United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

THE HOSPITAL COMMITTEE FOR THE

LIVERMORE-PLEASANTON AREAS dba

VALLEYCARE HEALTH SYSTEM aka

VALLEYCARE MEMORIAL HOSPITAL, 

Plaintiff,

v.

CHARLES E. JOHNSON, as Acting

Secretary of the United States Department of

Health and Human Services,

Defendant.

___________________________________/

No. C-09-1786 EMC

ORDER DENYING PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT

AND GRANTING DEFENDANT’S

CROSS-MOTION FOR SUMMARY

JUDGMENT

(Docket Nos. 30, 31)

Plaintiff the Hospital Committee for the Livermore-Pleasanton Areas has filed suit against

Defendant Charles E. Johnson as Acting Secretary for the Department of Health & Human Services

(“HHS”), asserting that an agent of the Department improperly reopened a decision that the Hospital

was entitled to certain payments for the treatment of Medicare beneficiaries. According to the

Hospital, the reopening regulations promulgated by the Secretary only allow for a reopening where

there is good cause, which was lacking in the instant case. The agency disagrees. According to the

agency, the good cause standard is not privately enforceable and, under the regulations, a decision

whether to reopen is not appealable. Currently pending before the Court are the parties’ crossmotions for summary judgment.

///

///

///

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 1 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 The agency has made various objections as to how the Hospital has characterized evidence.

Those objections are essentially moot because the Court interprets documents for itself.

2

I. FACTUAL & PROCEDURAL BACKGROUND1

A. Medicare and Review of Provider Claims

The Medicare program, established by Title XVIII of the

Social Security Act, provides payment for medical care for the aged

and disabled. Eligible beneficiaries receive medical care from

“providers,” which are medical care facilities that have entered into

agreements with the Secretary to furnish care, and the providers are

then reimbursed by the Medicare program. Part A of the Medicare

program authorizes payments for institutional care provided primarily

on an inpatient basis. See 42 U.S.C. §§ 1395c-1395i-4. Part B of the

program authorizes payments primarily for outpatient services and

durable medical equipment. See id. §§ 1395j-1395w-4.

Irvine Med. Ctr. v. Thompson, 275 F.3d 823, 826 (9th Cir. 2002).

“The Centers for Medicare and Medicaid Services (‘CMS’) . . . is the component of the

Department of Health and Human Services that administers the Medicare program for the

Secretary.” Community Hosp. of the Monterey Peninsula v. Thompson, 323 F.3d 782, 785 (9th Cir.

2003). CMS’s procedure for reimbursement of providers involves multiple layers of review.

Initially, reimbursement to providers for services provided is made through private “fiscal

intermediaries” with which CMS contracts. See United States v. Lahey Clinic Hosp., Inc., 399 F.3d

1, 4 (1st Cir. 2005) (noting that “[t]he Secretary contracts with ‘fiscal intermediaries’ (FIs) and

‘carriers’ to make initial reimbursement determinations and to administer payments”; adding that

“[t]hese entities are often private insurance companies”). The fiscal intermediary, or “FI,” makes

what is known as the “initial determination.” See 42 U.S.C. § 1395ff(a)(1); 42 C.F.R. §§ 405.920,

405.924(b). 

A provider who is dissatisfied with the initial determination may request that the FI perform

a “redetermination” of the claim. See 42 U.S.C. § 1395ff(a)(3); 42 C.F.R. § 405.940. 

If the provider is dissatisfied with the redetermination, then it may seek a “reconsideration”

from a separate Medicare contractor referred to as a Qualified Independent Contractor (“QIC”). See

42 U.S.C. § 1395ff(b)(1), (c); 42 C.F.R. § 405.960. 

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 2 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

 “Contractor means an entity that contracts with the Federal government to review and/or

adjudicate claims, determinations and/or decisions.” 42 C.F.R. § 902.

