Federal Appeals Court Rules that a Medicare Recovery Audit Contractor’s Decision to Reopen a Claim for Review is Beyond Judicial Scrutiny

A Health Care E-Alert

The Ninth Circuit Court of Appeals recently held that a provider was not permitted to raise the issue of whether “good cause” existed to support the RAC decision to reopen a payment determination because the RAC decision to reopen was beyond review. The case was decided on September 1, 2012: Palomar Medical Center v. Sebelius.

At issue was the interpretation of at least three regulations specifically addressing the decision to reopen claims for review. The first regulation says that a contractor’s decision to reopen is “final and not subject to appeal.” 42 C.F.R. § 405.980 (a)(5). The second regulation indicates that a decision to reopen a claim is “not appealable.” 42 C.F.R. § 405.926(l). However, the final regulation at issue states that after one year, but no more than four years later, a contractor may only reopen such claims if “good cause” exists. 42 C.F.R. § 405.980(b).

In the case before the courts, the provider had rendered inpatient rehabilitation services to an individual following hip surgery. Although there appeared to be no question as to whether the patient needed rehabilitation services, there was a question as to whether those same services could have been provided at a lower cost location. As such, the RAC reopened the claim and determined there had been an overpayment. This conclusion was affirmed through the administrative appeal process. However, during the administrative process, an Administrative Law Judge (ALJ) concluded that there was no “good cause” to reopen the claim and the overpayment would have to be accepted. The Medicare Appeals Council reversed that decision, concluding that the ALJ had no jurisdiction to review the RAC’s decision to reopen the claim.

The question of whether the “good cause” requirement for reopening could be enforced by the provider on appeal made its way to the Ninth Circuit Court of Appeals. The court reviewed the applicable regulations and concluded that, although a revised determination or decision resulting from a reopening is appealable, the initial decision to reopen the claim is not subject to review.

Ultimately, the court granted CMS deference in the interpretation of administrative regulations that it promulgated, and noted that the regulations were clear in that providers may not challenge reopening decisions based on lack of “good cause” or any other procedural pre-requisite for reopening. The court reasoned that CMS made a policy choice not to subject RAC reopening decisions to further administrative review. Accordingly, the focus of all appeals concerning revised determinations is limited to the revision itself and whether the revision was appropriate.

This focus furthers the congressional aims of finding improper payments in the Medicare system. Specifically, the court pointed to the fact that CMS declined to create an enforcement mechanism for the “good cause” standard, but instead decided to rely upon its own monitoring and review of each contractor’s compliance with the “good cause” standard to ensure the regulations are given meaning.

While the court recognized that providers have a legitimate interest in the finality of Medicare payments, the court also believed that CMS has a legitimate interest in ensuring that taxpayer money is spent properly on appropriate claims and that the RAC process furthers that interest. Given the regulatory language and CMS’ legitimate interest in monitoring Medicare payments, the Court concluded that RAC decisions to review a payment decision are beyond scrutiny. This decision applies to the nine western states within the jurisdiction of the Ninth Circuit. We will provide further updates as other courts weigh in on this issue.

Practice Tip: Providers should always be prepared to respond to a RAC reopening based on the merits of the payment received, as opposed to relying solely upon an argument that the review was procedurally improper.