On June 9, 2016, the Government Accountability Office (GAO) publicly released its report, “Medicare Fee-For-Service: Opportunities Remain to Improve Appeals Process” (Report). The Report addresses persistent issues within the Medicare appeals system that contribute to the growing backlog of pending appeals. The Report also highlights support for the Audit & Appeal Fairness, Integrity and Reforms in Medicare (AFIRM) Act of 2015 that is pending in the Senate. Many of the reforms recommended in both the Report and AFIRM would considerably improve the growing backlog of appeals.

The Report provides additional insight into the dramatic increase in filed appeals between fiscal years (FY) 2010 and 2014. The Report found that for most levels of appeal, the largest annual growth occurred between FY 2012 and 2013 and that growth slowed between 2013 and 2014. The increase in filed appeals varied between the different levels of appeal, however, the administrative law judge (ALJ) level (Level 3) increased most significantly. Between FY 2010 and 2014 the volume of Level 3 filed appeals increased from 41,733 to 432,534, a 936 percent increase. Level 3 experienced the largest percentage growth overall and the largest increase in Part A appeals. While Level 3 filed appeals increased the most significantly, Level 1 had the largest volume of appeals. Between FYs 2010 and 2014 the volume of appeals filed at Level 1 increased from 2,603,557 to 4,209.621, a 62 percent increase.

With regard to which category of service increased the most between 2010 and 2014, Part A appeals increased the most significantly. Between 2010 and 2014 there was a 2,032 percent increase in the number of Part A appeals that were filed. Durable Medical Equipment and Prosthetics and Orthotics (DMEPOS) suppliers filed appeals followed Part A with a 1,010 percent increase and Part B appeals increased by 103 percent.

The increase in filed appeals has resulted in delays in decisions. The Code of Federal Regulations provides statutory timeframes for rendering appeal decisions. Levels 1 and 2 (redetermination and reconsideration) are intended to render a decision within sixty (60) days after the appeal is filed. Levels 3 and 4 (ALJ and Medicare Appeals Council (the Council)) are required to render decisions within ninety (90) days. However, at the ALJ level of appeal (Level 3), in FY 2014 96 percent of the filed appeals decisions were rendered after the 90-day statutory timeframe. Since Medicare providers appealing post-payment claim denials cannot prevent recoupment after the second level of appeal, Medicare providers are forced to either allow Medicare to recoup from their current Medicare billings or enter into an extended repayment plan with Medicare. The effect on Medicare providers is substantial, especially in cases with high overpayment demands. The regulations that permit recoupment after the second level of appeal (i.e. reconsideration) were drafted in consideration of the 90-day timeframe for an ALJ to render a decision. However, since ALJ decisions are not issued within the statutory time period, Medicare providers are forced to forgo payment or refund large monthly payments for well beyond the 90 days set forth in the regulation.

In addition, the Centers for Medicare & Medicaid Service (CMS) is required to reimburse providers and suppliers interest on overpayments that are recouped during the Medicare appeals process. Due to the delay in issuing ALJ hearing decisions, the amount of interest CMS must reimburse to providers and suppliers is considerably more than if the ALJ decisions were rendered within or closer to the statutory timeframe. According to GAO’s report, CMS estimates that from FY 2010 to 2015, CMS reimbursed $17.8 million in interest payments to Part A and B providers that it would not have paid if the ALJ decisions had been rendered within the statutory time requirements. Therefore, it is not only providers that are negatively impacted by the delay in the prompt issuance of ALJ appeal decisions.

GAO’s report identified a number of rationales for the increase in appeals between FY 2010 and 2014. Examples include the 2011 expansion of the Recovery Auditor Program from a demonstration to nationwide program. GAO found that at the ALJ level of appeal, Recovery Auditor appeals for Part A claims increased from 140 appeals (1 percent) in FY 2010 to 216,271 appeals (78 percent) in FY 2014. Another explanation for the dramatic increase in appeals was apparently the increase in providers’ and state Medicaid Agencies appeals of denied claims.

While CMS and the Department of Health and Human Services (HHS) tracks data from all levels of appeal to monitor appeal data, GAO’s report found that the data collected does not identify important trends that could assist in monitoring appeal levels. Specifically, GAO found that the data collections systems vary by level of appeal. Therefore, the same data is not collected across all levels of appeal. However, CMS and the Office of Medicare Hearings and Appeals (OMHA) are reforming data collection processes to improve appeals monitoring. One example of a change is to track data based upon Medicare allowed amount to calculate reversal rates rather than based upon number of appeals or appealed claims. An analysis based upon the allowed amounts will allow HHS and CMS to understand the differences in the dollar value of appeals. GAO’s report suggested that without the dollar value calculation, CMS does not know the amount of money at issue in the Medicare appeals process.

