Ninth Circuit Court Rules Recovery Audit Contractor’s Decisions to Reopen Medicare Claims For Good Cause Can’t Be Challenged

Two weeks ago the U.S. 9th Circuit Court of Appeals ruled in Palomar Medical Center v. Sebelius that a health care provider is not entitled to challenge the determination of a Medicaid Recovery Audit Contractor (“RAC”) to reopen a Medicare claim for reimbursement for good cause.

Palomar had provided inpatient rehabilitation services to a patient following a total hip replacement surgery and was reimbursed through Medicare.  Two years later, a RAC reopened Palomar’s claim and determined that it was not medically “reasonable and necessary” because those rehabilitation services could have been provided in a less intensive and less expensive setting.  Therefore, Palomar was determined to have received an overpayment and was required to pay it back.  Palomar appealed the decision to an Administrative Law Judge (“ALJ”).

Although the ALJ ruled that Palomar could challenge the RAC’s determination to reopen for good cause, the Government appealed to the Medicare Appeals Council (“MAC”).  The MAC determined Palomar could not appeal a RAC’s decision to reopen the Medicare claim.  Palomar then filed suit in federal district court, which affirmed the MAC.

Now the 9th Circuit has affirmed the district court’s decision based upon two federal regulations which make a determination to reopen “final” and “not appealable.”  The 9th Circuit found that the requirement of “good cause” was not subject to either administrative or judicial review.

While this decision from the 9th Circuit is binding for all courts within that circuit, the effect of this decision could still be persuasive authority for cases outside that circuit—including in New York.  The impact of this holding means that a health care provider does not have any means to ensure a RAC is reopening a Medicare reimbursement claim for good cause.  It will be interesting to watch in the coming months whether Palomar appeals this case to the Supreme Court and, if so, under what theory.

Other providers may be faced with the reopening of reimbursement claims by RACs using this decision as valid authority to do so.  Some RACs may do so without good cause which could lead to procedural due process claims.  While a due process theory did not work for Palomar in the District Court—perhaps because there may have actually been good cause for reopening the reimbursement claim under these circumstances—it will be interesting to see how other courts will react to that same argument when faced with reopened claims clearly made without good cause.

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