oversight

Medicare: Increased Denials of Home Health Claims During 1986 and 1987

Published by the Government Accountability Office on 1990-01-24.

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

      .

 ‘
                  United   States   General   Accounting   Office

GAO               Briefing Report to Congressional
                  Requesters



January   1990
                  MEDICARE
                  Increased Denials of
                  Home Health Claims
                  During1986 and 1987




                                                                        i




GAO/HRD-90-14BR

                                                                    :
                 United States
                 General Accounting  Office
                 Washington, D.C. 20548

                 Human Resources    Division

                 B-225004

                 January 24,199O

                 The Honorable Olympia J. Snowe
                 House of Representatives

                 Dear Ms. Snowe:

                 In November 1987, you and a number of your colleagues (see app. I)
                 expressed concern over the increased denials of Medicare home health
                 care claims during 1986 and 1987. You asked us to analyze a number of
                 issues related to these denials, including

             . the reasons for the increased denials,
             . the extent and causes of variation in denial rates among regions of the
               country,
             . the number of home health agencies that lost their waiver of liability
               during this period, and
             l the effects of the increased denials on the appeals process.

                 In addition, we determined the administrative     and legislative changes
                 that have decreased denials since 1987.

                 We reported our preliminary results in briefings with you on September
                 14, 1988, and the other requesters and their staffs on October 5, 1988.
                 Also, at your request, we presented our preliminary results in an Octo-
                 ber 13, 1988, briefing before the Advisory Committee on Medicare Home
                 Health Claims, established by the Medicare Catastrophic Coverage Act
                 of 1988. This report elaborates on that information and presents the
                 results of additional work performed since then.


                 Medicare, administered by the Health Care Financing Administration
Background       (HCFA) within the Department of Health and Human Services, is a health
                 insurance program that covers almost all Americans age 65 and over
                 and certain individuals under 65 who are disabled or have chronic kid-
                 ney disease. Authorized under title XVIII of the Social Security Act,
                 Medicare provides a home health care benefit for beneficiaries who are
                 confined to their home (homebound), under a physician’s care, and in
                 need of part-time or intermittent skilled nursing care or physical or
                 speech therapy.

                  By law, the home health benefit covers skilled nursing care services pro-
                  vided by Medicare-certified home health agencies or by others under
                  contract to such an agency. Services provided by home health aides,


                  Page 1                       GAO/HRBfM%l4RR   Medicare   Home Health   Claims Denials
    B-226004




    such as helping patients bathe, groom, and get into and out of bed, are
    not covered by the benefit unless the beneficiary requires skilled nurs-
    ing care or physical or speech therapy.

    HCFA   contracts with insurance companies, called intermediaries, to proc-
    ess home health benefit claims and generally administer the benefit.1
    When an intermediary denies all or part of a claim, the home health
    agency may still receive payment under certain conditions. For example,
    if it has a history of few denials, it may be granted a waiver of liability,
    which protects beneficiaries and providers from being liable for noncov-
    ered services when they did not know and had no reason to know that
    the services were

l   not medically reasonable and necessary or
l   based on the need for custodial rather than skilled nursing care.

    Denied claims for which an agency does not receive payment may be
    appealed.

    In previous reviews, GAO and HCFA'S Bureau of Quality Control concluded
    that HCFA was paying for noncovered services because of material weak-
    nesses in internal controls over payment for home health services. In
    1986, GAO reported that uncertainty over the meaning of such terms as
    homebound and intermittent care may result in inconsistent coverage
    determinations by the intermediaries2 In response to these studies and
    to certain legislative changes, HCFA initiated a number of actions
    between 1986 and 1987 intended to minimize Medicare payments for
    noncovered home health services and provide for more consistent
    administration of the home health benefit by its fiscal intermediaries.

     Following these actions, home health bill denials increased from about
     3.1 percent of bills processed in the first quarter of fiscal year 1985 to a
     peak of 9.0 percent for the first quarter of fiscal year 1987 (see pp. 15 to
     16). The number of denied bills increased from about 186,000 in fiscal


     ‘Home health agencies can be freestanding or provider based. Freestanding agencies are those that
     are not a subdivision of another Medicare provider, such as a hospital or skilled nursing facility. In
     fiscal year 1986 there were 47 intermediaries; during fiscal year 1987 the number of intermediaries
     processing claims for freestanding agencies was reduced to 10 as required by the Deficit Reduction
     Act of 1984. One of the 10 left the program in December 1988, leaving 9 intermediaries processing
     claims for freestanding agencies. During foal year 1989 all provider-based home health agencies
     were transferred to these nine intermediaries.

     ‘Medicare: Keed to Strengthen Home Health Care Payment Controls and Address Unmet Keeds
     (GAO/HRD87-9,      Dec. 2,1986).




     Page 2                                   GA0/EIRD9044J3E       Medicare   Home Health    Claima Denials
                                R-226004




                                year 1985 to about 408,000 in fiscal year 1987. Since 1987, the denial
                                rate has steadily declined to about 4.3 percent.


                                During congressional hearings held throughout the country in 1986 and
Reasonsfor Increased            1987, industry officials, providers, and beneficiaries raised a number of
Denials                         concerns about HCFA actions they viewed as causing denials and eroding
                                the home health benefit. Legislation has been enacted to address many
                                of these concerns (see app. II).

