Palomar Medical Center v. Charles Johnson, et al

Filing

FILED OPINION (HARRY PREGERSON, RONALD M. GOULD and RICHARD C. TALLMAN) AFFIRMED; Before oral argument, the American Medical Association ( AMA ) and California Medical Association ( CMA ) filed an amicus brief with the parties consent. See Fed. R. App. P. 29(a). The Federation of American Hospitals ( FAH ), American Hospital Association ( AHA ), and American Health Care Association ( AHCA ) moved for leave to file an amicus brief, as did the California Hospital Association ( CHA ). See Fed. R. App. P. 29(b). We grant both motions for leave., Judge: RMG Authoring,. FILED AND ENTERED JUDGMENT. [8317937]

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PALOMAR MEDICAL CENTER,
Plaintiff-Appellant,
v.
KATHLEEN SEBELIUS, Secretary of
Health and Human Services,
Defendant-Appellee.





No. 10-56529
D.C. No.
3:09-cv-00605BEN-NLS
OPINION

Appeal from the United States District Court
for the Southern District of California
Roger T. Benitez, District Judge, Presiding
Argued and Submitted
March 7, 2012—Pasadena, California
Filed September 11, 2012
Before: Harry Pregerson, Ronald M. Gould, and
Richard C. Tallman, Circuit Judges.
Opinion by Judge Gould

11007

Page: 1 of 29

Case: 10-56529

11010

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 2 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

COUNSEL
Ronald S. Connelly (argued) and Mary Susan Philp, Powers,
Pyles, Sutter & Verville, PC, Washington, DC; and Dick A.
Semerdjian, Schwartz Semerdjian Haile Ballard & Cauley
LLP, San Diego, California, for the plaintiff-appellant.
Christine N. Kohl (argued) and Anthony J. Steinmeyer, U.S.
Department of Justice, Civil Division, Washington, DC, for
the defendant-appellee.
Douglas Hallward-Driemeier, Ropes & Gray, LLP, Washington, DC; Long X. Do, California Medical Association, Sacramento, California; and Jon N. Ekdahl and Leonard A. Nelson,
American Medical Association, Chicago, Illinois, Amicus
Curiae for American Medical Association.
Mark Steven Hardiman, John R. Hellow, and Mark Emerson
Reagan, Hooper, Lundy & Bookman, Inc., Los Angeles, California, Amicus Curiae for Federation of American Hospitals.
Long X. Do and Francisco J. Silva, California Medical Association, Sacramento, California, Amicus Curiae for California
Medical Association.
Mark Steven Hardiman, John R. Hellow, and Mark Emerson
Reagan, Hooper, Lundy & Bookman, Inc., Los Angeles, California, Amicus Curiae for American Hospital Care Association.
Jodi P. Berlin, Lloyd A. Bookman, and Abigail W. Grigsby,
Hooper, Lundy & Bookman, Inc., Los Angeles, California,
Amicus Curiae for California Hospital Association.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 3 of 29

11011

OPINION
GOULD, Circuit Judge:
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 case concerns inpatient
rehabilitation services that Palomar gave a Medicare patient
after a hip surgery. There was no question that the patient
needed rehabilitation services.1 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 had reimbursed Palomar’s claim for these services in
full. Congress, however, had enacted the RAC program,
aimed at recovering Medicare overpayments, and a RAC
reopened Palomar’s claim to determine whether there had
1

This case does not involve fraud or intentional wrongdoing by Palomar, just the provision of helpful services in a setting where they were
more expensive than if they were delivered in another way. We must consider the significance of overpayments to Medicare providers for taxpayers, for providers who rely upon the approved revenues, and for the RAC
program which was fashioned by Congress in an effort to control Medicare expenses.

Case: 10-56529

11012

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 4 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

been an overpayment. The audit did not fare well for Palomar,
as the RAC determined that Palomar had been overpaid
because the services provided were not medically reasonable
and necessary. Palomar was held liable for the overpayment
by the RAC, and this conclusion was confirmed at four levels
of administrative appeal. Among these, an Administrative
Law Judge (“ALJ”) had decided that the overpayment would
have to be accepted because there was not good cause to
reopen the claim. But the Medicare Appeals Council
(“MAC”) then reversed that decision, concluding that the ALJ
had no jurisdiction to review the RAC’s decision to reopen.
Congress had said that Medicare claims could be reopened
under guidelines set by the Secretary in regulations.2 The Secretary had adopted regulations that are material here: one regulation says that a contractor’s decision to reopen is “final”
and “not subject to appeal”;3 a second regulation says that
such a decision is “not appealable”;4 and a third regulation
says that a reopening in the period of one to four years after
an initial determination to pay a claim is to be upon “good
cause” for reopening.5
2
“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).
3
“The 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)
(2006). The regulations promulgated by the Secretary in 2005 are the regulations applicable to this case. The Secretary amended these regulations
in 2009, after the date of her final decision on Palomar’s administrative
appeal, December 1, 2008.
4
“Actions that are not initial determinations and are not appealable
under this subpart include, but are not limited to . . . [a] contractor’s,
QIC’s, ALJ’s, or MAC’s determination or decision to reopen or not to
reopen an initial determination, redetermination, reconsideration, hearing
decision, or review decision.” 42 C.F.R. § 405.926(l).
5
“A contractor may reopen 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.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 5 of 29

