Medicare Appeals: Disparity between Requirements and Responsible Agencies' Capabilities
Published: 2003-09-29T00:00:00

Fast Facts:

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

section_title: Letter
paragraphs: 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), an  agency within the Department of Health and Human Services (HHS),  administers the Medicare program with the help of about 50 claims  administration contractors. Among other things, CMS is charged with  protecting the program by identifying and denying health care claims that are invalid, incomplete, or otherwise appear to be improper. Beneficiaries  and providers may pursue the payment of denied claims through a  multilevel administrative appeals process. The entities—or appeals  bodies—that constitute the process include the Social Security  Administration (SSA) and HHS’s Departmental Appeals Board (DAB), in  addition to CMS. In fiscal year 2001, 3.7 million Part B appeals were  submitted to the first level in the process.
In recent years, there has been widespread concern about the length of  time it takes the appeals bodies to render decisions. In December 2000, the  Congress enacted the Medicare, Medicaid, and SCHIP Benefits  Improvement and Protection Act of 2000 (BIPA). Section 521 of BIPA  amended section 1869 of the Social Security Act by mandating shorter  time frames and expedited procedures for processing Medicare appeals. 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, 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.)
subsections: section_title: Background
paragraphs: Providers and beneficiaries may appeal any denied claim. Claims are  denied for a variety of reasons. In fiscal year 2001, the most common  reason for denying claims was that the services provided were determined  not to have been medically necessary for the beneficiaries. Other reasons  for denials include that Medicare did not cover the services, or that the  beneficiary was not eligible for services. Claims that do not meet the  requirements outlined in Medicare statutes and federal regulations may be  denied. 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. Relatively few  denied claims are ever appealed, and only a small fraction is appealed to  the highest level. (App. II contains more information regarding the denial  of claims, including common reasons for denials.)
The Medicare Part B appeals process consists of four levels of  administrative appeals performed by three appeals bodies. Medicare  carriers are responsible for the first two levels of appeal—the carrier  review and the carrier hearing. Through a memorandum of understanding  (MOU) implemented in March 1995—when SSA was separated from HHS  and became an independent agency—OHA’s administrative law judges  (ALJ) within SSA continue to hear the third level of appeal. OHA’s  continued role in Medicare appeals is uncertain, as SSA officials have  indicated that they plan to discontinue adjudicating Medicare appeals and  expect to transfer the workload to HHS. However, until an agreement  between SSA and HHS is reached, OHA will continue to adjudicate  Medicare appeals. The MAC adjudicates appeals at the fourth level of the  administrative appeals process. In addition, appellants who have had their  appeals denied at all four levels of the administrative appeals process have  the option of filing their appeals in federal court.
Section 521 of BIPA requires numerous administrative and structural  changes to the appeals process, including moving the second level of  appeals—the carrier hearing—from the Medicare carriers to a group of  yet-to-be-established contractors, known as qualified independent  contractors (QIC). Figure 1 outlines the steps of the existing appeals  process and the process BIPA requires. BIPA’s changes to the appeals  process were to apply with respect to initial determinations—that is,  claims denials—made on or after October 1, 2002. Although CMS  published a rule 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, 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.)
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.
Beneficiaries and providers have the right to appeal denied claims if  appeals are filed within the deadline. CMS’s October 2002 ruling  implemented the BIPA-mandated deadline for filing an appeal at the  carrier review level, shortening it from 180 to 120 days—one of two BIPA  provisions implemented thus far. Appeals at the carrier hearing level must  be submitted within 180 days of the denial or unfavorable determination.  Appellants who are dissatisfied with decisions reached at the carrier  hearing level may appeal to OHA and then to the MAC, and their appeals  must be filed within 60 days of receiving an unfavorable determination at  the previous level.
There is no dollar minimum required to file an appeal at the carrier review  level. However, an appeal at the carrier hearing and OHA levels must meet  specific dollar thresholds of $100 and $500, respectively. To meet the  thresholds, multiple denied claims may be aggregated into a single appeals  “case.” The MAC does not have a dollar threshold for considering appeals.  Finally, appellants who receive unfavorable determinations from the MAC  may appeal the decisions in federal court if the amount in dispute is at  least $1,000. BIPA provisions change the threshold amounts at the second  level of appeal and OHA. When QICs replace carrier hearings as the  second level of appeal, the dollar threshold for submitting an appeal at  that level will be eliminated. Further, CMS’s October 2002 ruling  implemented BIPA’s reduced dollar threshold for filing an appeal at  OHA—the second of two BIPA provisions to be implemented thus far—by  dropping the threshold from $500 to $100.