3

 Because the reopenings in the instant case took place in 2007, the Court cites the 2007 version

of the relevant regulations and statute.

3

If the provider is still dissatisfied, then it may appeal to an administrative law judge (“ALJ”)

and thereafter the Medicare Appeals Council (“MAC”). See 42 U.S.C. § 1395ff(d)(1)-(2); 42 C.F.R.

§§ 405.1002, 405.1100. The MAC’s decision is a final decision reviewable in federal court. See 42

C.F.R. § 405.1136.

Although an initial determination may be revised pursuant to the procedure described above,

it may also be revised through an independent process – i.e., through a reopening. Congress

authorized a process for reopening, delegating to the agency the authority to fashion regulations. 

Title 42 U.S.C. § 1395ff(b)(1)(G) provides: “The Secretary may reopen or revise any initial

determination or reconsidered determination described in this subsection under guidelines

established by the Secretary in regulations.” 42 U.S.C. § 1395ff(b)(1)(G). 

Pursuant to that authority, the Secretary has promulgated regulations. Under those

regulations,

[a] contractor[2

] may reopen and revise its initial determination or

redetermination on its own motion --

(1) Within 1 year from the date of the initial determination or

redetermination for any reason.

(2) Within 4 years from the date of the initial determination or

redetermination for good cause as defined in § 405.986.

42 C.F.R. § 405.980(b).3 While the regulations thus place limits on when a contractor may reopen,

they also provide that a “decision on whether to reopen is binding and not subject to appeal.” Id. §

405.980(a)(5). The regulations further state that “[a]ctions that are not initial determinations and are

not appealable” include a “decision to reopen or not to reopen an initial determination [or]

redetermination.” Id. § 405.926(l).

///

///

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 3 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

 The RAC program has since been made permanent. See 42 U.S.C. § 1395ddd(h).

5

 For purpose of convenience, the Court hereinafter cites only one of the ALJ’s decisions. The

analysis in all three decisions is the same.

4

B. Review of Hospital Claims

1. Initial Determinations and Reopenings

In the instant case, the Hospital provided treatment to three patients between March 2004 and

June 2005. See Compl. ¶ 26; Def.’s Mot. at 6. Between April 2004 and June 2005, the Hospital was

paid by Medicare for the services provided. See Compl. ¶¶ 27-29; Def.’s Mot. at 6. In 2007,

however, these initial determinations were reopened.

The initial determinations were reopened as a result of the Recovery Audit Contractor

(“RAC”) demonstration program which was enacted by Congress. The RAC demonstration program

was a three-year program (from March 2005 to March 2008) set up by Congress “to detect and

correct improper payments [i.e., overpayments or underpayments].”4

 CMS, RAC Status Document

FY 2007, available at http://www.cms.hhs.gov/RAC/Downloads/2007RACStatusDocument.pdf

(last visited on 1/21/2010). The RAC in California, PRG-Schultz, contacted the Hospital in April

2007, stating that there were potential overpayments with respect to the services provided to the

three patients at issue and asking for medical records/documentation related to the patients. See AR

149-50, 486-87, 822-23. Subsequently, in June 2007, PRG-Schultz notified the Hospital that there

had in fact been overpayments. PRG-Schultz also informed the Hospital that it could appeal these

determinations. See AR 153-54, 489-90, 827-28. 

The Hospital did appeal. Eventually, the appeals reached the ALJ level. 

2. ALJ Review

The ALJ, Bruce J. Kelton, issued his decisions on all three appeals in October 2008. In each

of the decisions, Judge Kelton concluded that the services provided were not medically reasonable

and necessary. See AR 77, 422, 751. Nonetheless, he ordered that the initial determinations be

reinstated on the ground that the reopenings by PRG-Schultz – made more than one year after the

initial determinations – were impermissible because they lacked good cause.5 See 42 C.F.R. §

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 4 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

405.980(b) (allowing a contractor to reopen “[w]ithin 4 years from the date of the initial

determination or redetermination for good cause as defined in § 405.986”).