                                Although many factors contributed to the increased denials of home
                                health claims in 1986 and 1987, we believe the increases can be attrib-
                                uted primarily to certain administrative changes:

                        . The number of claims subjected to detailed review increased from about
                          25 to over 60 percent. Since most denials result from detailed review,
                          this could be expected to more than double the number of denied claims.
                        l Standardized medical information forms requiring more detailed infor-
                          mation on which to make claims decisions were instituted; denials
                          increased because intermediaries had more information on which to
                          make decisions and also because they denied claims where forms were
                          not filled out completely.
                        . Claims payment activities for freestanding home health agencies were
                          consolidated under 10 regional fiscal intermediaries during fiscal year
                           1987. Because of the variation in intermediaries’ medical review per-
                          formance and interpretation of coverage criteria, the change in
                          intermediaries may have resulted in increased denials until the home
                          health agencies adjusted to the review practices of their new
                          intermediaries.
                          Prior to the consolidation, HCFA evaluated the effectiveness of the
                            l


                          review procedures of these 10 intermediaries; this evaluation resulted in
                           increased denials as the intermediaries changed their review procedures
                           in response to HCFA'S findings. Immediately following the HCFA evalua-
                           tion, the home health claim denials were the highest ever. (See pp. 18 to
                           21.)


                                         quarterly data on denials of home health agency bills show signif-
Regional Variation in            HCFA'S
                                 icant variation of denial rates among HCFA regions, particularly during
Denial Rates                     fiscal years 1986 and 1987, when denials were increasing. The variation
                                 resulted in part from differences in review practices among the regional
                                 fiscal intermediaries. For example, the volume of claims medically



                                 Page 3                       GAO/HRD9&14RR   Medicare   Home Health   Claims Denials
                     IL226004




                     reviewed by intermediaries varied, half of the intermediaries were deny-
                     ing claims in 1986 when information was missing from the claim forms
                     while others were not, and there were inconsistent interpretations of
                     certain coverage criteria. Inconsistencies among intermediaries in
                     reporting denials to HCFA also led to variation in denial rates. Half of the
                     intermediaries reported only denials that resulted from their detailed
                     review process; they tended to have lower denial rates than the other
                     half, which reported denials from detailed review and other sources,
                     such as the initial review of claims for eligibility. (See pp. 22 to 24.)


                     Precise data on the number of home health agencies that lost their
More Agencies Lost   waiver of liability during this period and the effects of loss of waiver on
Their Waiver of      beneficiaries were not available. Data provided to GAO by 8 of the 10
Liability            regional intermediaries, however, shows that the percentage of agencies
                     that lost their waiver of liability increased from about 16 percent for the
                     quarter beginning February 1,1986, to about 32 percent for the quarter
                     beginning November 1, 1986. Also, regional intermediaries did not use
                     consistent methods to determine agencies’ eligibility for the waiver, cre-
                     ating potential inequities in the granting of waivers.

                     Home health industry officials say that the loss of waiver adversely
                     affects beneficiaries because providers without waivers may be reluc-
                     tant to provide certain services to beneficiaries when they have any
                     doubts about whether the service is covered. Also, providers may refuse
                     to accept new patients when they are not sure the patient will qualify
                     for home health benefits. (See pp. 25 to 27.)


                     The number of denied claims appealed to intermediaries and administra-
Agencies Appealed    tive law judges increased substantially from about 10,000 in fiscal year
More Denied Claims   1986 to about 64,000 in fiscal year 1988. The percentage of denied
                     claims reversed at these levels also increased. However, the increase in
                     reversals does not necessarily mean that the claim should have been
                     paid when first submitted; many reversals occurred because agencies
                     submitted the additional information to the intermediary needed to
                     approve the claim. (See pp. 28 to 33.)




                                            .

                      Page 4                       GAO/HRD9&14BR   Medicare   Home Health   Claims Denials
                       R-225004




                       Since 1987, the number of denials has decreased substantially to about
Recent Changes Have    the 1985 level even though the number of claims being subjected to
Addressed the Denial   detailed review has continued at over 60 percent of claims processed.
Issue                  HCFA has instituted specific administrative actions that have decreased
                       denials and also resulted in a narrowing of the variation in regional
                       denial rates. As denials have declined, so have the number of home
                       health agencies that have lost their waiver of liability. (See pp. 33 to
                       34.)

                       The Congress has also passed legislation clarifying some of the home
                       health benefit provisions, giving HCFA specific requirements for adminis-
                       tering the benefit, and increasing the home health services available
                       under Medicare and other programs. However, some of these provisions
                       were repealed by the Medicare Catastrophic Coverage Repeal Act of
                       1989. (See app. II.)


                       We did our work at HCFA'S headquarters in Baltimore and its Boston
Scopeand               regional office. We analyzed readily available statistics on home health
Methodology            claims, denials, appeals of denials, and numbers of providers who had
                       lost their waiver of liability. We did not verify the accuracy of the data
                       intermediaries were reporting to HCFA but did identify inconsistencies in
                       how certain data were reported.

                       We visited one regional fiscal intermediary and surveyed all 10 regional
                       intermediaries through a mail questionnaire. We also visited two home
                       health agencies in Vermont and two in Maine as well as an association
                       that has been representing the interests of more than 5,000 home health
                       providers. We also reviewed recent legislation, a court decision, and sev-
                       eral congressional hearings pertaining to home health issues.


                       We did not obtain formal written agency comments on this report; how-
                       ever, we discussed its contents with HCFA officials and incorporated their
                       comments where appropriate. Copies of this report are being sent to the
                       other requesters, the congressional committees having jurisdiction over
                       matters discussed in the report, the Secretary of Health and Human Ser-
                       vices, and other interested parties. If you have any questions regarding




                                              .


