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entitled 'Medicare Appeals: Disparity between Requirements and 
Responsible Agencies' Capabilities' which was released on October 29, 
2003.

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Report to the Committee on Energy and Commerce, House of 
Representatives:

United States General Accounting Office:

GAO:

September 2003:

Medicare Appeals:

Disparity between Requirements and Responsible Agencies' Capabilities:

GAO-03-841:

GAO Highlights:

Highlights of GAO-03-841, a report to the Committee on Energy and 
Commerce, House of Representatives 

Why GAO Did This Study:

Appellants and others have been concerned about the length of time it 
takes for a decision on the appeal of a denied Medicare claim. In 
December 2000, the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA), required, among other things, 
shorter decision time frames. BIPAs provisions related to Medicare 
appeals were to be applied to claims denied after October 1, 2002, but 
many of the changes have not yet been implemented. GAO was asked to 
evaluate whether the current Medicare appeals process is operating 
consistent with BIPAs requirements and to identify any barriers to 
meeting the laws requirements. 

What GAO Found:

BIPA demands a level of performance, especially regarding timeliness, 
that the appeals bodiesthe contract insurance carriers responsible 
for the first two levels of appeals, the Social Security 
Administrations (SSA) Office of Hearings and Appeals (OHA), and the 
Department of Health and Human Services (HHS) Medicare Appeals Council 
(MAC)have not demonstrated they can meet. While the carriers have 
generally met their pre-BIPA time requirements, in fiscal year 2001, 
they completed only 43 percent of first level appeals within BIPAs 30-
day time frame. In addition to average processing times more than four 
times longer than that required by BIPA, OHA and the MACthe two 
highest levels of appealhave accumulated sizable backlogs of 
unresolved cases. Delays in administrative processing due to 
inefficiencies and incompatibility of their data systems constitute 70 
percent of the time spent processing appeals at the OHA and MAC 
levels. 

The appeals bodies are housed in two different agenciesHHS and SSA. 
The lack of a single entity to set priorities and address operational 
problemssuch as incompatible data and administrative systemsat all 
four levels of the process has precluded successful management of the 
appeals system as a whole. Uncertainty about funding and a possible 
transfer of OHAs Medicare appeals workload from OHA to HHS has also 
complicated the appeals bodies ability to adequately plan for the 
future. 

What GAO Recommends:

GAO recommends that the Secretary of HHS and the Commissioner of SSA 
more closely coordinate their efforts to improve administrative 
processing, develop strategies for reducing the backlog of pending 
cases, and establish data requirements to facilitate the successful 
implementation of BIPAs mandated changes. HHS and SSA agreed that 
inefficiencies in the appeals process require attention and that the 
process would benefit from better coordination. 

www.gao.gov/cgi-bin/getrpt?GAO-03-841.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Leslie G. Aronovitz 
at (312) 220-7600.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Appeals Process Operations Inconsistent with BIPA's Requirements:

Appeals Bodies' Lack of Coordination and Resources Is a Barrier to BIPA 
Implementation:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: The Scope of Part B Claims Rejections, Denials, and 
Appeals:

Appendix III: Changes Mandated by Section 521 of BIPA:

Appendix IV: Comments from the Department of Health and Human Services:

Appendix V: Comments from the Social Security Administration:

Appendix VI: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: Reason for Denials of Initial Medicare Part B Claims in Fiscal 
Year 2001:

Table 2: Growth in Part B Appeals Cases Submitted by Appeal Level from 
Fiscal Year 1996 through Fiscal Year 2001:

Figures:

Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-Mandated 
Appeals Process:

Figure 2: Average Time Spent in Each Stage of Processing for Cases 
Adjudicated by OHA and the MAC in Fiscal Year 2001:

Abbreviations:

ALJ: administrative law judge 

BIPA: The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000:  

CMS: Centers for Medicare & Medicaid Services: 

CROWD: Contractor Reporting of Operational and Workload Data: 

DAB: Departmental Appeals Board:  

HCFA: Health Care Financing Administration:  

HHS: Department of Health and Human Services:  

LCD: local coverage determination:  

LMRP: local medical review policy:  

MAC: Medicare Appeals Council:  

MOU: memorandum of understanding: 

NCD: national coverage determination:  

OHA: Office of Hearings and Appeals:  

QIC: qualified independent contractor:  

SOW: statement of work:  

SSA: Social Security Administration:

United States General Accounting Office:

Washington, DC 20548:

September 29, 2003:

The Honorable W.J. "Billy" Tauzin 
Chairman 
The Honorable John D. Dingell 
Ranking Minority Member 
Committee on Energy and Commerce 
House of Representatives:

In fiscal year 2002, Medicare--the nation's largest health insurer--
paid over $200 billion to provide medical care to 40 million elderly 
and disabled beneficiaries. The Centers for Medicare & Medicaid 
Services (CMS),[Footnote 1] an agency within the Department of Health 
and Human Services (HHS), administers the Medicare program with the 
help of about 50 claims administration contractors. Among other things, 
CMS is charged with protecting the program by identifying and denying 
health care claims that are invalid, incomplete, or otherwise appear to 
be improper. Beneficiaries and providers[Footnote 2] may pursue the 
payment of denied claims through a multilevel administrative appeals 
process. The entities--or appeals bodies--that constitute the process 
include the Social Security Administration (SSA) and HHS's Departmental 
Appeals Board (DAB), in addition to CMS. In fiscal year 2001, 3.7 
million Part B[Footnote 3] appeals were submitted to the first level in 
the process.

In recent years, there has been widespread concern about the length of 
time it takes the appeals bodies to render decisions. In December 2000, 
the Congress enacted the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000 (BIPA). Section 521 of BIPA 
amended section 1869 of the Social Security Act by mandating shorter 
time frames and expedited procedures for processing Medicare 
appeals.[Footnote 4] It also added the requirement that the Secretary 
of HHS report on the number of appealed claims and consistency of 
appeals decisions. The provisions were to be applied to claims denied 
on or after October 1, 2002.

Concerned about the appeals bodies' ability to implement BIPA's 
provisions, you asked that we conduct an assessment of the Medicare 
appeals process. Specifically, we examined whether (1) the current 
appeals process is operating consistent with BIPA's requirements and 
(2) there are any barriers in meeting the law's requirements.

Because the majority of appeals are related to the denial of Part B 
claims, we limited our work to assessing the appeals process for these 
claims. We reviewed statutes, regulations, policies, and other 
documentation related to the four levels of the administrative appeals 
process, including Part B carriers,[Footnote 5] which conduct the first 
two levels of appeal; the Office of Hearings and Appeals (OHA) within 
SSA, which hears the third level of appeals; and the Medicare Appeals 
Council (MAC) within HHS's DAB, which reviews OHA's decisions. To 
assess the conditions present at the time BIPA was passed, we analyzed 
fiscal year 2001 appeals processing data. We subsequently reviewed more 
current data and confirmed that the conditions were relatively 
unchanged. We interviewed officials from CMS, OHA, and the MAC to 
discuss the management of the appeals process and the implementation of 
BIPA requirements. We conducted our work from November 2001 through 
September 2003, in accordance with generally accepted government 
auditing standards. (See app. I for more information on our scope and 
methodology.):

Results in Brief:

The appeals bodies are not currently performing at the level that would 
enable them to meet BIPA's more rigorous timeliness requirements. Their 
performance is far from meeting BIPA requirements with the two higher 
levels of appeal taking, on average, more than four times the amount of 
time BIPA requires to complete an appeal. In addition, both OHA and the 
MAC face large backlogs of pending appeals because they have been 
unable to routinely resolve all of the appeals that they receive. Long-
standing administrative problems among the appeals bodies, such as 
time-consuming transfers of paper appeals files and delays caused by 
outdated technology, which account for about 70 percent of the time 
spent in processing appeals at OHA and the MAC, have not been 
corrected. BIPA's provision allowing appellants the right to bypass 
appeals bodies that do not resolve their appeals within prescribed time 
frames by elevating them to the next level may only shift processing 
delays to the higher appeals bodies. The combined effect of these 
factors has prevented the appeals bodies from attaining the level of 
performance BIPA demands.

The appeals bodies face several barriers to the successful 
implementation of BIPA. Because appeals bodies are housed in different 
agencies, the coordination among them is inherently difficult. Each 
agency has its own priorities and, although officials from the appeals 
bodies worked together to develop a proposed rule for the 
implementation of BIPA, they have not coordinated their BIPA 
implementation strategy. The lack of adequate data to pinpoint 
weaknesses in the appeals process and enable informed decision-making 
has further hindered BIPA's implementation. And, although some of the 
appeals bodies are planning to obtain or have implemented new data 
management systems, they have not coordinated with their counterparts 
to ensure compatibility of the systems across agencies. Uncertainty 
about funding and a possible transfer of the OHA's Medicare appeals 
workload from OHA to HHS has also complicated the appeals bodies' 
ability to adequately plan for the future.

We are recommending that the Secretary of HHS and the Commissioner of 
SSA more closely coordinate their efforts to improve administrative 
processing, develop strategies for reducing the backlog of pending 
cases, and establish data requirements to facilitate the successful 
implementation of BIPA's mandated changes. HHS and SSA agreed that 
inefficiencies in the appeals process require attention and that the 
process would benefit from better coordination.

Background:

Providers and beneficiaries may appeal any denied claim. Claims are 
denied for a variety of reasons. In fiscal year 2001, the most common 
reason for denying claims was that the services provided were 
determined not to have been medically necessary for the beneficiaries. 
Other reasons for denials include that Medicare did not cover the 
services, or that the beneficiary was not eligible for services. Claims 
that do not meet the requirements outlined in Medicare statutes and 
federal regulations may be denied.[Footnote 6] In addition, denials may 
be issued for claims that are inconsistent with CMS's national coverage 
determinations (NCD) and carrier-based policies, including local 
medical review policies (LMRP), local coverage determinations (LCD), 
and other carrier instructions.[Footnote 7] Relatively few denied 
claims are ever appealed, and only a small fraction is appealed to the 
highest level. (App. II contains more information regarding the denial 
of claims, including common reasons for denials.):

The Medicare Part B appeals process consists of four levels of 
administrative appeals performed by three appeals bodies. Medicare 
carriers are responsible for the first two levels of appeal--the 
carrier review[Footnote 8] and the carrier hearing. Through a 
memorandum of understanding (MOU) implemented in March 1995--when SSA 
was separated from HHS and became an independent agency--OHA's 
administrative law judges (ALJ) within SSA continue to hear the third 
level of appeal. OHA's continued role in Medicare appeals is uncertain, 
as SSA officials have indicated that they plan to discontinue 
adjudicating Medicare appeals and expect to transfer the workload to 
HHS. However, until an agreement between SSA and HHS is reached, OHA 
will continue to adjudicate Medicare appeals. The MAC adjudicates 
appeals at the fourth level of the administrative appeals process. In 
addition, appellants who have had their appeals denied at all four 
levels of the administrative appeals process have the option of filing 
their appeals in federal court.

