GAO Releases Report Outlining Continued Inefficiencies with the Medicare Appeals System and the Increasing Appeals Backlog

Vol. 12 No. 12

AuthorAuthorThe Medicare appeals system has recently undergone considerable scrutiny due to the growing number of pending claims at the Administrative Law Judge (ALJ) level of appeal. Providers and other industry leaders have expressed concern regarding the Office of Medicare Hearings and Appeals’ (OMHA) consistent inability to render decisions on ALJ appeals within the 90-day period required by statute.1 However, the significant backlog of appeals at the ALJ level is not only a result of OMHA’s failure to process appeals quickly enough; it is also largely due to issues at the lower levels of appeal and the Medicare audit process.2

On June 9, 2016 the Government Accountability Office (GAO) released a report titled “Medicare Fee - For - Service: Opportunities Remain to Improve Appeals Process” (Report) which analyzed data from the different levels of appeal and made recommendations to the Department of Health and Human Services (HHS) for improving its methods of tracking and monitoring Medicare appeals, as well as for reducing the size of the Medicare appeals backlog.3 The Report also identified the GAO’s support of the Audit & Appeal Fairness, Integrity and Reforms in Medicare (AFIRM) Act of 2015 that is pending in the Senate.4  

The Problem: More Audits and Appeals, But Same Appeals Processes

The Report began with a statistical breakdown of the unprecedented rise in the number of appeals filed between the fiscal years (FYs) 2010 and 2014. The Report found that the largest annual growth of appeals occurred between FYs 2012 and 2013, with the rate of increase slowing between FYs 2013 and 2014.5 The increase in volume of appeals also varied between the different stages of appeal, with the number of hearings before ALJs increasing the most dramatically.6 Between FYs 2010 and 2014, the amount of filed appeals at the ALJ level increased from 41,733 to 432,534 — a 936 percent increase.7 The ALJ level of appeal experienced the largest percentage growth overall and the largest increase of any category of Part A appeals.8 While ALJ appeals had the steepest rate of increase, redetermination appeals had the largest increase in gross number of appeals. Specifically, between FYs 2010 and 2014, the amount of appeals filed at redetermination expanded from 2,603,557 to 4,209,621, a 62 percent increase, or a total of 1,606,064 new filings.9

Out of all Medicare categories, Part A appeals grew the most significantly between FYs 2010 and 2014. In that four-year period there was a 2,032 percent rise in the number of Part A appeals filed. Durable Medical Equipment and Prosthetics and Orthotics (DMEPOS) claims had a particularly large impact on the backlog, with the number of DMEPOS appeals at the ALJ hearing level increasing by over 1,000 percent.10

The Report listed a number of potential explanations for the increase in filings between FY 2010 and 2014. One reason the GAO identified in the Report was the 2011 transition of the Recovery Auditor Program from a six-state demonstration to a permanent national program.11 The GAO discovered that at the ALJ level, appeals filed on Recovery Auditor claims under Part A increased from 140 appeals (one percent of total appeals) in FY 2010 to 216,271 appeals (78 percent of total appeals) in FY 2014.12

Another reason cited by the GAO is the way in which appeals of repetitive claims for ongoing services are handled.13 The GAO referred to DMEPOS appeals as an example: when a single monthly claim for recurring oxygen supplies is denied, all subsequent claims for the service are denied, meaning a year’s supply of oxygen supplies to one beneficiary can lead to 12 separate appeals. Furthermore, even if the initial claim denial is reversed on appeal, the appeals for the 11 other months must still go through the entire appeals process.14 This inefficiency clearly increases the appeals backlog. An additional possible reason for this dramatic upsurge in appeals is the marked increase in providers’ and state Medicaid agencies’ appeals of denied claims.15

The Effect: Excessive Adjudication Delays Negatively Impact Providers and Suppliers

