Medicare Fee-For-Service: Opportunities Remain to Improve Appeals Process
Released: 2016-06-09T00:00:00

Letter

Background

Medicare Prepayment and Postpayment Claim Reviews

Medicare claims can be denied on a prepayment basis (i.e., before the claim is paid) or on a postpayment basis (i.e., after the claim is paid and the payment is identified as improper). Many appeals originate from claims denied on a prepayment basis, but the same appeal rights exist for either scenario. To conduct a prepayment claim review, CMS contractors conduct several checks to determine whether a claim received from a provider should be paid. These checks include verifying that the provider is enrolled in Medicare, the beneficiary is eligible to receive Medicare benefits, and the service is covered by Medicare. In limited cases, before paying a claim, contractors review the supporting medical documentation for a claim to ensure the service was medically necessary. As a result of these checks or reviews, CMS’s contractors may deny Medicare payment for the claim. Most prepayment reviews are conducted by MACs, which are responsible for processing and paying FFS claims within 16 geographic jurisdictions. To conduct a postpayment review, contractors generally select claims from among those that have already been processed and paid, request and review documentation from providers to support Medicare coverage of the services identified in those claims, and apply Medicare coverage and coding requirements to determine if the claims were paid properly, reviewing, for example, whether the service was medically necessary or provided in the appropriate setting. The majority of the postpayment reviews are conducted by RAs.

Medicare Administrative Appeals Process

The Medicare administrative appeals process allows appellants who are dissatisfied with decisions at one level to appeal to the next level. The entities tasked with resolving appeals are referred to as appeals bodies. The statutory time frames for submitting and issuing appeal decisions can vary by level. (See table 1.) When an appeals body cannot render a decision within the applicable statutory time frame at levels 2 through 4, the appellant has the opportunity to escalate the appeal to the next level of appeal. CMS may also refer certain decisions made at Level 3 to Level 4.

Each level of appeal follows similar steps. First, the appellant files an appeal and submits supporting documentation. The appeals body then assigns the appeal to an adjudicator who reviews the appeal, including the relevant Medicare policies and documentation. Adjudicators at all four levels generally conduct what are known as de novo reviews, meaning they conduct an independent evaluation of the claim(s) at issue and are not bound by the prior findings and decisions made by other adjudicators. Next, the appeals body issues the appeal decision and notifies the appellant. If the appellant files an appeal at the next appeal level, the documentation associated with the prior appeal is sent to the next appeal level.

Appeals must meet certain requirements in order to be reviewed. For example, the appeal must be filed by an appropriate party, such as by the provider who furnished the service to the beneficiary and submitted a claim to Medicare for that service. In addition, the appeal must be filed within the required time frame. To be reviewed at Level 3, an appeal must meet or exceed a minimum dollar amount, known as the amount in controversy. Under certain circumstances, appellants may combine claims to meet the amount in controversy requirement, which is $150 in calendar year 2016.

Some differences exist in the criteria appeals bodies use to make their decisions.

While all levels are bound by statutes, regulations, national coverage determinations, and CMS rulings, only Level 1 is subject to local coverage determinations (LCD) and CMS program guidance, such as program memoranda and manual instructions. In comparison, Levels 2 through 4 are required to give substantial deference to LCDs and other CMS program guidance if they are applicable to a particular appeal. However, unlike Level 1, Levels 2 through 4 may exercise discretion to decline to follow LCDs and CMS program guidance when issuing an appeal decision, and must explain in the decision the basis for doing so.

Levels 1 and 2 can also accept and consider new evidence submitted by appellants to support their appeals. For example, to pay claims related to certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), CMS requires providers to submit a certificate of medical necessity. If this document was not submitted with the original claim, the provider may submit it as part of the appeal. At Levels 3 and 4, new evidence can generally be accepted only with “good cause.”

Unlike Levels 1, 2, and 4, which decide appeals generally by reviewing the documentation upon which the initial denial was based as well as any supporting documentation the appellant submitted with the appeal, Level 3 Administrative Law Judges (ALJ) conduct hearings during which appellants are permitted to explain their positions, present evidence, and submit into the record a written statement of the facts and law material to the issue.

All four appeals bodies may issue appeal decisions that do not address the merits of the case:

Dismiss: The appellant withdraws the request for an appeal or the appeals body determines that the appellant or appeal did not meet certain procedural requirements; for example, the appellant did not file the request within the required time frame.

Remand: An action that can be taken at Level 2, 3, or 4 which vacates a lower level appeal decision, or a portion of the decision, and returns the case, or a portion of the case, to that level for a new decision.

Appeal decisions for Levels 1 through 3 include the following categories for decisions issued on the merits based upon a consideration of the facts of the appeal:

Fully reverse: The appeals body fully reverses a prior decision denying coverage and all of the claim(s) in dispute are paid.

Partially reverse: The appeals body partially reverses a prior decision denying coverage, and those parts of the claim(s) in dispute are paid.

Not reverse: The appeals body upholds a prior decision denying coverage, and payment of the claim(s) in dispute is denied.

Level 4 uses different categories for decisions issued on the merits. In addition to dismissing or remanding a Level 3 decision, Level 4 appeal decisions can affirm, reverse, or modify a Level 3 decision. Additional information about Level 4 appeal categories is discussed in appendix I.

Medicare FFS Appeals Data Systems

To help manage the Medicare appeals process and track appeal decisions, the appeals bodies use various data systems. (See table 2.) In 2005, CMS implemented MAS, which at the time was intended to support Levels 1 through 4. However, currently, three data systems are used to collect appeals data across the four levels of the Medicare appeals process.

Medicare Appeals and Untimely Appeal Decisions Increased from Fiscal Years 2010 through 2014

The total number of Medicare appeals filed and the number of appeal decisions that were issued after statutory time frames at Levels 1 through 4 increased from fiscal years 2010 through 2014, with the largest rate of increase at Level 3. Reversal rates also decreased during this time for most levels of appeals.

Total Number of Medicare Appeals Filed at All Levels Increased from Fiscal Years 2010 through 2014, with the Largest Rate of Increase at Level 3

Between fiscal years 2010 and 2014, the number of filed appeals at all levels of Medicare’s appeals process increased significantly, with the rate of increase varying across levels. For example, during this period, the number of Level 1 appeals, which represented the vast majority of all appeals, increased from 2.6 million to 4.2 million—an increase of 62 percent—which was the slowest rate of increase among the four levels. While Level 3 handled fewer appeals overall, it experienced the largest rate of increase in appeals from 41,733 to 432,534 appeals—936 percent—during this period. (See table 3.) For most levels, the largest annual growth over the 5-year period occurred between fiscal years 2012 and 2013, and between fiscal years 2013 and 2014 the rate of growth slowed at all levels.

For all appeal levels, appeals of claim denials for Medicare Part A (Part A) services showed the most dramatic increase. Among the four levels, Level 3 experienced both the largest increase in appeals overall, as well as the largest increase in Part A appeals, which increased over 2,000 percent between fiscal years 2010 and 2014. (See fig. 1.) Appeals of denied DMEPOS claims also grew substantially during this time at all levels. For example, DMEPOS-related appeals increased the most at Level 3 at over 1,000 percent.

HHS attributed the increases in appeals overall to several factors. For example, HHS fiscal year 2016 budget justification materials noted that CMS’s increased focus in recent years on expanding new program integrity activities to ensure proper payment has resulted in more denied claims and, therefore, more appeals. Specifically, appeals resulting from RA claim denials began entering the appeals process in fiscal year 2011 after Congress enacted legislation that expanded the RA program from a demonstration operating in six states to a permanent national program, which CMS implemented in fiscal year 2009. In expanding nationally, the RA program added a new set of contractors with the specific purpose of reviewing postpayment claims to identify improper payments. In addition to the large volume of postpayment reviews conducted by the RAs, there was also an increase in overall claim denials from fiscal years 2011 to 2014, according to HHS’s June 2015 Process Improvement and Backlog Reduction Plan. The number of overall claim denials during this time period for Part A and B claims increased 12.5 and about 9 percent, respectively. For all levels, we found that appeals related to RA denials were a larger contributor to the increase in Part A appeals compared to Part A appeals not related to RAs. For example, at Level 3, RA-related appeals of Part A services grew from 1 percent (140 appeals) of filed Part A appeals in fiscal year 2010 to 78 percent (216,271 appeals) in fiscal year 2014.

