Senate Finance Committee Holds Hearing on Medicare Appeals Backlog – Proposed Solutions Are of Great Concern

On April 28, 2015, the Senate Finance Committee held a hearing entitled “Creating a More Efficient and Level Playing Field: Audit and Appeals Issues in Medicare.”[1] As noted by Chairman Hatch in his opening statement, Medicare’s hiring of contractors to conduct audits of claims submitted to Medicare “has led to a seemingly insurmountable increase in appeals, with a current backlog of over 500,000 cases … [which] has resulted in long delays for beneficiaries and providers alike.”  Chairman Hatch also noted that “large portions of the initial payment determinations are reversed on appeal” and “[s]uch a high rate of reversals raises questions about how the initial decisions are being made and whether providers and beneficiaries are facing undue burdens on the front end.”[2]

Ranking Member Wyden, in his opening remarks, noted that “each case is the story of an actual person” and highlighted the experience of Stephen Lessler, lead plaintiff in the Center for Medicare Advocacy’s lawsuit challenging delays in Administrative Law Judge (ALJ) hearings beyond the statutory 90-day limit for a decision.[3]  Mr. Lessler appealed his Medicare Advantage plan’s denial of coverage for care in a skilled nursing facility.  After losing earlier appeals, Mr. Lessler requested an ALJ hearing in December 2013.  He did not have a hearing until September 2014.  A fully favorable decision was issued the day after he died.

Testimony was provided at the Senate hearing by Diversified Service Options, Inc., a company that serves as a Part A and B Medicare Administrative Contractor (MAC) for the first level of the Medicare administrative appeals process for several regions across the country. Maximus Federal Services, a company that serves as the Qualified Independent Contractor (QIC) for the second level of appeal also testified.  The final witness was Chief Administrative Law Judge Nancy Griswold of the Office of Medicare Hearings and Appeals (OMHA), which administers ALJ hearings, the third level of Medicare appeal.

The witnesses’ testimony focused on the dramatic increase in the volume of appeals.  Little if any attention was given to the stunning denial rate (98%) at the first two levels of appeal and the high rate of reversals at ALJ.  A number of proposals were offered to address the appeals backlog, most of which would do so by reducing access to hearings.  These proposals included establishing a refundable filing fee; remanding cases to the first (Redetermination) level of appeal upon introduction of new evidence; increasing the minimum amount in controversy for ALJ appeals; and establishing a new corps of “ALJ Magistrates” to handle certain claims.

Background

The Center for Medicare Advocacy has been appealing Medicare denials since 1986.  Through the Center’s extensive experience with the Medicare administrative appeals process, we continue to find that:

1. The success rates for beneficiaries at the initial levels of Medicare appeal are dismal; and
2. The average wait for a decision at the Administrative Law Judge (ALJ) stage, where chances of success improve dramatically, far exceeds the 90-day built-in timeframes.[4] 

Denial Rate of Beneficiary Appeals at Lower Levels of Review

The statistics on success rates – better viewed as denial rates – at the lower levels of review are staggering.  The Center for Medicare Advocacy has handled thousands of appeals since 1986.  In the early to mid-90s, about 30 to 40% of all appeals we undertook were decided in favor of the beneficiaries at the redetermination and/or reconsideration levels.  In the late 90s, that percentage began to drop significantly, so that only 15 to 20% were granted.  The number of granted appeals continued to fall throughout the early part of this decade.  For example, from 2010 through 2013, we received 14,372 home health redetermination and reconsideration decisions.  Only 346 of these were favorable, a “success rate” of 2.4%.  In one year, 2011, the rate was 0.61%, and the trend continues; in 2014 the denial rate was 98.8%. CMS has confirmed these statistics are consistent with the national rates.

These results are so skewed against beneficiaries that the first levels of appeal are actually counterproductive.  Rather than providing steps at which beneficiaries can obtain an informal review of their initial determination denials, which is the purpose of these levels, they operate as time and effort-wasting hurdles that have to be endured before a beneficiary has any chance of success, which is at the ALJ level.  CMS informally takes the position that the lower level denial rates represent a measure of the accuracy of the initial determination stage; that redetermination and reconsideration serve as quality control mechanisms.  To the contrary, since the reviews deny coverage 98% of the time, the appeals system simply does not work.

