Pani v. Empire Blue Cross Blue Shield, Docket No. 97-7086

Citation152 F.3d 67
Decision Date24 July 1998
Docket NumberDocket No. 97-7086
PartiesKailash C. PANI, M.D., and Kailash C. Pani, M.D., P.C., Plaintiffs-Appellants, v. EMPIRE BLUE CROSS BLUE SHIELD, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Arthur R. Block, New York City, for Plaintiffs-Appellants.

Jeffrey D. Chansler, New York City (Kathleen L. Ames, Office of Jeffrey D. Chansler, New York City, Of Counsel ), for Defendant-Appellee.

Gideon A. Schor, Assistant United States Attorney (Mary Jo White, United States Attorney for the Southern District of New York, Steven M. Haber, Assistant United States Attorney, Of Counsel ), for Amicus Curiae United States of America.

Before: VAN GRAAFEILAND and WALKER, Circuit Judges, and KOELTL, District Judge. *

JOHN M. WALKER, JR., Circuit Judge:

This appeal raises the issue of whether a private insurance company is entitled to official immunity when acting as a fiscal intermediary or a carrier on behalf of the United States in the administration of a Medicare program. We hold that a fiscal intermediary or carrier is immune from suit for torts that arise out of the performance of its duty to investigate and report possible Medicare fraud.

BACKGROUND

Plaintiff-appellant Kailash C. Pani, M.D., a neurosurgeon and sole principal in plaintiff-appellant Kailash C. Pani, M.D., P.C. (collectively "Pani"), maintained a medical practice in Tarrytown, New York. Defendant-appellee Empire Blue Cross Blue Shield ("Empire") was the Medicare carrier for Westchester County under contract to the Department of Health and Human Services ("HHS"). Under the Medicare Act, 42 U.S.C. § 1395 et seq., a "carrier" is a private insurance company that contracts with HHS to administer claims submitted under the Medicare "Part B" program, a voluntary supplemental medical insurance program Between September 1981 and February 1983, Pani submitted Medicare claims to Empire for a procedure Pani called a "facet rhizotomy." At first Pani submitted claims that did not contain a procedure code. After Empire's claims department assigned the code "5211," a code for rhizotomy, to these claims based on the procedure described by Pani, Pani submitted several more claims using that code number.

while a "fiscal intermediary" is a private insurance company that contracts with HHS to administer major medical claims under the Medicare "Part A" program. See 42 U.S.C. §§ 1395h(a), 1395u(a). As a carrier, Empire was responsible for processing Medicare claims submitted by health-care providers, including assigning authorization codes, making payments, and reviewing claims for possible fraud. Id.

Sometime in 1983, Empire reported to HHS that it suspected Pani had submitted claims for procedures he had not performed or for procedures that were not "facet rhizotomies." Following an investigation by the United States Attorney's Office, Pani was indicted on nine counts of mail fraud, in violation of 18 U.S.C. §§ 1341-42; 63 counts of filing false claims against the government, in violation of 18 U.S.C. § 287; and 50 counts of conversion of government funds, in violation of 18 U.S.C. § 641. See United States v. Pani, 717 F.Supp. 1013, 1014 (S.D.N.Y.1989). Pani was ultimately convicted, following a bench trial, on four counts of mail fraud, three counts of making false claims, and three counts of conversion. See id. The district judge acquitted Pani on the remaining counts finding that Empire "certainly had an obligation to find out more about what they were approving, and they were ... on warning that these were not rhizotomies, surgical rhizotomies, performed in a hospital." United States v. Pani, 83 CR. 0735, Hearing tr. at 10-11 (S.D.N.Y. May 14, 1984). In subsequent proceedings, Pani was found liable to the federal government for civil damages under the False Claims Act, 31 U.S.C. §§ 3729-31, and convicted in a state prosecution for Medicaid fraud. See United States v. Pani, No. 86 Civ. 4970, slip op. at 5-6 (S.D.N.Y. Oct. 15, 1991); United States v. Pani, 717 F.Supp. 1013, 1019 (S.D.N.Y.1989); People v. Pani, 138 A.D.2d 532, 525 N.Y.S.2d 912 (N.Y.App.Div.1988).

In October of 1993, Pani filed suit in New York state court against Empire. Pani's complaint sought $10 million based on claims for (1) negligence; (2) tortious interference with contractual relations; and (3) breach of contract arising out of Empire's report to the United States government of possible fraud by Pani. Empire removed the action to federal district court pursuant to 28 U.S.C. §§ 1441(b) and 1442(a)(1), which permits removal by "[t]he United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office."

