A Court Agrees to Consider the GOOD CAUSE Issue – St. Francis Hospital v. Sebelius

In an earlier post, I discussed the case of Palomar Medical Center v. Sebelius presently pending before the Ninth Circuit Court of Appeals. In Palomar, the District Court agreed with CMS that pursuant to the regulations governing administrative appeals, Palomar could not raise and an ALJ could not decide whether “good cause” existed for the RAC to reopen a claim paid more than one year earlier. After hearing oral argument, the Ninth Circuit issued an order inviting the submission of amicus (friend of the court) briefs on the questions of (1) whether the regulations bar administrative review of a RACs compliance with the “good cause” standard and (2) if the regulations do bar administrative review, may the federal courts enforce RAC compliance with the “good cause” requirement. According to CMS, the response to the second question is no because a federal court can only review a “final decision” of an agency and there has been not yet been a final decision on this question. The amicus brief submitted by the AMA and supplemental briefs submitted by the parties may be found on this webpage established by the Ninth Circuit.

St. Francis Hospital v. Sebelius

As part of the RAC demonstration project, Connolly Consulting reopened 225 paid claims submitted by St. Francis Hospital and then demanded, through St. Francis’ fiscal intermediary, Empire Medical Services (now NGS), repayment of $1.2 million dollars. St. Francis appealed each claim and as of the time it filed its Complaint in federal court, had won 104 of its appeals with 15 appeals still pending before an ALJ. Like Palomar, St. Francis sought to raise before the ALJ and the Medicare Appeals Council the RAC’s compliance with the “good cause” standard and like in Palomar, the ALJ and Medicare Appeals Council refused to consider this issue based on 42 CFR 926(l).

St. Francis then filed suit in the United States District Court for the Eastern District of New York (St. Francis Hospital v. Johnson, No. 09-CV-01528). In its Complaint, St. Francis alleged that the Court could consider its claim under section 1395ff(b)(1)(A) of the Medicare Act, (42 U.S.C. §1395ff) because, even though some appeals were still pending and even though the ALJ and Medicare Appeals Council had not considered the good cause argument, St Francis had exhausted its administrative remedies, the prerequisite to review in federal court.

CMS filed a motion to dismiss the lawsuit arguing that the Court did not have jurisdiction to hear the case because St. Francis had not exhausted its administrative remedies. In its thoughtful opinion, the Court observed that although St. Francis had appealed to CMS, CMS consistently and uniformly took the position that St. Francis could not raise its claim that Connolly did not have “good cause” to reopen the paid claims. In rejecting CMS’ argument that before the federal court could become involved, an ALJ had to first rule on the “good cause” argument, a power CMS maintains the ALJ does not have, the Court stated:

As the Supreme Court held in Eldridge, and as is true here, “[i]t is unrealistic to expect that the Secretary would consider substantial changes in the current administrative review system at the behest of a single [claimant] raising a constitutional challenge in an adjudicatory context.” 424 U.S. at 330. Likewise, the Second Circuit has recognized futility in cases where the claim asserted on judicial review would not benefit “from further factual development or from the agency’s experience and expertise” or where waiving exhaustion would not “prevent premature interference with agency processes.”

The Court then denied the motion.

What does all this mean?

The Court in St. Francis has answered the second question posed by the Ninth Circuit with a resounding yes, by concluding that once an appeal is submitted to CMS, a federal court has the power to decide, in a subsequent lawsuit, whether the RAC had “good cause” to reopen a claim. If other federal courts adopt Judge Hurley’s reasoning, there will finally be a procedure, albeit cumbersome and expensive, by which a provider will be able to challenge a RACs determination that it had “good cause” to reopen a claim. Even though other District Court judges do not have to accept Judge Hurley’s reasoning, this opinion is the first indication that courts may not be willing to let CMS and the RACs be the ultimate arbiter of “good cause.”

Please contact us if we can be of any assistance in explaining court decisions that affect the workings of the Medicare-Medicaid Audit World or in helping to resolve an issue with any of the legion of CMS auditors.