Section 521 of BIPA requires numerous administrative and structural 
changes to the appeals process, including moving the second level of 
appeals--the carrier hearing--from the Medicare carriers to a group of 
yet-to-be-established contractors, known as qualified independent 
contractors (QIC). Figure 1 outlines the steps of the existing appeals 
process and the process BIPA requires. BIPA's changes to the appeals 
process were to apply with respect to initial determinations--that is, 
claims denials--made on or after October 1, 2002. Although CMS 
published a rule[Footnote 9] on October 7, 2002, the ruling implemented 
only two of BIPA's provisions--revising the deadline for filing an 
appeal to the carrier review level and reducing the dollar threshold 
for filing an appeal at the OHA level. The October 7TH rule outlines 
the criteria used to select the changes that would be immediately 
implemented; among the criteria is that the provision can be 
implemented using existing CMS resources. CMS published a proposed rule 
for complete implementation of BIPA-mandated changes on November 15, 
2002,[Footnote 10] but the final rule has not been issued. As of June 
2003, the appeals process is generally operating in accordance with 
regulations established prior to BIPA's passage. (See app. III for a 
comprehensive list of BIPA's changes.):

Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-Mandated 
Appeals Process:

[See PDF for image]

[End of figure]

Beneficiaries and providers have the right to appeal denied claims if 
appeals are filed within the deadline. CMS's October 2002 ruling 
implemented the BIPA-mandated deadline for filing an appeal at the 
carrier review level, shortening it from 180 to 120 days--one of two 
BIPA provisions implemented thus far. Appeals at the carrier hearing 
level must be submitted within 180 days of the denial or unfavorable 
determination. Appellants who are dissatisfied with decisions reached 
at the carrier hearing level may appeal to OHA and then to the MAC, and 
their appeals must be filed within 60 days of receiving an unfavorable 
determination at the previous level.

There is no dollar minimum required to file an appeal at the carrier 
review level. However, an appeal at the carrier hearing and OHA levels 
must meet specific dollar thresholds of $100 and $500, respectively. To 
meet the thresholds, multiple denied claims may be aggregated into a 
single appeals "case." The MAC does not have a dollar threshold for 
considering appeals. Finally, appellants who receive unfavorable 
determinations from the MAC may appeal the decisions in federal court 
if the amount in dispute is at least $1,000. BIPA provisions change the 
threshold amounts at the second level of appeal and OHA. When QICs 
replace carrier hearings as the second level of appeal, the dollar 
threshold for submitting an appeal at that level will be eliminated. 
Further, CMS's October 2002 ruling implemented BIPA's reduced dollar 
threshold for filing an appeal at OHA--the second of two BIPA 
provisions to be implemented thus far--by dropping the threshold from 
$500 to $100.

BIPA also shortened the time frames the appeals bodies have for 
adjudicating appeals at the first two levels and established time 
frames for the first time at the higher levels. BIPA's provisions that 
revise the timelines for processing appeals have not been implemented, 
and the appeals bodies are following previously issued performance 
standards specifying that 95 percent of carrier reviews be completed 
within 45 days and 90 percent of carrier hearings be completed within 
120 days. BIPA required that carrier reviews be completed in 30 days 
and that the QICs issue their decisions in 30 days. While OHA and the 
MAC have not previously been bound by time limits, BIPA required that 
they issue decisions within 90 days of the date an appeal was 
filed.[Footnote 11] BIPA also gave appellants the right to escalate 
their appeals to the next level in the process for adjudication when a 
decision is not issued within the specified time frame. Escalation is 
available from any level of appeal except the first--carrier review. 
However, CMS's November 2002 proposed rule regarding BIPA's 
implementation provides that appellants who escalate their appeals to 
the next level will, in essence, be waiving their right to a decision 
within the statutory time frame governing that level. For example, an 
appeal that is escalated from the OHA to the MAC would not be subject 
to the 90-day limit that applies to appeals received by the MAC that 
have not been escalated.

The first three levels of appeal share a protocol for adjudication, 
called de novo review, which permits adjudicators to consider results 
from earlier decisions but requires them to independently evaluate 
evidence and issue original decisions. The appeals bodies reexamine the 
initial claim to determine if it should be paid and consider any new 
documentation or information supporting the claim that the appellant 
submitted. The fourth level of review, the MAC, does not share this 
protocol. Rather than performing de novo review of evidence, it 
evaluates the appropriateness of OHA decisions and considers whether 
new evidence submitted will alter the decision. BIPA changes require 
that the MAC performs de novo review in all cases.

The appeals bodies reach decisions through either a review of the file 
for the initial claim or through hearings. At the first level of 
appeal, a carrier review officer who was not involved in the initial 
denial reexamines the initial claim and any new supporting 
documentation provided by the appellant but does not conduct a hearing. 
The second level of appeal--the carrier hearing--provides the appellant 
with an opportunity to participate in a hearing at the carrier's 
facility or by telephone. OHA conducts hearings at the third level of 
review. OHA's hearings are held at its central office in Falls Church, 
Virginia, or at one of its 140 local hearing offices nationwide. The 
MAC's adjudication is based on a review of OHA's decisions, and it does 
not conduct hearings.

Appeals bodies have several options when deciding a case. The case may 
be decided fully or partially in favor of the appellant and payment 
awarded for all or part of the claim or claims in dispute. 
Alternatively, the decision may be unfavorable to the appellant and the 
initial denial of payment upheld. The MAC has an additional option of 
remanding the appeal--returning it to the OHA judge who issued the 
original decision--for a variety of reasons. For example, the MAC may 
determine that more evidence is needed, additional action by OHA is 
warranted, or that OHA should issue a modified decision based on the 
MAC's instructions. Finally, the MAC may deny an appellant's request 
for review if it finds that OHA's decision is factually and legally 
adequate.

In making a determination regarding whether the claim is payable or 
will continue to be denied, the first two levels of appeal are bound by 
the same guidance used in the initial denial determination--Medicare 
statutes, federal regulations, CMS's NCDs, the carrier's own LMRPs and 
LCDs, and, pursuant to carrier's contracts with CMS, CMS's general 
instructions, such as manuals and program memoranda. The statutes, 
regulations, and NCDs also bind OHA and the MAC--and the QICs, when 
they are established. But QICs, OHA, and the MAC only need to consider-
-rather than definitively follow--the carrier-based LMRPs and LCDs in 
rendering their decisions.

Management of the Medicare appeals process is currently divided among 
CMS, SSA, and the MAC. CMS is charged with establishing procedures for 
carriers to follow in considering appeals--including developing 
guidelines for timeliness and quality of communications with the 
appellant--and is also responsible for ensuring that the carrier review 
and carrier hearing processes comply with statutory and regulatory 
requirements. SSA establishes its own requirements and procedures, with 
input from CMS, for OHA's review of third-level appeals. CMS reimburses 
OHA for its appeals work. The MAC independently establishes its own 
procedures and guidelines for completing Medicare appeals.

Appeals Process Operations Inconsistent with BIPA's Requirements:

Carriers generally meet CMS's existing time frames for processing 
appeals, but all appeals bodies--the carriers, OHA, and the MAC--fall 
far short of meeting BIPA's time frames. The large backlog of pending 
cases at OHA and the MAC, combined with BIPA's escalation provision and 
the requirement for de novo review at the MAC, will demand a level of 
performance that the appeals bodies have not demonstrated they can 
meet. Administrative delays, caused by inefficiencies such as 
difficulties in transferring and locating files and outdated 
technology, constitute a large portion of time spent in the appeals 
process--especially at OHA and the MAC. QICs have not yet been 
implemented and there is insufficient information to predict their 
ability to meet BIPA's performance measures.

Appeals Bodies' Current Performance Is Far from Meeting BIPA's 
Timeliness Standards:

There is a substantial gap between carriers' current performance and 
that required by BIPA's standards. For example, at the first level of 
appeals--the carrier review--while carriers completed about 91 percent 
of their reviews within CMS's current 45-day time frame, this is 
insufficient by BIPA's standards. Only about 43 percent of the carrier 
reviews completed in fiscal year 2001 met BIPA's mandated 30-day 
deadline. At the carrier hearing level--eventually to be replaced by 
the appeals to the QICs--the ability to meet BIPA's time frames remains 
largely unanswered because the QICs have not yet been established. 
Although the carriers exceeded CMS's performance standards in fiscal 
year 2001 by completing more than 90 percent of the carrier hearings 
within 120 days, this standard is much less stringent than the one 
imposed by BIPA, which requires the QICs to complete all appeals within 
30 days.

Similarly, OHA and the MAC fall far short of BIPA's required 90-day 
time frame for completing 100 percent of their cases. For example, in 
fiscal year 2001, OHA took an average of 14 months from the date an 
appeal was filed to complete adjudication. The MAC took even longer to 
process appeals during the same year, with cases taking an average of 
21 months to adjudicate. As of September 2003, OHA and the MAC had not 
implemented BIPA-mandated time frames and continued to operate without 
time frames for rendering decisions. Although officials at both appeals 
bodies told us that they are concerned with meeting BIPA time frames, 
neither body has developed strategies for doing so. Instead, the 
officials stated that they would take action once regulations 
implementing BIPA are finalized and they are more certain how the new 
regulations will affect them.

Existing backlogs of unprocessed cases may also interfere with the 
appeals bodies' compliance with BIPA's mandated time frames for appeals 
of claims denied after October 2002. While backlogs at the carrier 
review and carrier hearing levels are relatively small,[Footnote 12] 
OHA and the MAC have been unable to meet workload demands. For example, 
OHA's backlog at the end of fiscal year 2001 included nearly 35,000 
Part B cases--equal to about the average number of cases processed in 7 
months. At the end of that same year, the MAC had a backlog of 15,000 
cases--twice the number of cases it adjudicated in 2001. The MAC has 
been making strides to improve its efficiency and, near the end of 
fiscal year 2003, reported reducing its backlog to 10,100 cases. 
According to OHA and MAC representatives, BIPA-governed cases--appeals 
of claims denied after October 1, 2002--will have higher priority than 
cases filed earlier, virtually ensuring that pre-BIPA cases experience 
even longer delays. However, as of July 2003, none of the appeals 
bodies had determined how they would prioritize the processing of BIPA 
appeals while completing their pre-BIPA workloads.

At OHA, protocols for assigning appeals to ALJs may contribute to 
delays. Although OHA plays a critical role in resolving Medicare 
appeals, its primary focus is disability appeals for SSA, which 
constitute 85 percent of its total caseload. While they are a smaller 
workload, Medicare appeals are often more complex than disability 
appeals. Some local OHA hearing offices take advantage of their ALJs' 
Medicare expertise by assigning all Medicare cases to a single judge. 
However, other offices assign cases randomly, requiring judges to 
refamiliarize themselves with basic Medicare statutes each time they 
hear a Medicare case--potentially prolonging the process.

While all of the appeals bodies are subject to BIPA's processing time 
frames, the MAC is uniquely challenged in meeting these deadlines 
because the requirement for de novo review expands the scope of the 
MAC's work. MAC officials pointed out that shifting from ensuring that 
OHA interprets policy correctly to becoming a fact-finding body 
requires a substantial amount of additional resources and more time to 
gather and evaluate evidence. MAC officials report that they do not 
have a strategy to address the expansion in the scope of their work and 
the contraction in time to render decisions.

