United States General Accounting Office 

GAO Report to the Committee on Energy and 

Commerce, House of Representatives 

September 2003 MEDICARE APPEALS 

Disparity between 

Requirements and 

Responsible Agencies’ 

Capabilities 

GAO-03-841 

Highlights of GAO-03-841, a report to the 

Committee on Energy and Commerce, 

House of Representatives 

Appellants and others have been 

concerned about the length of time 

it takes for a decision on the appeal 

of a denied Medicare claim. In 

December 2000, the Medicare, 

Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 

2000 (BIPA), required, among other 

things, shorter decision time 

frames. BIPA’s provisions related 

to Medicare appeals were to be 

applied to claims denied after 

October 1, 2002, but many of the 

changes have not yet been 

implemented. GAO was asked to 

evaluate whether the current 

Medicare appeals process is 

operating consistent with BIPA’s 

requirements and to identify any 

barriers to meeting the law’s 

requirements. 

GAO recommends that the 

Secretary of HHS and the 

Commissioner of SSA more closely 

coordinate their efforts to improve 

administrative processing, develop 

strategies for reducing the backlog 

of pending cases, and establish 

data requirements to facilitate the 

successful implementation of 

BIPA’s mandated changes. HHS 

and SSA agreed that inefficiencies 

in the appeals process require 

attention and that the process 

would benefit from better 

coordination. 

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

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Leslie G. 

Aronovitz at (312) 220-7600. 

September 2003 

MEDICARE APPEALS 

Disparity between Requirements and 

Responsible Agencies’ Capabilities 

BIPA demands a level of performance, especially regarding timeliness, that 

the appeals bodies—the contract insurance carriers responsible for the first 

two levels of appeals, the Social Security Administration’s (SSA) Office of 

Hearings and Appeals (OHA), and the Department of Health and Human 

Services (HHS) Medicare Appeals Council (MAC)—have not demonstrated 

they can meet. While the carriers have generally met their pre-BIPA time 

requirements, in fiscal year 2001, they completed only 43 percent of first 

level appeals within BIPA’s 30-day time frame. In addition to average 

processing times more than four times longer than that required by BIPA, 

OHA and the MAC—the two highest levels of appeal—have accumulated 

sizable backlogs of unresolved cases. Delays in administrative processing 

due to inefficiencies and incompatibility of their data systems constitute 70 

percent of the time spent processing appeals at the OHA and MAC levels. 

Average Time Spent in Each Stage of Processing for Cases Adjudicated by OHA and the 

MAC in Fiscal Year 2001 

Medicare Appeals Council 

Appellant 

submits 

request for 

review 

Appellant 

submits 

request for 

Case 

materials 

assigned to 

legal staff 

Case 

materials 

assigned to 

legal staff 

Appeals 

body issues 

decision 

Appeals 

body issues 

decision 

4 months 

11 months 4 months 

Case materials 

received by 

local hearing 

office 

3 months 

3 months 3 months 

The MAC 

requests 

case files 

Case 

materials 

received 

Administrative processing 

Administrative processing 

Legal analysis 

and adjudication 

Legal analysis 

and adjudication 

Office of Hearings and Appeals 

7 months 

review 

Sources: OHA and the MAC. 

The appeals bodies are housed in two different agencies—HHS and SSA. 

The lack of a single entity to set priorities and address operational 

problems—such as incompatible data and administrative systems—at all 

four levels of the process has precluded successful management of the 

appeals system as a whole. Uncertainty about funding and a possible transfer 

of OHA’s Medicare appeals workload from OHA to HHS has also complicated 

the appeals bodies’ ability to adequately plan for the future. 
Contents 


Letter 

Results in Brief 


Background


Appeals Process Operations Inconsistent with BIPA’s 


Requirements 

Appeals Bodies’ Lack of Coordination and Resources Is a Barrier to 

BIPA Implementation 

Conclusions 

Recommendations for Executive Action 

Agency Comments and Our Evaluation 

1 

2 

3 

9 

14 

20 

21 

21 

Appendix I Scope and Methodology 

Appendix II 	 The Scope of Part B Claims Rejections, Denials, 

and Appeals 

Appendix III Changes Mandated by Section 521 of BIPA 

Appendix IV 	 Comments from the Department of Health and 

Human Services 

Appendix V Comments from the Social Security Administration 

Appendix VI GAO Contact and Staff Acknowledgments 45 

GAO Contact 45 

Acknowledgments 45 

Page i GAO-03-841 Medicare Appeals 

25 

28 

31 

33 

40 
Tables 

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


Fiscal Year 2001 29


Table 2: Growth in Part B Appeals Cases Submitted by Appeal 


Level from Fiscal Year 1996 through Fiscal Year 2001 30


Figures 

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


Mandated Appeals Process 6


Figure 2: Average Time Spent in Each Stage of Processing for 


Cases Adjudicated by OHA and the MAC in Fiscal Year 


2001 12


Page ii GAO-03-841 Medicare Appeals 
Abbreviations 

ALJ administrative law judge


BIPA The Medicare, Medicaid, and SCHIP Benefits Improvement 


and Protection Act of 2000 

CMS Centers for Medicare & Medicaid Services 

CROWD Contractor Reporting of Operational and Workload Data 

DAB Departmental Appeals Board 

HCFA Health Care Financing Administration 

HHS Department of Health and Human Services 

LCD local coverage determination 

LMRP local medical review policy 

MAC Medicare Appeals Council 

MOU memorandum of understanding 

NCD national coverage determination 

OHA Office of Hearings and Appeals 

QIC qualified independent contractor 

SOW statement of work 

SSA Social Security Administration 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-03-841 Medicare Appeals 
United States General Accounting Office 

Washington, DC 20548 

September 29, 2003 


The Honorable W.J. “Billy” Tauzin 


Chairman 


The Honorable John D. Dingell 


Ranking Minority Member 


Committee on Energy and Commerce 


House of Representatives 


In fiscal year 2002, Medicare—the nation’s largest health insurer—paid 


over $200 billion to provide medical care to 40 million elderly and disabled 


beneficiaries. The Centers for Medicare & Medicaid Services (CMS),1

 an 


agency within the Department of Health and Human Services (HHS), 


administers the Medicare program with the help of about 50 claims 


administration contractors. Among other things, CMS is charged with 


protecting the program by identifying and denying health care claims that


are invalid, incomplete, or otherwise appear to be improper. Beneficiaries 


and providers2

 may pursue the payment of denied claims through a 


multilevel administrative appeals process. The entities—or appeals 


bodies—that constitute the process include the Social Security 


Administration (SSA) and HHS’s Departmental Appeals Board (DAB), in 


addition to CMS. In fiscal year 2001, 3.7 million Part B3

 appeals were 


submitted to the first level in the process. 


In recent years, there has been widespread concern about the length of 


time it takes the appeals bodies to render decisions. In December 2000, the 


Congress enacted the Medicare, Medicaid, and SCHIP Benefits 


Improvement and Protection Act of 2000 (BIPA). Section 521 of BIPA 


amended section 1869 of the Social Security Act by mandating shorter 


1

On June 14, 2001, the Secretary of Health and Human Services announced that the name of 

the Health Care Financing Administration (HCFA) had been changed to the Centers for 

Medicare & Medicaid Services. In this report, we will refer to HCFA where our findings 

apply to operations that took place under that organizational structure and name. 

2

For the purposes of this report, the term “provider” refers to any nonbeneficiary appellant, 

including physicians and other suppliers. 

3

Medicare fee-for-service consists of two parts—A and B. Part A claims cover inpatient 

hospital, skilled nursing facility, hospice, and certain home health services. Part B claims 

cover physician services, diagnostic tests, and related services and supplies. 

Page 1 GAO-03-841 Medicare Appeals 
time frames and expedited procedures for processing Medicare appeals.4

 It 

also added the requirement that the Secretary of HHS report on the 

number of appealed claims and consistency of appeals decisions. The 

provisions were to be applied to claims denied on or after October 1, 2002. 

Concerned about the appeals bodies’ ability to implement BIPA’s 

provisions, you asked that we conduct an assessment of the Medicare 

appeals process. Specifically, we examined whether (1) the current 

appeals process is operating consistent with BIPA’s requirements and (2) 

there are any barriers in meeting the law’s requirements. 

Because the majority of appeals are related to the denial of Part B claims, 

we limited our work to assessing the appeals process for these claims. We 

reviewed statutes, regulations, policies, and other documentation related 

to the four levels of the administrative appeals process, including Part B 

carriers,5

 which conduct the first two levels of appeal; the Office of 

Hearings and Appeals (OHA) within SSA, which hears the third level of 

appeals; and the Medicare Appeals Council (MAC) within HHS’s DAB, 

which reviews OHA’s decisions. To assess the conditions present at the 

time BIPA was passed, we analyzed fiscal year 2001 appeals processing 

data. We subsequently reviewed more current data and confirmed that the 

conditions were relatively unchanged. We interviewed officials from CMS, 

OHA, and the MAC to discuss the management of the appeals process and 

the implementation of BIPA requirements. We conducted our work from 

November 2001 through September 2003, in accordance with generally 

accepted government auditing standards. (See app. I for more information 

on our scope and methodology.) 

