oversight

Medicare Appeals: Disparity between Requirements and Responsible Agencies' Capabilities

Published by the Government Accountability Office on 2003-09-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Committee on Energy and
                 Commerce, House of Representatives



September 2003
                 MEDICARE APPEALS
                 Disparity between
                 Requirements and
                 Responsible Agencies’
                 Capabilities




GAO-03-841 

                                                September 2003


                                                MEDICARE APPEALS

                                                Disparity between Requirements and
Highlights of GAO-03-841, a report to the
Committee on Energy and Commerce,
                                                Responsible Agencies’ Capabilities
House of Representatives




Appellants and others have been                 BIPA demands a level of performance, especially regarding timeliness, that
concerned about the length of time              the appeals bodies—the contract insurance carriers responsible for the first
it takes for a decision on the appeal           two levels of appeals, the Social Security Administration’s (SSA) Office of
of a denied Medicare claim. In
                                                Hearings and Appeals (OHA), and the Department of Health and Human
December 2000, the Medicare,
Medicaid, and SCHIP Benefits                    Services (HHS) Medicare Appeals Council (MAC)—have not demonstrated
Improvement and Protection Act of               they can meet. While the carriers have generally met their pre-BIPA time
2000 (BIPA), required, among other              requirements, in fiscal year 2001, they completed only 43 percent of first
things, shorter decision time                   level appeals within BIPA’s 30-day time frame. In addition to average
frames. BIPA’s provisions related               processing times more than four times longer than that required by BIPA,
to Medicare appeals were to be                  OHA and the MAC—the two highest levels of appeal—have accumulated
applied to claims denied after                  sizable backlogs of unresolved cases. Delays in administrative processing
October 1, 2002, but many of the                due to inefficiencies and incompatibility of their data systems constitute 70
changes have not yet been                       percent of the time spent processing appeals at the OHA and MAC levels.
implemented. GAO was asked to
evaluate whether the current
Medicare appeals process is                     Average Time Spent in Each Stage of Processing for Cases Adjudicated by OHA and the
                                                MAC in Fiscal Year 2001
operating consistent with BIPA’s
requirements and to identify any                                                 Office of Hearings and Appeals
barriers to meeting the law’s
requirements.                                                                                                          Legal analysis
                                                                                 Administrative processing             and adjudication



                                                                                       7 months           3 months        4 months
GAO recommends that the
Secretary of HHS and the                                           Appellant                      Case materials    Case          Appeals
Commissioner of SSA more closely                                    submits                        received by    materials      body issues
coordinate their efforts to improve                               request for                     local hearing  assigned to      decision
                                                                    review                            office     legal staff
administrative processing, develop
strategies for reducing the backlog
of pending cases, and establish                                                        Medicare Appeals Council
data requirements to facilitate the
successful implementation of                                                                                                         Legal analysis
BIPA’s mandated changes. HHS                                                     Administrative processing                           and adjudication
and SSA agreed that inefficiencies
in the appeals process require
attention and that the process                           3 months           3 months                   11 months                          4 months
would benefit from better
                                                  Appellant      The MAC           Case                                           Case           Appeals
coordination.                                      submits       requests        materials                                      materials       body issues
                                                 request for     case files      received                                      assigned to       decision
                                                   review                                                                      legal staff
                                                Sources: OHA and the MAC.



                                                The appeals bodies are housed in two different agencies—HHS and SSA.
                                                The lack of a single entity to set priorities and address operational
                                                problems—such as incompatible data and administrative systems—at all
www.gao.gov/cgi-bin/getrpt?GAO-03-841.          four levels of the process has precluded successful management of the
To view the full product, including the scope   appeals system as a whole. Uncertainty about funding and a possible transfer
and methodology, click on the link above.       of OHA’s Medicare appeals workload from OHA to HHS has also complicated
For more information, contact Leslie G.
Aronovitz at (312) 220-7600.
                                                the appeals bodies’ ability to adequately plan for the future.
Contents 



Letter                                                                                   1
                Results in Brief 
                                                       2
                Background
                                                              3
                Appeals Process Operations Inconsistent with BIPA’s 

                  Requirements                                                           9
                Appeals Bodies’ Lack of Coordination and Resources Is a Barrier to
                  BIPA Implementation                                                  14
                Conclusions                                                            20
                Recommendations for Executive Action                                   21
                Agency Comments and Our Evaluation                                     21

Appendix I      Scope and Methodology                                                   25



Appendix II 	   The Scope of Part B Claims Rejections, Denials,
                and Appeals                                                             28



Appendix III    Changes Mandated by Section 521 of BIPA                                 31



Appendix IV 	   Comments from the Department of Health and
                Human Services                                                          33



Appendix V      Comments from the Social Security Administration                        40



Appendix VI     GAO Contact and Staff Acknowledgments                                   45
                GAO Contact                                                            45
                Acknowledgments                                                        45




                Page i                                         GAO-03-841 Medicare Appeals
Tables
          Table 1: Reason for Denials of Initial Medicare Part B Claims in 

                   Fiscal Year 2001                                                 29

          Table 2: Growth in Part B Appeals Cases Submitted by Appeal 

                   Level from Fiscal Year 1996 through Fiscal Year 2001              30



Figures
          Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-

                   Mandated Appeals Process                                           6

          Figure 2: Average Time Spent in Each Stage of Processing for 

                   Cases Adjudicated by OHA and the MAC in Fiscal Year 

                   2001                                                             12





          Page ii                                           GAO-03-841 Medicare Appeals
Abbreviations

ALJ               administrative law judge

BIPA              The Medicare, Medicaid, and SCHIP Benefits Improvement 

                  and Protection Act of 2000
CMS               Centers for Medicare & Medicaid Services
CROWD             Contractor Reporting of Operational and Workload Data
DAB               Departmental Appeals Board
HCFA              Health Care Financing Administration
HHS               Department of Health and Human Services
LCD               local coverage determination
LMRP              local medical review policy
MAC               Medicare Appeals Council
MOU               memorandum of understanding
NCD               national coverage determination
OHA               Office of Hearings and Appeals
QIC               qualified independent contractor
SOW               statement of work
SSA               Social Security Administration



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Page iii                                                   GAO-03-841 Medicare Appeals
United States General Accounting Office
Washington, DC 20548




                                   September 29, 2003 


                                   The Honorable W.J. “Billy” Tauzin 

                                   Chairman 

                                   The Honorable John D. Dingell 

                                   Ranking Minority Member 

                                   Committee on Energy and Commerce 

                                   House of Representatives 


                                   In fiscal year 2002, Medicare—the nation’s largest health insurer—paid 

                                   over $200 billion to provide medical care to 40 million elderly and disabled 

                                   beneficiaries. The Centers for Medicare & Medicaid Services (CMS),1 an 

                                   agency within the Department of Health and Human Services (HHS), 

                                   administers the Medicare program with the help of about 50 claims 

                                   administration contractors. Among other things, CMS is charged with 

                                   protecting the program by identifying and denying health care claims that

                                   are invalid, incomplete, or otherwise appear to be improper. Beneficiaries 

                                   and providers2 may pursue the payment of denied claims through a 

                                   multilevel administrative appeals process. The entities—or appeals 

                                   bodies—that constitute the process include the Social Security 

                                   Administration (SSA) and HHS’s Departmental Appeals Board (DAB), in 

                                   addition to CMS. In fiscal year 2001, 3.7 million Part B3 appeals were 

                                   submitted to the first level in the process. 


                                   In recent years, there has been widespread concern about the length of 

                                   time it takes the appeals bodies to render decisions. In December 2000, the 

                                   Congress enacted the Medicare, Medicaid, and SCHIP Benefits 

                                   Improvement and Protection Act of 2000 (BIPA). Section 521 of BIPA 

                                   amended section 1869 of the Social Security Act by mandating shorter 




                                   1
                                    On June 14, 2001, the Secretary of Health and Human Services announced that the name of
                                   the Health Care Financing Administration (HCFA) had been changed to the Centers for
                                   Medicare & Medicaid Services. In this report, we will refer to HCFA where our findings
                                   apply to operations that took place under that organizational structure and name.
                                   2
                                    For the purposes of this report, the term “provider” refers to any nonbeneficiary appellant,
                                   including physicians and other suppliers.
                                   3
                                    Medicare fee-for-service consists of two parts—A and B. Part A claims cover inpatient
                                   hospital, skilled nursing facility, hospice, and certain home health services. Part B claims
                                   cover physician services, diagnostic tests, and related services and supplies.



                                   Page 1                                                        GAO-03-841 Medicare Appeals
                     time frames and expedited procedures for processing Medicare appeals.4 It
                     also added the requirement that the Secretary of HHS report on the
                     number of appealed claims and consistency of appeals decisions. The
                     provisions were to be applied to claims denied on or after October 1, 2002.

                     Concerned about the appeals bodies’ ability to implement BIPA’s
                     provisions, you asked that we conduct an assessment of the Medicare
                     appeals process. Specifically, we examined whether (1) the current
                     appeals process is operating consistent with BIPA’s requirements and (2)
                     there are any barriers in meeting the law’s requirements.