This rise in appeals has foreseeably led to delays in decisions. The Code of Federal Regulations provides statutory timeframes for processing appeal decisions: redetermination and reconsideration reviews are intended to be completed within sixty (60) days of an appeal being filed, while ALJ and Medicare Appeals Council (Council) decisions must be rendered within ninety (90) days of the date of submission of a timely appeal request. However, in FY 2014 96 percent of ALJ appeals were resolved outside of the 90-day statutory timeframe for review. Since Medicare providers appealing post-payment claim denials cannot avoid recoupment of funds after the second level of appeal,16 Medicare providers are forced to either allow Medicare to recoup their forthcoming Medicare reimbursements or enter into an extended repayment plan with Medicare Administrative Contractors (MACs).17 The strain on Medicare providers is sometimes insurmountable, particularly in cases with large alleged overpayments.18 The substantial burden of recoupment or an extended repayment plan over the course of several years has led some providers to go out of business because they cannot afford to continue to provide care to patients. The regulations that authorize recoupment after reconsideration were drafted in contemplation of the 90-day time limit for an ALJ to render a decision, and the continued delays leave Medicare providers returning alleged overpayments (either through recoupment or extended repayment plans) for prolonged periods of time, with access to a fair appeal hearing delayed.

In addition, the Centers for Medicare & Medicaid Services (CMS) is required to compensate providers for interest on recouped overpayments or extended repayment plan payments in the event the claim denials that resulted in the alleged overpayment are overturned at the ALJ level of appeal. Due to the delay in issuing ALJ hearing decisions, the amount of interest CMS must reimburse to providers is considerably higher than the amount of interest which would have been paid if the ALJ decisions were finalized within the statutory time frame. According to the Report, CMS estimates that during the period of FY 2010 to 2015, CMS refunded $17.8 million in interest payments to Part A and B providers. This amount would have been significantly less if the ALJ hearing decisions had been processed within the 90-day limit.19 Therefore, it is not only providers who are hurt by the delays in issuance of ALJ appeal decisions. CMS and the Medicare trust fund itself are also impacted.

Inefficient Audit and Appeals Data Tracking Leads to Incomplete Analysis

While CMS and HHS track data from all levels of appeal in order to analyze some statistics, the Report found that the data collected is insufficient to measure important trends that could assist in making improvements to the appeals process.20 Specifically, the GAO found that the data documentation systems were inconsistent across different levels of appeal and that the same figures were not recorded across different levels, making it impossible to track certain statistics through the entire process. The Report concluded on the subject that without reliable dollar value calculations CMS cannot know the amount of Medicare funds at stake in the appeals process and is therefore ill-equipped to make educated reforms thereto.21

Report Recommends Reforms to Appeals Processing and Data Tracking

The GAO’s report found that in spite of attempts made by government agencies, the inefficiencies in the Medicare audit and appeals system persist, including the ever-growing appeals backlog and the separate processing of repetitive claims.22 The GAO outlined some of these attempts at reform made by OMHA and CMS, such as prior authorization models, a revised inpatient hospital coverage policy regarding short-stays, and a changed Recovery Auditors (RAs) look-back period.23 The GAO also pointed to CMS’ directive to MACs and Qualified Independent Contractors (QICs),24 telling the contractors to focus their review of appeals of post-payment claim denials solely on the reasoning for the initial denial, rather than adding new bases in their upheld decisions, which could give providers new grounds for an appeal and therefore add to the backlog.26 The GAO reported that as of February 2016, the new instruction led to an increase in reversal rates at the reconsideration level of appeal, which has assisted in reducing the number of appeals pending for ALJ hearing and Council review.27 In addition, HHS has advocated for requesting legislative authority and/or approving new regulations that would allow HHS to merge duplicative appeals (which are discussed below) into a single administrative case.27

As for the issue of data gathering, CMS and OMHA are in the midst of restructuring their collection processes to improve monitoring systems.28 One new change is tracking data based upon Medicare allowed amounts to be used to calculate reversal rates derived from the amount of dollars that are recovered, rather than relying simply upon the raw number of appeals or number of claims.29 This sort of breakdown by allowed amounts will let HHS and CMS understand the differences in the dollar value of appeals, and allow them to give different weights to appeals of claims for hundreds of dollars versus those valued in the hundreds of thousands.30 CMS would then be able to identify which kinds of appeals were most costly and adjust its procedures accordingly.31