Results in Brief 	 The appeals bodies are not currently performing at the level that would 

enable them to meet BIPA’s more rigorous timeliness requirements. Their 

performance is far from meeting BIPA requirements with the two higher 

levels of appeal taking, on average, more than four times the amount of 

time BIPA requires to complete an appeal. In addition, both OHA and the 

MAC face large backlogs of pending appeals because they have been 

unable to routinely resolve all of the appeals that they receive. Long4

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

(2000)). 

5

Medicare contractors that process Part A claims are called fiscal intermediaries, while 

those that process Part B claims are called carriers. 

Page 2 GAO-03-841 Medicare Appeals 
standing administrative problems among the appeals bodies, such as timeconsuming transfers of paper appeals files and delays caused by outdated 

technology, which account for about 70 percent of the time spent in 

processing appeals at OHA and the MAC, have not been corrected. BIPA’s 

provision allowing appellants the right to bypass appeals bodies that do 

not resolve their appeals within prescribed time frames by elevating them 

to the next level may only shift processing delays to the higher appeals 

bodies. The combined effect of these factors has prevented the appeals 

bodies from attaining the level of performance BIPA demands. 

The appeals bodies face several barriers to the successful implementation 

of BIPA. Because appeals bodies are housed in different agencies, the 

coordination among them is inherently difficult. Each agency has its own 

priorities and, although officials from the appeals bodies worked together 

to develop a proposed rule for the implementation of BIPA, they have not 

coordinated their BIPA implementation strategy. The lack of adequate data 

to pinpoint weaknesses in the appeals process and enable informed 

decision-making has further hindered BIPA’s implementation. And, 

although some of the appeals bodies are planning to obtain or have 

implemented new data management systems, they have not coordinated 

with their counterparts to ensure compatibility of the systems across 

agencies. Uncertainty about funding and a possible transfer of the OHA’s 

Medicare appeals workload from OHA to HHS has also complicated the 

appeals bodies’ ability to adequately plan for the future. 

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

SSA more closely coordinate their efforts to improve administrative 

processing, develop strategies for reducing the backlog of pending cases, 

and establish data requirements to facilitate the successful implementation 

of BIPA’s mandated changes. HHS and SSA agreed that inefficiencies in 

the appeals process require attention and that the process would benefit 

from better coordination. 

Background 	 Providers and beneficiaries may appeal any denied claim. Claims are 

denied for a variety of reasons. In fiscal year 2001, the most common 

reason for denying claims was that the services provided were determined 

not to have been medically necessary for the beneficiaries. Other reasons 

for denials include that Medicare did not cover the services, or that the 

beneficiary was not eligible for services. Claims that do not meet the 

Page 3 GAO-03-841 Medicare Appeals 
requirements outlined in Medicare statutes and federal regulations may be 

denied.6

 In addition, denials may be issued for claims that are inconsistent 

with CMS’s national coverage determinations (NCD) and carrier-based 

policies, including local medical review policies (LMRP), local coverage 

determinations (LCD), and other carrier instructions.7

 Relatively few 

denied claims are ever appealed, and only a small fraction is appealed to 

the highest level. (App. II contains more information regarding the denial 

of claims, including common reasons for denials.) 

The Medicare Part B appeals process consists of four levels of 

administrative appeals performed by three appeals bodies. Medicare 

carriers are responsible for the first two levels of appeal—the carrier 

review8

 and the carrier hearing. Through a memorandum of understanding 

(MOU) implemented in March 1995—when SSA was separated from HHS 

and became an independent agency—OHA’s administrative law judges 

(ALJ) within SSA continue to hear the third level of appeal. OHA’s 

continued role in Medicare appeals is uncertain, as SSA officials have 

indicated that they plan to discontinue adjudicating Medicare appeals and 

expect to transfer the workload to HHS. However, until an agreement 

between SSA and HHS is reached, OHA will continue to adjudicate 

Medicare appeals. The MAC adjudicates appeals at the fourth level of the 

administrative appeals process. In addition, appellants who have had their 

appeals denied at all four levels of the administrative appeals process have 

the option of filing their appeals in federal court. 

Section 521 of BIPA requires numerous administrative and structural 

changes to the appeals process, including moving the second level of 

appeals—the carrier hearing—from the Medicare carriers to a group of 

6

The Medicare program is governed by title XVIII of the Social Security Act, 42 U.S.C. §§ 

1395 et seq. (2000), and related regulations, 42 C.F.R. pts. 400-425 (2002). 

7

NCDs are developed by CMS to describe the circumstances for Medicare coverage for a 

specific medical service, procedure, or device. All Medicare carriers must observe NCDs in 

determining if a claim is payable; appeals bodies at all levels must apply NCDs when 

adjudicating appeals. LMRPs and LCDs, developed by contractors, specify the clinical 

circumstances under which a service is covered to enhance or clarify national Medicare 

guidance. Due to carrier-based policies, services covered by Medicare in one area may not 

be covered in another area served by a different carrier. For more information on Medicare 

coverage policy, see U.S. General Accounting Office, Medicare: Divided Authority for 

Policies on Coverage of Procedures and Devices Results in Inequities, GAO-03-175 

(Washington, D.C.: Apr. 11, 2003). 

8

BIPA refers to the carrier review level as the “redetermination.” 

Page 4 GAO-03-841 Medicare Appeals 
yet-to-be-established contractors, known as qualified independent 

contractors (QIC). Figure 1 outlines the steps of the existing appeals 

process and the process BIPA requires. BIPA’s changes to the appeals 

process were to apply with respect to initial determinations—that is, 

claims denials—made on or after October 1, 2002. Although CMS 

published a rule9

 on October 7, 2002, the ruling implemented only two of 

BIPA’s provisions—revising the deadline for filing an appeal to the carrier 

review level and reducing the dollar threshold for filing an appeal at the 

OHA level. The October 7th rule outlines the criteria used to select the 

changes that would be immediately implemented; among the criteria is 

that the provision can be implemented using existing CMS resources. CMS 

published a proposed rule for complete implementation of BIPA-mandated 

changes on November 15, 2002,10 but the final rule has not been issued. As 

of June 2003, the appeals process is generally operating in accordance 

with regulations established prior to BIPA’s passage. (See app. III for a 

comprehensive list of BIPA’s changes.) 

9

67 Fed. Reg. 62,478. 

1067 Fed. Reg. 69,312. 

Page 5 GAO-03-841 Medicare Appeals 
Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-Mandated Appeals Process 

Initial claim 

determination 

45 days 

Carrier review 

30 days 

QIC reconsideration 

30 days 

OHA 90 days 

The MAC 90 days 

Federal district court 

no time limit 

180 days/any dollar 

amount 

60 days/$1,000 

60 days/any dollar 

amount 

60 days/$100 

120 days/any dollar 

amount 

BIPA-mandated 

appeals process 

Initial claim 

determination 

45 days 

Carrier review 

45 days 

Carrier hearing 

120 days 

OHA no time limit 

The MAC no time 

limit 

Federal district court 

no time limit 

180 days/$100 

60 days/$1,000 

60 days/any dollar 

amount 

60 days/$500 

180 days/any dollar 

amount 

First level of 

administrative 

appeal 

Judicial appeal 

Fourth level of 

administrative 

appeal 

Second level of 

administrative 

appeal 

Third level of 

administrative 

appeal 

Pre-BIPA 

appeals process 

Oversight/agencies 

CMS oversees the carriers who perform 

- intitial claim determinations and 

- the carrier appeals functions 

(hearing and review). 

BIPA requires that the Secretary of HHS 

contract with QICs for the new 

second-level review. 

SSA oversees OHA. 

HHS (but not CMS) oversees the MAC. 

(Courts are independent and 

not part of the administrative 

appeals process.) 

Time allowed for Medicare or the appeals bodies to issue a decision 

Time allowed for appellant to request an appeal/dollar threshold required to file appeal 

Sources: CMS, BIPA, and 20 CFR 422.210 § (2002). 

Beneficiaries and providers have the right to appeal denied claims if 

appeals are filed within the deadline. CMS’s October 2002 ruling 

implemented the BIPA-mandated deadline for filing an appeal at the 

Page 6 GAO-03-841 Medicare Appeals 
carrier review level, shortening it from 180 to 120 days—one of two BIPA 

provisions implemented thus far. Appeals at the carrier hearing level must 

be submitted within 180 days of the denial or unfavorable determination. 

