare and Medicaid

claims. Respondent Empire Blue Cross and Blue Shield

(“Empire”) is a not-for profit health insurer licensed to do

business under Article 43 of the New York State Insurance

Law.’ Pursuant to contracts with HCFA, Empire is the Medicare

Part B carrier and Medicare Part A fiscal intermediary for

Westchester County in New York State.

In the course of processing Medicare claims filed by Pani,

Empire became aware of the possibility that he was engaging

in fraud. As it was obligated to do pursuant to the HCFA

guidelines, Empire notified the Government of the suspected

fraud. The Government thereupon conducted an investigation

of Pani, and brought a criminal action against him in the United

States District Court for the Southern District of New York, in

which Pani was convicted on May 14, 1984 on four counts of

mail fraud (18 U.S.C. §§ 1341-42), three counts of making false

claims against the United States (18 U.S.C. § 287) and three

counts of conversion of Government funds (18 U.S.C. § 641)

in connection with Medicare claims he had submitted to Empire.

(JA 145-68). Specifically, the District Court found that Pani

had not performed the services for which he had billed and

sought reimbursement from Empire. (JA 148-52). Furthermore,

2. As the United States pointed out to the Court of Appeals below

(United States amicus brief at 31), Empire’s not-for-profit status is an

additional indicator of the appropriateness of affording it immunity from

Pani’s suit, as it not only has no contractual incentive, but also no

corporate incentive, to minimize the financial losses resulting from

Medicare fraud. While petitioners correctly point out that Empire, like

many other Blue Cross and Blue Shield plans throughout the country,

has taken steps to acquire for-profit status, this does not negate the fact

that at the time of Pani’s investigation and conviction for Medicare fraud,

Empire held not-for-profit status. Nor does it negate the fact that Empire,

whatever its corporate form, does not earn a profit on its Medicare

operations.

I EE Sn ee eee

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Pani was convicted in New York State Supreme Court on one

count of grand larceny in the second degree and three counts

of offering a false instrument for filing in the first degree, in

connection with claims he submitted to New York State’s

Medicaid Program (the state criminal action). People v. Pani,

138 A.D. 2d 532, 525 N.Y.S. 2d 912 (2d Dept. 1988).* Also as

a result of Pani’s submission of false Medicare claims to

Empire, the United States obtained a civil judgment against

him on October 31, 1991 in the amount of $32,640 pursuant to

the False Claims Act, 31 U.S.C. § 3729. (JA-175).

C. The District Court’s Decision

Petitioners filed this action against Empire in 1993 in New

York State Supreme Court, alleging three state tort claims:

negligence, tortious interference with contractual relations, and

breach of contract. Pani, 152 F.3d at 70 (App. A at 4a). Virtually

ignoring the successful portions of the Government’s prior cases

against Pani, the complaint alleged that, as to those portions in

which the Government had not obtained a conviction or

judgment, Empire had mishandled his claims, improperly

notified the Government of its suspicions of fraud, improperly

failed to pay him for the claims that were under scrutiny, and

improperly cooperated with the Government’s investigation and

development of its cases against him. In short, the complaint

sought monetary damages from Empire on the theory that it

was not Pani’s own proven misconduct, but Empire’s

cooperation with the Government — precisely the type of

conduct the Government requires of its Medicare carriers, see

42 C.F.R. §§ 405.371(b), 421.200 — that formed the basis for

his ultimate legal and business troubles.

Empire removed the action to the federal court pursuant to

28 U.S.C. § 1441. (JA 7-9). Its initial answer asserted the

3. Empire is not involved in the administration of the Medicaid

program.

>

defenses of failure to state a claim and failure to file within the

statute of limitations. On April 18, 1995 the United States filed

a motion requesting to be substituted as the proper party

defendant, or, alternatively, to be allowed to intervene in the

action, and also requesting dismissal of the action for lack of

subject matter jurisdiction, for failure to meet the. statute of

limitations, or alternatively for summary judgment. On the same

day, Empire sought leave to file an amended answer asserting

the additional defense of official immunity, and also joined

the United States’ motion for dismissal.