HHS also attributed the increase in appeals to a greater propensity among providers to appeal denied claims. From fiscal year 2010 to fiscal year 2014, the proportion of appeals filed by providers increased at Levels 2 through 4. The proportion of appeals filed by state Medicaid agencies also increased at Levels 2 and 4, while the proportion of appeals filed by beneficiaries at Levels 2 through 4 declined. According to HHS agency officials, a small number of providers and state Medicaid agencies were responsible for a large share of the appeals. For example, at Level 2, CMS noted that three DMEPOS suppliers filed 12 percent of DMEPOS appeals in calendar year 2012 and 33 percent of Level 2 DMEPOS appeals in calendar year 2014. Similarly, at Level 3, OMHA reported that four DMEPOS providers and one state Medicaid agency filed 51 percent of appeals in the first quarter of fiscal year 2015. In addition, the number of appeals filed by state Medicaid agencies more than doubled at Levels 2 through 4 from fiscal year 2010 to fiscal year 2014. At Level 3, state Medicaid agency appeals increased from 2,617 to 25,195 during that time period. According to HHS’s Process Improvement and Backlog Reduction Plan, appeals filed by state Medicaid agencies that relate to home health care services provided to beneficiaries eligible for both Medicare and Medicaid services have contributed to the growth in Level 3 appeals, and CMS officials told us that four state Medicaid agencies (Connecticut, Massachusetts, New York, and Vermont) generated the majority of these appeals. (For more information on appeals by appellant type, see app. II.)

Appeal Decisions Exceeding Statutory Time Frames Generally Increased from Fiscal Years 2010 through 2014, with Most Frequent Delays Occurring for Levels 3 and 4

The number of appeal decisions that were issued after statutory time frames generally increased from fiscal years 2010 through 2014. Among the four appeal levels, Levels 1 and 2 had a smaller proportion of decisions exceeding statutory time frames over the period. For example, CMS data show that in fiscal years 2010 and 2011, MACs generally issued less than 10 percent of their Level 1 appeal decisions after the statutory time frame (see table 4). In fiscal year 2012, MACs issued a greater percentage of decisions after statutory time frames and, notably, CMS data show that in the fourth quarter of that year, MACs issued about 68.5 percent of their appeal decisions related to DMEPOS claims after the statutory time frame. CMS officials told us that the delays resulted from two factors: two MACs received a high volume of appeals filed by seven suppliers and one of those MACs also experienced challenges implementing a new tool used to generate correspondence with appellants. In fiscal year 2014, MACs again issued less than 10 percent of Part A and DMEPOS appeals after statutory time frames, though nearly 21 percent of Medicare Part B (Part B) appeal decisions were issued after statutory time frames in one quarter.

Like the MACs, the Qualified Independent Contractors (QIC) also generally had a relatively small proportion of Level 2 decisions exceeding the statutory time frame during this time. CMS data show that the QICs began issuing appeal decisions after the statutory time frame in fiscal year 2011, and the percentage of such appeal decisions increased to 44 percent (345,049 appeals) in fiscal year 2013. However, in fiscal 2014, the QICs issued less than 5 percent of their appeal decisions after the statutory time frame.

In contrast, the increase in appeal decisions issued after statutory time frames and the proportion of those appeal decisions were greater at Levels 3 and 4. For example, OMHA data show that in fiscal year 2014, ALJs issued 96 percent of their Level 3 appeal decisions after the statutory time frame. Similarly, Departmental Appeals Board (DAB) data show that in fiscal year 2014 the Council issued 91 percent of its Level 4 appeal decisions after the statutory time frame. (See fig. 2.) In fiscal year 2014, Levels 3 and 4 issued decisions within the statutory time frames for a greater percentage of beneficiary-filed appeals than appeals filed by providers or state Medicaid agencies. Recognizing that delays in issuing appeal decisions affects this population most acutely, both levels have instituted processes to move beneficiary appeals to the front of their queues. Between the two appeals bodies, Level 3 ALJs took longer to issue decisions. In fiscal year 2014, ALJs issued 93 percent of their Level 3 appeal decisions in 180 days or more—the statutory time frame is generally 90 days—while the Council issued 67 percent of Level 4 appeal decisions in 180 days or more.

According to HHS’s Process Improvement and Backlog Reduction Plan, the increase in late appeal decisions for Levels 3 and 4 from fiscal year 2010 through 2014 resulted from the increase in the number of appeals filed, as well as the relatively flat budgets of OMHA and the Council, which have prevented the hiring of sufficient staff to address the growing workload. For example, as previously noted, the number of filed appeals at Level 3 increased over 900 percent from fiscal year 2010 to fiscal year 2014, while OMHA’s budget during the same period increased from about $71 million to about $82 million (16 percent). (See table 5.) In addition, HHS noted that neither HHS agency receives funds from recoveries made by the RA program, although they review appeals of claims denied by RAs.

The increase in the number of decisions made after statutory time frames at Levels 3 and 4 also increases the amount of interest paid by CMS to providers whose postpayment claim denials are reversed upon appeal, thus increasing Medicare’s costs. Currently, CMS is prohibited by statute from collecting overpayments from providers who file appeals until after a Level 2 decision is made. CMS is also required to pay providers interest on the overpayments it initially collects after the Level 2 decision is made and then returns when the appellant wins appeals at Level 3 or higher. In 2014, the annual interest rate paid by CMS to these providers ranged from 9.625 percent to 10.375 percent. As a result, CMS interest payments have increased. Specifically, CMS officials estimate that from fiscal years 2010 through 2015, the agency paid $17.8 million in interest payments to Part A and B providers that it would not have paid had Level 3 issued appeal decisions within statutory time frames. Moreover, CMS estimates that the agency paid about 75 percent of this interest ($13 million) in fiscal years 2014 and 2015, when delays in issuing decisions have been the longest.

Reversal Rates at Levels 1 through 3 Decreased from Fiscal Year 2010 to 2014 and Appeals Reaching Level 3 Were Most Likely to Be Reversed

From fiscal years 2010 through 2014, fully favorable reversal rates decreased for Levels 1 through 3, but varied across levels, with appeals reaching Level 3 the most likely to be reversed. (See fig. 3.) For example, in fiscal year 2014, ALJs fully reversed the prior decision in 54 percent of Level 3 appeal decisions issued on the merits. In contrast, Level 1 and Level 2 adjudicators fully reversed prior decisions in 36 and 19 percent, respectively, of appeal decisions issued on the merits in fiscal year 2014.

At different times, HHS has attributed the relatively high reversal rates at Level 3, in part, to the opportunity for hearings and presentation of new evidence at Level 3, and ALJs’ exercise of discretion in declining to follow LCDs and CMS program guidance. More specifically, HHS has noted the following:

ALJs conduct hearings, which provide an opportunity for appellants to explain the rationale for the medical treatment.

ALJs may consider new evidence admitted for good cause—for example, documentation required for the claim to be approved that the appellant did not submit for consideration at Levels 1 or 2.

While neither CMS nor OMHA collect data in MAS that would allow us to substantiate to what extent ALJs declining to follow LCDs or CMS program guidance contribute to Level 3 reversals, HHS noted in its Process Improvement and Backlog Reduction Plan that this is a factor, and a 2012 HHS Office of Inspector General (OIG) report reached similar conclusions. Furthermore, OMHA’s most recent quality assurance evaluation, completed in 2013, identified compliance with and understanding of the role of LCDs and other program guidance as a key issue for improvement.