                     Because the majority of appeals are related to the denial of Part B claims,
                     we limited our work to assessing the appeals process for these claims. We
                     reviewed statutes, regulations, policies, and other documentation related
                     to the four levels of the administrative appeals process, including Part B
                     carriers,5 which conduct the first two levels of appeal; the Office of
                     Hearings and Appeals (OHA) within SSA, which hears the third level of
                     appeals; and the Medicare Appeals Council (MAC) within HHS’s DAB,
                     which reviews OHA’s decisions. To assess the conditions present at the
                     time BIPA was passed, we analyzed fiscal year 2001 appeals processing
                     data. We subsequently reviewed more current data and confirmed that the
                     conditions were relatively unchanged. We interviewed officials from CMS,
                     OHA, and the MAC to discuss the management of the appeals process and
                     the implementation of BIPA requirements. We conducted our work from
                     November 2001 through September 2003, in accordance with generally
                     accepted government auditing standards. (See app. I for more information
                     on our scope and methodology.)


                     The appeals bodies are not currently performing at the level that would
Results in Brief 	   enable them to meet BIPA’s more rigorous timeliness requirements. Their
                     performance is far from meeting BIPA requirements with the two higher
                     levels of appeal taking, on average, more than four times the amount of
                     time BIPA requires to complete an appeal. In addition, both OHA and the
                     MAC face large backlogs of pending appeals because they have been
                     unable to routinely resolve all of the appeals that they receive. Long-


                     4
                      Pub. L. No. 106-554, app. F, 114 Stat. 2763, 2763A-534 (codified at 42 U.S.C. § 1395ff
                     (2000)).
                     5
                      Medicare contractors that process Part A claims are called fiscal intermediaries, while
                     those that process Part B claims are called carriers.




                     Page 2                                                        GAO-03-841 Medicare Appeals
               standing administrative problems among the appeals bodies, such as time-
               consuming transfers of paper appeals files and delays caused by outdated
               technology, which account for about 70 percent of the time spent in
               processing appeals at OHA and the MAC, have not been corrected. BIPA’s
               provision allowing appellants the right to bypass appeals bodies that do
               not resolve their appeals within prescribed time frames by elevating them
               to the next level may only shift processing delays to the higher appeals
               bodies. The combined effect of these factors has prevented the appeals
               bodies from attaining the level of performance BIPA demands.

               The appeals bodies face several barriers to the successful implementation
               of BIPA. Because appeals bodies are housed in different agencies, the
               coordination among them is inherently difficult. Each agency has its own
               priorities and, although officials from the appeals bodies worked together
               to develop a proposed rule for the implementation of BIPA, they have not
               coordinated their BIPA implementation strategy. The lack of adequate data
               to pinpoint weaknesses in the appeals process and enable informed
               decision-making has further hindered BIPA’s implementation. And,
               although some of the appeals bodies are planning to obtain or have
               implemented new data management systems, they have not coordinated
               with their counterparts to ensure compatibility of the systems across
               agencies. Uncertainty about funding and a possible transfer of the OHA’s
               Medicare appeals workload from OHA to HHS has also complicated the
               appeals bodies’ ability to adequately plan for the future.

               We are recommending that the Secretary of HHS and the Commissioner of
               SSA more closely coordinate their efforts to improve administrative
               processing, develop strategies for reducing the backlog of pending cases,
               and establish data requirements to facilitate the successful implementation
               of BIPA’s mandated changes. HHS and SSA agreed that inefficiencies in
               the appeals process require attention and that the process would benefit
               from better coordination.


               Providers and beneficiaries may appeal any denied claim. Claims are
Background 	   denied for a variety of reasons. In fiscal year 2001, the most common
               reason for denying claims was that the services provided were determined
               not to have been medically necessary for the beneficiaries. Other reasons
               for denials include that Medicare did not cover the services, or that the
               beneficiary was not eligible for services. Claims that do not meet the




               Page 3                                           GAO-03-841 Medicare Appeals
requirements outlined in Medicare statutes and federal regulations may be
denied.6 In addition, denials may be issued for claims that are inconsistent
with CMS’s national coverage determinations (NCD) and carrier-based
policies, including local medical review policies (LMRP), local coverage
determinations (LCD), and other carrier instructions.7 Relatively few
denied claims are ever appealed, and only a small fraction is appealed to
the highest level. (App. II contains more information regarding the denial
of claims, including common reasons for denials.)

The Medicare Part B appeals process consists of four levels of
administrative appeals performed by three appeals bodies. Medicare
carriers are responsible for the first two levels of appeal—the carrier
review8 and the carrier hearing. Through a memorandum of understanding
(MOU) implemented in March 1995—when SSA was separated from HHS
and became an independent agency—OHA’s administrative law judges
(ALJ) within SSA continue to hear the third level of appeal. OHA’s
continued role in Medicare appeals is uncertain, as SSA officials have
indicated that they plan to discontinue adjudicating Medicare appeals and
expect to transfer the workload to HHS. However, until an agreement
between SSA and HHS is reached, OHA will continue to adjudicate
Medicare appeals. The MAC adjudicates appeals at the fourth level of the
administrative appeals process. In addition, appellants who have had their
appeals denied at all four levels of the administrative appeals process have
the option of filing their appeals in federal court.

Section 521 of BIPA requires numerous administrative and structural
changes to the appeals process, including moving the second level of
appeals—the carrier hearing—from the Medicare carriers to a group of



6
 The Medicare program is governed by title XVIII of the Social Security Act, 42 U.S.C. §§
1395 et seq. (2000), and related regulations, 42 C.F.R. pts. 400-425 (2002).
7
 NCDs are developed by CMS to describe the circumstances for Medicare coverage for a
specific medical service, procedure, or device. All Medicare carriers must observe NCDs in
determining if a claim is payable; appeals bodies at all levels must apply NCDs when
adjudicating appeals. LMRPs and LCDs, developed by contractors, specify the clinical
circumstances under which a service is covered to enhance or clarify national Medicare
guidance. Due to carrier-based policies, services covered by Medicare in one area may not
be covered in another area served by a different carrier. For more information on Medicare
coverage policy, see U.S. General Accounting Office, Medicare: Divided Authority for
Policies on Coverage of Procedures and Devices Results in Inequities, GAO-03-175
(Washington, D.C.: Apr. 11, 2003).
8
BIPA refers to the carrier review level as the “redetermination.”




Page 4                                                      GAO-03-841 Medicare Appeals
yet-to-be-established contractors, known as qualified independent
contractors (QIC). Figure 1 outlines the steps of the existing appeals
process and the process BIPA requires. BIPA’s changes to the appeals
process were to apply with respect to initial determinations—that is,
claims denials—made on or after October 1, 2002. Although CMS
published a rule9 on October 7, 2002, the ruling implemented only two of
BIPA’s provisions—revising the deadline for filing an appeal to the carrier
review level and reducing the dollar threshold for filing an appeal at the
                          th
OHA level. The October 7 rule outlines the criteria used to select the
changes that would be immediately implemented; among the criteria is
that the provision can be implemented using existing CMS resources. CMS
published a proposed rule for complete implementation of BIPA-mandated
changes on November 15, 2002,10 but the final rule has not been issued. As
of June 2003, the appeals process is generally operating in accordance
with regulations established prior to BIPA’s passage. (See app. III for a
comprehensive list of BIPA’s changes.)




9
67 Fed. Reg. 62,478.
10
    67 Fed. Reg. 69,312.




Page 5                                           GAO-03-841 Medicare Appeals
Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-Mandated Appeals Process

                                                 Pre-BIPA                                      BIPA-mandated                                Oversight/agencies
                                              appeals process                                  appeals process
                                                        Initial claim                                  Initial claim
                                                       determination                                  determination
                                                          45 days                                        45 days



                                                   180 days/any dollar                           120 days/any dollar
                                                        amount                                        amount                      CMS oversees the carriers who perform
 First level of                                                                                                                     - intitial claim determinations and
 administrative                                                                                                                     - the carrier appeals functions
                                                       Carrier review                                 Carrier review
                                                         45 days                                        30 days
                                                                                                                                      (hearing and review).
 appeal


                                                    180 days/$100                                180 days/any dollar
                                                                                                      amount
 Second level of                                                                                                                  BIPA requires that the Secretary of HHS
 administrative                                                                                                                   contract with QICs for the new
                                                      Carrier hearing                             QIC reconsideration
 appeal                                                 120 days
                                                                                                                                  second-level review.
                                                                                                        30 days



                                                     60 days/$500                                    60 days/$100
 Third level of                                                                                                                    SSA oversees OHA.
 administrative
 appeal                                              OHA no time limit                                OHA 90 days



                                                   60 days/any dollar                            60 days/any dollar
                                                        amount                                        amount
 Fourth level of                                                                                                                  HHS (but not CMS) oversees the MAC.
 administrative
                                                     The MAC no time
 appeal                                                                                             The MAC 90 days
                                                          limit



                                                    60 days/$1,000                                 60 days/$1,000

 Judicial appeal
 (Courts are independent and                        Federal district court
 not part of the administrative
                                                                                                   Federal district court
                                                       no time limit                                  no time limit
 appeals process.)