The ALJ acknowledged that the regulations specified that the “‘decision on whether to

reopen is final and not subject to appeal.’” AR 65 (quoting 42 C.F.R. § 405.980(a)(5)). But, he

added, the regulations also provided for “specific timeframes and good cause-related requirements

which must be complied with as a prerequisite to a valid reopening and revision of an initial

determination.” AR 65-66 (emphasis in original; citing 42 C.F.R. §§ 405.841, 405.980, 405.986). 

According to the ALJ, 

[t]o find that one portion of the regulation (Section 405.980(a)(5))

prohibits administrative appellate scrutiny when it is alleged by an

appellant that the timeframe and related good cause requirements of

the same regulation (Sections 405.841 and/or 405.980 and 405.986)

were violated, renders the regulation itself meaningless. Basic rules of

statutory construction, as well as common logic, suggest that such a

result cannot have been intended. Moreover, the regulatory timeframe

and good cause requirements must be enforceable in some manner,

and the blanket preclusion of an appellant’s timely and valid request

for administrative appellate review of the contractor’s compliance

with those regulatory requirements constitutes a denial of due process.

AR 66. 

The ALJ went on to state that his reading of the regulations

leads to the conclusion that the CFR provision prohibiting the appeal

of a decision on whether to reopen merely precludes a party from

contending on appeal that, since a favorable determination and

payment has already been made, a Medicare contractor should be

prevented from subsequently deciding to void the initial payment

determination, a decision that can potentially lead to an adverse

revision of those particular claims. It does not, however, prevent an

appeal of the actual adverse revised determination itself.

. . . . While a provider may not be able to appeal the

contractor’s choice to reopen, it does have the ability, by virtue of due

process requirements and basic statutory construction, to litigate

through administrative appeal the act of revising an adverse

determination resulting from the decision to reopen, including the

contractor’s purported violation of the regulatory time and good cause

requirements imposed by regulation on both the act of reopening and

the act o[f] adversely revising an initial determination.

AR 67 (emphasis in original). 

In short, under the ALJ’s interpretation of the regulation, a decision to reopen simply cannot

be challenged at the time that the decision is made. However, once the revised determination is

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 5 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

made after reopening, the revised determination may be challenged, including the underlying

decision to reopen which led to the revised determination.

3. MAC Review

On its own motion, the MAC decided to review the three decisions of the ALJ. See AR 3. 

Ultimately, it rejected the ALJ’s conclusion regarding appealability. According to the MAC, the

provision in the regulations that a “‘decision to reopen or not reopen an initial determination’” is not

appealable “extends to whether the contractor met good cause standards for reopening.” AR 9

(quoting 42 C.F.R. § 405.926(l)). In addressing the ALJ’s concerns, the Council noted that, as

reflected in the legislative history for the regulations, “CMS has expressly stated that the

enforcement mechanism for the good cause standard lies within its evaluation and monitoring of

contractor performance, not the administrative appeals process.” AR 9 (citing 70 Fed. Reg. 11420,

11453 (2005)). It also noted that, “in the case of an unfavorable revised determination, due process

concerns are addressed by the fact that affected parties have the right to appeal the merits of the

revised determination.” AR 10.

The Hospital subsequently sought judicial review of this decision by the Council.

II. DISCUSSION

A. Standard of Review

Under Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1984), an agency’s interpretation

of a statute must be affirmed if Congress has made an express delegation to the agency and the

agency’s construction is not arbitrary, capricious, or manifestly contrary to the statute. See Johnson

v. Buckley, 356 F.3d 1067, 1073 (9th Cir. 2004). In the case at bar, Congress has expressly

delegated authority with respect to the matter of reopenings to the Secretary. As noted above, 42

U.S.C. § 1395ff(b)(1)(G) provides that “[t]he Secretary may reopen or revise any initial

determination or reconsidered determination described in this subsection under guidelines

established by the Secretary in regulations.” 42 U.S.C. § 1395ff(b)(1)(G). In light of this express

delegation, it is not surprising that the Hospital has not challenged the legal validity of any of the

reopening regulations at issue.

