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

Letter

Background

Medicare’s fee-for-service health care program consists of two parts—A and B. Part A covers inpatient hospital, skilled nursing facility, hospice, and certain home health services. Part B covers physician services, diagnostic tests, and related services and supplies. Medicare providers, on behalf of their beneficiaries, can appeal denied claims for services. Currently, there are four levels of administrative appeal (see fig. 1). Appeals for denied Part A and Part B Medicare claims currently follow similar, but not identical, paths. At the first level of appeal, the process is the same for both Part A and Part B denials. The Medicare claims administration contractor reexamines the claim along with any additional documentation provided by the appellant. At this level, in general, only written materials are reviewed; however, Part B appellants may request telephone hearings. If the appellant of a Part B claim is dissatisfied with a decision at the first level, he may proceed to the second level of review, conducted by the Medicare contractor. At this stage, the file is once again reviewed, including any additional documentation submitted by the appellant, and a hearing may be conducted. However, there is no comparable second level of review by Medicare contractors of Part A appeals.

Appellants of both Part A and Part B denied claims who remain dissatisfied with the decisions rendered by Medicare contractors may appeal to the third level—SSA’s OHA—where appeals are adjudicated by ALJs. At this level, appellants have the option of attending a hearing conducted by telephone, by videoconference, or in person. OHA’s ALJs adjudicated the appeal of about 122,000 Medicare claims in fiscal year 2003. Should appellants also be dissatisfied with the ALJ’s decision, they can appeal to the MAC. The MAC’s adjudication is the fourth and final level of the administrative appeals process. It is based on a review of OHA’s decision; the MAC does not conduct hearings. Appellants who have had their appeals denied at all levels of the administrative appeals process have the option of appealing to a federal district court.

In addition to preparing for the transition of SSA’s appeals workload, HHS continues to plan numerous administrative and structural changes required by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA). Most of these changes have not yet been implemented, including the finalization of new regulations. Among other things, BIPA mandated shorter time frames; expedited procedures for processing Medicare appeals at all levels; and the establishment of new contractors, known as qualified independent contractors (QIC). Contracts for QICs have not yet been awarded, but once QICs become operational, they will provide a new second level of adjudication for Part A appeals and replace the existing second level of the appeals process for Part B claims.

As noted earlier, figure 1 shows the appeals bodies that are currently involved in Medicare appeals. It also shows those that will be responsible for resolving Medicare appeals once BIPA has been fully implemented and OHA’s workload has been transferred to HHS.

The transfer of the appeals workload from SSA to HHS is not a new proposal. As early as 1988, while SSA was still a part of HHS, discussion regarding the transfer of this function was already under way and, throughout the years, the development of potential transfer plans and strategies has continued. Discussions were active as late as 2003, culminating in SSA’s decision not to seek funding for Medicare appeals in its fiscal year 2004 budget request. Instead, HHS requested and received funding to cover the cost in its fiscal year 2004 budget. Under a reimbursable agreement with CMS, SSA will continue to hear Medicare appeals until September 30, 2005.

In response to MMA’s mandate to transfer the workload, SSA and HHS created an interagency team that drafted the required transfer plan. The team has continued to meet to deliberate various aspects of the plan and discuss its implementation. Representatives from both agencies have stressed their commitment to ensuring a successful transfer of the Medicare appeals process from SSA to HHS. The plan indicates that HHS will begin to exercise adjudicative authority for Part A and Part B ALJ appeals that are received on or after July 1, 2005. The plan notes that this schedule is being adopted so SSA may concentrate on reducing its pending workload between July 1, 2005 and September 30, 2005 and to permit HHS to prepare for and begin conducting ALJ hearings.

According to MMA, the plan is required to provide information regarding 13 key elements. For purposes of this report, we have grouped these elements into six broader categories—timetable, scope of work, adjudication guidance, operational matters, staffing, and oversight. Table 1 lists these six categories and related elements and identifies the act’s requirements for each element.

Incomplete Transfer Plan Lacks Sufficient Detail to Ensure a Smooth and Timely Transition

We found that HHS’s and SSA’s plan is too vague to serve as a blueprint for the transfer’s implementation. We evaluated the plan’s 13 elements, mandated by MMA, and grouped them into six categories to evaluate whether the plan was sufficient to ensure a smooth and timely transition. We found that in virtually every category, the information contained in the plan, as well as documentation provided to us in the course of our work, lacked sufficient detail to ensure that HHS will achieve a smooth and timely transfer. Further, the lack of detail and the fact that some aspects of the plan have not yet been finalized raise serious questions as to whether HHS and SSA have considered the breadth of challenges inherent in the transfer. Our review suggests that the plan’s deficiencies, if not corrected, may compromise service to appellants. (App. I contains a summary evaluation of our analysis of the plan.)