Issues Remain: The GAO’s Recommendations

But even in light of these changes made by CMS, also including the recently expanded Settlement Conference Facilitation Pilot Program (SCF Pilot), the Report found that the efforts have not gone to the heart of the inefficiencies which cause the appeals backlog.32 In the Report, the GAO provided possible resolutions to the issue of repetitive claims, including allowing MACs to extend the favorable decision in this scenario to the other duplicative claims within its jurisdiction. Concluding its report, the GAO recommended that HHS take the following actions:

  1. Direct CMS, OMHA, or the Departmental Appeals Board (DAB)33 to modify the various Medicare appeals data systems to

    a. Collect information on the reasoning behind Level 3 (ALJ) appeal decisions;

    b. Capture the amount, or an estimate of the amount of Medicare allowed charges at stake in appeals in Medicare Appeals System (MAS) and Medicare Operations Division Automated Case Tracking System (MODACTS); and

    c. Collect compatible and consistent data across schemes, including appeal categories and appeal decisions across MAS and MODACTS; and

  2. Put in place a more effective way of adjudicating certain repetitive claims, including the permitting of appeals bodies to reopen and resolve appeals.34

HHS Comments on the GAO’s Report

Attached as an appendix to the Report are official HHS comments to a draft version of the Report, in which HHS took the opportunity to note that it managed to make noticeable progress in reducing the appeals backlog by way of settlements with hospitals in 2014.35 In negotiating settlements with 1,900 inpatient hospitals through the 2014 CMS 68 percent Inpatient Settlement (the “68 percent Settlement”), HHS resolved approximately 300,000 claims, thereby reducing the number of backlogged appeals in Levels 3 and 4 of appeals by 30 percent.36 The 68 percent Settlement was a one-time opportunity for hospitals with eligible claims; hospitals could either choose to accept the 68 percent Settlement or proceed forward with the Medicare appeals process. Therefore, the hospitals that chose to not engage in the 68 percent Settlement still have appeals pending in the Medicare appeals process. One issue not raised in the Report is the fact that there are still approximately 200,000 appeals pending for claims that could have been eligible for the 68 percent Settlement. While the Settlement Conference Facilitation Pilot Program is an effective tool for providers to resolve claim denials, claims that were eligible for the 68 percent Settlement are not eligible for the SCF Pilot Program. Therefore, with the 200,000 pending appeals that had been eligible for the 68 percent Settlement, it would seem logical to simply reopen the 68 percent Settlement so that the 200,000 pending inpatient status claims could have an alternative route for resolution and in turn reduce the appeals backlog.

In its comments, HHS then went on to concur with all of the GAO’s recommendations and comments in the Report, save one. In acknowledging the $17.8 million additional interest paid back to providers due to delays in ALJ processing, HHS countered by juxtaposing that smaller figure with the over $1 billion in overpayments for all reconsideration decisions that was collected during the same period.37 HHS stated its belief that delaying recoupment until after the ALJ level would lead to more ALJ appeals, simply because filing for an ALJ appeal would extend the time before recoupment would commence and the possible reward to providers would outweigh any risks.38 HHS maintained that the way to fix the system is to reform the last two levels of appeals and to not significantly reform the structure of the reconsideration and redetermination levels of appeal.39 In general, however, HHS agreed with the Report that the appeals system is in need of reform, and agreed with most of the solutions that the GAO proposed.40

Conclusion

The Report joins a number of recent critiques to the Medicare audits and appeals process, specifically regarding the appeals system’s backlog and its harm to both Medicare and the provider and supplier community. While efforts by CMS and OMHA are aimed at reducing the backlog, the GAO advocates that more efforts should go to curbing the growing number of unprocessed appeals. In addition, along with the GAO’s recommendations, many of the AFIRM Act’s revisions to the Medicare audit and appeals process would also likely help in shrinking the size of the appeals backlog. Counsel for providers and suppliers should carefully monitor these and forthcoming developments. Such reforms are likely to have a major impact on the Medicare audit and appeals process, and on the Medicare program itself.

