This week, the American Hospital Association (AHA) will get the chance to tell Washington, D.C. District Judge James Boasberg what it thinks must be done to fix the tremendous backlog of appeals at the Office of Medicare Hearings and Appeals (OMHA).

There are about 920,000 appeals on backlog at OMHA. That number is expected to grow to over a million by 2020, and that is assuming all of the legislative and administrative changes requested by the U.S. Department of Health and Human Services (HHS) are implemented. 

Without those changes, the backlog could grow to 1.9 million. The time necessary for OMHA to fully adjudicate an appeal is now estimated at 848 days – well in excess of the 90-day statutory limit imposed by Congress. 

The biggest part of the problem was created by Recovery Auditors (RAs). About 300,000 of the appeals in the backlog are connected to claims denials made by RAs. The balance of the backlog is attributable to beneficiary appeals and challenges of Medicare Administrative Contractor (MAC) determinations.

The AHA and several hospitals sued HHS to enforce the time limits for reviews of appeal. The presiding court initially denied the claim, but subsequent actions in appellate court forced the issue back to the lower court for consideration. HHS, citing certain legislative and administrative efforts to correct the problem, requested that the court hold off on demanding any action for a year. But on Sept. 19, the court said no to that and requested that the AHA submit its ideas for remedy by this Friday. HHS then will have until Nov. 4 to respond.

In previous filings, the AHA has cited possible actions the court could take to resolve the issue. The first would be a broad settlement of outstanding appeals. In 2014, HHS had agreed to settle with inpatient acute-care hospitals regarding patient status claims. It eventually resolved 260,000 claims with over 2,000 hospitals. Remarkably, however, HHS did not extend the offer to other types of inpatient claims or other types of providers.

Late last week, HHS indicated that it once again would offer settlement to inpatient hospitals for patient status denials, but the Department did not provide much in the way of details.

Other options include changes to the RA program, such as penalties for overturned payment determinations and requiring physician review of all complex audits of a medical record. The AHA has also suggested that HHS delay recouping money from hospitals until a determination is made at the third level of appeal. 

The American Association of Homecare says that 25 percent of the claims backlog is attributable to durable medical equipment (DME) supplies. It has floated the idea that Recovery Auditors be prohibited from auditing the same types of claims for the same beneficiaries. It also suggested that a finding of medical necessity for a DME item be used as precedent for subsequent rental and purchase claims that follow. 

Notwithstanding the industry’s helpful suggestions, it is hard to imagine a solution that does not include some sort of broad settlement of outstanding appeals. Any changes to the RA program would only slow the growth in the backlog, not reverse the current unprecedented workload, and thus do nothing to restore the rights of appellants – which is the foundational issue of this dispute. 

It is unclear just how much money is tied up in OMHA appeals. The Fund for Inpatient Rehabilitation estimated that its hospitals had approximately $135 million in dispute, the majority of which is probably attributable to appeals of HLS pre-claim denials. On its earnings call for the second quarter of 2015, HLS estimated the number of claims denied at 5,400, totaling $86 million in billings before accounting for reserves. 

As far as we know, the Fund has not provided an update to those numbers, but it would be very difficult to imagine that they have improved much. A broad settlement, as suggested by AHA, would likely have a positive and material impact on HLS, which has been forced to increase bad debt provision in recent years to account for its claims denials.

For other providers, the impact will be more diffused. In August, HHS reported that under the previous settlement agreement, it has paid out just under $1.5 billion. The impact was spread among over 2,000 hospitals, with the largest settlement of $15 million going to New York Presbyterian.

The impact on other provider types, such as DMEPOS (durable medical equipment, prosthetics, orthotics, and supplies) and home health agencies would be even less concentrated, as these provider types are represented by tens of thousands of companies.

The impact to the RAs is difficult to assess. The enabling legislation states that payments to RAs are to be made out of recoveries. A settlement arrangement like the one used by CMS for inpatient status claims, or a broader one suggested by AHA, would reverse recovered payments. It does not appear that HHS attempted to recoup RA contingency fees for the amounts it disclosed paying out under the 2014 settlement arrangement. The difference there is that arrangement was voluntary, and not part of adjudication. Under a court-directed settlement arrangement, the outcome may be different. 

In any event, the issue of appeals backlog may be finally heading to some resolution.

About the Author 

Emily Evans is the managing director of healthcare policy at Hedgeye in Washington, DC 

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