                                                                             Time allowed for Medicare or the appeals bodies to issue a decision

                                                                             Time allowed for appellant to request an appeal/dollar threshold required to file appeal
Sources: CMS, BIPA, and 20 CFR 422.210 § (2002).



                                                               Beneficiaries and providers have the right to appeal denied claims if
                                                               appeals are filed within the deadline. CMS’s October 2002 ruling
                                                               implemented the BIPA-mandated deadline for filing an appeal at the


                                                               Page 6                                                                            GAO-03-841 Medicare Appeals
carrier review level, shortening it from 180 to 120 days—one of two BIPA
provisions implemented thus far. Appeals at the carrier hearing level must
be submitted within 180 days of the denial or unfavorable determination.
Appellants who are dissatisfied with decisions reached at the carrier
hearing level may appeal to OHA and then to the MAC, and their appeals
must be filed within 60 days of receiving an unfavorable determination at
the previous level.

There is no dollar minimum required to file an appeal at the carrier review
level. However, an appeal at the carrier hearing and OHA levels must meet
specific dollar thresholds of $100 and $500, respectively. To meet the
thresholds, multiple denied claims may be aggregated into a single appeals
“case.” The MAC does not have a dollar threshold for considering appeals.
Finally, appellants who receive unfavorable determinations from the MAC
may appeal the decisions in federal court if the amount in dispute is at
least $1,000. BIPA provisions change the threshold amounts at the second
level of appeal and OHA. When QICs replace carrier hearings as the
second level of appeal, the dollar threshold for submitting an appeal at
that level will be eliminated. Further, CMS’s October 2002 ruling
implemented BIPA’s reduced dollar threshold for filing an appeal at
OHA—the second of two BIPA provisions to be implemented thus far—by
dropping the threshold from $500 to $100.

BIPA also shortened the time frames the appeals bodies have for
adjudicating appeals at the first two levels and established time frames for
the first time at the higher levels. BIPA’s provisions that revise the
timelines for processing appeals have not been implemented, and the
appeals bodies are following previously issued performance standards
specifying that 95 percent of carrier reviews be completed within 45 days
and 90 percent of carrier hearings be completed within 120 days. BIPA
required that carrier reviews be completed in 30 days and that the QICs
issue their decisions in 30 days. While OHA and the MAC have not
previously been bound by time limits, BIPA required that they issue
decisions within 90 days of the date an appeal was filed.11 BIPA also gave
appellants the right to escalate their appeals to the next level in the
process for adjudication when a decision is not issued within the specified
time frame. Escalation is available from any level of appeal except the
first—carrier review. However, CMS’s November 2002 proposed rule
regarding BIPA’s implementation provides that appellants who escalate


11
 OHA and MAC time limits may be waived at the appellant’s request.




Page 7                                                   GAO-03-841 Medicare Appeals
their appeals to the next level will, in essence, be waiving their right to a
decision within the statutory time frame governing that level. For example,
an appeal that is escalated from the OHA to the MAC would not be subject
to the 90-day limit that applies to appeals received by the MAC that have
not been escalated.

The first three levels of appeal share a protocol for adjudication, called de
novo review, which permits adjudicators to consider results from earlier
decisions but requires them to independently evaluate evidence and issue
original decisions. The appeals bodies reexamine the initial claim to
determine if it should be paid and consider any new documentation or
information supporting the claim that the appellant submitted. The fourth
level of review, the MAC, does not share this protocol. Rather than
performing de novo review of evidence, it evaluates the appropriateness of
OHA decisions and considers whether new evidence submitted will alter
the decision. BIPA changes require that the MAC performs de novo review
in all cases.

The appeals bodies reach decisions through either a review of the file for
the initial claim or through hearings. At the first level of appeal, a carrier
review officer who was not involved in the initial denial reexamines the
initial claim and any new supporting documentation provided by the
appellant but does not conduct a hearing. The second level of appeal—the
carrier hearing—provides the appellant with an opportunity to participate
in a hearing at the carrier’s facility or by telephone. OHA conducts
hearings at the third level of review. OHA’s hearings are held at its central
office in Falls Church, Virginia, or at one of its 140 local hearing offices
nationwide. The MAC’s adjudication is based on a review of OHA’s
decisions, and it does not conduct hearings.

Appeals bodies have several options when deciding a case. The case may
be decided fully or partially in favor of the appellant and payment awarded
for all or part of the claim or claims in dispute. Alternatively, the decision
may be unfavorable to the appellant and the initial denial of payment
upheld. The MAC has an additional option of remanding the appeal—
returning it to the OHA judge who issued the original decision—for a
variety of reasons. For example, the MAC may determine that more
evidence is needed, additional action by OHA is warranted, or that OHA
should issue a modified decision based on the MAC’s instructions. Finally,
the MAC may deny an appellant’s request for review if it finds that OHA’s
decision is factually and legally adequate.




Page 8                                             GAO-03-841 Medicare Appeals
                            In making a determination regarding whether the claim is payable or will
                            continue to be denied, the first two levels of appeal are bound by the same
                            guidance used in the initial denial determination—Medicare statutes,
                            federal regulations, CMS’s NCDs, the carrier’s own LMRPs and LCDs, and,
                            pursuant to carrier’s contracts with CMS, CMS’s general instructions, such
                            as manuals and program memoranda. The statutes, regulations, and NCDs
                            also bind OHA and the MAC—and the QICs, when they are established.
                            But QICs, OHA, and the MAC only need to consider—rather than
                            definitively follow—the carrier-based LMRPs and LCDs in rendering their
                            decisions.

                            Management of the Medicare appeals process is currently divided among
                            CMS, SSA, and the MAC. CMS is charged with establishing procedures for
                            carriers to follow in considering appeals—including developing guidelines
                            for timeliness and quality of communications with the appellant—and is
                            also responsible for ensuring that the carrier review and carrier hearing
                            processes comply with statutory and regulatory requirements. SSA
                            establishes its own requirements and procedures, with input from CMS,
                            for OHA’s review of third-level appeals. CMS reimburses OHA for its
                            appeals work. The MAC independently establishes its own procedures and
                            guidelines for completing Medicare appeals.


                            Carriers generally meet CMS’s existing time frames for processing appeals,
Appeals Process             but all appeals bodies—the carriers, OHA, and the MAC—fall far short of
Operations                  meeting BIPA’s time frames. The large backlog of pending cases at OHA
                            and the MAC, combined with BIPA’s escalation provision and the
Inconsistent with           requirement for de novo review at the MAC, will demand a level of
BIPA’s Requirements         performance that the appeals bodies have not demonstrated they can
                            meet. Administrative delays, caused by inefficiencies such as difficulties in
                            transferring and locating files and outdated technology, constitute a large
                            portion of time spent in the appeals process—especially at OHA and the
                            MAC. QICs have not yet been implemented and there is insufficient
                            information to predict their ability to meet BIPA’s performance measures.


Appeals Bodies’ Current     There is a substantial gap between carriers’ current performance and that
Performance Is Far from     required by BIPA’s standards. For example, at the first level of appeals—
Meeting BIPA’s Timeliness   the carrier review—while carriers completed about 91 percent of their
                            reviews within CMS’s current 45-day time frame, this is insufficient by
Standards                   BIPA’s standards. Only about 43 percent of the carrier reviews completed
                            in fiscal year 2001 met BIPA’s mandated 30-day deadline. At the carrier
                            hearing level—eventually to be replaced by the appeals to the QICs—the


                            Page 9                                            GAO-03-841 Medicare Appeals
ability to meet BIPA’s time frames remains largely unanswered because
the QICs have not yet been established. Although the carriers exceeded
CMS’s performance standards in fiscal year 2001 by completing more than
90 percent of the carrier hearings within 120 days, this standard is much
less stringent than the one imposed by BIPA, which requires the QICs to
complete all appeals within 30 days.

Similarly, OHA and the MAC fall far short of BIPA’s required 90-day time
frame for completing 100 percent of their cases. For example, in fiscal year
2001, OHA took an average of 14 months from the date an appeal was filed
to complete adjudication. The MAC took even longer to process appeals
during the same year, with cases taking an average of 21 months to
adjudicate. As of September 2003, OHA and the MAC had not implemented
BIPA-mandated time frames and continued to operate without time frames
for rendering decisions. Although officials at both appeals bodies told us
that they are concerned with meeting BIPA time frames, neither body has
developed strategies for doing so. Instead, the officials stated that they
would take action once regulations implementing BIPA are finalized and
they are more certain how the new regulations will affect them.

