I. The Medicare Appeals Process is Broken:
On April 28, 2015, the Senate Finance Committee conducted a hearing entitled “Creating a More Efficient and Level Playing Field: Audit and Appeals Issues in Medicare”.  Committee Chairman, Senator Orin Hatch, set the focus of the hearing in his opening statement. Several of Senator Hatch’s comments included:
“CMS has, of course, taken steps to identify and recover improper payments, including hiring contractors to conduct audits of the more than one billion claims submitted to the Medicare program every year. These auditors have recovered billions for the Medicare program – over $3 billion in 2013 alone. However, the increase in audits has led to a seemingly insurmountable increase in appeals, with a current backlog of over 500,000 cases, evidenced by this chart.
This increase in appeals has resulted in long delays for beneficiaries and providers alike. There are so many appeals that the Office of Medicare Hearings and Appeals can’t even docket them for 20 to 24 weeks. In FY 2009, most appeals were processed within 94 days. In FY 2015, it will take, on average, 547 days to process an appeal – far too long for beneficiaries to find out whether their medical services will be covered or for providers to find out if they will be
Additionally, large portions of the initial payment determinations are reversed on appeal. The HHS Office of Inspector General reported that, of the 41,000 appeals that providers made to Administrative Law Judges in FY 2010, over 60 percent were partially or fully favorable to the defendant.
Such a high rate of reversals raises questions about how the initial decisions are being made and whether providers and beneficiaries are facing undue burdens on the front end. On the other hand, we need to recognize that ALJs have more flexibility in their decision-making than Medicare contractors do.” (emphasis added).
As this testimony suggests, the current system of administrative appeals is broken. Unfortunately, many health care providers are finding their organizations facing bankruptcy (primarily through mandatory recoupment) long before the provider has an opportunity to argue the merits of their case before an ALJ.
II. The Current ALJ Hearing Backlog Has Increased 10-Fold in Two Years:
As Senator Ron Wyden noted during the Senate Finance Committee hearing, increases in the number of Medicare claims audits performed by CMS contractors have resulted in a ten-fold increase in the number of appeals cases ultimately being filed with the Office of Medicare Hearings and Appeals (OMHA). As Senator Wyden testified, the number of cases filed with OMHA in Fiscal Year (FY) 2011 was 60,000. By FY 2013, the number of filings had risen to 654,000.
III. What Does the Future Look Like?
A number of proposals intended to alleviate the current appeals backlog have been proposed by OMHA and included in the President’s proposed FY2016 budget. Unfortunately, a number of these proposals will likely result in additional hardships for small and mid-sized health care providers and providers. During the Senate Finance Committee hearing, OMHA’s Chief Administrative Judge outlined these proposals, which include:
Provide Office of Medicare Hearings and Appeals and Departmental Appeals Board Authority to Use RA Collections. This proposal would expand the Secretary’s authority to retain a portion of Recovery Audit (RA) program recoveries for the purpose of administering the recovery audit program and will allow RA program recoveries to fully fund the appeals process for RA related appeals at the OMHA and the DAB.
Comments: We recognize that the primary purpose of this proposal is to fund additional ALJ slots and support positions and to reduce the massive backlog of cases currently pending at OMHA. Nevertheless, we believe this proposal would create a conflict of interest for the OMHA. ALJ’s are supposed to give health care providers and suppliers a fair hearing and issue a ruling based on the merits. Under this proposal, the OMHA would essentially benefit (through the receipt of additional funding) from each ruling in which it ruled that an RA program denial was justified.
Establish a Refundable Filing Fee. This proposal would institute a refundable per claim filing fee for providers, suppliers, and Medicaid State Agencies, including those acting as a representative of a beneficiary, at each level of appeal. Appeals filed by beneficiaries or representatives of beneficiaries other than providers, suppliers, and Medicaid State Agencies would be exempt from the fee. Fees will be returned to appellants who receive a fully favorable determination. Under current law, there is no administrative fee paid to the adjudicating entity for filing an appeal. A filing fee would encourage those who frequently file to more carefully assess the merits of their appeals before filing.
Comments: As discussed during the hearing, much of the current backlog can be traced to appeals filed by a relatively small number of providers. The purpose of this proposal is to encourage providers to conduct a careful review of claims denials before automatically filing an appeal. Unfortunately, this proposal will disproportionally affect small health care providers and providers, for whom a limited number of claims represent a significant portion of their overall revenues. Moreover, if enacted, a per-claim filing fee would be charged at each level of appeal. This proposal will adversely impact small and mid-sized health care providers who wish to assert their appeal rights. Moreover, by discouraging the filing of appeals, the overall error rate of small and mid-sized providers will rise, making them an even larger target for Zone Program Integrity Contractor (ZPIC) and Medicare Recovery Auditor (RA) data-mining efforts.
