a

GAO

United States Government Accountability Office

Report to Congressional Committees

October 2004 MEDICARE

Incomplete Plan to 

Transfer Appeals 

Workload from SSA to 

HHS Threatens 

Service to Appellants

GAO-05-45
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-45.

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.. 

Highlights of GAO-05-45, a report to the 

Senate Committee on Finance, the House 

Committee on Energy and Commerce, 

and the House Committee on Ways and 

Means 

October 2004

MEDICARE

Incomplete Plan to Transfer Appeals 

Workload from SSA to HHS Threatens 

Service to Appellants 

Transferring the Medicare appeals workload from SSA to HHS requires 

careful preparation and the precise implementation of many interrelated 

items. The transfer is mandated to take place no later than October 1, 2005. 

SSA and HHS have stressed their commitment to ensuring a successful 

transfer of the administrative law judge (ALJ) level of the Medicare appeals 

process, and both agencies have emphasized that they are continuing to 

further develop details of the plan. Although the plan generally addresses 

each of the 13 elements mandated by MMA, it omits important details on 

how each element will be implemented. Furthermore, the plan overlooks 

the need for contingency provisions, which could prove to be essential, 

should critical tasks not be completed in a timely manner. GAO believes that 

this essential information is needed to facilitate a smooth and timely 

transfer. Its absence makes it unclear how the transfer plan will be 

implemented and threatens to compromise service to appellants. 

Completeness of Medicare Appeals Transfer Plan 

Plan elements mandated by MMA 

1. Transition timetable

2. Workload

3. Cost projections and financing

4. Regulations

5. Feasibility of precedential authority

6. Geographic distribution

7. Access to ALJs

8. Shared resources

9. Case tracking

10. Hiring

11. Training

12. Independence of ALJs

13. Performance standards

This aspect of the plan is complete

This aspect of the plan is partially complete

This aspect of the plan is incomplete 

Includes 

contingency plan

Addresses MMA 

requirements

Contains 

detailed

 information

Characteristics of the transfer plan

Source: GAO analysis of Medicare appeals transfer plan and supporting information.

The Medicare appeals process has 

been the subject of widespread 

concern in recent years because of 

the time it takes to resolve appeals 

of denied claims. Two federal 

agencies play a role in deciding 

appeals—the Department of Health 

and Human Services (HHS) and the 

Social Security Administration 

(SSA). Currently, neither agency 

manages and oversees the entire 

multilevel process. In the Medicare 

Prescription Drug, Improvement, 

and Modernization Act of 2003 

(MMA), Congress mandated that 

SSA transfer its responsibility for 

adjudicating Medicare appeals to 

HHS between July 1, 2005, and 

October 1, 2005. In addition, it 

directed the two agencies to 

develop a transfer plan addressing 

13 specific elements related to the 

transfer. GAO’s objective was to 

determine whether the plan is 

sufficient to ensure a smooth and 

timely transition. 

What GAO Recommends

GAO recommends that the 

Secretary of HHS and the 

Commissioner of SSA take steps to 

complete a substantive and 

detailed transfer plan that includes 

contingency provisions. HHS, with 

one exception, and SSA generally 

agreed with the recommendations. 

HHS stated the recommendation to 

develop contingency plans for four 

elements was unnecessary. GAO 

believes a contingency plan for 

each congressionally mandated 

element would best ensure a 

smooth and timely transition. 
Page i GAO-05-45 Medicare Appeals Transfer Plan 

Letter 1

Results in Brief 3 

Background 4 

Incomplete Transfer Plan Lacks Sufficient Detail to Ensure a 

Smooth and Timely Transition 10 

Conclusion 22 

Recommendations for Executive Action 23 

Agency Comments and Our Evaluation 23 

Appendix I Analysis of the Medicare Appeals Transfer Plan 26 

Appendix II Comments from the Social Security Administration 27 

Appendix III Comments from the Department of Health and 

Human Services 34 

Appendix IV GAO Contact and Staff Acknowledgments 41 

GAO Contact 41 

Acknowledgments 41 

Table 

Table 1: MMA Requirements for the Transfer Plan by Category 9 

Figures 

Figure 1: Current and Future Medicare Administrative Appeals 

Process 7 

Figure 2: Completeness of Medicare Appeals Transfer Plan 26 

Contents 
Page ii GAO-05-45 Medicare Appeals Transfer Plan 

Abbreviations 

ALJ administrative law judge 

BIPA The Medicare, Medicaid, and SCHIP Benefits Improvement 

 and Protection Act of 2000 

CMS Centers for Medicare & Medicaid Services 

DAB Departmental Appeals Board 

HHS Department of Health and Human Services 

MAC Medicare Appeals Council 

MAS Medicare Appeals System 

MMA Medicare Prescription Drug, Improvement, and 

 Modernization Act of 2003 

OHA Office of Hearings and Appeals 

OPM Office of Personnel Management 

QIC qualified independent contractor 

SSA Social Security Administration 

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Page 1 GAO-05-45 Medicare Appeals Transfer Plan 

October 4, 2004 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable Joe Barton 

Chairman 

The Honorable John D. Dingell 

Ranking Minority Member 

Committee on Energy and Commerce 

House of Representatives 

The Honorable William M. Thomas 

Chairman 

The Honorable Charles B. Rangel 

Ranking Minority Member 

Committee on Ways and Means 

House of Representatives 

In fiscal year 2003, Medicare—the federal health insurance program that 

serves the nation’s elderly and disabled—processed over 1 billion claims 

submitted by providers on behalf of the beneficiaries they serve. The 

Centers for Medicare & Medicaid Services (CMS), an agency within the 

Department of Health and Human Services (HHS), is responsible for 

administering the Medicare program. With assistance from 46 claims 

administration contractors, CMS is charged with identifying and denying 

health care claims that are invalid, incomplete, or otherwise improper. 

Medicare beneficiaries and providers have the right to appeal denied 

claims. In fiscal year 2003, the Medicare program denied about 136 million 

claims, or about 13 percent of all claims submitted. Of these denied claims, 

more than 5 million were appealed. 

Medicare appeals are resolved through an administrative process 

consisting of multiple levels of review through several entities. The 

process allows appellants who are dissatisfied with decisions at one level 

to appeal to the next level. The entities tasked with resolving appeals are 

referred to as “appeals bodies.” HHS is responsible for implementing and 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-45 Medicare Appeals Transfer Plan 

overseeing the Medicare appeals process. It includes using CMS’s claims 

administration contractors that consider appeals of denied claims, 

administrative law judges (ALJ) from another federal agency—the Social 

Security Administration (SSA)—who adjudicate appeals, and the Medicare 

Appeals Council (MAC) within HHS’s Departmental Appeals Board (DAB), 

which reviews decisions made by the ALJs. 

SSA was an agency within HHS until 1994, when it was separated from 

HHS and became an independent agency. Despite its removal from HHS, 

SSA’s Office of Hearings and Appeals (OHA) continued to hear, or 

“adjudicate,” Medicare appeals. Although still a participant in this process, 

OHA’s primary mission is to resolve Social Security appeals. Its Medicare 

workload is relatively small, representing about 11 percent of the appeals 

it heard in fiscal year 2003. As a consequence, most of OHA’s ALJs have 

greater expertise in Social Security matters than in Medicare. Because of 

their separate and distinct missions, and for the sake of administrative 

simplicity, HHS and SSA have contemplated transferring OHA’s Medicare 

appeals workload from SSA to HHS for years, but an agreement between 

the two agencies on specific details of the transfer was never reached. 

