Palomar Med. Ctr. v. Sebelius

• Decision Date: 11 September 2012
• Docket Number: No. 10–56529.,10–56529.
• Citation: 693 F.3d 1151
• Parties: PALOMAR MEDICAL CENTER, Plaintiff–Appellant, v. Kathleen SEBELIUS, Secretary of Health and Human Services, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

693 F.3d 1151

2012 Daily Journal D.A.R. 12,790

PALOMAR MEDICAL CENTER, Plaintiff–Appellant,

v.Kathleen SEBELIUS, Secretary of Health and Human Services, Defendant–Appellee.

No. 10–56529.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 7, 2012.

Filed Sept. 11, 2012.

Ronald S. Connelly (argued) and Mary Susan Philp, Powers, Pyles, Sutter & Verville, PC, Washington, DC; and Dick A. Semerdjian, Schwartz Semerdjian Haile Ballard & Cauley LLP, San Diego, CA, for the plaintiff-appellant.

Christine N. Kohl (argued) and Anthony J. Steinmeyer, U.S. Department of Justice, Civil Division, Washington, DC, for the defendant-appellee.

Douglas Hallward–Driemeier, Ropes & Gray, LLP, Washington, DC; Long X. Do, California Medical Association, Sacramento, CA; and Jon N. Ekdahl and Leonard A. Nelson, American Medical Association, Chicago, IL, Amicus Curiae for American Medical Association.

Mark Steven Hardiman, John R. Hellow, and Mark Emerson Reagan, Hooper, Lundy & Bookman, Inc., Los Angeles, CA, Amicus Curiae for Federation of American Hospitals.

Long X. Do and Francisco J. Silva, California Medical Association, Sacramento, CA, Amicus Curiae for California Medical Association.

Mark Steven Hardiman, John R. Hellow, and Mark Emerson Reagan, Hooper, Lundy & Bookman, Inc., Los Angeles, CA, Amicus Curiae for American Hospital Care Association.

Jodi P. Berlin, Lloyd A. Bookman, and Abigail W. Grigsby, Hooper, Lundy & Bookman, Inc., Los Angeles, CA, Amicus Curiae for California Hospital Association.

Appeal from the United States District Court for the Southern District of California, Roger T. Benitez, District Judge, Presiding. D.C. No. 3:09–cv–00605–BEN–NLS.

Before: HARRY PREGERSON, RONALD M. GOULD, and RICHARD C. TALLMAN, Circuit Judges.

OPINION

GOULD, Circuit Judge:

This case involves a Medicare provider at first paid in full for certain medical services but later determined, through operation of the congressionally mandated Recovery Audit Contractor (“RAC”) program, to be liable to repay the government for these services found not to be medically reasonable and necessary. We must decide whether such a Medicare provider may in its appeal of the revised determination of overpayment challenge a lack of “good cause” for reopening the initial, erroneous determination.

Palomar Medical Center (“Palomar”) is a Medicare service provider located in Escondido, California. The Secretary of Health and Human Services (“the Secretary”) administers the Medicare program through the Centers for Medicare and Medicaid Services (“CMS”). This case concerns inpatient rehabilitation services that Palomar gave a Medicare patient after a hip surgery. There was no question that the patient needed rehabilitation services.¹ But through several levels of administrative appeal, these services were found not reasonable and necessary and not covered by Medicare because they were done in the hospital rather than in a less intensive (and less expensive) setting.

CMS had reimbursed Palomar's claim for these services in full. Congress, however, had enacted the RAC program, aimed at recovering Medicare overpayments, and a RAC reopened Palomar's claim to determine whether there had been an overpayment. The audit did not fare well for Palomar, as the RAC determined that Palomar had been overpaid because the services provided were not medically reasonable and necessary. Palomar was held liable for the overpayment by the RAC, and this conclusion was confirmed at four levels of administrative appeal. Among these, an Administrative Law Judge (“ALJ”) had decided that the overpayment would have to be accepted because there was not good cause to reopen the claim. But the Medicare Appeals Council (“MAC”) then reversed that decision, concluding that the ALJ had no jurisdiction to review the RAC's decision to reopen.

Congress had said that Medicare claims could be reopened under guidelines set by the Secretary in regulations.² The Secretary had adopted regulations that are material here: one regulation says that a contractor's decision to reopen is “final” and “not subject to appeal”; ³ a second regulation says that such a decision is “not appealable”; ⁴ and a third regulation says that a reopening in the period of one to four years after an initial determination to pay a claim is to be upon “good cause” for reopening.⁵

A revised determination issued after a reopening is appealable.⁶ In this appeal, Palomar contends that a Medicare provider may challenge a revised determination based on lack of good cause for reopening, even though it could not challenge the reopening immediately thereafter. The district court granted summary judgment for the Secretary, holding that because the regulations bar appeals of reopenings, it makes no sense to permit challenges to the basis for reopening after a revised determination has issued.

