Palomar Medical Center v. Kathleen Sebelius

This case involves a Medicare provider at first paid in full for certain medical services but later determined, through operation of the congressionally mandated Recovery Audit Contractor (“RAC”) program, to be liable to repay the government for these services found not to be medically reasonable and necessary. We must decide whether such a Medicare provider may in its appeal of the revised determination of overpayment challenge a lack of “good cause” for reopening the initial, erroneous determination.

Palomar Medical Center (“Palomar”) is a Medicare service provider located in Escondido, California. The Secretary of Health and Human Services (“the Secretary”) administers the Medicare program through the Centers for Medicare and Medicaid Services (“CMS”). This ease concerns inpatient rehabilitation services that Palomar gave a Medicare patient after a hip surgery. There was no question that the patient needed rehabilitation services. But through several levels of administrative appeal, these services were found not reasonable and necessary and not covered by Medicare because they were done in the hospital rather than in a less intensive (and less expensive) setting.

CMS…