Medicare: Incomplete Plan to Transfer Appeals Workload from SSA to HHS Threatens Service to Appellants
Published: 2004-10-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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  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. 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.  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  that were to be addressed in that plan. 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 plan 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.
subsections: section_title: Background
paragraphs: 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  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 contractor 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.
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. 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  required by the Medicare, Medicaid, and SCHIP Benefits Improvement and  Protection Act of 2000 (BIPA). 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.
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  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.
section_title: Incomplete Transfer Plan Lacks Sufficient Detail to Ensure a Smooth and Timely Transition
paragraphs: 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.)
subsections: section_title: Category A: Essential Milestones and Contingency Strategies Not Included in Transition Timetables
paragraphs: 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 MMA- imposed 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  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.
section_title: Category B: The Plan’s Assumptions to Predict the Scope of Work Are Not Credible
paragraphs: 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.
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.
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. 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, 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. 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  BIPA’s time frames by completing the same workload in less than one- third 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, 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.
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.
section_title: Category C: Completion of Adjudication Guidance for ALJs Not Fully Addressed
paragraphs: 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.
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  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.
section_title: Category D: Operational Matters Need Greater Specificity
paragraphs: 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  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.
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.
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 in- person 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.
section_title: Category E: Strategy for Staffing HHS’s ALJ Unit Is Undeveloped
paragraphs: 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.
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. 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  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.
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.
section_title: Category F: Issues of Oversight Remain Unresolved
paragraphs: 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. 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  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.
section_title: Conclusion
paragraphs: 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  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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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  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  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.
section_title: Appendix I: Analysis of the Medicare Appeals Transfer Plan
paragraphs: 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.
section_title: Appendix II: Comments from the Social Security Administration
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Margaret Weber, Craig Winslow, Shirin Hormozi, and Barbara Mulliken  made key contributions to this report.
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