The Medicare appeals process has been the subject of widespread 

concern. Last year we reported that there has been poor coordination 

among the appeals bodies, which has affected their abilities to effectively 

manage the process.1

 We also found that management by two federal 

agencies—HHS and SSA—with neither agency managing and overseeing 

the entire process, has complicated the appeals bodies’ attempts to 

streamline the process. The appeals bodies have also been criticized for 

the length of time it takes them to render decisions, particularly SSA’s 

OHA and HHS’s MAC. 

In the recently enacted Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), Congress mandated that SSA transfer 

its responsibility for adjudicating Medicare appeals to HHS, with the result 

that all levels of the process would reside within a single federal agency.2

MMA specified that the transfer be completed not earlier than July 1, 2005, 

and not later than October 1, 2005. The law also required that SSA and 

HHS develop a plan for transferring the work and specified 13 elements 

 1

See GAO, Medicare Appeals: Disparity between Requirements and Responsible Agencies’ 

Capabilities, GAO-03-841 (Washington, D.C.: Sept. 29, 2003). 

2

Pub. L. No. 108-173, § 931, 117 Stat. 2066, 2396. 
Page 3 GAO-05-45 Medicare Appeals Transfer Plan 

that were to be addressed in that plan.3 MMA directed SSA and HHS to 

submit the transfer plan to GAO for evaluation no later than April 1, 2004. 

Our objective was to evaluate this plan4

 to determine whether it is 

sufficient to facilitate a smooth and timely transition. 

To do our work, we assessed how well the plan addressed the specific 

requirements set out in MMA and interviewed officials at HHS and SSA 

responsible for developing the plan. We also reviewed laws and 

regulations relevant to the transfer. To learn more about the plan’s 

implications, we interviewed ALJs who currently adjudicate Medicare 

appeals at OHA and judges at the MAC who review appealed OHA 

decisions. We also met with other officials at OHA, DAB, and CMS and 

representatives from two beneficiary advocacy groups to discuss the 

implications of the transfer plan. To learn more about HHS’s ability to hire 

new ALJs, we spoke with officials from the Office of Personnel 

Management (OPM). We interviewed officials from the Office of 

Management and Budget to learn about the costs associated with the 

transfer and related budgetary matters. Representatives from the 

Association of Administrative Law Judges—the union representing ALJs—

and the American Bar Association submitted written comments regarding 

the transfer plan, which we considered. Finally, we analyzed available 

information and other materials supporting the assumptions on which the 

plan is based, to determine their validity and to evaluate the 

appropriateness of the plan’s strategies. We performed our work from 

March 2004 through September 2004 in accordance with generally 

accepted government auditing standards. 

Transferring the Medicare appeals workload from SSA to HHS poses a 

complex challenge that requires careful preparation and the precise 

implementation of many interrelated tasks. Although the plan generally 

addresses each of the 13 elements mandated by MMA, it does not fully 

address 5 of them. For example, while MMA mandated that the plan 

address cost projections and financing by including funding levels required 

 3

The 13 elements were transition timetable, workload, cost projections and financing, 

regulations, feasibility of precedential authority, geographic distribution, access to ALJs, 

shared resources, case tracking, hiring, training, independence of ALJs, and performance 

standards. 

4

The Secretary of Health and Human Services and the Commissioner of Social Security, 

Report to Congress: Plan for the Transfer of Responsibility for Medicare Appeals (March 

2004). 

Results in Brief 
Page 4 GAO-05-45 Medicare Appeals Transfer Plan 

for fiscal year 2005 and subsequent fiscal years, the plan only contains 

information for fiscal year 2005. In addition, we found that the plan lacks 

detailed information for 11 of the 13 elements, making it difficult to 

understand how the transfer will be accomplished. For example, the plan 

contains insufficient information concerning the timing of the transfer, 

such as a detailed schedule or project plan to ensure that critical tasks are 

accomplished. Other elements of the plan required by MMA—including the 

development of new regulations to guide the appeals process and critical 

operational matters—have not been thoroughly addressed. Moreover, 

issues that establish the foundation for many other transfer activities—

such as the geographic distribution of ALJs—have not been resolved. 

Finally, ambiguous details concerning plans for hiring and training ALJs, 

developing appropriate performance standards, and safeguarding their 

decisional independence leave it unclear exactly how these important 

components of the transfer will ultimately be accomplished. The scarcity 

of detailed information regarding specific dates, duties, and decisions 

prevents a full assessment of the plan’s elements and the absence of 

contingency plans, should elements not be completed in a timely manner, 

threatens to compromise service to appellants. 

We are recommending that the Secretary of HHS and the Commissioner of 

SSA take steps to help ensure a smooth and timely transition of the 

Medicare appeals workload from SSA to HHS, including the completion of 

a substantive and detailed transfer plan that includes contingency plans. 

HHS, with one exception, and SSA generally agreed with the 

recommendations. HHS stated the recommendation to develop 

contingency plans for four elements was unnecessary. We believe a 

contingency plan for each congressionally mandated element would best 

ensure a smooth and timely transition. The agencies also noted new efforts 

to facilitate the transfer of Medicare appeals to HHS. Although these 

efforts might have merit, we had no opportunity to evaluate them. 

Medicare’s fee-for-service health care program consists of two parts—A 

and B. Part A covers inpatient hospital, skilled nursing facility, hospice, 

and certain home health services. Part B covers physician services, 

diagnostic tests, and related services and supplies. Medicare providers, on 

behalf of their beneficiaries, can appeal denied claims for services. 

Currently, there are four levels of administrative appeal (see fig. 1). 

Appeals for denied Part A and Part B Medicare claims currently follow 

Background 
Page 5 GAO-05-45 Medicare Appeals Transfer Plan 

similar, but not identical, paths. At the first level of appeal, the process is 

the same for both Part A and Part B denials. The Medicare claims 

administration contractor5

 reexamines the claim along with any additional 

documentation provided by the appellant. At this level, in general, only 

written materials are reviewed; however, Part B appellants may request 

telephone hearings. If the appellant of a Part B claim is dissatisfied with a 

decision at the first level, he may proceed to the second level of review, 

conducted by the Medicare contractor. At this stage, the file is once again 

reviewed, including any additional documentation submitted by the 

appellant, and a hearing may be conducted. However, there is no 

comparable second level of review by Medicare contractors of Part A 

appeals.6

Appellants of both Part A and Part B denied claims who remain 

dissatisfied with the decisions rendered by Medicare contractors may 

appeal to the third level—SSA’s OHA—where appeals are adjudicated by 

ALJs.7

 At this level, appellants have the option of attending a hearing 

conducted by telephone, by videoconference, or in person. OHA’s ALJs 

adjudicated the appeal of about 122,000 Medicare claims in fiscal year 

2003. Should appellants also be dissatisfied with the ALJ’s decision, they 

can appeal to the MAC. The MAC’s adjudication is the fourth and final 

level of the administrative appeals process. It is based on a review of 

OHA’s decision; the MAC does not conduct hearings. Appellants who have 

had their appeals denied at all levels of the administrative appeals process 

have the option of appealing to a federal district court. 

In addition to preparing for the transition of SSA’s appeals workload, HHS 

continues to plan numerous administrative and structural changes 

 5

In addition to processing and paying claims, the claims administration contractors 

currently administer the first level of the Part A appeals process and the first two levels of 

the Part B appeals process. 

6

Currently, appellants whose Part A appeals are denied by Medicare contractors at the first 

level, and who wish to continue to appeal their denied claims, proceed directly to the third 

level of the administrative appeals process—SSA’s OHA. 