BIPA also shortened the time frames the appeals bodies have for  adjudicating appeals at the first two levels and established time frames for  the first time at the higher levels. BIPA’s provisions that revise the  timelines for processing appeals have not been implemented, and the  appeals bodies are following previously issued performance standards  specifying that 95 percent of carrier reviews be completed within 45 days  and 90 percent of carrier hearings be completed within 120 days. BIPA  required that carrier reviews be completed in 30 days and that the QICs  issue their decisions in 30 days. While OHA and the MAC have not  previously been bound by time limits, BIPA required that they issue  decisions within 90 days of the date an appeal was filed. BIPA also gave  appellants the right to escalate their appeals to the next level in the  process for adjudication when a decision is not issued within the specified  time frame. Escalation is available from any level of appeal except the  first—carrier review. However, CMS’s November 2002 proposed rule  regarding BIPA’s implementation provides that appellants who escalate  their appeals to the next level will, in essence, be waiving their right to a  decision within the statutory time frame governing that level. For example,  an appeal that is escalated from the OHA to the MAC would not be subject  to the 90-day limit that applies to appeals received by the MAC that have  not been escalated.
The first three levels of appeal share a protocol for adjudication, called de  novo review, which permits adjudicators to consider results from earlier  decisions but requires them to independently evaluate evidence and issue  original decisions. The appeals bodies reexamine the initial claim to  determine if it should be paid and consider any new documentation or  information supporting the claim that the appellant submitted. The fourth  level of review, the MAC, does not share this protocol. Rather than  performing de novo review of evidence, it evaluates the appropriateness of  OHA decisions and considers whether new evidence submitted will alter  the decision. BIPA changes require that the MAC performs de novo review  in all cases.
The appeals bodies reach decisions through either a review of the file for  the initial claim or through hearings. At the first level of appeal, a carrier  review officer who was not involved in the initial denial reexamines the  initial claim and any new supporting documentation provided by the  appellant but does not conduct a hearing. The second level of appeal—the  carrier hearing—provides the appellant with an opportunity to participate  in a hearing at the carrier’s facility or by telephone. OHA conducts  hearings at the third level of review. OHA’s hearings are held at its central  office in Falls Church, Virginia, or at one of its 140 local hearing offices  nationwide. The MAC’s adjudication is based on a review of OHA’s  decisions, and it does not conduct hearings.
Appeals bodies have several options when deciding a case. The case may  be decided fully or partially in favor of the appellant and payment awarded  for all or part of the claim or claims in dispute. Alternatively, the decision  may be unfavorable to the appellant and the initial denial of payment  upheld. The MAC has an additional option of remanding the appeal—  returning it to the OHA judge who issued the original decision—for a  variety of reasons. For example, the MAC may determine that more  evidence is needed, additional action by OHA is warranted, or that OHA  should issue a modified decision based on the MAC’s instructions. Finally,  the MAC may deny an appellant’s request for review if it finds that OHA’s  decision is factually and legally adequate.
In making a determination regarding whether the claim is payable or will  continue to be denied, the first two levels of appeal are bound by the same  guidance used in the initial denial determination—Medicare statutes,  federal regulations, CMS’s NCDs, the carrier’s own LMRPs and LCDs, and,  pursuant to carrier’s contracts with CMS, CMS’s general instructions, such  as manuals and program memoranda. The statutes, regulations, and NCDs  also bind OHA and the MAC—and the QICs, when they are established.  But QICs, OHA, and the MAC only need to consider—rather than  definitively follow—the carrier-based LMRPs and LCDs in rendering their  decisions.
Management of the Medicare appeals process is currently divided among  CMS, SSA, and the MAC. CMS is charged with establishing procedures for  carriers to follow in considering appeals—including developing guidelines  for timeliness and quality of communications with the appellant—and is  also responsible for ensuring that the carrier review and carrier hearing  processes comply with statutory and regulatory requirements. SSA  establishes its own requirements and procedures, with input from CMS,  for OHA’s review of third-level appeals. CMS reimburses OHA for its  appeals work. The MAC independently establishes its own procedures and  guidelines for completing Medicare appeals.
section_title: Appeals Process Operations Inconsistent with BIPA’s Requirements
paragraphs: 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.
subsections: section_title: Appeals Bodies’ Current Performance Is Far from Meeting BIPA’s Timeliness Standards
paragraphs: There is a substantial gap between carriers’ current performance and that  required by BIPA’s standards. For example, at the first level of appeals—  the carrier review—while carriers completed about 91 percent of their  reviews within CMS’s current 45-day time frame, this is insufficient by  BIPA’s standards. Only about 43 percent of the carrier reviews completed  in fiscal year 2001 met BIPA’s mandated 30-day deadline. At the carrier  hearing level—eventually to be replaced by the appeals to the QICs—the  ability to meet BIPA’s time frames remains largely unanswered because  the QICs have not yet been established. Although the carriers exceeded  CMS’s performance standards in fiscal year 2001 by completing more than  90 percent of the carrier hearings within 120 days, this standard is much  less stringent than the one imposed by BIPA, which requires the QICs to  complete all appeals within 30 days.