According to HHS’s Process Improvement and Backlog Reduction Plan, the qualified decisional independence afforded ALJs may result in a more favorable result for appellants at Level 3. Furthermore, as anticipated by the federal law governing administrative procedures, qualified decisional independence leaves substantial room for subjectivity in ALJs’ application of policy to the facts of a given case, and consequently, two reasonable reviewers can review the same facts and come to two legally defensible conclusions. Similarly, OMHA’s 2013 quality assurance evaluation found that of 60 reviewed cases that were decided after a hearing that involved an LCD or other CMS program guidance, in 30 cases the policy was applied differently than how it was applied at the lower level.

While reversal rates declined across Levels 1 through 3 from fiscal years 2010 through 2014, reversal rates varied by type of service, with Part B appeals having the highest reversal rates. (See fig. 4.)

In addition, fully favorable reversal rates at Levels 1 and 3 during this time generally varied depending upon whether the appeal was RA-related. At Level 1, RA-related appeals often had lower fully favorable reversal rates than did non-RA appeals, though differences exist when rates are compared by type of service. In contrast, RA-related appeals at Level 3 generally had higher fully favorable reversal rates than did non-RA appeals, both overall and for each of Part A and Part B services. (For more information on reversal rates for Levels 1 through 3, see app. III.)

Our analysis of Level 4 appeals data shows that from fiscal years 2010 through 2014, the Council affirmed the Level 3 decision in about two- thirds of appeals, and reversed, dismissed, or remanded the remaining one-third of the decisions. Level 4 decisions on appeals filed by providers, beneficiaries, and state Medicaid agencies were more likely to affirm ALJ decisions compared to decisions on appeals referred by CMS, meaning that the Council’s decisions were more likely to uphold lower level decisions to deny Medicare payment for those claims. Specifically, Level 4 decisions affirmed the Level 3 decision in 73 percent of appeals filed by appellants and in only 15 percent of appeals filed by CMS. (For more information on reversal rates for Level 4, see app. III.)

Data Systems Used by HHS to Monitor Appeals Process Do Not Capture Data to Identify Important Trends or Provide Consistent Data for Monitoring Appeals across Levels

HHS agencies use appeals data to monitor the Medicare appeals process, but do not collect information on the reasons for Level 3 appeal decisions or the amounts of allowed Medicare payments in dispute. Further, we identified several instances of inconsistent data across the three data systems used by HHS to monitor appeals.

HHS Agencies Use Data to Monitor Appeals but Do Not Collect Other Data on Reasons for Level 3 Appeal Decisions and Actual Amounts of Medicare Payments at Issue

HHS agencies use data collected in CROWD, MAS, and MODACTS to monitor the Medicare appeals process for Levels 1 through 4. These data systems collect information such as the date when the appeal was filed, the type of service or claim appealed, and the length of time taken to issue appeal decisions. Among other things, HHS agencies use these data to identify emerging trends, such as increases in appeals among certain service categories and changes in reversal rates; determine the extent to which the agencies or their contractors decide appeals within the statutory time frames; and help HHS estimate resource needs. For example, CMS officials told us that using data collected in MAS the agency observed that the largest increases in filed DMEPOS appeals were related to oxygen supplies and diabetic glucose testing supplies. As a result, the agency developed a strategy to help reduce the growth in these types of appeals.

CMS and OMHA are also in the process of making changes to these appeals data systems, and according to agency officials, these changes will improve their monitoring activities. Specifically, CMS plans to transition the collection of all Level 1 appeals data from CROWD into MAS, a process that CMS officials expect could take a minimum of 27 months and is dependent on the receipt of additional funding. CROWD currently collects the majority of Level 1 appeals data, which has less specificity than MAS. For example, CROWD collects only aggregate monthly totals of the number of appeals filed, which does not, for example, enable the tracking of individual Level 1 appeal decisions. Additionally, OMHA is developing the Electronic Case Adjudication and Processing Environment (ECAPE) to help the agency transition from a paper-based business process to a fully electronic one, enabling OMHA officials to automate many aspects of the agency’s appeals processes, such as generating appellant correspondence. ECAPE will exchange Level 3 data with MAS and MAS will continue to be the data system of record for Level 3 decisions in order to enable the sharing of common appeals data across the first three levels. According to OMHA officials, the new system will also provide the agency with additional data with which to monitor appeals at Level 3. For example, officials told us that ECAPE will allow the tracking of the time it takes to conduct discrete processes in Level 3, such as the time between when an ALJ provides written instructions to an attorney to when an attorney completes the decision letter draft. Additionally, OMHA officials told us that the data from ECAPE will also provide the agency with additional functionalities not present in MAS that could improve the efficiency with which Level 3 appeals are decided, such as the ability to allow appellants to view on a website the documentation included in their appeal file. Officials expect such a website could reduce the amount of redundant documentation from prior appeal levels submitted by appellants that must be reviewed by OMHA staff.

However, MAS does not collect other information contained in ALJs’ appeal decisions issued at Level 3, which is one data source CMS uses to monitor Level 3 appeal decisions. Level 3 decision letters generally document the facts of the case and the rationale for an appeal decision, but MAS does not collect detailed information related to the reasons for the appeal decisions that could be useful to HHS. For example, MAS does not contain information on whether LCDs or other CMS program guidance were among the issues disputed as part of the appeal, whether the ALJ declined to follow such guidance in issuing the decision, whether the ALJ admitted new evidence, or whether other factors contributed to the Level 3 decision. While some information on the reasons for Level 3 denials is collected by a CMS contractor, this information is not maintained in MAS.

Of the three Medicare appeals systems, only MAS collects information on the amount at stake in an appeal. In MAS, the amount is tied to the amount billed by the provider, but this amount can vary substantially from the Medicare allowed amount. According to HHS officials, CMS and OMHA data analyses suggest that, on average, billed amounts are about three times higher than the Medicare allowed amounts, but for some types of service, such as DMEPOS, the billed amount can be as much as eight times higher than the Medicare allowed amount. The Medicare allowed amount is a better approximation of what Medicare will actually pay if the item or service at issue in the appeal was covered. For example, according to CMS data, we found that inpatient hospitals in the United States billed Medicare an average of $6.3 billion for the top 100 diagnoses and procedures in fiscal year 2013, but the Medicare allowed amount for these services averaged $1.4 billion. CMS officials told us that MAS does not track the Medicare allowed amount for prepayment claim denials because the MACs do not compute this amount for those claims. CMS officials also indicated that tracking allowed amounts for all appealed claims at Levels 1 and 2 would be extremely resource intensive and the benefits would be minimal. However, several MACs told us that they compute an estimate of the Medicare allowed amount to determine the Medicare savings associated with their prepayment medical reviews. Additionally, CMS officials told us that MAS currently collects the data that would be used to calculate the Medicare allowed amount, such as procedure codes.

The collection of these types of data, specifically reasons for ALJ decisions and the Medicare allowed amount associated with an appeal, could help HHS agencies strengthen their existing monitoring and data collection activities. This would be consistent with the federal standards for internal control that require agencies to conduct ongoing monitoring to assess the quality of performance over time to ensure operational effectiveness, and to run and control agency operations using relevant, reliable, and timely information. If HHS agencies collected information on the key characteristics that contributed to the Level 3 appeal decision in the appeals data systems, they would have information that could help identify appeal trends, which could help identify payment or claim review policies in need of clarification or additional guidance for appeals bodies or appellants.

Similarly, by not collecting the Medicare allowed amount for all pending appeals, HHS agencies are lacking information that could be useful in three ways.

OMHA officials told us that the agency would like to base the amount in controversy on the Medicare allowed amount, as they believe that doing so could help reduce the number of Level 3 appeals filed in two ways. First, by using the Medicare allowed amount, some appeals might fall below the amount in controversy, and, therefore, would not be appealed. Second, appellants could choose to aggregate appeals that individually fall below the amount in controversy, which could also reduce the number of appeals filed. Currently, per regulation, the amount in controversy is computed using the provider billed amount.

HHS agencies could use the Medicare allowed amount to calculate reversal rates based upon the potential Medicare dollars payable. Currently, HHS agencies calculate reversal rates based upon the number of appeals or appealed claims. Such a methodology does not account for differences in the dollar value of those appeals. Monthly reports from 2014 prepared for CMS on the Medicare appeals process state that the Level 3 reversal rate is higher when it is calculated based upon the amount in controversy, which according to monthly reports indicates that higher value claims are more likely to be reversed on appeal.

