Department of Health and Human Services 

OFFICE OF


INSPECTOR GENERAL


MEDICARE HMO APPEAL AND 

GRIEVANCE PROCESSES 

Review of Cases 

JUNE GIBBS BROWN 

Inspector General 

DECEMBER 1996 

OEI-07-94-O0283 

— 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,


is to protect the integrity of the Department of Health and Human Services programs


as well as the health and welfare of beneficiaries served by them. This statutory


mission is carried out through a nationwide program of audits, investigations,


inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary


of program and management problems and recommends legislative, regulatory, and


operational approaches to correct them.


Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the


Office of Inspector General. It conducts short-term management and program


evaluations (called inspections) that focus on issues of concern to the Department, the


Congress, and the public. The inspection reports provide findings and


recommendations on the efficiency, vulnerability, and effectiveness of departmental


programs.


The OEI’S Kansas City Regional Office prepared this report under the direction of


James H. Wolf, Regional Inspector General. Principal OEI staff included:


KANSAS CITY REGION HEADQUARTERS


Jennifer Collins, Project Leader Stuart Wright, Program Specialist


Linda Paddock, Program Inspection Barbara Tedesco, Mathematical


Assistant Statistician


Hugh Owens, Program Analyst Brian Ritchie, Program Analyst


DALLAS REGION


Judith Tyler, Program Analyst


To obtain a copy of this report, call the Kansas City Regional Office at (816)426-3697.

Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE HMO APPEAL AND 

GRIEVANCE PROCESSES 

Review of Cases 
EXECUTIVE SUMMARY


PURPOSE 

To determine the effectiveness of Health Maintenance Organizations’ (HMOS) 

processing of Medicare beneficiary appeals and grievances through on-site reviews. 

BACKGROUND 

Beneficiaries may join a risk HMO through the Medicare program. For a 

predetermined monthly amount, the HMO provides Medicare covered medically 

necessary services. The goals of this coverage are to provide coordinated medical 

care, offer comprehensive benefits, and contain costs by using the most cost-efficient 

methods of treatment and preventing unnecessary care. As a protection for 

beneficiaries, the Social Security Act requires Medicare HMOS to have two separate 

and distinct processes, an appeal and a grievance process, to handle beneficiary 

complaints. 

In order to protect beneficiaries from inappropriate denials of services or payment, 

the Act requires that Medicare HMOS establish an appeal process to handle these 

types of complaints. If an enrollee disagrees with the HMO decision to deny services 

or payment, the enrollee has 60 days to file a request for reconsideration. If the 

HMO’s decision is against the beneficiary in whole or in part, the HMO is required to 

automatically send the case to the Network Design Group within 60 days for an 

independent Federal review. 

All other complaints such as those relating to quality of care are processed under a 

separate internal grievance procedure. Under this procedure, there are no specific 

time frames or preordained levels of review established by law. However, HMOS are 

responsible for timely transmission, an investigation, decision, and notification of the 

results. 

From a universe of 132 risk-based HMOS, we selected a purposive sample of 10 

HMOS for on-site review. To provide a cross-section, HMOS were selected by number 

of enrollees, rate of appeals sent to Network Design Group, beginning contract date, 

location, and other criteria. Within the sampled HMOS, we randomly selected cases 

for review (144 appeals and 148 grievances) and analyzed them to determine whether 

procedural guidelines were followed, if complaints were being properly categorized, if 

time requirements were being met, and if problems or weaknesses existed in the 

appeal/grievance processes. 

FINDINGS 

Beneficiarieswerenot alwaysadviwdof theirappealrightrat the timeservicesorpayment 

weredenied. 

Regulations require HMOS to issue a written “initial determination” of denials and to 

advise patients of their right to request a reconsideration (appeal). Twenty-seven 

1 
percent of sample case files did not have initial determinations on file, 5 HMOS sent 

them without including the required appeals rights (6 cases), and 5 more sent the 

notice to beneficiaries after receiving their appeals (12 cases). 

I%e HMOS dki rwtproperly&tzk@h appah jiom grkvances. 

HMOS incorrectly processed appeal issues as grievances in 37 cases. This represents 

26 percent of the 148 grievances we examined. Every plan made at least one such 

error. In addition, three incorrectly processed five complaints that included both 

appeal and grievance issues. The distinction between appeals and grievances is 

important to beneficiaries because appeal cases (denials of services or payment) are 

subject to independent Federal review for appropriateness of the HMO decision while 

grievances are only subject to internal HMO reviews. 

l%e HMOS did not jidly complynu”thHealth CareFinancingAdministration(HCFA) 

directivesforprocixsingappealsandgrievanmx 

Processing Appeals. Five HMOS did not refer eight denied cases to Network Design 

Group. Three did not document the basis for “good cause” for accepting 14 cases 

filed after 60 days. Five sent beneficiaries multiple initial determinations in nine cases. 

In addition, 5 HMOS had 13 cases where beneficiaries appealed several times before 

the plans would begin the appeals process. 

Time Frames for Appeals. Five HMOS did not issue the initial determination within 

60 days of the beneficiary’s initial request for services or payment in 11 cases. One 

HMO waited two years before sending two cases to Network Design Group and 

resolution took five years. Nine plans did not make the reconsideration determination 

within 60 days or inform the beneficiary timely in 19 percent (28 cases) of our sample. 

Further, 4 HMOS did not send 9 cases to Network Design Group within the required 

60 day time frame. 

Resolving Grievances. One HMO suspends action on grievance cases while awaiting 

medical records. If records are not received, cases remain closed without resolution. 

One other plan had seven while another had two unresolved grievance cases that were 

either suspended without resolution or closed without resolution. 

