BODIMETRIC HEALTH SERVICES v. Aetna Life & Cas., 87 C 3465.

• Decision Date: 09 February 1989
• Docket Number: No. 87 C 3465.,87 C 3465.
• Citation: 706 F. Supp. 619
• Court: U.S. District Court — Northern District of Illinois
• Parties: BODIMETRIC HEALTH SERVICES, INC., et al., Plaintiffs, v. AETNA LIFE & CASUALTY, et al, Defendants. United States of America, Intervenor.

706 F. Supp. 619

BODIMETRIC HEALTH SERVICES, INC., et al., Plaintiffs, v. AETNA LIFE & CASUALTY, et al, Defendants.

United States of America, Intervenor.

No. 87 C 3465.

United States District Court, N.D. Illinois, E.D.

February 9, 1989.

Leonard C. Homer, Carel T. Hedlund, David B. Hamilton, Ober Kaler Grimes & Shriver, Baltimore Md., George J. Koelzer, Ober Kaler Grimes & Shriver, New York City, Theodore R. Tetzlaff, Michael Rigney, Jenner & Block, Chicago, Ill., for plaintiffs.

Jack R. Bierig, David F. Graham, Robert M. Portman, Sidley & Austin, Chicago, Ill., John Ahearn, Aetna Life Ins. Co., Hartford Conn., for defendants.

James P. White, Asst. U.S. Atty., Donna Morros Weinstein, Chief Counsel, Region V, Richard A. Urbin, Asst. Regional Counsel, Chicago, Ill., for proposed intervenor.

MEMORANDUM AND ORDER

MORAN, District Judge.

Plaintiff American Service Bureau ("ASB"), and two of its subsidiaries, Bodimetric Health Services, Inc. ("BHS") and Bodimetric Home Health Care, Inc. ("BHC"), bring this action against defendants Aetna Life & Casualty and Aetna Life Insurance Company (collectively referred to as "Aetna"), alleging fraud and wrongful misconduct in the processing of their claims to reimbursement under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. ("Medicare Act" or "Act"). Plaintiffs, Illinois corporations, previously provided home health care and related services to Medicare patients across the nation.

In 1984 plaintiff BHS nominated Aetna to act as its fiscal intermediary pursuant to 42 U.S.C. § 1395h. Plaintiffs allege that Aetna, in its zeal to impress the government with its effectiveness in reducing health-care costs, arbitrarily and unlawfully denied plaintiffs reimbursement to which they were entitled, engaging in a pattern of fraudulent practices designed to ruin plaintiffs' business. Plaintiffs recite claims under various state tort theories and the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964(c) ("RICO"). The United States seeks intervention and, together with Aetna, moves to dismiss, raising jurisdictional and immunity defenses. We deny the motion for intervention as moot and grant the motion to dismiss.

BACKGROUND

The Medicare program provides health insurance for the aged and disabled under the Social Security Amendments of 1964, Pub.L. No. 89-97, Title 1, 79 Stat. 286 (1965). The Department of Health and Human Services ("HHS") administers the program through the Health Care Financing Administration ("HCFA"). Reimbursement under the program is divided into two parts: Part A of the Medicare program covers the costs incurred by eligible beneficiaries for certain hospital and home health services (§§ 1395c-1395i-2); Part B provides elective supplemental coverage for certain expenses, including physicians' fees and laboratory tests (§§ 1395j-1395w).

HHS reimburses home health care providers the cost of services, including part-time or intermittent care provided by nurses and/or home health aides; physical, occupation or speech therapy; and medical social services rendered under the direction of a physician. Section 1395y(a)(1)(A) precludes reimbursement for services "which ... are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." To that end, in order to be reimbursed for home health services, § 1395f(a)(2)(C) requires certification by a physician that the services were needed, that the individual was confined to the home (with some exceptions), and that there was a developed plan—with periodic review—for the administration of such services under the supervision of a physician ("plan of treatment"). Home health care providers are entitled to reimbursement of the lesser of their customary charges or reasonable costs, including operational costs of related organizations (§ 1395f(b)).

