Free Memorandum - District Court of Federal Claims - federal

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Nos. 97-187C, 01-148C (Judge Allegra)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS HEALTH INSURANCE PLAN OF GREATER NEW YORK, INC. Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant. HEALTH INSURANCE PLAN OF GREATER NEW YORK'S POST-TRIAL MEMORANDUM OF LAW ______________________________________________________________________________ JEFFREY W. KING KING, PAGANO & HARRISON 1730 Pennsylvania Avenue, N.W. Suite 900 Washington, D.C. 20006 (202) 371-6800 Counsel for Plaintiff Health Insurance Plan of Greater New York, Inc. OF COUNSEL ANDREW B. DAHLINGHAUS KING, PAGANO & HARRISON 1730 Pennsylvania Avenue, N.W. Suite 900 Washington, D.C. 20006 (202) 371-6800 December 15, 2003

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TABLE OF CONTENTS PAGE INTRODUCTION ...........................................................................................................................1 I. II. HIP-NY PROVED THAT DEFENDANT BREACHED THE FEHB PROGRAM CONTRACT ...................................................................................................2 HIP-NY'S ENROLLMENT DATABASE PROVIDES A REASONABLE BASIS TO CALCULATE DAMAGES ..............................................................................4 A. B. C. D. E. F. III. The IPMF Data Entry Process Ensured Accurate Enrollment Data ........................6 The Q/Care System Also Maintained Accurate Enrollment Data .........................11 HIP-NY Accurately Processed The OPM Electronic Enrollment Data.................13 HIP-NY Conducted Additional Verifications To Ensure Accurate Federal Enrollment Data .....................................................................................................13 Accurate Enrollment Data Were Vital To HIP-NY's Overall Successful Operations ..............................................................................................................14 HIP-NY's Enrollment Database Forms The Basis Of Its Underpayment Claim......................................................................................................................14

HIP-NY'S EXPERT WITNESS ACCURATELY CALCULATED DAMAGES............15 A. B. 1988 and 1989 Enrollment Data ............................................................................17 HIP-NY 1990-1996 HIP-NY's Enrollment Data...................................................21

IV. V.

HIP-NY IS ENTITLED TO A CONTINGENCY RESERVE PAYMENT......................23 DEFENDANT'S EXPERT TESTIMONY WAS NOT CREDIBLE ................................25 A. B. Mr. Grogan's Analysis Is, At Best, Incomplete.....................................................26 Mr. Grogan's Inconsistent Analysis Should Be Afforded No Weight ...................32

VI.

MR. GROGAN'S ANALYSIS SUPPORTS HIP-NY'S CALCULATION OF THE UNDERPAYMENT............................................................................................39

CONCLUSION..............................................................................................................................40

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TABLE OF AUTHORITIES PAGE FEDERAL COURT CASES Aea v. Secretary of the Department of Health & Human Services, 26 Cl. Ct. 878, 881-88 (1992) .....................................................................................................................33, 38 A.I.G. Uruguay Compania De Seguros, S.A. v. AAA Cooper Transportation, 334 F.3d 99 (11th Cir. 2003).................................................................................................................5, 6, 15, 23 Black v. Commissioner of Internal Revenue, T.C. Memo 1977-337, 1997 Tax Ct. LEXIS 104, at **1-5 (19-20)(Sept. 27, 1977)...........................................................................26 Brown v. United States Postal Service, 1999 U.S. App. LEXIS 22485, at *3 (Sept. 17, 1999) ..................................................................................................................33, 39 Central Fidelity Bank v. Denslow, 104 B.R. 761, 764 (Bankr. E.D. Va.).......................................5 City of Phoenix v. Com/Systems, Inc., 706 F.2d 1033 (9th Cir. 1983)......................................5, 23 Coffelt v. Secretary of HHS, 1992 U.S. Cl. Ct. LEXIS 285, at *20 (Feb. 24, 1992)...........33, 38 Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993)...................................15 Delco Electronics Corp. v. United States, 17 Cl. Ct. 302, 319 (1989) ............................................4 In re Denslow, 104 B.R. 761, 762 (Bankr. E.D. Va.) ................................................................6, 15 Exxon v. United States, 45 Fed. Cl. 581, 613 (1999)................................................................26 Franklin F.S.B. v. United States, 55 Fed. Cl. 108, 114 (2003) ......................................................23 HEM Research, Inc. v. E.I. Dupont De Nemours & Co., 1990 W.L. 7429 at *3 (E.D. Pa. 1990)...............................................................................................................................23 Hughes Communications Galaxy v. U.S., 47 Fed. Cl. 236, 244 (2000)..........................................5 Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999) ..................................................15 Manning v. Commissioner of Internal Revenue, 1993 Tax Ct. Memo LEXIS 122 at *74 (March 30, 1993) ......................................................................................................................37 Norfolk So. Corp. v. Commissioner of Internal Revenue, 104 T.C. 13, 48-59 (1995) ..............26

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North Slope Technical Ltd., Inc. v. United States, 14 Cl. Ct. 242, 264-65 (1988)..........................4 Pennsylvania Department of Transportation v. United States, 643 F.2d 758, 762 (Ct. Cl. 1981) ..................................................................................................................................2 R.P. Richards Construction Co. v. United States, 51 Fed. Cl. 116, 125 (2001) ..............................4 San Carlos Irrigation and Drainage District v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989)................................................................................................................................2 Sternberger v. United States, 185 Ct. Cl. 528, 536 (1968)........................................................26 Timber Investor's Inc. v. U.S., 218 Cl. Ct. 408, 421 (1978) ...........................................................4 Toronto, Hamilton & Buffalo Nav. Co. v. United States, 116 Ct. Cl. 184, 207 (1950).............26 UMC Electronics v. U.S., 43 Fed. Cl. 776, 799 (1999) ......................................................33, 38 UnitedHealthCare Corp. v. American Trade Ins. Co., et al., 88 F.3d 563, 573-74 n.7 (8th Cir. 1996) ............................................................................................................................5, 23 United States v. Bedford Associates, 548 F. Supp. 732, 743 (S.D.N.Y. 1982) .........................26 FEDERAL STATUTES AND REGULATIONS Fed. R. Evid. 803(6).........................................................................................................................5 Fed. R. Evid. 702 (2003)................................................................................................................15 OTHER Arthur Linton Corbin, Corbin on Contracts, Damages § 992 (1964) ............................................23 Restatement (Second) of Contracts § 344 (1981) ..........................................................................23

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Pursuant to this Court's October 31, 2003 Order, Plaintiff, Health Insurance Plan of Greater New York, Inc., ("HIP-NY"), respectfully submits this Post-Trial Memorandum Of Law in support of its claims for breach of contract against Defendant, the United States of America. INTRODUCTION The only remaining dispute in this case is the amount of premiums that Defendant underpaid HIP-NY under the Federal Employees Health Benefits Program ("FEHBP"). The parties stipulated to the existence of valid contracts and that HIP-NY performed all of its obligations under those Contracts. The parties also stipulated that Defendant was obligated to pay all premiums due and to fund HIP-NY's Contingency Reserve. The analysis of Defendant's expert witness even demonstrated that the Defendant underpaid HIP-NY. To calculate the amount of underpayments it suffered as a result of Defendant's breach, HIP-NY utilized its enrollment database. HIP-NY presented uncontested evidence that it

meticulously entered and maintained its enrollment data because of the vital role those data played in HIP-NY's daily operations. Through its expert witness, Professor John Wills, HIP-NY proved that it vigorously analyzed its enrollment data to identify and confirm the amount that Defendant underpaid HIP-NY. Using that database and reports mandated by the Government from that database, HIP-NY proved that Defendant underpaid it by $12,422,651. Prof. Wills corroborated the existence of an underpayment by demonstrating that even Defendant's own payroll data revealed that Defendant underpaid HIP-NY. Defendant's sole defense is to challenge to the reliability of HIP-NY's data based on a narrow, inconsistent and unpersuasive analysis conducted by its expert witness, Mr. Thomas Grogan. The evidence at the trial proved that Mr. Grogan refused to consider salient

information, data and documents that could have corroborated the accuracy of HIP-NY's

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database.