11013

A revised determination issued after a reopening is appealable.6 In this appeal, Palomar contends that a Medicare provider may challenge a revised determination based on lack of
good cause for reopening, even though it could not challenge
the reopening immediately thereafter. The district court
granted summary judgment for the Secretary, holding that
because the regulations bar appeals of reopenings, it makes no
sense to permit challenges to the basis for reopening after a
revised determination has issued.
That decision comes to us on appeal and poses the question
whether the requirement of good cause for reopening should
have been a limitation on the RAC’s audit of Palomar that
could be enforced by Palomar’s appeal of the RAC’s decision.
It is not an easy question because of competing principles. On
the one hand, Congress wanted an effective recovery audit
program to reduce Medicare payments with resulting benefits
for Medicare beneficiaries and taxpayers, under procedures
set by the Secretary. On the other hand, the provider has a
legitimate interest in finality of determinations on its revenue
for medical services. However, in view of the goals of the
RAC program and the Secretary’s regulations stating that
decisions to reopen are “final” and “not appealable,” we hold
that the issue of good cause for reopening cannot be raised
after an audit’s conclusion and the revision of a paid claim for
medical services, and affirm the district court.
I.

BACKGROUND

To place this appeal in context, we start with an explanation of Medicare and its system for payments and administra(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).
6
See 42 C.F.R. § 405.984.

Case: 10-56529

11014

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 6 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

tive appeals, then discuss the RAC program, and end with a
discussion of the nature of Palomar’s claims.
A.

The Medicare Program

Medicare is a federally funded health insurance program
for aged and disabled persons. 42 U.S.C. §§ 1395 et seq.
Medicare Part A gives insurance benefits for inpatient hospital and related services and makes reimbursement payments
to those who provide such services. Id. §§ 1395d, 1395g.
Through CMS, the Secretary contracts with fiscal intermediaries, generally private insurance companies, to perform coverage determination and payment functions. Id. §§ 1395h,
1395kk-1; Erringer v. Thompson, 371 F.3d 625, 627 (9th Cir.
2004).
Medicare coverage is limited to services that are medically
“reasonable and necessary.” 42 U.S.C. § 1395y(a)(1)(A).
Medicare service providers, such as Palomar, submit claims
for reimbursement for covered services, and their fiscal intermediaries make “initial determinations” of coverage and
amount. Id. § 1395ff(a); 42 C.F.R. § 405.920. Initial determinations are appealable. See 42 C.F.R. § 405.904. In the
administrative appeals process, a Medicare provider may:
request a “redetermination” by its fiscal intermediary, id.
§ 405.940; appeal a redetermination to a Qualified Independent Contractor (“QIC”) for a “reconsideration,” id.
§ 405.960; appeal a reconsideration to, and request a hearing
before, an ALJ, id. § 405.1000; and appeal an ALJ’s decision
to the MAC, id. § 405.1100. The MAC’s decision is the final
decision of the Secretary and may be appealed to a federal
district court. 42 U.S.C. § 405(g); 42 C.F.R. § 405.1130.
In certain circumstances, an otherwise final determination
or decision may be reopened. See 42 C.F.R. § 405.980. Early
Medicare regulations on reopening generally incorporated
Social Security regulations on reopening. Then, in 2000, Congress added to the Medicare statute a provision governing

