Is there ever a good reason to sue an auditor?
by Edward Vishnevetsky

As a lawyer who has helped dozens of providers with audits, at some point in the appeals process every client asks me: “can’t we just sue the auditor?” Even though auditors sometimes use onerous tactics, suing them is rarely the prudent option. First and foremost, litigation against anyone, especially government contractors, is complex, time-consuming and expensive. Second, issues of law are often more important than issues of fact. Third, a bad lawsuit can establish bad legal precedent.

In order to prevent poor outcomes that will affect future lawsuits, it is important to understand why suing a government contractor is so complicated and strategic. This installment addresses three of the most common jurisdictional defenses that government contractors contend when sued.

Real Party in Interest: In any litigation involving the Medicare program, a government contractor will most likely argue that CMS is the real party in interest (42 C.F.R. § 421.5(b)). This regulation has been upheld by numerous cases around the country; however, it is fact specific.

Sovereign Immunity: In addition to the “real party in interest” defense, government contractors commonly assert sovereign immunity as a defense when faced with lawsuits by providers. One of the leading cases on this issue is Peterson v. Weinberger, 508 F.2d 45 (5th Cir. 1975). In that case, which dealt with Medicare overpayments and false claims, the court stated: “[w]e need not tarry long with respect to the asserted tort liability and the indemnity of the corporate defendants. They are Medicare fiscal intermediaries who act at the sole direction of the Secretary of Health, Education, and Welfare pursuant to 42 U.S.C. § 1395hh and § 1395u… Under the doctrine of sovereign immunity, the district court lacked jurisdiction over all these defendants, both governmental and private as agents of the Government.”

Medicare Jurisdictional Bar: In general, 42 U.S.C. § 405(h) prohibits any action “against the United States, the [Secretary], or any officer or employee” to recover on any claim “arising under” the Medicare Act. Under these circumstances, if a provider wants to sue a government contractor for actions stemming from, or related to, an overpayment, the provider must first assert all Medicare claims as well as non-Medicare causes of action (e.g., constitutional, tort, APA claims) at the administrative appeals level (redetermination, reconsideration, etc.) before seeking judicial review (42 U.S.C. § 405(h)). Failure to assert all non-Medicare causes of action at the appeals level, or failure to exhaust all administrative appeals before suing a contractor, will likely result in a dismissal.

The leading case addressing this issue is Bodimetric Health Services, Inc. v. Aetna Life & Casualty, 903 F.2d 480 (7th Cir. 1990), cert denied, 498 U.S. 1012 (1990). In that case, the plaintiff alleged that the Medicare contractor’s illegal conduct resulted in multi-million dollar losses, which forced the provider to close his business. The Medicare contractor asserted that provider’s claims “arose under” the Medicare Act and were “inextricably intertwined” with its challenges to the contractor’s denial of payment for the provider’s Medicare claims. The court stated that: “if dissatisfied claimants could avoid the preclusive effect of section 405(h) by simply bringing suit against the fiscal intermediary instead of the Secretary [of HHS], the Medicare Act’s goals of efficiency and finality would be substantially undermined. Moreover, since Congress apparently did not differentiate between the respective abilities of public and private agencies to serve as fiscal intermediaries… we see no reason to allow claimants to proceed against private agencies when they clearly cannot proceed against federal agencies (Bodimetric, 903 F.2d 480, at 487-488).” The holding in Bodimetric is widely cited by various courts.

Official Immunity: The common law doctrine of official immunity shields government contractors from liability for acts committed within the scope of their discretionary authority (Westfall v. Erwin, 484 U.S. 292, 300 (1988); see also 42 C.F.R. § 421.5(b)). Consequently, unless a government contractor violates the law or acts unreasonably when performing the duties identified in its contract with Medicare (e.g., conducting audits, requesting overpayments, suspending providers, etc.), a court will most likely dismiss the case based on the determination that the contractor had discretion to act the way it did.