Moreover, the testimony showed that Mr. Grogan constantly changed the basic

premise of his analysis regarding the scope of information and documents he would be consider to corroborate or contradict the HIP-NY database. He considered any information that supported his preconceived theory that the HIP-NY data were unreliable and abandoned information if it did not support his theory. Simply stated, the analysis performed by Defendant's expert lacks the integrity and independence required by this Court. Finally, Mr. Grogan's own flawed and incomplete analysis still showed that the amount of damages HIP-NY calculated was within both the 99% and 95% confidence intervals he calculated. Given these facts, HIP-NY has readily satisfied its burden of proof in this case. ARGUMENT I. HIP-NY PROVED THAT DEFENDANT BREACHED THE FEHBP CONTRACT HIP-NY has satisfied all the elements to prove a breach of contract. In order to recover against the Defendant, HIP-NY must prove: (1) the existence of a valid contract between the parties; (2) an obligation or duty arising out of that contract; (3) a breach of that duty; and (4) damages caused by the breach. San Carlos Irrigation and Drainage District v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989). As a government contractor, HIP-NY bears the burden of establishing the fundamental facts of liability, causation and resultant injury. Pennsylvania Department of Transportation v. United States, 643 F.2d 758, 762 (Ct. Cl. 1981). HIP-NY established each of these essential elements at trial. First, the parties stipulated that: (1) there were valid Contracts during the claim period, Pretrial Stipulations at ¶¶ 28, 32, 36; and (2) that HIP-NY performed all of its obligations under

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the Contracts, Pretrial Stipulations at ¶ 31.1. Accordingly, there is no dispute that there are valid Contracts and that HIP-NY has complied with its obligations under those Contracts. Second, the parties also stipulated to Defendant's duties that HIP-NY alleges Defendant breached in Counts I and II of the Complaint. As to Count I, the parties stipulated that

Defendant is liable for all unpaid premiums that HIP-NY can demonstrate at trial. Pretrial Stipulations at ¶¶ 29, 33, 37. As to Count II, the parties further stipulated that Defendant had a duty to: (1) administer properly the Contracts, Pretrial Stipulations at ¶¶ 6, 10, 11; (2) pay timely the contractual premiums, whether or not a subscriber's contribution had been collected by the employing agency, Pretrial Stipulations at ¶¶ 6, 29, 33, 37; and (3) fund HIP-NY's Contingency Reserve, Pretrial Stipulations at ¶¶ 7-9. Accordingly, HIP-NY has fulfilled its burden to

establish that Defendant had a duty to pay full premiums to HIP-NY and properly fund HIPNY's Contingency Reserve. Third, there is no serious dispute that Defendant breached its contractual obligation by failing to pay the full premiums due HIP-NY and to fund HIP-NY's contingency reserve. Although he did not compute an alternative underpayment, Defendant's expert conceded that his analysis confirmed that HIP-NY was underpaid for the years covered by his analysis, 1990 to 1996. Tr. at 1279/8-1280/17 (Grogan). The only issue that remains is the amount of HIP-NY's damages. HIP-NY provided the only cogent evidence at trial. Defendant provided no alternative calculation of damage amount. It did not analyze either Government or HIP-NY data to determine an alternative damage amount. Rather, it argues only that the damage amount calculated by HIP-NY is not reliable.

1. Moreover, it is undisputed that HIP-NY fulfilled its obligation to reconcile its enrollment records with those of the employing agencies as required under the 1991 through 1996 Contracts. See Plaintiff's Proposed Findings of Uncontroverted Fact, filed May 11, 1998 at ¶ 21, attached hereto at HIP-NY App. 2; Defendant's Statement of Genuine Issues, filed June 11, 1998 at ¶21, attached hereto at HIP-NY App. 6.

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Yet, its own analysis shows that the amount of damages calculated by HIP-NY were within the 99% and 95% confidence intervals set by Defendant's expert. Tr. at 1150/24-1151/25, 1279/81280/17 (Grogan). As set forth below, HIP-NY has more than satisfied its burden to provide a reliable basis for the damages it has calculated, $12,422,651. II. HIP-NY'S ENROLLMENT DATABASE PROVIDES A REASONABLE BASIS TO CALCULATE DAMAGES HIP-NY presented ample evidence regarding the amount Defendant underpaid HIP-NY. A plaintiff in a breach of contract action must establish by a preponderance of the evidence that the damages claimed are reasonable and that they are causally connected to defendant's breach. R.P. Richards Construction Co. v. United States, 51 Fed. Cl. 116, 125 (2001); see also Timber Investor's Inc. v. U.S., 218 Cl. Ct. 408, 421 (1978) (as in other civil cases, plaintiff must prove damages by the preponderance of the evidence). A plaintiff satisfies the burden of proof where it establishes a reasonable basis for computation of its damage amount. R.P. Richards, 51 Fed. Cl. at 125. A plaintiff, however, is not required to prove the amount of damages sustained to a mathematical certainty. Id.; see also, Delco Electronics Corp. v. United States, 17 Cl. Ct. 302, 319 (1989)(plaintiff "need not prove [its] damages with absolute certainty or mathematical exactitude"). "Although a plaintiff must prove the extent of its damages so that the amount determined is more than mere speculation, there is a presumption that its actual damages are reasonable." R.P. Richards, 51 Fed. Cl. at 125 (citing North Slope Technical Ltd., Inc. v. United States, 14 Cl. Ct. 242, 264-65 (1988)). HIP-NY proved its damages by establishing the premiums it should have been paid and comparing that amount to the payments it received. Tr. at 557/2-558/1, 583/21-584/24 (Wills). The parties stipulated to the payments received. See Pretrial Stipulations at ¶¶ 60-68. Using its