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 7 of 29

11015

reopening and revision of determinations. This provision
states, “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). In 2005, CMS promulgated an interim final rule that established regulations
implementing the reopening provision and other statutory
changes. 70 Fed. Reg. at 11,420.7
The regulations define a reopening as “a remedial action
taken to change a binding determination or decision that
resulted in either an overpayment or underpayment, even
though the binding determination or decision may have been
correct at the time it was made based on the evidence of
record.” 42 C.F.R. § 405.980(a)(1). A provider may request a
reopening, or the contractor, QIC, ALJ, or MAC may initiate
a reopening on its own motion. Id. § 405.980(b)-(e); 70 Fed.
Reg. at 11,450.
A contractor may reopen a determination on its own motion
within one year for any reason or within four years for good
cause. 42 C.F.R. § 405.980(b)(1)-(2). “Good cause” may be
established if (1) there is “new and material evidence” that
was “not available or known at the time of the determination”
that “[m]ay result in a different conclusion,” or (2) “[t]he evidence that was considered in making the determination or
decision clearly shows on its face that an obvious error was
made at the time of the determination or decision.” Id.
§ 405.986(a).
Two of the 2005 reopening regulations are subject to conflicting interpretive arguments and to challenge on this
appeal. First, 42 C.F.R. § 405.980(a)(5) states that “[t]he contractor’s, QIC’s, ALJ’s, or MAC’s decision on whether to
7

CMS promulgated the final rule in 2009. 74 Fed. Reg. 65,296 (Dec. 9,
2009).

Case: 10-56529

11016

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 8 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

reopen is final and not subject to appeal.”8 Second, 42 C.F.R.
§ 405.926(l) states that “[a] contractor’s, QIC’s, ALJ’s, or
MAC’s determination or decision to reopen or not to reopen
an initial determination, redetermination, reconsideration,
hearing decision, or review decision” is not an initial determination and is “not appealable.”
By contrast, a revised determination or decision that results
from a reopening is appealable, but “[o]nly the portion of the
initial determination . . . revised by the reopening may be subsequently appealed.” 42 C.F.R. § 405.984(a), (f).
In the preamble to the interim final rule on reopenings,
CMS responded to comments about enforcement of the good
cause standard. 70 Fed. Reg. at 11,453. A commenter recommended that CMS “create enforcement provisions for the
good cause standard when contractors reopen claims,”
because, according to the commenter, “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.” Id. In response, CMS
said:
The regulations require that contractors abide by the
good cause standard for reopening actions after one
year from the date 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.
Id.9
8
In the 2009 final rule, CMS replaced the term “final” with the term
“binding.” 74 Fed. Reg. at 65,308.
9
In promulgating the final rule, CMS gave a similar response to a similar comment:

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

B.

Page: 9 of 29

11017

The Recovery Audit Contractor Program

More than one billion Medicare claims are processed each
year. Ctrs. for Medicare & Medicaid Servs., The Medicare
Recovery Audit Contractor (RAC) Program: An Evaluation of
the 3-Year Demonstration 9 (2008) [hereinafter RAC Evaluation Report]. Thousands are paid improperly, most commonly
because they are for services that were not medically necessary or were improperly coded. See id. at 6-7. CMS makes
efforts to calculate, reduce, and prevent improper payments.
Yet improper payments for Medicare constitute a high percentage, more than ten percent, of all payment errors in federal programs. Id.
To supplement CMS’s efforts to protect the fiscal integrity
of the Medicare program, Congress enacted the RAC program. Congress told the Secretary to conduct a demonstration
project using RACs to “identify[ ] underpayments and overpayments and recoup[ ] overpayments under the medicare
program.” Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (“MMA”), Pub. L. No. 108-173,
§ 306(a), 117 Stat. 2066, 2256 (2003). Congress directed the
Secretary to “examine the efficacy of [the use of RACs] with
respect to duplicative payments, accuracy of coding, and other
payment policies in which inaccurate payments arise.” Id.
Contractors are required to follow Federal laws, regulations and
manual instructions in their business operations. As noted in the
interim final rule in response to a similar comment on the proposed rule ([70 Fed. Reg. at 11,453]), our regulations require that
contractors abide by the good cause standard for reopening
actions as set forth in § 405.980(b) and § 405.986. CMS conducts
audits and evaluations of contractor performance in order to
assess compliance with Medicare policies. Thus, the necessary
monitoring and enforcement mechanisms are already in place and
we do not believe it is necessary to add enforcement provisions
to these regulations.
74 Fed. Reg. at 65,312.

Case: 10-56529

11018

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 10 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