Without the Medicare allowed amount or an approximation of it, HHS agencies do not know the amount of money at issue in the Medicare appeals process.

Inconsistencies across Appeals Data Systems Limit HHS Agencies’ Ability to Monitor Appeals

Our review found data inconsistencies across the three appeals data systems and within the appeal levels that use MAS, such as variation in how appeal decisions are recorded at the claim level and how HHS agencies track appeal decisions. These data inconsistencies limit HHS agencies’ ability to monitor emerging trends in appeals using consistent and reliable data. Federal standards for internal control call for agencies to establish and control operations using reliable information.

First, our review found variation in how appeal decisions at the claim level are recorded across CROWD, MAS, and MODACTS. Specifically, MAS has the capability to track appeal decisions by each claim, as well as by each line item in a claim, while CROWD and MODACTS do not. A claim for Medicare payment may identify a single procedure or item, or multiple procedures or items. For example, a claim for a continuous positive airway pressure device, a DMEPOS item, can have multiple line items that represent the device, tubes, filters, and mask included on the claim. Payment for some or all of these line items can be denied and then appealed.

We also found variation within MAS in how the Level 1 through 3 appeals bodies record appeal decision data at the claim level. The Level 1 and 2 adjudicators that report appeals data in MAS record an appeal decision for each line item within a claim. MAS then derives a claim-level decision, that reflects the totality of decisions made for each of the claim lines included in the appeal. Using the claim-level decision, CMS can calculate a claim-level reversal rate. For example, the fully favorable reversal rate at the claim-level for an appeal composed of 10 claims, where 4 are fully reversed, would be 40 percent. In contrast, OMHA officials told us that ALJ teams vary in how they record claim-level decisions in MAS. Specifically, OMHA officials told us that while some ALJ teams record the actual decision for every claim included in the appeal, others record the decision for the appeal overall as the decision for each claim in the appeal. In such a circumstance, a comparable claim- level reversal rate cannot be calculated using the hypothetical example of the 10-claim appeal referenced above because all claims would be coded as partially reversed even though 4 claims were reversed and 6 claims were not reversed. Additionally, claim-level reversal rates cannot be compared across Levels 2 and 3. These differences in how data are entered into MAS limit HHS’s ability to compare claim-level reversal rates consistently across all appeal levels.

Secondly, we found inconsistencies in how appeals are tracked by appeal level in the three data systems. Specifically, the three data systems use different categories to track the type of Medicare service at issue in the appeal, such as whether the appeal relates primarily to an inpatient hospital claim or a transportation claim. For example, Levels 1 and 3 cannot identify appeals submitted by hospice providers because these appeals at Level 1 are categorized as “other” and at Level 3 they are combined with home health appeals, even though hospice is tracked as its own category at Levels 2 and 4. Some efforts are being made to track appeals across appeal levels more consistently at Levels 2 and 3 in MAS. For example, according to an OMHA official, the agency plans to begin using the same appeal categories to track appeals at Level 3 that are used at Level 2, but has not determined when it will implement this planned change. There are also differences in how each appeal level assigns the appeal category to each appeal. For example, for Level 2 appeals, MAS assigns the appeal category using an algorithm based principally upon the type of claim filed. In contrast, Level 4 staff manually assign and enter the Level 4 appeal category in MODACTS, generally based upon information provided by the appellant in filing the appeal or from the Level 3 decision, according to Council officials. Such differences in how appeal categories are assigned can contribute to differences in how appeals are classified across appeal levels.

Finally, another inconsistency we identified across the appeals data systems is the tracking of whether appeals are related to claims reviewed by the different Medicare review contractors. This is information that CMS can use to monitor the performance of its medical review contractors by tracking their appeal reversal rates. Although CROWD, MAS, and MODACTS track whether an appeal is RA-related, there are inconsistencies in whether appeals related to other medical review contractors are tracked in these systems. For example, only MAS tracks appeals related to the contractor that investigates fraud, and none of the three systems track whether the appeal was related to an improper payment identified by a MAC or by another of CMS’s review contractors, the Supplemental Medical Review Contractor.

CMS and OMHA officials told us that they agree that greater data consistency across the Medicare appeals data systems and among the appeal levels using MAS would be beneficial for monitoring purposes. CMS officials told us that the agency awarded a contract in September 2015 to evaluate Levels 1 through 4 of the Medicare appeals process and that the evaluation, which is due in spring 2016, could also identify ways in which the appeals data could be improved. The specific objectives of this evaluation are to identify any changes that could streamline the Medicare appeals process, reduce the backlog of appeals, and reduce the number of filed appeals or the number of appeals reaching Levels 3 and 4. CMS officials told us they also expect the evaluation to identify additional appeals data that should be collected to improve the appeals process; however, this activity was not identified as an objective in the evaluation’s statement of work, and therefore, we do not know to what extent the evaluation will focus on the data in the appeals systems. While conducting such an evaluation is a good first step and may allow HHS to make improvements to the data systems that collect appeal information, it is unclear what findings the evaluator will recommend related to data consistency as this topic appears to be a small component of the overall evaluation.

Despite HHS Actions, the Appeals Backlog and Inefficiencies Related to Certain Repetitive Claims Remain

HHS agencies have taken several actions to reduce the total number of Medicare appeals filed and the current appeals backlog. However, the Medicare appeals backlog is likely to persist despite actions taken to date, and HHS efforts thus far do not address inefficiencies with the way certain repetitive claims are adjudicated.

HHS Agencies Took Actions to Reduce the Number of Medicare Appeals, the Number of Appeals Reaching Levels 3 and 4, and the Current Appeals Backlog

In order to provide more timely adjudication of appeals of Medicare claim denials, HHS agencies have taken various actions, which can be grouped into three categories: 1. changes to Medicare prepayment and postpayment claims reviews, which may reduce claim denials and, therefore, the number of filed appeals; 2. actions aimed at reducing the number of decisions at lower appeal levels that lead to appeals at Levels 3 and 4; and 3. actions aimed at resolving the current backlog of undecided appeals at Levels 3 and 4.

Actions That May Reduce the Number of Filed Appeals

CMS has made some changes to Medicare prepayment claims reviews, which may reduce the number of claim denials, and as a result, the number of filed appeals. For example, due to concerns about improper payments for certain services, CMS has established four prior authorization models in which providers submit documentation to support a claim for Medicare payment before rendering services, instead of submitting that documentation after the service was provided at the time the claim is submitted for payment. According to CMS officials, this practice allows providers to work with MACs to address potential issues with claims before the services are performed. Since 2012, CMS has implemented three demonstrations that require providers in certain states to obtain prior authorization for power wheelchairs and scooters, repetitive scheduled non-emergent ambulance transports, and non- emergent hyperbaric oxygen therapy. In addition, CMS established a prior authorization process for certain other DMEPOS items on February 29, 2016. In February 2016, a CMS official said that a recent decline in the number of Level 1 and 2 appeals of denied DMEPOS claims is due, in part, to the power mobility devices and non-emergent hyperbaric oxygen therapy prior authorization demonstrations.

CMS also made changes to the inpatient hospital coverage policy and the RA program, which have reduced the number of Part A filed appeals at Levels 1 and 2. For example, on October 1, 2013, CMS implemented a rule intended to clarify the circumstances under which Medicare would cover short stays in inpatient hospitals in an effort to help reduce the number of providers billing inappropriately for inpatient care instead of outpatient services. As a result of these new coverage policies, CMS prohibited the RAs from conducting reviews of short-stay inpatient hospital claims with dates of admission after October 1, 2013. After several extensions imposed by CMS and Congress, the prohibition ended in January 2016, at which time CMS allowed the RAs to conduct a limited number of short-stay inpatient admission reviews. The number of appeals filed related to hospital and other inpatient claims at Levels 1 and 2 declined in 2014 and 2015 from a high in 2013. In addition, in 2015, CMS limited the RA look-back period to 6 months from the date of service for certain patient status reviews instead of 3 years, which reduces the number of claims eligible for RA review and possible denial. RAs are also required to allow for a discussion period, in which providers who receive an improper payment determination can discuss the rationale for the determination and submit additional information that may substantiate payment of their claim prior to the claim adjustment process.