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enrollment data, HIP-NY calculated the premiums due on a subscriber-by-subscriber, day-by-day basis for each federal subscriber enrolled in the HIP-NY FEHB plan during the claim period. The enrollment data maintained by HIP-NY for subscribers in its FEHBP plan provide a more than adequate basis to compute damages. HIP-NY's enrollment database is admissible under the Federal Rules of Evidence as a business record. Federal Rule of Evidence 803(6) specifically states that a "data compilation, in any form" may be used to prove an act or event. Fed. R. Evid. 803(6)(2003); accord, Central Fidelity Bank v. Denslow, 104 B.R. 761, 764 (Bankr. E.D. Va. 1989)("Decisions are legion admitting computer records as Rule 803(6) business records."). The Courts have consistently permitted plaintiffs to utilize electronic data, recognized as business records, in order to prove damages. City of Phoenix v. Com/Systems, Inc., 706 F.2d 1033 (9th Cir. 1983)(computer summary of data compilation admissible); see also Hughes Communications Galaxy v. U.S., 47 Fed. Cl. 236, 244 (2000)(damages calculated using internal business records). For example, the Eighth Circuit admitted computer records to determine the damages in UnitedHealthCare Corp. v. American Trade Ins. Co., et al., 88 F.3d 563, 573-74 n.7 (8th Cir. 1996). This case involved a claim to recover premiums paid to insure several health maintenance organizations that were never forwarded by the defendants to the insurers. The court admitted the downloaded records from one of defendant's computers as evidence to trace the movement of the premiums received by the defendants. Similarly, in A.I.G. Uruguay Compania De Seguros, S.A. v. AAA Cooper Transportation, 334 F.3d 997 (11th Cir. 2003), the plaintiff, an electronics company, sued a freight carrier for damages resulting from the loss of a shipment of cellular phones. The plaintiff proved its damages through electronically maintained packing invoices showing the number of

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phones shipped. Id. at 1003, 1007. The court held that the plaintiff's electronic record of the packing invoices was sufficiently direct evidence of the contents of the shipment, which could be used to calculate the damages. In so holding, the court considered that: When the particular phones to be packaged to fill the order are selected, their serial numbers are scanned into the Motorola system, and that record follows the order from station to station as it proceeds toward shipment. These serial numbers appear automatically on the invoice generated before the shipment leaves the facility. This record is made contemporaneously with the "sealing" of the phones inside the cartons that directly and without inference identifies the contents of that carton . . . Id. at 1007; see also In re Denslow, 104 B.R. 761, 762 (Bankr. E.D. Va. 1989) (permitting the use of computer-stored automatic teller machine transactions to calculate damages). Like the computer-stored data in A.I.G. Uruguay, HIP-NY's meticulously maintained enrollment data were a reliable source from which to calculate damages here. As the testimony of Valerie Reardon, Courtney Chan, Harold Miller, Elpinicki Kaitatzis and Viola Sykes demonstrated, HIP-NY entered federal enrollment data into the Insured Persons Master File ("IPMF") for the majority of the claim period, 1988 through July of 1994. Tr. at 244/23-25 (Chan); Tr. at 306/25-308/5 (Kaitatzis); Tr. at 318/7-24 (Sykes); 322/12-19, 331/5-11 (Bynum). HIP-NY continued its diligent, meticulous data entry processes throughout the claim period, and beginning in July 1994, began entering enrollment data into another database called Q/Care. Tr. at 331/5-11 (Bynum). Both IPMF and Q/Care databases were used in parallel from March 1992 to November 1995. Tr. at 91/4-93/5 (Reardon). A. The IPMF Data Entry Process Ensured Accurate Enrollment Data HIP-NY utilized a multiple step process to enter federal enrollment data into the IPMF system. The individuals who entered the federal enrollment data were experts in that process. Courtney Chan and Harold Miller, HIP-NY Data Entry Clerks, both testified that HIP-NY

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employed extensive data entry measures to ensure the accuracy of the data entered into HIPNY's enrollment database. Both witnesses testified that, immediately upon receipt of federal enrollment forms, they were covered with a transmittal sheet called an SF2811. Tr. at 245/18246/2 (Chan); Tr. at 285/17-286/12 (Miller). These witnesses further testified that HIP-NY personnel reviewed the SF2811s to ensure all appropriate forms were attached. Tr. at 245/18247/24 (Chan); Tr. at 286/2-12 (Miller). If a federal agency did not include forms or if the agency did not include an SF2811 with the forms, the Enrollment and Billing Department contacted the federal employing agencies to request the missing documentation. See Tr. at 262/16-263/10 (Chan). If an agency failed to provide promptly the documentation, HIP-NY sent letters to the agencies requesting the required forms or documents. Tr. at 248/22-249/10 (Chan); PX 54 (Letter to Agency, dated 12/4/91). Once the Enrollment and Billing Department checked and verified the SF2811's, HIPNY then reviewed the attached enrollment forms. Tr. at 245/18-246/2, 246/20-247/4 (Chan); Tr. at 286/2-12 (Miller). Messrs. Chan and Miller both testified that HIP-NY personnel entered the Social Security number of the individuals identified on federal forms to determine whether the individual had an existing or previous enrollment with HIP-NY. Tr. at 250/3-12 (Chan); Tr. at 286/13-287/2 (Miller). For example, they checked to see if individuals identified on federal forms as already enrolled in HIP-NY were, in fact, enrolled in the HIP-NY enrollment database. Tr. at 250/3-12 (Chan); Tr. at 286/13-287/2 (Miller). In instances where an enrollment form listed an individual as a new enrollee, but HIP-NY's enrollment showed that the person was already enrolled, HIP-NY personnel contacted the agencies to resolve the discrepancy. Similarly, when HIP-NY received a form terminating a federal member, but the database showed

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the individual as someone already terminated, HIP-NY contacted the agency to verify the new termination date. Tr. at 110/13-21 (Reardon). Mr. Chan testified that, after HIP-NY reviewed the forms for current enrollment status, the Enrollment and Billing Department batched the forms by transaction type, such as by new enrollments, terminations, and other changes. Tr. at 253/2-11 (Chan). The Enrollment and Billing Department then forwarded these forms to the HIP-NY Data Entry Department. Tr. at 270/6-10 (Chan); Tr. at 286/13-287/2 (Miller). Elpinicki Kaitatzis, Supervisor, Data Entry, testified that, throughout the relevant time period, she was employed in the Data Entry Department. Tr. at 306/25-307/4 (Kaitatzis). Ms. Kaitatzis testified that, upon receipt of the federal enrollment forms, the Data Entry Department sub-divided the forms into smaller batches depending on the type of change, that is, enrollments, termination, and other types of changes. Tr. at 308/14-309/4 (Kaitatzis). This expedited the processing of enrollment information and further ensured the accuracy of the data entered. Ms. Kaitatzis also testified that her department placed a control sheet on each batch that identified the number of transactions HIP-NY had to enter into the system. Tr. at 309/11-310/7 (Kaitatzis). Ms. Kaitatzis then testified that her department entered the enrollment data from the forms into the "Pertec" system. Tr. at 307/5-25 (Kaitatzis). Ms. Kaitatzis explained that the Pertec system held the enrollment transactions prior to uploading into the IPMF database. Tr. at 307/5-308/5 (Kaitatzis). When HIP-NY Data Entry Clerks completed a batch of federal forms, the clerks then put he forms in a file for verification. See Tr. at 309/17-310/15 (Kaitatzis). A separate verification clerk then verified the data previously entered in each batch. Tr. at 310/8-19 (Kaitatzis). Ms. Kaitatzis explained that, in order to carry out verification, HIP-NY personnel set the computer to