Under the terms of the Act private organizations play a "considerable role" in the administration of both the hospital insurance and supplementary plans. See S.Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S.Code Cong. & Admin.News 1943, 1992. Section 1395h permits health care providers to nominate a public or private agency to act as a fiscal intermediary for the purposes of facilitating payments under Part A of the program.¹ The Secretary of HHS is authorized to contract with such an agency to provide "for the determination ... of the amount of the payments required ... to be made to eligible health care providers" (§ 1395h(a)). Those contracts require the fiscal intermediary to review claims for compliance with coverage requirements, determine the reasonable cost of services, make payments directly to health care providers, provide consultative services, communicate to providers any information or instruction from HCFA, audit provider records and assist with utilization review activities. Id., 42 C.F.R. § 421.100; Intermediary Agreement, Amended Complaint, Exhibit 1, Article II. The intermediary reviews, processes and pays claims of a provider throughout the year on a per-visit basis. At the end of the fiscal year the provider submits a cost report which is audited by the fiscal intermediary, who then issues a determination as to the final amount of reimbursement due to the provider by Medicare, and it reconciles claim payments made during the year to determine any overpayment or underpayment (42 U.S.C. § 1395g).

If a claim for reimbursement under the Act is denied, health care providers may request a reconsideration by the intermediary, 42 C.F.R. §§ 405.710(b), 405.711. If the claim exceeds $100, the provider has the right to be heard before an administrative law judge ("ALJ"), 42 C.F.R. § 405.720, and may also request review by the Appeals Council, 42 C.F.R. § 405.724. If the amount in controversy exceeds $1,000, the provider may appeal to the United States District Courts, 42 C.F.R. § 405.730. Congress intended the remedies provided by these review procedures to be exclusive. See S.Rep. No. 404, supra at 1995.

Congress drafted the provisions of the Act with the intention that private health care organizations would employ their administrative expertise to aid HCFA in managing the program. See S.Rep. No. 404, supra at 1976 (describing a role for private agencies in framing regulations under the Act's provisions), 1990 (noting that state agencies and private organizations would have a "major administrative role"). In anticipation of the complications which might arise from the involvement of private entities in the administration of such a large public program, Congress provided the Secretary with authority to indemnify intermediaries against certain liabilities:

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.

Id. The original HHS regulations borrowed language directly from the Senate Committee's report. See 20 C.F.R. § 405.670 (1970); Kuenstler v. Occidental Life Insurance Co., 292 F.Supp. 532, 535 (C.D.Calif.1968). In 1980, HHS reorganized and renumbered these regulations. 45 Fed.Reg. 42178 (June 23, 1980). The text of the revised version was slightly altered:

Indemnification of intermediaries and carriers. Intermediaries and carriers act on behalf of HCFA in carrying out certain administrative responsibilities that the law imposes. Accordingly, their agreements and contracts contain clauses providing for indemnification with respect to actions taken on behalf of HCFA and HCFA is the real party of interest in any litigation involving the administration of the program.

42 C.F.R. § 421.5(b).

Guided by these principles, Aetna and HHS entered into an agreement which provides:

In the event the Intermediary or any of its directors, officers, employees, or other persons who are engaged or retained by the Intermediary to participate directly in the claims administration process, are made parties to any judicial or administrative proceeding arising, in whole or in part, out of any functions of the Intermediary under this agreement in connection with any claims for benefits by any ... provider of services, the Secretary shall, to the extent permitted by law, hold the Intermediary harmless for all judgments, settlements ... awards, and costs, in favor of such ... provider of services, incurred by the Intermediary or any of its directors, officers, or employees or other persons who are engaged or retained by the Intermediary to participate directly in the claims administration process, in connection therewith.

However, the agreement further provides that the Aetna shall reimburse HHS for

any valid judgment or award paid by the United States in the discharge of the Secretary's obligations under this Article if the liability underlying the judgment or award was the direct consequence of conduct on the part of the Intermediary determined by judicial proceedings or the agency making the award to be criminal in nature, fraudulent, or grossly negligent; provided, however, the Intermediary shall not be required to reimburse the Secretary that portion of an award or judgment directly attributable to an allowable program benefit under Title XVIII of the Act.

Plaintiffs' allegations

Plaintiff BHS was the owner of a chain of home health agencies qualified to provide services under the Medicare program. BHS agencies began servicing Medicare patients in 1980 and were then reimbursed by the Office of Direct Reimbursement ("ODR"), a component of HCFA. Plainti...