                       Page 5                       GA0/HRB9044RR   Medicare   Home Health   Claims Denials
B22soo4




this report, please call me at (202) 275-5451. Other major contribu-
tors to this report are listed in appendix IV.

Sincerely yours,




Janet L. Shikles
Director, Health Financing
  and Policy Issues




Page 6                       GAO/HRlS~14BlZ   Medicare   Home Health   Claims Denials
Page 7   GAO/HIUHO-14BR   Medicare   Home Health   Claims Denials
Contents


Letter                                                                                                       1

Section 1                                                                                                   12
Background               Home Health Agencies
                         Program Administration
                                                                                                            13
                                                                                                            13
                         Waiver of Liability                                                                14
                         AppeaIs Process                                                                    14
                         Prior Concerns Raised Over Administration of the                                   15
                              Program
                         Home Health Denials Increased in Fiscal Years 1986-87                              15
                         Objectives, Scope, and Methodology                                                 17

Section 2                                                                                                   18
Reasonsfor Increased     Standardized Medical Information Forms
                         Increased Medical Review
                                                                                                            18
                                                                                                            19
Denials                  Consolidation of Intermediaries                                                    20
                         Strengthening of Intermediary Performance                                          20
                         Savings Ratio Not a Major Factor                                                   21

Section 3                                                                                                   22
Reasonsfor Varying       Extent of Regional Variation
                         Reasons for Regional Variation
                                                                                                            22
                                                                                                            22
Denial Rates Among
HCFA Regions
Section 4                                                                                                   25
Effect of Increased      Waiver Status Data Are Limited                                                     25
                         Questionnaire Results on Waiver Status                                             25
Denials on Waiver of
Liability Status
Section 5                                                                                                    28
Effect of Increased      Appeals Activity Increased Substantially                                            28
                         Reversals Have Also Increased                                                       29
Denials On the Appeals   Reasons
                              for Reversals                                                                  31
Process                  Appeals Cost                                                                        32




                         Page 8                       GAO/HRJiNO-14BB   Medicare   Home Health   Claima Denials
                     Contents




Section 6                                                                                             34
Recent Changes       Denials Have Decreased
                     Regional Variation Is Narrowing
                                                                                                      34
                                                                                                      35
Affecting the Home
Health Program
Appendixes           Appendix I: List of Congressional Requesters                                     36
                     Appendix II: Industry Concerns and Congressional                                 38
                         Actions Related to Medicare’s Home Health Benefit
                     Appendix III: Bill Denials by Region                                             41
                     Appendix IV: Major Contributors to This Report                                   51

Tables               Table 4.1: Number of Home Health Agencies Off Waiver                             26
                         (Fiscal Years 1986-88)
                     Table 5.1: Reconsiderations and ALJ Hearings (Fiscal                             29
                         Years 1986-88)

Figures              Figure 1.1: Increase in Home Health Denials-National                             16
                           Totals
                     Figure 2.1: Relationship Between Program Changes and                              19
                           Increased Denials
                     Figure 3.1: Denials of Home Health Agency Bills for                              23
                           Selected Regional Intermediaries
                     Figure 5.1: Reconsiderations Completed (Fiscal Years                             30
                            1985-88)
                     Figure 5.2: ALJ Hearings Completed (Fiscal Years                                 31
                            1985-88)
                     Figure III. 1: Denials of Home Health Agency Bills-                              41
                         ’ Atlanta Region
                     Figure 111.2:Denials of Home Health Agency Bills-                                42
                           Boston Region
                     Figure 111.3:Denials of Home Health Agency Bills-                                 43
                           Chicago Region
                     Figure: 111.4:Denials of Home Health Agency Bills-                                44
                            Dallas Region
                     Figure: 111.5:Denials of Home Health Agency Bills-                                45
                            Denver Region
                     Figure: 111.6:Denials of Home Health Agency Bills-                                46
                            Kansas City Region




                      Page 9                      GAO/HRD9@14BR   Medicare   Home Health   Claims Denials
Contents




Figure: 111.7:Denials of Home Health Agency Bills-                                47
     New York Region
Figure: 111.8:Denials of Home Health Agency Bills-                                 48
     Philadelphia Region
Figure: 111.9:Denials of Home Health Agency Bills-                                 49
     San Francisco Region
Figure: III. 10: Denials of Home Health Agency Bills-                              50
     Seattle Region




 Abbreviations

 ALI       administrative law judge
 GAO       General Accounting Office
 HCFA      Health Care Financing Administration


 Page 10                      GAO/HED-9044BE   Medicare   Home Health   Claims Denials
Page 11   GAO/HRLNO-14BB   Medicare   Home Health   Claims Denials
Section 1

Background


                 Medicare, administered by the Health Care Financing Administration
                 (HCFA) within the Department of Health and Human Services, is a health
                 insurance program that covers almost all Americans age 65 and over
                 and certain individuals under 65 who are disabled or have chronic kid-
                 ney disease. The program, authorized under title XVIII of the Social
                 Security Act, provides protection under two parts. Part A, the hospital
                 insurance program, covers inpatient hospital services and certain post-
                 hospital care in skilled nursing homes and patients’ homes. Part B, the
                 supplementary medical insurance program, covers primarily physician
                 services. Although home health care is financed under both parts, about
                 98 percent of home health is paid under part A.