Category A: Essential Milestones and Contingency Strategies Not Included in Transition Timetables

Transferring SSA’s annual workload of appeals—about 122,000 claims in fiscal year 2003—to HHS requires the development of many interrelated components. For example, deciding where ALJs should be geographically located affects hiring and training plans and the need for office space. Because the transfer date is approaching, many of these activities must be completed simultaneously so that HHS can ensure that service to appellants will not be disrupted. With the exception of the development of a case tracking system, the plan contains few milestones for completing tasks. Some of the few dates that are mentioned merely reflect the MMA- imposed deadlines between July 1, 2005, and October 1, 2005, without noting interim milestones. For example, there are no milestone dates associated with the vital tasks of producing training materials for newly hired ALJs or locating office space for ALJs to conduct hearings. Other elements of the plan are addressed without ever mentioning dates, such as the ensuring of independence for ALJs and the establishment of performance standards for them. Moreover, the plan does not assign responsibility to any group, office, or individual to perform the necessary tasks to execute key elements of the plan. In our view, the level of complexity associated with the transfer would warrant the development of a detailed schematic outlining all of the steps that need to be taken, as well as the corresponding dates for completing these steps, to ensure that the plan could be successfully executed. In response to our inquiries, the transfer team reported that it did not prepare a project plan nor could it supply information about ambiguous or absent milestones. Without specific milestones, HHS does not have a management tool for determining whether the general dates contained in the plan can be met as scheduled.

The transfer plan also lacks a contingency component, to be used in the event that something prevents the transfer from occurring as scheduled. Given the importance of having a system in place for adjudicating appeals, we view this as a considerable oversight. Failure to successfully implement even one element of the plan, such as the development of a geographic distribution plan to ensure appellants appropriate access to ALJs throughout the country, could derail the transfer. Although this is a critical element of the plan, there is no contingency provision. HHS officials maintained that they are confident the transfer will be executed in a timely manner, eliminating the need for a contingency plan. However, they indicated that if necessary, they could renew their reimbursable agreement with SSA to adjudicate Medicare appeals for another year. In contrast, SSA officials emphasized to us that responsibility for all Medicare appeals will pass, under MMA, to HHS on October 1, 2005. According to them, it is not a given that SSA will have the capability, or even the legal authority as of that date, to adjudicate Medicare appeals under any arrangement with HHS. In our view, this is the type of issue a contingency plan could address. In agency comments, both SSA and HHS reported that they have identified a mechanism for HHS to continue to use SSA ALJs to adjudicate Medicare appeals after the date of the transfer, if necessary. However, neither agency provided details concerning this mechanism in their comments. As a result, we are unable to evaluate it.

Category B: The Plan’s Assumptions to Predict the Scope of Work Are Not Credible

Understanding the size of the appeals workload is a critical first step in planning for the transfer because other decisions, such as the number of ALJs needed to complete the adjudications, are predicated on it. We found that the transfer plan does not present a thorough analysis of the expected workload and the costs to transfer the function and adjudicate appeals. Further, the plan is based on unreliable staff and cost data, which undermine the validity of the plan’s projections. MMA mandated that certain external factors be incorporated into the plan’s analyses, such as changes in the number of appeals and the effect of statutory changes. However, the plan did not contain a detailed discussion of the implications of these factors on workload and costs.

HHS’s plan to initially hire 50 ALJs is based on information from OHA that it uses an average of 46 ALJs to adjudicate Medicare appeals each month.

However, SSA does not have a dedicated corps of ALJs who are exclusively devoted to hearing Medicare appeals, and based its estimate on the average amount of time ALJs spend doing Medicare work. OHA has no formal timekeeping system for its ALJs, and instead, the chief of each local hearing office estimates the amount of time ALJs spend each month adjudicating Medicare appeals. Individual ALJs do not provide their own time estimates, and the information supplied by each local office is not otherwise verified. The transfer team did not independently determine the accuracy of this information, despite the plan’s heavy reliance on it.

