Opinion ID: 808282
Heading Depth: 2
Heading Rank: 1

Heading: Palomar’s Challenge to the Secretary’s

Text: Interpretation of the Regulations Palomar first challenges the Secretary’s interpretation of 42 C.F.R. §§ 405.926(l) and 405.980(a)(5)under the APA, 5 U.S.C. § 551 et seq. We give “substantial deference” to the Secretary’s interpretation of Medicare regulations. Thomas Jefferson, 512 U.S. at 512; Robert F. Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557, 561 (9th Cir. 2008). The Secretary’s interpretation is controlling unless it is “plainly erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461 (1997) (internal quotation marks and citation omitted). “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.” Thomas Jefferson, 512 U.S. at 512 (internal quotation marks and citation omitted). Palomar contends that the Secretary’s interpretation of the regulations to bar provider challenges to RAC reopenings based on lack of good cause is not entitled to deference because it is inconsistent with the regulations’ plain language and the Secretary’s prior interpretation and application of similarly worded reopening provisions. We disagree. The contested regulations provide by their express terms that “[t]he contractor’s, QIC’s, ALJ’s, or MAC’s decision on whether to reopen is final and not subject to appeal,” 42 C.F.R. § 405.980(a)(5), and similarly that “[a] contractor’s, QIC’s, ALJ’s, or MAC’s determination or decision to reopen or not to reopen” is “not [an] initial determination[ ] and [is] not appealable,” id. § 405.926(l). The reopening regulations elsewhere provide, on the other hand, that a revised determination or decision resulting from a reopening is appealable. Id. § 405.984. 11024 PALOMAR MEDICAL CENTER v. SEBELIUS [1] The Secretary interprets the language barring appeals of decisions “on whether to reopen” and decisions “to reopen or not to reopen” to mean that the regulations foreclose any challenge to a decision to reopen, even after a revised determination or decision has issued. So the Secretary reasons that Palomar could have appealed the issue of medical necessity— the substance of whether it was compensated in an amount beyond what was covered under Medicare—but it cannot now gripe on appeal about whether its claim should have been reopened. Palomar argues that the cited regulatory language forecloses only challenges to the threshold decision to reopen or not to reopen. Under Palomar’s interpretation, a provider may not appeal the denial of a request to reopen or the reopening of a claim that is not revised, but a reopened claim that is revised is fair game for appeal on both the portion of the determination or decision revised and the validity of the underlying reopening. [2] If the regulations had merely foreclosed an appeal of the decision to reopen, we might give more credence to Palomar’s argument. But the regulations say that the reopening decision is not only “not appealable,” it is also “final.” The Secretary’s interpretation of the words “final and not subject to appeal” and “not appealable” to mean that a contractor’s decision to reopen may not be challenged at any time for any reason is not only reasonable and permissible; it is the most natural reading of the regulations. See 42 C.F.R. §§ 405.926(l), 405.980(a)(5). “Final” is defined as “not to be undone, altered, or revoked; conclusive.” Oxford English Dictionary 920 (2d ed. 1989); see also American Heritage Dictionary (5th ed. 2011; online version 2012) (“[n]ot to be changed or reconsidered; unalterable”); Webster’s Third New International Dictionary 851 (1993) (“not to be altered or undone”). The regulations expressly state that decisions on reopening are “final” and may not be appealed. If a decision to reopen could not be appealed immediately, but good cause for reopening could be litigated after a revised determination had issued, then the decision to reopen would not in a real sense PALOMAR MEDICAL CENTER v. SEBELIUS 11025 be “final.” We conclude that the regulations mean what they say: reopening decisions are final, and final means they cannot be challenged after an audit and revised determination. Palomar’s contrary position, if credited as a necessary interpretation of the regulations, would lead to a bizarre and inefficient system of recovery audits and appeals. All agree, including Palomar, that there could be no appeal of an initial decision to reopen a claim. But Palomar’s interpretation that the “good cause” issue could then be brought in through the back door after a revised claim determination would mean that the government to state its best case would on every reopening have to make a record of the “good cause” for the reopening. That would be inefficient and tilt the focus from the reasonableness and necessity of providing medical services to the strength of the RAC’s grounds for reopening. We are not unsympathetic to the interest of Palomar in finality of its medical services receipts. But Congress created the RAC program and gave the Secretary discretion to set regulations that would govern reopening of Medicare claims. The Secretary in her 2005 regulations said that there would be no appeal of a reopening and that a