7

OHA employs most—about 1,000—of the 1,300 ALJs who are employed by the federal 

government. Because OHA’s primary mission is to adjudicate Social Security disability 

appeals, its resources are largely devoted to these matters. Although it does not have a 

dedicated corps of ALJs for Medicare appeals, it has a cadre of 34 ALJs with significant 

Medicare hearings experience. However, few of these ALJs adjudicate Medicare appeals 

exclusively. Other ALJs may also have Medicare experience, to varying degrees. As a result, 

some Medicare appeals are randomly assigned to ALJs who may not be familiar with 

Medicare statutes and program rules. 
Page 6 GAO-05-45 Medicare Appeals Transfer Plan 

required by the Medicare, Medicaid, and SCHIP Benefits Improvement and 

Protection Act of 2000 (BIPA).8

 Most of these changes have not yet been 

implemented, including the finalization of new regulations. Among other 

things, BIPA mandated shorter time frames; expedited procedures for 

processing Medicare appeals at all levels; and the establishment of new 

contractors, known as qualified independent contractors (QIC). Contracts 

for QICs have not yet been awarded, but once QICs become operational, 

they will provide a new second level of adjudication for Part A appeals and 

replace the existing second level of the appeals process for Part B claims. 

As noted earlier, figure 1 shows the appeals bodies that are currently 

involved in Medicare appeals. It also shows those that will be responsible 

for resolving Medicare appeals once BIPA has been fully implemented and 

OHA’s workload has been transferred to HHS. 

 8

Pub. L. No. 106-554, app. F, § 521, 114 Stat. 2763A-463, 2763A-534. 
Page 7 GAO-05-45 Medicare Appeals Transfer Plan 

Figure 1: Current and Future Medicare Administrative Appeals Process 

a

The second level of the current appeals process is relevant for Part B appeals only. At present, there 

is no comparable second level of appeals for denied Part A claims. Appellants whose Part A claims 

have been denied by the claims administration contractor may continue to appeal their claims by 

submitting them to OHA. 

The transfer of the appeals workload from SSA to HHS is not a new 

proposal. As early as 1988, while SSA was still a part of HHS, discussion 

regarding the transfer of this function was already under way and, 

throughout the years, the development of potential transfer plans and 

strategies has continued. Discussions were active as late as 2003, 

culminating in SSA’s decision not to seek funding for Medicare appeals in 

its fiscal year 2004 budget request. Instead, HHS requested and received 

funding to cover the cost in its fiscal year 2004 budget. Under a 

Source: GAO.

1. HHS CMS contractor 

The first appeal is performed by the 

contractor. There is no hearing at 

this level.

2. HHS CMS QIC

CMS will contract with at least four 

QICs to process second-level 

appeals. QICs will not conduct 

hearings.

3. New HHS ALJ unit

The third level of appeal will be 

transferred to HHS from SSA 

between July and October 2005. 

This will be the only level of appeal 

to provide hearings once QICs are 

implemented.

4. HHS MAC

The MAC bases its decision on a 

review of the previous level of appeal 

and does not conduct hearings.

Appeals process effective under BIPA and MMA (scheduled for implementation no later than October 2005)

Record

First level of appeal Second level of appeal Third level of appeal Fourth level of appeal

1. HHS CMS contractor

The first appeal is performed by the 

contractor. There is no hearing at 

this level.

2. HHS CMS contractora

The contractor conducts this level of 

appeal. A hearing may be conducted.

3. SSA OHA

ALJs conduct hearings for Medicare 

and Social Security disability cases. 

Medicare appeals make up only 

about 11 percent of OHA's work.

4. HHS MAC

The MAC bases its decision on a 

review of the previous level of appeal 

and does not conduct hearings.

Current Medicare administrative appeals process

Record

First level of appeal Second level of appeal Third level of appeal Fourth level of appeal
Page 8 GAO-05-45 Medicare Appeals Transfer Plan 

reimbursable agreement with CMS, SSA will continue to hear Medicare 

appeals until September 30, 2005. 

In response to MMA’s mandate to transfer the workload, SSA and HHS 

created an interagency team that drafted the required transfer plan. The 

team has continued to meet to deliberate various aspects of the plan and 

discuss its implementation. Representatives from both agencies have 

stressed their commitment to ensuring a successful transfer of the 

Medicare appeals process from SSA to HHS. The plan indicates that HHS 

will begin to exercise adjudicative authority for Part A and Part B ALJ 

appeals that are received on or after July 1, 2005. The plan notes that this 

schedule is being adopted so SSA may concentrate on reducing its pending 

workload between July 1, 2005 and September 30, 2005 and to permit HHS 

to prepare for and begin conducting ALJ hearings. 

According to MMA, the plan is required to provide information regarding 

13 key elements. For purposes of this report, we have grouped these 

elements into six broader categories—timetable, scope of work, 

adjudication guidance, operational matters, staffing, and oversight. Table 1 

lists these six categories and related elements and identifies the act’s 

requirements for each element. 
Page 9 GAO-05-45 Medicare Appeals Transfer Plan 

Table 1: MMA Requirements for the Transfer Plan by Category 

Category and related elements MMA requirement 

(A) Timetable 

(1) Transition timetable A timetable for the transition. 

(B) Scope of work 

(2) Workload The number of ALJs and support staff required now and in the future to hear and decide 

Medicare appeals in a timely manner, taking into account current and anticipated claims 

volume, appeals, the number of beneficiaries, and statutory changes. 

(3) Cost projections and financing Funding levels required for fiscal year 2005 and subsequent years to carry out the 

functions transferred under the plan. 

(C) Adjudication guidance 

(4) Regulations The establishment of specific regulations to govern the appeals process. 

(5) Feasibility of precedential authority The feasibility of developing a process to give MAC decisions, addressing broad legal

issues, binding precedential authority. 

(D) Operational matters 

(6) Geographic distribution The steps that should be taken to provide for an appropriate geographic distribution of 

ALJs throughout the United States to ensure timely access. 

(7) Access to ALJs The feasibility of (a) electronically filing appeals to the ALJ level and (b) conducting 

hearings using video- or teleconferencing technologies. 

(8) Shared resources The steps that should be taken to enter into arrangements between HHS and SSA to 

share office space, support staff, and other resources, with appropriate reimbursement. 

(9) Case tracking The development of a unified case tracking system that will facilitate the maintenance 

and transfer of case-specific data across both the fee-for-service and managed care 

components of the Medicare program. 

(E) Staffing 

(10) Hiring The steps that should be taken to hire ALJs, taking into account their Medicare 

expertise and appropriate geographic distribution, and to hire support staff for ALJs. 

(11) Training Training for ALJs regarding Medicare laws and regulations. 

(F) Oversight 

(12) Independence of ALJs The steps that should be taken to ensure the independence of ALJs through placement 

of ALJs in an administrative office organizationally and functionally separate from CMS 

and its contractors, and providing that ALJs report to, and be under the general 

supervision of, the Secretary of HHS, but not report to, or be subject to supervision by, 

another officer of HHS. 

(13) Performance standards The appropriateness of establishing performance standards for ALJs with respect to 

timeliness of decisions, taking into account applicable requirements. 

Source: GAO analysis of Section 931 of MMA. 
Page 10 GAO-05-45 Medicare Appeals Transfer Plan 

We found that HHS’s and SSA’s plan is too vague to serve as a blueprint for 

the transfer’s implementation. We evaluated the plan’s 13 elements, 

mandated by MMA, and grouped them into six categories to evaluate 

whether the plan was sufficient to ensure a smooth and timely transition. 

We found that in virtually every category, the information contained in the 

plan, as well as documentation provided to us in the course of our work, 

lacked sufficient detail to ensure that HHS will achieve a smooth and 

timely transfer. Further, the lack of detail and the fact that some aspects of 

the plan have not yet been finalized raise serious questions as to whether 

HHS and SSA have considered the breadth of challenges inherent in the 

transfer. Our review suggests that the plan’s deficiencies, if not corrected, 

may compromise service to appellants. (App. I contains a summary 

evaluation of our analysis of the plan.) 

