U.S. ex rel. Sarasola v. Aetna Life Ins. Co.

• Decision Date: 28 January 2003
• Docket Number: No. 01-14291. Non-Argument Calendar.,01-14291. Non-Argument Calendar.
• Citation: 319 F.3d 1292
• Parties: UNITED STATES of America, ex rel., Valentin SARASOLA, Mario Cardoso, qui tam, Plaintiffs-Appellees, v. AETNA LIFE INSURANCE COMPANY, a foreign corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1292

319 F.3d 1292

UNITED STATES of America, ex rel., Valentin SARASOLA, Mario Cardoso, qui tam, Plaintiffs-Appellees, v. AETNA LIFE INSURANCE COMPANY, a foreign corporation, Defendant-Appellant.

No. 01-14291. Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

January 28, 2003.

Thomas C. Dearing, John Patrick Marino, LeBoeuf, Lamb, Greene & MacRae, L.L.P., Jacksonville, FL, John Scarola, Searcy, Denney, Scarola, Barnhart & Shipley, West Palm Beach, FL, for Defendant-Appellant.

Philip M. Burlington, Caruso, Burlington, Bohn & Compiani, P.A., West Palm Beach, FL, for Plaintiffs-Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT and KRAVITCH, Circuit Judges, and DOWD^*, District Judge.

TJOFLAT, Circuit Judge:

In United States ex rel. Body v. Blue Cross & Blue Shield of Alabama, Inc., 156 F.3d 1098 (11th Cir.1998), we held that an insurance company occupying the role of "fiscal intermediary" in processing Medicare Part A claims is immune from liability, under 42 U.S.C. § 1395h(i)(3), in a qui tam suit brought under the False Claims Act, 31 U.S.C. § 3729(a), for knowingly approving false or fraudulent Part A claims for payment by the United States government. The interlocutory appeal in this qui tam action presents the question of whether such immunity bars a claim that the fiscal intermediary breached its obligation to audit the records of a Medicare service provider.

I.

A.

Medicare is a federal health insurance program for the aged and disabled. 42 U.S.C. §§ 1395 et seq. Administered by the Centers for Medicare & Medicaid Services ("CMS"),¹ a division of the Department of Health and Human Services ("HHS"), Part A provides benefits for "hospital, related post-hospital, home health services, and hospice care." Id. § 1395c. To participate in the Medicare program, a health care provider must enter into an agreement ("Provider Agreement") with the Secretary of HHS ("Secretary"). Id. § 1395cc. After entering into such an agreement, the provider is reimbursed directly for the reasonable cost of services provided to Medicare patients.

CMS fulfills its administrative duties under Part A by contracting with third parties — typically large private insurance companies — to serve as fiscal intermediaries. See id. § 1395h. The fiscal intermediaries have one central function: reimburse providers for the reasonable cost of health care services on behalf of Medicare beneficiaries. Id. §§ 1395h, 1395u. In carrying out this function, the fiscal intermediaries are obligated to audit the records of health care providers "as necessary" to ensure that proper payments are made. 42 C.F.R. § 421.100(c); see also 42 U.S.C. § 1395h(a).

To understand how the auditing function fits within a fiscal intermediary's duties, it is necessary to understand how the reimbursement scheme operates.² After providing health care services to a Medicare beneficiary, the provider files a claim for reimbursement with the fiscal intermediary. The intermediary, in turn, reimburses the provider "as often as possible," 42 § C.F.R. 413.60(c), and on a "most expeditious schedule," id. § 413.64(a). Accordingly, fiscal intermediaries make pre-audit payments known as periodic interim payments ("PIPs") at least monthly. 42 U.S.C. § 1395g(e); 42 C.F.R. § 413.60. The PIP amount is an estimate derived from projections of the services the provider is likely to render in the current fiscal year ("FY").³ These PIPs are necessary to enable the providers to continue day-to-day operations and avoid the cash-flow shortage that would stem from a prolonged delay between the time a service is provided to a beneficiary and the time the provider is reimbursed for the service. See River Garden Hebrew Home for the Aged v. Califano, 507 F.Supp. 221, 223 (M.D.Fla.1980). PIPs usually account for the bulk of the providers' receipts in any given fiscal year.