Similarly, OHA and the MAC fall far short of BIPA’s required 90-day time  frame for completing 100 percent of their cases. For example, in fiscal year  2001, OHA took an average of 14 months from the date an appeal was filed  to complete adjudication. The MAC took even longer to process appeals  during the same year, with cases taking an average of 21 months to  adjudicate. As of September 2003, OHA and the MAC had not implemented  BIPA-mandated time frames and continued to operate without time frames  for rendering decisions. Although officials at both appeals bodies told us  that they are concerned with meeting BIPA time frames, neither body has  developed strategies for doing so. Instead, the officials stated that they  would take action once regulations implementing BIPA are finalized and  they are more certain how the new regulations will affect them.
Existing backlogs of unprocessed cases may also interfere with the  appeals bodies’ compliance with BIPA’s mandated time frames for appeals  of claims denied after October 2002. While backlogs at the carrier review  and carrier hearing levels are relatively small, OHA and the MAC have  been unable to meet workload demands. For example, OHA’s backlog at  the end of fiscal year 2001 included nearly 35,000 Part B cases—equal to  about the average number of cases processed in 7 months. At the end of  that same year, the MAC had a backlog of 15,000 cases—twice the number  of cases it adjudicated in 2001. The MAC has been making strides to  improve its efficiency and, near the end of fiscal year 2003, reported  reducing its backlog to 10,100 cases. According to OHA and MAC  representatives, BIPA-governed cases—appeals of claims denied after  October 1, 2002—will have higher priority than cases filed earlier, virtually  ensuring that pre-BIPA cases experience even longer delays. However, as  of July 2003, none of the appeals bodies had determined how they would  prioritize the processing of BIPA appeals while completing their pre-BIPA  workloads.
At OHA, protocols for assigning appeals to ALJs may contribute to delays.  Although OHA plays a critical role in resolving Medicare appeals, its  primary focus is disability appeals for SSA, which constitute 85 percent of  its total caseload. While they are a smaller workload, Medicare appeals are  often more complex than disability appeals. Some local OHA hearing  offices take advantage of their ALJs’ Medicare expertise by assigning all  Medicare cases to a single judge. However, other offices assign cases  randomly, requiring judges to refamiliarize themselves with basic  Medicare statutes each time they hear a Medicare case—potentially  prolonging the process.
While all of the appeals bodies are subject to BIPA’s processing time  frames, the MAC is uniquely challenged in meeting these deadlines  because the requirement for de novo review expands the scope of the  MAC’s work. MAC officials pointed out that shifting from ensuring that  OHA interprets policy correctly to becoming a fact-finding body requires a  substantial amount of additional resources and more time to gather and  evaluate evidence. MAC officials report that they do not have a strategy to  address the expansion in the scope of their work and the contraction in  time to render decisions.
section_title: Delays in Administrative Processing at OHA and the MAC Further Suggest BIPA’s Time Frames Will Not Be Met
paragraphs: The bulk of time at OHA and the MAC is spent on assembling files and  completing other administrative tasks rather than in performing legal  analyses of appeals and adjudicating cases. Each agency takes more than a  year, on average, to complete an appeal. For example, OHA spent 14  months, on average, to complete a case in fiscal year 2001 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.
Officials from both OHA and the MAC report that it may take months to  receive appellants’ case files from the previous level of review or the  appropriate storage facility. Case files—which are all paper documents—  are a critical component of the adjudication process as they contain all  evidence submitted by the appellant in previous appeals. The MAC, in  particular, requires OHA’s case files to assess the evidence, the hearing  tapes, and the letter of decision so that it may determine whether OHA’s  decision was appropriate.
OHA and the MAC are dependent on the Medicare carriers to forward the  appropriate files to their hearing offices for review. CMS allows carriers 21  to 45 days to forward case files to OHA, depending on the number of  appellants and dollar value of the case. However, locating files is further  complicated by the fact that appellants are required to include little  information in their appeal requests. Therefore, OHA and the MAC may  receive appeals that do not identify the carrier that originally denied the  claim. Locating files can also be hindered if the appeal has been in process  for several years and the carrier that initially denied the claim is no longer  a Medicare contractor. Although the defunct carrier should have  transferred all of its files, including its appeals records, to the replacement  carrier, such transitions are not always smooth. Instead, files are often  difficult to locate, causing delays in forwarding specific requested cases.