***

Andrew B. Wachler is a partner with Wachler & Associates, P.C. Mr. Wachler has been practicing healthcare law for over 30 years. He counsels healthcare providers and organizations nationwide in a variety of healthcare legal matters. In addition, he writes and speaks nationally to professional organizations and other entities on healthcare law topics such as RAC and Medicare appeals, the Stark law, fraud and abuse, HIPAA, and other topics. He often co-speaks with Medicare and other government representatives, including Medicare’s Chief Administrative Law Judge and Stark regulators. Mr. Wachler is considered by his peers to be a leading national expert on Medicare reimbursement policy and appeals, and has met with the Centers for Medicare & Medicaid Services (CMS) on numerous occasions in order to effectuate changes to Medicare policy and obtain fair and equitable reimbursement for health systems. He may be reached at awachler@wachler.com.

Jessica Forster is an attorney at Wachler & Associates, P.C. Ms. Forster represents healthcare providers and suppliers during Medicare, Medicaid, and third party payor audits. She devotes a substantial portion of her practice representing healthcare providers during the audit administrative appeals process. In addition, Ms. Forster represents healthcare providers in regulatory compliance and HIPAA matters.  Ms. Forster graduated Cum Laude from Wayne State University Law School and was nominated to the Order of the Coif. Ms. Forster graduated Magna Cum Laude from Albion College with a B.A. in Political Science and a concentration in Public Policy from the Gerald R. Ford Institute of Albion College. Ms. Forster is admitted to the State Bar of Michigan and is a member of the American Health Lawyers Association. She may be reached at jforster@wachler.com.

1

42 U.S.C. § 1395ff(d)(1)(A). For example, see American Hospital Association, et. al. v. Burwell (No. 1:14-cv-00851) (Feb. 9, 2016).

2

These issues include aggressive auditing practices by Medicare contractors (e.g.: expansion of the Recovery Auditor program) and misinterpretation of Medicare regulations and policies at the lower levels of appeal, thus encouraging providers to appeal. An example of misinterpretation of Medicare regulations and policies is the high rate of home health face-to-face encounter documentation denials. Before January 1, 2015, the brief narrative requirement for home health face-to-face encounter documentation was denied by Medicare contractors at an alarming rate and for reasons that often exceeded the scope of the Medicare regulations and Medicare policy manuals. These overly aggressive audits and improper denials have encouraged home health agencies to challenge the denials through the Medicare appeals process, thus contributing to the appeals backlog.

3

GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process, available at: http://www.gao.gov/assets/680/677034.pdf.

4https://www.congress.gov/114/bills/s2368/BILLS-114s2368pcs.pdf. The AFIRM Act contains five major proposals: 1) increase oversight of HHS and CMS to assure the integrity of audits and appeals; 2) coordinate efforts between CMS and audit contractors to ensure transparent data collection; 3) create a voluntary alternative dispute resolution process to allow claims with issues of fact and/or law in common to be processed together rather than individually; 4) increase the amount in controversy necessary to bring an appeal before an ALJ, while creating a parallel program to process appeals with a lower disputed sum; and 5) allow use of sampling and data manipulation to expedite the appeals process. For more information on the AFIRM Act, see Andrew B. Wachler and Jessica C. Forster, Senate Bill to Impose Significant Reforms to the Medicare Audit and Appeals Processes, American Bar Association Health Law Section ABA Health eSource Vol. 12 No. 6 (February 2016), http://www.americanbar.org/publications/aba_health_esource/2015-2016/february/medicareaudit.html (last accessed 7/6/16).
5

See GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process, pgs. 11-12.

6

There are five levels to the Medicare appeals process — Redetermination, Reconsideration, ALJ, Medicare Appeals Council, and Federal District Court.

7

See GAO Highlights/Summary of GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process.