The District Court granted Empire’s motion to dismiss by

dismissing the complaint with prejudice, and denied the United

States’ motion as moot. Pani v. Empire Blue Cross and Blue

Shield, 93 Civ. 8215, 1996 WL 734889 (S.D.N.Y. Dec. 23,

1996) (App. B). The court held that Pani’s breach of contract

claim lacked subject matter jurisdiction, that his claim for

tortious interference with contractual relations lacked the prima

facie elements of that tort, and that his claim for negligence, as

well as his other two claims, were barred on the ground of

- official immunity. /d., 1996 WL 734889 (App. B at 22a-27a).

D. The Second Circuit’s Decision

Pani appealed, claiming that the District Court erred in

holding Empire entitled to official immunity.‘ The Second

4. In his appeal, Pani also claimed that it was procedurally improper

for the District Court to dismiss the case under Rule |12(b)(6), and that

the District Court erred in dismissing the complaint without allowing

him leave to amend. In affirming, Second Circuit rejected both

arguments. In fact, the court found the dismissal without leave to amend

proper for three separate reasons. First, “Pani never requested leave to

amend from the District Court, and on appeal he has made no showing

that he would be able to amend his complaint in a manner that would

survive dismissal.” Pani, 152 F.3d at 76 (App. A at 16a-17a). Second,

(Cont'd)

Circuit affirmed. The court began its analysis of the immunity

question by citing almost a dozen federal court decisions that

have held that Medicare intermediaries and carriers are immune

from state tort suits. Pani, 152 F.3d at 72 (App. A at 7a-9%a).

The court then reviewed the law on official immunity as it has

developed under Westfall v. Erwin, 484 U.S. 292, 295-297, 108

S. Ct. 580 (1988), which holds that “a federal official is shielded

from state-law tort liability for acts that are discretionary in

nature and fall within the outer perimeter of the official's

duties.” Pani, 152 F.3d at 72 (App. A at 7a-9a). Noting that

this same test applies to nongovernmental entities such as

Medicare intermediaries and carriers who are performing work

on the Government’s behalf, see Mangold v. Analytic Servs.,

Inc, 77 F.3d 1442, 1446-1450 (4th Cir. 1996), the court held

that Empire’s actions in this case clearly fell within the category

of discretionary functions entitled to immunity under Westfall

since “[t]he investigation and reporting of possible Medicare

fraud is precisely the type of delegated discretionary function

that the public interest requires to be protected by immunity.”

Pani, 152 F.3d at 73 (App. A at 10a). The court also considered,

(Cont'd)

“it is virtually certain that Pani’s claims would be barred by the statute

of limitations.” /d. at 76 (App. A at 17a). Third,

[I]t is extremely doubtful that there would be subject matter

jurisdiction to consider such a complaint in light of the

express limitations Congress placed on judicial review of

agency determination of Medicare “Part B” claims filed

before 1987.

Id. Pani does not challenge any of these in his petition befere this Court.

Accordingly, even if this Court were to grant the petition, petitioners’

case would nevertheless fail on the dual grounds that he failed to file

within the statute of limitations, and that his case fails to provide the

court with subject matter jurisdiction.

—

9

and rejected, Pani’s claim that a contrary result would be

mandated under this Court’s recent decision in Richardson v.

McKnight, 521 U.S. 399, 117 S. Ct. 2100 (1997), in that, as

distinct from the case before it,

Richardson involved a § 1983 action for

constitutional violations; the defendants were

employees of a private for-profit company; the

conduct at issue was held not to be an essential or

traditional government function; and the Court

expressly state that its holding was a narrow one

and did “not involve a private individual . . . serving

as an adjunct to government in an essential

government activity.”