§ 306(a)(3). The statute specified the scope and duration of
the RAC demonstration project—at least two states having
high per capita utilization of Medicare and not longer than
three years—and certain qualifications for RACs, and also
permitted payment to RACs on a contingent basis. See id.
§ 306(a)(1), (b), (d). Congress decided to rest on the Secretary’s expertise and did not give the Secretary further direction on the means of implementing the RAC program.
The RAC demonstration project began in March 2005 and
ended in March 2008. RAC Evaluation Report 11, 14. CMS
selected three states, California, New York, and Florida, and
three RACs; each RAC had jurisdiction in a single state. Id.10
Under the demonstration project, RACs reviewed paid
Medicare claims to identify and correct improper payments.
They were bound by Medicare policies, regulations, local and
national coverage determinations, and manual instructions. Id.
at 11. During the demonstration, CMS gave each RAC Medicare claims data from 2001 through 2007. Id. at 12. CMS did
not specify a procedure for analyzing the claims data. Rather,
each RAC used its own methodology to identify claims that
“clearly” contained errors resulting in improper payments and
claims that “likely” contained such errors. Id. In cases of clear
improper payments, such as duplicate claims, RACs performed “automated review,” where they notified the provider
of any underpayment or overpayment amount. Id. In cases of
likely improper payments, RACs performed “complex
review,” where they requested medical records from the provider to further review the claim and then made a determination on the accuracy of payment. Id. RAC determinations
constituted “initial determinations” that could be appealed to
a fiscal intermediary, QIC, ALJ, MAC, and federal district
court.
10

In 2007, CMS added three additional states to the demonstration project, one to each RAC’s jurisdiction. RAC Evaluation Report 11.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 11 of 29

11019

Through the demonstration project, RACs successfully corrected more than $1 billion in improper Medicare payments:
about $980 million in overpayments collected from providers
and about $38 million in underpayments repaid to providers.
Id. at 15. The net savings returned to the Medicare Trust
Funds, after subtracting underpayments repaid, amounts overturned on appeal, and costs of operating the RAC demonstration, was nearly $694 million.
In light of the demonstration project’s success, Congress
made the RAC program a permanent part of the Medicare
Integrity Program and expanded its coverage to all states. 42
U.S.C. § 1395ddd(h)(1), (3).
C.

The Facts Underlying Palomar’s Claims and Appeal

In June 2005, Palomar provided inpatient rehabilitation
facility (“IRF”) services to John Doe, a 79-year-old man who
had undergone a right total hip arthroplasty. On July 27, 2005,
a fiscal intermediary paid Palomar’s claim of $7,992.92 for
the IRF services provided to Doe.11
Under the RAC demonstration project, the RAC for California, PRG-Schultz (“the RAC”), selected Palomar’s claim
for complex review. On April 27, 2007, CMS sent Palomar a
letter notifying it that the RAC had selected one or more of
its claims for review. On the same date, the RAC sent Palomar a letter requesting medical records and documentation to
support the medical necessity of Doe’s IRF stay. The letter
said that the request was “due to a recent review and discovery of potential overpayment of your Medicare paid claim(s).”
Palomar tendered the requested records and documentation,
and on July 10, 2007, the RAC notified Palomar of its revised
determination of overpayment because Doe’s rehabilitation in
11

The amount in controversy here is not a large figure in itself, but the
lawfulness of the procedures used to determine that this was an overpayment has implications for other claims.

Case: 10-56529

11020

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 12 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

an inpatient hospital facility was “not reasonable and necessary.” See 42 U.S.C. § 1395y(a)(1)(A). The RAC told Palomar that it had to repay the overpayment amount.
Decisions at four levels of administrative review affirmed
the RAC’s initial determination of overpayment. A redetermination by a fiscal intermediary and a reconsideration by a QIC
each held that the rehabilitation services were not medically
necessary and excessive because they were given in a hospital
instead of a less intensive setting such as a skilled nursing
facility. The ALJ next agreed that Palomar’s services were not
medically reasonable and necessary, though it gave relief on
the ground that there was not good cause for the reopening by
the RAC.12 The MAC then reversed the ALJ’s decision, concluding that (1) neither the ALJ nor the MAC had jurisdiction
to assess good cause for reopening because the RAC’s decision to reopen was not subject to the administrative appeals
process,13 and (2) the services were not medically reasonable
and necessary.
Palomar appealed the MAC’s decision on the reviewability
of the reopening to the district court, but did not challenge the
MAC’s decision that the IRF services were not reasonable
and necessary. Palomar and the Secretary filed cross motions
for summary judgment, and the district court referred the case
to a magistrate judge.
12

The QIC found that the RAC had good cause because “[a] high error
rate and/or potential overutilization identified through data analysis” constituted good cause for reopening and Palomar’s claim had been selected
based on data analysis. But the ALJ disagreed and held that the RAC had
“made no showing on [the] record of good cause for late reopening.”
13
Citing 42 U.S.C. §§ 405.926(l) and 405.980(a)(5), the MAC said that
the decision to reopen was “final and not subject to appeal,” and, citing
70 Fed. Reg. at 11,453, the MAC said that “CMS ha[d] expressly stated
that the enforcement mechanism for good cause standards lies within its
evaluation and monitoring of contractor performance, not the administrative appeals process.”