Despite the fact that MMA requires the plan to address the number of ALJs and support staff required to hear Medicare appeals now and in the future, the plan limits itself to the present. It does not specifically address how the implementation of recent statutory changes to Medicare may affect the appeals workload and increase the need for personnel. For example, the plan does not address the potential impact of additional appeals resulting from MMA’s new prescription drug benefit. Further, the largest impact may result from the implementation of BIPA’s changes, which will not become effective until the QICs are fully established—now slated for October 2005. BIPA’s changes to the appeals process were to apply to appeals of claims denied on or after October 1, 2002. However, CMS issued a ruling on October 7, 2002, that held that the majority of BIPA’s provisions apply only to appeals adjudicated by QICs. Because QICs are not yet operational, the appeals process is currently operating in accordance with regulations established prior to BIPA’s passage. The establishment of the QICs and new regulations implementing BIPA’s provisions are now expected to occur simultaneously with the plan to transfer the OHA workload. As a result, it will be HHS’s ALJs who will be expected to comply with BIPA’s shorter time frames for processing appeals. While their OHA colleagues, who faced no deadlines, took an average of 327 days to complete a Medicare appeal in fiscal year 2003, HHS ALJs will be expected to render decisions much more quickly—within 90 days. The plan is silent as to how HHS’s new corps of ALJs will meet BIPA’s time frames by completing the same workload in less than one- third the time taken by OHA.

In addition, the plan states that efficiencies will be gained from hiring ALJs and staff who are specialized in Medicare, increasing reliance on teleconferences and videoconferences to minimize travel, and improving the management of appeals cases. While efficiencies may be gained in the long term, we found that the plan did not provide a sound quantitative basis to support HHS’s claim that efficiencies would mitigate demand for more resources in the first year of operation. Further, the plan does not contain a contingency provision to address the possibility that greater efficiencies may not be achieved. In our view, this is significant as, in the short term, HHS may experience a period of diminished efficiency while new staff—both ALJs and support personnel—take time to attend training, develop expertise with Medicare issues, and gain familiarity with their new organization and infrastructure.

Element 3: Cost Projections and Financing The plan notes that $129 million was requested for fiscal year 2005 for Medicare appeals reforms, which includes start-up funds for HHS’s ALJ unit; funds to reimburse SSA for continuing to process Medicare appeals; and funds to implement other BIPA reforms, as amended by MMA. In fiscal year 2004, $50 million was intended for processing appeals submitted to ALJs. HHS officials told us that they anticipate requiring the same amount for fiscal year 2005. The $50 million for processing appeals is based upon SSA’s agreement to adjudicate approximately 50,000 cases, at a cost of $1,000 each, in fiscal year 2004. We learned that HHS expects to use $8 million in fiscal year 2005 to meet start-up costs for the transfer of ALJ functions. Although the plan notes that start-up funds will allow HHS to begin hiring attorneys and other staff, it makes no mention of office space, equipment, and other infrastructure development costs. Most of the remaining balance is expected to be used for establishing QICs. We also noted that the plan does not provide cost projections for years subsequent to 2005, as required by MMA.

Office of Management and Budget officials, who are responsible for approving HHS’s requests, and HHS officials could not provide specific budgetary details related to the plan. Moreover, HHS’s estimate of the costs of adjudicating Medicare appeals in fiscal year 2005 is based on its assumption that those costs will mirror what it is paying SSA to resolve appeals this fiscal year under its reimbursable agreement. However, OHA reported that the actual costs of adjudicating these appeals exceeded the amount it was being paid. After adjusting for inflation and overhead, OHA officials estimated that their actual cost in fiscal year 2003—the most current data available—was closer to $1,300 per case. MMA allows for increased financial support to ensure that the HHS ALJ unit meets its workload demands. However, should additional funds be needed, the plan does not include a contingency provision that defines criteria and other relevant measures to justify future requests for increased financial support.

Category C: Completion of Adjudication Guidance for ALJs Not Fully Addressed

The timely issuance of regulations governing the appeals process will have a significant effect on the implementation of the transfer plan. Without regulations implementing the provisions of BIPA, and more recently MMA, the appeals process will lack guidance critical for its operation. Nonetheless, the plan does not address time frames for establishing these regulations nor does it discuss what actions will be taken should the regulations not be finalized by the time of the transfer. It appears, however, that no regulations will be needed regarding the use of MAC decisions as binding precedents on lower levels of the appeals process, including ALJs, at least in the near future. The plan has addressed this matter by retaining current policy, which allows ALJs and the other appeals bodies to consider these decisions as guidance, but does not require them to be viewed as binding precedents. However, the plan suggests that this decision may only be for the short term.