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"verification mode" and re-typed every piece of data from the form to ensure that each and every keystroke matched the original data entry. Tr. at 310/8-19 (Kaitatzis). Ms. Kaitatzis testified that if the verification clerk identified a data entry error, the clerk would correct the entry. Tr. at 310/22-311/4 (Kaitatzis). Moreover, Ms. Kaitatzis explained that if a data entry clerk could not interpret a document or if an issue arose regarding what appeared to be an anomaly in the document, such as an unusual date, the clerk removed the document from the batch and returned it to the Enrollment and Billing Department for resolution. Tr. at 311/10-312/2 (Kaitatzis). HIP-NY's Data Entry Department then compared the number of transactions on the control sheet to the computer totals to ensure that HIP-NY entered all the federal enrollment transactions. Tr. at 309/22-310/7, 312/3-9 (Kaitatzis). For example, Ms. Kaitatzis testified if a batch contained fifty terminations, Data Entry ensured that the system showed that HIP-NY entered fifty terminations for that batch number. See Tr. at 309/11-16 (Kaitatzis). The Data Entry Department then forwarded the tape containing the newly entered enrollment data to the Data Control Department for entry into the IPMF system. Tr. at 312/3-11 (Kaitatzis). Viola Sykes from the Data Control Department testified that when Data Control received enrollment tapes, HIP-NY uploaded the tapes into the IPMF system. Tr. at 318/10-16 (Sykes). Ms. Sykes further testified that the IPMF conducted a series of data edits and checks on the enrollment information. Tr. at 318/25-319/3 (Sykes). If any of the data did not fit the

parameters in the IPMF system, the system generated a discrepancy or error report. Id. Data Control then sent this report to the Enrollment and Billing Department for resolution. Tr. at 318/25-319/6 (Sykes).

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Carmen Bynum, a Senior Manager of the Information Systems Department of HIP-NY, testified regarding the types of checks and edits that HIP-NY programmed into IPMF to verify data entry. Tr. at 323/3-324/11 (Bynum). Ms. Bynum testified that IPMF checked for many conditions, such as to ensure that there were no duplicate Social Security numbers entered or that birth dates fit within certain parameters. Tr. at 323/3-12, 325/6-11 (Bynum). If any data failed to meet these specific parameters, the system generated a report that Data Control forwarded to the Enrollment and Billing Department for resolution. Tr. at 324/12-325/17 (Bynum). Ms. Bynum also indicated that the system checked whether effective dates of transactions fit within the parameters of the program. Tr. at 323/13-19 (Bynum). Ms. Bynum testified that any transactions that had a date in the future would be put on hold. Tr. at 323/23-324/2 (Bynum). The system held those data until the appropriate effective date of that enrollment or termination. Id. Ms. Bynum explained this was necessary to avoid issues relating to the payment of capitation to physicians for people who were enrolled for a future date or failing to pay capitations for people who were disenrolled on a future date. Tr. at 323/23-324/11 (Bynum). Ms. Bynum explained that the system generated a report for these future transactions that her department forwarded to the Enrollment and Billing Department. Tr. at 324/12-325/5 (Bynum). The Enrollment and Billing Department then confirmed that these future dates were, in fact, correct. Similarly, IPMF generated a report for retroactive transactions to ensure that these postdated transactions were, in fact, correct. Tr. at 326/21-327/11 (Bynum). In sum, the uncontested testimony at trial established that at the time IPMF was used to house enrollment data: (1) HIP-NY entered federal enrollment data only after Enrollment and Billing counted, checked and batched the federal forms; (2) the Data Entry Section tallied batches of transactions, entered the data, keystroke verified all of the data and verified the batch

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tallies to ensure all data were properly entered; and (3) the IPMF systems applied a series of rigorous computer edits and checks to the enrollment data to ensure the data were accurate. HIPNY's witnesses further testified that they resolved any discrepancies in the data with the appropriate federal agencies. Such meticulous, contemporaneous entry of data clearly supports the reliability of HIP-NY's database as a means to calculate damages. B. The Q/Care System Also Maintained Accurate Enrollment Data HIP-NY processed federal enrollment data under the Q/Care system in a manner similar to the process under the IPMF. Valerie Reardon and Harold Miller both testified that the Enrollment and Billing Department applied the same rigorous checks and edits to enrollment data received under the Q/Care system as it had with IPMF. Tr. at 104/4-108/21, 110/22-113/3 (Reardon); Tr. at 293/12-294/25 (Miller). The testimony revealed that HIP-NY continued to review the transmittal sheets, the SF2811s, to ensure that all federal agencies provided all the appropriate enrollment documents. Tr. at 93/20-94/21, 95/4-97/20 (Reardon); Tr. at 293/12294/6 (Miller). HIP-NY likewise conducted the same review of the enrollment documents and continued to contact appropriate employing agencies to resolve discrepancies. Tr. at 109/17110/21 (Reardon). As Ms. Reardon testified, HIP-NY batched the enrollment forms by

transaction type to minimize error. Tr. at 98/24-99/14 (Reardon). HIP-NY also continued to total the transactions on the batch sheets. Tr. at 99/19-100/7 (Reardon). The only difference in the data entry process under Q/Care was that the Enrollment and Billing Department now entered the enrollment data directly into the system instead of forwarding it to the Data Entry Department. Tr. at 101/17-23 (Reardon). After HIP-NY entered the enrollment data into the Q/Care system, the system continued to print out totals of the types of transactions entered; that is, all new enrollments, cancellations, name change, changes in plan, etc. Tr. at 99/19-100/7,

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115/4-116/10 (Reardon). These totals were then checked against the batch sheets to ensure all transactions in a batch were entered into the database. Id. Upon entry, Ms. Bynum testified that the Q/Care system applied the same rigorous computer edits and reviews to the federal enrollment data that the IPMF applied. Tr. at 332/6-15 (Bynum). Specifically, the Q/Care system checked Social Security numbers, dates of birth and effective dates to ensure that the enrollment transactions were correctly entered. Tr. at 104/24108/2 (Reardon). The Q/Care system also held any future transactions and issued reports to ensure the future dates were accurate. Tr. at 106/24-108/21 (Reardon). The Q/Care system also advised the data enrollment clerks if the dates fell outside pre-set parameters. Id. For example, the system advised the enrollment clerks if a retroactive termination appeared too dated. Tr. at 107/13-108/21 (Reardon). After verifying the date, the actual date of such a retroactive

termination would be entered regardless of how far back they went. Tr. at 107/13-21 (Reardon). The Q/Care system identified data entry issues immediately to the person entering the data and required the enrollment clerk to investigate and, if necessary, correct the data entered. Tr. at 332/16-333/3 (Bynum). By comparison, the IPMF system generated discrepancy reports that prompted the enrollment clerks to resolve any issues in the data entry. Id. As a result, the data that HIP-NY entered in Q/Care, like its predecessor, IPMF, were exceptionally accurate. The uncontested testimony proved that under the Q/Care system, HIPNY: (1) entered federal enrollment data only after Enrollment and Billing counted, checked and batched by the enrollment forms; (2) compared and reconciled the total amount of transactions it entered to the total in each batch; and (3) applied a series of rigorous computer edits and checks to ensure accurate data entry. The witnesses further testified that HIP-NY reported and resolved any discrepancies with the appropriate federal employing agency. Tr. at 108/3-21 (Reardon).

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C.