Element 1: Timetable 

Transferring SSA’s annual workload of appeals—about 122,000 claims in 

fiscal year 2003—to HHS requires the development of many interrelated 

components. For example, deciding where ALJs should be geographically 

located affects hiring and training plans and the need for office space. 

Because the transfer date is approaching, many of these activities must be 

completed simultaneously so that HHS can ensure that service to 

appellants will not be disrupted. With the exception of the development of 

a case tracking system, the plan contains few milestones for completing 

tasks. Some of the few dates that are mentioned merely reflect the MMAimposed deadlines between July 1, 2005, and October 1, 2005, without 

noting interim milestones. For example, there are no milestone dates 

associated with the vital tasks of producing training materials for newly 

hired ALJs or locating office space for ALJs to conduct hearings. Other 

elements of the plan are addressed without ever mentioning dates, such as 

the ensuring of independence for ALJs and the establishment of 

performance standards for them. Moreover, the plan does not assign 

responsibility to any group, office, or individual to perform the necessary 

tasks to execute key elements of the plan. In our view, the level of 

complexity associated with the transfer would warrant the development of 

a detailed schematic outlining all of the steps that need to be taken, as well 

as the corresponding dates for completing these steps, to ensure that the 

plan could be successfully executed. In response to our inquiries, the 

transfer team reported that it did not prepare a project plan nor could it 

supply information about ambiguous or absent milestones. Without 

specific milestones, HHS does not have a management tool for 

Incomplete Transfer 

Plan Lacks Sufficient 

Detail to Ensure a 

Smooth and Timely 

Transition 

Category A: Essential 

Milestones and 

Contingency Strategies 

Not Included in Transition 

Timetables 
Page 11 GAO-05-45 Medicare Appeals Transfer Plan 

determining whether the general dates contained in the plan can be met as 

scheduled. 

The transfer plan also lacks a contingency component, to be used in the 

event that something prevents the transfer from occurring as scheduled. 

Given the importance of having a system in place for adjudicating appeals, 

we view this as a considerable oversight. Failure to successfully 

implement even one element of the plan, such as the development of a 

geographic distribution plan to ensure appellants appropriate access to 

ALJs throughout the country, could derail the transfer. Although this is a 

critical element of the plan, there is no contingency provision. HHS 

officials maintained that they are confident the transfer will be executed in 

a timely manner, eliminating the need for a contingency plan. However, 

they indicated that if necessary, they could renew their reimbursable 

agreement with SSA to adjudicate Medicare appeals for another year. In 

contrast, SSA officials emphasized to us that responsibility for all 

Medicare appeals will pass, under MMA, to HHS on October 1, 2005. 

According to them, it is not a given that SSA will have the capability, or 

even the legal authority as of that date, to adjudicate Medicare appeals 

under any arrangement with HHS. In our view, this is the type of issue a 

contingency plan could address. In agency comments, both SSA and HHS 

reported that they have identified a mechanism for HHS to continue to use 

SSA ALJs to adjudicate Medicare appeals after the date of the transfer, if 

necessary. However, neither agency provided details concerning this 

mechanism in their comments. As a result, we are unable to evaluate it. 

Understanding the size of the appeals workload is a critical first step in 

planning for the transfer because other decisions, such as the number of 

ALJs needed to complete the adjudications, are predicated on it. We found 

that the transfer plan does not present a thorough analysis of the expected 

workload and the costs to transfer the function and adjudicate appeals. 

Further, the plan is based on unreliable staff and cost data, which 

undermine the validity of the plan’s projections. MMA mandated that 

certain external factors be incorporated into the plan’s analyses, such as 

changes in the number of appeals and the effect of statutory changes. 

However, the plan did not contain a detailed discussion of the implications 

of these factors on workload and costs. 

Element 2: Workload 

HHS’s plan to initially hire 50 ALJs is based on information from OHA that 

it uses an average of 46 ALJs to adjudicate Medicare appeals each month. 

Category B: The Plan’s 

Assumptions to Predict the 

Scope of Work Are Not 

Credible 
Page 12 GAO-05-45 Medicare Appeals Transfer Plan 

However, SSA does not have a dedicated corps of ALJs who are 

exclusively devoted to hearing Medicare appeals, and based its estimate 

on the average amount of time ALJs spend doing Medicare work. OHA has 

no formal timekeeping system for its ALJs, and instead, the chief of each 

local hearing office estimates the amount of time ALJs spend each month 

adjudicating Medicare appeals. Individual ALJs do not provide their own 

time estimates, and the information supplied by each local office is not 

otherwise verified. The transfer team did not independently determine the 

accuracy of this information, despite the plan’s heavy reliance on it. 

Despite the fact that MMA requires the plan to address the number of ALJs 

and support staff required to hear Medicare appeals now and in the future, 

the plan limits itself to the present. It does not specifically address how the 

implementation of recent statutory changes to Medicare may affect the 

appeals workload and increase the need for personnel. For example, the 

plan does not address the potential impact of additional appeals resulting 

from MMA’s new prescription drug benefit.9

 Further, the largest impact 

may result from the implementation of BIPA’s changes, which will not 

become effective until the QICs are fully established—now slated for 

October 2005. BIPA’s changes to the appeals process were to apply to 

appeals of claims denied on or after October 1, 2002. However, CMS issued 

a ruling on October 7, 2002,10 that held that the majority of BIPA’s 

provisions apply only to appeals adjudicated by QICs. Because QICs are 

not yet operational, the appeals process is currently operating in 

accordance with regulations established prior to BIPA’s passage.11 The 

establishment of the QICs and new regulations implementing BIPA’s 

provisions are now expected to occur simultaneously with the plan to 

transfer the OHA workload. As a result, it will be HHS’s ALJs who will be 

expected to comply with BIPA’s shorter time frames for processing 

appeals. While their OHA colleagues, who faced no deadlines, took an 

average of 327 days to complete a Medicare appeal in fiscal year 2003, HHS 

ALJs will be expected to render decisions much more quickly—within 90 

days. The plan is silent as to how HHS’s new corps of ALJs will meet 

 9

MMA created a new, voluntary prescription drug benefit for Medicare beneficiaries, to 

start in 2006. 

1067 Fed. Reg. 62,478. 

11There are two exceptions that resulted from the October 7, 2002 ruling, implementing 

BIPA’s changes—revising the deadline for filing an appeal for the first level of review and 

reducing the dollar threshold for filing an appeal at the OHA level. 
Page 13 GAO-05-45 Medicare Appeals Transfer Plan 

BIPA’s time frames by completing the same workload in less than onethird the time taken by OHA. 

In addition, the plan states that efficiencies will be gained from hiring ALJs 

and staff who are specialized in Medicare, increasing reliance on 

teleconferences and videoconferences to minimize travel, and improving 

the management of appeals cases. While efficiencies may be gained in the 

long term, we found that the plan did not provide a sound quantitative 

basis to support HHS’s claim that efficiencies would mitigate demand for 

more resources in the first year of operation. Further, the plan does not 

contain a contingency provision to address the possibility that greater 

efficiencies may not be achieved. In our view, this is significant as, in the 

short term, HHS may experience a period of diminished efficiency while 

new staff—both ALJs and support personnel—take time to attend training, 

develop expertise with Medicare issues, and gain familiarity with their new 

organization and infrastructure. 