8

See GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process, pg 12.

9

Id.

10

Id. at 14. This is likely due in large part to the monthly recurrence of DMEPOS services and CMS’ handling of these duplicative appeals — this issue will be addressed in more detail later in the article.

11

Id. at 15.

12

Id.

13

Id. at 39.

14

Id.

15

State Medicaid agencies are payors of last resort for dual-eligible beneficiaries, and a state Medicaid agency may file an appeal to Medicare on behalf of a dual-eligible beneficiary when the state Medicaid agency believes Medicare incorrectly denied payment for a service. See p. 2 of the Report.

16

See Centers for Medicare and Medicaid Services, Medicare Financial Management Manual, CMS Pub. 100-06, Chap. 3, Sec. 200.3 (Rev. 141, Sep. 12, 2008).

17

MACs are private healthcare insurers contracted regionally by CMS to process Medicare reimbursement claims from beneficiaries. MACs seek to assure that all Medicare payouts are for services which are medically reasonable and necessary.

18

Hereinafter this article will refer to “providers and suppliers” collectively as “providers.”

19

GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process at 21.

20

Id. at 25.

21

Id.

22

Id. at 32.

23

Id. at 33-34.

24

QICs are contractors which did not take part in the first level of appeal (redetermination) and decide the second level of appeal (reconsideration).

25

GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process at 34.

26

Id. at 35.

27

Id.

28

Id. at 26.

29

Id. at 29.

30

Id.

31

Id.

32

Noteworthy in the Report is the GAO’s finding that OMHA’s statistical sampling pilot that began in July 2014 has had limited impact on the appeals backlog. As of August 2015, only one appellant has elected to participate in the pilot. Although OMHA plans to encourage more providers to participate in the pilot, it is possible that providers have realized the risks associated with the pilot: specifically, that one ALJ renders a decision on a random sample of the appellant’s eligible denied claims and the ALJ’s decision is extrapolated to the universe of at-issue appeals. See id at 37. For information on the SCF Pilot, see Andrew B. Wachler and Erin Diesel Roumayah, Office of Medicare Hearings and Appeals Facilitation Pilot Offers Meaningful Settlement Opportunity to Part A Providers, American Bar Association Health Law Section ABA Health eSource Vol. 12 No. 8 (April 2016), http://www.americanbar.org/publications/aba_health_esource/2015-2016/april/settlement.html (last accessed 7/6/16).

33

The DAB is a division of HHS which provides independent review of HHS decisions. The Council, which handles the fourth level of appeals, is part of the DAB.

34

GAO Medicare Fee-For-Service Opportunities Remain to Improve Appeals Process at 42.

35

Id. at 76-80.

36

Id. at 77. The 30% figure is based on data from June 2, 2015 for Level 3 appeals and May 22, 2015 for Level 4 appeals. Pursuant to the implementation of the 68 percent Settlement, CMS agreed to pay 68% of the inpatient net payable amount on Part A claims denied because the inpatient setting was determined to be medically unnecessary. Hospitals that agreed to this settlement withdrew their pending appeals and waived their rights to file a future appeal related to the claims. See Id at 35.

37

Id. at 78.

38

Id.

39

Id.

40

Id. at 77-80. In its comments to the Report, HHS took note of the various attempts it has made at reforms. HHS highlights its “three-pronged” strategy, which includes: a) administrative action to reduce the number of pending appeals and encourage settlements earlier in the process; b) the requesting of additional funds to invest in the appeal process so as to increase capacity and allow for implementation of new strategies; and c) the proposal of legislation to provide additional funding and authority. HHS also acknowledged specific actions it is planning to take in regards to the GAO’s recommendations. These actions include investigating the cost of additional Medicare data collection, transferring inquiries from provider billed charges to Medicare allowed amounts, standardization of appeals categories and the transfer of all MACs to MAS. Some of HHS’ proposed actions are contingent upon the implementation of the FY 2017 Presidential Budget, which would grant additional funds and give authority for the consolidation appeals.

 

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