                 Home health care generally is defined as health care prescribed by a
                 physician and provided to a person in his or her own home. Home health
                 benefits covered by Medicare are, by law, oriented toward skilled nurs-
                 ing care and include

             . part-time or intermittent nursing care provided by or under the supervi-
               sion of a registered nurse;
             l physical, occupational, or speech therapy;
             l medical social services to help patients and their families adjust to social
               and emotional conditions related to the patients’ health problems;
             l part-time or intermittent home health aide services;’ and
             . certain medical supplies and equipment.

                 In fiscal year 1987, home health agencies made about 36.1 million visits
                 to 1.37 million Medicare beneficiaries at an estimated cost of $2.3 billion.

                 To qualify for Medicare home health care, a person must be confined to
                 his or her residence (homebound), be under a physician’s care, and need
                 part-time or intermittent skilled nursing care and/or physical or speech
                 therapy. The services must be furnished under a plan of care prescribed
                 and periodically reviewed by a physician. Individuals who need help
                 with activities of daily living, such as eating or using the toilet, but who
                 do not need skilled nursing care or physical or speech therapy, do not
                 qualify for Medicare home health benefits. In addition, Medicare benefi-
                 ciaries who are not homebound but need part-time or intermittent
                 skilled nursing care are ineligible for these benefits.



                 I Home health aides, among other things, help patients bathe, groom, get into and out of bed, use the
                 toilet, take self-administered medicines, and exercise.



                 Page 12                                 GAO/HRDS@14BR        Medicare   Home Health    Claims Denials
                           Section   1
                           Background




                           Medicare home health services must be furnished by Medicare-certified
Home Health Agencies       home health agencies or by others under contract to such an agency.
                           Agencies participating in the program must meet specific requirements
                           of the Social Security Act. The number of Medicare-certified home
                           health agencies increased from 2,212 in 1972 to about 5,661 in 1988.
                           This growth has primarily taken place in facility-based and for-profit
                           home health agencies, while the number of more traditional nonprofit
                           home health providers-visiting    nurse associations and government
                           agencies-has declined slightly.”


                           HCFA  administers the home health care program through nine regional
Program                    fiscal intermediaries-eight   Blue Cross plans and Aetna Life and Casu-
Administration             alty (Florida Aetna).” These intermediaries

                       . serve as a communication channel between home health agencies and
                           HCFA,
                       l   make payments to home health agencies for covered services provided
                           to Medicare beneficiaries, and
                       l   establish and apply payment safeguards to prevent program abuse.

                           Providers submit their claims for home health visits and other items to
                           the intermediaries. To identify noncovered services, intermediaries eval-
                           uate the claims through a utilization review process.4 This process
                           includes a medical review program whereby specified claims are
                           reviewed to determine if the services billed were medically necessary
                           and appropriate and covered by the home health benefit. Through this
                           process, intermediaries decide to either pay the claim in full or deny all
                           or part of it. Under certain conditions, providers may still receive pay-
                           ment for denied visits under the waiver of liability or through the
                           appeals process described below.




                            ‘Facility-based agencies include hospitals, skilled nursing facilities, and rehabilitation-based agencies.
                            Visiting nurse associations are generally community-based agencies supported by contributions and
                            patient fees. Government agencies consist mostly of county or local public health departments.

                            “There were originally 10 regional fiial intermediaries; however, Prudential Insurance Company
                            (New Jersey Prudential) withdrew from the program as of December 31,1988.

                            “Noncovered services include those that are (1) not reasonable or medically necessary, (2) provided
                            to beneficiaries who are not homebound, and (3) in excess of the services called for by approved
                            plans of treatment.



                            Page 13                                  GAO/HRIWO-14BR Medicare Home Health Claims Denials
                        Section 1
                        Background




                        The waiver of liability provision of the Social Security Act protects ben-
Waiver of Liability     eficiaries and providers from being liable for noncovered services when
                        they did not know and had no reason to know that the services were

                      . not medically reasonable and necessary or
                      . based on the need for custodial rather than skilled nursing care.

                        When these situations occur HCFA will pay providers for the cost of the
                        services as long as the number of denials does not exceed 2.5 percent of
                        total visits billed. When a provider exceeds the 2.5-percent rate in a cal-
                        endar quarter, Medicare will not reimburse the provider for such ser-
                        vices, usually for the next 3-month period.

                        The Omnibus Budget Reconciliation Act of 1986 created a second waiver
                        of liability category under which the beneficiary is not liable when ser-
                        vices are denied for “technical” reasons (i.e., because the beneficiary
                        was not “homebound” or did not require “intermittent” skilled nursing
                        care).5 HCFA pays providers for services denied for technical reasons
                        using the same 2.5-percent criterion that applies to “medical necessity”
                        denials.


                         Under an appeals process created by the Social Security Act, a decision
Appeals Process          to deny payment for services may be appealed to the intermediary for
                         reconsideration regardless of the amount involved. The intermediary’s
                         reconsideration decision may be appealed to a Social Security Adminis-
                         tration administrative law judge (AU) if the amount in controversy is
                         $100 or more. Where the amount is $1,000 or more, denials upheld by
                         the AIJ may be appealed to federal courts. Appeals must be filed within
                         60 days from the date of the decision at each level of the process.

                         Beneficiaries may appeal any denials and may appoint a qualified indi-
                         vidual (including a provider) to represent them in the appeals process. If
                         the beneficiary appeals, the provider is made party to the proceedings.

                         A provider may initiate an appeal if the ultimate liability rests with (1)
                         the provider or (2) the beneficiary and the beneficiary will not exercise
                         his or her appeal rights. A provider cannot appeal claims paid under the
                         waiver of liability provision.