Delays in Administrative Processing at OHA and the MAC Further Suggest 
BIPA's Time Frames Will Not Be Met:

The bulk of time at OHA and the MAC is spent on assembling files and 
completing other administrative tasks rather than in performing legal 
analyses of appeals and adjudicating cases. Each agency takes more than 
a year, on average, to complete an appeal. For example, OHA spent 14 
months, on average, to complete a case in fiscal year 2001[Footnote 13] 
and an average of 10 months of that was consumed obtaining case files 
from the lower level appeals bodies and performing related processing 
tasks. In that same year, the MAC adjudicated nearly 7,100 Part B cases 
and spent about 17 months, on average, performing administrative tasks. 
As shown in figure 2, on average, over 70 percent of the time to 
resolve OHA and MAC cases was spent on administrative activities, 
rather than on substantive legal analysis of the appeals.

Figure 2: Average Time Spent in Each Stage of Processing for Cases 
Adjudicated by OHA and the MAC in Fiscal Year 2001:

[See PDF for image]

[End of figure]

Officials from both OHA and the MAC report that it may take months to 
receive appellants' case files from the previous level of review or the 
appropriate storage facility. Case files--which are all paper 
documents--are a critical component of the adjudication process as they 
contain all evidence submitted by the appellant in previous appeals. 
The MAC, in particular, requires OHA's case files to assess the 
evidence, the hearing tapes, and the letter of decision so that it may 
determine whether OHA's decision was appropriate.

OHA and the MAC are dependent on the Medicare carriers to forward the 
appropriate files to their hearing offices for review. CMS allows 
carriers 21 to 45 days to forward case files to OHA, depending on the 
number of appellants and dollar value of the case. However, locating 
files is further complicated by the fact that appellants are required 
to include little information in their appeal requests. Therefore, OHA 
and the MAC may receive appeals that do not identify the carrier that 
originally denied the claim. Locating files can also be hindered if the 
appeal has been in process for several years and the carrier that 
initially denied the claim is no longer a Medicare contractor. Although 
the defunct carrier should have transferred all of its files, including 
its appeals records, to the replacement carrier, such transitions are 
not always smooth. Instead, files are often difficult to locate, 
causing delays in forwarding specific requested cases.

The MAC faces an additional challenge in locating case files. OHA-
completed cases are routed to a special clearinghouse contractor for 
temporary storage. If OHA determines that the appellant is due a full 
or partial payment, the clearinghouse returns the files to the carrier 
that initially denied the claim so that payment may be processed. If 
OHA continues to deny payment, the clearinghouse holds the accompanying 
file for 120 days to expedite the MAC's retrieval should the appellant 
continue to appeal. However, the MAC may not know whether to approach 
the clearinghouse contractor or the relevant carrier to request needed 
files. And, like the carriers, the clearinghouse does not always 
provide files in a timely manner. In fiscal year 2001, the MAC waited 
an average of nearly 3 months--the entire time allowed for the MAC to 
adjudicate appeals under the BIPA amendments--to receive case files. 
The MAC, which is empowered to remand, or return, cases to OHA when 
there is insufficient information in the existing record to issue a 
decision, in fiscal year 2001 remanded 1,708 cases--nearly a quarter of 
the cases it adjudicated that year--to OHA because needed files were 
either missing or incomplete. Although CMS has not performed a 
comprehensive evaluation of the clearinghouse's accuracy in routing 
appeals files, it recently determined that the clearinghouse had a 10 
percent error rate in routing case files to particular carriers for 
payment.

Inadequate technology and the need for manual processing also indicate 
that the appeals bodies are not prepared to address BIPA's 
requirements. For example, providers often aggregate groups of claims 
for different beneficiaries to meet the dollar threshold for filing an 
OHA appeal. To maintain beneficiary confidentiality, a separate 
electronic file--containing the same provider information--is created 
for each beneficiary. While widely available technology allows the 
creation of multiple data files by entering the information one time 
and then quickly duplicating it, OHA's system requires administrative 
staff to separately enter repetitive information pertaining to each 
denied claim that constitutes the appeal. For example, if a provider is 
appealing a similar group of claims in a single appeal, OHA must 
nonetheless create a separate case file and data record for each 
beneficiary.

BIPA provides that appellants may escalate their appeals from the QIC 
or OHA to the next level in the administrative appeals process when it 
is not resolved within the time frames mandated. MAC cases not meeting 
the time frame may be escalated to the federal district court. More 
than 95 percent of OHA appeals and about 85 percent of MAC appeals did 
not meet BIPA time frames in fiscal year 2001, suggesting that a number 
of cases would be eligible for escalation.[Footnote 14] However, 
escalation may not ensure that appellants secure timely adjudication. 
Escalated cases will lack comprehensive records because the prior level 
of appeal did not complete the cases and may not have the full 
collection of case documentation. OHA and MAC officials report that 
cases without complete records from earlier levels of appeal will 
require the next level to perform time-consuming research. The MAC may 
remand cases with incomplete files, causing additional time to be spent 
locating and transferring files between the appeals bodies.

Appeals Bodies' Lack of Coordination and Resources Is a Barrier to BIPA 
Implementation:

While appellants may view the consideration and resolution of their 
appeals as a single process, several separate and uncoordinated bodies 
are responsible for administering the various appeals levels. The 
appeals bodies have traditionally worked independently; however, close 
coordination is critical to successful planning for BIPA changes. 
Further, appeals bodies lack the management data to track cases and 
analyze case characteristics, preventing them from identifying barriers 
to efficiency--a first step in streamlining the process. Planning for 
BIPA implementation has also been hampered by (1) proposed regulations 
that have not been finalized, (2) the uncertainty of funding amounts 
for implementation, and (3) unresolved details regarding the possible 
transfer of OHA's appeals workload to HHS.

Appeals Bodies Need Stronger Coordination to Successfully Implement 
BIPA's Requirements:

CMS, OHA, and the MAC--located within two federal agencies--are each 
responsible for administering a portion of the appeals process. 
However, neither the agencies nor the appeals bodies have the authority 
to manage the entire process. The appeals bodies focus primarily on 
their individual priorities, which may differ and complicate planning 
for making improvements to the process as a whole. Attempts to 
modernize the appeals process have been undermined when individual 
appeals bodies have identified opportunities for improvement, but have 
failed to sufficiently take into account the impact of their plans on 
the other bodies. For example, CMS issued a draft statement of work 
(SOW) outlining the expectations for QICs--the BIPA-mandated 
replacement for the workload of Medicare carriers at the second level 
of review, the carrier hearing. The draft SOW asks potential QIC 
applicants whether they have the capacity to convert paper case files 
into an electronic format, with the expectation that this would ease 
the transfer of needed files to the higher levels of appeals. However, 
CMS officials told us that they did not consult with OHA to ensure that 
it would have the capacity to use and store electronic files. OHA 
officials agree that electronic files offer an important opportunity to 
reduce lost files, speed transfers, and permit case tracking. However, 
OHA has focused its own plans to implement a system of electronic 
folders--scheduled for January 2004--exclusively on its SSA disability 
cases.

Recent planning for BIPA implementation intensified the need for 
appeals bodies to work together because the demanding time requirements 
alone call for a more efficient appeals process. While officials from 
CMS, OHA, and the MAC worked together to develop the proposed rule for 
implementing the majority of BIPA's requirements, the agencies have not 
taken the opportunity to coordinate strategies to meet the time frames 
mandated by the act.

Lack of Management Data Inhibits Appeals Bodies' Ability to Understand 
Barriers to Efficiency:

We found that the appeals bodies are not sufficiently coordinated to 
track an appealed claim, or group of claims, through all four levels of 
the process. This is attributable, in part, to the use of different 
numbering systems for case identification at each appeals body and the 
fact that the individual claims making up a "case" can change at every 
level. For example, appeals bodies often reconfigure cases to group 
claims with similar issues. Appellants also change the configuration of 
their cases by aggregating their claims to meet minimum dollar 
thresholds necessary to file an appeal at a given level. Case numbering 
is further complicated when a partially favorable decision is made. In 
these situations, some of the claims within the appeal are paid, while 
the remaining denied claims are eligible for further appeal by 
beneficiaries and providers and subject to further reconfiguration with 
new case numbers. Accordingly, assigning a variety of numbers to any 
particular claim or group of claims at each level of the process makes 
it virtually impossible to track an individual claim from one level to 
the next.

Some problems with data quality are also a product of a lack of 
coordination between appeals bodies. CMS, OHA, and the MAC are making 
individual efforts to improve their data systems to better manage their 
caseloads, but their systems remain incompatible. For example, although 
CMS is gradually shifting its carriers to one common claims processing 
data system--also used to track appeals at the carrier level--it is not 
compatible with OHA's or the MAC's data systems. OHA has also initiated 
data system improvements, but did not consult with CMS in setting the 
parameters for new system requirements or provide CMS's appeals group 
with a copy of its planning document. The MAC does not know if the 
improvements it is instituting--such as its transition to more powerful 
data management software used to organize its caseload--will be 
compatible with OHA's, CMS's, or the carriers' systems. Compatible data 
systems would facilitate the transfer of case information between 
appeals levels and analyses of the process as a whole.

Not only do appeals bodies have incompatible data systems, but data 
gathered individually by CMS from carriers and by OHA from local 
hearing offices are aggregated and not used to pinpoint problems and 
develop solutions to improve the appeals process. For example, CMS only 
collects workload data from its carriers in the form of monthly 
productivity totals. OHA collects aggregate data from each of its 140 
hearing offices, despite the fact that the local offices are tracking 
individual cases. The aggregate numbers allow OHA and CMS to develop 
basic workload statistics, such as the number of cases they resolve and 
the average time frames for adjudication. However, the data do not 
allow CMS and OHA to perform more detailed analyses, such as isolating 
process steps that create a bottleneck or identifying specific cases 
that linger at an appeals level for unusually lengthy periods.

The lack of specific data on case characteristics also limits the 
appeals bodies' understanding of the nature and types of appeals that 
they must resolve. For example, only the MAC collects data on the 
reason for the appeal, the type of denial being appealed, and the 
amount in controversy; however, the MAC is not consistent in ensuring 
that the information is routinely entered in the database. Furthermore, 
carriers do not collect data that allow CMS to distinguish if the 
appellant is a beneficiary or a provider, and none of the appeals 
bodies collects information on the rates of appeal among provider 
specialty groups. Analyses of case characteristic data could be 
valuable in identifying confusing or complex policies or requirements 
that lead to denied claims and the submission of appeals. The data 
would also be useful to the agencies in understanding the nature of 
denied claims that are appealed at each level and guiding more 
appropriate initial reviews of claims and educating providers about 
proper claim submission.

BIPA mandated the use of QICs to replace the second appeals level and 
required them to develop management information through a data system 
that would identify (1) the types of claims that give rise to appeals, 
(2) issues that could benefit from provider education, and (3) 
situations that suggest the need for changes in national or local 
coverage policy. QICs must report their information to the Secretary of 
HHS and, among other things, must monitor appeals decisions to ensure 
consistency between similar appeals. However, the requirements do not 
affect data collection at the other appeals bodies. As a result, 
without corresponding changes at the other appeals bodies, it will 
remain difficult to evaluate the performance of the appeals process as 
a whole and make informed decisions affecting more than one appeals 
level. CMS stated that it plans to expand the QICs' data system to the 
third level of appeal--the ALJ-adjudicated level--and, eventually, to 
all levels of appeal. Until the compatible data systems are in place at 
all appeals bodies--which CMS plans for 2005--the appeals bodies will 
not be able to perform the most fundamental types of analyses to 
improve the management of the process.