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 13 of 29

11021

The magistrate judge first gave the Secretary’s interpretation of the reopening regulations “substantial deference”
under Thomas Jefferson University v. Shalala, 512 U.S. 504
(1994), and gave the regulations themselves Chevron deference. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council,
Inc., 467 U.S. 837 (1984). Applying Thomas Jefferson, the
magistrate judge concluded that the Secretary’s interpretation
was consistent with both the plain language of 42 C.F.R.
§§ 405.926(l) and 405.980(a)(5) and CMS’s statement in the
interim final rule that it would enforce the good cause standard through its own internal procedures rather than through
the administrative appeals process. See 512 U.S. at 512. The
magistrate judge reasoned that 42 C.F.R. § 405.980(a)(5)
“states on its face that a decision on whether to reopen is not
appealable,” and that there was “essentially no distinction”
between “challenging the discretionary decision to reopen
[and] challenging the legality of the reopening, because the
fact of the reopening is not appealable.” The magistrate judge
thus accepted the Secretary’s interpretation and concluded
that Palomar could not challenge the reopening. It did not
decide whether the RAC had good cause to reopen because,
it stated, “that issue is not appealable.” The magistrate judge
recommended that the district court deny Palomar’s motion
for summary judgment and grant the Secretary’s motion for
summary judgment.
The district court adopted the magistrate judge’s report and
recommendation. The district court agreed that it owed deference to the Secretary’s interpretation because it was consistent
with the plain language of the regulations and the Secretary’s
intent at the time she promulgated the regulations; that the
RAC’s reopening of Palomar’s claim was not subject to
administrative appeal; and that Palomar was not deprived of
due process. The district court also held that it did not have
jurisdiction to review the merits of Palomar’s challenge to the

Case: 10-56529

09/11/2012

11022

ID: 8317937

DktEntry: 59-1

Page: 14 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

reopening because the reopening was “not appealable.” Palomar timely appealed.14
II.

JURISDICTION AND STANDARDS OF REVIEW

We have jurisdiction under 42 U.S.C. §§ 405(g) and
1395ff(b)(1)(A) and 28 U.S.C. § 1291. We review a district
court’s grant of summary judgment de novo. Kaiser Found.
Hosps. v. Sebelius, 649 F.3d 1153, 1157 (9th Cir. 2011). The
Administrative Procedure Act (“APA”) governs our review of
the Secretary’s actions. See id. Under the APA, we will hold
unlawful and set aside an agency action that is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
III.

DISCUSSION

We consider Palomar’s challenge to the Secretary’s interpretation of the applicable regulations; Palomar’s position that
the regulations, if interpreted adversely to its position, violate
the governing Medicare statute; and Palomar’s argument that
even if the agency cannot on administrative appeal assess
good cause for reopening, a federal district court has jurisdiction to make that assessment.
14

Before oral argument, the American Medical Association (“AMA”)
and California Medical Association (“CMA”) filed an amicus brief with
the parties’ consent. See Fed. R. App. P. 29(a). The Federation of American Hospitals (“FAH”), American Hospital Association (“AHA”), and
American Health Care Association (“AHCA”) moved for leave to file an
amicus brief, as did the California Hospital Association (“CHA”). See
Fed. R. App. P. 29(b). We grant both motions for leave. After oral argument, at our invitation, AMA, joined by the state medical societies from
the nine states in this circuit, and CHA each filed additional amicus briefs.
All amici support Palomar’s position. We appreciate the counsel and briefing given by all amici.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

A.

Page: 15 of 29

11023

Palomar’s Challenge to the Secretary’s
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.

Case: 10-56529

11024

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 16 of 29

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

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 17 of 29

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 determina-

Case: 10-56529

11026

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 18 of 29

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.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 19 of 29

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
*1, *5-6 (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 *2, *5-6,
*9 (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.

Case: 10-56529

11028

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 20 of 29

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 regula-

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 21 of 29

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

Case: 10-56529

11030

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 22 of 29

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
B. Palomar’s Contention That If the Secretary’s
Regulatory Interpretation Is Followed, the Regulations
Violate the Medicare Statute
Palomar next contends that if the reopening regulations
foreclose review of the reopening deadlines and standards, the
regulations are invalid under the APA.
In reviewing an agency’s construction of a statute that it is
charged with administering, we ask, first, “whether Congress
has directly spoken to the precise question at issue.” Chevron,
467 U.S. at 842; Resident Councils of Wash. v. Leavitt, 500
F.3d 1025, 1030 (9th Cir. 2007). “If the intent of Congress is
17