Documentation. Eight HMOS had undated initial determinations or did not have 

them on file in 46 appeals cases (32 percent of the sample). Five plans had 25 appeal 

cases (17 percent of the sample) where there were no dates on the reconsideration 

determinations or they did not have them on file. Five HMOS did not have 

documentation supporting that beneficiaries were notified of grievance results in 

15 cases. Also, 6 had such poor documentation that it was impossible to reconstruct 

16 appeal cases (11 percent) and 8 grievance cases (5 percent). 

RECOMMENDATIONS 

HCFA’S Office of Managed Care is making substantial efforts to improve the HMO 

appeal and grievance processes. It has recently created a work group - Managed Care 

Appeals and Grievance Initiative - organized to make program improvements in these 

ii 
functions. In 1995, HCFNs Office of Managed Care retised guidelines used by 

HCFA Regional Offices in their annual review of HMOS. In addition, HCFA in 

conjunction with Netsvork Design Group, has conducted training sessions, provided 

technical assistance, and issued publications to improve HMOS’ understanding and 

processing of appeals and grievances. HCFA plans to revise the HMO/CMP Manual 

and has received funds to evaluate problems in the area of appeals and grievances. 

However, as our findings reflect, there are areas where improvement is needed. 

We recommend that HCFA 

� ensurethatHMOS cowect~ distinguishandprocessappeakandgn”evances. 

HCFA can accomplish this during their annual visits to HMOS. However, we 

suggest that HCFA conduct case reviews as well as examine the operating 

procedures to determine that appeals and grievances are processed correctly. We 

also suggest that HCFA focus closely on whether HMOS: 

- are in compliance with all directives in processing of appeal and grievance 

cases; 

- include appeal rights in all initial determinations sent to beneficiaries; and 

- release initial determinations and reconsideration decisions in appeal cases 

according to established time frames. 

� rnodijj the HCFA HMO/CMP Manual to clar#jandspecijj kq requirements. 

This can be accomplished by: 

- clarifying the explanation and language required on the appeal and grievance 

issues to improve HMOS’ understanding of the differences and 

- establishing minimum requirements for documentation of appeal and 

grievance files so that an independent reviewer, based upon examining the 

files, will be able to follow and understand the adjudication by the HMO. 

� broaden#orts to forma@ traihHMOS on the appal andgrievanceprocesses. 

We noted a significant amount of turnover in HMO staff responsible for 

processing appeals and grievance cases during this inspection. In light of this 

turnover, there is a need to continue training on a routine basis. 

AGENCY COMMENTS 

We solicited and received comments on our draft report from HCFA. They agreed 

with the conclusion of our reports that improvements are needed and indicated that 

they are working to implement a number of our recommendations. We are pleased 

... 111 
that HCFA agrees that improvements are needed in the appeal and grievance 

processes, and we recognize that changes are in the process of being made through 

the Medicare Appeals and Grievance Initiative (MAGI). However, because HCFA’S 

response does not specifically address the recommendations contained in our reports, 

we are unsure whether the problems identified in our report will be fully addressed 

through this initiative. As a result, it will be important for HCFA to include in their 

response to the final report an action plan that specifically addresses each 

recommendation. 

The full text of HCFA’S comments is included as an appendix to this report. 

iv 
TABLE OF CONTENTS


PAGE


EXECUTIVE SUMMARY


RFWWEDRE
 PORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1


INTRODUCHON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2


FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..6


�Appeal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...6


�Distinguishing Appeals from Grievances . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..7


� Complying with HCFADirectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8


Processing Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8


Time Frames for Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...9


Resolving Grievances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10


Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10


RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12


Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


APPENDIX


A Problem Areas Detected inHMO Case File Reviews . . . . . . . . . . . . . . . . . . A-1


B: HCFAResponse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-1

RELATED REPORTS


This is one of a series of four reports relating to 

Medicare risk HMO appeal and grievance processes. 

The four reports are: 

Medicare HMO Appeal and Grievance Processes: 

Overview, (OEI-07-94-O0280) 

Medicare HMO Appeal and Grievance Processes: 

Beneficiaries’ Understanding, (OEI-07-94-00281) 

Medicare HMO Appeal and Grievance Processes: 

Survey of HMOS, (OEI-07-94-00282) 

Medicare HMO Appeal and Grievance Processes: 

Review of Cases, (OEI-07-94-00283) 

1

INTRODUCTION


PURPOSE 

To determine the effectiveness of Health Maintenance Organizations’ (HMOS) 

processing of Medicare beneficiary appeals and grievances through on-site reviews. 

BACKGROUND 

Le@lation 

Sections 1833 and 1876 of the Social Security Act specify the requirements that HMOS


must meet in order to enter into a contract with the Health Care Financing


Administration (HCFA) to furnish Medicare covered services to beneficiaries. The


goals of HMO coverage are to provide access to medical care while containing costs


by using the most cost-efficient methods of treatment and preventing unnecessary care.


In addition, HMOS can reduce the medical management complexities experienced by


elderly patients with multiple chronic conditions, the paperwork burden of a


“fee for service” system, and financial barriers to obtaining preventive and medically


necessary health care.


Unlike traditional “fee for service,” HMOS are designed to coordinate care through a


primary care provider, offer comprehensive benefits, and reduce or contain the costs


of medical treatment. They operate under a fixed annual budget, based on the


prepaid premiums. Except for fees of a few dollars for each doctor’s visit or


prescription, the premium is to cover all of a patient’s medical needs which include


everything from checkups to open-heart surgery.