Uncertainties in Regulations, Funding, and the Role of OHA Hinder BIPA 
Implementation Planning:

While BIPA mandated several changes to the current appeals process, 
CMS, OHA and the MAC are charged with developing regulations for 
implementing BIPA's mandates in accordance with the Administrative 
Procedures Act.[Footnote 15] As of September 2003, guidance regarding 
two provisions--adjusted deadlines for appellants filing first-level 
appeals and reduced dollar thresholds required for filing appeals at 
OHA--have been issued. CMS officials stated that they expect that the 
proposed regulations[Footnote 16] implementing the remaining 
provisions of BIPA section 521 will be finalized by early 2004. The 
regulations, once finalized, will provide directions specifying how 
each body will operate. Without final regulations, officials from 
carriers, OHA, and the MAC said that they have had difficulty 
estimating what the actual effect on their workloads will be and, 
accordingly, have not made specific plans to comply with BIPA's 
mandates.

Even after the regulations are finalized, several important issues will 
not have been resolved. For example, when it published its ruling on 
October 7, 2002, CMS acknowledged that transition issues from the 
current appeals process to the new process would require additional 
policy guidance prior to implementation. Specifically, questions will 
remain regarding the necessity of operating two separate appeals 
processes concurrently, dependent on the date of the initial claim 
determination. Appeals of claims denied before the effective date of 
the BIPA amendments are not governed by them, barring specific guidance 
to the contrary, and are subject to pre-BIPA guidelines and processes.

No additional funding was provided to the appeals bodies in fiscal year 
2003 to implement BIPA's changes. Moreover, uncertainties exist about 
the funds available in fiscal year 2004. The first uncertainty concerns 
funding for HHS. The President's proposed budget for fiscal year 2004 
includes $126 million in funding for CMS to complete BIPA's changes--
including establishing the QICs, developing the QIC data systems, and 
implementing the shortened time frames at the first and second appeals 
levels--as well as assuming the workload currently performed by OHA. 
However, this funding level was premised on the assumption that BIPA 
would be amended to reduce the number of QICs, increase the time frames 
for completing appeals at all levels, and require that providers pay a 
$50 user fee for filing appeals at QICs. However, as of September 2003, 
BIPA had not been amended. Moreover, the proposed budget contained no 
additional funding for the MAC to implement BIPA. The second budgetary 
uncertainty concerns funding for the third level of the appeals 
process, currently performed by OHA. While SSA's fiscal year 2003 
budget included a $90 million "direct draw" from the Medicare Trust 
Fund for Medicare appeals, the proposed 2004 budget eliminates the 
direct draw and does not include a new source for Medicare appeals 
funding, reflecting SSA's plan to transfer OHA's Medicare appeals 
workload to HHS.

Although BIPA required CMS to establish QICs in time for them to begin 
adjudicating appeals of claims denied as of October 1, 2002, CMS 
estimated, in its fiscal year 2004 budget request, that QICs would 
become operational, at the earliest, February 2005. Agency officials 
detailed that the implementation of QICs would require approximately 10 
months of drafting and finalizing the related regulations and 
conducting the bidding process, and 6 months for hiring staff, renting 
space, and performing other tasks associated with making QICs 
operational, including developing the QICs' data systems. In commenting 
on a draft of this report, HHS stated that CMS now plans for QICs to 
begin operation in fiscal year 2004. However, we were not provided with 
CMS's implementation plan or sufficient details to evaluate its 
feasibility.

Finally, one of the critical issues related to BIPA's implementation 
involves the possible transfer of the Medicare caseload currently 
adjudicated by SSA's OHA to HHS. Several issues remain unresolved. In 
1995, when SSA separated from HHS and became an independent agency, SSA 
entered into an MOU with the Health Care Financing Administration to 
continue to perform the Medicare appeals work it had been conducting. 
Recently, SSA has taken the position, which is reflected in its budget 
request for fiscal year 2004, that it intends for OHA to discontinue 
adjudicating Medicare appeals and has proposed a revised MOU outlining 
the transfer of OHA work to HHS. However, as of September 2003, HHS had 
not signed the revised MOU and the transfer of the workload to HHS had 
not been finalized. In addition, legislation has been introduced that 
would expressly provide for the transfer of Medicare appeals to 
HHS.[Footnote 17] However, provider and beneficiary groups have 
protested because they believe shifting responsibility to HHS will 
compromise the ALJs' independence.

OHA's departure from the appeals process would create a new challenge 
for HHS. OHA's process for adjudicating administrative appeals includes 
140 local hearing offices and over 1,000 ALJs. Because SSA disability 
appeals constitute about 85 percent of OHA's work, OHA would continue 
to require the use of its hearing offices and judges regardless of 
whether it continues to hear Medicare appeals. BIPA language specifies 
that the third level of appeal be adjudicated by ALJs, but because HHS 
has far less capacity than OHA to hear ALJ cases,[Footnote 18] HHS 
would have to compensate for OHA's departure by developing plans that 
would enable it to adjudicate the current workload demands within 
BIPA's time frames and to address the backlog of cases accumulated 
before the transfer to HHS. As of June 2003, CMS was evaluating OHA's 
Medicare operations, workload, and facilities and developing and 
assessing the feasibility of various options. A CMS official stated 
that assuming OHA's workload would be a notable challenge for the 
agency.

Conclusions:

BIPA demands a level of performance--especially regarding timeliness--
that the appeals bodies have not demonstrated they can meet. In 
addition to lengthy processing times, OHA and the MAC have developed 
sizable backlogs of unprocessed cases. The backlogs raise a question 
about how BIPA-governed cases, with their mandated time frames, will be 
prioritized relative to unresolved cases filed before BIPA's mandated 
implementation date. Administrative and systemic inefficiencies, which 
span all levels of appeals, strongly indicate the need for improvement. 
Without significant improvements, the appeals bodies will be unable to 
meet BIPA's more rigorous performance requirements. Uncertainties 
regarding BIPA regulations and funding further complicate the challenge 
the appeals bodies face in implementing BIPA and meeting its 
requirements. Moreover, the transfer of OHA's Medicare appeals work 
from SSA to HHS involves major challenges, and until all of the 
stakeholders resolve workload and timeliness issues, the full impact of 
such a transfer will not be known.

CMS, its carriers, OHA, and the MAC have traditionally not coordinated 
their management of the appeals process. Instead, each has operated as 
though the process consisted of discrete and independent segments. 
Greater coordination could enable them to resolve the barriers that 
currently preclude successful management of the appeals process as a 
whole. Inefficiencies in file transfer and case file tracking, 
developing comprehensive and meaningful data, and planning for BIPA 
implementation require a joint effort including each appeals body and 
its agency. The lack of a single entity that sets priorities and 
addresses operational problems at all four levels of the process makes 
it imperative that all bodies work closely together. If OHA's Medicare 
appeals workload is to be transferred to HHS, it is critical that all 
of the current appeals bodies work together to develop a carefully 
planned transition and build efficiencies to help HHS assume the 
workload. We believe that the creation of a Medicare appeals process 
that can consistently address BIPA's requirements will require a 
commitment for close coordination from all appeals bodies.

Recommendation for Executive Action:

We recommend that the Secretary of HHS and the Commissioner of SSA 
create an interagency steering committee with representatives from CMS, 
the carriers, OHA, and the MAC to serve as an advisory body to the 
Secretary of HHS and the Commissioner of SSA with the following 
responsibilities:

* make administrative processes, such as file tracking and transfer, 
compatible across all appeals bodies;

* negotiate responsibilities and strategies for reducing the backlog of 
pending cases, especially at OHA and the MAC, and establish the 
priority for adjudicating pre-BIPA cases relative to BIPA-governed 
cases; and:

* establish requirements for reporting specific and comparable program 
and performance data to CMS, SSA, and HHS so that management can 
identify opportunities for improvement, and determine the resource 
requirements necessary to ensure that all appeals bodies will be able 
to meet BIPA's requirements.

Agency Comments and Our Evaluation:

We provided a draft of this report to HHS and SSA and received written 
comments from both agencies. In its comments, HHS emphasized its 
commitment to implementing the appeals provisions in BIPA and 
highlighted the steps it has taken to do so. Similarly, SSA emphasized 
its efforts to provide quality service to Medicare appellants. We have 
reprinted HHS's and SSA's letters in appendixes IV and V, respectively.

HHS agreed with our conclusion that a more coordinated approach to the 
appeals process is needed. HHS said, however, that we understated its 
progress in this area and described a variety of efforts it has engaged 
in to facilitate improved coordination between the appeals bodies. As 
we noted in the draft report, HHS has made strides in enhancing 
coordination, but we believe that greater progress can be made by 
creating an interagency steering committee to develop a consolidated 
and strategic approach to implementing BIPA.

SSA's comments also emphasized the benefits of enhanced coordination 
between the appeals bodies. It largely attributed the inefficiencies 
that exist in the current appeals process to the lack of a single 
entity with ownership of, and accountability for, Medicare appeals. SSA 
indicated that it believes that HHS is the sole entity with the 
authority to unify the policies and procedures for the Medicare appeals 
process.

HHS stated that it would consider the appropriateness of an interagency 
steering committee but did not specifically agree or disagree with our 
recommendation to create such a body. However, it stated that the 
transfer of the work performed by SSA's OHA to HHS is critical to 
achieving the level of coordination needed to address the 
inefficiencies outlined in our report. SSA indicated that it generally 
agreed with the specific responsibilities of the steering committee. It 
also stated that it believes that HHS has ultimate responsibility for 
Medicare appeals and that HHS should carry out the functions of the 
steering committee through CMS. SSA stated that its budget anticipates 
the transfer of OHA's appeals workload to HHS, and SSA has submitted a 
new MOU to HHS to facilitate a smooth transition. While SSA emphasized 
its commitment to serving Medicare appellants during the expected 
transition, it also pointed out that Medicare appeals make up a small 
portion of its work. Therefore, SSA cautioned that while it will 
participate in efforts to improve the Medicare appeals process, it must 
consider the demands of its total workload in allocating its resources.

While HHS did not specifically comment on our recommendation to make 
administrative processes, such as file tracking and transfer, 
compatible across all levels of appeal, SSA agreed that an interagency 
steering committee could be beneficial in ensuring such compatibility 
among appeals bodies. SSA also noted that the steering committee would 
be helpful in defining the roles of the appeals bodies both in their 
current operating status and during the anticipated transfer of the OHA 
workload to HHS.

Regarding our recommendation to negotiate responsibilities for reducing 
the backlog of pending cases, HHS agreed that a strategy for setting 
clear requirements to prioritize pre-BIPA and BIPA cases and reduce the 
backlog of cases at all levels is needed. HHS also reported that the 
MAC has already reduced its backlog and we revised the report to 
reflect the reduction. HHS also said that prioritizing cases and other 
transition matters would be addressed in the forthcoming final 
regulations. SSA agreed that strategies for reducing both the backlog 
of pending cases and the lengthy processing times for Medicare appeals 
are needed and expressed a willingness to help resolve the backlogs and 
delays.