The “success rates” are so ludicrously low as to be no review at all.  The irony is that the review process changes made in the last decade were supposed to make the lowest levels of review a more efficient and effective part of the process, so that beneficiaries would not be forced to go to the ALJ level.  Now, with success virtually impossible at the lowest levels of review, beneficiaries must continue their appeals to the ALJ level to have any chance of success.  As a practical matter, the lowest levels of review now act as an impediment to obtaining any effective review at all.

Unfortunately, as noted above, the Senate Finance Committee hearing did not consider these “rubber stamp” denials at the lower levels of review, which contractors are paid hefty sums to administer.

ALJ Scheduling Backlog

The Senate Finance Committee hearing did, however, focus on delays in the Medicare administrative appeals process. As highlighted by Senator Wyden during the hearing, an increase in audits conducted by Medicare contractors has contributed to a ten-fold increase in cases sent to OMHA – from 60,000 in fiscal year 2011 to 654,000 claims in fiscal year 2013.[5]   Many observers, including the Center, have pointed out that much of this increase in appeals has stemmed from the increased use of Observation Status in hospitals.[6]

As discussed above, problems relating to the overwhelming denial rates at the first two levels of appeal have been exacerbated by increased delays for ALJ hearings where appellants have their only chance of success.  Testimony at the Senate hearing indicated the current average wait time for a hearing decision is now 572 days. Note that 42 CFR §405.1016 states, in part: “When a request for an ALJ hearing is filed after a [Qualified Independent Contractor, or QIC, the second level of Medicare appeal] has issued a reconsideration, the ALJ must issue a decision, dismissal order, or remand to the QIC, as appropriate, no later than the end of the 90 calendar day period beginning on the date the request for hearing is received by the entity specified in the QIC's notice of reconsideration, unless the 90 calendar day period has been extended as provided in this subpart.”

In an effort to challenge the delays in obtaining ALJ decisions, on August 26, 2014, the Center filed a nationwide class action lawsuit in United States District Court in Connecticut: Lessler v. Burwell, No. 14-1230 (D.Conn.). The five named plaintiffs, from Connecticut, New York and Ohio, have all waited longer than the statutory 90-day limit for a decision on their Medicare appeals. The current average wait time is over five times the Congressionally-mandated time limit.[7] 

Proposed Solutions to Backlog Offered by OMHA

Among the potential solutions to address the appeals backlog, the Office of Medicare Hearings and Appeals (OMHA) offered a package of legislative reforms that would both generate additional revenue for the Office and “mitigate the appeals volume” at the ALJ level.[8]  These proposals were included in the President’s proposed FY2016 budget, about which the Center commented earlier this year.[9]

Given the Center’s considerable experience with the Medicare appeals process we are greatly alarmed at these proposals, which would further restrict access to meaningful reviews.  The primary way that OMHA proposes to deal with the backlog is to limit access to ALJ hearings – diminishing, rather than enhancing, due process rights.  These proposals include:

• Establishing a refundable filing fee for providers, suppliers, and State Medicaid agencies, including those acting as a representative of a beneficiary, at each level of Medicare appeal; appeals filed by beneficiaries or representatives other than providers, suppliers and Medicaid State 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 Agencies, subrogated to the rights of the poorest Medicare beneficiaries, from seeking just and proper coverage from Medicare.
• Increasing the amount in controversy (AIC) for ALJ hearings (the 3^rd stage in the appeals process) to equal the amount required for judicial review in federal court (the 5^th 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.
• 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.
  As noted above, beneficiaries, who often have problems obtaining timely documents and other support for their appeals, 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.

Conclusion

We applaud the Senate Finance Committee for exploring issues relating to the Medicare appeals process, including significant delays in obtaining ALJ decisions.  We are greatly alarmed, however, with proposals that attend to the delays by creating new barriers to legitimate appeals. Instead, Congress should consider strategies that would make for a more equitable, cost-effective system. Among others, these include eliminating one of the initial levels of appeal that simply deny coverage, at great expense to taxpayers; handling hospital and Recovery Audit cases in a separate manner; and reviewing CMS policies such as Observation Status that incorrectly deny coverage  in the first place.

D. Lipschutz – April, 2015