Appellants who are dissatisfied with decisions reached at the carrier 

hearing level may appeal to OHA and then to the MAC, and their appeals 

must be filed within 60 days of receiving an unfavorable determination at 

the previous level. 

There is no dollar minimum required to file an appeal at the carrier review 

level. However, an appeal at the carrier hearing and OHA levels must meet 

specific dollar thresholds of $100 and $500, respectively. To meet the 

thresholds, multiple denied claims may be aggregated into a single appeals 

“case.” The MAC does not have a dollar threshold for considering appeals. 

Finally, appellants who receive unfavorable determinations from the MAC 

may appeal the decisions in federal court if the amount in dispute is at 

least $1,000. BIPA provisions change the threshold amounts at the second 

level of appeal and OHA. When QICs replace carrier hearings as the 

second level of appeal, the dollar threshold for submitting an appeal at 

that level will be eliminated. Further, CMS’s October 2002 ruling 

implemented BIPA’s reduced dollar threshold for filing an appeal at 

OHA—the second of two BIPA provisions to be implemented thus far—by 

dropping the threshold from $500 to $100. 

BIPA also shortened the time frames the appeals bodies have for 

adjudicating appeals at the first two levels and established time frames for 

the first time at the higher levels. BIPA’s provisions that revise the 

timelines for processing appeals have not been implemented, and the 

appeals bodies are following previously issued performance standards 

specifying that 95 percent of carrier reviews be completed within 45 days 

and 90 percent of carrier hearings be completed within 120 days. BIPA 

required that carrier reviews be completed in 30 days and that the QICs 

issue their decisions in 30 days. While OHA and the MAC have not 

previously been bound by time limits, BIPA required that they issue 

decisions within 90 days of the date an appeal was filed.11 BIPA also gave 

appellants the right to escalate their appeals to the next level in the 

process for adjudication when a decision is not issued within the specified 

time frame. Escalation is available from any level of appeal except the 

first—carrier review. However, CMS’s November 2002 proposed rule 

regarding BIPA’s implementation provides that appellants who escalate 

11OHA and MAC time limits may be waived at the appellant’s request. 

Page 7 GAO-03-841 Medicare Appeals 
their appeals to the next level will, in essence, be waiving their right to a 

decision within the statutory time frame governing that level. For example, 

an appeal that is escalated from the OHA to the MAC would not be subject 

to the 90-day limit that applies to appeals received by the MAC that have 

not been escalated. 

The first three levels of appeal share a protocol for adjudication, called de 

novo review, which permits adjudicators to consider results from earlier 

decisions but requires them to independently evaluate evidence and issue 

original decisions. The appeals bodies reexamine the initial claim to 

determine if it should be paid and consider any new documentation or 

information supporting the claim that the appellant submitted. The fourth 

level of review, the MAC, does not share this protocol. Rather than 

performing de novo review of evidence, it evaluates the appropriateness of 

OHA decisions and considers whether new evidence submitted will alter 

the decision. BIPA changes require that the MAC performs de novo review 

in all cases. 

The appeals bodies reach decisions through either a review of the file for 

the initial claim or through hearings. At the first level of appeal, a carrier 

review officer who was not involved in the initial denial reexamines the 

initial claim and any new supporting documentation provided by the 

appellant but does not conduct a hearing. The second level of appeal—the 

carrier hearing—provides the appellant with an opportunity to participate 

in a hearing at the carrier’s facility or by telephone. OHA conducts 

hearings at the third level of review. OHA’s hearings are held at its central 

office in Falls Church, Virginia, or at one of its 140 local hearing offices 

nationwide. The MAC’s adjudication is based on a review of OHA’s 

decisions, and it does not conduct hearings. 

Appeals bodies have several options when deciding a case. The case may 

be decided fully or partially in favor of the appellant and payment awarded 

for all or part of the claim or claims in dispute. Alternatively, the decision 

may be unfavorable to the appellant and the initial denial of payment 

upheld. The MAC has an additional option of remanding the appeal— 

returning it to the OHA judge who issued the original decision—for a 

variety of reasons. For example, the MAC may determine that more 

evidence is needed, additional action by OHA is warranted, or that OHA 

should issue a modified decision based on the MAC’s instructions. Finally, 

the MAC may deny an appellant’s request for review if it finds that OHA’s 

decision is factually and legally adequate. 

Page 8 GAO-03-841 Medicare Appeals 
In making a determination regarding whether the claim is payable or will 

continue to be denied, the first two levels of appeal are bound by the same 

guidance used in the initial denial determination—Medicare statutes, 

federal regulations, CMS’s NCDs, the carrier’s own LMRPs and LCDs, and, 

pursuant to carrier’s contracts with CMS, CMS’s general instructions, such 

as manuals and program memoranda. The statutes, regulations, and NCDs 

also bind OHA and the MAC—and the QICs, when they are established. 

But QICs, OHA, and the MAC only need to consider—rather than 

definitively follow—the carrier-based LMRPs and LCDs in rendering their 

decisions. 

Management of the Medicare appeals process is currently divided among 

CMS, SSA, and the MAC. CMS is charged with establishing procedures for 

carriers to follow in considering appeals—including developing guidelines 

for timeliness and quality of communications with the appellant—and is 

also responsible for ensuring that the carrier review and carrier hearing 

processes comply with statutory and regulatory requirements. SSA 

establishes its own requirements and procedures, with input from CMS, 

for OHA’s review of third-level appeals. CMS reimburses OHA for its 

appeals work. The MAC independently establishes its own procedures and 

guidelines for completing Medicare appeals. 

Carriers generally meet CMS’s existing time frames for processing appeals, 

but all appeals bodies—the carriers, OHA, and the MAC—fall far short of 

meeting BIPA’s time frames. The large backlog of pending cases at OHA 

and the MAC, combined with BIPA’s escalation provision and the 

requirement for de novo review at the MAC, will demand a level of 

performance that the appeals bodies have not demonstrated they can 

meet. Administrative delays, caused by inefficiencies such as difficulties in 

transferring and locating files and outdated technology, constitute a large 

portion of time spent in the appeals process—especially at OHA and the 

MAC. QICs have not yet been implemented and there is insufficient 

information to predict their ability to meet BIPA’s performance measures. 

Appeals Process 

Operations 

Inconsistent with 

BIPA’s Requirements 

Appeals Bodies’ Current There is a substantial gap between carriers’ current performance and that 

Performance Is Far from required by BIPA’s standards. For example, at the first level of appeals— 

Meeting BIPA’s Timeliness the carrier review—while carriers completed about 91 percent of their 

Standards reviews within CMS’s current 45-day time frame, this is insufficient by 

BIPA’s standards. Only about 43 percent of the carrier reviews completed 

in fiscal year 2001 met BIPA’s mandated 30-day deadline. At the carrier 

hearing level—eventually to be replaced by the appeals to the QICs—the 

Page 9 GAO-03-841 Medicare Appeals 
ability to meet BIPA’s time frames remains largely unanswered because 

the QICs have not yet been established. Although the carriers exceeded 

CMS’s performance standards in fiscal year 2001 by completing more than 

90 percent of the carrier hearings within 120 days, this standard is much 

less stringent than the one imposed by BIPA, which requires the QICs to 

complete all appeals within 30 days. 

Similarly, OHA and the MAC fall far short of BIPA’s required 90-day time 

frame for completing 100 percent of their cases. For example, in fiscal year 

2001, OHA took an average of 14 months from the date an appeal was filed 

to complete adjudication. The MAC took even longer to process appeals 

during the same year, with cases taking an average of 21 months to 

adjudicate. As of September 2003, OHA and the MAC had not implemented 

BIPA-mandated time frames and continued to operate without time frames 

for rendering decisions. Although officials at both appeals bodies told us 

that they are concerned with meeting BIPA time frames, neither body has 

developed strategies for doing so. Instead, the officials stated that they 

would take action once regulations implementing BIPA are finalized and 

they are more certain how the new regulations will affect them. 

Existing backlogs of unprocessed cases may also interfere with the 

appeals bodies’ compliance with BIPA’s mandated time frames for appeals 

of claims denied after October 2002. While backlogs at the carrier review 

and carrier hearing levels are relatively small,12 OHA and the MAC have 

been unable to meet workload demands. For example, OHA’s backlog at 

the end of fiscal year 2001 included nearly 35,000 Part B cases—equal to 

about the average number of cases processed in 7 months. At the end of 

that same year, the MAC had a backlog of 15,000 cases—twice the number 

of cases it adjudicated in 2001. The MAC has been making strides to 

improve its efficiency and, near the end of fiscal year 2003, reported 

reducing its backlog to 10,100 cases. According to OHA and MAC 

representatives, BIPA-governed cases—appeals of claims denied after 

October 1, 2002—will have higher priority than cases filed earlier, virtually 

ensuring that pre-BIPA cases experience even longer delays. However, as 

of July 2003, none of the appeals bodies had determined how they would 

prioritize the processing of BIPA appeals while completing their pre-BIPA 

workloads. 