Pani, 152 F.3d at 73 (App. A at 12a). Here by contrast, a

Medicare carrier’s functions are defined by an unique statutory

scheme under which its actions are, by Congressional design,

“indispensable components” of a governmental program of such

great “complexity and magnitude” that their delegated role is

no less critical to the program’s success than that of the

Government itself. In these circumstances, the court concluded,

Medicare carriers must be allowed to administer the program

free of “the costs of vexations and often frivolous damages suits

that may arise from such conduct,” lest the fear of such suits

make them “unduly timid in carrying out their duty to

investigate and report ‘suspected fraud.” Pani, 152 F.3d at 74

(App. A at 13a).

REASONS FOR DENYING THE WRIT

While this case illustrates the extremes to which an

individual will go, even after his criminal conviction, to attempt

to transfer the blame for his criminal acts away from himself,

it presents no “compelling reasons,” as required by this Court’s

Rules, warranting the issuance of a writ of certiorari. The

10

Second Circuit’s holding is clearly correct, and presents no

important issue of federal law, for it is merely one of a long

line of cases that have appropriately enunciated this Court’s

holding in Westfall that a federal official is immune from state

tort claims “for acts that are discretionary in nature and fall

within the outer perimeter of [its] duties,” Pani, 152 F.3d at 72

(App. A at 7a-9a), and that also have appropriately applied that

test to non-governmental entities such as Medicare carriers that

conduct the Government’s business.

Nor is there any reason existing outside the four corners of

the Second Circuit’s decision mandating review of this case.

That decision creates no conflict with any other Court of

Appeals; to the contrary, there is virtual unanimity among the

federal courts, including as recently as this year, see, e.g.,

Midland Psychiatric Ass’n., Inc. v. U.S., 145 F.3d 1000 (8th

Cir. 1998), that Medicare carriers are entitled to immunity for

their work on behalf of Medicare. Nor is there any conflict

here with a state court of last resort. Nor, contrary to petitioners’

claims, is there any conflict between the Second Circuit’s

decision below and this Court’s recent ruling in Richardson v.

McKnight, 521 U.S. 399, 117 S. Ct. 2100 (1997), for the Court

of Appeals also properly stated and applied the rule of law set

down in Richardson, to the limited extent of its applicability to

the highly distinguishable circumstances here.

In fact, this is precisely the kind of case that should be left

to the Courts of Appeals to decide, for it is one among many

through which the scope of Richardson will be interpreted,

distinguished, and/or clarified within the broadly developed

Westfall line of cases. For this Court to reconsider the issue of

official immunity now, before Richardson's teachings have had

the chance to percolate through the Courts of Appeals, would

disserve the historic relationship between the levels of review

that underlie the writ’s discretionary limitations.

|

I.

THE COURT OF APPEALS’ DECISION IS CORRECT.

This Court’s holding in Westfall provides that “‘a federal

official is shielded from state-law tort liability for acts that are

discretionary in nature and fall within the outer perimeter of

the official’s duties.” Pani, 152 F.3d at 72 (App. A at 9a), citing

Westfall. As the Second Circuit correctly noted, the courts have

adopted this same test in determining the scope of official

immunity afforded to government contractors charged with state

tort violations. Pani, 152 F.3d at 72 (App. A at 9a), citing cases.

Here, without question, Empire’s actions both are

“discretionary in nature” and “fall within the outer perimeter”

of its duties. As the court noted,

The investigation and reporting of possible Medicare

fraud is precisely the type of delegated discretionary

function that the public interest requires to be protect

by immunity.

Pani, 152 F.3d at 72 (App. A at 10a). It would be impossible to

conclude otherwise, as these duties are specifically required of

Medicare carriers in the HCFA Medicare Manual (JA 52). In

fact, petitioners do not even argue that the Second Circuit either

incorrectly enunciated or misapplied Westfall in so concluding.