The MAC faces an additional challenge in locating case files. OHA- completed cases are routed to a special clearinghouse contractor for  temporary storage. If OHA determines that the appellant is due a full or  partial payment, the clearinghouse returns the files to the carrier that  initially denied the claim so that payment may be processed. If OHA  continues to deny payment, the clearinghouse holds the accompanying file  for 120 days to expedite the MAC’s retrieval should the appellant continue  to appeal. However, the MAC may not know whether to approach the  clearinghouse contractor or the relevant carrier to request needed files.  And, like the carriers, the clearinghouse does not always provide files in a  timely manner. In fiscal year 2001, the MAC waited an average of nearly 3  months—the entire time allowed for the MAC to adjudicate appeals under  the BIPA amendments—to receive case files. The MAC, which is  empowered to remand, or return, cases to OHA when there is insufficient  information in the existing record to issue a decision, in fiscal year 2001  remanded 1,708 cases—nearly a quarter of the cases it adjudicated that  year—to OHA because needed files were either missing or incomplete.  Although CMS has not performed a comprehensive evaluation of the  clearinghouse’s accuracy in routing appeals files, it recently determined  that the clearinghouse had a 10 percent error rate in routing case files to  particular carriers for payment.
Inadequate technology and the need for manual processing also indicate  that the appeals bodies are not prepared to address BIPA’s requirements.  For example, providers often aggregate groups of claims for different  beneficiaries to meet the dollar threshold for filing an OHA appeal. To  maintain beneficiary confidentiality, a separate electronic file—containing  the same provider information—is created for each beneficiary. While  widely available technology allows the creation of multiple data files by  entering the information one time and then quickly duplicating it, OHA’s  system requires administrative staff to separately enter repetitive  information pertaining to each denied claim that constitutes the appeal.  For example, if a provider is appealing a similar group of claims in a single  appeal, OHA must nonetheless create a separate case file and data record  for each beneficiary.
BIPA provides that appellants may escalate their appeals from the QIC or  OHA to the next level in the administrative appeals process when it is not  resolved within the time frames mandated. MAC cases not meeting the  time frame may be escalated to the federal district court. More than 95  percent of OHA appeals and about 85 percent of MAC appeals did not  meet BIPA time frames in fiscal year 2001, suggesting that a number of  cases would be eligible for escalation. 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.
section_title: Appeals Bodies’ Lack of Coordination and Resources Is a Barrier to BIPA Implementation
paragraphs: 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.
subsections: section_title: Appeals Bodies Need Stronger Coordination to Successfully Implement BIPA’s Requirements
paragraphs: 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.
section_title: Lack of Management Data Inhibits Appeals Bodies’ Ability to Understand Barriers to Efficiency
paragraphs: We found that the appeals bodies are not sufficiently coordinated to track  an appealed claim, or group of claims, through all four levels of the  process. This is attributable, in part, to the use of different numbering  systems for case identification at each appeals body and the fact that the  individual claims making up a “case” can change at every level. For  example, appeals bodies often reconfigure cases to group claims with  similar issues. Appellants also change the configuration of their cases by  aggregating their claims to meet minimum dollar thresholds necessary to  file an appeal at a given level. Case numbering is further complicated when  a partially favorable decision is made. In these situations, some of the  claims within the appeal are paid, while the remaining denied claims are  eligible for further appeal by beneficiaries and providers and subject to  further reconfiguration with new case numbers. Accordingly, assigning a  variety of numbers to any particular claim or group of claims at each level  of the process makes it virtually impossible to track an individual claim  from one level to the next.
Some problems with data quality are also a product of a lack of  coordination between appeals bodies. CMS, OHA, and the MAC are  making individual efforts to improve their data systems to better manage  their caseloads, but their systems remain incompatible. For example,  although CMS is gradually shifting its carriers to one common claims  processing data system—also used to track appeals at the carrier level—it  is not compatible with OHA’s or the MAC’s data systems. OHA has also  initiated data system improvements, but did not consult with CMS in  setting the parameters for new system requirements or provide CMS’s  appeals group with a copy of its planning document. The MAC does not  know if the improvements it is instituting—such as its transition to more  powerful data management software used to organize its caseload—will  be compatible with OHA’s, CMS’s, or the carriers’ systems. Compatible  data systems would facilitate the transfer of case information between  appeals levels and analyses of the process as a whole.