Element 3: Cost Projections and Financing 

The plan notes that $129 million was requested for fiscal year 2005 for 

Medicare appeals reforms, which includes start-up funds for HHS’s ALJ 

unit; funds to reimburse SSA for continuing to process Medicare appeals; 

and funds to implement other BIPA reforms, as amended by MMA. In fiscal 

year 2004, $50 million was intended for processing appeals submitted to 

ALJs. HHS officials told us that they anticipate requiring the same amount 

for fiscal year 2005. The $50 million for processing appeals is based upon 

SSA’s agreement to adjudicate approximately 50,000 cases,12 at a cost of 

$1,000 each, in fiscal year 2004. We learned that HHS expects to use 

$8 million in fiscal year 2005 to meet start-up costs for the transfer of ALJ 

functions. Although the plan notes that start-up funds will allow HHS to 

begin hiring attorneys and other staff, it makes no mention of office space, 

equipment, and other infrastructure development costs. Most of the 

remaining balance is expected to be used for establishing QICs. We also 

noted that the plan does not provide cost projections for years subsequent 

to 2005, as required by MMA. 

 12An appellant may aggregate multiple denied claims into a single appeal or “case” to meet 

OHA’s minimum dollar threshold for filing an appeal. In addition, the appeals bodies may 

reconfigure a “case” to group denied claims related to similar issues. 
Page 14 GAO-05-45 Medicare Appeals Transfer Plan 

Office of Management and Budget officials, who are responsible for 

approving HHS’s requests, and HHS officials could not provide specific 

budgetary details related to the plan. Moreover, HHS’s estimate of the 

costs of adjudicating Medicare appeals in fiscal year 2005 is based on its 

assumption that those costs will mirror what it is paying SSA to resolve 

appeals this fiscal year under its reimbursable agreement. However, OHA 

reported that the actual costs of adjudicating these appeals exceeded the 

amount it was being paid. After adjusting for inflation and overhead, OHA 

officials estimated that their actual cost in fiscal year 2003—the most 

current data available—was closer to $1,300 per case. MMA allows for 

increased financial support to ensure that the HHS ALJ unit meets its 

workload demands. However, should additional funds be needed, the plan 

does not include a contingency provision that defines criteria and other 

relevant measures to justify future requests for increased financial 

support. 

The timely issuance of regulations governing the appeals process will have 

a significant effect on the implementation of the transfer plan. Without 

regulations implementing the provisions of BIPA, and more recently MMA, 

the appeals process will lack guidance critical for its operation. 

Nonetheless, the plan does not address time frames for establishing these 

regulations nor does it discuss what actions will be taken should the 

regulations not be finalized by the time of the transfer. It appears, 

however, that no regulations will be needed regarding the use of MAC 

decisions as binding precedents on lower levels of the appeals process, 

including ALJs, at least in the near future. The plan has addressed this 

matter by retaining current policy, which allows ALJs and the other 

appeals bodies to consider these decisions as guidance, but does not 

require them to be viewed as binding precedents. However, the plan 

suggests that this decision may only be for the short term. 

Element 4: Regulations 

To implement MMA’s provisions to transfer SSA’s workload to HHS, 

regulations will need to be drafted and finalized by October 1, 2005—the 

date that the transfer is required to be complete. As required by MMA, the 

plan acknowledges the need for specific regulations and mentions that 

regulations will be developed in several areas, such as providing 

appellants the opportunity to file appeals electronically and a reliance on 

videoconferences in lieu of in-person hearings. However, the plan is silent 

on the anticipated time frames for issuing these regulations and does not 

include interim dates to ensure they are finalized on time. In the absence 

Category C: Completion of 

Adjudication Guidance for 

ALJs Not Fully Addressed 
Page 15 GAO-05-45 Medicare Appeals Transfer Plan 

of regulations, it is not clear how appellants will be assured of having 

sufficient access to ALJs. For example, without regulations it is uncertain 

what forum will be used to provide information to beneficiaries and 

providers, how access to this information will be provided, and what will 

be used as the basis for this information. The plan also does not address 

whether there will be a need to issue additional regulations on other 

aspects of the transfer, such as procedures for hiring ALJs, initiating a 

training program, developing ALJ performance standards, and identifying 

opportunities for HHS and SSA to share resources. Given the ambiguity in 

the plan, it is unclear how the required transfer of the appeals function to 

HHS could proceed on a timely basis. 

Moreover, although the plan recognizes that regulations implementing 

most of BIPA’s provisions have not been finalized, it does not address the 

impact of this situation. This is particularly troubling because, according 

to CMS, the implementation of QICs will be delayed if final regulations are 

not issued by November 2004. As a result, HHS may be compelled to 

develop and operate two separate processing systems—one that follows 

current rules, and another that complies with BIPA’s mandated deadlines 

and other requirements. 

Element 5: Feasibility of Precedential Authority 

In response to an MMA requirement to address precedential authority, the 

plan makes clear that MAC decisions will not be binding on lower levels of 

the appeals process, including ALJs. The plan acknowledges that 

precedential authority may contribute to more consistent decisions by 

ALJs. However, it concludes that the risk of an inaccurate or incomplete 

interpretation of an agency ruling could result in greater problems when 

the same issue is raised more clearly or in different circumstances. The 

plan therefore concludes that the risks inherent in giving the MAC 

precedential authority outweigh the benefits. The plan also suggests that 

high-level decisions could serve as guidance to the lower levels in the 

process, without having the full force of precedent. Although the plan 

indicates that HHS will reevaluate its stand on the merits of granting 

binding precedential authority to MAC decisions, it does not specify what 

might contribute to a change in its current position on the issue. 

Absent or insufficient details and vague descriptions regarding critical 

operational aspects of the transfer prevented us from fully evaluating 

these components and, in our view, put the successful implementation of 

the transfer at risk. The lack of a geographic distribution plan for HHS 

Category D: Operational 

Matters Need Greater 

Specificity 
Page 16 GAO-05-45 Medicare Appeals Transfer Plan 

ALJs alone threatens to undermine efforts to accomplish the transfer in a 

timely manner. Beyond this, the lack of specific plans to ensure access to 

ALJs nationwide and to share resources with SSA to enhance appellant 

access may well compromise service to appellants. Finally, although the 

plan outlines important details concerning the establishment of a new case 

tracking system, its implementation is linked to the establishment of the 

QICs in July 2005, making a current evaluation impractical. 

Element 6: Geographic Distribution 

While the plan addresses the topic of the future geographic distribution of 

ALJs, it does not include the steps to be taken to ensure that appellants 

across the country will have timely access to such judges, as MMA 

requires. Rather than detailing a specific geographic distribution strategy, 

the transfer plan indicates that a central hearing support office will be 

located in the Baltimore, Maryland and Washington, D.C., metropolitan 

area and that a field structure will be established. Because many issues 

relating to the successful implementation of the transfer, such as hiring 

staff, hinge on the strategy for distributing ALJs throughout the country, 

its absence from the plan is a serious shortcoming. 

The plan notes that HHS will develop a process for determining the size 

and location of the field structure and will reach a final decision about the 

geographic distribution of ALJs by the end of calendar year 2004. 

However, the plan does not include key information that would enable us 

to analyze this critical component of the plan, such as the anticipated 

number of field office locations or the size and resources required for each 

office. The plan also does not supply information about the number of 

judges to be housed in each location or details concerning whether certain 

case processing activities—such as case receipt, research, and preparation 

for hearings—will be centralized or regionally based. 