HHS agreed with our recommendation to establish comparable program and 
performance data across appeals levels and indicated that improved 
appeals data capabilities are needed. To that end, HHS noted that it 
has issued a request for proposals to develop the data system required 
by BIPA. SSA acknowledged that fragmentation of the appeals process has 
precluded the development of comparable data. However, SSA pointed out 
that preparations to transfer OHA's work to HHS have created a need for 
greater data sharing. SSA also pledged to work to capture comparable 
data to facilitate the transfer of the OHA's work.

In addition, in response to HHS's specific comments, we have:

* revised the use of the word "rule" to "ruling;":

* clarified that the scope of our work excluded managed care, Medicare 
entitlement, and overpayment cases, as well as Part B claims processed 
by durable medical equipment contractors and fiscal intermediaries;

* defined the term "provider," as used in this report, to include any 
nonbeneficiary appellant, including physicians and other suppliers;

* distinguished between claims that are rejected because they are 
duplicate or missing information and those that are denied for 
substantive reasons, in appendix II;

* revised the legend of figure 1;

* modified our description of BIPA's escalation provision to recognize 
that CMS has developed specific requirements for escalation in its 
notice of proposed rulemaking;

* revised our explanation of the MAC's procedures regarding the 
parameters for accepting evidence in its current decision-making 
process and the MAC's criteria for denying an appellant's request for 
review; and:

* added that CMS policy is a binding element in carrier review.

However, we did not revise the draft report in response to HHS's 
specific comment regarding our use of the word "review." While BIPA 
refers to the first level of appeal as "redetermination," we have used 
the term "carrier review" because the adjudication process at the 
review level is unchanged by BIPA. Nor did we make revisions in 
response to HHS's specific comment that both OHA and the MAC use their 
own systems for processing appeals and conduct their own hiring. As we 
noted in the draft report OHA and the MAC independently establish their 
own procedures and guidelines. Finally, we did not revise the draft in 
response to HHS's specific comment that we imply that the MAC has done 
no planning related to BIPA requirements. As we noted in the draft 
report, the MAC has made some improvements, but as MAC officials told 
us, and as HHS indicated in its comments, a detailed action plan to 
meet BIPA requirements has not been developed. In its comments, HHS 
noted that a detailed plan is premature because the MAC will not 
receive BIPA cases for some time--until after they have passed through 
the other levels of appeal--however, BIPA requirements apply to claims 
denied on or after October 1, 2002, and such cases have already been 
submitted.

HHS also provided us with technical comments, which we incorporated as 
appropriate.

As agreed with your offices, unless you announce its contents earlier, 
we plan no further distribution of this report until 30 days after its 
issuance date. At that time, we will send copies to the Secretary of 
HHS, the Commissioner of SSA, interested congressional committees, and 
other interested parties. We will then make copies available to others 
upon request. In addition, the report will be available at no charge on 
GAO's Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please call 
me at (312) 220-7600. An additional GAO contact and other staff who 
made contributions to this report are listed in appendix VI.

Leslie G. Aronovitz 
Director, Health Care--Program Administration and Integrity Issues:

[End of section]

Appendix I: Scope and Methodology:

Our analyses were limited to the appeals process for denied Part B 
claims--rather than managed care, Medicare entitlement, and overpayment 
cases--because Part B cases constitute the majority of appeals. We also 
excluded Part B claims processed by durable medical equipment 
contractors and fiscal intermediaries to focus on the work performed by 
carriers. We reviewed the four levels of the administrative appeals 
process; our scope did not extend to the federal district court level.

To gain a better understanding of the process for Part B appeals at the 
time the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) was passed and the changes it mandated, 
we reviewed agency procedures for completing Part B appeals regulations 
and agreements guiding Medicare appeals and other laws. We also 
analyzed appeals workload data and interviewed officials at the Centers 
for Medicare & Medicaid Services (CMS) and at all levels of the 
administrative appeals process--the carriers, the Office of Hearing and 
Appeals (OHA), and the Medicare Appeals Council (MAC).

We reviewed regulations and procedures pertaining to the initial 
denials of claims and the submission of appeals by providers and 
beneficiaries. We also examined the processes for data management and 
guidelines and regulations for adjudicating cases at all levels. We 
reviewed the memorandum of understanding between the Health Care 
Financing Administration and the Social Security Administration, which 
outlines the responsibilities of both agencies in the adjudication of 
Medicare appeals. In addition, we reviewed the October 2002 ruling 
implementing selected BIPA amendments and the proposed rule for the 
implementation of the balance of the BIPA amendments to the appeals 
process.

We also analyzed appeals data from CMS, four selected carriers, OHA, 
and the MAC to understand the scope and efficiency of the Medicare 
appeals process and the characteristics of appeals. All data examined 
were for cases adjudicated from fiscal years 1996 through 2001, with a 
primary focus on fiscal year 2001, which represents the conditions that 
existed at the time BIPA was passed. In reviewing later data and in 
conversations with the appeals bodies, we confirmed that the conditions 
reflected in the data are relatively unchanged. Limitations in 
collected and reported data at each level precluded comprehensive and 
consistent analyses in some cases. CMS and the MAC alerted us to some 
limitations in their data, including inconsistency in data entry, 
changes in data systems that caused the loss of data, and poorly 
defined variables. At some levels, only aggregated data were available, 
which did not permit detailed analysis.

We studied carrier performance by selecting four carriers located in 
different regions of the country and obtaining processing data on 
appeals submitted to those carriers at the first two levels of appeals. 
We also reviewed the results of CMS's contractor performance 
evaluations of carriers' appeals activities in fiscal years 1999, 2000, 
and 2001.

We visited three OHA local hearing offices located in proximity to 
three of the four selected carriers' appeals operation centers to learn 
more about their role in the appeals process and to assess the impact 
of carrier performance on their operations. We also examined the 
processes and procedures used at the OHA local hearing offices. To 
understand the efficiency of the appeals process, we examined the 
average total time to process appeals at each level, and the average 
time spent in each step of the adjudication process at OHA and the MAC. 
We also examined MAC data to determine the number of cases remanded to 
OHA because of lost files in fiscal year 2001.

Appeals bodies performed analyses of their appeals data at our request. 
CMS performed analyses of the Contractor Reporting of Operational and 
Workload Data (CROWD), including the reason for initial claims denials, 
the time each carrier took to process carrier reviews and carrier 
hearings, and the number of cases at the first three levels of appeal. 
CMS analyses of CROWD, OHA analyses of its data, and our analyses of 
the MAC's data also provided information on the average time spent in 
adjudicating appeals and the number of pending cases. OHA's central 
facility analyzed its Part B data based on our request, and we analyzed 
data provided by the MAC to determine the time elapsed between 
processing milestones at OHA and the MAC. In the analysis of the time 
spent in the various phases of case processing at the MAC, cases with 
missing date information or cases with negative dates were omitted. All 
results of, and methodologies for, our analyses of MAC data were 
examined and confirmed by the MAC.

To gain a better understanding of the concerns of appellants regarding 
the current appeals process and the potential effects of BIPA, we 
interviewed representatives from three Medicare beneficiary advocacy 
organizations that assist beneficiaries with Medicare appeals--the 
Center for Medicare Advocacy, the Center for Medicare Rights, and the 
Medicare Advocacy Project of Massachusetts. We conducted a focus group 
with representatives from billing companies through an association for 
billers and coders--the Health Care Billing and Management Association. 
In addition, we interviewed representatives from nine medical 
professional associations:

* American Academy of Ophthalmology:

* American College of Physicians-American Society of Internal Medicine:

* American Hospital Association:

* American Orthopedic Association:

* American Medical Association:

* American Podiatric Medical Association:

* American Urological Association:

* California Medical Association:

* Medical Group Management Association:

[End of section]

Appendix II: The Scope of Part B Claims Rejections, Denials, and 
Appeals:

In fiscal year 2001, carriers processed about 773 million Medicare Part 
B claims and rejected or denied, in full or in part, about 161 million-
-or 21 percent--of the claims processed. Many claims are rejected 
because they are missing information or are duplicates of claims 
previously processed and paid or denied.[Footnote 19] In fiscal year 
2001, carriers rejected over 19.5 million claims that were missing 
information and more than 40 million claims that they considered 
duplicate. Duplicate claims may be submitted for several reasons. For 
example, inconsistent regulations may confuse providers causing them to 
resubmit denied Part B claims--even though Medicare rules do not allow 
this--because Medicare allows denied Part A claims to be resubmitted 
for payment. Also, turnover in administrative and billing personnel at 
providers' offices may result in confusion about whether a claim was 
previously submitted, and under what circumstances a claim can be 
resubmitted for payment. According to officials from the Centers for 
Medicare & Medicaid Services' (CMS), carrier error also contributes to 
the rate of duplicate submissions because some carriers have system 
limitations that do not always recognize appropriate claims. For 
example, if a claim is submitted that appropriately includes the 
performance of the same service to two separate limbs, the two distinct 
services may be construed as duplicate claims by some carrier systems.

Claims are denied if they do not meet the requirements in Medicare 
statutes, federal regulations, or CMS's national coverage 
determinations. Carriers may also deny claims based on their own local 
medical review policies and local coverage determinations, which may 
enhance or clarify national Medicare policy.

CMS compiles data submitted by carriers categorizing the reason for 
denying claims. Table 1 shows the reasons for denials of Part B claims 
in fiscal year 2001, excluding rejections. Although CMS has established 
the categories for data submission shown in table 1, it has not 
provided strict definitions of these categories for carriers to follow. 
Instead, each carrier has developed its own unique set of definitions 
for each category. As a result, these data do not provide a precise or 
reliable explanation of the reasons for denial. For example, the 
category "other," which comprised more than 17 percent of reported Part 
B denials in fiscal year 2001, may include denials at one carrier that 
another carrier would have included in another category.

Table 1: Reason for Denials of Initial Medicare Part B Claims in Fiscal 
Year 2001:

Reason for denial: Medically unnecessary[A]; Number of denials: 
32,480,000; Percentage of total: 29.4.

Reason for denial: Services not covered; Number of denials: 26,536,000; 
Percentage of total: 24.1.

Reason for denial: Other; Number of denials: 19,795,000; Percentage of 
total: 17.9.

Reason for denial: Claim part of a global fee for a procedure[B]; 
Number of denials: 14,351,000; Percentage of total: 13.0.

Reason for denial: Medicare is secondary payer for claim[C]; Number of 
denials: 7,697,000; Percentage of total: 7.0.

Reason for denial: Claimant ineligible; Number of denials: 7,324,000; 
Percentage of total: 6.6.

Reason for denial: Filing limitation exceeded[D]; Number of denials: 
2,150,000; Percentage of total: 1.9.

Reason for denial: Total denials; Number of denials: 110,333,000; 
Percentage of total: 100[E].

Source: CMS.

[A] Medicare law requires that for services to be covered, they must be 
"reasonable and necessary for the diagnosis or treatment of illness or 
injury or to improve the functioning of a malformed body member." 42 
U.S.C.  1395y (a) (A) (1) (2000).

[B] Global fee is a total charge for a bundled set of services, such as 
a single surgery that encompasses presurgical and postsurgical care or 
a diagnostic service that represents physician and equipment charges. 
Individual services included in the global fee cannot be paid 
separately.

[C] Medicare is the secondary payer when a beneficiary has an insurance 
policy or health plan, other than Medicare, that has primary 
responsibility for covering the cost of the beneficiary's care. 42 
U.S.C.  1395ff (2000).

