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Does “GOOD CAUSE” mean anything? – Palomar Medical Center v. Sebelius

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Palomar Medical Center v. Sebelius involves a claim paid more than one year before it was reopened during a RAC audit. After losing the first two appeals, the hospital convinced an ALJ that the RAC had not shown it had good cause to reopen the claim. However, when the Medicare Appeals Counsel (MAC) reviewed the ALJ’s decision, it concluded, based on its interpretation of the relevant regulations, that the ALJ had no authority to review the RAC’s decision to reopen the claim.

The relevant regulations, which are not easy to make sense of, appear in Title 42 of the Code of Federal Regulations (CFR). 42 CFR § 405.980(b) provides that:
A contractor may reopen an initial determination or redetermination on its own motion–

  • (1) Within 1 year from the date of the initial determination or redetermination for any reason.
  • (2) Within 4 years from the date of the initial determination or redetermination for good cause as defined in §405.986.
  • (3) At any time if there exists reliable evidence as defined in §405.902 that the initial determination was procured by fraud or similar fault as defined in § 405.902

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According to 42 CFR § 405.986(a), “good cause” is established when:

  • (1) There is new and material evidence that–
  • &nbsp&nbsp&nbsp(i) Was not available or known at the time of the determination or decision; and
  • &nbsp&nbsp&nbsp(ii) May result in a different conclusion; or
  • (2) The evidence that was considered in making the determination or decision clearly shows on its face that an obvious error was made at the time of the determination or decision.

42 CFR § 405.980(a)(5) provides that:

  • The contractor’s, QIC’s, ALJ’s, or MAC’s decision on whether to reopen is binding and not subject to appeal.


The Court decisions in Palomar Medical Center v. Sebelius

After the decision by the Medicare Appeals Council reversing the ALJ’s decision, Palomar appealed to federal court. The initial court opinion, rendered by Magistrate Judge Stormes, concluded that the MAC’s decision was correct and that a RAC’s decision to reopen a claim could not be appealed. District Court Judge Benitez agreed and granted CMS’ Motion for Summary Judgment. Palomar appealed to the Ninth Circuit Court of Appeals where the matter is currently pending. Magistrate Judge Stormes’ opinion may be found here, District Court Judge Benitez’s opinion may be found here and a web page set up by the Ninth Circuit for those interested in following the proceedings in that Court may be found here.

Judge Covington of the United States District Court in Tampa, Florida reached the same result in Morton Plant Hospital Association, Inc. v. Sebelius, a case raising the same issue as raised in Palomar. In addition to the arguments relied upon by the Court in Palomar, Judge Covington pointed out that in 2005, when changes were proposed to the Medicare appeals process, CMS specifically noted that it would review a contractor’s compliance with the good cause requirement through internal audits and evaluations of the contractor’s performance. CMS’ comments at page 11453 of the March 8, 2005 edition of the Federal Register may be found here.

Another argument

Palomar and Morton Plant Hospital have argued, so far unsuccessfully, that they should be able to show that the RAC did not have good cause when it decided to reopen a claim. Otherwise, they argue, there is no way to enforce the requirement that the RAC have good cause when it reopens a claim. I think, in light of the language of the regulations, that a better argument might be that for reopened claims, the RAC must establish on the record good cause before it considers the merits of the claim. In legal speak, the argument is unless good cause is established, there is no jurisdiction or power to reconsider the accuracy of a paid claim more than one year old.

As the Supreme Court clearly demonstrated in its recent decision on the Affordable Care Act, creative arguments may sometimes carry the day.

A new case

On June 5, 2012, the United States District Court for Eastern District of New York came to a very different decision in St Francis Hospital v Sebelius. I will discuss the import of this decision in a future post.

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.

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