Existing backlogs of unprocessed cases may also interfere with the
appeals bodies’ compliance with BIPA’s mandated time frames for appeals
of claims denied after October 2002. While backlogs at the carrier review
and carrier hearing levels are relatively small,12 OHA and the MAC have
been unable to meet workload demands. For example, OHA’s backlog at
the end of fiscal year 2001 included nearly 35,000 Part B cases—equal to
about the average number of cases processed in 7 months. At the end of
that same year, the MAC had a backlog of 15,000 cases—twice the number
of cases it adjudicated in 2001. The MAC has been making strides to
improve its efficiency and, near the end of fiscal year 2003, reported
reducing its backlog to 10,100 cases. According to OHA and MAC
representatives, BIPA-governed cases—appeals of claims denied after
October 1, 2002—will have higher priority than cases filed earlier, virtually
ensuring that pre-BIPA cases experience even longer delays. However, as
of July 2003, none of the appeals bodies had determined how they would
prioritize the processing of BIPA appeals while completing their pre-BIPA
workloads.



12
  At the end of fiscal year 2001, the backlog of cases past their pre-BIPA deadline at both
the carrier review and carrier hearing levels was about the average number carriers
process in a single month.




Page 10                                                      GAO-03-841 Medicare Appeals
                            At OHA, protocols for assigning appeals to ALJs may contribute to delays.
                            Although OHA plays a critical role in resolving Medicare appeals, its
                            primary focus is disability appeals for SSA, which constitute 85 percent of
                            its total caseload. While they are a smaller workload, Medicare appeals are
                            often more complex than disability appeals. Some local OHA hearing
                            offices take advantage of their ALJs’ Medicare expertise by assigning all
                            Medicare cases to a single judge. However, other offices assign cases
                            randomly, requiring judges to refamiliarize themselves with basic
                            Medicare statutes each time they hear a Medicare case—potentially
                            prolonging the process.

                            While all of the appeals bodies are subject to BIPA’s processing time
                            frames, the MAC is uniquely challenged in meeting these deadlines
                            because the requirement for de novo review expands the scope of the
                            MAC’s work. MAC officials pointed out that shifting from ensuring that
                            OHA interprets policy correctly to becoming a fact-finding body requires a
                            substantial amount of additional resources and more time to gather and
                            evaluate evidence. MAC officials report that they do not have a strategy to
                            address the expansion in the scope of their work and the contraction in
                            time to render decisions.


Delays in Administrative    The bulk of time at OHA and the MAC is spent on assembling files and
Processing at OHA and the   completing other administrative tasks rather than in performing legal
MAC Further Suggest         analyses of appeals and adjudicating cases. Each agency takes more than a
                            year, on average, to complete an appeal. For example, OHA spent 14
BIPA’s Time Frames Will     months, on average, to complete a case in fiscal year 200113 and an average
Not Be Met                  of 10 months of that was consumed obtaining case files from the lower
                            level appeals bodies and performing related processing tasks. In that same
                            year, the MAC adjudicated nearly 7,100 Part B cases and spent about 17
                            months, on average, performing administrative tasks. As shown in figure 2,
                            on average, over 70 percent of the time to resolve OHA and MAC cases
                            was spent on administrative activities, rather than on substantive legal
                            analysis of the appeals.




                            13
                             OHA completed more than 56,300 Part B cases in fiscal year 2001.




                            Page 11                                                   GAO-03-841 Medicare Appeals
Figure 2: Average Time Spent in Each Stage of Processing for Cases Adjudicated by OHA and the MAC in Fiscal Year 2001




                                        Officials from both OHA and the MAC report that it may take months to
                                        receive appellants’ case files from the previous level of review or the
                                        appropriate storage facility. Case files—which are all paper documents—
                                        are a critical component of the adjudication process as they contain all
                                        evidence submitted by the appellant in previous appeals. The MAC, in
                                        particular, requires OHA’s case files to assess the evidence, the hearing
                                        tapes, and the letter of decision so that it may determine whether OHA’s
                                        decision was appropriate.




                                        Page 12                                             GAO-03-841 Medicare Appeals
OHA and the MAC are dependent on the Medicare carriers to forward the
appropriate files to their hearing offices for review. CMS allows carriers 21
to 45 days to forward case files to OHA, depending on the number of
appellants and dollar value of the case. However, locating files is further
complicated by the fact that appellants are required to include little
information in their appeal requests. Therefore, OHA and the MAC may
receive appeals that do not identify the carrier that originally denied the
claim. Locating files can also be hindered if the appeal has been in process
for several years and the carrier that initially denied the claim is no longer
a Medicare contractor. Although the defunct carrier should have
transferred all of its files, including its appeals records, to the replacement
carrier, such transitions are not always smooth. Instead, files are often
difficult to locate, causing delays in forwarding specific requested cases.

The MAC faces an additional challenge in locating case files. OHA-
completed cases are routed to a special clearinghouse contractor for
temporary storage. If OHA determines that the appellant is due a full or
partial payment, the clearinghouse returns the files to the carrier that
initially denied the claim so that payment may be processed. If OHA
continues to deny payment, the clearinghouse holds the accompanying file
for 120 days to expedite the MAC’s retrieval should the appellant continue
to appeal. However, the MAC may not know whether to approach the
clearinghouse contractor or the relevant carrier to request needed files.
And, like the carriers, the clearinghouse does not always provide files in a
timely manner. In fiscal year 2001, the MAC waited an average of nearly 3
months—the entire time allowed for the MAC to adjudicate appeals under
the BIPA amendments—to receive case files. The MAC, which is
empowered to remand, or return, cases to OHA when there is insufficient
information in the existing record to issue a decision, in fiscal year 2001
remanded 1,708 cases—nearly a quarter of the cases it adjudicated that
year—to OHA because needed files were either missing or incomplete.
Although CMS has not performed a comprehensive evaluation of the
clearinghouse’s accuracy in routing appeals files, it recently determined
that the clearinghouse had a 10 percent error rate in routing case files to
particular carriers for payment.

Inadequate technology and the need for manual processing also indicate
that the appeals bodies are not prepared to address BIPA’s requirements.
For example, providers often aggregate groups of claims for different
beneficiaries to meet the dollar threshold for filing an OHA appeal. To
maintain beneficiary confidentiality, a separate electronic file—containing
the same provider information—is created for each beneficiary. While
widely available technology allows the creation of multiple data files by


Page 13                                            GAO-03-841 Medicare Appeals
                         entering the information one time and then quickly duplicating it, OHA’s
                         system requires administrative staff to separately enter repetitive
                         information pertaining to each denied claim that constitutes the appeal.
                         For example, if a provider is appealing a similar group of claims in a single
                         appeal, OHA must nonetheless create a separate case file and data record
                         for each beneficiary.

                         BIPA provides that appellants may escalate their appeals from the QIC or
                         OHA to the next level in the administrative appeals process when it is not
                         resolved within the time frames mandated. MAC cases not meeting the
                         time frame may be escalated to the federal district court. More than 95
                         percent of OHA appeals and about 85 percent of MAC appeals did not
                         meet BIPA time frames in fiscal year 2001, suggesting that a number of
                         cases would be eligible for escalation.14 However, escalation may not
                         ensure that appellants secure timely adjudication. Escalated cases will
                         lack comprehensive records because the prior level of appeal did not
                         complete the cases and may not have the full collection of case
                         documentation. OHA and MAC officials report that cases without
                         complete records from earlier levels of appeal will require the next level to
                         perform time-consuming research. The MAC may remand cases with
                         incomplete files, causing additional time to be spent locating and
                         transferring files between the appeals bodies.


                         While appellants may view the consideration and resolution of their
Appeals Bodies’ Lack     appeals as a single process, several separate and uncoordinated bodies are
of Coordination and      responsible for administering the various appeals levels. The appeals
                         bodies have traditionally worked independently; however, close
Resources Is a Barrier   coordination is critical to successful planning for BIPA changes. Further,
to BIPA                  appeals bodies lack the management data to track cases and analyze case
                         characteristics, preventing them from identifying barriers to efficiency—a
Implementation           first step in streamlining the process. Planning for BIPA implementation
                         has also been hampered by (1) proposed regulations that have not been
                         finalized, (2) the uncertainty of funding amounts for implementation, and
                         (3) unresolved details regarding the possible transfer of OHA’s appeals
                         workload to HHS.




                         14
                           Since QICs have not yet been implemented, there are no data to assess whether any of
                         their cases will be eligible for escalation.




                         Page 14                                                   GAO-03-841 Medicare Appeals
Appeals Bodies Need        CMS, OHA, and the MAC—located within two federal agencies—are each
Stronger Coordination to   responsible for administering a portion of the appeals process. However,
Successfully Implement     neither the agencies nor the appeals bodies have the authority to manage
                           the entire process. The appeals bodies focus primarily on their individual
BIPA’s Requirements        priorities, which may differ and complicate planning for making
                           improvements to the process as a whole. Attempts to modernize the
                           appeals process have been undermined when individual appeals bodies
                           have identified opportunities for improvement, but have failed to
                           sufficiently take into account the impact of their plans on the other bodies.
                           For example, CMS issued a draft statement of work (SOW) outlining the
                           expectations for QICs—the BIPA-mandated replacement for the workload
                           of Medicare carriers at the second level of review, the carrier hearing. The
                           draft SOW asks potential QIC applicants whether they have the capacity to
                           convert paper case files into an electronic format, with the expectation
                           that this would ease the transfer of needed files to the higher levels of
                           appeals. However, CMS officials told us that they did not consult with
                           OHA to ensure that it would have the capacity to use and store electronic
                           files. OHA officials agree that electronic files offer an important
                           opportunity to reduce lost files, speed transfers, and permit case tracking.
                           However, OHA has focused its own plans to implement a system of
                           electronic folders—scheduled for January 2004—exclusively on its SSA
                           disability cases.

