The Medicare Appeal Conundrum

Written By Nate Trexler

We have previously discussed in a number of forums the success achieved by providers in appealing Medicare claim audits and denials to the Administrative Law Judge (“ALJ”) level of the statutory appeal process.  Because of the success in overturning claim decisions, more and more providers have exercised their rights to appeal claim determinations or audits resulting in alleged overpayments.  The number of appeal requests submitted to the Office of Medicare Hearings and Appeals (“OMHA”) increased from approximately 1,250 per week in 2012 to 15,000 per week in 2014.  This incredible increase has caused a log jam, where the average processing time for an appeal request is now 464 days and providers are awaiting ALJ hearings in over 1 million appeals.

The OMHA simply cannot keep up.  This backlog resulted in a Center for Medicare Advocacy class action suit filed in August, seeking declaratory, injunctive, and mandamus relief to compel the federal Department of Health and Human Services to meet the 90-day statutory deadline for reviewing appeals of claim denials.  The American Hospital Association filed a similar lawsuit.

At the end of last year, faced with a backlog of pending appeals involving over 460,000 claims for services and entitlement, the OMHA suspended the assignment of new provider appeals to ALJs for at least 24 months.  Many in the healthcare industry point to increasing RAC audit denials as the reason for the strain on the appeal system.  The American Hospital Association reported that there was a 30-fold increase in RAC denials since 2010.  Hospital appeals have seen a corresponding increase from around 17 per hospital in 2010 to more than 300 per hospital in 2013.  According to the American Hospital Association, hospitals won nearly 70% of the claims for which the appeals process was completed.

In an effort to reduce the pending appeals, CMS has offered an “administrative agreement” to acute care hospitals and critical access hospitals that agree to waive their right to an appeal in exchange for a partial payment of 68% of the net payment amount.

CMS also announced two new initiatives it hopes will reduce the backlog: the Settlement Conference Facilitation Pilot and the Statistical Sampling Initiative.

The Settlement Conference Facilitation Pilot adopts an alternative dispute resolution process in order to negotiate settlements, rather than litigate the claims dispute through the administrative appeal process.  There are a number of criteria that must be met to be eligible, including the fact that it is only available to Part B claims and appeals filed in 2013 but not currently assigned to an ALJ.  This may be a viable alternative for physicians with Part B claims currently stalled in the process.

The Statistical Sampling Initiative is available to claim appeals currently assigned to one or more ALJs or filed during a specific time period.  The Initiative is designed to streamline the appeal process for providers with a large number of claims.  A statistician will select a sample and the ALJ will make a decision based on the sample.  After a decision is reached, a CMS contractor will extrapolate the result of the sample to all of the claims at issue.

These programs will not work immediately, and the 24-month delay remains until OMHA can handle the backlog.  This delay can have a noticeable impact on providers with solid defenses that claims were payable under the Medicare program.  While we strongly encourage an appeal through all levels of the statutory process, providers may face waiting years from when CMS recoups alleged overpayments to when an appeal is fully adjudicated and any potential funds are returned to the provider.  There is no doubt that the audit appeal process should be overhauled.  Likewise, the RAC program should be modified to avoid erroneous denials that tie up providers’ funds for long periods of time. 

In the meantime, providers should focus on internal compliance efforts to prepare for that next audit.