                         “The Medicare Catastrophic Coverage Act of 1988 extended the waiver, which became effective July
                         1,1987, to November 1,199O. This provision was not repealed by the Medicare Catastrophic Cover-
                         age Repeal Act of 1989.      ,



                         Page 14                               GAO/HRtHO-14BR      Medicare   Home Health Claims Denials
                        Section 1
                        Background




Prior Concerns Raised   tration of the Medicare home health benefit.” We reported that about 27
Over Administration     percent of the visits reviewed at 37 agencies and paid under the benefit
of the Program          were questionable or improper. We attributed those problems to the
                        vagueness of the coverage criteria (particularly uncertainty over the
                        exact meaning of terms such as “homebound” and “intermittent care”),
                        insufficient information being submitted with the claims upon which to
                        base a coverage decision, and poor performance of the intermediaries in
                        reviewing claims.

                        HCFA'S 1984 evaluation of the home health program also questioned
                        administration of the benefit by the fiscal intermediaries.’ HCFA nurses
                        reviewed a sample of beneficiaries’ records previously reviewed by
                        seven fiscal intermediaries under the utilization review program. The
                        intermediaries had denied 8 percent of the claims reviewed; the HCFA
                        nurses said they should have denied 45 percent.

                        Concerned about the consistency with which intermediaries interpreted
                        such terms as “intermittent care,” the Congress, through language in the
                        Deficit Reduction Act of 1984, directed the Secretary of Health and
                        Human Services to reduce the number of intermediaries administering
                        the home health program to 10 or fewer by July 1,1987. The reduction
                        was intended to improve program management and promote consistency
                        in program administration.

                         In response to     the above concerns HCFA began instituting a number of
                         administrative      changes in 1985 to reduce payments for noncovered ser-
                         vices, improve      program management, and ensure more consistent claims
                         determinations       by intermediaries.


                         Home health bill denials increased from 3.1 percent of total bills
Home Health Denials      processed in the first quarter of fiscal year 1985 to a high of 9 percent in
Increased in Fiscal      the first quarter of fiscal year 1987. Since then, they have gradually
Years 1986-87            declined. (See fig. 1.1.)



                         'Medicare Home Health Services: A Difficult Program to Control (HRD-N-155, Sept. 26, 1981).

                         Medicare: Need to Strengthen Home Health Care Payment Controls and Address Unmet Needs (GAO/
                         m-87-9,    Dec. 2, 1986).

                         ’ 1984 National Home Health Study. An unpublished study by HCFA’s Bureau of Quality Control.
                                                       .


                         Page 15                               GAO/HRD9@14BR       Medicare   Home Health   Claims Denials
                                            Section 1
                                            Background




Figure 1.1: Increase in Home Health Denials-National     Totals
25   Percent of bills denied



20




                                             Source: HCFA.


                                             As a result of the increased denials, more denied claims were appealed
                                             and the number of home health agencies that lost their waiver of liabil-
                                             ity also increased.* Because of the increased denials, some industry rep-
                                             resentatives charged that HCFA was attempting to dismantle Medicare’s
                                             home health benefit and filed lawsuits contending that HCFA violated the
                                             requirements of the Administrative Procedure Act in implementing cer-
                                             tain changes to the home health progrxng During congressional hear-
                                             ings held throughout the country in 1986 and 1987, industry officials,
                                             providers, and beneficiaries raised concerns about HCFA actions they
                                             viewed as causing denials and eroding the home health benefit. Legisla-
                                             tion has been enacted to address many of these concerns (see app. II).




                                             ‘This means that they did not get paid for their denied claims until they regained their waiver.
                                             “The act requires agencies to notify the public through the Federal Register to allow for comment on
                                             proposed regulations before they are promulgated.



                                             Page 16                                 GAO/-SO-14BR          Medicare   Home Health   Claims Deni&
                        Section   1
                        Background




                        Because of the controversy surrounding the administration of the home
Objectives, Scope,and   health benefit, Representative Olympia J. Snowe and 66 other Members
Methodology             of Congress requested that we determine (1) the reasons for the
                        increased denials, (2) the extent and causes of variation in denial rates
                        among regions of the country, (3) the number of home health agencies
                        that lost their waiver of liability during the period of increased denials,
                        and (4) the effects of the increased denials on the appeals process. We
                        also identified actions taken by HCFA and the Congress since the period
                        of increased denials.

                        We did our work at HCFA'S headquarters in Baltimore and its regional
                        office in Boston; we visited one regional fiscal intermediary-Blue  Cross
                        and Blue Shield of Maine (Maine Blue Cross) and surveyed the 10
                        regional fiscal intermediaries that service freestanding home health
                        agencies by use of a mail questionnaire. We visited two home health
                        agencies in Vermont and two in Maine that congressional staff from
                        those states identified as having specific concerns about the administra-
                        tion of the home health benefit. We also visited the National Association
                        for Home Care, an industry association representing the interests of
                        more than 5,000 home health providers.

                         We (1) reviewed prior GAO and HCFA reports, recent legislation, congres-
                         sional hearings, and an August 1988 court decision (Duggan v. Bowen)
                         affecting the home health benefit; (2) gathered and analyzed statistics
                         from HCFA and other sources on home health claims, denials, appeals of
                         denials, and numbers of providers who had lost waivers of liability; and
                         (3) interviewed HCFA, home health industry, and intermediary officials.