HIP-NY Accurately Processed The OPM Electronic Enrollment Data Ms. Reardon also testified that HIP-NY received enrollment transactions electronically

from the Office of Personnel Management ("OPM"). Tr. at 108/22-109/16 (Reardon). HIP-NY entered these data directly into the Q/Care system. As she testified, this eliminated the actual entry of the data by a Data Entry or Enrollment Clerk, but still included all the detailed computer checks and edits. Id. Moreover, both the IPMF and the Q/Care system generated discrepancy reports, just as when HIP-NY manually entered enrollment information into the systems. Id. The Enrollment and Billing Department then resolved any issues by contacting OPM. Tr. at 109/17-110/21 (Reardon). D. HIP-NY Conducted Additional Verifications To Ensure Accurate Federal Enrollment Data In addition to the foregoing quality control measures, HIP-NY took additional steps to ensure the accuracy of its federal enrollment data. As already admitted in this case, HIP-NY fulfilled all of its obligations to reconcile its enrollment records with those of federal payroll offices. Plaintiff's Proposed Findings of Uncontroverted Fact, filed May 11, 1998, at ¶21, HIPNY App. 2; Defendant's Statement of Genuine Issues, filed June 11, 1998 at ¶21, HIP-NY App. 6; Tr. at 110/22-113/3, 117/20-118/12 (Reardon). This process ensured that both HIP-NY and the Defendant's employing agencies had the same federal employees enrolled in HIP-NY's health plan. Ms. Reardon also testified regarding other measures that HIP-NY employed that verified the enrollment status of federal members. For example, HIP-NY sent mailings to members that included membership cards, member letters and annual reports. Tr. at 110/22-113/3 (Reardon). The mailings reminded members to contact HIP-NY directly to update and correct enrollment information. Id. As a result, HIP-NY was in regular contact with its members. This helped to

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ensure that members who were not properly enrolled contacted HIP-NY to correct enrollment discrepancies. Moreover, HIP-NY provider groups and facilities also verified demographic information and enrollment data when members arrived for healthcare services. Id. E. Accurate Enrollment Data Were Vital To HIP-NY's Overall Successful Operations During the trial, several witnesses testified that accurate enrollment information was vital to administration of HIP-NY's FEHBP Plan as well as to HIP-NY's overall operations. For example, Ms. Reardon testified that HIP-NY's enrollment data have a direct correlation to costs and income. See Tr. at 114/9-115/3 (Reardon). Indeed, HIP-NY's enrollment data were used in rate development and in paying capitation. Id. Christopher Chappelear, a HIP-NY actuary, testified that even a small error in enrollment totals could result in millions of dollars in losses. Tr. at 393/21-24 (Chappelear). Mr. Chappelear explained that the two key elements in setting HIP-NY's rates were its total costs and its total enrollment. Tr. at 396/1-15 (Chappelear). In building its rates, HIP-NY essentially divided its total cost by its total membership to determine its per member per month ("PMPM") costs. Id. Mr. Chappelear testified that if HIP-NY overstated its enrollment, it resulted in understated premium rates for every one of its employer groups. Tr. at 394/11-395/25 (Chappelear). As a community rated plan, HIP-NY provides the same rate to all of its groups. Tr. at 395/20-25 (Chappelear). Overstating enrollment would result in premium payments that would not cover costs. Based on these effects, HIP-NY maintained data entry processes and verifications that ensured accurate enrollment totals. F. HIP-NY's Enrollment Database Forms The Basis Of Its Underpayment Claim HIP-NY utilized its extremely accurate enrollment database to calculate its underpayments in this case. Jay Steinberger, Director of Systems Development for Enrollment and Billing, testified that he extracted the enrollment data utilized for the claim from both the

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IPMF and Q/Care systems.

Tr. at 518/11-519/5 (Steinberger).

These are the very same

databases that HIP-NY meticulously developed and maintained in its daily operations. HIP-NY timely and accurately entered its data. Accordingly, HIP-NY's enrollment

database constitutes a reliable bases to calculate damages in this case. A.I.G. Uruguay, 334 F.3d at 1007; In re Denslow, 104 B.R. at 765. III. HIP-NY'S EXPERT WITNESS ACCURATELY CALCULATED DAMAGES HIP-NY's expert witness, Prof. Wills, testified regarding the calculation of the underpayments. Prof. Wills' testimony exceeds the requirements of Federal Rule of Evidence 702 governing the admission of expert testimony. Under Rule 702, an expert must possess some "knowledge, skill, experience, training, or education" that will assist the trier of fact to understand the evidence or to determine a fact in issue. Fed. R. Evid. 702 (2003). Moreover, an expert's testimony must "both [rest] on a reliable foundation and [must be] relevant to the task at hand." Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141(1999) (quoting Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993)). HIP-NY's expert witness obtained a B.S. in Business Management and Psychology from Towson State University, and in 1985, he obtained an M.B.A. in Finance from Loyola College. Prof. Wills has been a Certified Public Account since 1981. See, PX 121 (Sept. 8, 2003 Rpt. of J. Wills) at Curriculum Vitae of John Wills. Prof. Wills was a worldwide partner in both Arthur Andersen, LLP and PricewaterhouseCoopers, LLP. Prof. Wills is currently a faculty member of the McDonough School of Business at Georgetown University, where he teaches accounting. Id. Prof. Wills has been qualified in the Courts as an expert on damages and lost profits in numerous cases. Id. Accordingly, HIP-NY's expert witness possesses the specialized "knowledge, skill,

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experience, training, [and] education" that will assist this Court in determining whether Defendant underpaid HIP-NY and the extent to which HIP-NY was underpaid. Prof. Wills based his opinions on reliable contemporaneously entered data directly relevant to the issues in this case. Prof. Wills testified that HIP-NY extracted the enrollment database for all federal enrollees from the IPMF and Q/Care systems. Tr. at 535/25-536/6 (Wills). He then explained how he combined the two enrollment databases to ensure complete and accurate enrollment data for every FEHBP member enrolled during the time frame relevant to this case. See 535/25-536/23 (Wills). Prof. Wills periodically updated his analysis as new information became available. Tr. at Tr. at 535/25-536/23 (Wills). As a result, he requested and received updated HIP-NY enrollment data in 2000 Tr. at 520/11-521/25 (Steinberger). He also reviewed the sample generated by Defendant's expert. Tr. at 576/9-13; see 542/15-22 (Wills). Based on this additional

information, Prof. Wills determined that there may be missing enrollment transactions in the 1988 and 1989 data. Tr. at 542/10-543/4 (Wills). As previously explained, HIP-NY initially utilized the IPMF system to maintain its data. These data were periodically archived. All the archived data may not have been recovered. In 1990, HIP-NY began implementing a new data system called Q/Care. Tr. at 91/4-92/17 (Reardon). When the Q/Care system was initiated, HIPNY populated this system with enrollment data from IPMF for March 1, 1990 forward. Tr. at 521/1-522/8 (Steinberger). None of the data for Q/Care were archived. As a result, a complete enrollment record was available in Q/Care from March 1, 1990 through the end of the claim period, 1996. See Tr. at 519/2-521/25 (Steinberger). As a result of his concern about missing enrollment transactions, Prof. Wills calculated the underpayments utilizing two separate sets of enrollment data. He utilized OPM Table 1

