In 1998, about 7 million—or 18 percent—of Medicare’s 39 million beneficiaries were enrolled in a managed care plan. About 90 percent of Medicare managed care enrollees belong to one of 307 risk-contract HMOs.These plans are paid a predetermined monthly amount for each Medicare enrollee, regardless of the amount of Medicare covered services the enrollee uses. The plans are called “risk” HMOs because they assume the financial risk of providing care for the amount Medicare pays. Risk HMOs must provide all services covered by fee-for-service Medicare; in many instances, they provide additional services—such as outpatient prescription drugs and routine physical exams. Generally, plans require enrollees to use only providers that contract with the plan and to follow certain procedures to obtain health care services. For example, most plans require enrollees to obtain prior authorization for care either from their primary care physician or directly from the plan. If enrollees do not follow the procedures, plans may not pay for the services. HCFA performs biennial on-site performance reviews of each health plan’s operations, including the appeals process, to evaluate plan compliance with HCFA regulations. HCFA staff review a sample of appeal cases and evaluate whether the plan met Medicare process and timeliness requirements. Results of the performance review are reported in the monitoring report. The report documents whether a plan met all legal and policy requirements and describes any deficiencies and needed corrective actions. In November 1993, a class action lawsuit filed against the Secretary of HHS challenged a number of the policies and practices of the Medicare managed care program. As a result of this lawsuit, HCFA is currently under an injunction and order issued by the federal district court that requires Medicare HMOs to give their enrollees written notices that meet certain criteria. Specifically, the order required, among other things, that Medicare HMOs (1) issue denial notices within no more than 5 working days of the request for service or payment and at least 1 working day before the reduction or termination of treatment, (2) clearly state the reason for the denial in the notice, (3) expedite appeals when services are urgently needed (within 3 working days of the request), and (4) continue acute care services until a final appeal decision is issued when the beneficiary requests an expedited appeal. Since the 1997 court order, HCFA has required each plan to implement an expedited process for decisions on initial requests for health services and appeals of denied health services. Subsequently, the expedited process was mandated along with other appeals procedures and beneficiary protections by the Balanced Budget Act of 1997 (BBA) and further addressed in the Medicare+Choice regulations published in June 1998. A beneficiary may now request an expedited decision if he or she believes that serious adverse health consequences could result from waiting for a decision under the standard process. Medicare beneficiaries enrolled in managed care plans have a multilevel appeals process available if plans refuse to pay for requested services, refuse to provide requested services, or discontinue or reduce services.Beneficiaries generally appeal to their plan first. If the plan upholds the initial denial, the appeal is forwarded to CHDR for external review and resolution. However, a further appeal to an ALJ and the court is possible. Under certain circumstances, a beneficiary or a health care provider may request that a plan expedite its decision on the initial request and any subsequent appeal. The appeals process may begin when a Medicare member asks his or her plan to provide a service, such as skilled nursing care or a referral to a specialist, or pay for a service already obtained and is turned down. In such instances, Medicare requires plans to issue a written notice that states the reason for the denial and explains the beneficiary’s appeal rights. A member has 60 days from the date of the denial notice to ask the plan to reconsider its initial decision. The appeal request, which must be in writing, can be addressed to the member’s health plan or the Social Security Administration, which will forward it to the health plan. A member is not required to submit additional information to support or clarify the request. However, health plans must provide their members the opportunity to supply such information. The plan’s reconsideration of its initial decision, the internal portion of the appeals process, must conform to certain requirements. Prior to July 27, 1998, a plan had up to 60 days to complete this process; now a plan must reconsider its initial decision within 30 calendar days if the request is for health care services and within 60 calendar days if it is for payment. The plan representative considering the appeal must not have been involved in making the initial decision. To make a reconsidered decision, the plan representative reviews the initial decision and all other evidence submitted by the beneficiary, beneficiary