                           Recent planning for BIPA implementation intensified the need for appeals
                           bodies to work together because the demanding time requirements alone
                           call for a more efficient appeals process. While officials from CMS, OHA,
                           and the MAC worked together to develop the proposed rule for
                           implementing the majority of BIPA’s requirements, the agencies have not
                           taken the opportunity to coordinate strategies to meet the time frames
                           mandated by the act.


Lack of Management Data    We found that the appeals bodies are not sufficiently coordinated to track
Inhibits Appeals Bodies’   an appealed claim, or group of claims, through all four levels of the
Ability to Understand      process. This is attributable, in part, to the use of different numbering
                           systems for case identification at each appeals body and the fact that the
Barriers to Efficiency     individual claims making up a “case” can change at every level. For
                           example, appeals bodies often reconfigure cases to group claims with
                           similar issues. Appellants also change the configuration of their cases by
                           aggregating their claims to meet minimum dollar thresholds necessary to
                           file an appeal at a given level. Case numbering is further complicated when
                           a partially favorable decision is made. In these situations, some of the
                           claims within the appeal are paid, while the remaining denied claims are


                           Page 15                                           GAO-03-841 Medicare Appeals
eligible for further appeal by beneficiaries and providers and subject to
further reconfiguration with new case numbers. Accordingly, assigning a
variety of numbers to any particular claim or group of claims at each level
of the process makes it virtually impossible to track an individual claim
from one level to the next.

Some problems with data quality are also a product of a lack of
coordination between appeals bodies. CMS, OHA, and the MAC are
making individual efforts to improve their data systems to better manage
their caseloads, but their systems remain incompatible. For example,
although CMS is gradually shifting its carriers to one common claims
processing data system—also used to track appeals at the carrier level—it
is not compatible with OHA’s or the MAC’s data systems. OHA has also
initiated data system improvements, but did not consult with CMS in
setting the parameters for new system requirements or provide CMS’s
appeals group with a copy of its planning document. The MAC does not
know if the improvements it is instituting—such as its transition to more
powerful data management software used to organize its caseload—will
be compatible with OHA’s, CMS’s, or the carriers’ systems. Compatible
data systems would facilitate the transfer of case information between
appeals levels and analyses of the process as a whole.

Not only do appeals bodies have incompatible data systems, but data
gathered individually by CMS from carriers and by OHA from local hearing
offices are aggregated and not used to pinpoint problems and develop
solutions to improve the appeals process. For example, CMS only collects
workload data from its carriers in the form of monthly productivity totals.
OHA collects aggregate data from each of its 140 hearing offices, despite
the fact that the local offices are tracking individual cases. The aggregate
numbers allow OHA and CMS to develop basic workload statistics, such as
the number of cases they resolve and the average time frames for
adjudication. However, the data do not allow CMS and OHA to perform
more detailed analyses, such as isolating process steps that create a
bottleneck or identifying specific cases that linger at an appeals level for
unusually lengthy periods.

The lack of specific data on case characteristics also limits the appeals
bodies’ understanding of the nature and types of appeals that they must
resolve. For example, only the MAC collects data on the reason for the
appeal, the type of denial being appealed, and the amount in controversy;
however, the MAC is not consistent in ensuring that the information is
routinely entered in the database. Furthermore, carriers do not collect
data that allow CMS to distinguish if the appellant is a beneficiary or a


Page 16                                          GAO-03-841 Medicare Appeals
                            provider, and none of the appeals bodies collects information on the rates
                            of appeal among provider specialty groups. Analyses of case characteristic
                            data could be valuable in identifying confusing or complex policies or
                            requirements that lead to denied claims and the submission of appeals.
                            The data would also be useful to the agencies in understanding the nature
                            of denied claims that are appealed at each level and guiding more
                            appropriate initial reviews of claims and educating providers about proper
                            claim submission.

                            BIPA mandated the use of QICs to replace the second appeals level and
                            required them to develop management information through a data system
                            that would identify (1) the types of claims that give rise to appeals, (2)
                            issues that could benefit from provider education, and (3) situations that
                            suggest the need for changes in national or local coverage policy. QICs
                            must report their information to the Secretary of HHS and, among other
                            things, must monitor appeals decisions to ensure consistency between
                            similar appeals. However, the requirements do not affect data collection at
                            the other appeals bodies. As a result, without corresponding changes at
                            the other appeals bodies, it will remain difficult to evaluate the
                            performance of the appeals process as a whole and make informed
                            decisions affecting more than one appeals level. CMS stated that it plans to
                            expand the QICs’ data system to the third level of appeal—the
                            ALJ-adjudicated level—and, eventually, to all levels of appeal. Until the
                            compatible data systems are in place at all appeals bodies—which CMS
                            plans for 2005—the appeals bodies will not be able to perform the most
                            fundamental types of analyses to improve the management of the process.


Uncertainties in            While BIPA mandated several changes to the current appeals process,
Regulations, Funding, and   CMS, OHA and the MAC are charged with developing regulations for
the Role of OHA Hinder      implementing BIPA’s mandates in accordance with the Administrative
                            Procedures Act.15 As of September 2003, guidance regarding two
BIPA Implementation         provisions—adjusted deadlines for appellants filing first-level appeals and
Planning                    reduced dollar thresholds required for filing appeals at OHA—have been
                            issued. CMS officials stated that they expect that the proposed
                            regulations16 implementing the remaining provisions of BIPA section 521


                            15
                             With limited exceptions, the Administrative Procedures Act requires agencies to publish
                            proposed rules and provide an opportunity for the public to comment on them before they
                            become effective. 5 U.S.C. § 553(b) (2000).
                            16
                             67 Fed. Reg. 69,182 (Nov. 15, 2002).




                            Page 17                                                   GAO-03-841 Medicare Appeals
will be finalized by early 2004. The regulations, once finalized, will provide
directions specifying how each body will operate. Without final
regulations, officials from carriers, OHA, and the MAC said that they have
had difficulty estimating what the actual effect on their workloads will be
and, accordingly, have not made specific plans to comply with BIPA’s
mandates.

Even after the regulations are finalized, several important issues will not
have been resolved. For example, when it published its ruling on October
7, 2002, CMS acknowledged that transition issues from the current appeals
process to the new process would require additional policy guidance prior
to implementation. Specifically, questions will remain regarding the
necessity of operating two separate appeals processes concurrently,
dependent on the date of the initial claim determination. Appeals of claims
denied before the effective date of the BIPA amendments are not governed
by them, barring specific guidance to the contrary, and are subject to pre-
BIPA guidelines and processes.

No additional funding was provided to the appeals bodies in fiscal year
2003 to implement BIPA’s changes. Moreover, uncertainties exist about
the funds available in fiscal year 2004. The first uncertainty concerns
funding for HHS. The President’s proposed budget for fiscal year 2004
includes $126 million in funding for CMS to complete BIPA’s changes—
including establishing the QICs, developing the QIC data systems, and
implementing the shortened time frames at the first and second appeals
levels—as well as assuming the workload currently performed by OHA.
However, this funding level was premised on the assumption that BIPA
would be amended to reduce the number of QICs, increase the time
frames for completing appeals at all levels, and require that providers pay
a $50 user fee for filing appeals at QICs. However, as of September 2003,
BIPA had not been amended. Moreover, the proposed budget contained no
additional funding for the MAC to implement BIPA. The second budgetary
uncertainty concerns funding for the third level of the appeals process,
currently performed by OHA. While SSA’s fiscal year 2003 budget included
a $90 million “direct draw” from the Medicare Trust Fund for Medicare
appeals, the proposed 2004 budget eliminates the direct draw and does not
include a new source for Medicare appeals funding, reflecting SSA’s plan
to transfer OHA’s Medicare appeals workload to HHS.

Although BIPA required CMS to establish QICs in time for them to begin
adjudicating appeals of claims denied as of October 1, 2002, CMS
estimated, in its fiscal year 2004 budget request, that QICs would become
operational, at the earliest, February 2005. Agency officials detailed that


Page 18                                            GAO-03-841 Medicare Appeals
the implementation of QICs would require approximately 10 months of
drafting and finalizing the related regulations and conducting the bidding
process, and 6 months for hiring staff, renting space, and performing other
tasks associated with making QICs operational, including developing the
QICs’ data systems. In commenting on a draft of this report, HHS stated
that CMS now plans for QICs to begin operation in fiscal year 2004.
However, we were not provided with CMS’s implementation plan or
sufficient details to evaluate its feasibility.