To implement MMA’s provisions to transfer SSA’s workload to HHS, regulations will need to be drafted and finalized by October 1, 2005—the date that the transfer is required to be complete. As required by MMA, the plan acknowledges the need for specific regulations and mentions that regulations will be developed in several areas, such as providing appellants the opportunity to file appeals electronically and a reliance on videoconferences in lieu of in-person hearings. However, the plan is silent on the anticipated time frames for issuing these regulations and does not include interim dates to ensure they are finalized on time. In the absence of regulations, it is not clear how appellants will be assured of having sufficient access to ALJs. For example, without regulations it is uncertain what forum will be used to provide information to beneficiaries and providers, how access to this information will be provided, and what will be used as the basis for this information. The plan also does not address whether there will be a need to issue additional regulations on other aspects of the transfer, such as procedures for hiring ALJs, initiating a training program, developing ALJ performance standards, and identifying opportunities for HHS and SSA to share resources. Given the ambiguity in the plan, it is unclear how the required transfer of the appeals function to HHS could proceed on a timely basis.

Moreover, although the plan recognizes that regulations implementing most of BIPA’s provisions have not been finalized, it does not address the impact of this situation. This is particularly troubling because, according to CMS, the implementation of QICs will be delayed if final regulations are not issued by November 2004. As a result, HHS may be compelled to develop and operate two separate processing systems—one that follows current rules, and another that complies with BIPA’s mandated deadlines and other requirements.

Element 5: Feasibility of Precedential Authority In response to an MMA requirement to address precedential authority, the plan makes clear that MAC decisions will not be binding on lower levels of the appeals process, including ALJs. The plan acknowledges that precedential authority may contribute to more consistent decisions by ALJs. However, it concludes that the risk of an inaccurate or incomplete interpretation of an agency ruling could result in greater problems when the same issue is raised more clearly or in different circumstances. The plan therefore concludes that the risks inherent in giving the MAC precedential authority outweigh the benefits. The plan also suggests that high-level decisions could serve as guidance to the lower levels in the process, without having the full force of precedent. Although the plan indicates that HHS will reevaluate its stand on the merits of granting binding precedential authority to MAC decisions, it does not specify what might contribute to a change in its current position on the issue.

Category D: Operational Matters Need Greater Specificity

Absent or insufficient details and vague descriptions regarding critical operational aspects of the transfer prevented us from fully evaluating these components and, in our view, put the successful implementation of the transfer at risk. The lack of a geographic distribution plan for HHS ALJs alone threatens to undermine efforts to accomplish the transfer in a timely manner. Beyond this, the lack of specific plans to ensure access to ALJs nationwide and to share resources with SSA to enhance appellant access may well compromise service to appellants. Finally, although the plan outlines important details concerning the establishment of a new case tracking system, its implementation is linked to the establishment of the QICs in July 2005, making a current evaluation impractical.

Element 6: Geographic Distribution While the plan addresses the topic of the future geographic distribution of ALJs, it does not include the steps to be taken to ensure that appellants across the country will have timely access to such judges, as MMA requires. Rather than detailing a specific geographic distribution strategy, the transfer plan indicates that a central hearing support office will be located in the Baltimore, Maryland and Washington, D.C., metropolitan area and that a field structure will be established. Because many issues relating to the successful implementation of the transfer, such as hiring staff, hinge on the strategy for distributing ALJs throughout the country, its absence from the plan is a serious shortcoming.

The plan notes that HHS will develop a process for determining the size and location of the field structure and will reach a final decision about the geographic distribution of ALJs by the end of calendar year 2004. However, the plan does not include key information that would enable us to analyze this critical component of the plan, such as the anticipated number of field office locations or the size and resources required for each office. The plan also does not supply information about the number of judges to be housed in each location or details concerning whether certain case processing activities—such as case receipt, research, and preparation for hearings—will be centralized or regionally based.

Element 7: Access to ALJs MMA required the plan to address the feasibility of electronically filing appeals to the ALJ level. CMS is developing a beneficiary Web site, which, in its pilot at one contractor, allows beneficiaries Internet access to claims information. The plan anticipates that HHS will use this Web site to allow electronic appeals submissions. Although the plan does not discuss when this feature will be available, a CMS official estimated it would not be ready for testing for at least 2 years. HHS is also exploring the possible development of another Internet-based filing system that does not depend on CMS’s beneficiary Web site.