decision to reopen was to be “final.” In these circumstances, the values that Congress stressed in setting up the RAC program, as well as fairness to providers, seem to be accommodated well by a system in which: (1) there is no ability to appeal a reopening decision when made; (2) there is ability to appeal the merits of any revised determination of a claim after a reopening, but no ability at that time to litigate good cause for the reopening; and (3) the Secretary has discretion to enforce the “good cause” standard by means of her own choosing, including reviewing RAC performance by looking at determinations overturned on appeal, instructing RACs to “consistently document their ‘good cause,” and gaining independent, third-party reviews to ensure the accuracy of RAC claim determinations. RAC Evaluation Report 20-22, 27. Further, if good cause for reopening could be raised on appeal after a revised determina11026 PALOMAR MEDICAL CENTER v. SEBELIUS tion, this would result in inefficiency in any case where “good cause” was later rejected, because all of the evidence and proceedings on the merits of medical necessity would be wasted.15 For the reasons stated, the plain language of the regulations supports the Secretary’s interpretation. Palomar’s contrary interpretation is by no means “compelled by the regulation[s’] plain language.” Thomas Jefferson, 512 U.S. at 512 (internal quotation marks omitted). Palomar urges us to consider the language of the regulations “in light of their prior interpretation and application” and argues that, so considered, the Secretary’s current interpretation deserves no deference because it is inconsistent with her prior interpretation and application of reopening provisions in other contexts. See Regents of Univ. of Cal. v. Shalala, 82 F.3d 291, 294 (9th Cir. 1996) (internal quotation marks and citation omitted). Palomar claims three examples of the Secretary’s allegedly inconsistent prior interpretations. First, the Secretary permit15 In addition to these practical considerations, the Secretary’s 2009 “technical revisions” to the 2005 regulations at issue here support her interpretation. In 2009, CMS explained that it was “reserving the term ‘final’ to describe those actions or decisions for which judicial review may be immediately sought,” and it revised 42 C.F.R. § 405.980(a)(5) to replace the term “final” with the term “binding.” 74 Fed. Reg. at 65,307-08. CMS stated that “binding” means that “the parties are obligated to abide by the adjudicator’s action or decision” and “[i]f . . . further recourse is unavailable to parties, then the adjudicator’s decision . . . is final in the sense that no further review of the decision is available.” Id. at 65,308 (emphasis added). Given that CMS intended this change in language to be “technical” and clarifying rather than substantive, the meaning of the pre-revision term “final” is the same as that of the post-revision term “binding.” Because the regulations on their face preclude “further recourse” on a contractor’s decision to reopen, such a decision is “final in the sense that no further review of the decision is available”—not after the reopening, not after the revised determination, not on appeal. See 74 Fed. Reg. at 65,308. PALOMAR MEDICAL CENTER v. SEBELIUS 11027 ted procedural challenges to Social Security Administration (“SSA”) and pre-2005 Medicare reopenings,16 despite a Social Security Handbook provision stating that “[t]he decision to reopen or not to reopen is not an initial determination and is not subject to appeal.” See Soc. Sec. Admin., Social Security Handbook § 2185 (1986); see also, e.g., Cole ex rel. Cole v. Barnhart, 288 F.3d 149, 150-51 (5th Cir. 2002); Heins v. Shalala, 22 F.3d 157, 161 (7th Cir. 1994); In re UMDNJ-Univ. Hosp., 2005 WL 6290383 (M.A.C. Mar. 14, 2005). Second, the Secretary has permitted provider appeals challenging the lawfulness of Medicare cost report reopenings, despite a 2008 regulation stating, “A determination or decision to reopen or not to reopen a determination or decision is not a final determination or decision within the meaning of this subpart and is not subject to further administrative review or judicial review.” 42 C.F.R. § 405.1885(a)(6); see, e.g., Canon Healthcare Hospice, LLC v. BlueCross BlueShield Ass’n/Palmetto Gov’t Benefits Adm’r, No. 2010-D34, 2010 WL 5570979, at , -6 (H.C.F.A. Aug. 2, 2010); see also Harrison House of Georgetown v. BlueCross BlueShield Ass’n/Empire Medicare Servs., No. 2009-D14, 2009 WL 2423098, at , -6,  (H.C.F.A. Mar. 17, 2009). Third, in Palomar’s separate appeal of a different RAC reopening, In re Palomar Medical Center (Palomar I) (M.A.C. Jan. 11, 2008), the MAC vacated the ALJ’s decision that the RAC did not establish fraud or good cause for reopening and remanded the case to the ALJ to give the parties an opportunity to present evidence on the basis for reopening, as the ALJ had raised that issue in the first instance. Palomar contends that because the Secretary has permitted procedural challenges to SSA reopenings, pre-2005 Medicare 16 The Secretary’s interpretation and application of SSA reopening provisions are relevant here because the Secretary previously administered both Social Security and Medicare, and because before the 2005 Medicare reopening regulations took effect, SSA reopening regulations generally governed the reopening of Medicare claims. 