In a decision issued June 5, 2012, a federal district court allowed suit by a hospital challenging the validity of Medicare regulations providing that a contractor’s decision to reopen an initial determination is not appealable.  (42 C.F.R. §§ 405.926(l) and 405.980(a)(5))

In a suit filed by St. Francis Hospital (located in Roslyn, New York), Judge Dennis Hurley in the Eastern District of New York waived the Provider’s administrative exhaustion requirement, and found that the court had jurisdiction to hear the case notwithstanding the fact that the Provider had not received any “final decision” from the agency.  The court found that “holding [the Provider] to the administrative exhaustion requirement in this instance would prove futile,” since it is “unrealistic” to expect the Secretary to change her policy and the agency has demonstrated an unwillingness to review the propriety of reopenings.  Moreover, the court found that the Provider had made a “plausible claim that plaintiff has suffered a deprivation of its Fifth Amendment due process rights,” which “result[ed] in a substantial monetary loss through recoupment.”

Following a Medicare RAC audit, the RAC identified 225 claims that were allegedly subject to overpayment, and forwarded the claims to the Provider’s contractor for reconsideration.  The contractor reopened all 225 claims.  Medicare rules permit claims to be reopened within one year of the initial determination for any reason, or within four years if cause is shown.  The Provider asserts that all of the claims at issue were reopened more than one year after the initial determination (and some were reopened more than four years later), allegedly without any showing of “good cause.”

The merits of these reopenings, some of which remain on appeal at the ALJ level, are not at issue in this case.  Rather, the hospital complains that the administrative appeals process does not offer a meaningful opportunity to challenge the propriety of a contractor’s reopening.

The text of the opinion is available by clicking here.