                         We did our work from January 1988 to January 1989 in accordance
                         with generally accepted government auditing standards, with the excep-
                         tion that we did not verify the accuracy of the data intermediaries were
                         reporting to HCFA. However, through our questionnaire we identified
                         inconsistencies in how certain data are reported to HCFA; these inconsis-
                         tencies are discussed later in the report.




                         Page 17                      GAO/HRD9@14BR   Medicare   Home Health   Claims Denials
Section 2

Reasonsfor Increased Denials


                           In response to the concerns raised by GAO and the Health Care Financing
                           Administration’s Bureau of Quality Control between 1981 and 1986,
                           HCFA implemented a number of changes to improve the administrative
                           control over the home health program. These changes included

                       . implementing standardized medical information forms to provide better
                         information on which to make payment decisions,
                       . increasing the number of claims medically reviewed before payment,
                       . consolidating medical review for freestanding home health agencies
                         under 10 regional intermediaries, and
                       . evaluating the regional intermediaries’ medical review practices just
                         before consolidation.

                           We believe many of the denials of home health claims in 1986 and 1987
                           can be attributed to HCFA'S implementation of these changes; the 10
                           regional intermediaries generally agree. As shown in figure 2.1 the
                           increases in denial rates in fiscal years 1986 and 1987 roughly corre-
                           spond to the period of implementation of these changes.


                           In August 1985, HCFA implemented standardized medical information
Standardized Medical       forms for home health agencies to use in requesting payment from
Information Forms          intermediaries. The forms (HCFA forms 485 and 486) gave medical
                           reviewers more detailed information on each beneficiary’s general phys-
                           ical condition, “homebound” status, functional limitations, nutritional
                           requirements, services prescribed, and services received. The additional
                           information was intended to increase the accuracy and consistency of
                           coverage decisions. HCFA requires home health agencies to submit the
                           forms 485 and 486 with the initial claim and the claim closest to the
                           recertification date 60 days later. Interim bills submitted before recer-
                           tification need not be accompanied by these forms.

                           This initiative led to more claims denials because (1) medical reviewers
                           had more information on which to make coverage decisions, and (2)
                           some intermediaries denied claims because certain information was
                           missing, instead of requesting the required data. The regional
                           intermediaries cited denials associated with the implementation of the
                           new forms as a primary reason for increases in fiscal year 1986.




                           Page18
                                         Section 2
                                         Reasons for Increased       Denials




Figure 2.1: Relationship Between Program Changes and Increased Denials
25      Percent of bills denied




                                                                 i
10



 5                                                                             ****.I--------****



 0




     QuarterFiscal   Year
                                         1 Medical review doubled     and new form used
                                         ( Intermediaries   consolidated



                                          Source: HCFA



                                          The Consolidated Omnibus Budget Reconciliation Act of 1985 more than
 Increased Medical                        doubled the funds available for medical review and audit of home health
 Review                                   and other Medicare claims. During fiscal year 1986, HCFA implemented
                                          the changes that this increased funding allowed. Before fiscal year 1986,
                                          intermediaries performed medical reviews on about 25 percent of home
                                          health claims and, therefore, paid the other 75 percent without detailed
                                          reviews. HCFA instructed intermediaries to perform medical reviews on
                                          every home health claim with a HCFA form 485 and a 486 attached;
                                          interim bills did not generally receive such reviews. HCFA officials told us
                                          that this resulted in intermediaries performing medical reviews on about
                                          62 percent of the home health claims processed in fiscal years 1986 and
                                           1987 (more than double the percentage reviewed in fiscal year 1985).

                                          The increased number of bills subjected to medical review resulted in
                                          more denials and higher denial rates even though the percentage of bills


                                           Page 19                                           GAO/HRD9014BR   Medicare   Home Health   Claims Denials
                   Section 2
                   Reesona for Increased Denials




                   being denied during medical review did not increase significantly. For
                   example, in both 1985 and 1987, intermediaries denied about 10 percent
                   of the bills subjected to medical review. However, because over twice as
                   many bills were subjected to medical review in 1987, there were over
                   twice as many denials. As a result, the HCFA-reported denial rate,’ was
                   7.9 percent in 1987 compared with 3.4 percent in 1985.

                   The regional intermediaries cited increased medical review of claims as
                   one of the primary reasons for increased denials in fiscal years 1986 and
                   1987.


                   Beginning in the first quarter of fiscal year 1987, administration of the
Consolidation of   home health benefit for freestanding home health agencies was consoli-
Intermediaries     dated under 10 regional intermediaries; this caused over 3,000 of the
                   agencies to change intermediaries. Because of the variation in
                   intermediaries’ medical review performance and interpretation of cover-
                   age criteria, the change in intermediaries may have resulted in increased
                   denials until the home health agencies adjusted to the review practices
                   of their new intermediaries. While the intermediaries did not cite the
                   consolidation as the primary reason for the increase in denials, 7 of the
                    10 cited the adjustment period for agencies transferred to a new inter-
                   mediary as increasing denial rates to a moderate extent; all inter-
                   mediaries cited the consolidation as increasing denial rates to some
                   extent.


                    Just before the consolidation to 10 regional intermediaries, HCFA
Strengthening of    attempted to strengthen program controls and obtain more consistent
Intermediary        decisions from the intermediaries by evaluating the appropriateness of
Performance         their medical review decisions. This evaluation, conducted by HCFA’S
                    Health Standards and Quality Bureau, was intended to identify individ-
                    ual intermediary medical review training needs. Preliminary results of
                    the evaluations were sent to the intermediaries and HCFA’Sregional
                    offices in September 1986, but no final report was issued.

