Updates On the Medicare Appeals Backlog and New Opportunities in Medicare's Appeals Process

By Andrew B. Wachler and Erin Diesel Roumayah, The Health Lawyer, Volume 30, Number 5, June 2018

Providers and suppliers that bill Medicare may challenge a denial or reduction of a claim for Medicare reimbursement through a five-step administrative appeals process.¹ Congress designed this five-level appeals process to afford providers and suppliers (“appellants”) an opportunity for expedited review; however, due to an extreme backlog of appeals at the third level of appeal, appellants are now waiting well in excess of the statutorily established timeframe for a determination on appeal at this level of the appeals process.² Specifically, federal regulations impose a 90-day time limit for Administrative Law Judges (“ALJs”) to hear and decide appeals at the third level of the administrative appeals process.³ However, the Department of Health and Human Services (“HHS”) Office of Medicare Hearings and Appeals (“OMHA”), which administers the ALJ hearing program, recently released statistics reflecting that the average processing time frame for appeals at the third level of appeal has increased year after year since 2008 and most recently topped 1,216 days.⁴ Therefore, although appellants are entitled to a hearing and decision on their appeal within 90 days, they are waiting well over three years.

The delay in adjudication capacity is expected to continue for the foreseeable future. OMHA has advised that as of January 26, 2018, OMHA had 502,000 appeals pending, noting that this is down from over 880,000 appeals pending at the end of fiscal year (“FY”) 2015 due to prior initiatives to expedite appeal resolution (discussed below) and increased resources (such as additional ALJs) at the third level of appeal.⁵ However, the disposition capacity for OMHA in FY 2018 is estimated at 93,500 appeals. Therefore, OMHA has approximately 5.36 times as many appeals pending as can be decided in FY 2018. With these statistics in mind, appellants should be prepared for the adjudication delays to continue.

In response to these projections and pressure from the appellant community, the Centers for Medicare & Medicaid Services (“CMS”) and OMHA have released a number of newer initiatives in recent months as well as expanded previous initiatives to combat the backlog of appeals and improve efficiencies in the Medicare appeals process.⁶ These initiatives are welcome opportunities for Medicare providers and suppliers to achieve an alternative and expedited resolution to pending appeals as compared to the traditional Medicare appeals process.

On November 3, 2017 CMS announced two alternative resolution programs for eligible Medicare appellants: the expanded Settlement Conference Facilitation Program (“SCF”) and the Low Volume Appeals (“LVA”) Initiative. SCF and the LVA Initiative have complementary eligibility criteria that collectively have the opportunity to resolve nearly every Medicare Part A or Part B claim under $100,000 in billed charges that is pending at the ALJ or Medicare Appeals Council (“Council”) levels of the Medicare appeals process as of November 3, 2017. The Statistical Sampling Initiative (“SSI”) is a third alternative dispute resolution process available to Medicare Part A and Part B appellants with at least 250 eligible claims pending at the ALJ level of the appeals process. These are not mandatory programs, so their success in reducing the backlog and curtailing its growth depends entirely upon appellants’ voluntary participation. Because each of these programs provides an opportunity for an expedited resolution to large volumes of pending, eligible appeals, Medicare appellants that satisfy the eligibility criteria should consider participation in these programs, each of which is discussed in greater detail below.

SCF is an alternative dispute resolution process which applies mediation principles to allow Medicare Part A and Part B appellants to negotiate a lump sum settlement of eligible claims with CMS. If a settlement is reached, a settlement agreement is signed the day of the settlement conference and the settled claims are withdrawn and dismissed from the Medicare appeals process.

SCF was initially released in June 2014 and made available to Medicare Part B providers and suppliers.⁷ OMHA then expanded SCF in a “Phase II” program in the fall of 2015.⁸ In February 2016, OMHA expanded SCF to all Medicare Part A providers in a “Phase III” program.⁹ As of December 31, 2017, OMHA resolved 70,785 appeals through the various phases of the SCF program. Notably, this is the equivalent of almost an entire year’s disposition capacity for all of OMHA.¹⁰ Resolving nearly an entire year’s worth of appeals from the ALJ level of the appeals process frees up considerable resources for OMHA to adjudicate claims that are either not eligible for SCF or other resolution processes, or that appellants preferred to try at hearing.