Not only do appeals bodies have incompatible data systems, but data  gathered individually by CMS from carriers and by OHA from local hearing  offices are aggregated and not used to pinpoint problems and develop  solutions to improve the appeals process. For example, CMS only collects  workload data from its carriers in the form of monthly productivity totals.  OHA collects aggregate data from each of its 140 hearing offices, despite  the fact that the local offices are tracking individual cases. The aggregate  numbers allow OHA and CMS to develop basic workload statistics, such as  the number of cases they resolve and the average time frames for  adjudication. However, the data do not allow CMS and OHA to perform  more detailed analyses, such as isolating process steps that create a  bottleneck or identifying specific cases that linger at an appeals level for  unusually lengthy periods.
The lack of specific data on case characteristics also limits the appeals  bodies’ understanding of the nature and types of appeals that they must  resolve. For example, only the MAC collects data on the reason for the  appeal, the type of denial being appealed, and the amount in controversy;  however, the MAC is not consistent in ensuring that the information is  routinely entered in the database. Furthermore, carriers do not collect  data that allow CMS to distinguish if the appellant is a beneficiary or a  provider, and none of the appeals bodies collects information on the rates  of appeal among provider specialty groups. Analyses of case characteristic  data could be valuable in identifying confusing or complex policies or  requirements that lead to denied claims and the submission of appeals.  The data would also be useful to the agencies in understanding the nature  of denied claims that are appealed at each level and guiding more  appropriate initial reviews of claims and educating providers about proper  claim submission.
BIPA mandated the use of QICs to replace the second appeals level and  required them to develop management information through a data system  that would identify (1) the types of claims that give rise to appeals, (2)  issues that could benefit from provider education, and (3) situations that  suggest the need for changes in national or local coverage policy. QICs  must report their information to the Secretary of HHS and, among other  things, must monitor appeals decisions to ensure consistency between  similar appeals. However, the requirements do not affect data collection at  the other appeals bodies. As a result, without corresponding changes at  the other appeals bodies, it will remain difficult to evaluate the  performance of the appeals process as a whole and make informed  decisions affecting more than one appeals level. CMS stated that it plans to  expand the QICs’ data system to the third level of appeal—the  ALJ-adjudicated level—and, eventually, to all levels of appeal. Until the  compatible data systems are in place at all appeals bodies—which CMS  plans for 2005—the appeals bodies will not be able to perform the most  fundamental types of analyses to improve the management of the process.
section_title: Uncertainties in Regulations, Funding, and the Role of OHA Hinder BIPA Implementation Planning
paragraphs: 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. As of September 2003, guidance regarding two  provisions—adjusted deadlines for appellants filing first-level appeals and  reduced dollar thresholds required for filing appeals at OHA—have been  issued. CMS officials stated that they expect that the proposed  regulations implementing the remaining provisions of BIPA section 521  will be finalized by early 2004. The regulations, once finalized, will provide  directions specifying how each body will operate. Without final  regulations, officials from carriers, OHA, and the MAC said that they have  had difficulty estimating what the actual effect on their workloads will be  and, accordingly, have not made specific plans to comply with BIPA’s  mandates.
Even after the regulations are finalized, several important issues will not  have been resolved. For example, when it published its ruling on October  7, 2002, CMS acknowledged that transition issues from the current appeals  process to the new process would require additional policy guidance prior  to implementation. Specifically, questions will remain regarding the  necessity of operating two separate appeals processes concurrently,  dependent on the date of the initial claim determination. Appeals of claims  denied before the effective date of the BIPA amendments are not governed  by them, barring specific guidance to the contrary, and are subject to pre- BIPA guidelines and processes.
No additional funding was provided to the appeals bodies in fiscal year  2003 to implement BIPA’s changes. Moreover, uncertainties exist about  the funds available in fiscal year 2004. The first uncertainty concerns  funding for HHS. The President’s proposed budget for fiscal year 2004  includes $126 million in funding for CMS to complete BIPA’s changes—  including establishing the QICs, developing the QIC data systems, and  implementing the shortened time frames at the first and second appeals  levels—as well as assuming the workload currently performed by OHA.  However, this funding level was premised on the assumption that BIPA  would be amended to reduce the number of QICs, increase the time  frames for completing appeals at all levels, and require that providers pay  a $50 user fee for filing appeals at QICs. However, as of September 2003,  BIPA had not been amended. Moreover, the proposed budget contained no  additional funding for the MAC to implement BIPA. The second budgetary  uncertainty concerns funding for the third level of the appeals process,  currently performed by OHA. While SSA’s fiscal year 2003 budget included  a $90 million “direct draw” from the Medicare Trust Fund for Medicare  appeals, the proposed 2004 budget eliminates the direct draw and does not  include a new source for Medicare appeals funding, reflecting SSA’s plan  to transfer OHA’s Medicare appeals workload to HHS.