Empire's initial answer asserted that Pani had failed to state a claim and that Pani's claims were barred by the statute of limitations. On April 18, 1995, the United States moved to be substituted as the proper party defendant, or, alternatively, to be allowed to intervene pursuant to Fed.R.Civ.P. 24. The United States also moved to dismiss Pani's complaint under Fed.R.Civ.P. 12(b)(1) and (6) for lack of subject matter jurisdiction, for failure to state a claim, and because Pani's claims were barred by the statute of limitations, or, in the alternative, for summary judgment. On the same day, Empire sought leave to file an amended answer in order to assert official immunity as an additional defense and moved to dismiss the complaint for the reasons submitted in the government's brief.

The United States District Court for the Southern District of New York (Sidney H. Stein, Judge ) granted Empire's motion to dismiss and denied the government's motion as moot. Pani v. Empire Blue Cross Blue Shield, No. 93 Civ. 8215, 1996 WL 734889 (S.D.N.Y. Dec. 23, 1996). Pani's breach of contract claim was dismissed for lack of subject matter jurisdiction, pursuant to Fed R. Civ. P. 12(b)(1) and 42 U.S.C. § 1395u(b)(3)(c). Id., 1996 WL 734889 at * 3. The claim for tortious interference with contractual relations was dismissed because Pani had failed to establish the prima facie elements On appeal Pani challenges the dismissal of his negligence and tortious interference claims, but not the dismissal of his breach of contract claim. Pani contends, inter alia, that Empire is not entitled to official immunity and that even if it is, it was procedurally improper for the district court to dismiss his complaint on that basis under Rule 12(b)(6). He also argues that the district court abused its discretion in dismissing his complaint without granting him leave to amend.

of the tort. Id., 1996 WL 734889 at * 2. Finally, the district court dismissed Pani's claim for negligence on the ground of official immunity, and added that immunity provided an alternative basis for dismissing Pani's other claims. Id., 1996 WL 734889 at * 3-* 5.

DISCUSSION

We review the dismissal of a complaint under Rule 12(b)(6) de novo, taking as true the material facts alleged in the complaint and drawing all reasonable inferences in favor of the plaintiff. See Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996); Jackson Nat'l Life Ins. Co. v. Merrill Lynch & Co., 32 F.3d 697, 699-700 (2d Cir.1994). A dismissal under Rule 12(b)(6) for failure to state a cognizable claim may be affirmed only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1494 (2d Cir.1992); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

A. Official Immunity

The district court dismissed Pani's claim for negligence on the ground that Empire was entitled to official immunity for acts taken in its capacity as a Medicare carrier. In doing so, however, the district court recharacterized--and enlarged--Pani's claim for negligence, probably based on Pani's own recharacterization of that claim at oral argument. Pani's complaint confined Empire's alleged wrongdoing to investigating and reporting Pani for fraud. It alleged that Empire had "duly assigned a procedure code" of 5211 to the facet rhizotomy claims submitted by Pani and not that the code assigned was improper or that Empire had failed to follow proper administrative procedures in assigning the code. 1 The district court, however, described Pani's claim as one for negligence "for assigning [Pani] an improper billing code, for failing to verify that code with HHS, and for subsequently reporting to HHS that Pani had filed fraudulent reimbursement claims using that same code." Pani, 1996 WL 734889, at *4.

We limit our review, as we must, to the allegations contained within the four corners of Pani's complaint. See Newman & Schwartz v. Asplundh Tree Expert Co., 102 F.3d 660, 662 (2d Cir.1996)(" '[i]n considering a motion to dismiss for failure to state a claim ... a district court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference' " (quoting Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991))); Jojola v. Chavez, 55 F.3d 488, 494 (10th Cir.1995) (same); Palda v. General Dynamics Corp., 47 F.3d 872, 875 (7th Cir.1995) (same); Doyle v. Oklahoma Bar Ass'n, 998 F.2d 1559, 1566 (10th Cir.1993) (same). Accordingly, the only issue before us is whether a Medicare carrier is entitled to official immunity for the performance of its duty to investigate and report possible fraud.

Several circuits have held that a fiscal intermediary or carrier is entitled to sovereign immunity on the rationale that the suit Fewer circuit courts have decided the issue of whether fiscal intermediaries and carriers are entitled to official immunity for discretionary acts taken within the scope of their authority under the Medicare Act. See, e.g., Bushman v. Seiler, 755 F.2d...

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