CMS has published eligibility criteria for the expanded SCF, which include:

1. The appellant must be a Medicare provider or supplier that has been assigned a National Provider Identi- fier (“NPI”) (a unique identification number for healthcare providers who participate in Medicare);
2. The appeals involve request(s) for ALJ hearing or Council review filed on or before November 3, 2017 with at least 25 eligible appeals pending at OMHA and the Council combined; or with less than 25 eligible appeals pending at OMHA and the Council combined if at least one appeal has more than $9,000 in billed charges;
3. The request(s) for ALJ hearing and/or Council review must arise from a Medicare Part A or Part B Qualified Independent Contractor (“QIC”) reconsideration decision;¹¹
4. All jurisdictional requirements for OMHA or Council review were met for the eligible appeals;
5. The billed amount of each individual claim in an appeal must be $1,000,000 or less (for the purposes of an extrapolated statistical sample, the overpayment amount extrapolated from the universe of claims must be $1,000,000 or less);
6. The appellant cannot have filed for bankruptcy and/or expect to file for bankruptcy in the future;
7. Certain appellants that have or have had False Claims Act litigation or investigations pending against them, or other program integrity concerns, including pending civil, criminal, or administrative investigations will be ineligible;
8. The beneficiary must not have been found liable for the amount in controversy after the initial determination or participated in the reconsideration; and
9. The appeals must not involve payment disputes (i.e. the appellant was paid as billed but the appellant disputes that the paid amount is sufficient payment).¹²

The expanded SCF program is designed to resolve large volumes of claims at the ALJ or Council levels, or lower volumes of claims at the ALJ or Council levels with high billed charges. With such broad eligibility criteria, it is anticipated that many appellants will be eligible to participate in the SCF process. Additionally, appellants should note that under the newly expanded SCF, appeals that were eligible but not settled under the CMS Hospital Appeals Settlements (discussed below) will still be eligible for resolution.¹³ This is a significant departure from the prior SCF programs, in which appeals that were eligible for resolution under the CMS Hospital Appeals Settlements were ineligible for SCF regardless of whether the provider participated in the settlements.

CMS has identified on its website categories of appeals that are not eligible for the expanded SCF. For example, appeals of claims that involve unlisted, unspecified or miscellaneous healthcare codes are not eligible. Claims that are eligible for resolution under the LVA Initiative or other CMS settlement options made available on or after November 3, 2017, or appeals that are in OMHA’s SSI (discussed below) are also not eligible for the expanded SCF.¹⁴

Unlike prior versions of the SCF program, under the expanded SCF appellants with appealed claims that have billed amounts of $100,000 or less or an extrapolated overpayment that is $100,000 or less is eligible for a “fast track” resolution through an “SCF Express” settlement offer. Through the SCF Express process, CMS will offer appellants a non-negotiable settlement value on the appellant’s eligible claims. The SCF Express settlement offer will not be based off a medical review of the appellant’s eligible claims; however, appellants should expect that the SCF Express settlement offer will be based on preliminary data available to CMS regarding the appellant and its claims, such as the appellant’s track record of favorable findings before ALJ hearing and the Council, or the number or scope of prior audits initiated by CMS regarding the appellant. If an appellant rejects the SCF Express settlement offer, the appellant has the opportunity to continue to the SCF facilitation conference, discussed below, during which the appellant will have an opportunity to negotiate a settlement value with CMS.¹⁵

There are recommended best practices and strategies for participation in SCF. Prior to the facilitation, an OMHA facilitator will schedule a pre-facilitation conference to discuss the SCF process and set the date for the facilitation and schedule deadlines for the submission and exchange of any facilitation documents. Prior to the facilitation and likely after the pre-facilitation conference CMS will select a sample of claims. CMS will then review these claims and form an opinion on the strength of these claims prior to the facilitation. Appellants, therefore, should prepare a thorough evaluation of the sample claims through a comprehensive position paper with supporting documentary evidence and testimonial support. Appellants should also consider showcasing their major strengths, accolades and any unique considerations for CMS’ review. Appellants should then submit their position paper and comprehensive work-ups to CMS for its consideration. A thorough and strong posturing of the case prior to the facilitation can have a substantial impact on its success. Although at the facilitation there are no findings of fact or rulings of law, participants should be prepared to make an opening statement which highlights major issues and concepts for CMS’ consideration. Following opening statements, the facilitation then proceeds through private sessions with the OMHA facilitator, who acts as a neutral intermediary in facilitating a resolution between the appellant and CMS.

The voluntary and expedited nature of the SCF process should be attractive to Medicare appellants. If settlement is not reached, an appellant’s claims return to the ALJ appeals process in the order in which they were originally received. Although OMHA did not establish a firm time table for initiation and completion of the SCF process, a conservative estimate based on prior versions of this process is that the expanded process will take a minimum of 10 weeks from the date an appellant receives OMHA’s spreadsheet identifying eligible claims until the date of the facilitation. That is considerably faster than the Medicare traditional five-step appeals process that at recent estimates takes nearly 173 weeks at the ALJ level of appeal alone.