MMA also required that the plan address the feasibility of using video- and teleconferencing to provide access to ALJs. Although the plan identifies a variety of sources for providing ALJs and appellants with videoconference access—including SSA, private contractors, and other government agencies—no analysis has been conducted to determine where videoconference sites are needed, where such sites are actually available, and the costs of such services. Moreover, SSA does not expect appellants to travel more than 75 miles to attend hearings, but the plan does not address HHS’s expectations in this regard. Appellants in remote areas of the country may be unlikely to find access to videoconference facilities within such a radius. In regard to teleconferences, the plan notes that a small number of appeals are currently conducted in this manner, but more commonly, teleconferences are used to obtain the testimony of expert witnesses. The plan refers to HHS’s willingness to expand its use of teleconferences, where appropriate, but does not define the conditions that would constitute “appropriate” use.

Moreover, no analysis has been done to determine what proportion of appellants would actually be interested in having their appeals heard using videoconferences or teleconferences. Several ALJs told us that beneficiaries are often uncomfortable using videoconference facilities and prefer to have their cases heard face-to-face. While appellants have the right to request in-person hearings, the plan does not include an assessment of HHS’s capacity to conduct such hearings. There is no contingency provision to facilitate in-person hearings, should this be appellants’ preference. Further, as a result of changes to the appeals process due to BIPA, hearings by ALJs will provide an appellant’s sole opportunity to be heard in person, making access to them all the more important. Although OHA has been able to accommodate appellants through its network of 10 regional offices and an additional 143 field offices with hearing rooms throughout the United States and Puerto Rico, HHS currently has no available capacity to hear Medicare claims appeals.

The plan does not address MMA’s mandate that it include steps for SSA and HHS to share office space, support staff, and other resources. Moreover, it does not include a contingency element should HHS be unable to use SSA resources to complete the Medicare workload. Instead, the plan focuses exclusively on sharing videoconference facilities, but the arrangements for sharing this resource are ambiguous. For example, while the plan notes that SSA is willing to share its videoconference sites, it also makes clear that SSA will have priority over the use of the equipment and does not include a protocol for ensuring that HHS will have sufficient and timely access. One SSA official told us the agency anticipates that it will have excess videoconference capacity once it expands its videoconference system. Currently, SSA has 148 videoconference units available but plans to increase this number to 351 units at 302 different sites by 2006. However, the agency has not yet performed an analysis to establish where and when excess capacity is anticipated. Because SSA ALJs schedule their hearings well in advance, HHS ALJs may have difficulty scheduling videoconferences in their localities to meet their 90-day BIPA-mandated deadline. Moreover, even with access to 302 facilities, depending on the location of available equipment, HHS ALJs may have to travel to videoconferences, which could be as time-consuming as traveling to in- person hearings.

Element 9: Case Tracking The plan addresses the mandate’s directive to develop a unified case tracking system for all appeals levels, and outlines a new tool designed to fulfill the mandate’s requirements—the Medicare Appeals System (MAS). We found that the design and approach to implementing MAS appear reasonable. However, the plan was drafted with the expectation that MAS would be first used by QICs in the summer of 2004. The delay in implementing QICs, which are now not expected to become fully operational until October 2005, has reduced the time available for live testing of the system to determine if it will perform as expected. Currently, HHS is unable to conduct such testing. This delay may leave insufficient time to fully test MAS and make necessary adjustments to the system, but the plan leaves no margin for such an occurrence. However, should MAS be unavailable at the time of the transfer, CMS has an alternate case tracking system that could be temporarily deployed until the new system becomes operational.

Category E: Strategy for Staffing HHS’s ALJ Unit Is Undeveloped

The plan lacks a detailed staffing strategy to ensure that HHS can attract both ALJs and support staff by the time of the transfer. MMA required the plan to include steps to hire ALJs, taking into account their expertise in Medicare, and to address training in Medicare laws and regulations.

