Palomar Loses Audit Case Appeal

The U.S. Ninth Circuit Court of Appeals has ruled against Palomar Medical Center in litigation over the leeway auditors have to recoup payments when Medicare claims are in dispute.

Palomar filed suit against the U.S. Department of Health and Human Services in 2009 over an attempt by a recovery audit contractor, commonly referred to as a RAC, to recoup alleged overpayments made to the 298-bed hospital on Medicare claims submitted in 2007. 

Palomar, part of a two-hospital district system located in Escondido in San Diego County, claimed the RAC, Health Data Insights, could not conduct audits looking back at claims more than one year old. Health Data Insights was attempting to recoup payments on claims going back 20 months.

Under current Medicare regulations, RACs can question any claims that are less than one year old without any objections from providers. However, it must have good cause to reopen claims that are more than one year and less than four years old.

Palomar initially prevailed when it appealed the claim. An administrative law judge ruled in its favor – a venue where providers prevail most often. However, the decision was later overturned by the Centers for Medicare and Medicaid Services, which has a right to overturn such judgments. Palomar then sued in federal court, which is considered the venue of last resort when appealing an auditor’s recoupment. Palomar had lost at the district court level, but appealed the decision.

“In view of the goals of the RAC program, and the (HHS) 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,” the three-judge panel said in the ruling.

RACs began auditing hospitals in 2008, and their activity has been soaring in recent months. According to data from the American Hospital Association, medical record requests from providers increased 22% during the second quarter of this year, while denials on claims have increased by 24%.

The RACs had been auditing Medicare and Medicaid claims post-payment, but recently began making pre-payment audits.

It is unknown whether Palomar will appeal the ruling to the U.S. Supreme Court.