Rikkand Cost Plans 

There are three types of Medicare HMO plans included in the Act. Generally, the 

differences involve the method used by HCFA to reimburse the HMO for providing 

services and delivering medical services to beneficiaries. The three types of contracts 

are risk-based, cost-based, and Health Care Prepayment Plan (or HCPP) HMOS. The 

latter two types are paid on a reasonable cost basis, wherein any differences in actual 

costs and interim payments are reconciled and adjusted with HCFA at the end of the 

year. Risk-based are reimbursed on a prepaid cavitation basis with no retrospective 

adjustment. While cost-based and HCPP HMOS give beneficiaries a choice of 

physicians that they see, a risk-based plan requires enrollees to be “locked” into only 

its contracted physicians unless emergency or urgent care is needed. 

As of March 1, 1996, there were 197 risk-based HMO plans, 27 cost-based plans, and 

54 HCPPS nationwide, which accounted for almost 4 million Medicare HMO enrollees, 

or 10 percent of the total Medicare population. While Medicare enrollment in 

managed care has increased 67 perc&~ since 1993, HCFA reports that enrollment in 

risk-based plans has grown 105 percent. 

2

Ap~al & GrievanceBocesses 

One of the most effective ways HMOS contain costs is by using family practitioners or 

internists as “gatekeepers” to control a patient’s access to services. The patient 

chooses one doctor as a primary care physician; from then on that doctor setves as 

first arbiter for any treatment. The primary care physician provides medical 

examinations and treatments, and serves as a “gatekeeper” to specialty care, except in 

emergency and urgent care situations. 

Because the payment mechanism of HMOS provides a strong incentive to manage 

utilization of enrollee medical services (including the institution of a physician 

“gatekeeper” and use of medical practice guidelines), the Act requires that HMOS 

establish an appeal process to handle disputes Medicare enrollees have involving a 

denial of or payment for services they believe should be covered by the HMO. Other 

kinds of complaints such as quality of care received are handled under a grievance 

procedure. Prior to May 1995, only risk and cost-based plans were required to have 

these processes in place. HCPPS now must also comply with these requirements. 

HCFA directives require HMOS to inform beneficiaries of their appeal/grievance 

rights at enrollment, in member handbooks, and annually through a newsletter or 

other communication. 

Appeals Process - According to 42 CFR, Sections 417.600-638, an appeal is any 

dispute involving a denial of services or ayment for services made by the HMO. 

Federal regulations and the HMO/CMP P Manual require a five-step process and time 

limits for each step. HMOS must make an initial determination upon receiving an 

enrollee’s request for services or payment for services within established time frames 

(24 days if the case is complete and no later than 60 days if development is needed). 

Each plan is required to make a decision on information they currently have within 

this time frame. If the decision is to deny services or payment, the enrollee has 60 

days from the date of the initial determination to file a request for reconsideration 

(appeal) in writing unless “good cause” can be shown by the beneficiary for the delay. 

The HMO then has 60 days to make a reconsideration decision. 

If the HMO’s reconsideration decision is against the beneficia~ in whole or in part, 

the HMO is required to automatically forward the case to HCFA for an independent 

review to determine if the decision is appropriate. Due to the increasing numbers of 

appeal cases, HCFA contracted with Network Design Group (NDG) in January of 

1989 to fulfill this function. The number of appeals reviewed by NDG has varied in 

the last 3 years from a high in 1993 of 3,806, to 2,945 in 1994, and 3,691 in 1995. 

Beneficiaries whose cases are not resolved fully in their favor at the NDG level can 

request a hearing before an Administrative Law Judge (AU) if the disputed amount is 

at least $100. After this level, any party (including the HMO) may request a review by 

the Department of Appeals Board if there is dissatisfaction with the ALJ’s decision or 

1 Competitive Medical Plan 

3 
dismissal. The final recourse in the appeals process is a Federal court review if the 

Board denies the party’s request for review, and the amount in controversy is $1,000 

or more. 

Grievance Process - Grievances are any complaints about a Medicare enrollee’s 

experience with the health plan and/or its providers, excluding determinations 

involving payment for services or denial of services (which are subject to the appeals 

process). Examples of grievable issues include quality of care, physician behavior, 

involuntary disenrollment concerns, and waiting times for services. 

Guidance for processing grievances is found in 42 CFR, Sections 417.600 and 417.606, 

and in Section 2411 of the HMO/CMP Manual. The guidelines do not provide for 

time frames or specify levels of review, but call for “timely” transmission, an 

investigation, decision, and notification of the results. While appeal cases that are not 

resolved fully in favor of the beneficiaries are subject to independent HCF~ AL.J, 

Appeals Board, and Federal court review, beneficiary grievances are only subject to 

internal levels of review within the HMO. 

The Office of Managed Care (OMC) within HCFA is responsible for policy and 

oversight of HMOS and ensuring there is compliance with the appeal and grievance 

regulations. To assist plans in these processes, OMC has created the appeal and 

grievance sections in the HMO/CMP Manual. 

METHODOLOGY 

From a universe of 132 risk-based HMOS obtained from HCFA’S April 1995 “Monthly 

Report of Medicare Prepaid Health Plans,” we selected a purposive sample of 10 

HMOS for on-site review. We did not include cost-based plans and HCPPS in the 

sample as the majority of Medicare beneficiaries are enrolled in risk-based HMOS. 

We based our selection upon the number of enrollees, rate of appeals sent to NDG 

(including no appeals and highest rates of appeals), number of appeals overturned at 

this level, beginning contract date, and percent of retroactive disenrollment2. Also, an 

important factor in our selection was location; two plans were selected in close 

proximity to each other for economy of travel and for geographical representation 

within the country. 