Our holding is in accord with the decisions of the other federal courts
that have considered this issue. See Morton Plant Hosp. Ass’n v. Sebelius,
747 F. Supp. 2d 1349 (M.D. Fla. 2010); Trs. of Mease Hosp., Inc. v.
Sebelius, No. 8:09-CV-1795-T-23MAP, 2010 WL 3222097 (M.D. Fla.
July 26, 2010); Hosp. Comms. for the Livermore-Pleasanton Areas v.
Johnson, No. C-09-1786 EMC, 2010 WL 1222764 (N.D. Cal. Mar. 24,
2010). These district court cases have not been appealed, and no court of
appeals has decided the issue presented here. See also St. Francis Hosp.
v. Sebelius, ___ F. Supp. 2d ___, No. 09 CV 1528(DRH)(AKT), 2012 WL
200841, at *4 (E.D.N.Y. June 5, 2012).

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 23 of 29

11031

clear, that is the end of the matter; for the court, as well as the
agency, must give effect to the unambiguously expressed
intent of Congress.” Chevron, 467 U.S. at 842-43. But “if the
statute is silent or ambiguous with respect to the specific
issue,” we “do[ ] not simply impose [our] own construction
on the statute,” but rather, ask, second, “whether the agency’s
answer is based on a permissible construction of the statute.”
Id. at 843. If the agency’s construction is reasonable, we defer
to it. See Resident Councils, 500 F.3d at 1030.
“If Congress has explicitly left a gap for the agency to fill,
there is an express delegation of authority to the agency to
elucidate a specific provision of the statute by regulation.
Such legislative regulations are given controlling weight
unless they are arbitrary, capricious, or manifestly contrary to
the statute.” Chevron, 467 U.S. at 843-44.
[4] The Medicare statute states: “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). The statute does not address appeal rights
to enforce the reopening regulations and so, under Chevron
step one, is silent on the precise question at issue. See Chevron, 467 U.S. at 842. We apply Chevron step two.18
18
Palomar argues that employing traditional tools of statutory construction at Chevron step one makes clear Congress’s intent that there be
administrative review of Medicare reopenings. But we reject that argument because Congress’s intent is not clear. First, though
§ 1395ff(b)(1)(G) is located in a section called “Appeal rights” and must
be read in context, “a subchapter heading cannot substitute for the operative text of the statute.” See Fla. Dep’t of Revenue v. Piccadilly Cafeterias,
Inc., 544 U.S. 33, 47 (2008). The text of the statute says nothing about
appeals of reopening decisions. Second, that in § 1395ff Congress twice
limited administrative review of certain determinations, but not of reopenings, does not make clear Congress’s intent to provide appeal rights to
challenge reopenings. Palomar omits that § 1395ff includes administrative
review for, among other things, initial determinations, redeterminations,
and reconsiderations, but not for reopenings. See 42 U.S.C.
§ 1395ff(a)(3)(A), (b)(1)(A), (c)(1); Barnhart v. Sigmon Coal Co., 534
U.S. 438, 452 (2002).

Case: 10-56529

11032

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 24 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

[5] Because Congress in § 1395ff(b)(1)(G) “explicitly left
a gap for the agency to fill,” it gave the Secretary “an express
delegation of authority” to “elucidate” the reopening and revision of initial determinations “by regulation.” 467 U.S. at 844.
We give the Secretary’s reopening regulations “controlling
weight unless they are arbitrary, capricious, or manifestly
contrary to the statute.” Id.
[6] Palomar contends that the reopening regulations as
interpreted by the Secretary are arbitrary, capricious, and
manifestly contrary to the Medicare statute because they
allow her to reopen claim determinations in violation of the
“guidelines [she] established . . . in regulations.” See 42
U.S.C. § 1395ff(b)(1)(G). The Secretary’s responsive position
is that claim determinations are reopened and revised under
the guidelines she established in the reopening regulations,
but that those guidelines are enforced internally rather than
through provider appeals. There is nothing arbitrary or capricious about this position, and it reasonably avoids the inefficiencies that we noted above.
[7] In basing its argument on § 1395ff, Palomar ignores
Congress’s statutory directive to establish the RAC program.
Concerned about the millions of dollars of Medicare Trust
Funds being lost to improper payments, Congress directed the
Secretary to use RACs to identify and correct past overpayments and underpayments. Congress did not require “good
cause” for RAC reopenings, in either the MMA or § 1395ff.
Nor did Congress specify how any reopening conditions “established by the Secretary in regulations” should be enforced.
See 42 U.S.C. § 1395ff(b)(1)(G). The Secretary in her discretion has chosen to require good cause for reopenings and to
enforce that standard internally. This enforcement scheme
sensibly balances providers’ interests in fairness and finality
against Congress’s and the public’s interests in paying Medicare claims accurately and preserving funds for future Medicare beneficiaries. It certainly is not contrary to the Medicare
statute. For these reasons, the district court correctly gave the

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 25 of 29

11033

challenged regulations Chevron deference and rejected Palomar’s contention that they are invalid under the APA.
C.

