In a much-anticipated opinion filed on September 11, 2012, the Ninth Circuit ruled that a Medicare contractor's decision to reopen Medicare claims cannot be challenged after conclusion of an audit that resulted in a revised claim determination.

The case at issue concerned inpatient rehabilitation services provided by Palomar Medical Center to a patient following hip surgery. Palomar received Medicare reimbursement for the services, but a recovery audit contractor ("RAC") reopened Palomar's claim nearly two years later to determine whether the services were reasonable and necessary.

Medicare regulations provide that a contractor may reopen a determination within one year for any reason or within four years for good cause. 42 C.F.R. §405.980(b)(1)-(2). The decision on whether to reopen a claim is "final" and "not subject to appeal." 42 C.F.R. § 405.980(a)(5). The RAC concluded that the services were not covered by Medicare because they were provided in a hospital when they could have been provided in a less-intensive setting. The RAC's initial determination was later affirmed at four levels of administrative review, although an administrative law judge ("ALJ") granted relief to Palomar on the basis that the RAC did not have good cause for reopening the claim. The Medicare Appeals Council did not agree and reversed the ALJ's decision. Palomar did not challenge the determination that the services were not reasonable and necessary, but appealed the decision on the reviewability of the reopening of the claim. The Ninth Circuit reasoned that while providers have a legitimate interest in the finality of claim determinations, the government has an interest in the integrity of the RAC program, which was designed to reduce Medicare overpayments. The court ultimately ruled in favor of a strict reading of the governing regulations, holding that a decision to reopen a claim is final and not appealable.