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 6 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

The Hospital, however, has challenged the agency’s interpretation of those regulations. As

indicated above, the agency’s basic position is, under 42 C.F.R. §§ 405.980(a)(5) and 405.926(l), a

decision on whether to reopen is not appealable and thus may not be challenged even in the context

of reviewing the actual revised determination. See 42 C.F.R. § 405.980(a)(5) (providing that a

“decision on whether to reopen is binding and not subject to appeal”); id. § 405.926(l) (providing

that “[a]ctions that are not initial determinations and are not appealable” include a “decision to

reopen or not to reopen an initial determination [or] redetermination”). The Hospital in turn argues

that these regulations simply bar an appeal of a decision on whether to reopen at the time that the

decision is made. According to the Hospital, the regulations do not prevent a provider from

challenging a decision to reopen once a revised determination is made – including on the basis that

the reopening should not have occurred in the first place (e.g., because the reopening lacked good

cause).

The threshold question is what level of deference is owed to the Secretary’s interpretation of

the agency’s regulations. Under Thomas Jefferson University v. Shalala, 512 U.S. 504 (1994), an

agency’s interpretation of its own regulations must be given “substantial deference.” Id. at 512. 

More specifically, 

the agency’s interpretation must be given controlling weight unless it

is plainly erroneous or inconsistent with the regulation. In other

words, we must defer to the Secretary’s interpretation unless an

alternative reading is compelled by the regulation’s plain language or

by other indications of the Secretary’s intent at the time of the

regulation’s promulgation.

Id. (internal quotation marks omitted).

The Hospital argues that the above principles are applicable only where an agency is

interpreting a regulation for which its expertise is required. According to the Hospital, where a

matter is not within the agency’s expertise, and where the matter involves procedural considerations

commonly assigned to the judiciary’s field of expertise – e.g., due process and fundamental fairness

– then little to no deference should be given to the agency’s interpretation.

The Hospital’s position is not without some legal support. For example, in McCuin v.

Secretary of Health & Human Servs., 817 F.2d 161 (1st Cir. 1987), the First Circuit considered the

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 7 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

issue of who could initiate the reopening procedure under the Medicare regulations. In response to

the Secretary’s argument that his interpretation of his own regulations should be given considerable

weight, the court expressed some disagreement, noting that “the deference accorded to an

administrative agency’s interpretations depends on the extent to which the matters at issue depend

peculiarly on the agency’s field of expertise.” Id. at 168 (internal quotation marks omitted). The

court noted that “[t]he present case presents issues of the fairness of the way in which legal and

factual issues are resolved, the finality of judgment and due process of law,” issues which “are

clearly legal issues not generally recognized to be within the Secretary’s ken and, for obvious

reasons, more commonly consigned to the judiciary’s field of expertise.” Id.

In Powell v. Heckler, 789 F.2d 176 (3d Cir. 1986), a Social Security case, the Third Circuit

took the same approach. There, the court was confronted with the issue of “whether the [agency’s]

review is limited to the narrow issue raised by claimant or may the [agency] sua sponte, and without

further notice, review the entire record for the purpose of reversing the ALJ’s original disability

finding.” Id. at 178. After ruling in the claimant’s favor, the court noted that “[t]his result is by no

means intended to disturb or encroach upon the accepted rule that agency interpretations of

self-prescribed regulations are to be afforded a considerable presumption of validity.” Id. at 179. 

[W]e take note that “administrative construction is less potent than it

otherwise would be where it does not rest upon matters peculiarly

within the administrator’s field of expertise.” Here, the focus is

exclusively on procedural considerations pertaining to notice and

fundamental fairness, in other words, legal issues not generally

recognized to be within the Secretary’s ken and, for obvious reasons,

more commonly consigned to the judiciary’s “field of expertise.”

