Recovery Audit Contractor (“RAC”) Program Challenged by Hospital System

The Medicare Recovery Audit Contractor (“RAC”) program is being challenged by the two San Diego, California-based hospitals of Palomar Pomerado Health (“Palomar”). In a complaint filed against the Department of Health and Human Services (“HHS”) on March 27, 2009, Palomar alleged that PRG Schultz International, Inc. (“PRG Schultz”), the RAC operating in California during the RAC demonstration program, failed to follow appropriate procedures when reopening a certain claim, in violation of Federal regulations.

Specifically, the complaint alleges that, contrary to the provisions of 42 C.F.R. § 405.880, PRG Schultz unlawfully failed to demonstrate good cause for reopening a claim that was reopened after one year from the date of favorable initial determination. Pursuant to 42 C.F.R. § 405.980 (b): “A contractor may reopen and revise its initial determination or redetermination on its own motion – … (2) [After one year and] [w]ithin 4 years from the date of the initial determination or redetermination for good cause…”

The complaint further alleges that a recent Medicare Appeals Council (“MAC”) decision, finding that Administrative Law Judges do not have jurisdiction to consider whether claims were reopened appropriately, was wrongfully decided.

Throughout the RAC demonstration program, numerous Medicare providers and suppliers routinely raised complaints that the RACs failed to follow Federal regulations in conducting claim reviews and in issuing revised claim determinations. Although the MAC recently published decisions addressing this issue, MAC decisions, like other Medicare administrative decisions, have no precedential value. A decision from the United States District Court regarding this issue will be highly influential as the RAC program expands nationwide, and with respect to all other Medicare audits, reopenings and claim revisions.

For more information regarding the RAC Program, please call Abby Pendleton, Esq. or Jessica L. Gustafson, Esq. at (248) 996-8510, visit The HLP website’s RAC, Medicare and Other Payor Audits page, or visit The HLP website.