Lawsuit Alleges RACs Break CMS' Regulations

Andrea Kraynak, CPC-A , April 29, 2009

Palomar Medical Center in Escondido, CA, has filed a lawsuit against HHS claiming that RACs violate CMS' rules.

CMS requires "good cause" for reopening and reviewing claims more than one year after payment, but RACs regularly reopened claims between one and four years old during the demonstration project without just cause.

Palomar is continuing its fight against this practice; it filed a complaint against HHS in U.S. District Court Southern District of California March 24.

Palomar's fight began in 2007 when PRG-Schultz—the RAC for California during the demonstration project—denied a 2005 claim. Palomar appealed the denial to the Administrative Law Judge level. In October 2008, the ALJ decided in Palomar's favor. The ALJ also found that PRG-Shultz "had not shown ‘good cause' to reopen the claim more than one year after payment, as required by Medicare regulations," according to the complaint Palomar filed in March. The ALJ also determined it had jurisdiction to determine whether the RAC properly reopened the claim.

However, the Medicare Appeals Counsel reversed the ALJ's decision that the reopening was improper and "held that the ALJ lacked jurisdiction to determine whether the RAC had lawfully reopened the claim," according to a February 13 letter to Palomar.

The complaint Palomar filed in March asserts the decision to overturn the ALJ ruling violates Palomar's right to due process and that the RAC violated Medicare rules for reopening claims in effect during the demonstration project.

Per 42 CFR § 405.980(b)(1), a contractor can reopen a claim for any reason within one year of payment, however to open a claim between one and four years post-payment, contractors must have "good cause" to do so per 42 CFR § 405.980(b)(2).

This has been a long-standing concern—many healthcare organizations believe the RACs bent CMS' own rules during the demonstration project.

The decision whether RACs can reopen claims more than one year after payment is important to many healthcare organizations with small operating margins.

Andrea Kraynak, CPC-A, is managing editor of The RAC Report, the Coding Educator, and for HCPro's Revenue Cycle Institute. She may be reached at

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