While we randomly selected 150 appeal cases and 150 grievance cases (15 of each in 

the plans), the HMOS were able to provide only 144 appeals and 148 grievances for 

2 Retroactive Disenrollment is an administrative procedure established by HCFA to reverse a 

beneficiary’s enrollment back to Medicare fee-for-service participation. An example where this might 

be used is in a case where HCFA determined that a beneficiary did not understand how HMOS operate 

at the time of enrollment and incurred large out-of-pocket expenses from services obtained outside the 

HMO. In this case, HCFA may approve a retroactive disenrollment which would require an HMO to 

reimburse premiums paid by the beneficiary and the medical bills would be processed through 

Medicare. 

4

our review. One HMO had only 8 appeal cases in our sample time frame (1/1/94 to 

7/3 1/95), and at another we sampled 16 cases. Because the latter plan was unable to 

provide us a universe of cases, we selected on-site eight cases from 1994, and eight 

cases from 1995. In the grievance sample, one HMO had only 13 cases in the 

universe. We analyzed the cases to determine whether procedural guidelines were 

followed, if appeals and grievances were being properly categorized, and if time 

requirements were being met. We also reviewed cases to determine if there were 

problems or weaknesses in the appeal/grievance processes. 

Because we used a purposive sample of HMOS, the results from this study only apply 

to them and cannot be projected to the universe of Medicare risk HMOS. 

We conducted our review in accordance with the QuaZi2y Standards for Iinpections 

issued by the President’s Council on Integrity and Efficiency. 

5

FINDINGS


BENEFICIARIES WERE NOT ALWAYS ADVISED OF THEIR APPEAL 

RIGHTS AT THE TIME SERVICES OR PAYMENT WERE DENIED 

According to 42 CFR 417.608, HMOS are required to send a written “initial 

determination” of any negative decision to beneficiaries within 60 days of their request 

for services or payment for services. The notice must advise beneficiaries of their 

right to appeal these decisions. Our case reviews revealed that some HMOS in our 

sample did not comply with these requirements. See Appendix A for detailed 

information on the numbers of cases where HMOS were not fully in compliance with 

HCFA directives. 

lhwnty-seven pement of our samplecase@x did not have initialdeterminationson jile. 

In our appeal sample of 144, 8 HMOS did not have initial determinations in 

27 percent or 39 case files. There was no evidence that beneficiaries were sent the 

initial determinations or given their appeal rights. One of these HMOS did not have 

initial determinations in 10 out of 15 case files and could not produce them upon 

request. 

This finding is supported by our companion report “Medicare HMO Appeal and 

Grievance Processes: Beneficiaries’ Understanding” (OEI-94-07-00281). In that 

inspection, we found that 41 respondents (9.6 percent) considered they were denied 

services. Of these 41, 34 (83 percent) beneficiaries reported that they did not receive 

the required notice explaining the denial and appeal rights. Similarly, a total of 39 

respondents (8 percent) were denied payment. Of these, 9 (23 percent) reported they 

did not receive this required notice. 

Five HMOS sent initiizldeterminations withoutinch.iding appah rights.

These five plans sent denial notices to beneficiaries in six cases without including 

instructions on their right to appeal the decision. The notices sent to beneficiaries 

contained only the reason for the denial. We also noted that an HMO sent 

2 additional initial determinations in 1 case, including appeal rights, but gave 

beneficiaries less than the required 60 days to file a request for reconsideration. The 

beneficiary was given two business days to appeal in one notice and seven days to 

respond to the second notice. 

HMOS sent initialdeterminationsto ben@ciariesAFTER receivingthe requestfor 

reconsideration. 

Five HMOS sent initial determinations after receiving the beneficiary’s request for 

reconsideration in 12 cases. One of these plans sent an initial determination on 

the same day the case was sent to NDG. ln four other cases, it sent the letter from 

four to seven months after receiving the request for reconsideration. 

6

THE HMOS DID NOT PROPERLY DISTINGUISH APPEALS FROM 

GRIEVANCES 

HMOS zhcomectljprocessedcaseswithappealiwuesas gn”evaraces. 

The 42 CFR 417.606 requires that HMOS completely separate disputes involving 

appeal issues (i.e., denials of or payment for services) and grievance issues (i.e., quality 

of care or waiting time for services). They are required to process beneficiary disputes 

under one process or the other, depending on the nature of the case. While appeal 

cases are subject to independent Federal review and various other levels of appeal, 

grievances are resolved internally, without the same protection of independent reviews. 

In our review we identified 37 cases (26 percent) where appeal requests were 

improperly processed as grievances. Examples include: 

�	 One HMO processes cases with appealable issues as either an appeal or a 

grievance based on whether the HMO provides an initial determination in 

writing to the beneficiary. If the case involves an appealable issue and the 

HMO does not issue a written initial determination, the case is incorrectly 

processed as a grievance. There were three such cases incorrectly processed in 

our sample. 

.	 Another HMO had 7 cases with appealable issues in its grievance sample of 13 

that were incorrectly processed as grievances, more than half of its sample 

cases. This HMO also had five cases in the appeal sample that were initially 

processed as grievances. 

�	 Two other HMOS indicated during intemiews that they had incorrect processes, 

however, no cases were found in the 30 reviewed in their sample. One HMO 

indicated that they attempt to resolve cases containing both an appeal and a 

grievance through their “informal” grievance process. If the beneficiary is 

dissatisfied with the decision, the plan attempts to process the case through 

their “formal” grievance process. The other HMO indicated that “When a 

doctor refuses care, it is treated as a grievance - informal, or formal if in 

writing. The grievance would go to either the Peer Review or NDG.” This 

HMO is treating an appealable issue as a grievance. 