As importantly, the decision of the Second Circuit

accurately reflects the special relationship between Medicare

carriers and the Government that Congress envisioned, and

thereby advances not only Congress’ intent but also the public’s

significant interest in the Medicare program’s effectiveness,

efficiency and financial soundness. Indeed, the allegations that

lie at the heart of this case are challenges to the best aspects of

12

that relationship, in which the Government has delegated critical

functions such as fraud detection and reporting to the carriers,

with the expectation that they use their own initiative to

effectuate that important work. Were carriers to be faced with

the significant downside of “vexatious litigation” such as this

case for taking these kinds of steps, the success of the entire

Medicare program’s anti-fraud efforts would be seriously

undermined.

THE COURT OF APPEALS’ DECISION IS NOT

IN CONFLICT WITH RICHARDSON.

Petitioners’ primary goal is to create the false illusion that

there is sufficient similarity between this case and Richardson

v. McKnight, 521 U.S. 399, 117 S. Ct. 2100 (1997), to warrant

a second guessing of the Second Circuit’s decision to grant

immunity to Empire. But the two cases are, as the Second

Circuit correctly recognized, so distinguishable on the facts

and the law that the result in Richardson cannot control here.

Richardson was an actior by an inmate under 42 U.S.C.

§ 1983 against two prison guards employed by a private sector

correctional institution for deprivation of his constitutional

rights by placing him in extremely tight physical restraints.

Recognizing at the outset the special nature of section 1983 as

a Statute that “creates a species of tort liability that on its face

admits of no liabilities,” this Court noted that its prior decisions

had nevertheless, albeit circumspectly, extended a qualified

immunity from section 1983 suits where the

tradition of immunity was so firmly rooted in the

common law and was supported by such strong

policy reasons that Congress would have specifically

so provided had it wished to abolish the doctrine.

13

521 U.S. 399, 117 S. Ct. at 2103. Then, analyzing the history

surrounding the issue of immunity for privately employed prison

guards as it would have appeared to the Congress that enacted

section 1983, as well as the purposes behind the immunity

doctrine, the Court concluded that neither one furnished the

evidence that Congress would have wanted to nullify the

protections of section 1983 by extending immunity to such

persons.

Contrary to what petitioners would have this Court believe,

the Second Circuit did not ignore or misapply this analysis.

Rather, the Court of Appeals addressed, and rejected,

petitioners’ claim that Richardson mandates a denial of official

immunity to Empire. First, the court below noted, the legal

theories underlying this case and Richardson are critically

different, 153 F.3d at 74. Richardson concerned a constitutional

claim for the violation of the most basic of individual rights

through personal force, 521 U.S. 399, 117 S. Ct. at 2105,

whereas petitioners’ only alleged causes of activn are state tort

claims arising out of Empire’s denial of payments and its

reporting of Pani’s suspected fraud to the Government. This

Court has taken account of the obvious differences in the weight

of these two kinds of interests by finding official immunity to

be more limited as against constitutional claims than as against

state tort claims. See, e.g., Nixon v. Fitzgerald, 457 U.S. 731,

747, 102 S. Ct. 2690, 2700 (1982): Barr v. Mateo, 360 U.S.

564, 572-576, 79 S. Ct. 1335, 1340-1342 (1959); Butz v.

Economou, 438 U.S. 478, 508-512, 98 S. Ct. 2894, 2911-2913

(1978) (distinguishing Barr v. Mateo by noting that, “[A] quite

different question would have been presented had the officer

ignored an express statutory or constitutional limitation on his

authority”); Harlow v. Fitzgerald, 457 U.S. 800, 807-808, 102

S. Ct. 2727, 2732 (1982); Wyatt v. Cole, 504 U.S. 158, 112 S.

Ct. 1827, 1831 (1992) (“[I]}rrespective of the common law

support, we will not recognize an immunity available at

14

common law if § 1983’s history or purpose counsel against

applying it in § 1983 actions.”). While Richardson represents

the more rigorous test applicable to section 1983 claims against

private entities employed by a government, Westfall provides

the test for state tort claims against government contractors.