Actions to Reduce the Number of Appeals Reaching Levels 3 and 4

CMS has also taken actions aimed at reducing the number of appeals filed at Levels 3 and 4. In a demonstration that began in January 2016, the QIC responsible for processing DMEPOS appeals will engage in formal discussions with certain providers that are appealing two items— oxygen supplies and diabetic glucose testing supplies—before issuing an appeal decision. CMS officials predict that these discussions will enable the QIC to reverse more claim denials at Level 2, thereby reducing the number of appeals that reach Levels 3 and 4. In future years, CMS plans to expand the demonstration to providers with appeals related to other DMEPOS services.

In another change, effective August 2015, CMS instructed MACs and QICs to focus their reviews of appeals of postpayment claim denials on only the reason(s) for the denial at issue in the original appeal, without introducing new reasons that appellants would need to address in further appeals. Prior to this change, MACs and QICs reviewing appeals involving prepayment and postpayment claim denials were able to identify new claim denial reasons. CMS’s policy change will address stakeholder concerns that when MACs and QICs conducted independent reviews of claims, they often found new reasons to deny the claim, and as a result, appellants would have to file an appeal and provide evidence to address the new denial reason(s) at the next level of appeal. In February 2016, a CMS official reported that the agency believes this policy change has already resulted in an increase in the Level 2 reversal rate, which should reduce the number of appeals reaching Levels 3 and 4.

Actions to Reduce the Appeal Backlog

CMS and OMHA have also taken steps to reduce the number of undecided appeals at Level 3 and Level 4. Under the global settlement CMS offered to hospitals from August to October 2014, CMS agreed to pay 68 percent of the inpatient net payable amount on Part A claims denied because the inpatient setting was determined to be medically unnecessary. In exchange, the hospital withdrew its pending appeals and waived its right to file a future appeal related to the claims. As of June 1, 2015, CMS paid approximately $1.3 billion to providers through the settlement. We estimate that it reduced the number of undecided appeals by 31 percent at Level 3 and 37 percent at Level 4. (See table 6.)

In addition, OMHA has implemented three pilot programs—the settlement conference facilitation pilot, the statistical sampling pilot, and the senior attorney pilot—which focus on resolving appeals at Level 3 more efficiently. OMHA’s settlement conference facilitation pilot, which began in June 2014, allows eligible appellants to have their appeals at Level 3 settled through an alternative dispute resolution process rather than an ALJ hearing. OMHA offered the pilot to a limited number of providers initially, and, according to OMHA officials, as of January 2016, had settled with 10 appellants involving about 2,400 appeals. The agency expanded the scope of appeals eligible for participation in the pilot to include appeals of additional Part B claim denials in October 2015 and appeals of certain Part A claim denials in February 2016. OMHA officials told us they are also exploring expansion of the pilot in 2016 to appeals filed by state Medicaid agencies that relate to home health services provided to dually eligible beneficiaries. As noted earlier, appeals from these state Medicaid agencies have increased. We identified approximately 47,000 pending Level 3 appeals as of our June 2015 data extract that are related to this issue, which could take over half of OMHA’s ALJs at least a year to adjudicate through a traditional hearing process.

OMHA’s statistical sampling pilot began in July 2014 and aims to reduce the appeal backlog by deciding multiple appeals filed by a single appellant using statistical sampling and extrapolation. Under this pilot, an ALJ reviews and issues decisions on a random sample of the appellant’s eligible denied claims. The ALJ’s decision is then extrapolated to the universe of the appellant’s claims in question. As of August 2015, the pilot’s success has been limited—according to HHS, only one appellant had elected to participate in this process that would resolve its 405 pending appeals, which equates to about 40 percent of the annual workload of one ALJ. OMHA representatives said the office has conducted outreach to encourage more providers to participate in the pilot and plans to increase the number of claims eligible for the pilot, although as of February 2016, OMHA had not announced any specific plans or time frames to do so.

According to HHS officials, OMHA’s senior attorney pilot, which began in July 2015, uses senior attorneys to conduct on-the-record reviews of appeals if the appellant waived the right to an oral hearing. Under this pilot, the senior attorney determines whether an on-the-record decision is warranted, and if so, drafts the decision for an ALJ to review and issue. HHS officials reported that as of March 2016, 671 appeals at Level 3 have been resolved through this initiative and that they plan to increase the number of senior attorneys participating in this program.

Despite Actions Taken to Date, the Backlog of Undecided Medicare Appeals Will Likely Persist

Despite actions HHS agencies have taken, the Medicare appeals backlog will likely persist. While it is too early to predict the ultimate effect many of HHS’s current efforts will have on the Medicare appeals backlog, their effect thus far, with the exception of the global settlement, has been limited and the backlog continues to grow at a rate that outpaces the adjudication capacities at Levels 3 and 4. According to OMHA representatives, in fiscal year 2015, the number of incoming appeals at Level 3 declined to 235,543 from a high of 432,534 in fiscal year 2014. While this was a significant decrease, it was still three times the number of appeals decided in fiscal year 2015. Further, HHS reported that it expects the number of incoming appeals to increase again when new RA contracts are awarded and the RA program resumes full operation. A similar challenge exists at Level 4. The Council reported that it can adjudicate almost 2,680 appeals each year, which includes both its FFS and non-FFS workload; however, the Council’s pending appeals workload as of February 2016 was more than six times that amount and, in fiscal year 2015, it received more than three times the number of appeals it adjudicated in the same year.

OMHA and Council representatives said that the fiscal year 2016 appropriations are unlikely to mitigate the growing appeals backlog at Levels 3 and 4. OMHA received a 20 percent increase in funding in its fiscal year 2016 appropriation, which HHS officials said will allow OMHA to hire 15 additional ALJs as well as expand other efforts to improve the appeals process. However, HHS representatives told us that even with this increase, OMHA will not have the adjudication capacity to stem the growing number of appeals at Level 3. The Council did not receive a funding increase in the fiscal year 2016 appropriations, and Council representatives said that at its present funding levels the Council is unlikely to keep pace with any increases in decisional output at Level 3.

In the fiscal year 2017 HHS budget justification materials, several budgetary and legislative changes were requested to improve the Medicare appeals process and reduce the backlog. For example, additional funding for OMHA and the Council was requested to increase their adjudication capacity, as well as additional funding to CMS to increase QIC participation in Level 3 hearings, which the agency expects will reduce the reversal rate at Level 3. Legislative authority was also requested to allow OMHA and the Council to use a portion of the overpayments collected through the RA program to increase their adjudication capacity. (See app. IV for a description of the legislative proposals included in the President’s fiscal year 2017 budget related to the Medicare appeals process.)

HHS Actions Do Not Address Inefficiencies Regarding the Adjudication of Certain Repetitive Claims

HHS’s efforts to reduce the number of filed Medicare appeals and the appeals backlog have not addressed inefficiencies regarding the way appeals of certain repetitive claims for ongoing services are decided, although doing so could lead to fewer appeals. According to representatives from one MAC that reviews DMEPOS appeals, under the current process, once a provider submits an initial claim for a recurring service—such as DMEPOS claims for monthly oxygen equipment rentals—and it is denied, all subsequent claims for the service are also denied, requiring providers to file multiple appeals for the recurring service. A beneficiary’s one year supply of oxygen, for example, could generate 12 claims, and therefore, 12 denials and possibly 12 appeals. If the appeal for the initial claim is later reversed in favor of the appellant, the appeals of the subsequent claims must continue to go through the appeals process, awaiting separate decisions, because the favorable appeal decision on the initial claim cannot generally be applied to the other appeals of subsequently denied claims.