That decision comes to us on appeal and poses the question whether the requirement of good cause for reopening should have been a limitation on the RAC's audit of Palomar that could be enforced by Palomar's appeal of the RAC's decision. It is not an easy question because of competing principles. On the one hand, Congress wanted an effective recovery audit program to reduce Medicare payments with resulting benefits for Medicare beneficiaries and taxpayers, under procedures set by the Secretary. On the other hand, the provider has a legitimate interest in finality of determinations on its revenue for medical services. However, in view of the goals of the RAC program and the Secretary's regulations stating that decisions to reopen are “final” and “not appealable,” we hold that the issue of good cause for reopening cannot be raised after an audit's conclusion and the revision of a paid claim for medical services, and affirm the district court.

I. BACKGROUND

To place this appeal in context, we start with an explanation of Medicare and its system for payments and administrative appeals, then discuss the RAC program, and end with a discussion of the nature of Palomar's claims.

A. The Medicare Program

Medicare is a federally funded health insurance program for aged and disabled persons. 42 U.S.C. § 1395 et seq. Medicare Part A gives insurance benefits for inpatient hospital and related services and makes reimbursement payments to those who provide such services. Id. §§ 1395d, 1395g. Through CMS, the Secretary contracts with fiscal intermediaries, generally private insurance companies, to perform coverage determination and payment functions. Id. §§ 1395h, 1395kk–1; Erringer v. Thompson, 371 F.3d 625, 627(9th Cir.2004).

Medicare coverage is limited to services that are medically “reasonable and necessary.” 42 U.S.C. § 1395y(a)(1)(A). Medicare service providers, such as Palomar, submit claims for reimbursement for covered services, and their fiscal intermediaries make “initial determinations” of coverage and amount. Id.§ 1395ff(a); 42 C.F.R. § 405.920. Initial determinations are appealable. See42 C.F.R. § 405.904. In the administrative appeals process, a Medicare provider may: request a “redetermination” by its fiscal intermediary, id. § 405.940; appeal a redetermination to a Qualified Independent Contractor (“QIC”) for a “reconsideration,” id. § 405.960; appeal a reconsideration to, and request a hearing before, an ALJ, id. § 405.1000; and appeal an ALJ's decision to the MAC, id. § 405.1100. The MAC's decision is the final decision of the Secretary and may be appealed to a federal district court. 42 U.S.C. § 405(g); 42 C.F.R. § 405.1130.

In certain circumstances, an otherwise final determination or decision may be reopened. See42 C.F.R. § 405.980. Early Medicare regulations on reopening generally incorporated Social Security regulations on reopening. Then, in 2000, Congress added to the Medicare statute a provision governing 11014 reopening and revision of determinations. This provision states, “The Secretary may reopen or revise any initial determination or reconsidered determination described in this subsection under guidelines established by the Secretary in regulations.” 42 U.S.C. § 1395ff(b)(1)(G). In 2005, CMS promulgated an interim final rule that established regulations implementing the reopening provision and other statutory changes. 70 Fed.Reg. at 11,420.⁷

The regulations define a reopening as “a remedial action taken to change a binding determination or decision that resulted in either an overpayment or underpayment, even though the binding determination or decision may have been correct at the time it was made based on the evidence of record.” 42 C.F.R. § 405.980(a)(1). A provider may request a reopening, or the contractor, QIC, ALJ, or MAC may initiate a reopening on its own motion. Id. § 405.980(b)–(e); 70 Fed.Reg. at 11,450.

A contractor may reopen a determination on its own motion within one year for any reason or within four years for good cause. 42 C.F.R. § 405.980(b)(1)–(2). “Good cause” may be established if (1) there is “new and material evidence” that was “not available or known at the time of the determination” that “[m]ay result in a different conclusion,” or (2) “[t]he 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.” Id. § 405.986(a).

Two of the 2005 reopening regulations are subject to conflicting interpretive arguments and to challenge on this appeal. First, 42 C.F.R. § 405.980(a)(5) states that “[t]he contractor's, QIC's, ALJ's, or MAC's decision on whether to reopen is final and not subject to appeal.” ⁸ Second, 42 C.F.R. § 405.926( l ) states that “[a] contractor's, QIC's, ALJ's, or MAC's determination or decision to reopen or not to reopen an initial determination, redetermination, reconsideration, hearing decision, or review decision” is not an initial determination and is “not appealable.”

By contrast, a revised determination or decision that results from a reopening is...