In addition, the Court of Appeals recognized that there are

dispositive factual distinctions between this case and

Richardson. In Richardson, this Court carefully limited its

holding to the very specific facts of that case.

[W]e have answered the immunity question

narrowly, in the context in which it arose. That

context is one in which a private firm, systematically

organized to assume a major length administrative

task (managing an institution) with limited direct

supervision by the government, undertakes that task

for profit and potentially in competition with other

firms.

Id., 521 U.S. 399, 117 S. Ct. at 2108. As the Second Circuit

noted, Empire is different from the Richardson prison company

in almost every one of these respects.

In Richardson, the relevant government body, the State of

Tennessee, had clearly indicated an intention not to align its

interests with the private prison company by barring state

sponsored indemnification for such companies regarding civil

rights claims. /d., 521 U.S. 399, 117 S. Ct. at 2106-07. Here,

the opposite is true. The Medicare Act’s legislative history

shows that Congress anticipated and intended that the federal

Government work hand in hand with Medicare carriers and

intermediaries, so much so that 1t would voluntarily take on

the entirety of the legal responsibility for the lawsuits that would

arise out of the Medicare program.

15

In the performance of their contractual undertakings,

the carriers and fiscal intermediaries would act on

behalf of the Secretary carrying on for him the

governmental administrative responsibilities

imposed by the bill. The Secretary, however, would

be the real party in interest in the administration of

the program, and the Government would be expected

to safeguard the interests of his contractual

representatives with respect to their actions in the

fulfillment of commitments under the contracts and

agreements entered into by them with the Secretary.

S. Rep. No. 404, 89th Cong., Ist Sess., reprinted in 1965 U.S.

Code Cong. & Admin. News 1943, 1992-95, cited in Bodimetric

Health Servs. v. Aetna Life & Cas., 903 F.2d 480, 487 (7th Cir.

1990). By virtue of this Congressional design, a Medicare

intermediary or carrier so completely stands in the

Government’s shoes that a number of courts have found it

entitled to sovereign immunity in the same manner as the

Government itself. See Pani, 152 F.3d at 72, citing cases;

Bodimetric v. Aetna Life & Cas., 903 F.2d 480 (7th Cir.), cert.

denied, 111 S. Ct. 579 (1990) (Congress apparently did not

differentiate between the respective abilities of public and

private agencies to serve as fiscal intermediaries.”). Thus the

Second Circuit was justifiably comfortable in its conclusion

that, at the very least, a Medicare carrier serves “as an adjunct

to [the] government in an essential government activity,”

warranting official immunity. Pani, 152 F.3d at 74, citing

Richardson, 521 U.S. 399, 117 S. Ct. at 2108.

Furthermore, unlike the prison company in Richardson

Empire is a not-for-profit corporation which, even if its

corporate structure allowed it to do so, is not entitled under its

contract with HCFA to make a profit on its Medicare operations.

Whereas in Richardson the private prison company did not need

16

the protection afforded by the doctrine of official immunity

since “competitive pressure” would provide “strong incentives

to avoid overly timid, insufficiently vigorous, unduly fearful

or non-arduous employee job performance,” id., 117 S. Ct. at

2106-07, Empire neither gains any discernible benefit from

aiding the Government in its anti-fraud efforts, nor does it have

any financial incentive to accept the costly risks of the kind

represented by this suit. Thus, a lack of official immunity for

carriers would deter organizations like Empire from entering

into carrier contracts with the Government, see Harlow, 457

U.S. at 814 (expressing concern about the deterrence of an able

citizen from acceptance of public office), and, even where those

contracts were entered into, would deter them from working

“vigorously” to promote the Government’s anti-fraud efforts.

