cengle120xA California provider’s challenge to the RAC initiative ceased to gain ground in U.S. District Court as the hospital’s summary judgment motion was denied and the Department of Health and Human Services motion for summary judgment was granted last week.

The case, Palomar Medical Center v. Sebelius, filed a May 26, 2010, objection to a magistrate judge’s earlier recommendation that HHS is correct in determining that a decision to reopen a claim is not subject to appeal, regardless of whether “good cause” is given for the audit, and now that decision has been denied, granting the summary judgment to HHS in Judge Roger Benitez’ order on July 28, 2010.

As RACmonitor reported in April of last year (http://racmonitor.com/news/archives/141-first-lawsuit-to-challenge-racs.html), Palomar Medical Center, in Escondido, CA, was the first provider to file a lawsuit challenging the RAC.  The provider filed suit against the HHS last year in the U.S. District Court of the Southern District of California after several steps through the Medicare appeal process based on a RAC decision to reopen a Medicare claim 20 months after the initial payment.

“Medicare providers should be very concerned about this decision,” says Ronald S. Connelly, Principal of Powers Pyles Sutter & Verville, PC, representing the hospital in the case.  “The court held that providers have absolutely no recourse when a Medicare contractor does not follow the timeframes and rules for reopening old claims.  The court held that neither ALJs nor federal courts may review whether Medicare contractors are abiding by the regulations for reopening claims.” 

Palomar Pomerado Health (d/b/a Palomar Medical Center) originally filed the complaint, challenging the procedures used by RACs to reopen Medicare claims, on March 24, 2009, in the Southern District of California with the support of the Fund for Access to Inpatient Rehabilitation (the “FAIR” Fund), a common legal defense fund comprised primarily of inpatient rehabilitation hospitals and units.

The original lawsuit alleged that the Centers for Medicare and Medicaid Services (CMS) unlawfully reopened a claim by Palomar Medical Center without showing “good cause” for the reopening as required by Medicare regulations. The provider also disputed CMS’s position that Medicare Administrative Law Judges (ALJs) may not review whether contractors, such as RACs, have complied with federal regulations when reopening claims.  The original complaint addressed two related issues from practices of PRG-Schultz in its capacity as a RAC under CMS’s demonstration project in 2006 and 2007, alleging that PRG Schultz did not have “good cause” for reopening the hospital’s claim as required by CMS regulations.  The original complaint also challenged the Medicare Appeals Council’s decision that ALJs do not have jurisdiction to decide whether Medicare contractors have complied with the reopening regulations. 

Connelly said that his firm is aware of many recent examples in which RACs and ZPICs have reopened claims two or three years after payment without asserting “good cause” for doing so or by merely stating the words “good cause” without actually meeting the good cause standard.  “CMS does not seem to be providing any check on these activities.  The practical result of the court’s decision is that the reopening timelines and good cause standard are rendered meaningless, and contractors can reopen claims at any time for any reason.”

About the Author 

Carla Engle, MBA, is a product manger for MediRegs, a Wolters Kluwer company. Her background includes more than 20 years in hospital and physician practice operations, particularly in reimbursement and billing functions. Prior to joining Wolters Kluwer recently, she was the vice president of compliance for a national revenue cycle solutions company and prior to that was in the Reimbursement Training Department with HCA.  For several years she headed up the Part A Fraud Investigation Unit for a CMS Program Safeguard Contractor (PSC) where she was successful in the prosecution of several national cases. In her revenue cycle compliance capacity, she worked with a number of clients in California and Florida with Recovery Audit Contractors (RACs) in setting up processes and appeals.

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Information about the FAIR Fund: http://www.thefairfund.org/

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