Element 7: Access to ALJs 

MMA required the plan to address the feasibility of electronically filing 

appeals to the ALJ level. CMS is developing a beneficiary Web site, which, 

in its pilot at one contractor, allows beneficiaries Internet access to claims 

information. The plan anticipates that HHS will use this Web site to allow 

electronic appeals submissions. Although the plan does not discuss when 

this feature will be available, a CMS official estimated it would not be 

ready for testing for at least 2 years. HHS is also exploring the possible 

development of another Internet-based filing system that does not depend 

on CMS’s beneficiary Web site. 
Page 17 GAO-05-45 Medicare Appeals Transfer Plan 

MMA also required that the plan address the feasibility of using video- and 

teleconferencing to provide access to ALJs. Although the plan identifies a 

variety of sources for providing ALJs and appellants with videoconference 

access—including SSA, private contractors, and other government 

agencies—no analysis has been conducted to determine where 

videoconference sites are needed, where such sites are actually available, 

and the costs of such services. Moreover, SSA does not expect appellants 

to travel more than 75 miles to attend hearings, but the plan does not 

address HHS’s expectations in this regard. Appellants in remote areas of 

the country may be unlikely to find access to videoconference facilities 

within such a radius. In regard to teleconferences, the plan notes that a 

small number of appeals are currently conducted in this manner, but more 

commonly, teleconferences are used to obtain the testimony of expert 

witnesses. The plan refers to HHS’s willingness to expand its use of 

teleconferences, where appropriate, but does not define the conditions 

that would constitute “appropriate” use. 

Moreover, no analysis has been done to determine what proportion of 

appellants would actually be interested in having their appeals heard using 

videoconferences or teleconferences. Several ALJs told us that 

beneficiaries are often uncomfortable using videoconference facilities and 

prefer to have their cases heard face-to-face. While appellants have the 

right to request in-person hearings, the plan does not include an 

assessment of HHS’s capacity to conduct such hearings. There is no 

contingency provision to facilitate in-person hearings, should this be 

appellants’ preference. Further, as a result of changes to the appeals 

process due to BIPA, hearings by ALJs will provide an appellant’s sole 

opportunity to be heard in person, making access to them all the more 

important. Although OHA has been able to accommodate appellants 

through its network of 10 regional offices and an additional 143 field 

offices with hearing rooms throughout the United States and Puerto Rico, 

HHS currently has no available capacity to hear Medicare claims appeals.13

 13Although HHS employs nine ALJs, they focus on other departmental matters. One of these 

ALJs adjudicates appeals at the Food and Drug Administration. The remaining eight work 

at DAB and hear enforcement appeals, including those related to Medicare fraud and 

provider penalties. The latter have a backlog of almost 500 pending cases. However, these 

ALJs have no hearing rooms and, instead, use the hearing rooms of local courts or other 

agencies. 
Page 18 GAO-05-45 Medicare Appeals Transfer Plan 

Element 8: Shared Resources 

The plan does not address MMA’s mandate that it include steps for SSA 

and HHS to share office space, support staff, and other resources. 

Moreover, it does not include a contingency element should HHS be 

unable to use SSA resources to complete the Medicare workload. Instead, 

the plan focuses exclusively on sharing videoconference facilities, but the 

arrangements for sharing this resource are ambiguous. For example, while 

the plan notes that SSA is willing to share its videoconference sites, it also 

makes clear that SSA will have priority over the use of the equipment and 

does not include a protocol for ensuring that HHS will have sufficient and 

timely access. One SSA official told us the agency anticipates that it will 

have excess videoconference capacity once it expands its videoconference 

system. Currently, SSA has 148 videoconference units available but plans 

to increase this number to 351 units at 302 different sites by 2006. 

However, the agency has not yet performed an analysis to establish where 

and when excess capacity is anticipated. Because SSA ALJs schedule their 

hearings well in advance, HHS ALJs may have difficulty scheduling 

videoconferences in their localities to meet their 90-day BIPA-mandated 

deadline. Moreover, even with access to 302 facilities, depending on the 

location of available equipment, HHS ALJs may have to travel to 

videoconferences, which could be as time-consuming as traveling to inperson hearings. 

Element 9: Case Tracking 

The plan addresses the mandate’s directive to develop a unified case 

tracking system for all appeals levels, and outlines a new tool designed to 

fulfill the mandate’s requirements—the Medicare Appeals System (MAS). 

We found that the design and approach to implementing MAS appear 

reasonable. However, the plan was drafted with the expectation that MAS 

would be first used by QICs in the summer of 2004. The delay in 

implementing QICs, which are now not expected to become fully 

operational until October 2005, has reduced the time available for live 

testing of the system to determine if it will perform as expected. Currently, 

HHS is unable to conduct such testing. This delay may leave insufficient 

time to fully test MAS and make necessary adjustments to the system, but 

the plan leaves no margin for such an occurrence. However, should MAS 

be unavailable at the time of the transfer, CMS has an alternate case 

tracking system that could be temporarily deployed until the new system 

becomes operational. 
Page 19 GAO-05-45 Medicare Appeals Transfer Plan 

The plan lacks a detailed staffing strategy to ensure that HHS can attract 

both ALJs and support staff by the time of the transfer. MMA required the 

plan to include steps to hire ALJs, taking into account their expertise in 

Medicare, and to address training in Medicare laws and regulations. 

Element 10: Hiring 

As required by MMA, the plan addresses steps that should be taken to hire 

ALJs and support staff. It outlines HHS’s intention to hire ALJs from 

various sources, including OPM’s register of qualified ALJs, the list of 

retired ALJs who have expressed interest in returning to work and are 

available for temporary reappointment, and ALJs currently employed and 

adjudicating administrative appeals at other agencies.14 However, it does 

not discuss how HHS will be able to ensure that it can attract the 50 ALJs 

it plans to hire. Moreover, we expect that it may be difficult for HHS to 

identify and hire 50 ALJs with Medicare knowledge. For example, OPM’s 

register, the largest source of new ALJs with 1,300 potential candidates, 

does not include information indicating whether candidates have Medicare 

expertise. Similarly, HHS cannot tell which of the 110 retired ALJs on the 

register of those interested in returning to work have Medicare expertise. 

And, although ALJs already employed at other agencies may be interested 

in seeking employment at HHS, few of them are likely to have knowledge 

of Medicare rules. Given that the majority of ALJs currently employed by 

SSA focus primarily on disability appeals, few of them are likely to have 

significant Medicare expertise. 

HHS’s plan to hire ALJs and other professional and administrative staff in 

a manner that ensures an appropriate geographic distribution is a major 

staffing consideration. However, the plan does not address how HHS will 

incorporate this feature into its hiring plans. Given the lack of such a 

geographic distribution plan, there is no way for ALJ candidates to know 

where new positions will be located—which may have a great bearing on 

their interest. As a result, even the OHA ALJs with Medicare expertise may 

 14OPM administers the ALJ examination and maintains a hiring register. Federal agencies 

that intend to hire ALJs must specify the number and locations of the judgeships they 

would like to fill and submit their requests for candidates to OPM. OPM supplies three to 

five of the highest ranked candidates for each slot. Those not hired are returned to the 

register. Agencies may also hire temporary ALJs from a roster of retired judges who have 

made themselves available for reemployment. This roster is also maintained by OPM. In 

addition, federal agencies may hire ALJs who are already employed in that capacity at 

other agencies by posting vacancy announcements and evaluating applicants. 

Category E: Strategy for 

Staffing HHS’s ALJ Unit Is 

Undeveloped 
Page 20 GAO-05-45 Medicare Appeals Transfer Plan 

not be interested in transferring to HHS, if this would require them to 

relocate. 

