Are Medicare FIs/MACs immune from FCA liability?

by Kurt Schulzke

What if a Medicare fiscal intermediary (like Cahaba*) knows or is recklessly ignorant that Dr. Fraud is not a licensed physician and yet pays Dr. Fraud $20,000 in Medicare funds for cancer treatments?  Is Cahaba immune from liability to the government for Dr. Fraud’s false claims under the False Claims Act?  Answer:  No, not if Cahaba paid the claims through its own gross negligence or intent to defraud.

Prior to the December 8, 2003 repeal (effective October 1, 2005) of 42 U.S.C.S. § 1395h(i)(3) and 42 U.S.C.S. § 1395u(e)(3), FIs and carriers enjoyed absolute immunity only in the 11th Circuit thanks to that court’s twisted statutory misinterpretation in Body, 156 F.3d 1098 (11th Cir. 1998).  The court later relied on Body to dismiss Sarasola, 319 F.3d 1292 (11 Cir. 2003).   However, with the statutory repeal, not even the 11th Circuit can say with a straight face that FI/MACs and carriers are absolutely immune from FCA liability for false claims paid to providers.

While Body and Sarasola were statutorily overruled in 2005, they were always viewed with a measure of suspicion or even derision in other circuits.  In the 5th Circuit, ex. rel. Conrad v. Blue Cross (SD Miss. 2008), tacitly sneered at Body, relying instead on ex rel. Sikkenga v. Regence Bluecross Blueshield of Ut., 472 F.3d 702 (10th Cir. 2006), and ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451 (E.D. Pa. 2004), to hold “the statute directs that Blue Cross will be liable for those payments made with gross negligence or intent to defraud the United States.”

Sikkenga is the law in the 10th Circuit and Sikkenga and Drescher are good bets in ED Pa, SD Miss and pretty much everywhere else outside the 11th Circuit.  Even with Body and Sarasola out of the picture, the 11th Circuit is tough on qui tam relators.  Generally speaking, given a choice between 11th and 5th circuits, a relator filing against a FI/MAC is still better off in the 5th especially if Rule 9(b) could be an issue.  Every case, however, must be evaluated on its merits.  In some cases, it may still be better to file in Atlanta than in Dallas or Hattiesburg.

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* This is a purely hypothetical scenario.  Cahaba is used for illustrative purposes only.  The term “fiscal intermediary” has been replaced with “Medicare Administrative Contractors” or MAC.

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