                    The Health Standards and Quality Bureau evaluation found about 28
                    percent of the visits reviewed should have been denied, but that
                    intermediaries had denied only 2.7 percent. In the first quarter of fiscal
                    year 1987, immediately following the bureau’s evaluation, the home
                    health claim denials were the highest ever. The intermediaries cited the

                    ‘Bills denied divided by bills processed.



                    Page 20                                     GAO/HRD-W14BR Medicare Home Health Claims Denials
                      Section 2
                      Reasons for Increased   Denials




                      bureau’s review as the most significant reason for the increase in denials
                      during fiscal year 1987.

                      In October 1986, before the Health Standards and Quality Bureau could
                      implement training programs based on their evaluation, HCFA trans-
                      ferred responsibility for monitoring the quality of medical review deci-
                      sions by regional intermediaries to its Bureau of Program Operations.
                      Since assuming this responsibility, that bureau has tried to promote uni-
                      form and accurate application of medical review guidelines by con-
                      ducting quarterly meetings with regional intermediaries and reviewing
                      case studies of coverage decisions.


                      There have been other reasons suggested by the home health industry
Savings Ratio Not a   as having been responsible for the increased denials in 1986 and 1987. A
Major Factor          frequently cited reason is the 5 to 1 savings-to-cost ratio standard that
                      HCFA used in evaluating intermediary performance. One of many stan-
                      dards in HCFA'S Contractor Performance Evaluation Program, this stand-
                      ard required that intermediaries recover $5 in benefit savings for every
                      $1 spent on medical review. The industry contends that this standard
                      encouraged intermediaries to arbitrarily deny claims to meet the
                      standard.

                       HCFA officials contend that, since the savings-to-cost ratio was only one
                       of many performance standards, an intermediary that arbitrarily denied
                       claims to meet this standard would adversely affect its performance
                       when measured against other standards (such as those relating to the
                       accuracy of coverage decisions). In March 1987, HCFA reduced the stand-
                       ard to a 2 to 1 ratio but did not use the standard in the fiscal year 1987
                       evaluations of intermediary performance. HCFA eliminated the standard
                       completely from the fiscal year 1988 contractor evaluations because of
                       the controversy and uncertainty associated with its use.

                       In response to our questionnaire, 7 of the 10 regional intermediaries told
                       us that the 5 to 1 ratio had little effect on increased denials in fiscal
                       years 1986 or 1987. Overall, they felt that of all the reasons discussed in
                       the questionnaire, this standard had the least effect on the increased
                       denials.




                       Page 21                          GAO/HRD9@14BR   Medicare   Home Health   Claims Denials
Section 3

Reasonsfor Varying Denial Rates Among
HCFA Regions

                             The Health Care Financing Administration’s quarterly data on denials of
                             home health agency bills for fiscal years 1985 through 1988 show signif-
                             icant variation of denial rates among HCFA regions. The variation results
                             in part from differences in medical review practices among the regional
                             intermediaries and inconsistencies among intermediaries in reporting
                             denials to HCFA.


                             Two of the 10 regional intermediaries had relatively low denial rates
Extent of Regional           throughout the 4-year period-Florida      Aetna’s highest rate was 5.6 per-
Variation                    cent in the first quarter of fiscal year 1987, and New Jersey Prudential
                             peaked at 7.3 percent in the fourth quarter of fiscal year 1987. The
                             other eight intermediaries experienced dramatic increases in denial
                             rates in at least one quarter of fiscal year 1987, though rates for all
                             decreased in fiscal year 1988. For example, the denial rates for Maine
                             Blue Cross were consistently below 5 percent until the first quarter of
                              1987, when they increased to about 15 percent. (See fig. 3.1 for denial
                             rates for selected intermediaries and app. III for denial rates for all
                             regional intermediaries.)


                             Regional variation in denial rates results primarily from differences in
Reasonsfor Regional          intermediaries’ medical review practices and methods for reporting
Variation                    denials to HCFA.


Differences in Medical       The intermediaries’ responses highlighted a variety of medical review
Review Practices             practices and guideline interpretations. For example:

                         l   The volume of claims medically reviewed by intermediaries varied. (The
                             national average was 62 percent.) One intermediary, through the use of
                             a utilization review screen, medically reviews 100 percent of its claims.’
                             That intermediary had the highest quarterly peak denial rate of all the
                             regional intermediaries-20.1    percent. Screens were used to a varying
                             extent by four other intermediaries for all or part of 1987.
                         l   Five of the intermediaries indicated that they were denying claims in
                             fiscal year 1986 when information was missing on HCFA forms 485 or
                             486. In May 1987, HCFA instructed intermediaries to stop denying claims
                             because of missing information and, instead, to request the necessary
                             information.


                             ‘Screens are parameters used to identify claims that should be subjected to more detailed review.



                             Page 22                                GAO/HRD90-14BR        Medicare   Home Health   Claims Denials
                                                 Section 3
                                                 Reasons for Varying   Denial Rates Among
                                                 HCFA Regions




Figure 3.1: Denials of Home Health Agency Bills for Selected Regional Intermediaries
25   Percent of bills denied



20



15



10



 5



 0




     -         Iowa - Des MoinesBlue Cross
     -I I I    WisconsinBlue Cross
     m         Florida-Aetna
     n n mn    Maine Blue Cross


                                                 Source: HCFA

                                             l   Inconsistent interpretations of certain coverage definitions continued.
                                                 For example, as a result of meetings among themselves, the
                                                 intermediaries identified a number of areas of inconsistent interpreta-
                                                 tions and requested HCFA to clarify definitions of a number of terms,
                                                 such as “daily care.” HCFA responded to each request.


