Recovery audit contractors get a new fishing license

In a previous blog post, I discussed the Centers for Medicare & Medicaid Services’ (CMS) decision to allow one of its recovery audit contractors (RAC), Conolly, to begin auditing claims for evaluation and management codes, specifically code 99215. Earlier this month, the U. S. Court of Appeals for the 9th Circuit gave RACs and other Medicare contractors even more discretion in this regard. Specifically, in Palomar v. Sebelius, D.C. No. 3:09-cv-00605-BEN-NLS (Sept. 11, 2012), the court upheld that a decision by a RAC to reopen a Medicare claim for complex review was not reviewable.

The Palomar case involved a RAC's determination that services provided to a Medicare beneficiary were not reasonable and necessary. The claim in question was more than one year old and could only be reopened for "good cause" under Medicare regulations. All of the reviewers that examined the case agreed with the RAC's determination regarding medical necessity. However, the administrative law judge who reviewed the RAC determination concluded that there was not good cause to reopen the claim and reversed the RAC decision.

On appeal, the Medicare Appeals Council (MAC) reversed the administrative law judge decision. The council ruled that the Medicare regulation at 42 C.F.R. § 405.980(a)(5) makes a Medicare contractor's decision to reopen a claim unreviewable. Both the U.S. District Court and the U.S. Court of Appeals for the 9th Circuit affirmed this opinion. The courts held that the regulation expressly forecloses jurisdiction to review the reopening decision and that providers may only appeal the substance of a contractor's overpayment determination (e.g. whether or not the services were reasonable and necessary).

The Secretary for the U.S. Department of Health & Human Services argued that the review of contractors' compliance with the regulations is solely a matter for CMS's performance evaluations of the contractors. That leaves physicians at the mercy of CMS’s ability to manage its contractors.

Additionally, because the RACs get a cut of every overpayment that they find, they have incentive to reopen claims whether or not "good cause" exists under the Medicare regulations. This is especially true because most determinations finding an absence of medical necessity are based on a lack of documentation, and because it will be harder to find documentation and testimony to support older claims.

The "good cause" requirement was an important source of protection against contractor fishing expeditions. Unfortunately, the Palomar decision just gave RACs and other Medicare auditors a virtually unlimited fishing license going forward.

–Kent Moore, Senior Strategist for Physician Payment for the American Academy of Family Physicians