Notwithstanding the Second Circuit’s careful parsing of

Richardson, petitioners claim that it erroneously omitted to

conduct the kind of “historical analysis” that petitioners would

deem analogous to Richardson. Yet far from being an error,

the Second Circuit’s approach once again reflected the

significant legal and factual distinctions between Richardson

and the case before it. The particular purpose behind

Richardson’s historical analysis was to determine whether,

given that section 1983 was at the heart of the case, there was

at the time of section 1983's enactment a such a strong “tradition

of immunity ... in the common law” that Congress’s silence

on the matter should not be taken as an intent to abolish it.

Richardson, 521 U.S. 399, 117 S. Ct. at 2103. Thus, the

Richardson analysis was, in effect, an attempt to fill in the

legislative history of section 1983.

To look at the history of immunity at the time of section

1983’s passage would, needless to say, be an odd procedure in

a case such at this where that statute is irrelevant. It would be

odder still to look back a century when, as petitioners

17

themselves point out, the Medicare program which is under

review “is fewer than 35 years old.” (Petition at 10).

Nevertheless, petitioners seem to advocate just such an unusual

result. They propose that a court must look back in time, not to

the point of Medicare’s passage, or to the time when the

Government first began to enlist the services of Medicare

intermediaries and carriers, or to any other remotely appropriate

point, but to the time before Medicare existed at all, to

determine whether official immunity was afforded to private

health insurance companies for tortious acts. The analysis as

so structured would accomplish petitioners’ self-serving goal,

for no history of official immunity would of course exist in an

arena during a time before there was any governmental activity

there.

A more thoughtful analysis, and the one that the Court of

Appeals employed, is to look to the circumstances surrounding

the enactment of the Medicare program, along with the

regulations and case law surrounding it, to determine whether

affording immunity to a Medicare carrier for cooperating with

Governmental fraud investigations is consistent with the intent

of the Medicare law and regulations. Such an analysis leads to

a resounding yes. It is clear from the many protections the

Government has offered to Medicare carriers and their

employees, including indemnification, representation, and

substitution as the proper party in lawsuits, that the Government

intends to insulate these entities from the negative impact of

suits brought in retaliation for their aid to the Government. And

the courts have so recognized for at least twenty five years by

holding Medicare carriers and intermediaries immune from suit.

See, e.g., Pine View Gardens, Inc. v. Mutual of Omaha Ins.

Co., 485 F.2d 1073, 1074-75 (D.C. Cir. 1973); Peterson v.

Weinberger, 508 F.2d 45, 51 (Sth Cir.) cert. denied, 423 U.S.

830, 96 S. Ct. 50 (1975); Peterson v. Blue Cross/Blue Shield,

508 F.2d 55, 57 (Sth Cir.), cert. denied, 422 U.S. 1043, 95 S.

18

Ct. 2657 (1975). This has consistently been the state of the law

up to the present day. Recent cases continue to afford immunity

to Medicare carriers and intermediaries, see, e.g., Midland

Psychiatric Ass'n. v U.S., 145 F.3d 1000, 1003-04 (8th Cir.

1998); Group Health Inc. v. Blue Cross Ass'n, 739 F. Supp.

921, 932-33 (S.D.N.Y. 1990), as well as those who work for

them, see, e.g., Bushman vy. Seiler, 755 F.2d 653, 655 (8th Cir.

1985).

Finally, while petitioners also fault the Court of Appeals

for failing to identify the purposes of the official immunity

doctrine to their satisfaction, there is once again no error in

that Court’s analysis. For the Second Circuit quite clearly

articulated the fact that, unlike in Richardson, the Government

here has an obvious need to obtain full cooperation from its

Medicare carriers and intermediaries in its fraud fighting efforts,

particularly in the absence of any financial incentives. This

need mandates a finding that official immunity be afforded to

these entities lest “the threat of liability might appreciably

inhibit the fearless, vigorous and effective administration of

policies of government.” Barr v. Mateo, 360 U.S. at 571, 79S.

Ct at 1339.

III.

NEITHER THE WESTFALL ACT NOR THE MEDICARE

ACT PRECLUDES OFFICIAL IMMUNITY FOR

MEDICARE CARRIERS.