12At the end of fiscal year 2001, the backlog of cases past their pre-BIPA deadline at both 

the carrier review and carrier hearing levels was about the average number carriers 

process in a single month. 

Page 10 GAO-03-841 Medicare Appeals 
At OHA, protocols for assigning appeals to ALJs may contribute to delays. 

Although OHA plays a critical role in resolving Medicare appeals, its 

primary focus is disability appeals for SSA, which constitute 85 percent of 

its total caseload. While they are a smaller workload, Medicare appeals are 

often more complex than disability appeals. Some local OHA hearing 

offices take advantage of their ALJs’ Medicare expertise by assigning all 

Medicare cases to a single judge. However, other offices assign cases 

randomly, requiring judges to refamiliarize themselves with basic 

Medicare statutes each time they hear a Medicare case—potentially 

prolonging the process. 

While all of the appeals bodies are subject to BIPA’s processing time 

frames, the MAC is uniquely challenged in meeting these deadlines 

because the requirement for de novo review expands the scope of the 

MAC’s work. MAC officials pointed out that shifting from ensuring that 

OHA interprets policy correctly to becoming a fact-finding body requires a 

substantial amount of additional resources and more time to gather and 

evaluate evidence. MAC officials report that they do not have a strategy to 

address the expansion in the scope of their work and the contraction in 

time to render decisions. 

Delays in Administrative 

Processing at OHA and the 

MAC Further Suggest 

BIPA’s Time Frames Will 

Not Be Met 

The bulk of time at OHA and the MAC is spent on assembling files and 

completing other administrative tasks rather than in performing legal 

analyses of appeals and adjudicating cases. Each agency takes more than a 

year, on average, to complete an appeal. For example, OHA spent 14 

months, on average, to complete a case in fiscal year 200113 and an average 

of 10 months of that was consumed obtaining case files from the lower 

level appeals bodies and performing related processing tasks. In that same 

year, the MAC adjudicated nearly 7,100 Part B cases and spent about 17 

months, on average, performing administrative tasks. As shown in figure 2, 

on average, over 70 percent of the time to resolve OHA and MAC cases 

was spent on administrative activities, rather than on substantive legal 

analysis of the appeals. 

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

Page 11 GAO-03-841 Medicare Appeals 
Figure 2: Average Time Spent in Each Stage of Processing for Cases Adjudicated by OHA and the MAC in Fiscal Year 2001 

Officials from both OHA and the MAC report that it may take months to 

receive appellants’ case files from the previous level of review or the 

appropriate storage facility. Case files—which are all paper documents— 

are a critical component of the adjudication process as they contain all 

evidence submitted by the appellant in previous appeals. The MAC, in 

particular, requires OHA’s case files to assess the evidence, the hearing 

tapes, and the letter of decision so that it may determine whether OHA’s 

decision was appropriate. 

Page 12 GAO-03-841 Medicare Appeals 
OHA and the MAC are dependent on the Medicare carriers to forward the 

appropriate files to their hearing offices for review. CMS allows carriers 21 

to 45 days to forward case files to OHA, depending on the number of 

appellants and dollar value of the case. However, locating files is further 

complicated by the fact that appellants are required to include little 

information in their appeal requests. Therefore, OHA and the MAC may 

receive appeals that do not identify the carrier that originally denied the 

claim. Locating files can also be hindered if the appeal has been in process 

for several years and the carrier that initially denied the claim is no longer 

a Medicare contractor. Although the defunct carrier should have 

transferred all of its files, including its appeals records, to the replacement 

carrier, such transitions are not always smooth. Instead, files are often 

difficult to locate, causing delays in forwarding specific requested cases. 

The MAC faces an additional challenge in locating case files. OHAcompleted cases are routed to a special clearinghouse contractor for 

temporary storage. If OHA determines that the appellant is due a full or 

partial payment, the clearinghouse returns the files to the carrier that 

initially denied the claim so that payment may be processed. If OHA 

continues to deny payment, the clearinghouse holds the accompanying file 

for 120 days to expedite the MAC’s retrieval should the appellant continue 

to appeal. However, the MAC may not know whether to approach the 

clearinghouse contractor or the relevant carrier to request needed files. 

And, like the carriers, the clearinghouse does not always provide files in a 

timely manner. In fiscal year 2001, the MAC waited an average of nearly 3 

months—the entire time allowed for the MAC to adjudicate appeals under 

the BIPA amendments—to receive case files. The MAC, which is 

empowered to remand, or return, cases to OHA when there is insufficient 

information in the existing record to issue a decision, in fiscal year 2001 

remanded 1,708 cases—nearly a quarter of the cases it adjudicated that 

year—to OHA because needed files were either missing or incomplete. 

Although CMS has not performed a comprehensive evaluation of the 

clearinghouse’s accuracy in routing appeals files, it recently determined 

that the clearinghouse had a 10 percent error rate in routing case files to 

particular carriers for payment. 

Inadequate technology and the need for manual processing also indicate 

that the appeals bodies are not prepared to address BIPA’s requirements. 

For example, providers often aggregate groups of claims for different 

beneficiaries to meet the dollar threshold for filing an OHA appeal. To 

maintain beneficiary confidentiality, a separate electronic file—containing 

the same provider information—is created for each beneficiary. While 

widely available technology allows the creation of multiple data files by 

Page 13 GAO-03-841 Medicare Appeals 
entering the information one time and then quickly duplicating it, OHA’s 

system requires administrative staff to separately enter repetitive 

information pertaining to each denied claim that constitutes the appeal. 

For example, if a provider is appealing a similar group of claims in a single 

appeal, OHA must nonetheless create a separate case file and data record 

for each beneficiary. 

BIPA provides that appellants may escalate their appeals from the QIC or 

OHA to the next level in the administrative appeals process when it is not 

resolved within the time frames mandated. MAC cases not meeting the 

time frame may be escalated to the federal district court. More than 95 

percent of OHA appeals and about 85 percent of MAC appeals did not 

meet BIPA time frames in fiscal year 2001, suggesting that a number of 

cases would be eligible for escalation.14 However, escalation may not 

ensure that appellants secure timely adjudication. Escalated cases will 

lack comprehensive records because the prior level of appeal did not 

complete the cases and may not have the full collection of case 

documentation. OHA and MAC officials report that cases without 

complete records from earlier levels of appeal will require the next level to 

perform time-consuming research. The MAC may remand cases with 

incomplete files, causing additional time to be spent locating and 

transferring files between the appeals bodies. 

While appellants may view the consideration and resolution of their 

appeals as a single process, several separate and uncoordinated bodies are 

responsible for administering the various appeals levels. The appeals 

bodies have traditionally worked independently; however, close 

coordination is critical to successful planning for BIPA changes. Further, 

appeals bodies lack the management data to track cases and analyze case 

characteristics, preventing them from identifying barriers to efficiency—a 

first step in streamlining the process. Planning for BIPA implementation 

has also been hampered by (1) proposed regulations that have not been 

finalized, (2) the uncertainty of funding amounts for implementation, and 

(3) unresolved details regarding the possible transfer of OHA’s appeals 

workload to HHS. 

14Since QICs have not yet been implemented, there are no data to assess whether any of 

their cases will be eligible for escalation. 

Appeals Bodies’ Lack 

of Coordination and 

Resources Is a Barrier 

to BIPA 

Implementation 

Page 14 GAO-03-841 Medicare Appeals 
Appeals Bodies Need 

Stronger Coordination to 

Successfully Implement 

BIPA’s Requirements 

CMS, OHA, and the MAC—located within two federal agencies—are each 

responsible for administering a portion of the appeals process. However, 

neither the agencies nor the appeals bodies have the authority to manage 

the entire process. The appeals bodies focus primarily on their individual 

priorities, which may differ and complicate planning for making 

improvements to the process as a whole. Attempts to modernize the 

appeals process have been undermined when individual appeals bodies 

have identified opportunities for improvement, but have failed to 

sufficiently take into account the impact of their plans on the other bodies. 

For example, CMS issued a draft statement of work (SOW) outlining the 

expectations for QICs—the BIPA-mandated replacement for the workload 

of Medicare carriers at the second level of review, the carrier hearing. The 

draft SOW asks potential QIC applicants whether they have the capacity to 

convert paper case files into an electronic format, with the expectation 

that this would ease the transfer of needed files to the higher levels of 

appeals. However, CMS officials told us that they did not consult with 

OHA to ensure that it would have the capacity to use and store electronic 

files. OHA officials agree that electronic files offer an important 

opportunity to reduce lost files, speed transfers, and permit case tracking. 