Id. (emphasis in original).

While both McCuin and Powell support the Hospital’s position, the Court concludes that the

Thomas Jefferson standard applies nonetheless. First, Ninth Circuit authority appears contrary to

McCuin and Powell. Cf. Overend v. Sullivan, 879 F.2d 673, 675 (9th Cir. 1989) (in a Social

Security case, giving deference to the agency’s interpretation that, under a regulation, the agency

and not just the provider had the authority to reopen even though the regulation referred only to

“you”); Memorial, Inc. v. Harris, 655 F.2d 905, 912 (9th Cir. 1980) (declining to give agency

conclusions deference because “[t]he questions presented here are not demanding of medical or

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 8 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

Medicare program expertise” but rather “involve characterization of ordinary business transactions,

interwoven with the parties’ expectations and Congress’ desire that providers be afforded an

opportunity to be reimbursed for the full cost of meeting the medical needs of the elderly and

disabled”). There is similar contrary authority outside of this circuit. See, e.g., Good Samaritan

Hosp. Regional Med. Ctr. v. Shalala, 85 F.3d 1057, 1062 (2d Cir. 1996) (giving deference to agency

interpretation of Medicare reopening regulation). 

Second, and more significantly, both McCuin and Powell (as well as the other cases cited

above) predate the Supreme Court’s decision in Your Home Visiting Nurse Servs., Inc. v. Shalala,

525 U.S. 449 (1999). In Your Home, the Supreme Court addressed the issue of reopenings under the

Medicare statute and regulations with respect to the reimbursement of costs. The provider argued

that the Provider Reimbursement Review Board (“PRRB”) had appellate jurisdiction to review a

FI’s refusal to reopen a reimbursement determination. In support of this argument, the provider

cited a particular statutory provision, which states that a provider may obtain a hearing before the

PRRB if it is dissatisfied with a final determination made by a FI as to the amount of reimbursement

due. The Secretary in turn asserted that this provision was not applicable, arguing that a refusal to

reopen is not a final determination as to the amount of reimbursement due but rather a refusal to

make a new determination. The Supreme Court concluded that the Secretary’s reading of the statute

was “more natural – but it is in any event well within the bounds of reasonable interpretation, and

hence entitled to deference under Chevron.” Id. at 453. In short, the Supreme Court deferred to an

agency interpretation of a statute even though it did not appear that any agency expertise was

involved in making the interpretation. Given the deference afforded in Your Home – which, similar

to the instant case, dealt with the matter of reopenings in the Medicare context – the Court concludes

that deference should likewise be afforded in the instant case. The fact that the agency in Your

Home interpreted a statute rather than regulations does not change the import of the Supreme

Court’s holding. Indeed, logic suggests that an agency’s interpretation of its own regulations ought

to be afforded as much, if not more, deference than its interpretation of a statute enacted by

Congress.

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 9 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

B. Application of Thomas Jefferson Standard

As stated above, under the Thomas Jefferson standard, a court “must defer to the Secretary’s

interpretation [of a regulation] unless an alternative reading is compelled by the regulation’s plain

language or by other indications of the Secretary’s intent at the time of the regulation’s

promulgation.” Thomas Jefferson, 512 U.S. at 512. 

In the instant case, the critical regulation is 42 C.F.R. § 405.980(a)(5), which provides that a

“decision on whether to reopen is binding and not subject to appeal.” 42 C.F.R. § 405.980(a)(5). 

According to the agency, this regulation means that a decision to reopen is never appealable – for

example, even after a revised determination is made after a reopening, the legitimacy of the

reopening cannot be challenged as part of an appeal of the revised determination. 