Petitioners next ask this Court to discover a conflict, never

before identified by any judicial opinion on this subject,

between common law official immunity for Medicare carriers

and the legal protections afforded to those carriers under the

Westfall Act and the Federal Tort Claims Act. First outlining

the significant lengths to which Congress and HCFA have gone

ee

19

to shield Medicare carriers from suit, including by providing

for indemnification and substitution of the United States as the

real party in interest in cases involving the Medicare program,

petitioners then assert that in affording these protections

Congress and HCFA somehow signaled an intent that Medicare

carriers not be afforded official immunity.

However disgruntled petitioners may be over the different

forms of legal protection afforded Medicare carriers, there is

nothing in the Medicare Act, the Westfall Act, their legislative

history, any applicable regulations, or any of the cases affording

immunity to Medicare carriers which even remotely suggests

that official immunity is in “conflict” with these other

protections. In fact, Congress’ announced intention to indemnify

Medicare carriers and to substitute the United States as the real

party in interest in these suits indicates just the opposite;

namely, that Congress wanted to give Medicare carriers the

maximum protection available under the law, and certainly

more than typically afforded to other government agents, in

exchange for the extensive responsibilities that they were

accepting on a no-profit basis.

And while petitioners profess there to be “no need” for the

protection of official immunity where such other protections

exits, this case itself is an illustration of the fallacy of that

statement. For the fact is that, notwithstanding the theoretical

possibility that the United States could choose to be substituted

as the real party in interest in cases involving the Medicare

program, Empire has no control over whether the Government

actually does so. In this case, the Government took no action

to be so substituted for more than a year after the suit was filed,

and though it ultimately did move for substitution the District

Court denied its motion as moot at that time. (JA-197). This is

not the first case in which such circumstances have arisen. See

Midland Psychiatric Ass'n. Inc. v. U.S.,969 F. Supp. 543, 551

20

(1997), aff'd, 145 F.3d 1000 (8th Cir. 1998) (noting that

Government’s withdrawal of request to be substituted for

Medicare carrier precluded application of FTCA). Thus the

“extra protection’ of the FTCA that petitioners find so redundant

and unfair is simply not available to Empire here. Given the

reality of this litigation scenario, official immunity does, and

should, “remain[{] a viable defense for” Empire. Midland, 969

F. Supp. at 552.

Finally, despite petitioners’ protestations that they will

never get their full day in court against the United States 1f this

matter is dismissed, they were free to file this action at the

outset against both Empire and the United States but appear to

have chosen for strategic reasons (one possibility being the

avoidance of the Government’s own immunity defense) not to

do so. Thus it is without any foundation that petitioners now

claim that their avenues for relief have been unfairly cut off by

the availability to Empire of official immunity in addition to

its other legal protections.

IV.

THERE IS NO CONFLICT BETWEEN THE FTCA AND

COMMON LAW IMMUNITY DOCTRINE AS TO THE

MEANING OF “DISCRETIONARY” CONDUCT.

In their final attempt to pique this Court’s interest in their

Case, petitioners accuse the Court of Appeals — and all the

other courts cited below that have held Medicare carriers and

intermediaries entitled to immunity — of failing to recognize

yet another imagined confusion in the law. According to

petitioner, the common law definition of discretionary acts that

has developed under Westfall for purposes of the official

immunity doctrine is inappropriately broader than the meaning

this Court has given to the “discretionary function” exception

21

set forth in the FTCA, 28 U.S.C. § 2680(a). Therefore, suggest

petitioners, this Court’s review is necessary to straighten out

this inconsistency.