The plan lacks other details concerning HHS’s hiring plans. For example, it 

is not explicit about whether HHS will hire the 50 ALJs and 200 support 

staff all at once, or if it intends to conduct several rounds of hiring and 

training. The plan does not outline who is to be involved in the hiring 

process and, as of July 2004, HHS had not decided whether a chief judge 

might be hired first to participate in the hiring of the ALJs and support 

staff. Finally, the plan does not acknowledge the possibility that HHS may 

be unable to hire all needed staff by the time of the transfer. By not 

recognizing this possibility, the plan misses the opportunity to develop 

critical contingency arrangements. 

Element 11: Training 

As required by the mandate, the plan describes HHS’s plans to develop a 

training strategy but, nonetheless, leaves key questions unanswered. 

Although the plan establishes four broad categories for short-term 

training, it does not include substantive information on the training’s 

content. It also lacks other critical information, such as a detailed 

description of its plans to provide initial training for HHS’s ALJs. While 

OHA’s ALJ training of new hires lasts 5 weeks, the plan does not describe 

the duration of HHS’s planned training or the depth of material to be 

covered. It also does not specify who will be responsible for developing 

the training curriculum and course materials or presenting the training to 

new ALJs. The plan mentions that HHS is also developing a long-term 

training strategy, but there are no details for providing ongoing training 

and refresher classes to ALJs in future years. Even OHA ALJs with 

Medicare knowledge may need additional training, as some indicated to us 

that their understanding of the program’s rules is not current. 

In addition to our concerns regarding the content of this plan element, the 

lack of a detailed schedule for developing and presenting the new training 

program raises concerns about HHS’s ability to have an adequately 

prepared staff to adhere to its plans to begin processing appeals by July 1, 

2005. The only date included in HHS’s training schedule indicates that both 

hiring and training will begin in the second quarter of calendar year 2005—

at most, 3 months before the plan anticipates HHS ALJs will begin hearing 

appeals. This poses a challenging time frame for HHS, especially if its 

training will mirror OHA’s 5-week program. Given the plan’s timeline, 

there is little opportunity to pursue alternate training arrangements, 

should delays occur. 
Page 21 GAO-05-45 Medicare Appeals Transfer Plan 

Although the plan recognizes the importance of ALJ decisional 

independence—an element critical to the integrity of the appeals 

process—it does not specify, organizationally, where ALJs will be housed 

within HHS nor does it discuss the safeguards that will be put in place to 

ensure ALJs are insulated from undue influence from HHS. The plan 

outlines the circumstances under which performance standards can be 

applied to ALJs without threatening their independence. However, other 

than meeting time frames prescribed by law, the plan proposes no 

standards nor does it describe the process that might be used to develop 

such standards. 

Element 12: Independence of ALJs 

Despite the fact that the independence of ALJs is critical to ensuring due 

process to appellants, the plan is silent on what steps will be taken to 

shield ALJs from real or perceived external pressures, including pressure 

from elsewhere in HHS, which is tasked with overseeing the Medicare 

program. ALJs throughout the federal government may have to issue 

rulings against the agencies that employ them.15 However, since SSA 

became an independent agency in 1994, OHA ALJs hearing Medicare 

appeals, as SSA employees, have not been in this position. 

The plan notes that SSA has a long history of maintaining independence of 

ALJs. MMA required that the plan provide information on steps to be taken 

to ensure the independence of ALJs hearing Medicare appeals once this 

function has been transferred to HHS. However, the plan merely repeats 

MMA’s requirement—that the HHS ALJ unit will report solely to the 

Secretary of HHS and that it will be separate from CMS. The plan provides 

no information about the proposed, new organizational structure, nor does 

it specify who, in terms of title and duties, will direct and manage the HHS 

ALJ unit. Furthermore, the plan does not define the relationship of ALJs to 

other HHS offices, such as CMS and the MAC—with which the ALJ unit 

will have to communicate and coordinate—or where, organizationally, the 

ALJ unit will be housed. The plan also does not include standards that 

either HHS, or the new ALJ unit, could use to evaluate whether the 

independence of the ALJ unit is being achieved. Similarly, the plan makes 

no reference to the steps that will be taken to ensure the objectivity of ALJ 

 15To ensure that ALJs feel free to exercise their independent judgment, federal law provides 

them with several protections. For example, ALJs are excluded from the definition of 

“employee,” for the purposes of performance appraisal systems applicable to other federal 

employees. 5 U.S.C. § 4301(2)(D) (2000). 

Category F: Issues of 

Oversight Remain 

Unresolved 
Page 22 GAO-05-45 Medicare Appeals Transfer Plan 

training. Finally, the plan does not recognize the possibility that the 

independence of the ALJ unit could be questioned nor does it specify a 

contingency plan to ensure—and if necessary, restore—the continued 

independence of ALJs. 

Element 13: Performance Standards 

The plan addresses the appropriateness of establishing performance 

standards for ALJs, as required by MMA. Although the plan acknowledges 

that it is important that ALJs adhere to the new time frames for processing 

appeals as established by BIPA, it is unclear whether any other 

performance standards for ALJs will be established. The plan notes that 

the law allows the imposition of “administrative practices and 

programming policies that ALJs must follow,” including timeliness of 

decisions, so long as the agency does not use the guidelines to influence 

the ALJs’ decisions. In addition, the plan holds that it is not unreasonable 

to expect a minimum level of efficiency and that ALJs can be disciplined 

for “good cause,” which may be based on performance or unacceptably 

low productivity. However, the plan does not discuss whether such 

guidelines will be imposed, by what means the agency would evaluate a 

minimum level of efficiency, who would evaluate the judges, and what 

actions might be taken based on unsatisfactory findings. Similarly, the 

plan does not include specific steps the agency would take to ensure that 

any guidelines and performance standards that are imposed would not 

interfere with ALJ independence. Finally, the plan does not address how 

ALJs would be evaluated should any new standards be challenged. 

SSA and HHS have stressed their commitment to ensuring a successful 

transfer of the ALJ level of the Medicare appeals process from SSA to 

HHS. Addressing the 13 elements specified in MMA and developing and 

implementing contingency provisions are key to ensuring that the 

transition is smooth and that services to appellants are not disrupted. 

Although both agencies have stressed that they are continuing to further 

develop details of the plan, based on the information they have developed 

thus far, we believe that the plan does not comprehensively address the 13 

elements and, thus, seriously jeopardizes a successful and timely 

transition. For example, the absence of specific milestones, the use of 

unreliable data, and the lack of an acknowledgement that HHS may 

ultimately need to develop two separate processing systems to adhere to 

current practices and those required by BIPA are serious shortcomings. 

Moreover, the absence of details related to providing appellants access to 

ALJs, hiring and training staff with expertise in Medicare, and preserving 

Conclusion 
Page 23 GAO-05-45 Medicare Appeals Transfer Plan 

ALJ independence further undermine the plan’s credibility. The plan’s lack 

of specific details jeopardizes HHS’s ability to begin adjudicating appeals 

as scheduled. Unless SSA and HHS act quickly to effectively address the 13 

elements required by MMA and finalize the transition plan for transferring 

responsibility for adjudicating Medicare appeals from SSA to HHS, the 

appeals process could be compromised. 

To help ensure a smooth and timely transition of the Medicare appeals 

workload from SSA to HHS, we recommend that the Secretary of HHS and 

the Commissioner of SSA take steps to complete a substantive and 

detailed transfer plan. Specifically, we recommend that the Secretary and 

Commissioner take the following six actions: 

• Prepare a detailed project plan to include interim and final milestones, 

individuals or groups responsible for completing key elements essential to 

the transfer, and contingency plans. 

• Validate data and perform analyses to support decisions regarding key 

elements, such as workload, staffing needs, and costs. 