The Hospital disagrees, asserting that the above regulation simply codifies a longstanding

rule, as articulated by the Supreme Court in Your Home and Califano v. Sanders, 430 U.S. 99

(1977), that a decision not to reopen is not appealable. According to the Hospital, this does not

address the situation of whether a decision to reopen is appealable. The Court is not persuaded. The

regulation states on its face that a decision on “whether to reopen” (emphasis added) is not

appealable. Clearly, that encompasses not only a decision not to reopen but also a decision to

reopen. Moreover, 42 C.F.R. § 405.926(l) makes it doubly explicit that “[a]ctions that are not initial

determinations and are not appealable” include a “decision to reopen or not to reopen an initial

determination [or] redetermination.” 42 C.F.R. § 405.926(l). 

To the extent the Hospital suggests that another regulation, 42 C.F.R. § 405.1032,

demonstrates that a decision on whether to reopen is in fact appealable, the Court does not agree. 

Section 405.1032 allows for ALJ consideration of a new issue only where “permissible under the

rules governing reopening of determinations and decisions (see § 405.980).” 42 C.F.R. §

405.1032(b)(ii). Thus, § 405.1032 incorporates the limits of § 405.980(a)(5).

As a final argument, the Hospital contends that § 405.980(a)(5) is open to the interpretation

advocated by the ALJ in the underlying proceedings – i.e., that the regulation simply bars a

challenge to the decision to reopen at the time that the decision is made, but not after the revised

determination has been made. However, the Thomas Jefferson standard dictates that deference must

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 10 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

be afforded to an agency interpretation unless an alternative reading is compelled by the regulation’s

plain language. The Hospital’s interpretation, while not necessarily unreasonable, is not compelled

by the plain language of § 405.980(a)(5). In fact, the use of the word “binding” in § 405.980(a)(5)

indicates that the agency’s interpretation is the more reasonable construction. If a decision on

whether to reopen is binding, then it may not be reconsidered even after the revised determination

has been made.

Furthermore, the plain language of §§ 405.980(a)(5) and 405.925(l) would be rendered

meaningless if the Court were to adopt the Hospital’s interpretation. Neither party disputes that

there is no procedure by which to appeal a singular decision to reopen on an interlocutory basis. 

Thus, unless the prohibition on an appeal of a decision to reopen applies to ultimate appeal after the

case has been reopened (as in the instant case), that prohibition would be meaningless. Since each

word of a statute or regulation normally should be given effect, see Washington v. Chu, 558 F.3d

1036, 1045 (9th Cir. 2009), the Secretary’s interpretation here is reasonable.

Because the Hospital’s interpretation of § 405.980(a)(5) is not compelled by the plain

language of the regulation, the only issue remaining is whether an interpretation different from he

agency’s is supported by “other indications of the Secretary’s intent at the time of the regulation’s

promulgation.” Thomas Jefferson, 512 U.S. at 512. 

Here, the legislative history for § 405.980(a)(5) is favorable to the agency, and not the

Hospital. At the time that the regulation was promulgated, the agency made the following

comments in response to commenter’s concern about how the agency would enforce the provision in

the reopening regulations that, after one year, a reopening could be made only if there were good

cause. 

h. Enforcement of the Good Cause Standard

Comment: One commenter recommends that CMS create

enforcement provisions for the good cause standard when contractors

reopen claims. The commenter says that contractors often ignore the

guidelines set out in regulations and manuals and cite a request for

medical records as good cause for a reopening, even though the

medical records existed at the time the contractor initially reviewed

the claim.

Response: The regulations require that contractors abide by the

good cause standard for reopening actions after one year from the date

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 11 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

of the initial or revised determination. CMS assesses a contractor’s

compliance with Federal laws, regulations and manual instructions

during audits and evaluations of the contractors' performance. Thus,

the necessary monitoring and enforcement mechanisms are already in

place.