Finally, one of the critical issues related to BIPA’s implementation
involves the possible transfer of the Medicare caseload currently
adjudicated by SSA’s OHA to HHS. Several issues remain unresolved. In
1995, when SSA separated from HHS and became an independent agency,
SSA entered into an MOU with the Health Care Financing Administration
to continue to perform the Medicare appeals work it had been conducting.
Recently, SSA has taken the position, which is reflected in its budget
request for fiscal year 2004, that it intends for OHA to discontinue
adjudicating Medicare appeals and has proposed a revised MOU outlining
the transfer of OHA work to HHS. However, as of September 2003, HHS
had not signed the revised MOU and the transfer of the workload to HHS
had not been finalized. In addition, legislation has been introduced that
would expressly provide for the transfer of Medicare appeals to HHS.17
However, provider and beneficiary groups have protested because they
believe shifting responsibility to HHS will compromise the ALJs’
independence.

OHA’s departure from the appeals process would create a new challenge
for HHS. OHA’s process for adjudicating administrative appeals includes
140 local hearing offices and over 1,000 ALJs. Because SSA disability
appeals constitute about 85 percent of OHA’s work, OHA would continue
to require the use of its hearing offices and judges regardless of whether it
continues to hear Medicare appeals. BIPA language specifies that the third
level of appeal be adjudicated by ALJs, but because HHS has far less
capacity than OHA to hear ALJ cases,18 HHS would have to compensate for


17
 H.R. 810, 108th Cong. (2003); S. 1127, 108th Cong. (2003); H.R. 1, 108th Cong. (2003); and
H.R. 2473, 108th Cong. tit. IV (2003).
18
  HHS has nine additional ALJs—one at the Food and Drug Administration and eight who
hear enforcement cases including those on Medicare fraud and provider penalties. The
latter have a backlog of 700 unresolved cases. HHS’s DAB, which houses both the MAC and
the Medicare fraud ALJs, is located in Washington, D.C. It has five satellite locations but no
hearing rooms—its ALJs use the hearing rooms of local courts or other agencies.




Page 19                                                      GAO-03-841 Medicare Appeals
              OHA’s departure by developing plans that would enable it to adjudicate
              the current workload demands within BIPA’s time frames and to address
              the backlog of cases accumulated before the transfer to HHS. As of June
              2003, CMS was evaluating OHA’s Medicare operations, workload, and
              facilities and developing and assessing the feasibility of various options. A
              CMS official stated that assuming OHA’s workload would be a notable
              challenge for the agency.


              BIPA demands a level of performance—especially regarding timeliness—
Conclusions   that the appeals bodies have not demonstrated they can meet. In addition
              to lengthy processing times, OHA and the MAC have developed sizable
              backlogs of unprocessed cases. The backlogs raise a question about how
              BIPA-governed cases, with their mandated time frames, will be prioritized
              relative to unresolved cases filed before BIPA’s mandated implementation
              date. Administrative and systemic inefficiencies, which span all levels of
              appeals, strongly indicate the need for improvement. Without significant
              improvements, the appeals bodies will be unable to meet BIPA’s more
              rigorous performance requirements. Uncertainties regarding BIPA
              regulations and funding further complicate the challenge the appeals
              bodies face in implementing BIPA and meeting its requirements.
              Moreover, the transfer of OHA’s Medicare appeals work from SSA to HHS
              involves major challenges, and until all of the stakeholders resolve
              workload and timeliness issues, the full impact of such a transfer will not
              be known.

              CMS, its carriers, OHA, and the MAC have traditionally not coordinated
              their management of the appeals process. Instead, each has operated as
              though the process consisted of discrete and independent segments.
              Greater coordination could enable them to resolve the barriers that
              currently preclude successful management of the appeals process as a
              whole. Inefficiencies in file transfer and case file tracking, developing
              comprehensive and meaningful data, and planning for BIPA
              implementation require a joint effort including each appeals body and its
              agency. The lack of a single entity that sets priorities and addresses
              operational problems at all four levels of the process makes it imperative
              that all bodies work closely together. If OHA’s Medicare appeals workload
              is to be transferred to HHS, it is critical that all of the current appeals
              bodies work together to develop a carefully planned transition and build
              efficiencies to help HHS assume the workload. We believe that the
              creation of a Medicare appeals process that can consistently address
              BIPA’s requirements will require a commitment for close coordination
              from all appeals bodies.


              Page 20                                           GAO-03-841 Medicare Appeals
                         We recommend that the Secretary of HHS and the Commissioner of SSA 

Recommendation for       create an interagency steering committee with representatives from CMS, 

Executive Action         the carriers, OHA, and the MAC to serve as an advisory body to the 

                         Secretary of HHS and the Commissioner of SSA with the following 

                         responsibilities: 


                     •   make administrative processes, such as file tracking and transfer, 

                         compatible across all appeals bodies; 

                     •   negotiate responsibilities and strategies for reducing the backlog of 

                         pending cases, especially at OHA and the MAC, and establish the priority 

                         for adjudicating pre-BIPA cases relative to BIPA-governed cases; and 

                     •   establish requirements for reporting specific and comparable program and 

                         performance data to CMS, SSA, and HHS so that management can identify

                         opportunities for improvement, and determine the resource requirements 

                         necessary to ensure that all appeals bodies will be able to meet BIPA’s 

                         requirements. 



                         We provided a draft of this report to HHS and SSA and received written 

Agency Comments          comments from both agencies. In its comments, HHS emphasized its 

and Our Evaluation       commitment to implementing the appeals provisions in BIPA and 

                         highlighted the steps it has taken to do so. Similarly, SSA emphasized its 

                         efforts to provide quality service to Medicare appellants. We have 

                         reprinted HHS’s and SSA’s letters in appendixes IV and V, respectively. 


                         HHS agreed with our conclusion that a more coordinated approach to the 

                         appeals process is needed. HHS said, however, that we understated its 

                         progress in this area and described a variety of efforts it has engaged in to

                         facilitate improved coordination between the appeals bodies. As we noted 

                         in the draft report, HHS has made strides in enhancing coordination, but 

                         we believe that greater progress can be made by creating an interagency

                         steering committee to develop a consolidated and strategic approach to 

                         implementing BIPA. 


                         SSA’s comments also emphasized the benefits of enhanced coordination 

                         between the appeals bodies. It largely attributed the inefficiencies that 

                         exist in the current appeals process to the lack of a single entity with 

                         ownership of, and accountability for, Medicare appeals. SSA indicated that 

                         it believes that HHS is the sole entity with the authority to unify the 

                         policies and procedures for the Medicare appeals process. 





                         Page 21                                           GAO-03-841 Medicare Appeals
HHS stated that it would consider the appropriateness of an interagency
steering committee but did not specifically agree or disagree with our
recommendation to create such a body. However, it stated that the
transfer of the work performed by SSA’s OHA to HHS is critical to
achieving the level of coordination needed to address the inefficiencies
outlined in our report. SSA indicated that it generally agreed with the
specific responsibilities of the steering committee. It also stated that it
believes that HHS has ultimate responsibility for Medicare appeals and
that HHS should carry out the functions of the steering committee through
CMS. SSA stated that its budget anticipates the transfer of OHA’s appeals
workload to HHS, and SSA has submitted a new MOU to HHS to facilitate
a smooth transition. While SSA emphasized its commitment to serving
Medicare appellants during the expected transition, it also pointed out that
Medicare appeals make up a small portion of its work. Therefore, SSA
cautioned that while it will participate in efforts to improve the Medicare
appeals process, it must consider the demands of its total workload in
allocating its resources.

While HHS did not specifically comment on our recommendation to make
administrative processes, such as file tracking and transfer, compatible
across all levels of appeal, SSA agreed that an interagency steering
committee could be beneficial in ensuring such compatibility among
appeals bodies. SSA also noted that the steering committee would be
helpful in defining the roles of the appeals bodies both in their current
operating status and during the anticipated transfer of the OHA workload
to HHS.

Regarding our recommendation to negotiate responsibilities for reducing
the backlog of pending cases, HHS agreed that a strategy for setting clear
requirements to prioritize pre-BIPA and BIPA cases and reduce the
backlog of cases at all levels is needed. HHS also reported that the MAC
has already reduced its backlog and we revised the report to reflect the
reduction. HHS also said that prioritizing cases and other transition
matters would be addressed in the forthcoming final regulations. SSA
agreed that strategies for reducing both the backlog of pending cases and
the lengthy processing times for Medicare appeals are needed and
expressed a willingness to help resolve the backlogs and delays.

HHS agreed with our recommendation to establish comparable program
and performance data across appeals levels and indicated that improved
appeals data capabilities are needed. To that end, HHS noted that it has
issued a request for proposals to develop the data system required by
BIPA. SSA acknowledged that fragmentation of the appeals process has


Page 22                                          GAO-03-841 Medicare Appeals
     precluded the development of comparable data. However, SSA pointed out
     that preparations to transfer OHA’s work to HHS have created a need for
     greater data sharing. SSA also pledged to work to capture comparable data
     to facilitate the transfer of the OHA’s work.