[D] To be eligible for payment, claims must be filed no later than the 
end of the calendar year following the year the service was provided.

[E] Percentage does not total to 100 due to rounding.

[End of table]

Relatively few cases are appealed when compared to the number of 
denials, and only a small fraction is appealed to the highest level. 
CMS, the Office of Hearings and Appeals (OHA), and the Medicare Appeals 
Council (MAC) do not track the number of denied claims that are 
appealed, although CMS collects the number of claims that are 
adjudicated in the appeals process for the carrier review, carrier 
hearing, and OHA levels. In fiscal year 2001, about 7.1 million claims-
-less than 7 percent of denied Part B claims--were adjudicated at the 
carrier review level.[Footnote 20] In that year about 554,000 Part B 
appeals were adjudicated at the carrier hearing level and over 201,000 
at OHA. The MAC received about 8,800 Part B appeals cases in fiscal 
year 2001; however, the MAC does not track the number of claims 
comprising cases.

Appeals requests at the higher levels have grown rapidly in recent 
years, as shown in table 2. For example, requests for Medicare appeals 
at OHA--the third level of appeals--increased a total of 200 percent 
from fiscal year 1996 to fiscal year 2001, and the MAC's workload grew 
by nearly 500 percent from fiscal year 1997 to fiscal year 2001.

Table 2: Growth in Part B Appeals Cases Submitted by Appeal Level from 
Fiscal Year 1996 through Fiscal Year 2001:

Fiscal year: 1996; Carrier review: 4,100,000; Carrier hearing: 69,000; 
OHA hearing: 21,000; MAC adjudication: a.

Fiscal year: 1997; Carrier review: 3,900,000; Carrier hearing: 87,000; 
OHA hearing: 35,000; MAC adjudication: 1,500.

Fiscal year: 1998; Carrier review: 3,500,000; Carrier hearing: 95,000; 
OHA hearing: 35,000; MAC adjudication: 2,700.

Fiscal year: 1999; Carrier review: 3,500,000; Carrier hearing: 93,000; 
OHA hearing: 61,000; MAC adjudication: 6,300.

Fiscal year: 2000; Carrier review: 3,300,000; Carrier hearing: 101,000; 
OHA hearing: 62,000; MAC adjudication: 7,600.

Fiscal year: 2001; Carrier review: 3,700,000; Carrier hearing: 102,000; 
OHA hearing: 63,000; MAC adjudication: 8,800.

Fiscal year: Total growth over the period (percent); Carrier review: -
400,000 (-10); Carrier hearing: 32,000 (47); OHA hearing: 42,000 (200); 
MAC adjudication: 7,300 (487).

Sources: CMS, OHA, and the MAC.

Note: Appeals cases may contain several claims.

[A] MAC data for fiscal year 1996 were not available.

[End of table]

[End of section]

Appendix III: Changes Mandated by Section 521 of BIPA:

Section 521 of the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA) mandates administrative, structural, 
and management changes in the appeals process. It includes the 
following:

* Revises the filing deadline for appellants at the first level of 
appeal: reduced from 180 days to 120 days:

* Reduces the minimum thresholds for filing appeals:

* To second level, from $100 to no minimum:

* To third level, from $500 to $100:

* Changes adjudication time frames at all levels of appeal:

* At first level, from completing 95 percent in 45 days to completing 
100 percent in 30 days:

* At second level, from completing 90 percent in 120 days to completing 
100 percent in 30 days:

* At third level, time frames of 90 days where none previously existed:

* At fourth level, time frames of 90 days where none previously 
existed:

* Allows appellants to escalate the appeal to the next level, including 
federal district court, when adjudication time frames have not been met 
at the second, third, or fourth levels of appeal:

* Replaces the second level of appeal, currently known as a carrier 
hearing, with a redetermination by qualified independent contractors 
(QIC):

* The Department of Health and Human Services (HHS) must establish 3-
year contracts with at least 12 QICs:

* QICs, like the Office of Hearings and Appeals (OHA) and the Medicare 
Appeals Council (MAC), are not bound by, but shall consider, local 
coverage determinations:

* Establishes that the MAC adjudicate cases de novo[Footnote 21] 
instead of evaluating OHA's decisions, as had been done:

* Requires that QICs have a comprehensive data system to collect and 
share information:

* QICs must maintain accurate records of each decision that enable it 
to identify specific types of claims that give rise to appeals, 
situations suggesting the need for provider education, situations 
suggesting changes in national or local coverage policy, and situations 
suggesting changes in local medical review policy:

* QICs must monitor their decisions to ensure consistency in outcomes 
between similar appeals:

* QICs must make all decisions available to carriers:

* QICs must report annually to the Secretary of HHS:

* Requires that, at least every 5 years, the Secretary of HHS survey a 
sample of appellants regarding their satisfaction with education on the 
appeals process and with the process itself; and that the Secretary 
must report the results and any recommendations to the Congress:

* Requires that the Secretary of HHS annually report the following to 
the Congress:

* The number of appeals:

* Issues that require administrative or legislative action and 
recommendations with respect to actions:

* Analysis of consistency of decisions at QICs, including any reasons 
for inconsistency:

[End of section]

Appendix IV: Comments from the Department of Health and Human Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES	
Office of Inspector General:

SEP 2 2003:

Ms. Leslie G. Aronovitz 
Director, Health Care - Program Administration and Integrity Issues 
United States General Accounting Office Washington, D.C. 20548:

Dear Ms. Aronovitz:

Enclosed are the Department's comments on your draft report entitled, 
"Medicare Appeals: Disparity Between Requirements and Responsible 
Agencies' Capabilities." The comments represent the tentative position 
of the Department and are subject to reevaluation when the final 
version of this report is received.

The Department also provided several technical comments directly to 
your staff.

The Department appreciates the opportunity to comment on this draft 
report before its publication.

Sincerely,

Signed by: 

Dara Corrigan:

Acting Principal Deputy Inspector General:

Enclosure:

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft report in our capacity as the Department's 
designated focal point and coordinator for General Accounting Office 
reports. OIG has not conducted an independent assessment of these 
comments and therefore expresses no opinion on them.

Comments of the Department of Health and Human Services on the General 
Accounting Office's Draft Report, "Medicare Appeals: Disparitv Between 
Requirements and Responsible Agencies' Capabilities" (GAO-03-841):

The Department of Health and Human Services (Department / HHS) 
appreciates the opportunity to review and comment on the above-
referenced draft report. The General Accounting Office (GAO) draft 
report focuses on improvements that are needed in the Medicare claims 
appeal procedures in order to meet the Medicare, Medicaid, and the 
State Children's Health Insurance Program (SCHIP) Benefits Improvement 
and Protection Act of 2000 (BIPA), and the barriers to implementing 
these changes.

The Centers for Medicare & Medicaid Services (CMS) and the HHS 
Departmental Appeals Board's Medicare Appeals Council (MAC) and its 
supporting division, the Medicare Operations Division (MOD), continue 
to take aggressive steps to implement the BIPA requirements and improve 
the structural problems that are identified in the GAO's report. These 
efforts include:

* Redesigning MAC's adjudication process and increasing productivity 
dramatically from around 1000 dispositions per-year in the mid-1990s to 
a current rate of more than 10,000 per year.

* Reducing the MAC/MOD's total pending caseload for all claim types to 
10,100 - far below the 2001 pending caseload reported by GAO for Part 
B. MAC/MOD uses strategic planning to prioritize cases by setting 
quarterly disposition goals, screening cases for those that can be 
disposed of quickly, and systematically focusing on the older, more 
complex cases.

* Issuing a CMS ruling in October 2002, outlining procedures for 
Medicare contractors, Administrative Law Judges (ALJs), and the HHS 
Departmental Appeals Board to use for handling initial determinations 
and appeals as of October 1, 2002. This interim guidance addressed 
short-term implementation issues and implemented several BIPA 521 
provisions, including establishing a new 120-day deadline for filing 
requests for redeterminations of claims denials and setting $100 as the 
threshold for the amount in controversy for ALJ hearings.

* Publishing a Request for Information (RFI) to solicit industry 
comments in connection with a BIPA 521 requirement that CMS contract 
with at least 12 Qualified Independent Contractors (QICs) to conduct 
reconsiderations, the second level of appeals. We also obtained 
comments on a draft statement of work for prospective bidders and other 
interested members of the industry. CMS intends to issue the formal 
Request for Proposal (RFP) to solicit bids for the QIC work in 
September 2003. In keeping with the President's fiscal year (FY) 2004 
budget request, this solicitation will permit QIC implementation 
beginning in FY 2004.

* Publishing a comprehensive proposed rule on November 15, 2002, 
covering all necessary regulatory changes related to BIPA 521, as well 
as other long-needed changes aimed at volume control, fairness and 
efficiency, and the creation of Medicare-specific ALJ and MAC 
regulations. We are now considering the comments on the proposed rule 
and are in the process of developing the final rule for publication in 
early 2004, consistent with our QIC implementation strategy.

* Issuing a request for proposals (RFP) in June 2003, to develop the 
data system needed to implement the BIPA 521 changes. The RFP specifies 
that the new Medicare Appeals System (MAS) database will be available 
by April 2004 to accept case-specific data at both the QIC and ALJ 
level. The implementation of the MAS will represent a critical step 
toward providing the management data needed both to track an appeal 
across different levels of the system and to identify, and resolve, 
systematic problems.

* Working with the Social Security Administration (SSA) to bring about 
the transfer of the ALJ hearing function from SSA to a new organization 
with a dedicated focus on Medicare ALJ hearings. Although the precise 
timing of this transfer may be influenced by legislation, we believe 
that this change is critical to achieving the needed coordination among 
appeals levels that your report identifies as the single most important 
factor in improving the Medicare administrative appeals system.

We believe that these actions illustrate our commitment to full 
implementation of the BIPA statute and the progress we continue to make 
toward this goal.

General Comments:

1) We agree with the report's primary conclusions concerning the need 
for close coordination among all appeals bodies and for improved 
appeals data capabilities. However, we believe the report significantly 
understates the extent to which CMS has already taken strides to 
address these issues. As noted above, CMS is committed to contracting 
to build a data system that will, for the first time, make available 
uniform program and performance data at all levels of the appeals 
process. In addition, MAC/MOD has already migrated its case-tracking 
database to the HHS standard (Oracle); the new database contains some 
of the data noted by GAO, but because it is primarily an internal 
workflow and assignment system, it is not intended to analyze and track 
the type of information discussed by GAO. In the process of designing 
the required specifications for the Medicare Appeals System (MAS), it 
is important to note that HHS is continuing to work with 
representatives of the Social Security Administration's (SSA) Office of 
Hearings and Appeals to ensure that the data needs of all levels of the 
appeals system will be met by the new system.