70 Fed. Reg. 11420, 11453 (Mar. 8, 2005) (emphasis added). Notably, the agency did not say that

enforcement of the good cause standard could also take place through the administrative appeal

process (as the MAC pointed out in its decision). Instead, the agency took the position, consistent

with its current interpretation, that the good cause standard is to be enforced through internal

procedures, not by a private action via an appeal. 

The Hospital points to the fact that the agency also noted, at the time of the promulgation of

§ 405.980(a)(5), that “[i]t is our longstanding rule that failure to grant a request for reopening is not

reviewable,” as upheld by the Supreme Court in Your Home and Sanders. 70 Fed. Reg. 11420,

11453 (Mar. 8, 2005). But this is not dispositive. The agency made this statement in response to a

specific concern by a commenter to the proposed regulation that “a party cannot seek review of a

determination not to grant a request for reopening.” Id. (emphasis added). The commenter did not

appear to express any concern about a determination to reopen, and that issue was not addressed in

the agency’s specific response.

Hence, both prongs of Thomas Jefferson are satisfied, and the agency’s interpretation of §

405.980(a)(5) must be upheld. This is not to say that the Hospital’s position is unreasonable. 

Typically, appeal processes encompass all pertinent issues, including jurisdictional issues. 

Furthermore, the argument that the good cause requirement should be privately enforceable is not

without some force. The limiting of reopenings made after one year to situations where there is

good cause appears to be designed for the benefit of the providers – i.e., to provide them with some

finality and stability. See McCuin, 817 F.2d at 172 (noting that “[t]he reopening power claimed by

the Secretary takes away the finality that adjudication normally affords”). Notably, in deciding

whether to imply a private right of action, a court considers as one factor whether the plaintiff is

“one of the class for whose especial benefit the statute was enacted.” Cort v. Ash, 422 U.S. 66, 78

(1975) (noting that, in deciding whether to imply a private right of action, one factor to consider is

whether the plaintiff is “one of the class for whose especial benefit the statute was enacted”). 

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 12 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

Finally, allowing an appeal of a decision to reopen – as opposed to a decision not to reopen – does

not implicate the same policy concerns discussed in Your Home and Sanders where it was the

provider trying to reopen and thus prevent finality.

Nevertheless, at the end of the day, the Thomas Jefferson standard is applicable and therefore

the Court defers to the Secretary’s interpretation of the reopening regulations. Accordingly, the

Court concludes that there was no violation of the Administrative Procedures Act (“APA”) when the

agency refused to consider as part of the administrative process whether the RAC PRG-Schultz

improperly reopened the Medicare claims at issue. 

In addition, the Court concludes that the Hospital’s procedural due process rights were not

violated. The Hospital’s due process claim in the instant case is based on the alleged failure of the

agency to follow its own regulations. However, as discussed above, the agency did not fail to follow

its own regulations. Nor can the Court discern any substantial deprivation that would implicate a

substantive due process violation. As the MHC pointed out, the Hospital had the right to contest the

substantive merits of the redetermination. The only “right” it was denied here was the required

showing of good cause to reopen after one year. Yet there is little doubt that the Secretary could

have simply enacted through regulation a simple four-year limitation period omitting any good cause

requirement without violating due process. The Hospital provides no authority for the proposition

that it had an independent constitutional right to a particular limitations period or one which

embodied the good cause provision in 42 C.F.R. § 405.980(b).

///

///

///

///

///

///

///

///

///

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 13 of 14
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

III. CONCLUSION

For the foregoing reasons, the Court DENIES the Hospital’s motion for summary judgment

and GRANTS the agency’s cross-motion for summary judgment. The Clerk of the Court is directed

to enter judgment in favor of the agency in accordance with this opinion and close the file in this

case. 

This order disposes of Docket Nos. 30 and 31.

IT IS SO ORDERED.

Dated: March 24, 2010

_________________________ EDWARD M. CHEN

United States Magistrate Judge

Case 3:09-cv-01786-EMC Document 42 Filed 03/24/10 Page 14 of 14