11028 PALOMAR MEDICAL CENTER v. SEBELIUS claim reopenings, post-2008 Medicare cost report reopenings, and impliedly, the RAC reopening in Palomar I, her interpretation of 42 C.F.R. §§ 405.926(l) and 405.980(a)(5) to bar such challenges is not entitled to deference and is invalid. We are not persuaded for several reasons. First, Palomar overlooks that the Secretary promulgated the 2005 regulations at about the same time that the RAC program started. Congress set the RAC demonstration project in December 2003. RAC Evaluation Report 54. CMS announced the demonstration in January 2005, and the demonstration began on March 28, 2005. Id. On March 8, 2005, CMS promulgated the 2005 reopening regulations, including 42 C.F.R. §§ 405.926(l) and 405.980(a)(5), and they became effective on May 1, 2005. Id. Because CMS promulgated and began applying the 2005 reopening regulations when it began the RAC demonstration project, it had in mind the goals of the RAC program. Congress had authorized the RAC program to improve the accuracy of Medicare payments and recoup overpayments. CMS made a policy choice not to subject RAC reopening decisions to administrative review, thereby placing the focus of an appeal of a revised determination on the merits of the revision, in furtherance of congressional aims, rather than on the RAC’s basis for reopening. Moreover, in the preamble to the 2005 regulations, CMS made clear its aim to enforce the time limits and standards for reopening through internal procedures rather than through administrative appeals. In response to a commenter’s complaint that contractors request medical records to justify reopening decisions even though the records existed when the initial determinations were made, CMS said that it monitored and enforced contractors’ compliance with the good cause standard through “audits and evaluations of the contractors’ performance,” and it declined to “create enforcement provisions for the good cause standard,” in addition to the internal mechanisms already in place. 70 Fed. Reg. at 11,453. These statements by CMS reinforce the plain language of the regulaPALOMAR MEDICAL CENTER v. SEBELIUS 11029 tions, and make clear that providers may not challenge reopening decisions based on lack of good cause or the other regulatory requirements for reopening. Finally, the issue we face is the Secretary’s interpretation of two newly promulgated regulations on the reopening of Medicare claim determinations, not her interpretation of other regulations governing SSA reopenings or Medicare cost report reopenings. Congress did not intend to forever bind CMS to SSA policies. Before Congress authorized the reopening and revision of Medicare claim determinations, no independent set of regulations governed Medicare reopenings; instead, SSA regulations generally governed. Then, in 2000, Congress authorized Medicare reopenings, and in 2003, Congress mandated the RAC demonstration project. The Secretary then promulgated independent Medicare reopening regulations and included in them two regulations that nowhere exist in SSA regulations. See 20 C.F.R. §§ 404.987, 404.988 (containing no analogue of 42 C.F.R. § 405.980(a)(5)). Compare 42 C.F.R. § 405.926 (listing among “[a]ctions that are not initial determinations and are not appealable” a Medicare contractor’s decision “to reopen or not to reopen”) (emphasis added), with 20 C.F.R. § 404.903 (listing among “[a]dministrative actions that are not initial determinations . . . [and] are not subject to the administrative review process” an SSA denial of a request to reopen but not an affirmative decision to reopen). The challenged regulations are similarly distinct from the Medicare cost report reopening regulations cited by Palomar, as cost report determinations are subject to a separate appeals process from claim determinations and are not included in the RAC program. Neither the Secretary’s prior conduct of SSA reopenings nor her subsequent conduct of cost report reopenings make her interpretation of 42 C.F.R. §§ 405.926(l) and 405.980(a)(5) “plainly erroneous or inconsistent with the regulation[s].” Auer, 519 U.S. 461 (internal quotation marks and citation omitted). The Secretary has consistently held that 11030 PALOMAR MEDICAL CENTER v. SEBELIUS these regulations bar administrative review of RACs’ compliance with the time limits and standards for reopening. See, e.g., In re Motta, 2011 WL 7177038, at 2-3 (M.A.C. Dec. 1, 2011); In re St. Joseph’s Hosp., 2011 WL 6025979, at 8-10 (M.A.C. Mar. 9, 2011); In re Reg’l Med. Ctr., 2010 WL 2895740, at 4-5 (M.A.C. Mar. 9, 2010); In re Providence St. Joseph Med. Ctr., 2008 WL 6113483, at 4-8 (M.A.C. July 23, 2008). Palomar I does not undermine the Secretary’s position because there, in contrast to above-cited cases, the issue of administrative reviewability was not raised or decided. [3] We hold that the Secretary’s interpretation of her reopening regulations is “controlling” and is not arbitrary and capricious under the APA. See Auer, 519 U.S. at 561.17