As a result of incorrectly processing appeals as grievances, beneficiaries maybe denied 

full due process. These beneficiaries may not receive their right to an independent 

Federal review and may suffer financial expenses and potential harm to their health. 

Some HMOS incowectlyprocessedcomplairatithatincludedboth appal andgrievance 

iiwues. 

The HCFA HMO/CMP Manual Section 2400.1 instructs HMOS to process separately 

and simultaneously those cases with both appeals and grievances. Issues in these cases 

are not to be resolved through one process and then the other if the beneficia~ is 
dissatisfied with the results. However, three plans in our sample did not comply with 

these guidelines in five cases. 

One HMO in our sample incorrectly processed a case that involved both an 

appealable ($16,200) and grievable issue through the grievance process. After 

processing the case as a grievance and resolving the grievance issue, it eventually 

processed the appeal, sending the initial determination to the beneficiary seven 

months after the request for reconsideration, and then to NDG one month after this. 

NDG overturned the HMO decision and the claim was paid almost 12 months after 

the beneficiary first filed the appeal. 

THE HMOS DID NOT FULLY COMPLY WITH HCFA DIRECTIVES FOR 

PROCESSING APPEALS AND GRIEVANCES 

processim Appeals 

Refemd of Appeal Cases to NDG. While the HMO/CMP Manual Section 2405.3 

requires all denials, whether partial or full denial cases, be forwarded to NDG within 

60 days of request, we found some HMOS did not forward cases and sent beneficiaries 

multiple reconsideration determinations. 

�	 Five HMOS in our sample did not forward eight denied or partially denied 

cases (six percent) to NDG. These cases were closed without resolution and 

the beneficiaries were not provided the right to an independent Federal review. 

In one appeal case, it was explained to the beneficiary that the service would 

not be covered and the case was closed without giving the beneficiary full due 

process. The case was not sent to NDG for review as required. 

�	 One HMO sent multiple negative reconsideration determinations in response to 

a non-plan provider’s requests for payment in two cases over a span of two 

years. The non-plan provider wrote numerous letters to this HMO requesting 

they forward the cases to NDG and twice furnished copies of HCFA’S 

instructions of how to forward cases to NDG prior to it complying. 

Good Cause. According to the HMO/CMP Manual Section 2405.l(C), HMOS accept 

requests for reconsideration filed after the 60 day deadline if beneficiaries reveal 

circumstances that show “good cause” for the delay. Examples include: the 

beneficiary did not receive the initial determination, was seriously ill, or had an 

accident that destroyed important records. To accept these late requests for 

reconsideration, HMOS must establish the reason for the beneficiary’s delay in filing 

an appeal. 

Three HMOS did not document the basis for “good cause” when accepting appeals 

filed after 60 days in 14 cases, or 10 percent of the sample. One HMO had eight 

cases, or over half of its sample appeal cases where they were accepted without 

8

requiring the beneficiary to show “good cause.” One appeal case was accepted two 

years after the initial determination was sent. 

Delays in Processing Appeals. HMO/CMP Manual Section 2405.4(A) states that HMOS 

should “never issue more than one denial notice for a request for service or item or 

payment for an out-of-plan claim.” When a beneficiary files a request for 

reconsideration, the HMO has already denied the case once and should automatically 

send it to NDG within 60 days if the decision is upheld. In our sample, we found 

examples of appeal cases that were processed incorrectly. 

�	 Five HMOS sent beneficiaries multiple initial determinations in nine cases (six 

percent) in our sample. One plan sent six initial determinations in one case, 

while another plan sent three in one case. 

�	 Five HMOS had 13 cases (9 percent) where beneficiaries had to request a 

reconsideration determination multiple times before the HMO began the 

appeals process. 

Time Frames for Appeals 

Although 98 percent of the 132 HMOS surveyed in our companion inspection 

(“Medicare HMO Appeal and Grievance Processes: Survey of HMOS” 

[OEI-94-07-O0282]) reported in their responses that appeals are processed within the 

required time frame, case reviews revealed that some HMOS did not meet these 

requirements. 

�	 The 42 CFR 417.608 requires the initial determination be sent within 60 days of 

request for payment or services. Failure to issue a written notice within this 

time frame constitutes an adverse initial determination which the beneficiary 

may appeal. Five HMOS in our sample did not issue the initial determination 

within the 60 days of the request in 11 cases. 

�	 The HMO/CMP Manual Section 2403.1 requires that HMOS process claims 

within 24 days if complete and no later than 60 days if development is needed. 

However, one plan had two cases in our sample that had not been paid since 

1990. The provider was appealing for payment two years after services were 

rendered. These 2 case files contained 1992 documentation showing the 

non-plan provider had 13 additional appeals pending with this HMO since 

1990. Resolution of the two sample cases took five years. 

�	 HMOS are to make the reconsideration determination within 60 days from the 

time the appeal is filed. However, 9 plans did not make the reconsideration 

determination within this time frame or inform the beneficiary timely in 19 

percent (28 cases) of the our sample. The case file reviews showed that HMOS 

made the determinations from 3 to 11 months past the due date. We noted 

that 1 made its determinations late in 7 out of 15 cases. 

9

�	 One HMOinour sample hasapre-sefice denial procedure that causes 

inordinate delays in processing appeals. A contracted plan physician requests 

HMO authorization for a referral with the plan denying the referral until proof 

of medical necessity is provided. This cycle may occur several times before a 

beneficia~ questions the delay or files an appeal. These beneficiaries may not 

receive due process if the HMO does not send the initial determination even 

though the referral has been denied multiple times. Our review revealed 

3 cases where the HMO, after multiple internal denials were made, sent the 

initial determination 4 to 5 months past the required 60 days. 

