# Opposition Brief — Pani v. Empire Blue Cross Blue Shield

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1056%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1999
- **Citation:** 525 U.S. 1103

## Text

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?

il

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

il

1]

12

18

ill

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 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

vill

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
|

6

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1056%3A2. Public record. Not legal advice.