Palomar’s Contention That Even If the Regulations
Bar Administrative Review of Good Cause for
Reopening, That Issue May Be Considered by a Federal
District Court
Palomar contends that even if the regulations bar administrative review of the RAC’s compliance with the good cause
standard for reopening, federal courts have jurisdiction to
review the issue.
[8] The Medicare statute limits judicial review of the Secretary’s decisions to “final decision[s] . . . made after a hearing.” 42 U.S.C. §§ 405(g)-(h), 1395ff(b)(1)(A). The statute
“does not define ‘final decision’ and ‘its meaning is left to the
Secretary to flesh out by regulation.’ ” See Matlock v. Sullivan, 908 F.2d 492, 493 (9th Cir. 1990) (quoting Weinberger
v. Salfi, 422 U.S. 749, 766 (1975)). Under the Medicare regulations, the MAC’s decision in this case is a “final decision”
of the Secretary and is subject to our review. See 42 U.S.C.
§ 405(g); 42 C.F.R. § 405.1130; 70 Fed. Reg. at 11,421.
[9] But in asking us to determine if the RAC had good
cause for reopening, Palomar asks us to review not the Secretary’s final decision, but the RAC’s decision to reopen its
claim. The decision to reopen a paid Medicare claim, however, is discretionary and does not constitute a “final decision” for purposes of § 405(g). See Davis v. Schweiker, 665
F.2d 934, 935 (9th Cir. 1982); see also Your Home Visiting
Nurse Servs., Inc. v. Shalala, 525 U.S. 449, 457-58 (1999);
Udd v. Massanari, 245 F.3d 1096, 1098-99 (9th Cir. 2001).
First, the 2005 regulations provide that a decision to reopen
is “final”19—not in the sense that judicial review may be
19

In the current regulations, “final” has been changed to “binding.” See
74 Fed. Reg. at 65,308.

Case: 10-56529

11034

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 26 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

sought but, as CMS explained, “in the sense that no further
review of the decision is available,” 74 Fed. Reg. at 65,307-08
—and “not subject to appeal.” 42 C.F.R. § 405.980(a)(5); see
also id. § 405.926(l). By barring any further review of reopening decisions, the regulations in effect foreclose not only
administrative review, but also judicial review. See Matlock,
908 F.2d at 493 (stating that SSA regulations listing actions
that are not initial determinations “prohibit judicial review” of
such an action); Harper v. Bowen, 813 F.2d 737, 743 (5th Cir.
1987) (discussing Fifth Circuit’s adoption of rationale in Califano v. Sanders, 430 U.S. 99 (1977), “that where the regulations prohibit it, there is no judicial review”). Second, the
decision to reopen a paid Medicare claim may lawfully be
made, and here was made, without a hearing. See Cappadora
v. Celebrezze, 356 F.2d 1, 4 (2d Cir. 1966) (“[T]he reasonable
reading of § 405(g) is that it was intended to apply to a final
decision rendered after a hearing thus made mandatory [by
statute], not to a decision which could lawfully have been
made without any hearing at all . . . .”); cf. Evans v. Chater,
110 F.3d 1480, 1482 & n.1 (1997). As the Supreme Court
noted in Califano v. Sanders, “the opportunity to reopen final
decisions and any hearing convened to determine the propriety of such action are afforded by the Secretary’s regulations
and not by the Social Security Act.” 430 U.S. at 108. In Sanders the Court held that federal courts lacked jurisdiction to
review a refusal to reopen and Palomar’s challenge in this
case is to a reopening. It is equally true here that the standards
governing reopenings “are afforded by the Secretary’s regulations and not by the [Medicare] Act” and no hearing on a
reopening decision is required by statute. See id.
[10] Congress gave the Secretary discretion to set guidelines governing the reopening and revision of claim determinations and to structure the means of enforcing such
guidelines so as to achieve efficiency and accuracy in the
administration of the Medicare program. See 42 U.S.C.
§ 1395ff(b)(1)(G). The Secretary made a permissible choice
to place RAC reopening decisions beyond review. Because