However, OHA has focused its own plans to implement a system of 

electronic folders—scheduled for January 2004—exclusively on its SSA 

disability cases. 

Recent planning for BIPA implementation intensified the need for appeals 

bodies to work together because the demanding time requirements alone 

call for a more efficient appeals process. While officials from CMS, OHA, 

and the MAC worked together to develop the proposed rule for 

implementing the majority of BIPA’s requirements, the agencies have not 

taken the opportunity to coordinate strategies to meet the time frames 

mandated by the act. 

Lack of Management Data 

Inhibits Appeals Bodies’ 

Ability to Understand 

Barriers to Efficiency 

We found that the appeals bodies are not sufficiently coordinated to track 

an appealed claim, or group of claims, through all four levels of the 

process. This is attributable, in part, to the use of different numbering 

systems for case identification at each appeals body and the fact that the 

individual claims making up a “case” can change at every level. For 

example, appeals bodies often reconfigure cases to group claims with 

similar issues. Appellants also change the configuration of their cases by 

aggregating their claims to meet minimum dollar thresholds necessary to 

file an appeal at a given level. Case numbering is further complicated when 

a partially favorable decision is made. In these situations, some of the 

claims within the appeal are paid, while the remaining denied claims are 

Page 15 GAO-03-841 Medicare Appeals 
eligible for further appeal by beneficiaries and providers and subject to 

further reconfiguration with new case numbers. Accordingly, assigning a 

variety of numbers to any particular claim or group of claims at each level 

of the process makes it virtually impossible to track an individual claim 

from one level to the next. 

Some problems with data quality are also a product of a lack of 

coordination between appeals bodies. CMS, OHA, and the MAC are 

making individual efforts to improve their data systems to better manage 

their caseloads, but their systems remain incompatible. For example, 

although CMS is gradually shifting its carriers to one common claims 

processing data system—also used to track appeals at the carrier level—it 

is not compatible with OHA’s or the MAC’s data systems. OHA has also 

initiated data system improvements, but did not consult with CMS in 

setting the parameters for new system requirements or provide CMS’s 

appeals group with a copy of its planning document. The MAC does not 

know if the improvements it is instituting—such as its transition to more 

powerful data management software used to organize its caseload—will 

be compatible with OHA’s, CMS’s, or the carriers’ systems. Compatible 

data systems would facilitate the transfer of case information between 

appeals levels and analyses of the process as a whole. 

Not only do appeals bodies have incompatible data systems, but data 

gathered individually by CMS from carriers and by OHA from local hearing 

offices are aggregated and not used to pinpoint problems and develop 

solutions to improve the appeals process. For example, CMS only collects 

workload data from its carriers in the form of monthly productivity totals. 

OHA collects aggregate data from each of its 140 hearing offices, despite 

the fact that the local offices are tracking individual cases. The aggregate 

numbers allow OHA and CMS to develop basic workload statistics, such as 

the number of cases they resolve and the average time frames for 

adjudication. However, the data do not allow CMS and OHA to perform 

more detailed analyses, such as isolating process steps that create a 

bottleneck or identifying specific cases that linger at an appeals level for 

unusually lengthy periods. 

The lack of specific data on case characteristics also limits the appeals 

bodies’ understanding of the nature and types of appeals that they must 

resolve. For example, only the MAC collects data on the reason for the 

appeal, the type of denial being appealed, and the amount in controversy; 

however, the MAC is not consistent in ensuring that the information is 

routinely entered in the database. Furthermore, carriers do not collect 

data that allow CMS to distinguish if the appellant is a beneficiary or a 

Page 16 GAO-03-841 Medicare Appeals 
provider, and none of the appeals bodies collects information on the rates 

of appeal among provider specialty groups. Analyses of case characteristic 

data could be valuable in identifying confusing or complex policies or 

requirements that lead to denied claims and the submission of appeals. 

The data would also be useful to the agencies in understanding the nature 

of denied claims that are appealed at each level and guiding more 

appropriate initial reviews of claims and educating providers about proper 

claim submission. 

BIPA mandated the use of QICs to replace the second appeals level and 

required them to develop management information through a data system 

that would identify (1) the types of claims that give rise to appeals, (2) 

issues that could benefit from provider education, and (3) situations that 

suggest the need for changes in national or local coverage policy. QICs 

must report their information to the Secretary of HHS and, among other 

things, must monitor appeals decisions to ensure consistency between 

similar appeals. However, the requirements do not affect data collection at 

the other appeals bodies. As a result, without corresponding changes at 

the other appeals bodies, it will remain difficult to evaluate the 

performance of the appeals process as a whole and make informed 

decisions affecting more than one appeals level. CMS stated that it plans to 

expand the QICs’ data system to the third level of appeal—the 

ALJ-adjudicated level—and, eventually, to all levels of appeal. Until the 

compatible data systems are in place at all appeals bodies—which CMS 

plans for 2005—the appeals bodies will not be able to perform the most 

fundamental types of analyses to improve the management of the process. 

Uncertainties in 

Regulations, Funding, and 

the Role of OHA Hinder 

BIPA Implementation 

Planning 

While BIPA mandated several changes to the current appeals process, 

CMS, OHA and the MAC are charged with developing regulations for 

implementing BIPA’s mandates in accordance with the Administrative 

Procedures Act.15 As of September 2003, guidance regarding two 

provisions—adjusted deadlines for appellants filing first-level appeals and 

reduced dollar thresholds required for filing appeals at OHA—have been 

issued. CMS officials stated that they expect that the proposed 

regulations16 implementing the remaining provisions of BIPA section 521 

15With limited exceptions, the Administrative Procedures Act requires agencies to publish 

proposed rules and provide an opportunity for the public to comment on them before they 

become effective. 5 U.S.C. § 553(b) (2000). 

1667 Fed. Reg. 69,182 (Nov. 15, 2002). 

Page 17 GAO-03-841 Medicare Appeals 
will be finalized by early 2004. The regulations, once finalized, will provide 

directions specifying how each body will operate. Without final 

regulations, officials from carriers, OHA, and the MAC said that they have 

had difficulty estimating what the actual effect on their workloads will be 

and, accordingly, have not made specific plans to comply with BIPA’s 

mandates. 

Even after the regulations are finalized, several important issues will not 

have been resolved. For example, when it published its ruling on October 

7, 2002, CMS acknowledged that transition issues from the current appeals 

process to the new process would require additional policy guidance prior 

to implementation. Specifically, questions will remain regarding the 

necessity of operating two separate appeals processes concurrently, 

dependent on the date of the initial claim determination. Appeals of claims 

denied before the effective date of the BIPA amendments are not governed 

by them, barring specific guidance to the contrary, and are subject to preBIPA guidelines and processes. 

No additional funding was provided to the appeals bodies in fiscal year 

2003 to implement BIPA’s changes. Moreover, uncertainties exist about 

the funds available in fiscal year 2004. The first uncertainty concerns 

funding for HHS. The President’s proposed budget for fiscal year 2004 

includes $126 million in funding for CMS to complete BIPA’s changes— 

including establishing the QICs, developing the QIC data systems, and 

implementing the shortened time frames at the first and second appeals 

levels—as well as assuming the workload currently performed by OHA. 

However, this funding level was premised on the assumption that BIPA 

would be amended to reduce the number of QICs, increase the time 

frames for completing appeals at all levels, and require that providers pay 

a $50 user fee for filing appeals at QICs. However, as of September 2003, 

BIPA had not been amended. Moreover, the proposed budget contained no 

additional funding for the MAC to implement BIPA. The second budgetary 

uncertainty concerns funding for the third level of the appeals process, 

currently performed by OHA. While SSA’s fiscal year 2003 budget included 

a $90 million “direct draw” from the Medicare Trust Fund for Medicare 

appeals, the proposed 2004 budget eliminates the direct draw and does not 

include a new source for Medicare appeals funding, reflecting SSA’s plan 

to transfer OHA’s Medicare appeals workload to HHS. 

Although BIPA required CMS to establish QICs in time for them to begin 

adjudicating appeals of claims denied as of October 1, 2002, CMS 

estimated, in its fiscal year 2004 budget request, that QICs would become 

operational, at the earliest, February 2005. Agency officials detailed that 

Page 18 GAO-03-841 Medicare Appeals 
the implementation of QICs would require approximately 10 months of 

drafting and finalizing the related regulations and conducting the bidding 

process, and 6 months for hiring staff, renting space, and performing other 

tasks associated with making QICs operational, including developing the 

QICs’ data systems. In commenting on a draft of this report, HHS stated 

that CMS now plans for QICs to begin operation in fiscal year 2004. 

However, we were not provided with CMS’s implementation plan or 

sufficient details to evaluate its feasibility. 