GAO’s report found that despite HHS and CMS actions, the appeals backlog and inefficiencies related to repetitive claims determinations persist. GAO outlined the efforts by OMHA and CMS to reduce the appeals backlog including, prior authorization models, the inpatient hospital coverage policy regarding short-stays, and the changes to Recovery Auditors (RAs) look-back period. GAO also pointed to CMS’ instructions to Medicare Administrative Contractors (MACs) and Qualified Independent Contractors (QICs) to focus their reviews of appeals of postpayment claim denials on only the reasons the claim was initially denied in the original appeal and to not add new reasons on for the denials that could encourage appellants to appeal. GAO reported that as of February 2016, this change resulted in an increase in reversal rates at the Level 2/Reconsideration level of appeal, which will reduce the number of appeals at Levels 3 and 4.

Despite actions by HHS, CMS and OMHA to reduce the appeals backlog, including the recently expanded Settlement Conference Facilitation Pilot Program, GAO’s report found that the efforts have not addressed core inefficiencies that feed into the appeals backlog. One specific area of concern for GAO is the way appeals of repetitive claims for ongoing services are decided. GAO referred to DMEPOS appeals as an example. When DMEPOS monthly oxygen equipment rentals claims are denied, all subsequent claims for the service are also denied. If the claim denial is eventually reversed in favor of the supplier, the appeals of the subsequent claims must still go through the appeals process. This inefficiency feeds into the appeals backlog. GAO’s report discusses suggested reforms to this process, including MACs applying a favorable decision in this scenario to other pending appeals within its jurisdiction. In addition, HHS has suggested requesting legislative authority or promulgating new regulations that would allow it to consolidate these types of appeals into a single administrative appeal.

As a conclusion to its report, GAO recommended HHS to take the following actions:

  1. Direct CMS, OMHA, or the Departmental Appeals Board (DAB) to modify the various Medicare appeals data systems to:Implement a more efficient way to adjudicate certain repetitive claims, such as by permitting appeals bodies to reopen and resolve appeals.

    Implement a more efficient way to adjudicate certain repetitive claims, such as by permitting appeals bodies to reopen and resolve appeals.
    1. Collect information on the reasons for appeal decisions at Level 3;
    2. Capture the amount, or an estimate, of Medicare-allowed charges at stake in appeals in Medicare Appeals System (MAS) and Medicare Operations Division Automated Case Tracking System (MODACTS); and
    3. Collect consistent data across systems, including appeal categories and appeal decisions across MAS and MODACTS;
  2. Implement a more efficient way to adjudicate certain repetitive claims, such as by permitting appeals bodies to reopen and resolve appeals.

GAO’s report and recommendations join a recent series of reports outlining the serious Medicare appeals backlog and the implications on both Medicare and the provider and supplier community. While efforts by CMS and OMHA are directed at reducing the backlog, GAO’s report outlines that more efforts are needed to curb the growing number of pending appeals. Along with GAO’s recommendations, many of the AFIRM Act’s reforms to the Medicare audit and appeals process would likely assist with reducing the backlog of appeals. Providers and supplies should carefully monitor the development of these issues as these reforms could have significant impact on the Medicare audit and appeals process.

About the Authors

Andrew B. Wachler is the principal of Wachler & Associates, P.C.  He graduated Cum Laude from the University of Michigan in 1974 and was the recipient of the William J. Branstom Award. He graduated Cum Laude from Wayne State University Law School in 1978. Mr. Wachler has been practicing healthcare and business law for over 25 years and has been defending Medicare and other third party payor audits since 1980.  Mr. Wachler counsels healthcare providers and organizations nationwide in a variety of legal matters.  He writes and speaks nationally to professional organizations and other entities on a variety of healthcare legal topic

Jessica Forster is an associate at Wachler & Associates, P.C.  She dedicates a considerable portion of her practice to defending healthcare providers and suppliers in the defense of RAC, Medicare, Medicaid and third party payer audits.  Her practice also includes the representation of clients in Stark, anti-kickback, and fraud and abuse matters.

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