Representatives from some MACs, OMHA, and a provider group we interviewed said that this process is inefficient and suggested approaches to change the way these repetitive claims are adjudicated. In addition, two of the MACs we spoke to had developed their own processes to adjudicate some of these appeals more efficiently. For example, representatives from one of the MACs said that if a decision on an initial repetitive claim is reversed at Level 1, the MAC will apply that decision to related appeals pending within its jurisdiction. Given that these claims are for recurring services that are typically appealed individually, they could contribute substantially to the number of appeals related to DMEPOS. Furthermore, OMHA representatives told us that addressing this issue would achieve major efficiencies for the Medicare appeals process. Doing so is also consistent with internal controls that call for agencies to establish control activities that are effective and efficient in accomplishing the agency’s stated goals.

HHS officials told us that the department could address this issue if granted certain statutory authority described in the HHS fiscal year 2017 budget justification materials. Specifically, HHS requested legislative authority to consolidate appeals into a single administrative appeal. While the authority is requested to allow appeals bodies to consolidate appeals for the purposes of sampling and extrapolation, HHS officials said that they could also use this authority to consolidate appeals of certain repetitive claims and decide them jointly. It is unclear whether HHS will be granted this authority. However, department officials acknowledged HHS currently has the authority to promulgate regulations that could help address this issue through the reopening process, although at the time we discussed our findings with department officials, they told us that they prefer to address this issue through the statutory change requested in the President’s proposed fiscal year 2017 budget. The reopening process could allow appeals bodies discretion to give deference to a decision made at a higher appeal level upon determining that the beneficiary’s condition or other facts and circumstances of the appeal had not changed. For example, an appeals body could apply a decision of a higher appeal level that the appellant met medical necessity requirements, although it would still need to verify certain components of the claim, such as verification of service delivery, in order to prevent fraud and abuse. In doing so, the review of the claim or claims in question could require a less intensive analysis than a de novo review.

Conclusions

Significant growth in the number of appeals at all administrative appeal levels has posed several challenges to the Medicare appeals process. These challenges are particularly pronounced at Levels 3 and 4, which had the largest proportion of decisions issued after the statutory time frames from fiscal year 2010 through fiscal year 2014 and the greatest backlog of pending appeals. This backlog shows no signs of abating as the number of incoming appeals continue to surpass the adjudication capacity at Levels 3 and 4. The current situation whereby Levels 3 and 4 decide a substantial number of appeals after statutory time frames is likely to persist without additional actions.

HHS could take more steps to improve its oversight of the appeals process and its understanding of the characteristics of appeals contributing to the increased volumes and the current appeals backlog. As HHS takes action aimed at reducing the appeals backlog, HHS will need reliable and consistent data to monitor the appeals system, including the effect of any actions taken. Currently, HHS data systems are not collecting additional information that would assist HHS agencies in their monitoring efforts. HHS is awaiting results of an evaluation of the Medicare appeals process that may address data inconsistencies within the three appeals data systems and among levels using MAS. While the evaluation is a good first step to identifying and modifying the data systems, it is unclear how well the evaluation will address these issues because it is not a specific objective of the evaluation. Without more reliable and consistent information, HHS will continue to lack the ability to identify issues and policies contributing to the appeals backlog, as well as measure the funds tied up in the appeals process.

Finally, the manner in which appeals of certain repetitive claims are adjudicated is inefficient, which leads to more appeals in the system than necessary. With the appeals backlog as large as it is at Levels 3 and 4, HHS would benefit from a change in the process that could consolidate these appeals and reduce the number of appeals that require decisions. HHS has requested legislative authority to achieve this. Department officials acknowledged HHS currently has the authority to promulgate regulations that could help address this issue through the reopening process, although at the time we discussed our findings with them, we were told that they prefer to address this issue through the statutory change requested in the President’s proposed fiscal year 2017 budget.

Recommendations for Executive Action

To reduce the number of Medicare appeals and to strengthen oversight of the Medicare FFS appeals process, we recommend that the Secretary of Health and Human Services take the following four actions: 1. Direct CMS, OMHA, or DAB to modify the various Medicare appeals a. collect information on the reasons for appeal decisions at Level 3; b. capture the amount, or an estimate, of Medicare allowed charges at stake in appeals in MAS and MODACTS; and c. collect consistent data across systems, including appeal categories and appeal decisions across MAS and MODACTS. 2. Implement a more efficient way to adjudicate certain repetitive claims, such as by permitting appeals bodies to reopen and resolve appeals.

Agency Comments and Our Evaluation

HHS provided written comments on a draft of this report, which are reprinted in appendix V, and provided technical comments, which we incorporated as appropriate. HHS generally agreed with four of the five draft recommendations and outlined a number of initiatives it is taking to improve the efficiency of the Medicare appeals process, reduce the backlog of pending appeals, and mitigate the possibility of future backlogs. HHS also expressed its willingness to modify the appeal data systems in order to collect consistent data across the appeal data systems and to implement a more efficient way to adjudicate certain repetitive claims. In commenting, HHS provided further information for two of the recommendations with which it generally agreed. Regarding our recommendation to collect information on the reasons for appeal decisions at Level 3, HHS indicated that collecting this information in the planned ECAPE system instead of MAS, as we recommended, would be more cost effective. We agree with the department’s rationale and modified our recommendation to remove the language specifying that this information be collected in MAS. Regarding our recommendation that HHS capture the amount of Medicare allowed charges; in its technical comments, the department indicated that it would not do this for all appeals. Specifically, HHS indicated that it has no plans to collect the Medicare allowed amount for Levels 1 and 2 because doing so would require changes to the claims processing system or require manual pricing of all appeals, which would require additional funding for the MACs. We believe that there may be less resource intensive options for implementing the recommendation, and we modified the language of the recommendation to clarify that obtaining an estimate of the Medicare allowed amount would be a way to fulfill the recommendation. In contrast, HHS disagreed with a recommendation related to determining the costs and benefits of delaying CMS’s collection of overpayments until after a Level 3 decision is made, stating that such a change would increase the number of appeals filed at Level 3. We agree that this change might increase the number of filed appeals and, therefore, we did not include the recommendation in the final report.

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If you or your staff has any questions about this report, please contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI.

Appendix I: Scope and Methodology

This appendix provides additional details regarding our analysis of (1) trends in Medicare fee-for-service (FFS) appeals for fiscal years 2010 through 2014; (2) differences in claim-level and appeal-level reversal rates; (3) appeals resolved by the Centers for Medicare & Medicaid Services’ (CMS) global settlement; (4) CMS’s estimate of interest paid by the agency to certain providers; and (5) data reliability.

Trends in Medicare Administrative Appeals for Fiscal Years 2010 through 2014

To examine trends in appeals for fiscal years 2010 through 2014, we analyzed extracts of three data systems obtained from CMS, the Office of Medicare Hearings and Appeals (OMHA), and the Departmental Appeals Board (DAB). (See table 7.)

To determine the number of Medicare FFS appeals filed for each level overall, by the type of appellant, by type of service, by subcategory of service, and by whether the appeal resulted from a claim review conducted by a Recovery Auditor (RA), we took a number of steps that varied by level due to differences in the systems.

Level 1. While the Contractor Reporting of Operational and Workload Data (CROWD) system extract contained data on most Level 1 appeals filed during the period of our analysis, the Medicare Appeals System (MAS) extract contained Level 1 appeals data for six of the seven Medicare Administrative Contractor (MAC) jurisdictions that reported their Medicare Part A (Part A) appeals data to MAS in fiscal year 2014. Using the CROWD data, we determined the number of appeals filed by counting the number of requests received less the number of misrouted requests. CMS officials indicated that this approach will likely produce an approximate number of filed appeals for our purposes. However, agency officials also noted that CMS uses the number of requests cleared instead of requests received when representing appeals workload, because the requests received line could overestimate the number of filed appeals. For example, it could count duplicate requests or requests for reopenings as opposed to appeals. CMS officials noted that the agency has made changes, effective in January 2016, to improve the quality of the requests received data. Using MAS data for the Part A appeals data for the remaining six MAC jurisdictions, we also counted appeals filed and excluded misrouted and misfiled appeals. To determine the total number of Level 1 appeals filed, we added counts derived from CROWD and MAS. Our analysis excludes Level 1 appeals decided by Quality Improvement Organizations because MACs are responsible for handling Level 1 appeals of denials related to most claims.