Finally, one of the critical issues related to BIPA’s implementation 

involves the possible transfer of the Medicare caseload currently 

adjudicated by SSA’s OHA to HHS. Several issues remain unresolved. In 

1995, when SSA separated from HHS and became an independent agency, 

SSA entered into an MOU with the Health Care Financing Administration 

to continue to perform the Medicare appeals work it had been conducting. 

Recently, SSA has taken the position, which is reflected in its budget 

request for fiscal year 2004, that it intends for OHA to discontinue 

adjudicating Medicare appeals and has proposed a revised MOU outlining 

the transfer of OHA work to HHS. However, as of September 2003, HHS 

had not signed the revised MOU and the transfer of the workload to HHS 

had not been finalized. In addition, legislation has been introduced that 

would expressly provide for the transfer of Medicare appeals to HHS.17 

However, provider and beneficiary groups have protested because they 

believe shifting responsibility to HHS will compromise the ALJs’ 

independence. 

OHA’s departure from the appeals process would create a new challenge 

for HHS. OHA’s process for adjudicating administrative appeals includes 

140 local hearing offices and over 1,000 ALJs. Because SSA disability 

appeals constitute about 85 percent of OHA’s work, OHA would continue 

to require the use of its hearing offices and judges regardless of whether it 

continues to hear Medicare appeals. BIPA language specifies that the third 

level of appeal be adjudicated by ALJs, but because HHS has far less 

capacity than OHA to hear ALJ cases,18 HHS would have to compensate for 

17H.R. 810, 108th Cong. (2003); S. 1127, 108th Cong. (2003); H.R. 1, 108th Cong. (2003); and 

H.R. 2473, 108th Cong. tit. IV (2003). 

18HHS has nine additional ALJs—one at the Food and Drug Administration and eight who 

hear enforcement cases including those on Medicare fraud and provider penalties. The 

latter have a backlog of 700 unresolved cases. HHS’s DAB, which houses both the MAC and 

the Medicare fraud ALJs, is located in Washington, D.C. It has five satellite locations but no 

hearing rooms—its ALJs use the hearing rooms of local courts or other agencies. 

Page 19 GAO-03-841 Medicare Appeals 
Conclusions 

OHA’s departure by developing plans that would enable it to adjudicate 

the current workload demands within BIPA’s time frames and to address 

the backlog of cases accumulated before the transfer to HHS. As of June 

2003, CMS was evaluating OHA’s Medicare operations, workload, and 

facilities and developing and assessing the feasibility of various options. A 

CMS official stated that assuming OHA’s workload would be a notable 

challenge for the agency. 

BIPA demands a level of performance—especially regarding timeliness— 

that the appeals bodies have not demonstrated they can meet. In addition 

to lengthy processing times, OHA and the MAC have developed sizable 

backlogs of unprocessed cases. The backlogs raise a question about how 

BIPA-governed cases, with their mandated time frames, will be prioritized 

relative to unresolved cases filed before BIPA’s mandated implementation 

date. Administrative and systemic inefficiencies, which span all levels of 

appeals, strongly indicate the need for improvement. Without significant 

improvements, the appeals bodies will be unable to meet BIPA’s more 

rigorous performance requirements. Uncertainties regarding BIPA 

regulations and funding further complicate the challenge the appeals 

bodies face in implementing BIPA and meeting its requirements. 

Moreover, the transfer of OHA’s Medicare appeals work from SSA to HHS 

involves major challenges, and until all of the stakeholders resolve 

workload and timeliness issues, the full impact of such a transfer will not 

be known. 

CMS, its carriers, OHA, and the MAC have traditionally not coordinated 

their management of the appeals process. Instead, each has operated as 

though the process consisted of discrete and independent segments. 

Greater coordination could enable them to resolve the barriers that 

currently preclude successful management of the appeals process as a 

whole. Inefficiencies in file transfer and case file tracking, developing 

comprehensive and meaningful data, and planning for BIPA 

implementation require a joint effort including each appeals body and its 

agency. The lack of a single entity that sets priorities and addresses 

operational problems at all four levels of the process makes it imperative 

that all bodies work closely together. If OHA’s Medicare appeals workload 

is to be transferred to HHS, it is critical that all of the current appeals 

bodies work together to develop a carefully planned transition and build 

efficiencies to help HHS assume the workload. We believe that the 

creation of a Medicare appeals process that can consistently address 

BIPA’s requirements will require a commitment for close coordination 

from all appeals bodies. 

Page 20 GAO-03-841 Medicare Appeals 
Recommendation for 

Executive Action 

• 

• 

• 

Agency Comments 

and Our Evaluation 

We recommend that the Secretary of HHS and the Commissioner of SSA 


create an interagency steering committee with representatives from CMS, 


the carriers, OHA, and the MAC to serve as an advisory body to the 


Secretary of HHS and the Commissioner of SSA with the following 


responsibilities: 


make administrative processes, such as file tracking and transfer, 


compatible across all appeals bodies; 


negotiate responsibilities and strategies for reducing the backlog of 


pending cases, especially at OHA and the MAC, and establish the priority 


for adjudicating pre-BIPA cases relative to BIPA-governed cases; and 


establish requirements for reporting specific and comparable program and 


performance data to CMS, SSA, and HHS so that management can identify


opportunities for improvement, and determine the resource requirements 


necessary to ensure that all appeals bodies will be able to meet BIPA’s 


requirements. 


We provided a draft of this report to HHS and SSA and received written 


comments from both agencies. In its comments, HHS emphasized its 


commitment to implementing the appeals provisions in BIPA and 


highlighted the steps it has taken to do so. Similarly, SSA emphasized its 


efforts to provide quality service to Medicare appellants. We have 


reprinted HHS’s and SSA’s letters in appendixes IV and V, respectively. 


HHS agreed with our conclusion that a more coordinated approach to the 


appeals process is needed. HHS said, however, that we understated its 


progress in this area and described a variety of efforts it has engaged in to


facilitate improved coordination between the appeals bodies. As we noted 


in the draft report, HHS has made strides in enhancing coordination, but 


we believe that greater progress can be made by creating an interagency


steering committee to develop a consolidated and strategic approach to 


implementing BIPA. 


SSA’s comments also emphasized the benefits of enhanced coordination 


between the appeals bodies. It largely attributed the inefficiencies that 


exist in the current appeals process to the lack of a single entity with 


ownership of, and accountability for, Medicare appeals. SSA indicated that 


it believes that HHS is the sole entity with the authority to unify the 


policies and procedures for the Medicare appeals process. 


Page 21 GAO-03-841 Medicare Appeals 
HHS stated that it would consider the appropriateness of an interagency 

steering committee but did not specifically agree or disagree with our 

recommendation to create such a body. However, it stated that the 

transfer of the work performed by SSA’s OHA to HHS is critical to 

achieving the level of coordination needed to address the inefficiencies 

outlined in our report. SSA indicated that it generally agreed with the 

specific responsibilities of the steering committee. It also stated that it 

believes that HHS has ultimate responsibility for Medicare appeals and 

that HHS should carry out the functions of the steering committee through 

CMS. SSA stated that its budget anticipates the transfer of OHA’s appeals 

workload to HHS, and SSA has submitted a new MOU to HHS to facilitate 

a smooth transition. While SSA emphasized its commitment to serving 

Medicare appellants during the expected transition, it also pointed out that 

Medicare appeals make up a small portion of its work. Therefore, SSA 

cautioned that while it will participate in efforts to improve the Medicare 

appeals process, it must consider the demands of its total workload in 

allocating its resources. 

While HHS did not specifically comment on our recommendation to make 

administrative processes, such as file tracking and transfer, compatible 

across all levels of appeal, SSA agreed that an interagency steering 

committee could be beneficial in ensuring such compatibility among 

appeals bodies. SSA also noted that the steering committee would be 

helpful in defining the roles of the appeals bodies both in their current 

operating status and during the anticipated transfer of the OHA workload 

to HHS. 

Regarding our recommendation to negotiate responsibilities for reducing 

the backlog of pending cases, HHS agreed that a strategy for setting clear 

requirements to prioritize pre-BIPA and BIPA cases and reduce the 

backlog of cases at all levels is needed. HHS also reported that the MAC 

has already reduced its backlog and we revised the report to reflect the 

reduction. HHS also said that prioritizing cases and other transition 

matters would be addressed in the forthcoming final regulations. SSA 

agreed that strategies for reducing both the backlog of pending cases and 

the lengthy processing times for Medicare appeals are needed and 

expressed a willingness to help resolve the backlogs and delays. 

HHS agreed with our recommendation to establish comparable program 

and performance data across appeals levels and indicated that improved 

appeals data capabilities are needed. To that end, HHS noted that it has 

issued a request for proposals to develop the data system required by 

BIPA. SSA acknowledged that fragmentation of the appeals process has 

Page 22 GAO-03-841 Medicare Appeals 
precluded the development of comparable data. However, SSA pointed out 

that preparations to transfer OHA’s work to HHS have created a need for 

greater data sharing. SSA also pledged to work to capture comparable data 

to facilitate the transfer of the OHA’s work. 