Although BIPA required CMS to establish QICs in time for them to begin  adjudicating appeals of claims denied as of October 1, 2002, CMS  estimated, in its fiscal year 2004 budget request, that QICs would become  operational, at the earliest, February 2005. Agency officials detailed that  the implementation of QICs would require approximately 10 months of  drafting and finalizing the related regulations and conducting the bidding  process, and 6 months for hiring staff, renting space, and performing other  tasks associated with making QICs operational, including developing the  QICs’ data systems. In commenting on a draft of this report, HHS stated  that CMS now plans for QICs to begin operation in fiscal year 2004.  However, we were not provided with CMS’s implementation plan or  sufficient details to evaluate its feasibility.
Finally, one of the critical issues related to BIPA’s implementation  involves the possible transfer of the Medicare caseload currently  adjudicated by SSA’s OHA to HHS. Several issues remain unresolved. In  1995, when SSA separated from HHS and became an independent agency,  SSA entered into an MOU with the Health Care Financing Administration  to continue to perform the Medicare appeals work it had been conducting.  Recently, SSA has taken the position, which is reflected in its budget  request for fiscal year 2004, that it intends for OHA to discontinue  adjudicating Medicare appeals and has proposed a revised MOU outlining  the transfer of OHA work to HHS. However, as of September 2003, HHS  had not signed the revised MOU and the transfer of the workload to HHS  had not been finalized. In addition, legislation has been introduced that  would expressly provide for the transfer of Medicare appeals to HHS.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, HHS would have to compensate for  OHA’s departure by developing plans that would enable it to adjudicate  the current workload demands within BIPA’s time frames and to address  the backlog of cases accumulated before the transfer to HHS. As of June  2003, CMS was evaluating OHA’s Medicare operations, workload, and  facilities and developing and assessing the feasibility of various options. A  CMS official stated that assuming OHA’s workload would be a notable  challenge for the agency.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendation for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to HHS and SSA and received written  comments from both agencies. In its comments, HHS emphasized its  commitment to implementing the appeals provisions in BIPA and  highlighted the steps it has taken to do so. Similarly, SSA emphasized its  efforts to provide quality service to Medicare appellants. We have  reprinted HHS’s and SSA’s letters in appendixes IV and V, respectively.
HHS agreed with our conclusion that a more coordinated approach to the  appeals process is needed. HHS said, however, that we understated its  progress in this area and described a variety of efforts it has engaged in to facilitate improved coordination between the appeals bodies. As we noted  in the draft report, HHS has made strides in enhancing coordination, but  we believe that greater progress can be made by creating an interagency steering committee to develop a consolidated and strategic approach to  implementing BIPA.
SSA’s comments also emphasized the benefits of enhanced coordination  between the appeals bodies. It largely attributed the inefficiencies that  exist in the current appeals process to the lack of a single entity with  ownership of, and accountability for, Medicare appeals. SSA indicated that  it believes that HHS is the sole entity with the authority to unify the  policies and procedures for the Medicare appeals process.
HHS stated that it would consider the appropriateness of an interagency  steering committee but did not specifically agree or disagree with our  recommendation to create such a body. However, it stated that the  transfer of the work performed by SSA’s OHA to HHS is critical to  achieving the level of coordination needed to address the inefficiencies  outlined in our report. SSA indicated that it generally agreed with the  specific responsibilities of the steering committee. It also stated that it  believes that HHS has ultimate responsibility for Medicare appeals and  that HHS should carry out the functions of the steering committee through  CMS. SSA stated that its budget anticipates the transfer of OHA’s appeals  workload to HHS, and SSA has submitted a new MOU to HHS to facilitate  a smooth transition. While SSA emphasized its commitment to serving  Medicare appellants during the expected transition, it also pointed out that  Medicare appeals make up a small portion of its work. Therefore, SSA  cautioned that while it will participate in efforts to improve the Medicare  appeals process, it must consider the demands of its total workload in  allocating its resources.
While HHS did not specifically comment on our recommendation to make  administrative processes, such as file tracking and transfer, compatible  across all levels of appeal, SSA agreed that an interagency steering  committee could be beneficial in ensuring such compatibility among  appeals bodies. SSA also noted that the steering committee would be  helpful in defining the roles of the appeals bodies both in their current  operating status and during the anticipated transfer of the OHA workload  to HHS.
