CMS May Finally Be Forced to Address Medicare Appeal Backlog

CMS, Commentary, Medicare, Medicare Set-Aside Blog, MSP News on February 10, 2016 | Posted by Jennifer Jordan, JD, MSCC

On Tuesday, February 9, 2016, the U.S. Court of Appeals for the District of Columbia overturned the December 2014 dismissal of a suit by the American Hospital Association against DHHS for unreasonable delays in processing RAC appeals. At the time the lower court ruled that the delay wasn’t unreasonable enough to elicit an order from a court and that Congress and HHS should work together to resolve the issue. Over a year later, the backlog stands at about 800,000 appeals which is 10 times as many as the budget can support. Obviously the delay is now sufficiently unreasonable to remand the case back to the lower court for reconsideration. 

As with everything Medicare related, CMS either does not have a sufficient budget or manpower to perform all the tasks required to maintain the Medicare programs so it farms out certain tasks to the private sector in an attempt to harness its efficiencies and expertise in the hopes that the jobs can be done cheaper and more efficiently than by government employees. This is evidenced by the great number of unrelated contractors that each perform one very specific function and can tell you nothing about any other aspect of the program. The entire concept of Medicare Advantage is to contract away the entire benefit responsibility to a private sector insurer. While possibly easier than maintaining an internal workforce sufficient to perform all of the duties that encompass Medicare, the contractor model creates its own issues.  

One such problem is the method that RAC contractors are paid – contingency. RACs keep a portion of the recoveries that they locate by physically going into a provider’s records and looking for billing errors. There is no real incentive to be entirely accurate as the burden is on the provider to defend the reimbursement claim. If the provider cannot prove the demand erroneous or just elects to let it go (Senate committee report notes less than 10% are appealed annually), the RAC still gets paid so why not throw as many claims against the wall as possible and see which ones stick. And Medicare is better off because it is holding onto billions in unpaid claims in the interim because typically the way the government recovers from providers is to off-set other payments owed and give it back later if it turns out to be in error. Unfortunately for the government, providers are entitled to an official appeal and that has resulted in a significant portion of an 800,000 appeal backlog. Worse, the outcome of the appeals are validating the RAC incentive problem as one of the plaintiff hospitals in this case appealed 52% of its RAC denials and was successful in 66% of them.  

The backlog effects more than just providers. All Medicare appeals are channeled through the same five step process, involving even more contractors all working under contractual quota and budgets. This means that injured workers and tort plaintiffs trying to resolve conditional payments are all standing in this same line. And as of April 2015, so are primary payers basking in the perceived coup of the SMART Act providing them with direct appeal rights. Allowing the RAC contractors to unfairly burden the adjudication process for all is the unreasonable act by HHS that needs to be addressed. But without the budget to increase appeals or to chase over $60 billion in overpayments without the bounty, there’s little hope for resolution. 

Currently pending before the Senate is S.2368 – Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015 (AFIRM Act). On December 9, 2015, the Finance Committee reported on the bill favorably and recommended that it pass. This bill attempts to addresses the primary causes of the increase in appeals and the backlog itself and proposes the following:

  • improve CMS oversight of audit contractors and require better coordination between auditors and CMS.
  • ensure that all parties receive transparent data regarding review practices and appeal outcomes at each level of review.
  • require that CMS create new incentives to improve auditor accuracy.
  • create an independent Ombudsman for Medicare Reviews and Appeals to assist in resolving complaints by appellants and those considering appeal.
  • make needed reforms to and increase funding for the Medicare appeals process to address the appeals backlog and ensure timely reviews, without sacrificing quality.
  • raise the amount in controversy for review by an ALJ to match the amount for review by a District Court.
  • create a new Medicare magistrate program for cases with lower costs, allowing senior attorneys with expertise in Medicare law and policies to adjudicate cases in the same way as ALJs.
  • allow for the use of sampling and extrapolation, with the appellant’s consent, to expedite the appeals process.
  • establish a voluntary alternate dispute resolution process for multiple pending claims with similar issues to be settled as a unit, rather than as individual appeals.

 Improper overpayments represents between 8% and 10% of Medicare’s total spend annually, which is currently in excess of $600 billion, even under the constant threat of audit. With $60 billion in play and RACs receiving 9 to 12.5%  the corrected improper payment amounts as their fee, let’s hope that this legislation is enough to get this issue under control. The process places an undue financial burden on all affected and needs to be resolved.