Palomar Medical Center (Palomar), a California hospital and Division of Palomar Pomerado Health, filed suit against the U.S. Department of Health and Human Services on March 24, 2009, alleging that a Medicare recovery audit contractor (RAC), PRG-Schultz International, unlawfully reopened claims during the RAC demonstration program. Palomar Medical Center v. Johnson, No. 3:09-cv-00605-BEN-NLS (S.D. Cal. complaint filed Mar. 24, 2009). The RAC reopened a two-year-old claim and retroactively denied coverage for the claim. Palomar appealed the RAC's decision. At the third level of the appeals process a Medicare administrative law judge (ALJ) found that the RAC had not shown "good cause" to reopen the claim more than one year after payment, as required by Medicare regulations. However, the Medicare Appeals Council (Council) modified the ALJ's decision and held that the ALJ lacked jurisdiction to determine whether the RAC had lawfully reopened the claim. The Council has similarly denied ALJ jurisdiction citing Medicare regulations that state a contractor's decision to reopen is final and not subject to appeal. 42 C.F.R. § 405.980(a)(5) & 42 C.F.R. § 405.926(l). Palomar's suit challenges the RAC's showing of "good cause" and the Council's decision to deny jurisdiction to ALJs to decide whether a claim was reopened lawfully. Palomar argues that the regulations "do not shield from administrative review reopenings that are contrary to law." Palomar's suit challenges the RAC's showing of "good cause" and the Council's decision to deny jurisdiction to ALJs to decide whether a claim was reopened lawfully. As the RAC permanent program rolls out, providers should monitor these developments concerning reopening regulations and other potential audit defenses. Please see Baker Hostetler's March 12, 2009, Executive Alert on the "Torture RAC" for essentials regarding the RAC national roll-out.