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 27 of 29

11035

the RAC’s decision to reopen Palomar’s claim is not a “final
decision of the [Secretary] made after a hearing,” the district
court and this court lack jurisdiction to review it. See id.
§ 405(g); Sanders, 430 U.S. at 108; Matlock, 908 F.2d at 493;
see also Loma Linda Univ. Med. Ctr. v. Leavitt, 492 F.3d
1065, 1074-75 (9th Cir. 2007).20
Palomar argues that in light of our jurisdiction to review the
MAC’s decision, the APA entitles it to judicial review of the
Secretary’s adverse action, and that “action” encompasses the
reopening of Palomar’s claim. See 5 U.S.C. § 702; Shalala v.
Ill. Council on Long Term Care, Inc., 529 U.S. 1, 23 (2000).
But the APA is not an independent grant of subject-matter
jurisdiction. Your Home, 525 U.S. at 457-58; Sanders, 430
U.S. at 107. And pursuant to 42 U.S.C. §§ 405(g) and
1395ff(b)(1)(A), our jurisdiction is generally limited by the
scope of the agency’s “final decision.” See Loma Linda, 492
F.3d at 1074. Here, as discussed above, there has been no
final decision on the RAC’s good cause for reopening, and so
that issue is beyond our power to review.
20

Our rationale differs from the Secretary’s argument relying on our
decisions in Loma Linda University Medical Center v. Leavitt, 492 F.3d
at 1074-75, and Anaheim Memorial Hospital v. Shalala, 130 F.3d 845, 853
(9th Cir. 1997). The Secretary argues that because her final decision, the
decision of the MAC, did not address the RAC’s good cause for reopening, federal courts lack jurisdiction to review that issue. In Loma Linda
and Anaheim, because there had been no final agency decision on certain
claims, we held that there was no federal court jurisdiction to review those
claims and remanded to the Secretary for a final decision thereon. Loma
Linda and Anaheim are not controlling, however, because the reason there
was no “final decision” in those cases differs from that here. There the
agency had jurisdiction to decide, but did not address, the issues not previously decided. Here, by contrast, CMS did not have jurisdiction to decide
the RAC’s good cause for reopening, and remanding to the Secretary for
a final decision on that issue would serve no purpose. But because, for the
reasons stated, there has been no “final decision” on good cause for purposes of § 405(g), our conclusion here is the same as in Loma Linda and
Anaheim: we do not have jurisdiction to review that issue.

Case: 10-56529

11036

09/11/2012

ID: 8317937

DktEntry: 59-1

Page: 28 of 29

PALOMAR MEDICAL CENTER v. SEBELIUS

[11] Shalala v. Illinois Council on Long Term Care, Inc.
is not to the contrary. There the Supreme Court stated that the
fact that an agency may not provide a hearing for a “particular contention” is “beside the point” because after the “action” has been channeled through the agency, “a court
reviewing an agency determination under § 405(g) has adequate authority to resolve any statutory or constitutional contention that the agency does not, or cannot, decide.” 529 U.S.
at 23. This means that federal courts may review certain contentions that the agency does not decide; it does not mean that
federal courts may review any and every contention. For
example, the district court considered and rejected Palomar’s
due process claim,21 and we have considered and rejected Palomar’s claim that the reopening regulations are contrary to the
Medicare statute, see supra Part IV, though the agency did not
decide either of these claims. But for the reasons stated, the
district court correctly held that § 405(g) “does not afford
subject-matter jurisdiction” over the RAC’s reopening decision. See Sanders, 430 U.S. at 109.
IV.

CONCLUSION

As stated above, this is not an easy case and Palomar has
a legitimate interest in finality which it advances. But as we
see it, Congress set the stage here by establishing the RAC
program aimed at recouping excessive Medicare payments. It
said expressly that reopenings were to be permitted under
guidelines set by the Secretary in regulations. The Secretary
21

Sanders recognizes an exception to § 405(g)’s “final decision”
requirement for challenges based on constitutional grounds, but Palomar
does not make a due process argument on appeal, so that exception does
not apply. See 430 U.S. at 109. In St. Francis Hospital v. Sebelius, the district court’s rationale for denying the Secretary’s motion to dismiss was
largely based on the plaintiff ’s “plausible” due process claim. See 2012
WL 2000841, at *10, 12. Because Palomar does not raise a due process
claim, and because the procedural posture in St. Francis is different from
that here, Palomar’s argument for federal court jurisdiction based on that
case is not persuasive.

Case: 10-56529

09/11/2012

ID: 8317937

DktEntry: 59-1

PALOMAR MEDICAL CENTER v. SEBELIUS

Page: 29 of 29

11037

by her regulations made explicit that there would be no appeal
of a reopening decision, and that such a decision was “final.”
In these circumstances we agree with the district court that the
question of good cause to reopen could not then be litigated
after a claim determination was revised upon audit by a RAC.
AFFIRMED.