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Reports for contract years 1988 and 1989. For contract years 1990 through 1996, Prof. Wills utilized HIP-NY's current HIP-NY enrollment data to calculate the underpayments. Tr. at 536/7-538/2 (Wills). A. 1988 and 1989 Enrollment Data Prof. Wills used federal enrollment data from OPM Table 1 Reports that had been created during the 1988 and 1989 contract years. Tr. at 544/6-15 (Wills). Table 1 Reports are reports of the enrollment in the FEHBP after the end of each quarter. The reports are required to be produced by Defendant under the regulations governing the FEHBP. JX 17-340. Healthcare carriers, such as HIP-NY, provide the enrollment information on the Table 1 Reports. Specifically, HIP-NY completes federal forms identifying its enrollment as of March 31, June 30, September 30, and December 31 of each year. Id.; see also Tr. at 511/2-15 (Strassberg). The enrollments are broken down by self-only and self and family enrollment. See JX 15 (Table 1 Reports). The Table 1 Reports are based on HIP-NY's enrollment data. Defendant's own witnesses testified that Defendant relies on Table 1 Reports in several aspects of its management of the FEHBP. Specifically, a health plan's FEHBP rates are subject to two periodic reviews. The rates are annually reconciled by the health plan and Defendant periodically audits the rates of each carrier under the FEHBP. A basic premise of both the rate reconciliations and audits is to ensure that the premiums the federal government pays are a fair market rate. 48 C.F.R. § 1602.170-213(a)(1)(d); see also 48 C.F.R. at § 1652.216-270(b)(2). To determine whether the rates are fair, the FEHBP rates are compared to the rates of two employer groups that "have a subscriber enrollment closest to the FEHBP subscriber enrollment...." 48 C.F..R. at § 1602.170-13(a). If the FEHBP rates are "higher than the equivalent rates of the lower of the two [similarly-sized subscriber groups]

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SSSGs," the health plans are required to reimburse Defendant the difference in the rates. 48 C.F.R. at § 1652.216-70(b)(4). Defendant's own witness, Dennis Black, Associate Director of Audits, testified that participating health plans are required to use the Table 1 Reports to identify the SSSGs. Tr. at 707/20-708/6 (Black). Mr. Black testified that the SSSGs are the single most important element in auditing a plan's FEHBP rates. Tr. at 708/16-709/10 (Black). Mr. Black further verified that Defendant annually questioned hundreds of millions of dollars of rates. Tr. at 709/20-710/10 (Black). Mr. Black testified that the vast majority of the rates questioned during an audit arise from the differential between the FEHBP rates and the rates charged the SSSGs, which are identified using the Table 1 Reports. Tr. at 708/1-711/15 (Black). Ms. Nancy Kitchak, Deputy Associate Director, Center For Work Force Planning and Policy Analysis, also testified that OPM uses Table 1 Reports to identify SSSGs when auditing a plan's rates. Tr. at 872/14-873/3, 876/4-877/25 (Kitchak). Based on the testimony of Defendant's own witness, therefore, the Table 1 Reports are an accurate enough measure of Plan enrollment to be used in the reconciliation and audits of hundreds of millions of dollars in FEHBP payments. HIP-NY's Vice-President and Chief Actuary, Leslie Strassberg, explained that the enrollment totals in the Table 1 Reports came directly from the IPMF and Q/Care databases, which the unchallenged testimony revealed to be accurate, meticulously verified and expertly maintained. Tr. at 511/4-11 (Strassberg). Mr. Strassberg also testified that the Table 1 Reports are used both by HIP-NY and OPM in the rate development and rate reconciliation process, further lending credence to their content as a means of calculating underpayments for the 1988 and 1989 contract years. Tr. at 511/19-513/8 (Strassberg).

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Using the Table 1 Reports, Prof. Wills determined HIP-NY's average federal enrollment for every quarter for contract years 1988 and 1989. Tr. at 548/16-551/10 (Wills). Prof. Wills then determined the premiums due by multiplying the quarterly enrollment totals, broken down by self-only and self and family enrollments, with the applicable daily premium rates for those subscribers for each day in each quarter. Tr. at 548/16-551/10, 554/25-555/12 (Wills). Prof. Wills then compared that calculation to the stipulated amount of payments made by Defendant for 1988 and 1989. Tr. at 557/2-12 (Wills). Prof. Wills concluded with a reasonable degree of certainty that HIP-NY had been underpaid $2,816,676 for contract years 1988 and 1989. Tr. at 557/13-558/1 (Wills). In response to the Court's questions regarding the absence of any measure to account for enrollment fluctuations during each quarter, Prof. Wills testified, on rebuttal, regarding an analysis he made regarding possible fluctuations in enrollment. Tr. at 1474/22-1475/13 (Wills). The analysis compared the enrollment every fifteen days for each year from 1990 to 1996. That analysis showed that the only significant changes in enrollment occurred during the first two weeks of January of each year, the annual open season during which FEHBP subscribers could freely change health plans. Tr. at 1472/4-1474/3 (Wills); PX 132 (Demonstrative Charts). Prof. Wills testified that HIP-NY could account for the Open Season fluctuations by utilizing enrollment totals as of March 31 for the first quarter, rather than averaging the enrollment reported on December 31 and March 31 for the first quarter. Tr. at 474/13-21 (Wills). By weighing the first quarter this way to capture the enrollment fluctuations that occur in the beginning of the first quarter, the underpayment amount for contract years 1988 and 1989 would be approximately $2.9 million, roughly $150,000 greater than the calculated amount based on the average enrollment for each quarter. Tr. at 1474/22-1475/13 (Wills); compare PX

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121 (Sept. 8, 2003 Rpt. of J. Wills) to PX 132 (Demonstrative Charts). Accordingly, Prof. Wills' analysis of the underpayments for 1988 and 1989 were conservative, minimizing the impact of enrollment fluctuation in the first quarter of each year. Defendant contends that the Table 1 Report is not a reliable source of calculating damages, but provides no basis for that contention. Defendant's expert witness, Thomas Grogan, made no substantive analysis of the 1988 and 1989 calculations or the Table 1 Reports. See Tr. at 1136/3-16 (Grogan). Moreover, Defendant failed to evaluate of the accuracy of the data in the Table 1 Reports, did not provide any alternative data to that in the Table 1 Reports, and failed to raise any other issue that would affect the accuracy of the Reports. Defendant's sole contention regarding the Table 1 Reports is that HIP-NY previously claimed that its enrollment data were inflated and inaccurate during 1988 and 1989. Defendant relies on a single document prepared in 1991 in response to an audit of HIP-NY's FEHBP rates. DX 109 (1991 Audit Report). In that response, HIP-NY expressed concern that the various employing agencies of Defendant were not reconciling their enrollment and, therefore, HIPNY's enrollment data may have included individuals who should have been terminated. Id. Defendant's reliance on this single statement is misplaced. First, the testimony at trial revealed that the enrollment reconciliation process did not necessarily result in a reduction in enrollment. William Mulryan, a HIP-NY Enrollment

Reconciliation Clerk, testified that enrollment reconciliation often resulted in adding as many, if not more, federal subscribers than would be terminated. See Tr. at 345/5-348/6, 351/16-352/25 (Mulryan); PX 45 (Reconciliation List, dated 1/16/92, and attached forms); PX 46 (Reconciliation List, dated 7/18/95, and attached forms).