2) Although the Secretary has delegated authority to CMS to develop the 
new regulations that are needed to implement the BIPA appeals 
provisions and other changes to the appeals procedures, CMS consulted 
with MAC and with Administrative Law Judges (ALJs) from SSA in drafting 
the proposed rule. Most recently, in an effort to continue to 
improve this coordination CMS has established the Office of Medicare 
Adjudication (OMA). This new office will strengthen CMS's ability to 
provide executive leadership and direction for all Medicare hearings-
related matters, including the critical role of ensuring systematic 
coordination among the different organizations responsible for the 
various levels of appeal. CMS is currently seeking additional 
information from SSA to achieve a better understanding of the 
characteristics of the OHA hearing workload. Thus, we will certainly 
consider the appropriateness of a formal interagency steering 
committee, particularly in view of the likely transfer of the Medicare 
AU function from SSA to HHS. CMS and MAC will also be coordinating on 
intra-agency operational issues related to the appeals processes.

3) We agree with the need for a clear strategy for reducing the backlog 
of pending cases at all levels of the process, and for establishing 
clear requirements with respect to the adjudication of pre-BIPA cases, 
some of which have been addressed by MAC/MOD's efforts to prioritize 
cases. We intend to address this issue as well as other transition 
issues in the forthcoming final regulation on the BIPA changes and 
other appeals process improvements. Appeals backlogs are primarily a 
concern at the AU and MAC level, however, as the reports explains, CMS 
annually issues instructions to its contractors addressing how the 
appeals workload should be prioritized, including the elimination of 
any backlogs. In addition, CMS is establishing a financial incentive 
(in FY 2004) for reducing appeals backlogs for several contractors that 
are participating in an ongoing pilot program.

4) The BIPA provisions include measures that are likely to increase 
numbers of appeals to the ALJs and MAC (such as lowering amount in 
controversy), as well as others that may decrease appeals (such as QIC 
provisions), so predicting post-BIPA numbers is extremely difficult. 
Additionally, the final version of the implementing regulations will 
affect the MAC workload.

Specific Comments:

1) Throughout the draft report, the term "rule" is used to refer to the 
October 7, 2002, CMS Ruling, and the term "draft ruling" is incorrectly 
used to refer to CMS's:

November 15, 2002, notice of proposed rule making.

2) The report indicates that its scope includes Part B claim appeals, 
although our understanding is that GAO did not review appeals 
procedures for Part B claims processed by fiscal intermediaries or by 
durable medical equipment carriers. We believe that the scope of the 
study should be clarified. On a related note, the report routinely uses 
the term "providers" to describe all non-beneficiary appellants. For 
Medicare purposes, the tenn "provider" technically refers only to 
institutional entities such as hospitals, skilled nursing facilities, 
and home health agencies, and their claims generally fall under Part A 
of Medicare. Further, provider appeals rights are more constrained than 
those of beneficiaries, in contrast to the statement on page 3, 3rd 
paragraph. We recommend that the report clarify that the term 
"providers" is used to refer to any non-beneficiary appellants and thus 
includes physicians and other suppliers, and that the statements in the 
3rd paragraph of page 3 and the 1st paragraph of page 5 be modified, 
for example, by adding "generally" or "in certain circumstances.":

3) Further, the report should acknowledge that caseloads that were not 
analyzed included Part A, Part C and other managed care cases, Medicare 
entitlement, and overpayments. These caseloads present other procedural 
and process problems and add to the administrative challenges of 
running an appeals process.

4) Pages 3 and 25 of the GAO draft report provide that in fiscal year 
2001, the most common reason for denying claims was the resubmission of 
duplicate claims previously processed. The report also provides that 
"other common reasons for denials include ... that information critical 
to the claims was missing." Technically, when a claim is not paid 
because it is a duplicate or because information critical to processing 
the claim is missing, CMS does not consider the non-payment a "denial." 
Rather, because the party may submit the claim a second time, the 
nonpayment is considered a rejection. Denials are subject to appeal 
rights, while rejections are not. Thus, it is somewhat misleading for 
the GAO to include claims denied on the basis of missing information or 
duplication in its report on appeals, since such claims could not be 
appealed. We would recommend that the GAO include a footnote in the 
third paragraph on page 3 of the report that explains CMS's distinction 
between rejections and denials. We suggest that the footnote read as 
follows:

Note: CMS distinguishes between claims that are rejected because they 
are unprocessable and claims that are denied for substantive reasons. 
Submissions that are unprocessable because they are missing information 
may not even be considered claims if there is not, for example, enough 
information to identify the enrollee. Because these claims are not 
being denied for substantive reasons, the rejections are not subject to 
appeal under  3 000 and 3005 of the Medicare Carriers Manual. In 
addition, claims rejected because they are duplicates are not 
considered appealable unless the party is appealing whether the claim 
submitted is in fact a duplicate.

5) In the chart on page 5 of the draft report, the key is reversed. The 
information provided in the rectangles of the chart represent the time 
allowed for Medicare or the appeals bodies to issue a decision and the 
information presented in the ovals represents the time allowed for the 
appellant to request an appeal, as well as the dollar threshold 
required to file appeal.

6) In several places, the report reflects GAO's apparently broader 
interpretation of the "escalation" requirement of BIPA than that 
adopted by CMS. For example, on page 6, in the 2"d paragraph, the GAO 
states: "BIPA also gave appellants the right to escalate their appeals 
to the next level in the process for adjudication when a decision is 
not issued within the specified timeframe. Escalation is available from 
any level of appeal except the first - carrier review." We believe that 
the statute imposes a deadline and subsequent escalation only in cases 
where there has already been a decision issued at the lower level of 
appeal. Thus, as explained in the November 2002 proposed rule (67 FR 
69329):

Appellants who escalate their appeals will, in essence, be waiving 
their right to obtain a decision within the statutory deadline at the 
next level. For example, section 1869(d)(1)(A) provides that unless the 
appellant waives the statutory adjudication deadline, the ALJ "shall 
conduct and conclude a hearing on a decision of a [QIC] and issue a 
decision by the 90th day from the date a request for hearing is timely 
filed ...... We interpret this as requiring an ALJ to decide a case 
within 90 days when the QIC has issued a final action in a case, but 
not when the appellant has escalated the case to the ALJ level before 
the QIC issues a decision. A similar distinction is found in the 
provisions governing MAC review, which provide that the MAC must 
complete its "review of a decision" within 90 days. Therefore, when an 
appellant escalates an appeal from the QIC to the ALJ level or from the 
ALJ level to the MAC, the proceedings before the ALJ or MAC are not 
subject to the 90-day limit.

Although CMS may administratively decide to allow escalation more than 
once, this would be an administrative decision, and would not be 
required by statute.

7) Page 6, 2nd paragraph: The Part B decision-making timeframes are 
statutory, rather than regulatory. Also, in the last paragraph, the 
term carrier "review" should be "redetermination.":

8) Also on page 6, the report describes the standards of review 
employed at the various steps of the Part B appeals process as follows:

The first three levels of appeal share a protocol for adjudication 
called de novo review, which permits adjudicators to review results 
from earlier decisions, but requires them to independently evaluate 
evidence and issue original decisions. The appeals bodies reexamine the 
initial claim to determine if it should be paid and consider any new 
documentation or information supporting the claim submitted by the 
appellant. The fourth level of review, the MAC, does not share this 
protocol. Rather than performing de novo review, it evaluates the 
appropriateness of OHA decisions and does not consider the submission 
of new evidence or documentation. BIPA changes will require that the 
MAC also perform de novo review in all cases.

We agree that BIPA will alter the MAC's review procedures in several 
significant ways. However, the report does not accurately describe the 
MAC's current standard of review, which is governed by 20 C.F.R.  404. 
970, and is a de novo review in certain respects. Under 20 C.F.R.  
404. 970(b), the MAC may consider new and material evidence, "where it 
relates to the period on or before the date of the administrative law 
judge hearing decision." Therefore, we would recommend replacing the 
last two sentences in this paragraph with the following language:

Rather than performing de novo review of evidence, it evaluates the 
appropriateness of OHA decisions and considers whether new 5 
evidence will alter the decision. BIPA changes will require that the 
MAC perform de novo review in all cases.

9) On page 7, the report states:

Finally MAC may deny an appellant's request if it find no error of law 
in the OHA decision.

Since the applicable regulations at 20 CFR provide for a number of 
reasons for MAC review other than error of law, the above-cited 
language is too narrow. We suggest instead:

Finally MAC may deny an appellant's request for review if it finds that 
the OHA decision is factually and legally adequate.

10) Pages 7 and 16: The report states that SSA establishes its own 
procedures for appeals and that CMS, OHA, and MAC are all charged with 
developing procedural regulations to implement BIPA. We note that the 
Secretary of HHS has delegated authority to CMS to develop these 
procedural regulations. Such procedural regulations bind not just CMS 
contractors, but also OHA, SSA ALJs, and the MAC. However, you may wish 
to note that both OHA and MAC use their own systems for processing 
appeals and conduct their own hiring.

11) Page 7, P paragraph: The report describes the types of law that 
bind the first two levels of appeal. We believe that the list should 
also include CMS's policy guidance, such as manuals and program 
memoranda, since Medicare contractors are bound by such guidance. 
Therefore, we recommend rewriting the first sentence as follows: "In 
making a determination ... the first two levels of appeal are bound by 
the same substantive legal standards used in the initial denial 
determination - Medicare statutes, Federal regulations, CMS's NCDs, the 
carrier's own LMRPs and LCDs, and, pursuant to carriers' contracts with 
CMS, CMS's general instructions (such as manuals and program 
memoranda).":

12) The draft erroneously suggests that MAC has done no planning 
related to BIPA requirements. The MAC/MOD redesign and its continuing 
strategic planning for adjudicating the pending caseload are part of 
our overall efforts to improve quality and to process cases on a 
current basis.

13) Although some BIPA requirements are subject to interpretation and 
cannot be planned for or implemented until final regulations are 
issued, the report fails to recognize that MAC will not start receiving 
cases subject to BIPA until they work their way up through the other 
levels or are escalated up. Accordingly, a detailed action plan could 
not be developed without more concrete information about what factors 
would need to be addressed, such as the rate of cases expected, the 
experience of the other review levels under BIPA and MAC's caseload and 
resources at the time when BIPA cases are actually expected to be 
filed.

[End of section]

Appendix V: Comments from the Social Security Administration:

SOCIAL SECURITY The Commissioner August 22, 2003:

Ms. Leslie G. Aronovitz Director, 
Health Care-Program Administration and Integrity Issues 
U.S. General Accounting Office Washington, D.C. 
20548:

Dear Ms. Aronovitz:

Thank you for the opportunity to review and comment on the draft report 
"Medicare Appeals: Process Disparity Between Requirements and 
Responsible Agencies' Capabilities" (GAO-03-841). Our comments on the 
report are enclosed.

If you have any questions, please have your staff contact Laura Bell at 
(410) 965-2636.

Sincerely,

Signed by: 

Jo Anne B. Barnhart:

Enclosure:

SOCIAL SECURITY ADMINISTRATION	
BALTIMORE MD 21235-0001:

COMMENTS ON THE GENERAL ACCOUNTING OFFICE (GAO) DRAFT REPORT "MEDICARE 
APPEALS PROCESS: DISPARITY BETWEEN REOUIREMENTS AND RESPONSIBLE 
AGENCIES' CAPABILITIES" (GAO-03-841):

Thank you for the opportunity to review and comment on the draft 
report. We acknowledge that efficiency and compatibility issues exist 
within the Medicare appeals process and we, like GAO, believe that many 
of the issues are the result of the lack of a single entity's ownership 
of and/or accountability for the process. While the President's Fiscal 
Year (FY) 2004 Budget Request anticipates the transfer of the Medicare 
hearings function from the Social Security Administration (SSA) to the 
Department of Health and Human Services (DHHS), SSA is committed to 
providing high quality service to all SSA claimants and appellants.