As required by MMA, the plan addresses steps that should be taken to hire ALJs and support staff. It outlines HHS’s intention to hire ALJs from various sources, including OPM’s register of qualified ALJs, the list of retired ALJs who have expressed interest in returning to work and are available for temporary reappointment, and ALJs currently employed and adjudicating administrative appeals at other agencies. However, it does not discuss how HHS will be able to ensure that it can attract the 50 ALJs it plans to hire. Moreover, we expect that it may be difficult for HHS to identify and hire 50 ALJs with Medicare knowledge. For example, OPM’s register, the largest source of new ALJs with 1,300 potential candidates, does not include information indicating whether candidates have Medicare expertise. Similarly, HHS cannot tell which of the 110 retired ALJs on the register of those interested in returning to work have Medicare expertise. And, although ALJs already employed at other agencies may be interested in seeking employment at HHS, few of them are likely to have knowledge of Medicare rules. Given that the majority of ALJs currently employed by SSA focus primarily on disability appeals, few of them are likely to have significant Medicare expertise.

HHS’s plan to hire ALJs and other professional and administrative staff in a manner that ensures an appropriate geographic distribution is a major staffing consideration. However, the plan does not address how HHS will incorporate this feature into its hiring plans. Given the lack of such a geographic distribution plan, there is no way for ALJ candidates to know where new positions will be located—which may have a great bearing on their interest. As a result, even the OHA ALJs with Medicare expertise may not be interested in transferring to HHS, if this would require them to relocate.

The plan lacks other details concerning HHS’s hiring plans. For example, it is not explicit about whether HHS will hire the 50 ALJs and 200 support staff all at once, or if it intends to conduct several rounds of hiring and training. The plan does not outline who is to be involved in the hiring process and, as of July 2004, HHS had not decided whether a chief judge might be hired first to participate in the hiring of the ALJs and support staff. Finally, the plan does not acknowledge the possibility that HHS may be unable to hire all needed staff by the time of the transfer. By not recognizing this possibility, the plan misses the opportunity to develop critical contingency arrangements.

As required by the mandate, the plan describes HHS’s plans to develop a training strategy but, nonetheless, leaves key questions unanswered. Although the plan establishes four broad categories for short-term training, it does not include substantive information on the training’s content. It also lacks other critical information, such as a detailed description of its plans to provide initial training for HHS’s ALJs. While OHA’s ALJ training of new hires lasts 5 weeks, the plan does not describe the duration of HHS’s planned training or the depth of material to be covered. It also does not specify who will be responsible for developing the training curriculum and course materials or presenting the training to new ALJs. The plan mentions that HHS is also developing a long-term training strategy, but there are no details for providing ongoing training and refresher classes to ALJs in future years. Even OHA ALJs with Medicare knowledge may need additional training, as some indicated to us that their understanding of the program’s rules is not current.

In addition to our concerns regarding the content of this plan element, the lack of a detailed schedule for developing and presenting the new training program raises concerns about HHS’s ability to have an adequately prepared staff to adhere to its plans to begin processing appeals by July 1, 2005. The only date included in HHS’s training schedule indicates that both hiring and training will begin in the second quarter of calendar year 2005— at most, 3 months before the plan anticipates HHS ALJs will begin hearing appeals. This poses a challenging time frame for HHS, especially if its training will mirror OHA’s 5-week program. Given the plan’s timeline, there is little opportunity to pursue alternate training arrangements, should delays occur.

Category F: Issues of Oversight Remain Unresolved

Although the plan recognizes the importance of ALJ decisional independence—an element critical to the integrity of the appeals process—it does not specify, organizationally, where ALJs will be housed within HHS nor does it discuss the safeguards that will be put in place to ensure ALJs are insulated from undue influence from HHS. The plan outlines the circumstances under which performance standards can be applied to ALJs without threatening their independence. However, other than meeting time frames prescribed by law, the plan proposes no standards nor does it describe the process that might be used to develop such standards.

Element 12: Independence of ALJs Despite the fact that the independence of ALJs is critical to ensuring due process to appellants, the plan is silent on what steps will be taken to shield ALJs from real or perceived external pressures, including pressure from elsewhere in HHS, which is tasked with overseeing the Medicare program. ALJs throughout the federal government may have to issue rulings against the agencies that employ them. However, since SSA became an independent agency in 1994, OHA ALJs hearing Medicare appeals, as SSA employees, have not been in this position.