The LVA Initiative is offered as an alternative resolution to the SCF process. It is a settlement offer that is open to Medicare Part A and Part B appellants with eligible fee-for-service appeals pending in the administrative appeals process. CMS defined “low volume” as appellants with less than 500 appeals pending before the ALJ or Council levels of review combined.¹⁶ Eligible and participating appellants are permitted to withdraw pending, eligible appeals from the backlogged Medicare appeals process in exchange for a non-negotiable settlement sum as final resolution of the disputed appeals. Through the LVA Initiative, appellants are offered 62 percent of the net Medicare approved amount of their eligible claims.

The LVA Initiative is not the first settlement opportunity offered by CMS. Through two separate settlement opportunities, CMS previously offered to pay eligible hospitals 68 percent and then 66 percent of the net payable amount of their patient status claim denials in exchange for the hospitals’ acceptance of an administrative agreement as the full and final administrative and legal resolution of their claims.¹⁷ The prior settlements, known as the Hospital Appeals Settlements, were fairly restrictive on participant and claim eligibility. Specifically, they were limited to critical access hospitals and acute care hospitals, including those paid via the Prospective Payment System (“PPS”), Periodic Interim Payments (“PIP”), and Maryland waiver. Other hospitals and provider types were not eligible for participation, which left large volumes of backlogged claims in the Medicare appeals process. Additionally, the Hospital Appeals Settlements were limited to patient status claims with dates of admission prior to October 1, 2013. Despite these restrictions, the Hospital Appeals Settlements resolved approximately 346,000 claims from the backlogged Medicare appeals process through settlements with 2,022 hospitals, amounting to nearly $1.47 billion dollars paid to participating hospitals.¹⁸

Unlike the Hospital Appeals Settlements, the LVA Initiative has broader appellant eligibility criteria. All Medicare Part A and Part B providers and suppliers are eligible, so long as they have less than 500 eligible appeals pending at the ALJ and Council levels of appeal, combined, as noted above. Also, unlike the prior Hospital Appeals Settlements, which required that eligible claims have dates of service prior to October 1, 2013, the LVA Initiative contains no date of service restriction on eligible claims. CMS provided the following appeal eligibility criteria for the LVA Initiative:

1. The appeal was pending before the OMHA and/or Council level of appeal as of November 3, 2017;
2. The appeal has a total billed amount of $9,000 or less;
3. The appeal was properly and timely filed at the OMHA or Council level as of November 3, 2017;
4. The claims included in the appeal were denied by a Medicare contractor and remain in a fully denied status in the Medicare system;
5. The claims included in the appeal were submitted for payment under Medicare Part A or Part B;
6. The claims included in the appeal were not part of a statistical extrapolation;¹⁹ and
7. As of the date the LVA Settlement Agreement is fully executed, the appeal was still pending at the OMHA or Council level of review.²⁰

Although there are not significant strategic considerations for providers regarding how to participate in the LVA Initiative, given that it is a nonnegotiable settlement opportunity, there are practical considerations for appellants to consider while participating in the process. First, an appellant cannot choose to settle some eligible claims and not others. Rather, by participating in the LVA Initiative, an appellant agrees to settle all pending and eligible claims.²¹ Therefore, appellants that practiced an aggressive appeal philosophy in appealing all or nearly all of their denied claims stand to benefit from participation in the LVA Initiative as it offers a guaranteed payout sum on claims that otherwise may not have achieved favorable resolution before the ALJ or Council.

Secondly, as with the prior settlements, neither the appellant nor CMS make any admissions of fault or liability, and the claims settled will remain denied in CMS’ Common Working File.²² Therefore, by settling claims through the LVA Initiative, appellants may incur refund obligations to other payors due to coordination of benefit rules.²³ Further, in settling appeals through the LVA Initiative, appellants are entitled to a refund of any interest payments made to CMS during the pendency of the appeals process, and any interest that accrued on claims but was not paid as of the date of the settlement agreement will be adjusted to zero.²⁴

Lastly, appellants are instructed to consider the 62 percent settlement as payment in full on the resolved claims.²⁵ Therefore, participating appellants are not entitled to any 935 interest payment on claims resolved through the LVA Initiative. This type of interest derives its name from Section 935 of the 2003 Medicare Prescription Drug, Improvement and Modernization Act and requires CMS to pay interest to providers and suppliers in post-payment overpayment matters. According to CMS, as there was no finding of law or fact on appeals resolved through the Hospital Appeals Settlements, the LVA Initiative or SCF, appellants are not entitled to 935 interest under law. Therefore, under these alternative resolution programs no 935 interest payment can be made.