�	 The HMO/CMP Manual Section 2405.3(A) requires that HMOS automatically 

send reconsiderations to NDG within 60 days of the request if denied in part or 

in full. They are required to meet this time frame even if the file is incomplete 

or pending medical records. In our reviews, however, we found four HMOS 

that did not send nine cases to NDG within this time frame. 

�	 The HMO/CMP Manual Section 2405.4(B) instructs HMOS to notify NDG 

within 60 days that decisions on overturned cases have been carried out. Our 

file review reflects that four plans in our sample did not notify NDG of 

payment in seven overturned cases within the time requirements. 

Resolvimz Grievances 

.	 The 42 CFR 417.600 and 417.606 requires HMOS to investigate and resolve 

grievance cases in a timely manner. We found one plan that suspends action 

on grievance cases while awaiting receipt of medical records. Cases remain 

closed and are re-opened only if the medical records are received. As a result 

of this incorrect process, cases are not being resolved. In our sample, we found 

two cases which had been closed pending medical records in this HMO. 

�	 While required to resolve grievance cases, one HMO in our sample had seven 

unresolved grievances and another had two cases that were either left open or 

closed without resolution. 

Documentation 

.	 Eight HMOS had undated or undocumented initial determinations on file in 46 

(32 percent) of the sample cases. Half of these plans had 7 to 12 cases with 

insufficient information. Not having these vital documents dated or on file 

causes difficulty in assessing timeliness and poses a problem for HMOS in 

proving they sent beneficiaries, with appeal disputes, the required initial 

determination and appeal rights. 

�	 Five HMOS had 25 cases (17 percent) with undated or undocumented 

reconsideration determinations on file. Without the date on the 

10

reconsideration determination, it is extremely difficult to determine if the HMO 

made this decision within the 60 day requirement. 

�	 HMOS are required to inform the beneficiary of their decision within 60 days 

from the time the appeal request was filed. Although there are minimal 

directives for processing grievance cases, regulations also mandate that HMOS 

notify beneficiaries of the results of grievance disputes. However, we found 

4 HMOS in our sample that had 20 appeal cases (14 percent) and 5 HMOS 

with 15 grievance cases where there was no evidence that the beneficiary was 

ever notified of results. 

�	 Six HMOS had such poor documentation that it was impossible to reconstruct 

16 appeal cases (11 percent) and 8 grievance cases (5 percent). HMOS refer to 

notices, attachments, beneficiary letters, and phone calls but did not keep them 

on file. One plan had completely separate files documenting this information in 

two different departments. However, this important information was not 

reconciled or reviewed with the appeal or grievance files. Another HMO rarely 

documented its modes of communication with the beneficiary and retained little 

documentation on cases. 
RECOMMENDATIONS


HCFA’S Office of Managed Care is making substantial efforts to improve the HMO 

appeal and grievance processes. It has recently created a work group - Managed Care 

Appeals and Grievance Initiative - organized to make program improvements in these 

functions. In 1995, HCFA’S Office of Managed Care revised guidelines used by 

HCFA Regional Offices in their annual review of HMOS. In addition, HCFA in 

conjunction with Network Design Group, has conducted training sessions, provided 

technical assistance, and issued publications to improve HMOS’ understanding and 

processing of appeals and grievances. HCFA plans to revise the HMO/CMP Manual 

and has received funds to evaluate problems in the area of appeals and grievances. 

However, as our findings reflect, there are areas where improvement is needed. 

We recommend that HCFA 

� ensure that HMOS comect~distinguishandprocessappak andgrievances. 

HCFA can accomplish this during their annual visits to HMOS. However, we 

suggest that HCFA conduct case reviews as well as examine the operating 

procedures to determine that appeals and grievances are processed correctly. We 

also suggest that HCFA focus closely on whether HMOS: 

- are in compliance with all directives in processing of appeal and grievance 

cases; 

- include appeal rights in all initial determinations sent to beneficiaries; and 

- release initial determinations and reconsideration decisions in appeal cases 

according to established time frames. 

� modfi the HCFA HMO/CMP Manual to cla~ andspecifjkq requimrnenfi. 

This can be accomplished by: 

- clarifying the explanation and language required on the appeal and grievance 

issues to improve HMOS’ understanding of the differences and 

- establishing minimum requirements for documentation of appeal and 

grievance files so that an independent reviewer, based upon examining the 

files, will be able to follow and understand the adjudication by the HMO. 

� broadenefoms to formallj trainHMOS on the appealandgrievanceprocesses. 

We noted a significant amount of turnover in HMO staff responsible for 

processing appeals and grievance cases during this inspection. In light of this 

turnover, there is a need to continue training on a routine basis. 

12

AGENCY COMMENTS


We solicited and received comments on our draft report from HCFA. The complete 

text of their response is included as an appendix to this report. A summary of their 

comments and our response follows. 

The HCFA agreed with the conclusion of our reports that improvements are needed 

and indicated that they are working to implement a number of our recommendations. 

We are pleased that HCFA agrees that improvements are needed in the appeal and 

grievance processes, and we recognize that changes are in the process of being made 

through the Medicare Appeals and Grievance Initiative (MAGI). However, because 

HCFA’S response does not specifically address the recommendations contained in our 

reports, we are unsure whether the problems identified in our report will be fully 

addressed through this initiative. As a result, it will be important for HCFA to include 

in their response to the final report an action plan that specifically addresses each 

recommendation. 