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

• revised the use of the word “rule” to “ruling;” 

• 	 clarified that the scope of our work excluded managed care, Medicare 

entitlement, and overpayment cases, as well as Part B claims processed by 

durable medical equipment contractors and fiscal intermediaries; 

• 	 defined the term “provider,” as used in this report, to include any 

nonbeneficiary appellant, including physicians and other suppliers; 

• 	 distinguished between claims that are rejected because they are duplicate 

or missing information and those that are denied for substantive reasons, 

in appendix II; 

• revised the legend of figure 1; 

• 	 modified our description of BIPA’s escalation provision to recognize that 

CMS has developed specific requirements for escalation in its notice of 

proposed rulemaking; 

• 	 revised our explanation of the MAC’s procedures regarding the parameters 

for accepting evidence in its current decision-making process and the 

MAC’s criteria for denying an appellant’s request for review; and 

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

However, we did not revise the draft report in response to HHS’s specific 

comment regarding our use of the word “review.” While BIPA refers to the 

first level of appeal as “redetermination,” we have used the term “carrier 

review” because the adjudication process at the review level is unchanged 

by BIPA. Nor did we make revisions in response to HHS’s specific 

comment that both OHA and the MAC use their own systems for 

processing appeals and conduct their own hiring. As we noted in the draft 

report OHA and the MAC independently establish their own procedures 

and guidelines. Finally, we did not revise the draft in response to HHS’s 

specific comment that we imply that the MAC has done no planning 

related to BIPA requirements. As we noted in the draft report, the MAC 

has made some improvements, but as MAC officials told us, and as HHS 

indicated in its comments, a detailed action plan to meet BIPA requirements has 

not been developed. In its comments, HHS noted that a detailed plan is 

premature because the MAC will not receive BIPA cases for some time— 

until after they have passed through the other levels of appeal—however, 

BIPA requirements apply to claims denied on or after October 1, 2002, and 

such cases have already been submitted. 

Page 23 GAO-03-841 Medicare Appeals 
HHS also provided us with technical comments, which we incorporated as 

appropriate. 

As agreed with your offices, unless you announce its contents earlier, we 


plan no further distribution of this report until 30 days after its issuance 


date. At that time, we will send copies to the Secretary of HHS, the 


Commissioner of SSA, interested congressional committees, and other 


interested parties. We will then make copies available to others upon 


request. In addition, the report will be available at no charge on GAO’s 


Web site at http://www.gao.gov. 


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


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


contributions to this report are listed in appendix VI. 


Leslie G. Aronovitz 


Director, Health Care—Program


Administration and Integrity Issues 


Page 24 GAO-03-841 Medicare Appeals 
Appendix I: Scope and Methodology 


Our analyses were limited to the appeals process for denied Part B 

claims—rather than managed care, Medicare entitlement, and 

overpayment cases—because Part B cases constitute the majority of 

appeals. We also excluded Part B claims processed by durable medical 

equipment contractors and fiscal intermediaries to focus on the work 

performed by carriers. We reviewed the four levels of the administrative 

appeals process; our scope did not extend to the federal district court 

level. 

To gain a better understanding of the process for Part B appeals at the 

time the Medicare, Medicaid, and SCHIP Benefits Improvement and 

Protection Act of 2000 (BIPA) was passed and the changes it mandated, 

we reviewed agency procedures for completing Part B appeals regulations 

and agreements guiding Medicare appeals and other laws. We also 

analyzed appeals workload data and interviewed officials at the Centers 

for Medicare & Medicaid Services (CMS) and at all levels of the 

administrative appeals process—the carriers, the Office of Hearing and 

Appeals (OHA), and the Medicare Appeals Council (MAC). 

We reviewed regulations and procedures pertaining to the initial denials of 

claims and the submission of appeals by providers and beneficiaries. We 

also examined the processes for data management and guidelines and 

regulations for adjudicating cases at all levels. We reviewed the 

memorandum of understanding between the Health Care Financing 

Administration and the Social Security Administration, which outlines the 

responsibilities of both agencies in the adjudication of Medicare appeals. 

In addition, we reviewed the October 2002 ruling implementing selected 

BIPA amendments and the proposed rule for the implementation of the 

balance of the BIPA amendments to the appeals process. 

We also analyzed appeals data from CMS, four selected carriers, OHA, and 

the MAC to understand the scope and efficiency of the Medicare appeals 

process and the characteristics of appeals. All data examined were for 

cases adjudicated from fiscal years 1996 through 2001, with a primary 

focus on fiscal year 2001, which represents the conditions that existed at 

the time BIPA was passed. In reviewing later data and in conversations 

with the appeals bodies, we confirmed that the conditions reflected in the 

data are relatively unchanged. Limitations in collected and reported data 

at each level precluded comprehensive and consistent analyses in some 

cases. CMS and the MAC alerted us to some limitations in their data, 

including inconsistency in data entry, changes in data systems that caused 

the loss of data, and poorly defined variables. At some levels, only 

aggregated data were available, which did not permit detailed analysis. 

Page 25 GAO-03-841 Medicare Appeals 
Appendix I: Scope and Methodology 

We studied carrier performance by selecting four carriers located in 

different regions of the country and obtaining processing data on appeals 

submitted to those carriers at the first two levels of appeals. We also 

reviewed the results of CMS’s contractor performance evaluations of 

carriers’ appeals activities in fiscal years 1999, 2000, and 2001. 

We visited three OHA local hearing offices located in proximity to three of 

the four selected carriers’ appeals operation centers to learn more about 

their role in the appeals process and to assess the impact of carrier 

performance on their operations. We also examined the processes and 

procedures used at the OHA local hearing offices. To understand the 

efficiency of the appeals process, we examined the average total time to 

process appeals at each level, and the average time spent in each step of 

the adjudication process at OHA and the MAC. We also examined MAC 

data to determine the number of cases remanded to OHA because of lost 

files in fiscal year 2001. 

Appeals bodies performed analyses of their appeals data at our request. 

CMS performed analyses of the Contractor Reporting of Operational and 

Workload Data (CROWD), including the reason for initial claims denials, 

the time each carrier took to process carrier reviews and carrier hearings, 

and the number of cases at the first three levels of appeal. CMS analyses of 

CROWD, OHA analyses of its data, and our analyses of the MAC’s data also 

provided information on the average time spent in adjudicating appeals 

and the number of pending cases. OHA’s central facility analyzed its Part B 

data based on our request, and we analyzed data provided by the MAC to 

determine the time elapsed between processing milestones at OHA and the 

MAC. In the analysis of the time spent in the various phases of case 

processing at the MAC, cases with missing date information or cases with 

negative dates were omitted. All results of, and methodologies for, our 

analyses of MAC data were examined and confirmed by the MAC. 

To gain a better understanding of the concerns of appellants regarding the 

current appeals process and the potential effects of BIPA, we interviewed 

representatives from three Medicare beneficiary advocacy organizations 

that assist beneficiaries with Medicare appeals—the Center for Medicare 

Advocacy, the Center for Medicare Rights, and the Medicare Advocacy 

Project of Massachusetts. We conducted a focus group with 

representatives from billing companies through an association for billers 

and coders—the Health Care Billing and Management Association. In 

addition, we interviewed representatives from nine medical professional 

associations: 

Page 26 GAO-03-841 Medicare Appeals 
Appendix I: Scope and Methodology 

• American Academy of Ophthalmology 

• American College of Physicians-American Society of Internal Medicine 

• American Hospital Association 

• American Orthopedic Association 

• American Medical Association 

• American Podiatric Medical Association 

• American Urological Association 

• California Medical Association 

• Medical Group Management Association 

Page 27 GAO-03-841 Medicare Appeals 
Appendix II: The Scope of Part B Claims 

Rejections, Denials, and Appeals 

In fiscal year 2001, carriers processed about 773 million Medicare Part B 

claims and rejected or denied, in full or in part, about 161 million—or 21 

percent—of the claims processed. Many claims are rejected because they 

are missing information or are duplicates of claims previously processed 

and paid or denied.1

 In fiscal year 2001, carriers rejected over 19.5 million 

claims that were missing information and more than 40 million claims that 

they considered duplicate. Duplicate claims may be submitted for several 

reasons. For example, inconsistent regulations may confuse providers 

causing them to resubmit denied Part B claims—even though Medicare 

rules do not allow this—because Medicare allows denied Part A claims to 

be resubmitted for payment. Also, turnover in administrative and billing 

personnel at providers’ offices may result in confusion about whether a 

claim was previously submitted, and under what circumstances a claim 

can be resubmitted for payment. According to officials from the Centers 

for Medicare & Medicaid Services’ (CMS), carrier error also contributes to 

the rate of duplicate submissions because some carriers have system 

limitations that do not always recognize appropriate claims. For example, 

if a claim is submitted that appropriately includes the performance of the 

same service to two separate limbs, the two distinct services may be 

construed as duplicate claims by some carrier systems. 