The LVA Initiative initially was released with two eligibility periods, depending on an appellant’s NPI number. For appellants with NPIs ending in an even number, the initial participation period ran from February 5, 2018 through March 9, 2018. For appellants with NPIs ending in an odd number, the LVA Initiative was open from March 12, 2018 through April 11, 2018. CMS created two separate participation timeframes, as it expected strong participation from the appellant community. On March 30, 2018, CMS announced that it was extending the deadline for appellants to participate to June 8, 2018. Appellants with either an odd or an even NPI that meet the eligibility criteria had between April 12, 2018 and June 8, 2018 to initiate participation in the program.²⁶

It is currently too soon to gauge the success of the LVA Initiative. However, given the program’s broad eligibility criteria for both appellants and appeals, it is expected that the LVA Initiative will make some impact on clearing the backlog and freeing adjudication resources for OMHA and the Council.

A third alternative to the traditional Medicare appeals process for Medicare appellants is OMHA’s SSI, which was announced in June 2017. The purpose of the SSI, like the SCF process, is to efficiently resolve large volumes of pending ALJ appeals. Unlike SCF, however, the SSI offers a consolidated ALJ hearing process with the use of statistical sampling and extrapolation. More specifically, an ALJ hearing is conducted on a random sample of an appellant’s pending and eligible ALJ appeals, and the ALJ’s determination on those sampled claims is then statistically extrapolated to all of the appellant’s pending and eligible claims.

The SSI was previously released as a pilot project in late 2014.²⁷ Due to the structure of the pilot, however, many appellants were hesitant to participate because only one ALJ was assigned to adjudicate the sampled claims, and that ALJ’s determination would then be extrapolated to all of the appellant’s pending and eligible claims. It has been estimated, however, that favorable rulings on appeal range among ALJs from 18 to 85 percent.²⁸ Therefore, for many appellants participation in the pilot was simply too risky.

OMHA addressed the risks of the pilot project when designing the new SSI by utilizing a panel of ALJs rather than a single ALJ. If a provider has 250 to 749 claims at issue, three ALJs are assigned to a panel and each ALJ will hear and decide one third of the sampled claims. If a provider has 750 claims or more, four to five ALJs are assigned to a panel and each ALJ will hear and decide one fourth to one fifth of the sampled claims. Although each ALJ on the panel will conduct his/her own hearing on his/her portion of the statistically sampled claims, the lead ALJ will combine the decisions from each hearing on the sampled claims and issue one decision, which OMHA’s statistical expert will extrapolate to the universe of claims.

The SSI has broad claim eligibility requirements: all jurisdictional requirements for an ALJ hearing have been met; the beneficiary was not found financially responsible for the overpayment after the initial determination nor participated in the QIC reconsideration;²⁹ the request for ALJ hearing appeals a QIC reconsideration decision; there is no outstanding request for SCF regarding the claim; and at least 250 claims are at issue per eligible claim category.

There are three eligible claim categories for the SSI: prepayment claim denials (in which a Medicare contractor reviews a claim for coverage prior to issuing payment on a claim); post-payment non-Recovery Audit Contractor (“RAC”) claim denials;³⁰ and post-payment RAC claim denials from one RAC. An appellant can meet the 250 claim minimum threshold for multiple claim categories, but each claim category must have at least 250 claims at issue. In the event that an appellant has multiple categories of at least 250 claims, a separate statistical sampling will be conducted on each category. With broader eligibility criteria and the use of an adjudication panel, OMHA indicated on its website that “[OMHA] hopes these changes make this program more attractive and that appellants actively consider participation in the program.”³¹

To participate in the SSI, an appellant can request participation through submission of an expression of interest form to CMS, or respond to an invitation to participate.³² Once the SSI is initiated, OMHA will assign a lead ALJ and schedule a prehearing conference, during which the SSI process and the use of statistics will be discussed. The ALJ will then issue a post conference order, which becomes binding 10 days after receipt should no objections be filed. Once the post conference order becomes binding, participation in the SSI is no longer voluntary.