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Second, the testimony of James McLaughlin, Managing Director for Billing and Medicare Reconciliation, showed that HIP-NY's fear that its enrollment may have been inflated was incorrect. Mr. McLaughlin testified that in the early 1990s, HIP-NY annually wrote off approximately three percent of its FEHBP premiums. Tr. at 373/9-376/2 (McLaughlin). He initially understood that the cause of the write-off may have been related to the failure of the employing agencies to reconcile their records, resulting in an inflated enrollment. Tr. at 374/919 (McLaughlin). Subsequently, however, Mr. McLaughlin was advised that HIP-NY had reconciled with almost 100 % of the employing agencies. Tr. at 373/9-376/2 (McLaughlin). Yet, HIP-NY continued to have a write-off of approximately three percent of its FEHBP premiums each year. Id. Mr. McLaughlin testified that, as a result, HIP-NY's enrollment was not inflated, but that Defendant simply underpaid the premiums due. (McLaughlin). The facts proven at trial show that Defendant mandates the submission of a Table 1 Reports. Tr. at 511/2-15 (Strassberg). The Table 1 Reports are used by OPM for a variety of statistical analyses. See Tr. at 907/5-18 (Kitchak). Table 1 Reports are used, at a minimum, to identify the SSSGs, the single most important aspects in reconciling and auditing rates that annually affect hundreds of millions of dollars in premium payments. Tr. at 707/20-711/15 (Black). If the Table 1 Reports are sufficiently reliable to audit rates, they are also sufficient to calculate damages in this case. B. HIP-NY 1990-1996 HIP-NY's Enrollment Data For contract years 1990 through 1996, Prof. Wills used HIP-NY's contemporaneously maintained enrollment to calculate whether Defendant underpaid premiums. Prof. Wills verified the accuracy of the enrollment data by running them through rigorous tests and verifications. Tr. Tr. at 374/25-376/2

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at 570/14-572/22, 573/23-575/17 (Wills). As Prof. Wills testified, he subjected the data to numerous integrity checks to ensure all relevant data were retrieved. He ran computer programs to ensure that no one was enrolled twice. Tr. at 538/8-13, 561/2-17 (Wills). He also verified that every dependant was linked to a subscriber. Tr. at 570/17-571/10, 573/5-20 (Wills). Prof. Wills ran numerous additional tests that required HIP-NY to go back and verify data through documentation and other means. Tr. at 561/2-14 (Wills). Prof. Wills then identified a timeline for every subscriber in the system. Tr. at 576/20577/8 (Wills). This timeline identified every day the subscriber was enrolled in HIP-NY's federal account and the type of coverage (self only or self and family) for that subscriber, excluding all breaks in coverage. Tr. at 580/14-582/17 (Wills). Prof. Wills ensured that no one's timelines overlapped; that is, they were enrolled in two different agencies at the same time. Tr. at 561/2-562/2 (Wills). Finally, Prof. Wills sampled the data to determine whether there were any system errors in the enrollment data. Tr. at 573/23-575/17 (Wills). Specifically, Mr. Wills randomly identified HIP-NY federal subscribers and compared their enrollment timelines against corroborative documents and data to ensure that the database had no systematic issues. Id. The comparative documents included federal forms, reconciliation documents, utilization reports, and medical records. Id. After completing this analysis, Prof. Wills determined that the database was a reliable indication of the total enrollment of HIP-NY during the time period 1990 to 1996. Tr. at 573/23-574/3 (Wills). Subsequently, Prof. Wills also analyzed the sample drawn by the

Defendant and verified that the 1990 to 1996 data were reliable indicators of HIP-NY's FEHBP enrollment. Tr. at 576/9-13 (Wills).

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Next, Prof. Wills calculated the premiums that were due based on the enrollment data for each subscriber. Using the enrollment timelines, Prof. Wills calculated the premiums due, subscriber-by-subscriber, day-by-day, for each and every subscriber enrolled. Tr. at 583/5-584/1 (Wills). He then compared the premiums due to the total amount of premiums paid, as stipulated by the parties. Tr. at 584/2-8 (Wills). Based upon this analysis, Prof. Wills concluded, with a reasonable degree of certainty, that Defendant underpaid HIP-NY $9,128,180 for contract years 1990 through 1996. Tr. at 584/15-24 (Wills). HIP-NY's enrollment database is the only complete enrollment database available that identifies the federal subscribers enrolled in the HIP-NY Plan. As stated above, the Courts have repeatedly permitted litigants to calculate damages from such electronically stored data. A.I.G. Uruguay v. A.A.A. Cooper Transportation, 334 F.3d 997, 1007 (11th Cir. 2003); UnitedHealthCare Corp. v. American Trade Ins. Co., et al., 88 F.3d 563, 573-74 n.7 (8th Cir. 1996); City of Phoenix v. Com/Systems, Inc., 706 F.2d 1033 (9th Cir. 1983). Thus, HIP-NY's day-by-day, subscriber-by-subscriber damages calculation satisfies HIP-NY's burden of proof. IV. HIP-NY IS ENTITLED TO A CONTINGENCY RESERVE PAYMENT HIP-NY is also entitled to a contingent reserve payment equivalent to four percent of the underpaid premiums. The purpose of contract damages is to place the non-breaching party in the same position he would have been in had there been no breach and to make "the non-breaching party whole." Franklin F.S.B. v. United States, 55 Fed. Cl. 108, 114 (2003) (citations omitted); accord, Arthur Linton Corbin, Corbin on Contracts, Damages § 992 (1964); Restatement (Second) of Contracts § 344 (1981); see also HEM Research, Inc. v. E.I. Dupont De Nemours & Co., 1990 W.L. 7429 at *3 (E.D. Pa. 1990). If Defendant had paid the full amount of premiums

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due HIP-NY, Defendant would have likewise deposited in HIP-NY's contingency reserve account an amount equal to four percent of the underpayment. Mr. Strassberg explained the relevance of the OPM Contingency Reserve, both operationally and as it applies to this case. Tr. at 513/9-515/12 (Strassberg). As he testified, the Contingency Reserve is funded through FEHBP premium payments, a portion of which is allocated to the Contingency Reserve fund. Tr. at 513/12-23 (Strassberg). OPM maintains the fund in the Plan's name. See Id. As Defendant's witness, Ms. Kitchak, testified, if there are sufficient funds in the Contingency Reserve, OPM proposes a lump sum payment from the Contingency Reserve to be used by HIP-NY to lower its rates. Tr. at 882/10-885/12 (Kitchak); DX 112 at p.3 (1989 Reconciliation Instructions for Community Rated Plans). The Contingency Reserve is also used during the rate negotiation process to lower the rates charged by HIP-NY. Tr. at 514/3-14, 515/3-12 (Strassberg). The lower rate benefits HIP-NY by enabling it to be more competitive. Tr. at 514/16-23 (Strassberg). Defendant's own documents verify the purpose of the Contingency Reserve. Specifically, the 1989 Reconciliation Instructions for Community Rated Plans states that: Contingent reserves are maintained separately for each carrier and are increased by: (1) three percent of premiums on a continuous basis; (2) interest earned on monies held in the FEHB Fund; and (3) that portion of the one percent administrative reserve not used each year by OPM in its administration of the program. * * *

Once the plan's contingent reserve exceeds its minimum preferred balance, [one month's premiums] it is our policy to return the excess to the federal government and federal employees whose money it is. We accomplish this through rate reduction negotiated with the plan. In exchange for agreeing to an offset the plan will receive a lump sum payment for the reserve equal to the bi-weekly offset time 26 pay periods times the March 31 Headcount enrollment for the year to which the offset applies. Thus the plan

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receives the net-to-carrier income it is entitled to, but a portion is forwarded in a lump sum rather than split among 26 pay periods. At the same time, its rates are slightly more attractive than would otherwise have been. DX 112 (1989 Reconciliation Instructions for Community Rated Plans) at p. 3. Prof. Wills calculated the Contingency Reserve as four percent of the underpayment premiums. Tr. at 586/9-18 (Wills). If the Defendant had paid full amount of premiums due HIPNY during contract years 1988 through 1996, the Contingency Reserve would have grown by an additional four (4%) percent of that underpayment. See DX 112 (1989 Reconciliation

