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The Medicare appeals system is not working. The success rate at the first two levels of appeal is staggeringly low for beneficiaries. It can take years to get an ALJ hearing decision – the third level of appeal, and the first real opportunity to get a coverage denial reversed.

As we’ve previously reported, the Senate Finance Committee held a hearing about the appeal problems, focusing on the terrible backlog at the ALJ level on April 28, 2015.  At the hearing, Ranking Member Ron Wyden highlighted the story of one of the Center for Medicare Advocacy’s clients, Stephen Lessler.  Mr. Lessler was denied Medicare for his nursing home stay. He could not afford to continue the care for more than a few days and, as a consequence, was discharged prematurely. He fell at home a few nights later and required hospitalization. Almost a year later he finally received an ALJ hearing. A fully favorable decision was issued the day after Mr. Lessler died. Senator Wyden centered his questions and comments around the question “how can we make sure there are no other stories like Mr. Lessler’s?”

Having handled thousands of Medicare appeals annually since 1986, we are acutely aware that Mr. Lessler’s story is not unusual. Thus, Center Attorney’s met with Senate Finance Committee staff members on May 5 to consider ways to fix problems at the heart of the appeals backlog – and to help keep future beneficiaries from sharing Mr. Lessler’s experience. We explained that, while grateful for the Committee’s hearing and concern, we are alarmed by most of the proposals recommended to date to address the ALJ backlog. If implemented, these proposals would further restrict access to meaningful reviews.

Center for Medicare Advocacy’s Concerns with Current Proposals:

The approaches considered to deal with the ALJ backlog would largely do so by limiting access to hearings – diminishing, rather than enhancing, due process rights.  The proposals with which we are most concerned include:

  • Establishing a refundable filing fee for providers, suppliers, and State Medicaid Agencies, including those acting as a subrogee to beneficiaries, at each level of Medicare appeal; appeals filed by beneficiaries or representatives other than providers, suppliers and State Medicaid Agencies would be exempt from the fee. 

Imposing such a fee will deter providers and suppliers from rendering assistance to beneficiaries, and prevent Medicaid State Medicaid Agencies, subrogated to the rights of the poorest Medicare beneficiaries, from seeking just and proper coverage from Medicare, as required by federal third party liability law.

  • Increasing the amount in controversy (AIC) for ALJ hearings (the 3rd stage in the appeals process) to equal the amount required for judicial review in federal court (the 5th and final stage in the appeals process).  The ALJ AIC would increase almost ten-fold (from $150 to $1,460 in 2015). 

If this change is made, only beneficiaries at significantly higher financial risk will be allowed access to the level of review where they have the most thorough and fair review of their claim, greatly diminishing the chances of success for all who fail to meet this higher threshold.  If the AIC was increased to $1460, many claims would be relegated to a new magistrate corps, per another OMHA proposal, who won’t likely have the same experience and training as ALJs. 

There would be a range of cases that ALJs would no longer hear due to the new AIC. Depending on a beneficiary’s geography, these would even include a multi-day stay in a SNF (for example, a typical, recent skilled nursing facility stay in Iowa costs $210 a day for a private room; $210 x 6 is $1,260). Since we know that half of all Medicare beneficiaries have incomes below $23,500 (Kaiser Family Foundation), an AIC of $1460 would be 16% of the income for half of the Medicare population.

  • Establish a new review process, creating “Magistrates” (attorney adjudicators) who would hear claims below the new higher Amount in Controversy threshold.

These Magistrates would likely have less experience and training than ALJs, which could compromise the quality and thoroughness of review at this level.  This would also create an entirely new set of bureaucratic issues and expense.

  • Remand appeals to the redetermination level when new evidence is provided.  Medicare appeals would be remanded to the first level of review when new documentary evidence is submitted at the second level of appeal or above.

The Center’s experience shows that the record is almost always complete at the first level of appeal. If there are problems, it is likely beneficiaries, who have problems obtaining timely documents and other support for their appeals, and who experience an almost non-existent success rate at these lower levels (a denial rate of about 98%).  This change would further limit access to legitimate reviews by foreclosing access to ALJs and further empowering lower level adjudicators who have a history of overwhelmingly denying coverage.  Beneficiaries are reliant on providers to get records – yet the only party that can be hurt by this proposal is the beneficiary      

Center for Medicare Advocacy’s Alternative Proposals:

Instead of limiting access to hearings, the Center suggests other alternatives that would enhance access to legitimate review early in the process, encourage proper coverage decisions in the first place, and open doors to hearings, rather than closing them.  These proposals would include the following:

  • Eliminate one of the initial levels of appeal that simply deny coverage, at great expense to taxpayers.  Note that the Social Security Administration appeals system – a comparable agency – doesn’t have comparable levels of review

The rate of denial at the first level of review in most cases is staggering – approximately 98% in recent years. This denial rate serves as a barrier to due process, not a legitimate opportunity for review. Why should taxpayers fund such a “rubber stamp” process and why should Medicare beneficiaries be required to suffer through it?

  • Handle hospital and Recovery Audit Contractor (RAC) cases in a separate manner

Provider appeals of Recovery Auditor findings, largely of hospital observation status, are the major reason for the ALJ backlog. This problem should be handled separately – not by restructuring the entire Medicare appeals process. One possibility for accomplishing this would be to move this function to the Medicare Administrative Contractor, having eliminated it as the first level of review for beneficiaries.

  • Review CMS policies such as Observation Status that incorrectly deny coverage in the first place.

The unintended consequences of the Center for Medicare & Medicaid Services’ hospital Observation Status policies are legend. The policy not only harms thousands of beneficiaries, especially those in need of skilled nursing facility care, it is now at the heart of the breakdown of the Medicare ALJ system.  Enough is enough; the Observation Status policy ought to be rescinded.

  • Provide more funding for assisting beneficiaries with appeals, and for other assistance.

The resources and funding available to help beneficiaries understand Medicare coverage, navigate the system, and appeal if they are unfairly denied is paltry. Lacking assistance, beneficiaries too often give up appealing and forego necessary care.  The SHIPs and other beneficiary assistance programs ought to be properly funded. The complexities of Medicare and related health care programs are simply too much for the limited resources available to help beneficiaries.


The Medicare program and appeals system were intended for beneficiaries.  Mr. Lessler and the millions of older and disabled people like him deserve fair access to Medicare coverage and to a legitimate, accessible appeals system when coverage is denied. Hopefully, the Senate Finance Committee will soon help make that happen.

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