Type of appellant: We did not determine the number of appeals filed by the type of appellant because this information is not captured in the CROWD system.

Type of service: To determine the number of appeals that were related to durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) items, using CROWD data we categorized all appeals decided by the four MAC jurisdictions that decide DMEPOS appeals as DMEPOS services. We categorized appeals of Part B services and appeals of Medicare Part B (Part B) services whose claims were decided by the Part A MACs (referred to as Part B of A) as Part B services.

Subcategory of service: We report the number of appealed claims decided by subcategory of service because CROWD does not track filed appeals or filed appealed claims by subcategory of service. Using the CROWD data, we determined the number of appealed claims decided using the number of claims cleared. CROWD uses the following subcategories: inpatient hospital, DMEPOS, home health, laboratory, other, outpatient, physician, skilled nursing facility, and ambulance, which we refer to as transportation. Using the MAS data, we determined the number of appealed claims decided by counting the number of claims. Primarily using a crosswalk provided by CMS, we mapped MAS appeal categories to the CROWD subcategories. (See table 8.)

RA-related: We report the number of RA-related appeals decided using the number of RA redeterminations cleared because CROWD does not have this information for filed appeals. In MAS, we considered an appeal as RA-related if the field RA name was not missing.

Level 2. In analyzing MAS data, we excluded combined, deleted, and misrouted appeals, but included reopened appeals. Our analysis also excludes Level 2 appeals decided by Quality Improvement Organizations because Qualified Independent Contractors (QIC) are responsible for handling Level 2 appeals of denials related to most claims.

Type of appellant: To determine the type of appellant that filed the appeal, we used the field “appeal appellant type.”

Type of service: To determine whether the appeal was for Part A, Part B, or DMEPOS, we used two MAS fields—“Medicare type” and the name of the QIC. In general, we categorized appeals of Part B services and appeals of Part B of A services as Part B services using “Medicare type.”

Subcategory of service: To determine the subcategory of service, we used the field “appeal category.” Using appeal category, we mapped Level 3 appeal categories to Level 2 appeal categories generally using a crosswalk provided by OMHA. Using that crosswalk, we grouped services into 10 subcategories. (See table 9.)

RA-related: We considered an appeal as RA-related if the field “RAC flag” was equal to “yes.”

Level 3. In analyzing MAS data, we excluded appeals that had been combined or deleted, but included reopened appeals.

Type of appellant: To determine the type of appellant that filed the appeal, we used the MAS field “requester type;” a field created by OMHA for us that indicates that the MAS appeal record included a beneficiary identification number, thus indicating the appeal was filed by a beneficiary; and a file provided to us by OMHA that identified appeals filed by a state Medicaid agency that could not be identified using the field “requester type.”

Type of service: To determine whether the appeal was for a Part A, Part B, or DMEPOS service, we used two MAS fields—“Medicare type” and the name of the QIC. In general we categorized appeals of Part B services and appeals of Part B of A services as Part B services using “Medicare type.”

Subcategory of service and RA-related: We used the same approach described for Level 2 above.

Level 4. In analyzing Medicare Operations Division Automated Case Tracking System (MODACTS) data, we excluded appeals resulting from CMS referrals, and appeals in which the record indicated a final action of lost file or tape as Level 4 did not review the appeal. We counted as one appeal any appeals in which the appellant filed one appeal but the Medicare Appeals Council (the Council) issued separate appeal decisions.

Type of appellant: To determine the type of appellant that filed the appeal, we used the fields “appellant type” and the name of the appellant, where the field “workload” indicated that CMS had not filed the appeal.

Type of service: To determine whether the appeal was for a Part A or Part B service, we used the field “claim type.” We used the field “type of service”—specifically, values of durable medical equipment, orthotic, prosthetic, or surgical dressing—to identify whether the appeal was for a DMEPOS item. We did not take additional steps to categorize appeals of Part B of A services as Part B services as Council officials told us that those services are already categorized as Part B claims.

Subcategory of service: To determine the subcategory of service, we used the field “type of service.” We grouped type of service into 10 subcategories. (See table 10.)

RA-related: An appeal was RA-related if the field “overpayment” was set to “RAC.”

For all appeal levels, we determined the percentage of appeal decisions issued after the statutory time frames. This analysis is based on the fiscal year that the appeal was decided. Thus, appeals in which no appeal decision had been issued from fiscal year 2010 through fiscal year 2014 are excluded from our analyses.

Level 1. Our analysis for Level 1 is different from those for Levels 2, 3, and 4. Specifically, the Level 1 analysis presents information on a quarterly basis by type of service (i.e., Part A, Part B, and DMEPOS) and the percentages of Part B of A services are included in totals for Part A services. We derived this information from CMS’s “Appeals Fact Sheets,” which contain the percentage of appealed claims decided on-time on a quarterly basis by type of service. Using these data, which are presented on a calendar year basis, we determined the percentage of appealed claims on a fiscal year basis that were not issued on-time.

Level 2, Level 3, and Level 4. To determine the percentage of appeals issued after the statutory time frame, we determined the number of appeals issued after the deadline date overall and by type of appellant for Levels 3 and 4. The deadline date is captured and adjusted in MAS (Levels 2 and 3) and MODACTS (Level 4) to reflect any reasonable changes to the deadline, such as if the appellant submitted additional documentation after the appeal was filed. We found that the deadline date was missing in MODACTS for over one-third of appeals that had been decided during the time frame of our analysis. As a result, we set the deadline date for these appeals to 90 days after the appeal start date. DAB officials indicated this approach was generally appropriate. For Levels 2 and 3, we limited this analysis to appeal decisions issued on the merits. As a result, appeals with the following appeal decisions are excluded from the calculation: dismissed or escalated at Level 2; and dismissed, escalated, remanded, or in which no decision on the denied claim was made at Level 3. For Level 4, we excluded appeals referred to the Council by CMS, as well as appeals that were dismissed by the Council under the circumstances set forth in 42 C.F.R. §405.1114 at Level 4.

We also calculated the percentage of appeal decisions issued on the merit that were issued after at least twice the statutory time frame, which we report for Levels 3 and 4, by determining the number of appeals in which decisions were issued 90 or more days after the deadline date.

We excluded from these calculations appeals that were put on hold during CMS’s global settlement process. We estimated the number of Levels 2, 3, and 4 appeals resolved through the global settlement based on information as provided to us by CMS, OMHA, and DAB. Specifically, for Levels 2 and 3 we used fields in MAS, and for Level 4 we used a file provided to us by the Council within DAB on November 6, 2015. HHS officials noted that as of February 2016, OMHA and DAB were still in the process of dismissing appeals included in CMS’s global settlement. The dismissal process includes a review by OMHA and DAB of each settlement agreement which could result in the identification of appealed claims that were inadvertently included in the settlement. Therefore, our estimates may differ from the number of appeals settled once the dismissal process is complete.

Reversal Rates

For Levels 1 through 3, we determined the proportion of appeals in which the appeals body reversed a coverage denial. For Level 4, we separated appeal decisions into different categories to better understand how the Level 4 appeal decision affected the Level 3 appeal decision.

Level 1, Level 2, and Level 3. We report the number of appeals in which a decision was issued on the merits and the percentage of appeals that fully reversed, partially reversed, or did not reverse the coverage denial. In calculating those percentages, we do not reflect decisions based on other grounds, such as dismissals. As noted above, for Levels 1 through 3, we categorized appeals of Part B of A services as Part B services. As a result, the reversal rates we present may differ from reversal rates that categorize appeals of Part B of A services as Part A services. We calculated reversal rates overall, by type of service, and by whether or not the appeal was RA-related. For comparison purposes, we also report the total number of appeals in which a decision was issued, which is not limited to decisions issued on the merit.