There are three reasons why this claim presents no basis

for certiorari review. First, petitioners’ claimed conflict is

purely theoretical, for there has never been any argument that

the FTCA applies to this case. Rather, Westfall‘s holding,

including that portion that relates to the subject of discretionary

acts (which petitioners nowhere claim to have been

misconstrued by the Court of Appeals), is the test to be used

for the official immunity defenses raised by individuals and

private entities like Empire that face state-law tort claims arising

from their performance of governmental functions. See Mangold

v. Analytic Servs, Inc., 77 F.3d 1442, 1446-50 (4th Cir. 1996)

(private Government contractor absolutely immune from state-

law tort liability under Westfall for responding to and

cooperating with government investigation). In order to address

petitioner's claim, the Court would have to interpret and apply

the FTCA to the facts of this case on a purely theoretical basis,

which would run contrary to its mandate to decide only those

issues Of law that are actually presented by the case before it.

Second, even assuming the nonexistent circumstance that

the FTCA did apply to this case, there is no conceptual

impropriety in giving the FTCA’s “discretionary function” test

a different scope than that which triggers official immunity. In

Molzof v. United States, 502 U.S. 301, 310-11, 112 S. Ct. 711,

717 (1992), this Court discussed this very statutory term in order

to illuminate its interpretation of another provision of the FTCA.

In so doing, the Court forthrightly acknowledged that common

law standards had not been incorporated in judicial explications

of what is a “discretionary function,” and the Court saw no

error in this. To the contrary, it was clearly comfortable with

the concept that such a term could have different statutory and

common law meanings.

22

Third, even if it were necessary to incorporate the FTCA

discretionary function test into the common law official

immunity doctrine, Empire’s actions in this case would still

meet that test. In support of the contrary claim, petitioners assert

that under Berkovitz v. United States, 486 U.S. 531, 108 S. Ct.

1945 (1988), Empire’s conduct “could not be found to be

discretionary,” because the acts of which they complain have

not been shown to be part of sufficiently high level policy

making decisions to qualify as discretionary. However, in

United States v. Gaubert, 499 U.S. 315, 325, 111 S. Ct. 1267,

1275 (1991), this Court, in applying Berkovitz, rejected just

such an interpretation. In that case, the shareholder of an

insolvent savings and loan sued the United States, alleging that

federal regulators had insufficiently supervised the association's

directors and officers. The United States moved to dismiss under

the FTCA’s discretionary function exception. This Court agreed

that the exception barred the claim. Said the Court:

A discretionary act 1s one that involves choice or

judgment; there 1; nothing in that description that

refers exclusively to policymaking or planning

functions. Day-to-day management of banking

affairs, like the management of other business,

regularly requires judgment as to which of a range

of permissible courses is the wisest. Discretionary

conduct is not confined to the policy or planning

level. “[I]t is the nature of the conduct, rather than

the status of the actor, that govern whether the

discretionary function exception applies in a giver

case.”

Id., 499 U.S. at 325, 111 S. Ct. at 1275 (citations omitted).

Here, the conduct complained of was to assign procedure codes

to Pani’s questionable medical procedures and then later to

investigate and report the insurance claims that he had submitted

23

to obtain reimbursement for those procedures, while

withholding payments. In line with Gaubert, these activities

required judgment and decision making on the part of Empire

employees. Petitioners do not complain that these actions “were

controlled by mandatory statutes or regulations,” Gaubert, id.,

499 US. at 330, 111 S. Ct. at 1277. Nor can they deny that

“these day-to-day ‘operational’ decisions were undertaken for

policy reasons of primary concern to the regulatory agenc[y].”

Id., 499 U.S. at 332, 111 S. Ct at 1278. Consequently, following

the analysis of Gaubert, Empire would also be entitled to

dismissal of this suit under the FTCA’s discretionary function

exception.

CONCLUSION

For the reasons set forth above, the petition for a writ of

certiorari should be denied.

Respectfully submitted,

JEFFREY D. CHANSLER

Counsel of Record

KATHLEEN L. AMES

JOYCE TICHY

EMPIRE BLUE CROSS BLUE SHIELD

Attorneys for Respondent

622 Third Avenue

New York, New York 10017-6758

(212) 476-3207