A reconciliation process begins at the end of a provider's fiscal year to determine whether the provider was overpaid or underpaid for its actual costs as a result of the estimated PIPs. To begin, the provider is required to submit a fiscal year-end cost report that details the costs incurred for Medicare beneficiaries. 42 C.F.R. §§ 413.20, 413.24(f). Absent obvious errors, the fiscal intermediary assumes the cost report to be correct and makes "an initial retroactive adjustment." Id. § 413.64(f)(2). The adjustment "bring[s] the interim payments made to the provider during the ... [previous year] into agreement with the reimbursable amount payable to the provider for the services furnished to program beneficiaries...." Id. § 413.64(f)(1). If the provider was underpaid during the year, the fiscal intermediary remits the appropriate amount to the provider. On the other hand, if the provider was overpaid, the provider either returns the overpayment amount or the fiscal intermediary adjusts downward the provider's current-year PIP payments to recoup the overpayment. See id. § 405.1803(c). The fiscal intermediary thereafter conducts an audit of the provider's year-end cost report and issues a notice setting forth the total amount of reimbursement due under the program. Id. § 405.1803(a). A final retroactive adjustment is made to account for any outstanding overpayment or underpayment. See id. § 413.64(f)(2).

Because the reimbursement scheme calls for estimated payments based on a provider's representations, the auditing function is a critical part of the overall scheme to administer Part A of Medicare. The Medicare statute requires the Secretary to develop standards, criteria, and procedures for evaluating the overall performance of fiscal intermediaries. As part of this performance evaluation, fiscal intermediaries are judged in part for their ability to make "[c]orrect coverage and payment determinations." 42 C.F.R. § 421.120(a)(1).

In carrying out its functions, a fiscal intermediary is shielded in part from lawsuits by a grant of statutory immunity. The immunity section provides:

(1) No individual designated pursuant to an agreement under this section as a certifying officer shall, in the absence of gross negligence or intent to defraud the United States, be liable with respect to any payments certified by him under this section.

(2) No disbursing officer shall, in the absence of gross negligence or intent to defraud the United States, be liable with respect to any payment by him under this section if it was based upon a voucher signed by a certifying officer designated as provided in paragraph (1) of this subsection.

(3) No such agency or organization shall be liable to the United States for any payments referred to in paragraph (1) or (2).

42 U.S.C. § 1395h(i) (emphasis added).

B.

Until its dissolution in 1995, St. Johns Home Health Agency, Inc. ("St. Johns"), a Florida not-for-profit corporation, operated as a home health agency under a Florida license. Arnold Friedman was its chief executive officer. In 1976, St. Johns entered into a Provider Agreement with CMS⁴ to act as a provider of home health services to homebound patients under Part A of the Medicare Program. The home health services rendered by St. Johns included skilled nursing care, physical therapy, occupational and speech therapy, medical social services, and home health aides' services.

In July 1982, Aetna Life Insurance Company ("Aetna") entered into a contract with CMS to serve as the fiscal intermediary for the State of Florida. As such, Aetna was responsible for fulfilling the supervisory and administrative responsibilities set forth in the Medicare Act and accompanying federal regulations. Thus, Aetna was responsible for processing and disbursing payments to St. Johns for services rendered in the form of the bi-weekly PIPs, and also for conducting necessary audits and making appropriate adjustments for overpayment or underpayment to St. Johns.

C.

Before turning to the qui tam case before us, it is necessary to understand the history of the relationship between St. Johns, Aetna, and CMS. During 1992 and 1993, Aetna and St. Johns were in substantial disagreement over the dollar amount of the Medicare reimbursements St. Johns was entitled to receive during FYs 1990 through 1993.⁵ In 1992, Aetna issued a notice, indicating that St. Johns had been overpaid nearly $2.8 million for FYs 1990 and 1991, which St. Johns contested. Because of overpayment, Aetna altered the formula by which it calculated St. Johns's PIPs for FY 1993. After St. Johns complained about the new formula, Aetna made a lump-sum payment in January 1993 to compensate for the lower PIPs St. Johns received during the first half of FY 1993. In July 1993, Aetna advised St. Johns that it was "skeptical" that St. Johns had, in fact, made all of the home health care visits that it had claimed during FY 1993 and, furthermore, would not recognize certain "transcription" charges as reasonable, and thus reimbursable, under the Medicare program.

On September 15, 1993, St. Johns brought suit in the United States District Court for the Middle District of Florida against Aetna and the Secretary of HHS, seeking a writ of mandamus, injunctive relief, and damages.⁶ The gist of St. Johns's complaint, which was framed in three counts, was that Aetna, in collaboration with the Secretary, had been arbitrarily withholding PIPs over a substantial period of time,⁷ and that Aetna had been unduly late in completing its adjustments to St. Johns's cost reports for FYs 1990 and 1991 and in issuing its NPR for FY 1992, thereby violating the Medicare statutes and regulations as well as the substantive and procedural components of the Due Process Clauses of the Fifth and Fourteenth Amendments.

St. Johns asked the court, in Count I, to issue a preliminary and permanent injunction restraining the defendants from withholding from its PIPs reimbursements costs it had incurred in rendering covered services to program beneficiaries,...