Although HCFA acknowledges the case review report identifies mistakes made by 

health plans, they expressed concerns about the sample sizes and number of cases 

reviewed. We agree that this sample could not be used to make national projections 

of the incidence of mistakes. However, the number of cases reviewed and outcomes 

of the reviews are more than adequate to indicate the existence of significant problems 

in HMO processing of appeals and grievances. 

Finally, HCFA raised questions about the knowledge and expertise of the individuals 

who prepared the HMOS’ responses to our survey documents. We requested and 

must assume that knowledgeable HMO staff completed our survey. We also note that 

beneficiaries making inquiries regarding appeals and grievances are likely to be 

interacting with these same individuals or their staff. 

13

APPENDIX A 

Problem Areas Detected III 

On-Site Review Of HMO Case Files 

A-1 
+ 

BENEFICIARIES WERE NOT ALWAYS ADVISED OF THEIR APPEAL RIGHTS AT THE TIME SERVICES OR PAYMENT WERE DENIED 

HMOS did not have evidence of giving 

beneficiaries appeal rights in initial 

determination. (27% or 39 cases) 10 6 2 2 6 4 8 1 

HMOS sent initial determinations without 

appeal rights included. (4% or 6 cases) 1 1 2 1 1 

HMOS sent initial determinations AFf’ER 

receiving the request for reconsideration. 

(8% or 12 cases) 6 2 1 2 1 

THE HMOS DID NOT PROPERLY DISTINGUISH APPEAU FROM GRIEVANCES 

HMOS incorrectly processed cases with appeal 

issues as grievances. (26% or 37 cases) 3 1 3 3 

HMOS incorrectly processed cases with both 

appeal and grievance issues. (3% or 5 cases) 2 

HMOS DID NOT FULLY COMPLY WITH HCFA DIRECI’fVES FOR PROCESSING APPEALS AND GRIEVANCES 

HMOS did not forward partially or fully denied 

cases to NDG. (6% or 8 cases) 

HMOS sent multiple reconsideration 

determinations in cases denying payment over 

two years prior to forwarding cases to NDG. 

(1% or 2 cases) 

HMOS did not show “good cause” for accepting 

beneficiary cases filed past the 60 day 

requirement. (1070 or 14 cases) 

Processing Appeals 

1 1 1 2 T 2

8 3 

A-2

CNSITE REVIEW OF APPEAJJGRIEVANCE CASE FILE@ AND ERRORS 

10 HMOS BY NUMBER OF CAWS 

AREAS IN ERROR E c E F G H I 

HMOS sent beneficiaries more than one initial 

determination. (6% or 9 cases) 2 1 2 2 - 2 -

HMOS did not begin the appeals process until 

beneficiaries requested a reconsideration 

multiple times. (9% or 13 cases) 5 1 2 2 3 

Time Frames for Appeals 

HMOS did not make the initial determination 

within the 60 day requirement. 6 2 1 - 1 1 

(8% or 11 cases) 

HMOS did not pay claims timely within 60 days 

of request (cases were not paid until 5 years 

after service). (190 or 2 cases) 2 

HMOS did not make reconsideration 

determination within 60 days of beneficiary 

request. (1990 or 28 cases) 4 2 6 1 7 1 1 5 1 

HMO’s pre-service denials caused inordinate 

delays in the process. (2% or 3 cases) 3 

HMOS did not forward cases to NDG within 

the 60 days required. (6% or 9 cases) 1 3 3 2 

HMOS did not notify NDG when decisions on 

overturned cases were carried out. 

(5% or 7 cases) 1 2 1 3 

Resolving Grievances 

HMOS suspend unresolved grievances while 

awaiting receipt of medical records. Cases 

remained closed unless the HMO received the 

records. (170 or 2 cases) 2 

HMOS did not resolve grievance cases; cases 

were left open or closed without resolution. 

(6% or 9 cases) 2 7 

A-3

Documentation 

cases. 

HMOS either did not have dates on initial 

determinations or evidence of sending them to 

beneficiaries. (32% or 46 cases) 12 9 3 2 7 4 8 1 

HMOS either did not have dates on 

reconsideration determinations or dld not have + 

them on file. (17% or 25 cases) 1 6 1 6 11 

HMOS did not have evidence of noti~ing 

beneficiaries of the results of the HMO 

reconsideration determinations. 

(14% or 20 cases) 3 1 7 9 

HMOS had no evidence of noti@ing 

beneficiaries of the results from grievances 

HMOS had such poor documentation that it 

was impossible to recreate appeal (a) and 

grievance (g) cases. (appeals - 11% or 16 cases, 

(10% or 15 cases) 3 

T

1 2 

I 

3 6 

grievances - 5% or 8 cases) 1 i 3g la lg - 10 a 4g 

Total Number of Errors in Cases by HMO 41 &Eik 24 52 18 34 44 54 26 

1 Review was based on 144 appeal cases and 148 grievance cases within 10 HMOS. 

2 HMO had 7 cases with appeal issues in the grievance sample that were processed as grievances and 5 cases in the appeal sample that were processed initially 

through the grievance process for a total of 12 cases. 

A-4

APPENDIX B 

Health Care Financing Administration 

Response to Report 

B-1 
-t. y’ % 

! ##f DEPARTMENT OF HEALTH& HUMAN SERVICES Haalth Care Financing Administrate 

s

-+. 