• Outline a strategy that addresses the possible need for two separate 

processing systems at HHS—one for appeals that follows the current 

processing practices and one that complies with BIPA’s time frames and 

other requirements—in the event that the BIPA provisions establishing the 

QICs are not implemented as scheduled. 

• Identify where staff and hearing facilities—including videoconference 

equipment—are needed as well as opportunities to share staff and office 

space. 

• Develop an approach to ensure that ALJs and support staff with Medicare 

expertise can be hired, and that all staff are adequately trained to process 

and adjudicate Medicare appeals. 

• Define the relationship of HHS’s ALJ unit to the other organizations within 

the department, and identify safeguards that will be established to ensure 

decisional independence. 

We provided a draft of this report to both SSA and HHS for their review. In 

its written comments, HHS agreed with all but one of our 

recommendations. HHS said that contingency plans for several plan 

elements—regulations, feasibility of precedential authority, independence 

of ALJs, and performance standards—were unnecessary. Because of the 

critical nature of these provisions and the inter-dependence of the plan’s 

components, we continue to believe that the establishment of such plans 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
Page 24 GAO-05-45 Medicare Appeals Transfer Plan 

for each congressionally mandated element would best ensure a smooth 

and timely transition. 

Further, HHS emphasized that it attempted to ensure that it provided us 

with the most current information available regarding decisions associated 

with the transition. However, we do not believe that HHS has kept us fully 

apprised of all of its efforts. For example, in its comments, HHS described 

the establishment of the Office of Medicare Hearings and Appeals 

Transition and the activities of this new office related to the transfer. 

Although HHS indicated that this office was established in July 2004, 

before our work was complete, this information was not shared with us. In 

addition, although HHS noted several other efforts to enhance the 

transition process—such as its analysis of internal data to make caseload 

projections for fiscal years 2005 and 2006—this information also was not 

provided to us during the course of our work. Although this, and other 

efforts HHS cited to facilitate the transfer of Medicare appeals might have 

promise, we had no opportunity to evaluate them. 

We are also concerned with HHS’s characterization of our findings and its 

own progress in implementing the transfer. For example, HHS interprets 

figure 2 in our report as indicating that we believe that the plan meets 

substantially all MMA requirements. However, figure 2 clearly shows that 5 

of the 13 plan elements do not completely address these requirements. 

Moreover, figure 2 shows that the plan lacks detailed information and 

contingency plans for the vast majority of the elements. Such significant 

deficiencies suggest that a smooth and timely transfer may be in jeopardy. 

HHS also stated that the public comments it received concerning the plan 

were positive. Our information does not support this assertion. Our 

evaluation of these comments showed that they mirrored the concerns 

addressed in our report and raised serious questions about the ability of 

SSA and HHS to effect the transfer in a manner that would preserve the 

independence of ALJs and ensure the quality of service to appellants. 

In its written comments, SSA agreed with our recommendations by either 

expressing its concurrence or by citing steps it has taken to aid with their 

implementation. SSA also noted that it shared our concern that adequate 

planning needs to take place and agreed that detailed contingency 

planning is important. Although SSA’s comments focused on its continuing 

contribution to enhance HHS’s understanding of the current Medicare 

appeals process, it also emphasized that some elements of the plan are the 

sole responsibility of HHS. While we agree that HHS must ultimately 

assume full and complete responsibility for the appeals process, until the 

transition is complete, we believe that both agencies are accountable for 
Page 25 GAO-05-45 Medicare Appeals Transfer Plan 

ensuring that appeals are adjudicated promptly and competently, and for 

coordinating their efforts so that the transfer occurs on a smooth and 

timely basis. 

Finally, both SSA and HHS expressed concern with the title of our report. 

HHS said that the title might raise unnecessary fears among the advocate 

and beneficiary communities. Further HHS stated that it is on track for an 

efficient and effective transfer of the ALJ function at the earliest possible 

time allowed by the MMA. Although HHS indicated that much progress has 

been made in key areas, such as development of regulations and the 

assurance of ALJ independence, it provided no new information in support 

of these efforts. In addition, many other significant questions raised in our 

report, such as the geographic distribution of ALJs, were not addressed in 

its comments. Therefore, we continue to have significant concerns about 

the agencies’ abilities to effectuate the transfer on a timely basis. Both 

agencies also reported that they had identified a mechanism for HHS to 

continue to use SSA ALJs to adjudicate Medicare appeals after the 

statutory date of the transfer, if necessary. However, neither SSA nor HHS 

described this mechanism and we therefore were unable to evaluate it. 

Consequently, we continue to believe that our evaluation of the evidence 

supports the report title. SSA’s and HHS’s comments are reprinted in 

appendixes II and III, respectively. 

We are sending copies of this report to the Secretary of HHS, the 

Commissioner of SSA, and other interested parties. In addition, this report 

will be available at no charge on GAO’s Web site at http://www.gao.gov. 

We will also make copies available to others upon request. 

If you or your staffs have any questions about this report, please call me at 

(312) 220-7600. An additional GAO contact and other staff members who 

prepared this report are listed in appendix IV. 

Leslie G. Aronovitz 

Director, Health Care—Program 

 Administration and Integrity Issues 
Appendix I: Analysis of the Medicare Appeals 

Transfer Plan 

Page 26 GAO-05-45 Medicare Appeals Transfer Plan 

Based on our review of the plan and additional materials provided by the 

transfer team, we found that the plan to transfer the Medicare appeals 

function from the Social Security Administration to the Department of 

Health and Human Services is insufficient to ensure a smooth and timely 

transition. Although the plan generally addresses each of the 13 elements 

mandated by the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (MMA), as indicated in figure 2, it omits 

important details on how each element will be implemented. Furthermore, 

the plan overlooks the need for contingency provisions, which could prove 

to be essential, should critical tasks not be completed in a timely manner. 

Figure 2: Completeness of Medicare Appeals Transfer Plan 

Appendix I: Analysis of the Medicare Appeals 

Transfer Plan 

Plan elements mandated by MMA 

1. Transition timetable

2. Workload

3. Cost projections and financing

4. Regulations

5. Feasibility of precedential authority

6. Geographic distribution

7. Access to ALJs

8. Shared resources

9. Case tracking

10. Hiring

11. Training

12. Independence of ALJs

13. Performance standards

This aspect of the plan is complete

This aspect of the plan is partially complete

This aspect of the plan is incomplete 

Includes 

contingency plan

Addresses MMA 

requirements

Contains detailed

 information

Characteristics of the transfer plan

Source: GAO analysis of Medicare appeals transfer plan and supporting information.
Appendix II: Comments from the Social 

Security Administration 

Page 27 GAO-05-45 Medicare Appeals Transfer Plan 

Appendix II: Comments from the Social 

Security Administration 
Appendix II: Comments from the Social 

Security Administration 

Page 28 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix II: Comments from the Social 

Security Administration 

Page 29 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix II: Comments from the Social 

Security Administration 

Page 30 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix II: Comments from the Social 

Security Administration 

Page 31 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix II: Comments from the Social 

Security Administration 

Page 32 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix II: Comments from the Social 

Security Administration 

Page 33 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 34 GAO-05-45 Medicare Appeals Transfer Plan 

Appendix III: Comments from the 

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

Page 35 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 36 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 37 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 38 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 39 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix III: Comments from the Department of Health and Human Services 

Page 40 GAO-05-45 Medicare Appeals Transfer Plan 
Appendix IV: GAO Contact and Staff 

Acknowledgments 

Page 41 GAO-05-45 Medicare Appeals Transfer Plan 

Geraldine Redican-Bigott, (312) 220-7678 

Margaret Weber, Craig Winslow, Shirin Hormozi, and Barbara Mulliken 

made key contributions to this report. 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(290370) 
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