Therefore, On July 2, 2003 we sent to HHS a proposed memorandum of 
understanding (MOU) to address all matters related to the transfer of 
the Medicare hearings function from SSA to HHS. We have agreed to 
assist HHS by retaining responsibility for all Medicare Part B hearings 
cases received on or before May 31, 2004. However, as the President's 
FY 2004 budget did not request funds for SSA to process these hearings, 
part VI of the MOU addresses reimbursement to SSA from HHS at a 
prescribed cost per hearing disposition. We will continue our efforts 
to provide the best service possible to Medicare appellants until HHS 
assumes responsibility for handling Medicare appeals.

The Medicare appeals process is unique as it weaves in and out of 
private contractors, SSA and HHS. Despite the inherent difficulties of 
managing such a fragmented process, the following are some measures SSA 
has taken to improve the service it provides to Medicare appellants.

The Office of Hearings and Appeals (OHA) established a cadre of 
Medicare specialist administrative law judges (ALJ) who hear the most 
complex and voluminous cases. Attorneys and staff from Office of the 
Chief Administrative Law Judge's (OCALJ) Division of Medicare assist 
the ALJs. The Division provides legal analysis, hearing support, and 
decision-writing assistance to the hearing offices in Medicare "big 
box" cases ($40,000 or more in controversy and multiple beneficiaries), 
and pre-screens Part C cases for hearing offices.

OHA developed an intranet Medicare Online website to assist the field 
in processing Medicare cases.

 The Hearing Office Tracking System (HOTS) has been enhanced recently 
to collect separate data about Medicare cases and to generate 
management information essential to improving the efficiency of the 
process.

These measures and other workload management improvements have resulted 
in increased productivity in Medicare cases at SSA.

In an effort to further improve our management of the Medicare appeals 
workload and to mitigate the problems resulting from fragmentation, in 
January 2002, we created the Executive Counselor for Interagency 
Adjudication (ECIA). The ECIA is an executive level position that 
serves as our liaison to the Center for Medicare and Medicaid Services 
(CMS) within HHS. The primary role of the ECIA is to enhance the 
coordination and cooperation between SSA and HHS on Medicare issues, 
improve service delivery for both Medicare and disability appeals, plan 
and coordinate the administrative transfer of the Medicare appeals 
function to HHS, and to work with CMS on other service delivery issues, 
including implementation of the Benefits Improvement and Protection Act 
(BIPA).

Highlights of our efforts to date include providing comments on the 
CMS's Notices of Proposed Rulemaking to implement Sections 521 and 522 
of BIPA, interagency discussion by key SSA and CMS staff resulting in 
increased understanding of the entire appeals process and the problems 
each agency faces, joint development of detailed process maps, 
exchanges of caseload reports and systems information, and development 
of a proposed Memorandum of Understanding for the transfer of the 
Medicare hearing function to HHS on October 1, 2004. As demonstrated 
above, the level of communication and coordination for improved service 
to Medicare appellants has increased and continues to be a priority for 
us.

While we recognize that decisions regarding the transfer of the 
Medicare hearings function are pending, our comments on the 
recommendations encompass both the current and anticipated structure of 
the Medicare appeals process.

Recommendation 1:

GAO recommends that the Secretary of HHS and the Commissioner of SSA 
create an interagency steering committee with representatives from CMS, 
the carriers, OHA and MAC, to serve as an advisory body to the 
Secretary of HHS and the Commissioner of SSA.

Response:

The Social Security Act places ultimate responsibility for 
administration of the Medicare program, including its due process 
appeals, with HHS, and it is the single entity with the authority to 
"unify" the Medicare appeals process in terms of both policies and 
procedures. We continue to support the transfer of full operational 
responsibility for the Medicare appeals process to HHS and have been 
working with HHS to accomplish that goal. On July 2, 2003 we sent to 
HHS a proposed memorandum of understanding (MOU) to address all matters 
related to the transfer of the Medicare bearings function from SSA to 
HHS. We would agree, in the proposed MOU, to assist HHS by retaining 
responsibility for all Medicare Part B hearings cases received on or 
before May 31, 2004. However, as the President's FY 2004 budget did not 
request funds for SSA to process 
these hearings, part VI of the MOU addresses reimbursement to SSA from 
HHS at a prescribed cost per hearing disposition.

We understand that HHS recently established an Office of Medicare 
Adjudication within CMS, which we believe should carry out the 
functions of the proposed interagency steering committee, since, as 
noted, HHS has ultimate responsibility for all Medicare appeals. Since 
Medicare appeals are only a small part of SSA's appeals workload, it 
should be noted that SSA can only take such actions with respect to 
Medicare that are consistent with meeting the demands of our total 
service obligations. SSA will participate and assist HHS/CMS in their 
effort to carry out their appeals process responsibilities.

Regarding the specific responsibilities of an interagency steering 
committee, we offer the following:

Make administrative processes, such as file tracking and transfer, 
compatible across all appeal bodies.

The proposed steering committee may be helpful in further supporting 
the recommendation for compatible administrative processes by helping 
define roles across CMS, SSA and HHS during its current operation and 
during the transfer of the hearing function to HHS. Pending development 
of a comprehensive integrated data system by CMS, we will continue to 
use our HOTS to track Medicare cases on a reimbursable basis since 
there is no funding for Medicare appeals in our FY 2004 President's 
Budget Request.

Negotiate responsibilities and strategies for reducing the backlog of 
pending cases, especially at OHA and the Medicare Appeals Council, and 
establish 
the priority for adjudicating pre-BIPA cases relative to BIPA-governed 
cases.

We agree with the need for consistent and comprehensive strategies for 
reducing the backlog of pending cases and reducing the overall 
processing time for Medicare appeals. To the extent that BIPA cases are 
adjudicated under the current interagency appeals process, coordination 
for handling BIPA cases will be required, and SSA will participate in 
this effort to address these activities.

Establish requirements for reporting specific and comparable program 
and performance data to CMS, SSA and HHS so that management can 
identify opportunities for improvement, and determine the resource 
requirements necessary to ensure that all appeals bodies will be able 
to meet BIPA's requirements.

As stated above, we believe that the current process fragmentation 
prevented the development of a comprehensive data collection and 
analysis process to identify efficiency issues and the development of 
design improvements. However, in anticipation of the transfer of 
Medicare hearings, we have worked to increase the:

understanding of the entire appeals process by bringing together key 
SSA and CMS staff. In addition to previously mentioned activities, SSA 
has provided CMS specifications for HOTS, which could be used as an 
interim system by CMS until a more comprehensive data system is 
developed. We have also demonstrated and shared information about the 
new Case Processing and Management System (CPMS) that SSA is developing 
so CMS can evaluate it for its own future needs. As stated, SSA has 
already made enhancements to HOTS to permit improved case tracking and 
workload management and to collect separate data on Medicare case 
processing. During the period that SSA continues to handle Medicare 
hearings, we will work with CMS and HHS to capture comparable data 
through HOTS.

[End of section]

Appendix VI: GAO Contact and Staff Acknowledgments:

GAO Contact:

Geraldine Redican-Bigott, (312) 220-7678:

Acknowledgments:

Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig Winslow made 
major contributions to this report.

FOOTNOTES

[1] On June 14, 2001, the Secretary of Health and Human Services 
announced that the name of the Health Care Financing Administration 
(HCFA) had been changed to the Centers for Medicare & Medicaid 
Services. In this report, we will refer to HCFA where our findings 
apply to operations that took place under that organizational structure 
and name.

[2] For the purposes of this report, the term "provider" refers to any 
nonbeneficiary appellant, including physicians and other suppliers. 

[3] Medicare fee-for-service consists of two parts--A and B. Part A 
claims cover inpatient hospital, skilled nursing facility, hospice, and 
certain home health services. Part B claims cover physician services, 
diagnostic tests, and related services and supplies. 

[4] Pub. L. No. 106-554, app. F, 114 Stat. 2763, 2763A-534 (codified at 
42 U.S.C.  1395ff (2000)).

[5] Medicare contractors that process Part A claims are called fiscal 
intermediaries, while those that process Part B claims are called 
carriers.

[6] The Medicare program is governed by title XVIII of the Social 
Security Act, 42 U.S.C.  1395 et seq. (2000), and related 
regulations, 42 C.F.R. pts. 400-425 (2002).

[7] NCDs are developed by CMS to describe the circumstances for 
Medicare coverage for a specific medical service, procedure, or device. 
All Medicare carriers must observe NCDs in determining if a claim is 
payable; appeals bodies at all levels must apply NCDs when adjudicating 
appeals. LMRPs and LCDs, developed by contractors, specify the clinical 
circumstances under which a service is covered to enhance or clarify 
national Medicare guidance. Due to carrier-based policies, services 
covered by Medicare in one area may not be covered in another area 
served by a different carrier. For more information on Medicare 
coverage policy, see U.S. General Accounting Office, Medicare: Divided 
Authority for Policies on Coverage of Procedures and Devices Results in 
Inequities, GAO-03-175 (Washington, D.C.: Apr. 11, 2003).

[8] BIPA refers to the carrier review level as the "redetermination." 

[9] 67 Fed. Reg. 62,478. 

[10] 67 Fed. Reg. 69,312.

[11] OHA and MAC time limits may be waived at the appellant's request. 

[12] At the end of fiscal year 2001, the backlog of cases past their 
pre-BIPA deadline at both the carrier review and carrier hearing levels 
was about the average number carriers process in a single month.

[13] OHA completed more than 56,300 Part B cases in fiscal year 2001.

[14] Since QICs have not yet been implemented, there are no data to 
assess whether any of their cases will be eligible for escalation.

[15] With limited exceptions, the Administrative Procedures Act 
requires agencies to publish proposed rules and provide an opportunity 
for the public to comment on them before they become effective. 5 
U.S.C.  553(b) (2000).

[16] 67 Fed. Reg. 69,182 (Nov. 15, 2002).

[17] H.R. 810, 108th Cong. (2003); S. 1127, 108th Cong. (2003); H.R. 1, 
108th Cong. (2003); and H.R. 2473, 108th Cong. tit. IV (2003).

[18] HHS has nine additional ALJs--one at the Food and Drug 
Administration and eight who hear enforcement cases including those on 
Medicare fraud and provider penalties. The latter have a backlog of 700 
unresolved cases. HHS's DAB, which houses both the MAC and the Medicare 
fraud ALJs, is located in Washington, D.C. It has five satellite 
locations but no hearing rooms--its ALJs use the hearing rooms of local 
courts or other agencies. 

[19] In its comments on a draft of this report, HHS pointed out that 
unprocessable claims--duplicate claims and claims missing information-
-are rejected, rather than denied. According to HHS, such claims can be 
resubmitted but not appealed. 

[20] Postpayment denials--denials of claims that have been paid but 
selected for medical review at a later date--are not included in the 
denial rates shown. Postpayment denials generate some appeals; however, 
CMS does not collect data on the proportion of appeals resulting from 
post-payment denials. 

[21] De novo review allows for new evidence and an in-depth and 
independent review.

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