The Admlnbtrator 

W@Wxm OJcl zozm 

DATE: 

TO; 

FROM 

Sulli-mm 

DEC121W 

June Gibbs Brown 

Inspedor General 

Bruce C. Vladeck 

Administrator 

Office of bspector General (OIG) Draft. Reports: “hkcliearc HMO Appeal 

and Grievance Processes-Overview: (OEKOT-94-W2W);‘Medicare 

13M0 .4ppeal and Grievance Processes--Benefkiaries’ Understanding,” 

(OEI-07-94-00281); “Medicare HMO Appeal and GrieWce Processes-­

Survey of HMOs,” (OEI-07-94-00282); “Medicare HMO Appeal and 

Grievance Prowsses-Ileview of Cases,” (OEI-07-94-00283) 

we reviewed the above-referenced reports that examine the operations of the Mc&m.re 

risk-based HMOSappeal and grievance processes. We agreewith the conclusion of your 

report that improvements are needed and are working to implement a number of your 

recommendations. Our detailed wmments are attached, 

Thank you for the opportunity to review and comment on this report, 

Attachment 
Health Care FinancbM Adminktraiion (HCFA) Comments


on Office of Insuector Gene ral (OIG\


Draft Rewrt S:“bkdicm? ~dth Maintenance ~f%MliZ8tiOllS’w 01 Atmeal and


Grievance Processes “Overview.” (OEL07-94-0028@: Me&xe HMO Apye@qnd 

Grievance Processes: “Benei3ciaries’Understanding” (OEI-07-94@2811: ”meficme 

HMO Am3ealand Grievance Processes: ‘%uwY of HMOs~’ (OEI-07-94-002S2); 

“Medicare HMO APtxd and(?n“evanceProcesses; “Review of Cases: 

(OEL07-94-00283\ 

OIG Reeomtnendations 

OIG recommends that HCFA take the following actions to aikkess problems hi@lighted 

in the above studies: 

o 

0 

0 

0 

0 

0 

Actively monitor HMOS to ensure beneficiaries arc issued written determinations. 

* Work with HMOS to establish * “ d appeal and @eVan& language 

requirements in marketin@nrolbnent materials and operating procedures. 

Ensure that HMOScorrectly distinguish and procws appeals and grievances. 

Require HMOSto report Medicare contract-specific data on appeal and grievance 

cases. 

Mod@ the HMO/CMP Manualto Glarifjand speci& key requirements. 

Broaden efforts to formally tra.iuHMOSon the appeal andgrievanceprocesses. 

H(YA Response 

We agree that improvements are needed. We have a comprehensive effort underway 

called the Mcdioare Appeals and Grievatwe Initiative (MAGI) which includes a number 

of objectives that are direetly related to the recommendations in your reports. Our 

objectives include identiijing and meeting the information needs of beneficiaries 

regarding their appeal rights; promoting hml& plan accountability by de~eloping and 

hnpr’ovhg i.n$ormationon appeals and making mea@.@l information mop available; 

and refining mechanisms for monitoring and assisting in the continuous improvement of 

health pkm perfonuance. 
Page 2 

OIG and HCFA jointly ksued a Medicare benefi&uy advisory btieti entit.1~ “What 

Medicare Beneficiaries Need to Know About HMO Arrangements: Know Your Rights.” 

This easy-to-read document conta@ information on appeal @% ~g co~pltits, and 

rights to emergency and urgently needed serviees. Copies of this bulletin are being 

distributed nationally. Additionally, significant chaqgcs were made to improve the 

managed care portions of the Medicare Haudboo~ wtich - seti to @ bfwfi@u@ MS 

year. New data reporting requirements on phm=levelreoonsidemtions areiunder 

development and may be instituted as early as mid-1997. We also plan to r@ructure and 

shorten the time lines for handling health care decisions and nxmnsiderations by,health 

plans. 

Beneficiaries’ Understanding 

We are pleased to see the hi@ level of knowledge among Medicare knrollees&ar&ng 

their right to appeal and fife complaids, This is an improvement over w earlier finding, 

and one we believe results from both Federal program and plm effb~%t edwxting 

beneficiaries and providingnotices, With regard to the fitig that lxxwfickuies~d a 

lesser level of awareness as to when to exercise their appeal ri@s, fortheotig 

regulations cIari&ing the rightto appeal when services are reduced or tcrtiated and 

when to provide notices of nonGoverageat these points in care management should 

si~cant.ly help address ‘ti problem. We will consider the recommendations in this 

area. 

Survey HMOS 

Incorrect categorization of appeals as grievances is an area for improvement identiled in 

our MAGI initiative. However, we question the percentage and methodology set forth in 

this report. Because oertain sta.lfwithin the organizational structure of an HMO, or staff 

at delegated medkal groups within the HMO’s networ~ are generally responsible for 

as@ning mmpltits to the appeals or grkmme tiac~ it would be important to know 

who responded to the two questions asked on this subject and what role they play in this 

particular PIOC6SS,We will bemotig to itit@ theswwePIMJkm,WAwWE? 

tu.mmrand ccmfhsionover differences in Federal and state termhology. 

The type of statistical information sought by OIG staff has not been a requirement for 

Medicare-contracting health plans. Therefore, it is not surprising that many plsns 

aggregate the appeals information across ~o~erc~~ MedicWe, and Medicaid rqembers. 

New plan-level appeals reporting requirements should resolve the need for Medicare-only 

information, and respond to you recommendation, 
Page 3 

We have concerns about the small sample sizes and number of cases used to present 

findings in this repofi However, the report identifies the ~es of mista?ceshealth plain 

make in operating an appeals sys~ and the needs that plaus have for clear, distinct. 

information and trainkg about the Medicare managed care requirements (and how time 

differ from state requirements for their commercial and Medicaid enrollees), We wdl 

consider the Ietxmunendations presented