Level 4. We report the number of appeals that affirmed, reversed, dismissed, or remanded Level 3 decisions as well as the percentage of those appeals in each category. We calculated these percentages overall and by whether an appellant filed an appeal or whether CMS referred the appeal. For comparison purposes, we also report the total number of appeals in which a decision was issued, which is not limited to the four final action categories. Because the following Level 4 decisions do not comment on the Level 3 decision, we excluded them from our analysis: appeal decisions of other, special disposition, and dismiss request for review. Similarly, we excluded appeals that were escalated from OMHA because Level 3 did not issue a timely appeal decision and appeals in which the Council was asked to reopen an appeal it already decided. Our categorization of Level 4 decisions is as follows.

Affirmed the Level 3 decision: (a) a final action of affirm; (b) a final action of modify; (c) if CMS did not refer the appeal, a final action of denial of request for review; and (d) if CMS referred the appeal, decline protest.

Reversed the Level 3 decision: a final action of reverse decision.

Dismissed the Level 3 decision: a final action of dismiss request for hearing.

Remanded appeal to Level 3: a final action of remand to the Administrative Law Judge (ALJ), which has the effect of vacating the Level 3 decision and generating a new Level 3 appeal, according to Council officials.

Estimate of Pending Medicare Administrative Appeals at Levels 3 and 4 Resolved by CMS’s Global Settlement

To report on the effect of CMS’s global settlement on the number of appeals pending decisions at Levels 3 and 4, we determined the number of appeals pending a decision as of the dates of our extract files. To determine the number of those appeals pending after the global settlement, we subtracted the number of appeals we estimated to be included in the global settlement from the number of pending appeals.

CMS’s Estimate of Interest Paid by the Agency to Certain Providers

To better understand the effect of late appeal decisions on the amount of interest paid by CMS to certain providers who have their postpayment claim denials reversed upon appeal, we asked CMS for (a) the amount of interest CMS paid to providers on the overpayments the agency initially collected and then returned after the appellant won a Level 3 appeal; and (b) the amount of interest that CMS would have paid to those providers if Level 3 had adhered to the 90-day statutory time frame for issuing appeal decisions. CMS officials told us that their data system did not enable them to create similar estimates for appeals reversed at Levels 4 or 5. To report on the amount of interest that CMS would not have paid if Level 3 had issued decisions within the statutory time frame, we subtracted estimate (b) from (a).

To respond to our inquiry, CMS developed an estimate, which is based on several assumptions and is subject to certain limitations. To report on the amount of interest paid, CMS identified transactions in its Healthcare Integrated General Ledger Accounting System (HIGLAS) that were categorized as related to this type of interest payment. To report on the amount of interest that CMS would have paid if Level 3 had adhered to a 90-day time frame for issuing appeal decisions, CMS created an estimated date whereby the ALJ would have issued the appeal decision, because this information is not calculated in HIGLAS. This date was set equal to 180 days after HIGLAS indicated the overpayment collection was initiated by the MAC, and accounts for the following: the time it would take the MAC to collect the overpayment after the appellant lost the Level 2 appeal, the time it took for the appellant to file a Level 3 appeal, and the 90-day time frame for Level 3 to issue an appeal decision. Because overpayments can be collected over multiple dates, CMS set the date of the recoupment equal to the median date of all recoupment dates. CMS officials acknowledged that their estimate has limitations. First, CMS officials told us that the recording of overpayment adjustments, the assignment of codes which categorize types of accounts receivable, and the determination of interest payments is a manual process conducted by the MACs and that MACs may not, for example, be using the appropriate codes. Second, use of a median date to estimate the interest that would have been payable results in different estimates than if CMS were able to apply the interest rate separately for each recoupment made based on the actual date the overpayment was recouped. Third, CMS’s estimate is limited to Part A and Part B appeals and excludes any interest associated with DMEPOS appeals because CMS officials told us they did not have the necessary data in-house to conduct the analysis and obtaining access to the necessary data would have been administratively burdensome.

Data Reliability

To assess the reliability of the data used in this report, we performed manual and electronic testing to identify and correct for missing data and other anomalies; interviewed or obtained written information from CMS, OMHA, and DAB officials to confirm our understanding of the data; and reviewed related documentation. We determined that the data were sufficiently reliable for our purposes.

Appendix II: Medicare Fee-for-Service Appeals Filed and Decided, Fiscal Years 2010 to 2014

Tables 11 through 14 provide information on the number and characteristics of appeals filed and decided at Levels 1 through 4 of the Medicare fee-for-service appeals process from fiscal year 2010 to fiscal year 2014.

Appendix III: Medicare Fee-for-Service Appeal Reversal Rates, Fiscal Years 2010 to 2014

Tables 15 through 18 provide information on appeal reversal rates by type of service and whether the appeal was Recovery Auditor-related at Levels 1 through 4 of the Medicare fee-for-service appeals process for appeals decided from fiscal year 2010 to fiscal year 2014.

Appendix IV: Legislative Proposals Included in the President’s Fiscal Year 2017 Budget Related to the Medicare Fee-for-Service Administrative Appeals Process

This proposal would expand the authority of the Secretary of Health and Human Services to retain a portion of RA recoveries for the purpose of administering the RA program and allows RA program recoveries to fully fund RA‐related appeals at OMHA and DAB.

This proposal would institute a refundable filing fee for Medicare Parts A and B appeals for providers, suppliers, and state Medicaid agencies, including those acting as a representative of a beneficiary, and requires these entities to pay a per‐claim filing fee at each level of appeal. According to the Department of Health and Human Services’ (HHS) budget justification materials, this filing fee will allow HHS to invest in the appeals system to improve responsiveness and efficiency. Fees will be returned to appellants who receive a fully favorable appeal determination.

Other proposals that affect Medicare claim review contractors Allow prior authorization for Medicare

This proposal would extend the Centers for Medicare & Medicaid Services’ (CMS) prior that are at the highest risk for improper payment. The proposal observes that CMS currently and services. authorization authority to all Medicare fee‐for‐service items and services, in particular those has authority to require prior authorization for only specified Medicare fee‐for‐service items This proposal would allow the Secretary to withhold payment to an RA if a provider has filed an appeal at Level 2 and a decision is pending. According to HHS’s budget justification materials, aligning the RA contingency fee payments with the outcome of the appeal will ensure that CMS has assurance of the RA’s determination before making payment.

This proposal would allow the Secretary to adjudicate appeals through the use of sampling and extrapolation techniques. Additionally, this proposal authorizes the Secretary to consolidate appeals into a single administrative appeal at all levels of the appeals process. Parties who are appealing claims included within an extrapolated overpayment or consolidated previously will be required to file one appeal request for any such claims in dispute.

This proposal would remand an appeal to Level 1 when new documentary evidence is submitted into the administrative record at Level 2 or above. Exceptions may be made if evidence was provided to the lower level adjudicator but erroneously omitted from the record, or an adjudicator denies an appeal on a new and different basis than earlier determinations. According to HHS’s budget justification materials, this proposal incentivizes appellants to include all evidence early in the appeals process and ensures the same record is reviewed and considered at subsequent levels of appeal.

This proposal would increase the minimum amount in controversy for ALJ adjudication to the federal court (Level 5) amount in controversy requirement ($1,500 in calendar year 2016). According to HHS’s budget justification materials, this will allow the amount at issue to better align with the amount spent to adjudicate the claim.

This proposal would allow OMHA to use attorneys called Medicare magistrates to adjudicate appealed claims of lower amounts in controversy—specifically, amounts that fall below the federal district court amount in controversy threshold.

This proposal would allow OMHA to issue decisions without holding a hearing if there is no material fact in dispute. These cases include appeals, for example, in which Medicare does not cover the cost of a particular drug.

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

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Kathleen M. King, (202) 512-7114 or kingk@gao.gov.

Staff Acknowledgments

In addition to the contact named above, Lori Achman, (Assistant Director), Todd Anderson, Susan Anthony, Christine Davis, Julianne Flowers, Krister Friday, Shannon Legeer, Amanda Pusey, Lisa Rogers, Cherie’ Starck, and Jennifer Whitworth made key contributions to this report.