Also, appellants should understand that by participating in the SSI they consent to the use of statistical extrapolation to resolve their pending, eligible appeals. However, appellants remain free to challenge the methodology by which the statistical sample is selected.³³ Therefore, appellants that are interested in participating in the SSI should consider retention of a statistical expert to evaluate the validity of the sample selection. Participating appellants should also consider retaining coding experts and/or medical necessity experts to challenge the denials of the sampled claims. Participants should additionally prepare a comprehensive position paper that discusses the merits and strengths of the sampled claims and challenges the sample selection if appropriate.

There are multiple benefits to participation in the SSI. First, it is a cost-effective option for appellants to achieve factual findings on their pending appeals. Second, the SSI makes it administratively feasible for appellants to try large volumes of cases. Also, by participating in the SSI, an appellant “jumps to the front of the line” for hearing, and will therefore achieve a faster resolution than remaining in the traditional appeals process.

The settlement programs and alternative dispute resolution opportunities discussed above accompany a variety of other reforms and initiatives announced by CMS and OMHA to meaningfully reduce the backlog and improve the efficiencies of the Medicare appeals process.

One such initiative is OMHA’s “QIC Formal Discussion Period,” launched as a pilot project on January 1, 2016 for durable medical equipment (“DME”) suppliers.³⁴ The purpose of this initiative is to open and encourage dialogue between appellants and the QIC at the reconsideration level of the Medicare appeals process, which traditionally is limited to a paper review only. In this process the QIC participates in voluntary telephone discussions with DME suppliers. The suppliers are given the opportunity to present the facts of their case and provide additional documentation to support the resolution of their appeal at this level of appeal. The concept behind this process is that an open dialogue promotes a more thorough review of the record than what traditionally occurs during a paper review process only. During this discussion period the QIC may also review reconsideration decisions pending with OMHA and identify cases that may be favorably resolved through reopening and discussions with the supplier. Through this initiative, OMHA announced that as of January 1, 2018, 26,567 appeals have been favorably resolved prior to reaching OMHA and 25,025 appeals have been remanded from OMHA for the QIC to reopen or favorably resolve the appeal.³⁵

A further step towards reduction of the appeals backlog and improvement of the Medicare appeals process is CMS’ final rule “Medicare Program: Changes to the Medicare Claims and Entitlement, Medicare Advantage Organization Determination, and Medicare Prescription Drug Coverage Determination Appeals Procedures,” (“Final Rule”) published January 17, 2017 and effective March 20, 2017.³⁶

The Final Rule promotes a threepronged approach to addressing the appeals backlog: (1) request new resources (additional ALJs, new OMHA field offices and utilization of attorney adjudicators) to invest at all levels of appeal to increase adjudication capacity and implement new strategies to alleviate the current backlog; (2) take administrative actions to reduce the number of pending appeals and implement new strategies (such as settlement programs and alternative dispute resolution processes) to alleviate the current backlog; and (3) propose legislative reforms that provide additional funding and new authorities to address the volume of appeals.³⁷ Certain major changes in the Final Rule include assigning precedential authority to selected Council decisions; approving the use of “attorney adjudicators” to effectuate withdrawals and dismissals at the ALJ level of appeal; restricting the opportunities for submission of new evidence at the ALJ level of appeal; and limiting the participation of CMS contractors in ALJ hearings to either CMS or a single CMS contractor unless the ALJ determines that broader participation is necessary for full examination of the issues. The Final Rule has the potential to both streamline the Medicare appeals process and help curtail the backlog of Medicare appeals.

In today’s appeals climate, Medicare providers and suppliers have a variety of alternative dispute resolution options at their disposal. SCF, the LVA Initiative, the SSI and the DME QIC Formal Discussion Period all promote the efficient use of judicial and appellant resources and encourage expedited resolution opportunities. Additionally, in the coming months and years appellants may begin to enjoy the new efficiencies and improvements to the appeals process through the recently published Final Rule. For example, assigning precedential authority to selected Council decisions should improve predictability and consistency in decision making for the benefit of both adjudicators and appellants. The initiatives and the Final Rule exhibit strong potential to make a meaningful impact in reducing the volume of appeals caught in the backlog, while curbing the growth of new appeals.

However, appellants should expect that just as there are multiple contributing factors for the formation of the backlog (such as more Medicare beneficiaries, more aggressive audit activity by Medicare contractors, increased claim denials and low rates of overturned appeals at the lower-levels of the Medicare appeals process), there is a need for multiple resolutions to address and eliminate the backlog. Therefore, until OMHA or CMS announce that the growth of the appeals backlog has slowed or plateaued, appellants should continue to expect the release of additional and expanded alternative dispute resolution processes in the future and continually evaluate and assess their pending appeals for eligibility in these programs.