Regarding our recommendation to negotiate responsibilities for reducing  the backlog of pending cases, HHS agreed that a strategy for setting clear  requirements to prioritize pre-BIPA and BIPA cases and reduce the  backlog of cases at all levels is needed. HHS also reported that the MAC  has already reduced its backlog and we revised the report to reflect the  reduction. HHS also said that prioritizing cases and other transition  matters would be addressed in the forthcoming final regulations. SSA  agreed that strategies for reducing both the backlog of pending cases and  the lengthy processing times for Medicare appeals are needed and  expressed a willingness to help resolve the backlogs and delays.
HHS agreed with our recommendation to establish comparable program  and performance data across appeals levels and indicated that improved  appeals data capabilities are needed. To that end, HHS noted that it has  issued a request for proposals to develop the data system required by  BIPA. SSA acknowledged that fragmentation of the appeals process has  precluded the development of comparable data. However, SSA pointed out  that preparations to transfer OHA’s work to HHS have created a need for  greater data sharing. SSA also pledged to work to capture comparable data  to facilitate the transfer of the OHA’s work.
In addition, in response to HHS’s specific comments, we have clarified that the scope of our work excluded managed care, Medicare  revised the use of the word “rule” to “ruling;”  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 modified our description of BIPA’s escalation provision to recognize that  or missing information and those that are denied for substantive reasons,  in appendix II;  revised the legend of figure 1;  CMS has developed specific requirements for escalation in its notice of  proposed rulemaking; revised our explanation of the MAC’s procedures regarding the parameters  for accepting evidence in its current decision-making process and the  MAC’s criteria for denying an appellant’s request for review; and added that CMS policy is a binding element in carrier review.
However, we did not revise the draft report in response to HHS’s specific  comment regarding our use of the word “review.” While BIPA refers to the  first level of appeal as “redetermination,” we have used the term “carrier  review” because the adjudication process at the review level is unchanged  by BIPA. Nor did we make revisions in response to HHS’s specific  comment that both OHA and the MAC use their own systems for  processing appeals and conduct their own hiring. As we noted in the draft  report OHA and the MAC independently establish their own procedures  and guidelines. Finally, we did not revise the draft in response to HHS’s  specific comment that we imply that the MAC has done no planning  related to BIPA requirements. As we noted in the draft report, the MAC  has made some improvements, but as MAC officials told us, and as HHS  indicated in its comments, a detailed action plan to meet BIPA requirements has  not been developed. In its comments, HHS noted that a detailed plan is  premature because the MAC will not receive BIPA cases for some time—  until after they have passed through the other levels of appeal—however,  BIPA requirements apply to claims denied on or after October 1, 2002, and  such cases have already been submitted.
HHS also provided us with technical comments, which we incorporated as  appropriate.
As agreed with your offices, unless you announce its contents earlier, we  plan no further distribution of this report until 30 days after its issuance  date. At that time, we will send copies to the Secretary of HHS, the  Commissioner of SSA, interested congressional committees, and other  interested parties. We will then make copies available to others upon  request. In addition, the report will be available at no charge on GAO’s  Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please call me at  (312) 220-7600. An additional GAO contact and other staff who made  contributions to this report are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: Our analyses were limited to the appeals process for denied Part B  claims—rather than managed care, Medicare entitlement, and  overpayment cases—because Part B cases constitute the majority of  appeals. We also excluded Part B claims processed by durable medical  equipment contractors and fiscal intermediaries to focus on the work  performed by carriers. We reviewed the four levels of the administrative  appeals process; our scope did not extend to the federal district court  level.
To gain a better understanding of the process for Part B appeals at the  time the Medicare, Medicaid, and SCHIP Benefits Improvement and  Protection Act of 2000 (BIPA) was passed and the changes it mandated,  we reviewed agency procedures for completing Part B appeals regulations  and agreements guiding Medicare appeals and other laws. We also  analyzed appeals workload data and interviewed officials at the Centers  for Medicare & Medicaid Services (CMS) and at all levels of the  administrative appeals process—the carriers, the Office of Hearing and  Appeals (OHA), and the Medicare Appeals Council (MAC).
We reviewed regulations and procedures pertaining to the initial denials of  claims and the submission of appeals by providers and beneficiaries. We  also examined the processes for data management and guidelines and  regulations for adjudicating cases at all levels. We reviewed the  memorandum of understanding between the Health Care Financing  Administration and the Social Security Administration, which outlines the  responsibilities of both agencies in the adjudication of Medicare appeals.  In addition, we reviewed the October 2002 ruling implementing selected  BIPA amendments and the proposed rule for the implementation of the  balance of the BIPA amendments to the appeals process.
