As a result, a coalition of inpatient rehabilitation hospitals and units has formed the Fund for Access to Inpatient Rehabilitation (the FAIR Fund) to challenge procedures used by RACs.

The FAIR Fund seeks to clarify the rules for reopening Medicare claims and the rights of Medicare providers to challenge the untimely reopening of Medicare claims.

To this end, the FAIR Fund is supporting Palomar Medical Center’s recent suit in federal court in southern California. This action, Palomar Medical Center v. Johnson, alleges that the Centers for Medicare & Medicaid Services (CMS), acting through its RAC, PRG-Schultz, improperly reopened a Medicare claim that was more than one year old. The suit also challenges the decision by the Medicare Appeals Council that Administrative Law Judges (ALJs) do not have authority to review whether contractors, such as RACs, have complied with Medicare regulations when reopening claims.

Medicare reopening regulations provide important protections for providers. The rules appropriately balance Medicare’s need to audit claims with providers’ legitimate need for financial security. Medicare regulations permit contractors to reopen claims within one year “for any reason.” After that, providers are entitled to rely upon the payments that they have received unless a higher “good cause” standard is met.

Demonstrate Good Cause

Between one and four years, contractors must show good cause for reopening claims. Good cause is defined as new and material evidence that was not known or available at the time of payment. This scheme is fatally undermined if RACs and other contractors are permitted to reopen old claims with no showing of good cause and no independent oversight.

RACs in the demonstration project routinely reopened Medicare claims and retroactively denied coverage more than one year after payment without showing good cause. These procedural violations were devastating to providers. Millions of dollars were improperly recouped, and that was not the only burden. Providers had to organize teams of employees to process demands for medical records, track denials, and write appeals. These employees were diverted from their regular duties. Many providers hired outside legal counsel to assist in the appeals process.

Some providers aggressively pursued appeals of these RAC denials. Many of these appeals are still ongoing. Anecdotal evidence suggests that rehabilitation providers are winning upwards of 90 percent of their appeals on medical necessity grounds. This demonstrates that RACs were not only violating reopening procedures, they were also applying incorrect medical necessity criteria. Many providers, unfortunately, chose not to appeal, either because the burdens of appealing were too great or because the dollar value of the claims was too low to warrant appealing. Those providers that did appeal have had to wait years for the appeals process to run its course before being repaid by the Medicare program.

These issues did not end with the RAC demonstration project. The permanent RAC program permits RACs to reopen claims up to three years after payment. In addition, other contractors, such as Program Safeguard Contractors, can also reopen claims that are several years old. The FAIR Fund hopes that the Palomar suit will clarify the rules that will govern not only the permanent RAC program but also Medicare contractors generally.

The outcome of this lawsuit will certainly have implications for all types of providers because it addresses the procedural protections put in place by the Medicare regulations that govern the reopening of all claims for payment, not just rehabilitation claims. All providers are subject to the same reopening regulations, and the administrative appeals process has thus far proved ineffective in protecting providers from the burdens of RAC audits.

Inpatient Hospital Rehabilitation Facilities.

The FAIR Fund also plans to address the coverage standards that Medicare contractors apply to inpatient rehabilitation facilities (IRFs). The field of inpatient hospital rehabilitation has been under immense pressure from the Medicare program for some time.

RACs, and other contractors, have misinterpreted Medicare’s coverage requirements and have, in effect, required that IRFs satisfy coverage standards applicable to general acute care hospitals. For example, an IRF patient must require “close supervision by a physician with training or experience in rehabilitation.” Contractors typically require as a condition for IRF coverage that the patient’s medical condition be so severe that the patient would need an internist, cardiologist, or some other non-rehabilitation specialist.

An IRF is, however, a post-acute setting in which the rehabilitation needs of the patient are paramount. A rehabilitation physician leads a multi-disciplinary team of clinicians and designs and implements a program to improve the ability of a patient to function independently. Managing a patient’s medical comorbidities is merely one aspect of the rehabilitation physician’s role in an IRF. The FAIR Fund intends to support federal court litigation challenging overly restrictive interpretations of the Medicare IRF coverage rules to ensure that Medicare beneficiaries who require multi-disciplinary rehabilitation care can receive it.

The FAIR Fund needs your help to combat abuses of Medicare rules by RACs and other contractors. The FAIR Fund continues to accept new members, and membership is available at a number of contribution levels.

The FAIR Fund remains committed to addressing issues that may arise going forward into the permanent RAC program, as well as the issues raised by the continued medical necessity reviews for IRF services. Please visit for additional information about the FAIR Fund.


About the Author

Felice L. Loverso, Ph.D. is President & CEO of Casa Colina Centers for Rehabilitation. Mr. Loverso is Chairman of the FAIR Fund and previously served as Chairman of the American Medical Rehabilitation Providers Association. Casa Colina is a non-profit, freestanding, community-governed rehabilitation hospital in Pomona, California that has brought the benefits of rehabilitation to tens of thousands of people since its founding in 1936.

Mr. Loverso may be contacted at (909) 450-0123. Please also visit

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