Sample and Consolidate Similar Claims for Administrative Efficiency. This proposal would allow the adjudication of large numbers of appeals through the use of sampling and extrapolation techniques without appellant consent. Additionally, this proposal would authorize the consolidation of similar appeals into a single administrative appeal at all levels of the appeals process for purposes of adjudicative efficiency. This provision would also require that all appeals that were included within an extrapolated overpayment or were consolidated previously would remain a part of the extrapolated or consolidated file on appeal.
Comments: Once again, this proposal is intended to streamline the appeals process and reduce the current backlog by consolidating similar claims into a single appeal. We are concerned with this proposal for several reasons. First, it places the responsibility for deciding what constitutes a “similar claim” in the hands of the CMS contractor. Past experience has shown that ZPICs and Program Safeguard Contractors (PSC) may fail to properly stratify samples prior to calculating estimated extrapolated damages.
Remand to Redetermination Level upon Introduction of New Evidence. This proposal would require remand of a Medicare appeal to the first level of review at CMS when new documentary evidence is submitted into the administrative record at the second level of appeal or above. The proposal would include exceptions to mandatory remands if the basis for the submission is that new evidence was provided to the lower level adjudicator but erroneously omitted from the record, or an adjudicator denies an appeal on a new and different basis than earlier determinations. This proposal provides a strong incentive for all evidence to be produced early in the appeals process and to ensure the same record is reviewed and considered at the second and subsequent levels of appeal.
Comments: While we generally support this proposal, we are concerned that if abused by a CMS contractor, it could lead to significant delays in having a case heard by an ALJ. During this period of delay, the alleged overpayment would continue to accrue interest (at a rate far above the current market rate of interest), thereby making it even harder for a health care provider or supplier to make periodic payments on the debt while they are working their way through the appeals process.
Increase Minimum Amount in Controversy for ALJ Adjudication of Claims to Equal Amount Required for Judicial Review. This proposal would increase the minimum amount in controversy required for adjudication by an ALJ to the Federal district court amount in controversy requirement ($1,460 in 2015). It would also clarify the circumstances under which claims can be aggregated to meet the amount in controversy limit.
Comments: This proposal is intended to filter out small claims appeals that are currently contributing to the ALJ hearings backlog. We generally do not oppose this proposal. However, we have seen a number of cases where a Medicare Administrative Contractor (MAC) and / or a Qualified Independent Contractor (QIC) has broken an appeal into discrete claims and issued separate decisions for each claim. This could lead to the dismissal of appeals later in the case for failure to meet the amount in controversy requirement.
Establish Magistrate Adjudication for Claims with Amount in Controversy Below New ALJ Amount in Controversy Threshold. This proposal would allow OMHA to use attorney adjudicators to resolve those appeals that meet the current ALJ amount in controversy threshold ($150 in 2015) but fall below the amount currently required to file an appeal in federal district court ($1,460 in 2015), reserving ALJs for development of a record in more complex cases involving higher amounts in controversy, which have the potential for appeal to federal district court. Decisions of a Medicare Magistrate could be appealed to the DAB, but would not meet the amount in controversy required to be appealable to federal district court.
Comments: As with several of the other proposals, this recommendation would tend to adversely impact small to mid-sized health care providers and suppliers, effectively taking away their right to bring in federal court if they disagree with the denial of a claim that fails short of the new amount in controversy.
Expedite Procedures for Appeals with No Material Fact in Dispute. This proposal would allow OMHA to issue decisions without holding a hearing when there is no material fact in dispute and the decision is governed by a binding authority. These cases include, for example, appeals in which Medicare does not cover the cost of a particular drug or the ALJ cannot find in favor of an appellant due to binding limits on authority. This proposal would increase the efficiency of the Medicare appeals system and result in faster adjudications of appeals at the ALJ level of appeal.”
Comments: This proposal would effectively permit the OMHA to dismiss appeals it believes would be covered by one or more “binding authorities.” In doing so, a health care provider or supplier would be unable to effectively challenge an ALJ’s beliefs in this regard, thereby depriving the provider of an opportunity to show the ALJ why particular claims are not covered by a binding authority.
Small to mid-sized sized health care providers and suppliers are again slated to be adversely impacted by pending proposals to the current Medicare administrative appeals process. As you will recall, an earlier remedy of CMS to address the current case hearing backlog was to offer hospitals a “settlement” if they would drop their appeals. Physicians, small practices, dentists, home health agencies, hospices and other non-hospital providers were not given this option. We remain concerned that the current proposals will only further reduce the ability of small and mid-sized providers to contest the improper denial of Medicare claims by ZPICs, PSCs and RAC.
-  Private contractors working for the Centers for Medicare and Medicaid Services (CMS).
-  A video of the April 28, 2015 hearing, along with written witness statements, are available online at: http://www.finance.senate.gov/hearings/hearing/?id=d29af43d-5056-a032-526a-1de427f91aeb
-  Previously referred to as Recovery Audit Contractors (RACs) by CMS.