Medicare Appeals: Disparity between Requirements and Responsible Agencies' Capabilities
Released: 2003-10-29T00:00:00

Letter

Background

Providers and beneficiaries may appeal any denied claim. Claims are denied for a variety of reasons. In fiscal year 2001, the most common reason for denying claims was that the services provided were determined not to have been medically necessary for the beneficiaries. Other reasons for denials include that Medicare did not cover the services, or that the beneficiary was not eligible for services. Claims that do not meet the 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.

Appeals Process Operations Inconsistent with BIPA’s Requirements

Carriers generally meet CMS’s existing time frames for processing appeals, but all appeals bodies—the carriers, OHA, and the MAC—fall far short of meeting BIPA’s time frames. The large backlog of pending cases at OHA and the MAC, combined with BIPA’s escalation provision and the requirement for de novo review at the MAC, will demand a level of performance that the appeals bodies have not demonstrated they can meet. Administrative delays, caused by inefficiencies such as difficulties in transferring and locating files and outdated technology, constitute a large portion of time spent in the appeals process—especially at OHA and the MAC. QICs have not yet been implemented and there is insufficient information to predict their ability to meet BIPA’s performance measures.

Appeals Bodies’ Current Performance Is Far from Meeting BIPA’s Timeliness Standards

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.

Delays in Administrative Processing at OHA and the MAC Further Suggest BIPA’s Time Frames Will Not Be Met

The bulk of time at OHA and the MAC is spent on assembling files and completing other administrative tasks rather than in performing legal analyses of appeals and adjudicating cases. Each agency takes more than a year, on average, to complete an appeal. For example, OHA spent 14 months, on average, to complete a case in fiscal year 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.

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

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.

Appeals Bodies Need Stronger Coordination to Successfully Implement BIPA’s Requirements

CMS, OHA, and the MAC—located within two federal agencies—are each responsible for administering a portion of the appeals process. However, neither the agencies nor the appeals bodies have the authority to manage the entire process. The appeals bodies focus primarily on their individual priorities, which may differ and complicate planning for making improvements to the process as a whole. Attempts to modernize the appeals process have been undermined when individual appeals bodies have identified opportunities for improvement, but have failed to sufficiently take into account the impact of their plans on the other bodies. For example, CMS issued a draft statement of work (SOW) outlining the expectations for QICs—the BIPA-mandated replacement for the workload of Medicare carriers at the second level of review, the carrier hearing. The draft SOW asks potential QIC applicants whether they have the capacity to convert paper case files into an electronic format, with the expectation that this would ease the transfer of needed files to the higher levels of appeals. However, CMS officials told us that they did not consult with OHA to ensure that it would have the capacity to use and store electronic files. OHA officials agree that electronic files offer an important opportunity to reduce lost files, speed transfers, and permit case tracking. However, OHA has focused its own plans to implement a system of electronic folders—scheduled for January 2004—exclusively on its SSA disability cases.

Recent planning for BIPA implementation intensified the need for appeals bodies to work together because the demanding time requirements alone call for a more efficient appeals process. While officials from CMS, OHA, and the MAC worked together to develop the proposed rule for implementing the majority of BIPA’s requirements, the agencies have not taken the opportunity to coordinate strategies to meet the time frames mandated by the act.

Lack of Management Data Inhibits Appeals Bodies’ Ability to Understand Barriers to Efficiency

We found that the appeals bodies are not sufficiently coordinated to track an appealed claim, or group of claims, through all four levels of the process. This is attributable, in part, to the use of different numbering systems for case identification at each appeals body and the fact that the individual claims making up a “case” can change at every level. For example, appeals bodies often reconfigure cases to group claims with similar issues. Appellants also change the configuration of their cases by aggregating their claims to meet minimum dollar thresholds necessary to file an appeal at a given level. Case numbering is further complicated when a partially favorable decision is made. In these situations, some of the claims within the appeal are paid, while the remaining denied claims are 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.

Uncertainties in Regulations, Funding, and the Role of OHA Hinder BIPA Implementation Planning

While BIPA mandated several changes to the current appeals process, CMS, OHA and the MAC are charged with developing regulations for implementing BIPA’s mandates in accordance with the Administrative Procedures Act. 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.

Conclusions

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Scope and Methodology

Our analyses were limited to the appeals process for denied Part B claims—rather than managed care, Medicare entitlement, and overpayment cases—because Part B cases constitute the majority of appeals. We also excluded Part B claims processed by durable medical equipment contractors and fiscal intermediaries to focus on the work performed by carriers. We reviewed the four levels of the administrative appeals process; our scope did not extend to the federal district court level.

To gain a better understanding of the process for Part B appeals at the time the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) was passed and the changes it mandated, we reviewed agency procedures for completing Part B appeals regulations and agreements guiding Medicare appeals and other laws. We also analyzed appeals workload data and interviewed officials at the Centers for Medicare & Medicaid Services (CMS) and at all levels of the administrative appeals process—the carriers, the Office of Hearing and Appeals (OHA), and the Medicare Appeals Council (MAC).

We reviewed regulations and procedures pertaining to the initial denials of claims and the submission of appeals by providers and beneficiaries. We also examined the processes for data management and guidelines and regulations for adjudicating cases at all levels. We reviewed the memorandum of understanding between the Health Care Financing Administration and the Social Security Administration, which outlines the responsibilities of both agencies in the adjudication of Medicare appeals. In addition, we reviewed the October 2002 ruling implementing selected BIPA amendments and the proposed rule for the implementation of the balance of the BIPA amendments to the appeals process.

We also analyzed appeals data from CMS, four selected carriers, OHA, and the MAC to understand the scope and efficiency of the Medicare appeals process and the characteristics of appeals. All data examined were for cases adjudicated from fiscal years 1996 through 2001, with a primary focus on fiscal year 2001, which represents the conditions that existed at the time BIPA was passed. In reviewing later data and in conversations with the appeals bodies, we confirmed that the conditions reflected in the data are relatively unchanged. Limitations in collected and reported data at each level precluded comprehensive and consistent analyses in some cases. CMS and the MAC alerted us to some limitations in their data, including inconsistency in data entry, changes in data systems that caused the loss of data, and poorly defined variables. At some levels, only aggregated data were available, which did not permit detailed analysis.

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.

Appendix II: The Scope of Part B Claims Rejections, Denials, and Appeals

In fiscal year 2001, carriers processed about 773 million Medicare Part B claims and rejected or denied, in full or in part, about 161 million—or 21 percent—of the claims processed. Many claims are rejected because they are missing information or are duplicates of claims previously processed and paid or denied. 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.

Appendix III: Changes Mandated by Section 521 of BIPA

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig Winslow made major contributions to this report.