Instructions for Community Rated Plans). The Court should require the Defendant to fund fully HIP-NY's Contingency Reserve to be used to lower rates. This will ensure that HIP-NY is made whole and placed in the position it would have been had Defendant not breached its Contracts by underpaying premiums. The total due the Contingency Reserve is $477,794. Tr. at 531/20-24 (Wills). When the Contingency Reserve payment is combined with the amounts due for 1988 through 1996, the total amount due HIP-NY is $12,422,651.00. Tr. at 531/20-532/4 (Wills). V. DEFENDANT'S EXPERT TESTIMONY WAS NOT CREDIBLE The analysis by Defendant's expert, Mr. Grogan, was so narrow and inconsistent that it lacks a basic hallmark of expert testimony--objectivity. Mr. Grogan limited his analysis to a comparison of HIP-NY's data to selected federal enrollment forms. He ignored other federal documents, refused to consider other available government data, and simply assumed the HIPNY data were wrong without any further investigation of any discrepancies between HIP-NY's database and the select federal forms. Moreover, he constantly changed his methodology in order to find discrepancies, and ultimately failed to apply consistently his own analysis when it

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did not support his preconceived conclusions. Accordingly, this Court should reject, or at minimum substantially discount, Mr. Grogan's testimony. A. Mr. Grogan's Analysis Is, At Best, Incomplete A fatal shortcoming in Defendant's expert's analysis is the limited amount of information and data he considered in assessing the accuracy of HIP-NY's database. The trier of fact is assigned the task of judging the appropriate weight that should be given to an expert witness' testimony. Toronto, Hamilton & Buffalo Nav. Co. v. United States, 116 Ct. Cl. 184, 207 (1950). It is axiomatic that where an expert's testimony is incomplete, or fails to consider all relevant variables, the weight given to the expert's testimony should be disregarded or discounted by the Court. Exxon v. United States, 45 Fed. Cl. 581, 613 (1999); United States v. Bedford Associates, 548 F. Supp. 732, 743 (S.D.N.Y. 1982); Norfolk So. Corp. v. Commissioner of Internal Revenue, 104 T.C. 13, 48-49 (1995). For example, in Exxon v. United States, 45 Fed. Cl. 581 (1999), this Court completely discounted an expert's testimony regarding market conditions because the expert failed to consider all relevant variables in forming his opinion. The case involved the appropriate calculation of gas reserves depletion in determining the plaintiff's tax liability. The Court ruled that the plaintiff's experts failed to consider the extent to which other gas producers affected the relevant market. Id. at 103. The Court noted that "bland conclusory opinion testimony `carries its own death wound"'. Id. at 102 (citing Sternberger v. United States, 185 Ct. Cl. 528, 536 (1968)), accord, Black v. Commissioner of Internal Revenue, T.C. Memo 1977-337, 1997 Tax Ct. Memo LEXIS 104, at **16-19 (19-20) (Sept. 27, 1977) (rejecting expert testimony regarding the fair market value of real estate because the expert witness neglected to consider

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the value of the remaining property and whether insurance compensated the taxpayers for their loss). Similarly, Mr. Grogan's incomplete and biased analysis should be rejected. Specifically, Defendant drew a sample of 150 subscribers from HIP-NY's database. Tr. at 1146/25-

1148/11, 1225/25-1227/9 (Grogan). He combined his sample with the two samples drawn and used by Prof. Wills in his analysis of the database. Id. Mr. Grogan then compared the enrollment data in HIP-NY's database for the sampled subscribers to certain select federal forms. Id. Specifically, he considered enrollment forms, SF2809s, and termination forms, SF2810s. Tr. at 1170/15-19, 1225/17-22 (Grogan). As if he was testing the availability of federal forms SF2809 and SF2810, not the accuracy of HIP-NY's data, Mr. Grogan refused to consider any other enrollment documents or data in his analysis. Tr. at 1170/15-1171/4, 1223/5-17, 1224/6-10 (Grogan). Mr. Grogan also never bothered to investigate further the twenty-nine instances where he identified a discrepancy between the HIP-NY's data and the federal enrollment and termination forms. Rather, he just assumed that the HIP-NY data were inaccurate, ignoring the fact that there may be other explanations or additional documentation may well have shown the subscribers enrolled in HIP-NY. There were other government documents and databases available to Mr. Grogan that he deliberately chose to ignore. To illustrate, Mr. Grogan did not consider SF2811 forms in his analysis. Tr. at 1224/6-10, 1231/19-1232/4 (Grogan). These forms are commonly referred to as transmittal sheets and accompany the enrollment (SF2809s) and terminations (SF2810s) forms. Tr. at 93/20-94/21 (Reardon); Tr. at 245/18-246/2 (Chan); 285/17-286/12 (Miller). These transmittal forms commonly identify the subscriber and the type of enrollment action to

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be taken, such as a new enrollment, termination, transfer to another agency or changing from a self-only to self and a family plan. Tr. at 93/20-97/15 (Reardon); 245/18-247/20, 246/3-247/20 (Chan); PX 33-7, PX 33-10 (SF2811). These forms are prepared by the employing agencies of Defendant and are official government forms. Yet, Mr. Grogan simply refused to consider them and never even sought to obtain copies as part of his analysis. Tr. at 1224/2-10,1225/2324 (Grogan). Similarly, the FEHBP enrollment reconciliation process also provides substantial documentation verifying both enrollment and changes in enrollment. The testimony at trial established that HIP-NY and the employing agencies of Defendant reconciled enrollment. See Tr. at 340/2-346/21 (Mulryan); Tr. 110/22-113/3 (Reardon). The process involved HIP-NY requesting a namelist of all the federal employees employed by an agency and enrolled in the HIP-NY plan. See e.g., PX 41 (Letter from Agency, dated 3/30/92). HIP-NY compared the agency name list against its enrollment database. Tr. at 339/15-340/17 (Mulryan); PX 41 (Reconciliation Letter from Agency, dated 3/30/92). HIP-NY sent letters to employing

agencies that identified discrepancies between the agency's namelist and HIP-NY's enrollment data. Tr. at 342/15-19 (Mulryan); PX 42 (Reconciliation Letter, dated 6/17/92); PX 45

(Reconciliation Letter, dated 1/16/92); PX 46 (Reconciliation Letter, dated 7/18/95). The parties would resolve enrollment discrepancies utilizing this process. Payroll offices and agencies often returned HIP-NY's letters annotated with explanations regarding each discrepancy. PX 45 (Reconciliation Letter, dated 1/16/92). At other times, agencies sent back a letter on their own letterhead identifying how to treat each discrepancy. PX 50 (Reconciliation Letter, dated 5/30/96). In each circumstance, HIP-NY took appropriate action pursuant to this reconciliation process, whether or not the Payroll

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Offices and agencies ever forwarded the actual enrollment or disenrollment forms supporting the requested change. See Tr. at 357/2-11 (Mulryan). Defendant's own officials testified that these reconciliation letters are the equivalent of federal forms and are an appropriate means of changing enrollment. PX 118 (J. Fritz Dep. at 128/8-129/18). Mr. Grogan, however, flatly refused to consider any reconciliation d