We also analyzed appeals data from CMS, four selected carriers, OHA, and  the MAC to understand the scope and efficiency of the Medicare appeals  process and the characteristics of appeals. All data examined were for  cases adjudicated from fiscal years 1996 through 2001, with a primary  focus on fiscal year 2001, which represents the conditions that existed at  the time BIPA was passed. In reviewing later data and in conversations  with the appeals bodies, we confirmed that the conditions reflected in the  data are relatively unchanged. Limitations in collected and reported data  at each level precluded comprehensive and consistent analyses in some  cases. CMS and the MAC alerted us to some limitations in their data,  including inconsistency in data entry, changes in data systems that caused  the loss of data, and poorly defined variables. At some levels, only  aggregated data were available, which did not permit detailed analysis.
We studied carrier performance by selecting four carriers located in  different regions of the country and obtaining processing data on appeals  submitted to those carriers at the first two levels of appeals. We also  reviewed the results of CMS’s contractor performance evaluations of  carriers’ appeals activities in fiscal years 1999, 2000, and 2001.
We visited three OHA local hearing offices located in proximity to three of  the four selected carriers’ appeals operation centers to learn more about  their role in the appeals process and to assess the impact of carrier  performance on their operations. We also examined the processes and  procedures used at the OHA local hearing offices. To understand the  efficiency of the appeals process, we examined the average total time to  process appeals at each level, and the average time spent in each step of  the adjudication process at OHA and the MAC. We also examined MAC  data to determine the number of cases remanded to OHA because of lost  files in fiscal year 2001.
Appeals bodies performed analyses of their appeals data at our request.  CMS performed analyses of the Contractor Reporting of Operational and  Workload Data (CROWD), including the reason for initial claims denials,  the time each carrier took to process carrier reviews and carrier hearings,  and the number of cases at the first three levels of appeal. CMS analyses of  CROWD, OHA analyses of its data, and our analyses of the MAC’s data also  provided information on the average time spent in adjudicating appeals  and the number of pending cases. OHA’s central facility analyzed its Part B  data based on our request, and we analyzed data provided by the MAC to  determine the time elapsed between processing milestones at OHA and the  MAC. In the analysis of the time spent in the various phases of case  processing at the MAC, cases with missing date information or cases with  negative dates were omitted. All results of, and methodologies for, our  analyses of MAC data were examined and confirmed by the MAC.
section_title: Appendix II: The Scope of Part B Claims Rejections, Denials, and Appeals
paragraphs: 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. In fiscal year 2001, carriers rejected over 19.5 million  claims that were missing information and more than 40 million claims that  they considered duplicate. Duplicate claims may be submitted for several  reasons. For example, inconsistent regulations may confuse providers  causing them to resubmit denied Part B claims—even though Medicare  rules do not allow this—because Medicare allows denied Part A claims to  be resubmitted for payment. Also, turnover in administrative and billing  personnel at providers’ offices may result in confusion about whether a  claim was previously submitted, and under what circumstances a claim  can be resubmitted for payment. According to officials from the Centers  for Medicare & Medicaid Services’ (CMS), carrier error also contributes to  the rate of duplicate submissions because some carriers have system  limitations that do not always recognize appropriate claims. For example,  if a claim is submitted that appropriately includes the performance of the  same service to two separate limbs, the two distinct services may be  construed as duplicate claims by some carrier systems.
Claims are denied if they do not meet the requirements in Medicare  statutes, federal regulations, or CMS’s national coverage determinations.  Carriers may also deny claims based on their own local medical review  policies and local coverage determinations, which may enhance or clarify  national Medicare policy.
CMS compiles data submitted by carriers categorizing the reason for  denying claims. Table 1 shows the reasons for denials of Part B claims in  fiscal year 2001, excluding rejections. Although CMS has established the  categories for data submission shown in table 1, it has not provided strict  definitions of these categories for carriers to follow. Instead, each carrier  has developed its own unique set of definitions for each category. As a  result, these data do not provide a precise or reliable explanation of the  reasons for denial. For example, the category “other,” which comprised  more than 17 percent of reported Part B denials in fiscal year 2001, may  include denials at one carrier that another carrier would have included in  another category.
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. In that year  about 554,000 Part B appeals were adjudicated at the carrier hearing level  and over 201,000 at OHA. The MAC received about 8,800 Part B appeals  cases in fiscal year 2001; however, the MAC does not track the number of  claims comprising cases.
Appeals requests at the higher levels have grown rapidly in recent years, as  shown in table 2. For example, requests for Medicare appeals at OHA—the  third level of appeals—increased a total of 200 percent from fiscal year  1996 to fiscal year 2001, and the MAC’s workload grew by nearly 500  percent from fiscal year 1997 to fiscal year 2001.
section_title: Appendix III: Changes Mandated by Section 521 of BIPA
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig Winslow  made major contributions to this report.