Claims are denied if they do not meet the requirements in Medicare 

statutes, federal regulations, or CMS’s national coverage determinations. 

Carriers may also deny claims based on their own local medical review 

policies and local coverage determinations, which may enhance or clarify 

national Medicare policy. 

CMS compiles data submitted by carriers categorizing the reason for 

denying claims. Table 1 shows the reasons for denials of Part B claims in 

fiscal year 2001, excluding rejections. Although CMS has established the 

categories for data submission shown in table 1, it has not provided strict 

definitions of these categories for carriers to follow. Instead, each carrier 

has developed its own unique set of definitions for each category. As a 

result, these data do not provide a precise or reliable explanation of the 

reasons for denial. For example, the category “other,” which comprised 

more than 17 percent of reported Part B denials in fiscal year 2001, may 

1

In its comments on a draft of this report, HHS pointed out that unprocessable claims— 

duplicate claims and claims missing information—are rejected, rather than denied. 

According to HHS, such claims can be resubmitted but not appealed. 

Page 28 GAO-03-841 Medicare Appeals 
Appendix II: The Scope of Part B Claims 

Rejections, Denials, and Appeals 

include denials at one carrier that another carrier would have included in 

another category. 

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

Reason for denial Number of denials Percentage of total 

Medically unnecessary a 32,480,000 29.4 

Services not covered 26,536,000 24.1 

Other 19,795,000 17.9 

b

Claim part of a global fee for a procedure 14,351,000 13.0 

Medicare is secondary payer for claimc 7,697,000 

Claimant ineligible 7,324,000 

Filing limitation exceededd 2,150,000 

Total denials 110,333,000 100e 

Source: CMS. 

a

Medicare law requires that for services to be covered, they must be “reasonable and necessary for 

the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body 

member.” 42 U.S.C. § 1395y (a) (A) (1) (2000). 

b

Global fee is a total charge for a bundled set of services, such as a single surgery that encompasses 

presurgical and postsurgical care or a diagnostic service that represents physician and equipment 

charges. Individual services included in the global fee cannot be paid separately. 

c

Medicare is the secondary payer when a beneficiary has an insurance policy or health plan, other 

than Medicare, that has primary responsibility for covering the cost of the beneficiary’s care. 42 

U.S.C. § 1395ff (2000). 

d

To be eligible for payment, claims must be filed no later than the end of the calendar year following 

the year the service was provided. 

e

Percentage does not total to 100 due to rounding. 

Relatively few cases are appealed when compared to the number of 

denials, and only a small fraction is appealed to the highest level. CMS, the 

Office of Hearings and Appeals (OHA), and the Medicare Appeals Council 

(MAC) do not track the number of denied claims that are appealed, 

although CMS collects the number of claims that are adjudicated in the 

appeals process for the carrier review, carrier hearing, and OHA levels. In 

fiscal year 2001, about 7.1 million claims—less than 7 percent of denied 

Part B claims—were adjudicated at the carrier review level.

2

 In that year 

2

Postpayment denials—denials of claims that have been paid but selected for medical 

review at a later date—are not included in the denial rates shown. Postpayment denials 

generate some appeals; however, CMS does not collect data on the proportion of appeals 

resulting from post-payment denials. 

Page 29 GAO-03-841 Medicare Appeals 

7.0 

6.6 

1.9 
Appendix II: The Scope of Part B Claims 

Rejections, Denials, and Appeals 

about 554,000 Part B appeals were adjudicated at the carrier hearing level 

and over 201,000 at OHA. The MAC received about 8,800 Part B appeals 

cases in fiscal year 2001; however, the MAC does not track the number of 

claims comprising cases. 

Appeals requests at the higher levels have grown rapidly in recent years, as 

shown in table 2. For example, requests for Medicare appeals at OHA—the 

third level of appeals—increased a total of 200 percent from fiscal year 

1996 to fiscal year 2001, and the MAC’s workload grew by nearly 500 

percent from fiscal year 1997 to fiscal year 2001. 

Table 2: Growth in Part B Appeals Cases Submitted by Appeal Level from Fiscal 

Year 1996 through Fiscal Year 2001 

Carrier Carrier OHA MAC 

Fiscal year review hearing hearing adjudication 

1996 4,100,000 69,000 21,000 a 

1997 3,900,000 87,000 35,000 1,500 

1998 3,500,000 95,000 35,000 2,700 

1999 3,500,000 93,000 61,000 6,300 

2000 3,300,000 101,000 62,000 7,600 

2001 3,700,000 102,000 63,000 8,800 

Total growth over the -400,000 32,000 42,000 7,300 

period (percent) (-10) (47) (200) (487) 

Sources: CMS, OHA, and the MAC.


Note: Appeals cases may contain several claims. 


a

MAC data for fiscal year 1996 were not available. 


Page 30 GAO-03-841 Medicare Appeals 
Appendix III: Changes Mandated by Section 

521 of BIPA 

Section 521 of the Medicare, Medicaid, and SCHIP Benefits Improvement 

and Protection Act of 2000 (BIPA) mandates administrative, structural, 

and management changes in the appeals process. It includes the following: 

• 	 Revises the filing deadline for appellants at the first level of appeal: 

reduced from 180 days to 120 days 

• Reduces the minimum thresholds for filing appeals: 

• To second level, from $100 to no minimum 

• To third level, from $500 to $100 

• Changes adjudication time frames at all levels of appeal: 

• 	 At first level, from completing 95 percent in 45 days to completing 100 

percent in 30 days 

• 	 At second level, from completing 90 percent in 120 days to completing 

100 percent in 30 days 

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

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

• 	 Allows appellants to escalate the appeal to the next level, including federal 

district court, when adjudication time frames have not been met at the 

second, third, or fourth levels of appeal 

• 	 Replaces the second level of appeal, currently known as a carrier hearing, 

with a redetermination by qualified independent contractors (QIC) 

• 	 The Department of Health and Human Services (HHS) must establish 

3-year contracts with at least 12 QICs 

• 	 QICs, like the Office of Hearings and Appeals (OHA) and the Medicare 

Appeals Council (MAC), are not bound by, but shall consider, local 

coverage determinations 

• 	 Establishes that the MAC adjudicate cases de novo1 instead of evaluating 

OHA’s decisions, as had been done 

• 	 Requires that QICs have a comprehensive data system to collect and share 

information 

• 	 QICs must maintain accurate records of each decision that enable it to 

identify specific types of claims that give rise to appeals, situations 

suggesting the need for provider education, situations suggesting 

changes in national or local coverage policy, and situations suggesting 

changes in local medical review policy 

• 	 QICs must monitor their decisions to ensure consistency in outcomes 

between similar appeals 

• QICs must make all decisions available to carriers 

• QICs must report annually to the Secretary of HHS 

1

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

Page 31 GAO-03-841 Medicare Appeals 
Appendix III: Changes Mandated by Section 

521 of BIPA 

• 	 Requires that, at least every 5 years, the Secretary of HHS survey a sample 

of appellants regarding their satisfaction with education on the appeals 

process and with the process itself; and that the Secretary must report the 

results and any recommendations to the Congress 

• 	 Requires that the Secretary of HHS annually report the following to the 

Congress: 

• The number of appeals 

• 	 Issues that require administrative or legislative action and 

recommendations with respect to actions 

• 	 Analysis of consistency of decisions at QICs, including any reasons for 

inconsistency 

Page 32 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the 

Department of Health and Human Services 

Page 33 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 34 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 35 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 36 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 37 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 38 GAO-03-841 Medicare Appeals 
Appendix IV: Comments from the Department 

of Health and Human Services 

Page 39 GAO-03-841 Medicare Appeals 
Appendix V: Comments from the Social 

Security Administration 

Page 40 GAO-03-841 Medicare Appeals 
Appendix V: Comments from the Social Security Administration 

Page 41 GAO-03-841 Medicare Appeals 
Appendix V: Comments from the Social Security Administration 

Page 42 GAO-03-841 Medicare Appeals 
Appendix V: Comments from the Social Security Administration 

Page 43 GAO-03-841 Medicare Appeals 
Appendix V: Comments from the Social Security Administration 

Page 44 GAO-03-841 Medicare Appeals 
Appendix VI: GAO Contact and Staff 

Acknowledgments 

GAO Contact Geraldine Redican-Bigott, (312) 220-7678 

Acknowledgments 	 Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig Winslow 

made major contributions to this report. 

(290140) Page 45 GAO-03-841 Medicare Appeals 
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