The FY 2016 Budget Proposes Medicare Appeals Process Reforms

Medicare appeals process changes are on the horizon.

(February 27, 2015): On February 2, 2015, President Obama released his fiscal year 2016 budget proposal. This latest proposal affects a significant number of Federal health care programs and includes over $1 trillion allocated to the U.S. Department of Health and Human Services (HHS). More than 85 percent of HHS’s budget is devoted to programs that fall under the purview of the Centers for Medicare & Medicaid Services (CMS). The administration’s primary health care focus is expanding access to care and providing higher quality of care. It attempts to accomplish this goal through a series of budget increases coupled with a greater emphasis on efficient practices. For example, the budget proposes several reforms to the Medicare program that purport to save roughly $423.1 billion over the next 10 years. Medicare appeals process reforms are among the changes impacted by the 2016 budget. As discussed later in this article, the RAC audit changes that are anticipated will likely result in an increased likelihood that your health care company may be in the proverbial crosshairs.

I. Administration Goals:

The FY 21016 budget continues to prioritize cutting waste, fraud, and abuse in the Medicare and Medicaid programs. As outlined in HHS’ budget brief, the President’s proposal includes $201 million in investments in program integrity for FY 2016 and $4.6 billion over ten years. These investments include continuing to fund the full Health Care Fraud and Abuse Control (HCFAC) discretionary cap adjustment, increasing mandatory Medicaid Integrity Program funding, and providing more funding to recovery auditors to undertake more corrective actions that will help reduce improper payments. In total, program integrity investments are estimated to yield roughly $21.7 billion in savings to Medicare and Medicaid over ten years. In addition, the Budget supports efforts to monitor and prevent fraud, waste and abuse in the private health insurance market including the Health Insurance Marketplace

II. Medicare Appeals Process Reforms:

Health care providers should pay particular attention to the budget proposals that affect the Medicare appeals process, an area that has caused significant frustration over the last several years: Medicare and Medicaid contractors and appeals. In December 2013, the Office of Medicare Hearings and Appeals (OMHA) declared that it would stop assigning administrative law judge (ALJ) appeals. The Medicare appeals system had become severely backlogged with pending appeals, due in large part to a significant increase in Recovery Audit Contractor (RAC) reviews of claims. CMS tried to alleviate this backlog through a RAC Audit "Pause". This pause would allow RACs to complete their remaining claim audits and allow CMS to continue to refine and improve the RAC audit Audit Program. Nevertheless, frustration with the arduous Medicare appeals process led three hospitals and the nation’s largest hospital association to sue HHS. In a subsequent effort to address the backlog and resulting delays, CMS presented a global settlement offer to hospitals to resolve certain backlogged claims on during Labor Day 2014.

As part of its ongoing efforts to improve the efficiency of the Medicare appeals system – and to reduce the backlog of appeals awaiting adjudication at OMHA – HHS proposes additional funding, administrative actions, and legislative proposals. For example,

  • $36 million is allocated for CMS to engage in discussion with providers to resolve disputes and additional funding for greater participation in ALJ Hearings at OMHA;
  • $270 million is allocated for OMHA, of which $140 million is in budget authority and $130 million is from legislative proposals. This figure constitutes a $53 million increase from FY 2015.

The Budget also expands adjudicatory capacity in new field offices in order to address the backlog for a number of appeals and maintain the quality and accuracy of its decisions. It also includes a package of legislative proposals that provide new authority and additional funding to address the backlog. A summary of the Medicare appeals process reforms is as follows:

  • Provide OMHA and Departmental Appeals Board (DAB) Authority to Use Recovery Audit Contractor Collections – this would allow program recoveries to fully fund related appeals at OMHA and the DAB;
  • Establish a Refundable Filing Fee – a refundable, per claim filing fee for providers, suppliers, and State Medicaid agencies, including those acting as a representative of a beneficiary, at each level of Medicare appeal, would be instituted. This filing fee would allow HHS to invest in the appeals system in hopes of improving responsiveness and efficiency. Notably, these fees would be returned to appellants who receive a fully favorable appeal determination;
  • Establish Magistrate Adjudication for Claims with Amount in Controversy Below New ALJ Amount in Controversy Threshold – appealed claims below the federal district court amount in controversy threshold ($1,460 in CY 2015 and updated annually) would be heard by attorney adjudicators. This would allow ALJs to hear claims that are more complex and/or include higher dollar amounts.
  • Expedite Procedures for Claims with No Material Fact in Dispute – OMHA could issue decisions without holding a hearing if there is no material fact in dispute;
  • Increase Minimum Amount in Controversy for Administrative Law Judge Adjudication of Claims to Equal Amount Required for Judicial Review – the minimum amount in controversy required for adjudication by an ALJ would be increased to the Federal Court amount in controversy requirement ($1,460 in 2015). Appeals not reaching the minimum amount in controversy will be adjudicated by a Medicare magistrate;
  • Remand Appeals to the Redetermination Level with the Introduction of New Evidence - appeals where new documentary evidence is submitted at the second level of appeal or above would be remanded down to the first level of review. This could incentivize appellants to include all evidence early in the appeals process and ensure the same record is review and considered at subsequent levels of appeal; and
  • Sample and Consolidate Similar Claims for Administrative Efficiency – the Secretary HHS could adjudicate appeals through the use of sampling and extrapolation techniques. Additionally, the Secretary would be authorized to consolidate appeals into a single administrative appeal at all levels of the Medicare appeals process. Parties who are appealing claims included within an extrapolated overpayment, or consolidated previously, will be required to file one appeal request for any such claims in dispute.

III. Final Remarks:

HHS insists that these proposal will allow OMHA to alleviate the ongoing backlog of appealed claims within the Medicare appeals system. However, these measures are not addressing one of the most significant problems with the entire process – the contractors themselves. No where in the budgetary proposals has HHS identified measures that would address the problem areas that RACs are historically known to create. For example, RACs are still reimbursed on a contingency fee arrangement. This arrangement create adverse incentives whereby RACs pursue (and generally deny) as many claims as possible. Yet, the contractors are not punished for adverse results that may be later overturned at any one of the appeals levels, in particular at the ALJ stage.

Has your hospital, practice, Home Health Agency, Hospice, DME Company, or PT / OT / ST Clinic been audited by a RAC or Zone Program Integrity Program (ZPIC)? Liles Parker regularly counsels health care providers on how best to proactively prepare for an audit and mitigate audit risks. As long as RACs are incentivized to pursue as many claims as possible, the likelihood of an audit of your practice is not “if” but “when.” If you have any questions or concerns regarding any ongoing – or future – RAC or ZPIC audit, please do not hesitate to give us a call at 1 (800) 475-1906.

Saltaformaggio, Robert
Robert Saltaformaggio, Esq., serves as an Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker attorneys represent health care providers around the country in connection with Medicare and Medicaid audits by ZPICs, RACs and specialty contractors. The firm also represents health care providers in connection with HIPAA Omnibus Rule risk assessments, privacy breach matters, State Licensure Board inquiries and regulatory compliance reviews. For a free consultation, call Robert at: 1 (800) 475-1906.