     In addition, in response to HHS’s specific comments, we have

•    revised the use of the word “rule” to “ruling;”
•	   clarified that the scope of our work excluded managed care, Medicare
     entitlement, and overpayment cases, as well as Part B claims processed by
     durable medical equipment contractors and fiscal intermediaries;
•	   defined the term “provider,” as used in this report, to include any
     nonbeneficiary appellant, including physicians and other suppliers;
•	   distinguished between claims that are rejected because they are duplicate
     or missing information and those that are denied for substantive reasons,
     in appendix II;
•    revised the legend of figure 1;
•	   modified our description of BIPA’s escalation provision to recognize that
     CMS has developed specific requirements for escalation in its notice of
     proposed rulemaking;
•	   revised our explanation of the MAC’s procedures regarding the parameters
     for accepting evidence in its current decision-making process and the
     MAC’s criteria for denying an appellant’s request for review; and
•    added that CMS policy is a binding element in carrier review.

     However, we did not revise the draft report in response to HHS’s specific
     comment regarding our use of the word “review.” While BIPA refers to the
     first level of appeal as “redetermination,” we have used the term “carrier
     review” because the adjudication process at the review level is unchanged
     by BIPA. Nor did we make revisions in response to HHS’s specific
     comment that both OHA and the MAC use their own systems for
     processing appeals and conduct their own hiring. As we noted in the draft
     report OHA and the MAC independently establish their own procedures
     and guidelines. Finally, we did not revise the draft in response to HHS’s
     specific comment that we imply that the MAC has done no planning
     related to BIPA requirements. As we noted in the draft report, the MAC
     has made some improvements, but as MAC officials told us, and as HHS
     indicated in its comments, a detailed action plan to meet BIPA requirements has
     not been developed. In its comments, HHS noted that a detailed plan is
     premature because the MAC will not receive BIPA cases for some time—
     until after they have passed through the other levels of appeal—however,
     BIPA requirements apply to claims denied on or after October 1, 2002, and
     such cases have already been submitted.



     Page 23                                            GAO-03-841 Medicare Appeals
HHS also provided us with technical comments, which we incorporated as
appropriate.


As agreed with your offices, unless you announce its contents earlier, we 

plan no further distribution of this report until 30 days after its issuance 

date. At that time, we will send copies to the Secretary of HHS, the 

Commissioner of SSA, interested congressional committees, and other 

interested parties. We will then make copies available to others upon 

request. In addition, the report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 


If you or your staff have any questions about this report, please call me at 

(312) 220-7600. An additional GAO contact and other staff who made 

contributions to this report are listed in appendix VI. 





Leslie G. Aronovitz 

Director, Health Care—Program

 Administration and Integrity Issues 





Page 24                                            GAO-03-841 Medicare Appeals
Appendix I: Scope and Methodology 



              Our analyses were limited to the appeals process for denied Part B
              claims—rather than managed care, Medicare entitlement, and
              overpayment cases—because Part B cases constitute the majority of
              appeals. We also excluded Part B claims processed by durable medical
              equipment contractors and fiscal intermediaries to focus on the work
              performed by carriers. We reviewed the four levels of the administrative
              appeals process; our scope did not extend to the federal district court
              level.

              To gain a better understanding of the process for Part B appeals at the
              time the Medicare, Medicaid, and SCHIP Benefits Improvement and
              Protection Act of 2000 (BIPA) was passed and the changes it mandated,
              we reviewed agency procedures for completing Part B appeals regulations
              and agreements guiding Medicare appeals and other laws. We also
              analyzed appeals workload data and interviewed officials at the Centers
              for Medicare & Medicaid Services (CMS) and at all levels of the
              administrative appeals process—the carriers, the Office of Hearing and
              Appeals (OHA), and the Medicare Appeals Council (MAC).

              We reviewed regulations and procedures pertaining to the initial denials of
              claims and the submission of appeals by providers and beneficiaries. We
              also examined the processes for data management and guidelines and
              regulations for adjudicating cases at all levels. We reviewed the
              memorandum of understanding between the Health Care Financing
              Administration and the Social Security Administration, which outlines the
              responsibilities of both agencies in the adjudication of Medicare appeals.
              In addition, we reviewed the October 2002 ruling implementing selected
              BIPA amendments and the proposed rule for the implementation of the
              balance of the BIPA amendments to the appeals process.

              We also analyzed appeals data from CMS, four selected carriers, OHA, and
              the MAC to understand the scope and efficiency of the Medicare appeals
              process and the characteristics of appeals. All data examined were for
              cases adjudicated from fiscal years 1996 through 2001, with a primary
              focus on fiscal year 2001, which represents the conditions that existed at
              the time BIPA was passed. In reviewing later data and in conversations
              with the appeals bodies, we confirmed that the conditions reflected in the
              data are relatively unchanged. Limitations in collected and reported data
              at each level precluded comprehensive and consistent analyses in some
              cases. CMS and the MAC alerted us to some limitations in their data,
              including inconsistency in data entry, changes in data systems that caused
              the loss of data, and poorly defined variables. At some levels, only
              aggregated data were available, which did not permit detailed analysis.


              Page 25                                          GAO-03-841 Medicare Appeals
Appendix I: Scope and Methodology




We studied carrier performance by selecting four carriers located in
different regions of the country and obtaining processing data on appeals
submitted to those carriers at the first two levels of appeals. We also
reviewed the results of CMS’s contractor performance evaluations of
carriers’ appeals activities in fiscal years 1999, 2000, and 2001.

We visited three OHA local hearing offices located in proximity to three of
the four selected carriers’ appeals operation centers to learn more about
their role in the appeals process and to assess the impact of carrier
performance on their operations. We also examined the processes and
procedures used at the OHA local hearing offices. To understand the
efficiency of the appeals process, we examined the average total time to
process appeals at each level, and the average time spent in each step of
the adjudication process at OHA and the MAC. We also examined MAC
data to determine the number of cases remanded to OHA because of lost
files in fiscal year 2001.

Appeals bodies performed analyses of their appeals data at our request.
CMS performed analyses of the Contractor Reporting of Operational and
Workload Data (CROWD), including the reason for initial claims denials,
the time each carrier took to process carrier reviews and carrier hearings,
and the number of cases at the first three levels of appeal. CMS analyses of
CROWD, OHA analyses of its data, and our analyses of the MAC’s data also
provided information on the average time spent in adjudicating appeals
and the number of pending cases. OHA’s central facility analyzed its Part B
data based on our request, and we analyzed data provided by the MAC to
determine the time elapsed between processing milestones at OHA and the
MAC. In the analysis of the time spent in the various phases of case
processing at the MAC, cases with missing date information or cases with
negative dates were omitted. All results of, and methodologies for, our
analyses of MAC data were examined and confirmed by the MAC.

To gain a better understanding of the concerns of appellants regarding the
current appeals process and the potential effects of BIPA, we interviewed
representatives from three Medicare beneficiary advocacy organizations
that assist beneficiaries with Medicare appeals—the Center for Medicare
Advocacy, the Center for Medicare Rights, and the Medicare Advocacy
Project of Massachusetts. We conducted a focus group with
representatives from billing companies through an association for billers
and coders—the Health Care Billing and Management Association. In
addition, we interviewed representatives from nine medical professional
associations:



Page 26                                          GAO-03-841 Medicare Appeals
    Appendix I: Scope and Methodology




•   American Academy of Ophthalmology
•   American College of Physicians-American Society of Internal Medicine
•   American Hospital Association
•   American Orthopedic Association
•   American Medical Association
•   American Podiatric Medical Association
•   American Urological Association
•   California Medical Association
•   Medical Group Management Association




    Page 27                                        GAO-03-841 Medicare Appeals
Appendix II: The Scope of Part B Claims
Rejections, Denials, and Appeals

              In fiscal year 2001, carriers processed about 773 million Medicare Part B
              claims and rejected or denied, in full or in part, about 161 million—or 21
              percent—of the claims processed. Many claims are rejected because they
              are missing information or are duplicates of claims previously processed
              and paid or denied.1 In fiscal year 2001, carriers rejected over 19.5 million
              claims that were missing information and more than 40 million claims that
              they considered duplicate. Duplicate claims may be submitted for several
              reasons. For example, inconsistent regulations may confuse providers
              causing them to resubmit denied Part B claims—even though Medicare
              rules do not allow this—because Medicare allows denied Part A claims to
              be resubmitted for payment. Also, turnover in administrative and billing
              personnel at providers’ offices may result in confusion about whether a
              claim was previously submitted, and under what circumstances a claim
              can be resubmitted for payment. According to officials from the Centers
              for Medicare & Medicaid Services’ (CMS), carrier error also contributes to
              the rate of duplicate submissions because some carriers have system
              limitations that do not always recognize appropriate claims. For example,
              if a claim is submitted that appropriately includes the performance of the
              same service to two separate limbs, the two distinct services may be
              construed as duplicate claims by some carrier systems.