The plan notes that SSA has a long history of maintaining independence of ALJs. MMA required that the plan provide information on steps to be taken to ensure the independence of ALJs hearing Medicare appeals once this function has been transferred to HHS. However, the plan merely repeats MMA’s requirement—that the HHS ALJ unit will report solely to the Secretary of HHS and that it will be separate from CMS. The plan provides no information about the proposed, new organizational structure, nor does it specify who, in terms of title and duties, will direct and manage the HHS ALJ unit. Furthermore, the plan does not define the relationship of ALJs to other HHS offices, such as CMS and the MAC—with which the ALJ unit will have to communicate and coordinate—or where, organizationally, the ALJ unit will be housed. The plan also does not include standards that either HHS, or the new ALJ unit, could use to evaluate whether the independence of the ALJ unit is being achieved. Similarly, the plan makes no reference to the steps that will be taken to ensure the objectivity of ALJ training. Finally, the plan does not recognize the possibility that the independence of the ALJ unit could be questioned nor does it specify a contingency plan to ensure—and if necessary, restore—the continued independence of ALJs.

Element 13: Performance Standards The plan addresses the appropriateness of establishing performance standards for ALJs, as required by MMA. Although the plan acknowledges that it is important that ALJs adhere to the new time frames for processing appeals as established by BIPA, it is unclear whether any other performance standards for ALJs will be established. The plan notes that the law allows the imposition of “administrative practices and programming policies that ALJs must follow,” including timeliness of decisions, so long as the agency does not use the guidelines to influence the ALJs’ decisions. In addition, the plan holds that it is not unreasonable to expect a minimum level of efficiency and that ALJs can be disciplined for “good cause,” which may be based on performance or unacceptably low productivity. However, the plan does not discuss whether such guidelines will be imposed, by what means the agency would evaluate a minimum level of efficiency, who would evaluate the judges, and what actions might be taken based on unsatisfactory findings. Similarly, the plan does not include specific steps the agency would take to ensure that any guidelines and performance standards that are imposed would not interfere with ALJ independence. Finally, the plan does not address how ALJs would be evaluated should any new standards be challenged.

Conclusion

SSA and HHS have stressed their commitment to ensuring a successful transfer of the ALJ level of the Medicare appeals process from SSA to HHS. Addressing the 13 elements specified in MMA and developing and implementing contingency provisions are key to ensuring that the transition is smooth and that services to appellants are not disrupted. Although both agencies have stressed that they are continuing to further develop details of the plan, based on the information they have developed thus far, we believe that the plan does not comprehensively address the 13 elements and, thus, seriously jeopardizes a successful and timely transition. For example, the absence of specific milestones, the use of unreliable data, and the lack of an acknowledgement that HHS may ultimately need to develop two separate processing systems to adhere to current practices and those required by BIPA are serious shortcomings. Moreover, the absence of details related to providing appellants access to ALJs, hiring and training staff with expertise in Medicare, and preserving ALJ independence further undermine the plan’s credibility. The plan’s lack of specific details jeopardizes HHS’s ability to begin adjudicating appeals as scheduled. Unless SSA and HHS act quickly to effectively address the 13 elements required by MMA and finalize the transition plan for transferring responsibility for adjudicating Medicare appeals from SSA to HHS, the appeals process could be compromised.

Recommendations for Executive Action

To help ensure a smooth and timely transition of the Medicare appeals workload from SSA to HHS, we recommend that the Secretary of HHS and the Commissioner of SSA take steps to complete a substantive and detailed transfer plan. Specifically, we recommend that the Secretary and Commissioner take the following six actions: Prepare a detailed project plan to include interim and final milestones, individuals or groups responsible for completing key elements essential to the transfer, and contingency plans.

Validate data and perform analyses to support decisions regarding key elements, such as workload, staffing needs, and costs.

Outline a strategy that addresses the possible need for two separate processing systems at HHS—one for appeals that follows the current processing practices and one that complies with BIPA’s time frames and other requirements—in the event that the BIPA provisions establishing the QICs are not implemented as scheduled. Identify where staff and hearing facilities—including videoconference equipment—are needed as well as opportunities to share staff and office space.

Develop an approach to ensure that ALJs and support staff with Medicare expertise can be hired, and that all staff are adequately trained to process and adjudicate Medicare appeals.

Define the relationship of HHS’s ALJ unit to the other organizations within the department, and identify safeguards that will be established to ensure decisional independence.

Agency Comments and Our Evaluation

We provided a draft of this report to both SSA and HHS for their review. In its written comments, HHS agreed with all but one of our recommendations. HHS said that contingency plans for several plan elements—regulations, feasibility of precedential authority, independence of ALJs, and performance standards—were unnecessary. Because of the critical nature of these provisions and the inter-dependence of the plan’s components, we continue to believe that the establishment of such plans for each congressionally mandated element would best ensure a smooth and timely transition.