representative, provider, and health plan. If a plan upholds, in whole or part, its initial denial, it must forward the case to CHDR for external review. HCFA has modified its contract with CHDR requiring CHDR to be held to the same time standards as the plans for processing appeals. (Prior to the change, CHDR had 30 days to consider the case, make its ruling, and inform the beneficiary of its decision.) If CHDR upholds the plan’s denial, the beneficiary can request an additional appeal before an ALJ, provided the services in question cost at least $100. A beneficiary may ask that the Social Security Departmental Review Board review a denied ALJ appeal. If the board declines to review the ALJ decision or denies the appeal and the amount of the services in question is greater than $1,000, the beneficiary may request a hearing in U.S. District Court. A beneficiary who loses an appeal is responsible for the cost of any disputed health care services that he or she obtained. Figure 1 shows the Medicare appeals process, step by step. Since August 28, 1997, HCFA has required managed care plans to establish and maintain an expedited process covering both initial decisions and internal appeals. Medicare beneficiaries can request expedited decisions when they believe that waiting the standard time for an initial decision or an appeal of the initial decision could seriously jeopardize their health or life. If a beneficiary makes the request, the plan determines whether the expedited process is warranted. If a physician makes the request on behalf of a beneficiary or concurs with the beneficiary’s request, the plan must expedite its decision. Generally, health plans must make the expedited decision within 72 hours following the request. An expedited decision that is adverse to the beneficiary must be forwarded to CHDR within 24 hours. CHDR is required to process the expedited cases within 72 hours.Figure 2 provides the time intervals for major events in the process. HMOs that responded to our survey reported receiving approximately 9 appeals annually per 1,000 Medicare members. However, this number may understate beneficiaries’ dissatisfaction with HMOs’ initial decisions. First, dissatisfied beneficiaries may disenroll and switch to another plan or fee-for-service instead of appealing. Second, beneficiaries may be unfamiliar with their appeal rights or the appeals process. Plans may not always issue the required notices or may omit an explanation of beneficiaries’ appeal rights. In other cases, beneficiaries may not appeal because the notices list nonspecific reasons for the denial. The number of annual appeals per 1,000 Medicare beneficiaries varied among HMOs and may be rising. The 242 Medicare HMOs that responded to our recent survey reported an average of about 9 appeals annually per 1,000 beneficiaries between January 1996 and May 1998 (see table 1). Generally, plans overturned nearly three-quarters of the requested appeals. Those not overturned were submitted to CHDR for further review and consideration. Between August 28, 1997, and December 31, 1997, plans expedited 861 appeals. During the first 5 months of 1998, plans expedited 1,548 appeals. The number of annual appeals per 1,000 Medicare beneficiaries among HMOs ranged from 0 to 90. Over half of the plans reported between 1 and 10 appeals per 1,000 beneficiaries. A number of HMOs reported no appeals for each study year: 17 percent in 1996, 13 percent in 1997, and 9 percent in 1998. Nearly all of these HMOs (87 percent) had low Medicare enrollment. There was no similar pattern for plans with the highest appeal rates; they were spread nearly evenly across all plan sizes. The appeal rate may be rising. Plans reported just over 8 appeals per 1,000 beneficiaries in 1996 and 1997, but annualized data from the first 5 months of 1998 indicated more than 10 appeals per 1,000 beneficiaries. Aggregate appeals data may indicate potential problems with a plan’s appeals process, but additional information is needed to assess whether a plan adequately performs this function. A relatively low appeal rate may be the result of a plan’s low denial rate or members who are unaware of their appeal rights. Conversely, a plan that denies many requests or that actively educates members about their rights may experience a relatively high appeal rate. Consequently, appeals data should be considered in conjunction with other factors, such as the rates at which CHDR overturns plans’ appeal decisions and HCFA’s observations of plans’ appeals process. The number of appeals may understate beneficiaries’ dissatisfaction with their HMO’s initial decision if some disenroll instead of appealing. Currently, beneficiaries may disenroll and switch to another plan or Medicare fee-for-service at the end of any month. As we have previously reported, many Medicare HMOs experience high disenrollment rates. The extent to which beneficiaries choose to disenroll rather than appeal is unknown. It is clear, however, that disenrollees report less satisfaction with the care they received from their HMOs than enrollees.