              Claims are denied if they do not meet the requirements in Medicare
              statutes, federal regulations, or CMS’s national coverage determinations.
              Carriers may also deny claims based on their own local medical review
              policies and local coverage determinations, which may enhance or clarify
              national Medicare policy.

              CMS compiles data submitted by carriers categorizing the reason for
              denying claims. Table 1 shows the reasons for denials of Part B claims in
              fiscal year 2001, excluding rejections. Although CMS has established the
              categories for data submission shown in table 1, it has not provided strict
              definitions of these categories for carriers to follow. Instead, each carrier
              has developed its own unique set of definitions for each category. As a
              result, these data do not provide a precise or reliable explanation of the
              reasons for denial. For example, the category “other,” which comprised
              more than 17 percent of reported Part B denials in fiscal year 2001, may




              1
               In its comments on a draft of this report, HHS pointed out that unprocessable claims—
              duplicate claims and claims missing information—are rejected, rather than denied.
              According to HHS, such claims can be resubmitted but not appealed.




              Page 28                                                   GAO-03-841 Medicare Appeals
Appendix II: The Scope of Part B Claims
Rejections, Denials, and Appeals




include denials at one carrier that another carrier would have included in
another category.

Table 1: Reason for Denials of Initial Medicare Part B Claims in Fiscal Year 2001

    Reason for denial                                   Number of denials       Percentage of total
                             a
    Medically unnecessary                                       32,480,000                         29.4
    Services not covered                                        26,536,000                         24.1
    Other                                                       19,795,000                         17.9
                                                  b
    Claim part of a global fee for a procedure                  14,351,000                         13.0
                                              c
    Medicare is secondary payer for claim                        7,697,000                           7.0
    Claimant ineligible                                          7,324,000                           6.6
                                 d
    Filing limitation exceeded                                   2,150,000                           1.9
    Total denials                                             110,333,000                          100e

Source: CMS.
a
 Medicare law requires that for services to be covered, they must be “reasonable and necessary for
the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body
member.” 42 U.S.C. § 1395y (a) (A) (1) (2000).
b
 Global fee is a total charge for a bundled set of services, such as a single surgery that encompasses
presurgical and postsurgical care or a diagnostic service that represents physician and equipment
charges. Individual services included in the global fee cannot be paid separately.
c
 Medicare is the secondary payer when a beneficiary has an insurance policy or health plan, other
than Medicare, that has primary responsibility for covering the cost of the beneficiary’s care. 42
U.S.C. § 1395ff (2000).
d
 To be eligible for payment, claims must be filed no later than the end of the calendar year following
the year the service was provided.
e
    Percentage does not total to 100 due to rounding.


Relatively few cases are appealed when compared to the number of
denials, and only a small fraction is appealed to the highest level. CMS, the
Office of Hearings and Appeals (OHA), and the Medicare Appeals Council
(MAC) do not track the number of denied claims that are appealed,
although CMS collects the number of claims that are adjudicated in the
appeals process for the carrier review, carrier hearing, and OHA levels. In
fiscal year 2001, about 7.1 million claims—less than 7 percent of denied
Part B claims—were adjudicated at the carrier review level.2 In that year


2
 Postpayment denials—denials of claims that have been paid but selected for medical
review at a later date—are not included in the denial rates shown. Postpayment denials
generate some appeals; however, CMS does not collect data on the proportion of appeals
resulting from post-payment denials.




Page 29                                                             GAO-03-841 Medicare Appeals
Appendix II: The Scope of Part B Claims
Rejections, Denials, and Appeals




about 554,000 Part B appeals were adjudicated at the carrier hearing level
and over 201,000 at OHA. The MAC received about 8,800 Part B appeals
cases in fiscal year 2001; however, the MAC does not track the number of
claims comprising cases.

Appeals requests at the higher levels have grown rapidly in recent years, as
shown in table 2. For example, requests for Medicare appeals at OHA—the
third level of appeals—increased a total of 200 percent from fiscal year
1996 to fiscal year 2001, and the MAC’s workload grew by nearly 500
percent from fiscal year 1997 to fiscal year 2001.

Table 2: Growth in Part B Appeals Cases Submitted by Appeal Level from Fiscal
Year 1996 through Fiscal Year 2001

                                     Carrier           Carrier        OHA               MAC
    Fiscal year                      review           hearing       hearing      adjudication
                                                                                               a
    1996                           4,100,000           69,000        21,000
    1997                           3,900,000           87,000        35,000            1,500
    1998                           3,500,000           95,000        35,000            2,700
    1999                           3,500,000           93,000        61,000            6,300
    2000                           3,300,000          101,000        62,000            7,600
    2001                           3,700,000          102,000        63,000            8,800
    Total growth over the           -400,000           32,000        42,000            7,300
    period (percent)                    (-10)             (47)        (200)            (487)

Sources: CMS, OHA, and the MAC.


Note: Appeals cases may contain several claims. 

a
MAC data for fiscal year 1996 were not available. 





Page 30                                                          GAO-03-841 Medicare Appeals
Appendix III: Changes Mandated by Section
521 of BIPA

                  Section 521 of the Medicare, Medicaid, and SCHIP Benefits Improvement
                  and Protection Act of 2000 (BIPA) mandates administrative, structural,
                  and management changes in the appeals process. It includes the following:

             •	   Revises the filing deadline for appellants at the first level of appeal:
                  reduced from 180 days to 120 days
             •    Reduces the minimum thresholds for filing appeals:
                  • To second level, from $100 to no minimum
                  • To third level, from $500 to $100
             •    Changes adjudication time frames at all levels of appeal:
                  • 	 At first level, from completing 95 percent in 45 days to completing 100
                      percent in 30 days
                  • 	 At second level, from completing 90 percent in 120 days to completing
                      100 percent in 30 days
                  • At third level, time frames of 90 days where none previously existed
                  • At fourth level, time frames of 90 days where none previously existed
             •	   Allows appellants to escalate the appeal to the next level, including federal
                  district court, when adjudication time frames have not been met at the
                  second, third, or fourth levels of appeal
             •	   Replaces the second level of appeal, currently known as a carrier hearing,
                  with a redetermination by qualified independent contractors (QIC)
                  • 	 The Department of Health and Human Services (HHS) must establish
                      3-year contracts with at least 12 QICs
                  • 	 QICs, like the Office of Hearings and Appeals (OHA) and the Medicare
                      Appeals Council (MAC), are not bound by, but shall consider, local
                      coverage determinations
             •	   Establishes that the MAC adjudicate cases de novo1 instead of evaluating
                  OHA’s decisions, as had been done
             •	   Requires that QICs have a comprehensive data system to collect and share
                  information
                  • 	 QICs must maintain accurate records of each decision that enable it to
                      identify specific types of claims that give rise to appeals, situations
                      suggesting the need for provider education, situations suggesting
                      changes in national or local coverage policy, and situations suggesting
                      changes in local medical review policy
                  • 	 QICs must monitor their decisions to ensure consistency in outcomes
                      between similar appeals
                  • QICs must make all decisions available to carriers
                  • QICs must report annually to the Secretary of HHS




                  1
                  De novo review allows for new evidence and an in-depth and independent review.




                  Page 31                                                 GAO-03-841 Medicare Appeals
     Appendix III: Changes Mandated by Section
     521 of BIPA




•	  Requires that, at least every 5 years, the Secretary of HHS survey a sample
    of appellants regarding their satisfaction with education on the appeals
    process and with the process itself; and that the Secretary must report the
    results and any recommendations to the Congress
• 	 Requires that the Secretary of HHS annually report the following to the
    Congress:
    • The number of appeals
    • 	 Issues that require administrative or legislative action and
        recommendations with respect to actions
    • 	 Analysis of consistency of decisions at QICs, including any reasons for
        inconsistency




     Page 32                                         GAO-03-841 Medicare Appeals
Appendix IV: Comments from the
Department of Health and Human Services




             Page 33            GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 34                                     GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 35                                     GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 36                                     GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 37                                     GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 38                                     GAO-03-841 Medicare Appeals
Appendix IV: Comments from the Department
of Health and Human Services




Page 39                                     GAO-03-841 Medicare Appeals
Appendix V: Comments from the Social
Security Administration




             Page 40            GAO-03-841 Medicare Appeals
Appendix V: Comments from the Social Security Administration




Page 41                                                  GAO-03-841 Medicare Appeals
Appendix V: Comments from the Social Security Administration




Page 42                                                  GAO-03-841 Medicare Appeals
Appendix V: Comments from the Social Security Administration




Page 43                                                  GAO-03-841 Medicare Appeals
Appendix V: Comments from the Social Security Administration




Page 44                                                  GAO-03-841 Medicare Appeals
Appendix VI: GAO Contact and Staff
Acknowledgments

                    Geraldine Redican-Bigott, (312) 220-7678
GAO Contact
                    Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig Winslow
Acknowledgments 	   made major contributions to this report.




(290140)
                    Page 45                                      GAO-03-841 Medicare Appeals
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