Further, HHS emphasized that it attempted to ensure that it provided us with the most current information available regarding decisions associated with the transition. However, we do not believe that HHS has kept us fully apprised of all of its efforts. For example, in its comments, HHS described the establishment of the Office of Medicare Hearings and Appeals Transition and the activities of this new office related to the transfer. Although HHS indicated that this office was established in July 2004, before our work was complete, this information was not shared with us. In addition, although HHS noted several other efforts to enhance the transition process—such as its analysis of internal data to make caseload projections for fiscal years 2005 and 2006—this information also was not provided to us during the course of our work. Although this, and other efforts HHS cited to facilitate the transfer of Medicare appeals might have promise, we had no opportunity to evaluate them.

We are also concerned with HHS’s characterization of our findings and its own progress in implementing the transfer. For example, HHS interprets figure 2 in our report as indicating that we believe that the plan meets substantially all MMA requirements. However, figure 2 clearly shows that 5 of the 13 plan elements do not completely address these requirements. Moreover, figure 2 shows that the plan lacks detailed information and contingency plans for the vast majority of the elements. Such significant deficiencies suggest that a smooth and timely transfer may be in jeopardy. HHS also stated that the public comments it received concerning the plan were positive. Our information does not support this assertion. Our evaluation of these comments showed that they mirrored the concerns addressed in our report and raised serious questions about the ability of SSA and HHS to effect the transfer in a manner that would preserve the independence of ALJs and ensure the quality of service to appellants.

In its written comments, SSA agreed with our recommendations by either expressing its concurrence or by citing steps it has taken to aid with their implementation. SSA also noted that it shared our concern that adequate planning needs to take place and agreed that detailed contingency planning is important. Although SSA’s comments focused on its continuing contribution to enhance HHS’s understanding of the current Medicare appeals process, it also emphasized that some elements of the plan are the sole responsibility of HHS. While we agree that HHS must ultimately assume full and complete responsibility for the appeals process, until the transition is complete, we believe that both agencies are accountable for ensuring that appeals are adjudicated promptly and competently, and for coordinating their efforts so that the transfer occurs on a smooth and timely basis.

Finally, both SSA and HHS expressed concern with the title of our report. HHS said that the title might raise unnecessary fears among the advocate and beneficiary communities. Further HHS stated that it is on track for an efficient and effective transfer of the ALJ function at the earliest possible time allowed by the MMA. Although HHS indicated that much progress has been made in key areas, such as development of regulations and the assurance of ALJ independence, it provided no new information in support of these efforts. In addition, many other significant questions raised in our report, such as the geographic distribution of ALJs, were not addressed in its comments. Therefore, we continue to have significant concerns about the agencies’ abilities to effectuate the transfer on a timely basis. Both agencies also reported that they had identified a mechanism for HHS to continue to use SSA ALJs to adjudicate Medicare appeals after the statutory date of the transfer, if necessary. However, neither SSA nor HHS described this mechanism and we therefore were unable to evaluate it. Consequently, we continue to believe that our evaluation of the evidence supports the report title. SSA’s and HHS’s comments are reprinted in appendixes II and III, respectively.

We are sending copies of this report to the Secretary of HHS, the Commissioner of SSA, and other interested parties. In addition, this report will be available at no charge on GAO’s Web site at http://www.gao.gov. We will also make copies available to others upon request.

If you or your staffs have any questions about this report, please call me at (312) 220-7600. An additional GAO contact and other staff members who prepared this report are listed in appendix IV.

Appendix I: Analysis of the Medicare Appeals Transfer Plan

Based on our review of the plan and additional materials provided by the transfer team, we found that the plan to transfer the Medicare appeals function from the Social Security Administration to the Department of Health and Human Services is insufficient to ensure a smooth and timely transition. Although the plan generally addresses each of the 13 elements mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), as indicated in figure 2, it omits important details on how each element will be implemented. Furthermore, the plan overlooks the need for contingency provisions, which could prove to be essential, should critical tasks not be completed in a timely manner.

Appendix II: Comments from the Social Security Administration

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

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

Margaret Weber, Craig Winslow, Shirin Hormozi, and Barbara Mulliken made key contributions to this report.

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