Inconsistent Reporting of                        The 10 regional intermediaries were not consistent in the way they
Denials                                          reported denial statistics to HCFA at the time of our review. HCFA requires
                                                 intermediaries to report denials as either (1) medical denials or (2) non-
                                                 medical denials. Nonmedical denials can result from both the initial cler-
                                                 ical review of claims or from the medical review process2 Half reported

                                                 “Reasons for nonmedical denials occurring during medical review include duplicate services being
                                                 rendered or noncovered supplies being provided.



                                                 Page 23                                GAO/HRD-SO-14BB     Medicare Home Health Claims Denials
                Section 3
                Reasonf3 for Varying   Denial Rates Among
                HCFA Regions




                only denials occurring as a result of medical review; the others reported
                denials from both medical review and other sources, like the initial
                review of claims for eligibility.

                Thus, five intermediaries that reported denials from both medical
                review and other sources tended to have higher peak quarterly denial
                rates than those reporting only medical review denials. Four had peak
                denial rates in fiscal year 1987 that ranged from 18.6 to 19.7 percent.
                The other intermediary experienced a high of 13.6 percent.

                In contrast, four of the five intermediaries that reported only medical
                review denials tended to have lower peak quarterly denial rates. These
                intermediaries had peak quarterly denial rates ranging from 5.6 to 15.2
                percent in fiscal year 1987. The fifth had the highest quarterly denial
                rate during fiscal year 1987-20.1 percent-but       it performed medical
                reviews of 100 percent of home health claims.


Other Reasons   Intermediaries reported a number of other possible reasons for the vari-
                ation in denial rates, including (1) the number of and quarter in which
                home health agencies were transferred to a new intermediary during
                consolidation, (2) the size and experience of home health agencies in the
                intermediary’s region, and (3) differences in accepted medical and nurs-
                ing practices between the regions. Unusual circumstances can also result
                in variation. For example, one intermediary responded that inappropri-
                ate and even fraudulent billing practices at several of its large providers
                skewed its denial rates.




                                                .


                Page 24                                GAO/HRIWO-14BR   Medicare Home Health Claims Denials
Section 4

Effect of Increased Denials on Waiver of
Liability Status

                        Loss of waiver of liability (see p. 14) adversely affects an agency
                        because it is not paid for denied claims until it regains its waiver. Home
                        health industry officials say that the loss of a waiver also adversely
                        affects beneficiaries because providers without waivers may be reluc-
                        tant to provide certain services to beneficiaries when they have any
                        doubts about whether the service is covered. Also, providers may refuse
                        to accept new patients when they are not sure the patient will qualify
                        for home health benefits.

                        Precise data are not available on the number of home health agencies
                        that lost their waiver because of the increased denials. Data provided to
                        us by fiscal intermediaries, however, show that the percentage of agen-
                        cies that lost their waiver generally increased when home health claims
                        denials increased. Because intermediaries did not use consistent meth-
                        ods to determine agencies’ eligibility for a waiver of liability, differences
                        exist in the availability of the waiver.


                        The Health Care Financing Administration does not routinely collect sta-
Waiver Status Data      tistics on the waiver status of home health agencies, but did collect such
Are Limited             information for the period July 1987 through March 1988 in response to
                        a requirement in the Omnibus Budget Reconciliation Act of 1986.’ On
                        average, about 20 percent of the agencies were operating without a
                        waiver at any one time during this period. The chief of HCFA’S Opera-
                        tional Initiatives Branch, who conducted the study, advised us that
                        some agencies did not have a waiver due to low utilization (those
                        processing fewer than 10 claims in a 6-month period) and some lost their
                        waiver because they exceeded the 2.5-percent denial criterion. Low utili-
                        zation providers are not eligible for a waiver of liability. This official
                         also said that HCFA does not have actual or estimated figures on the
                         number of low utilization providers.


                        Waiver data for fiscal years 1986,1987, and 1988 were provided by 8 of
Questionnaire Results   the 10 intermediaries in response to our questionnaire.2 As shown in
on Waiver Status        table 4.1, the percentage of agencies that lost their medical waiver was
                        highest for the period beginning November 1,1986, when 31.8 percent
                        were without a medical waiver. The percentage of providers without a


                         ‘As of June 1989, the report being prepared by HCFA was in draft form.

                         ‘Florida Aetna and south Carolina Blue Cross could not provide all of the requested data for the
                         entire period.
                                                      .

                         Page 25                                GAO/HRNW14J3R        Medicare   Home Health   Claims Denials
                                    Section 4
                                    Effect of Increased   Denials    on Waiver   of
                                    Liability status




                                    medical waiver remained relatively high for the next 6 months but grad-
                                    ually decreased to about 13 percent by August 1988 (about 21 months
                                    later), the lowest rate experienced during the 3-year period. The per-
                                    centage of agencies without a technical waiver (see p. 14 for discussion
                                    of medical and technical waiver) peaked at 4.2 percent for the period
                                    beginning November 1, 1988.

Table 4.1: Number of Home Health
Agencies Off Waiver (Fiscal Years                                                        Home health agencies
1986-88)'                                                                                Without                        Without
                                    Effective date
                                    of waiver                    Total                medical waiver                technical waiver
                                    statusb                  serviced                    No.       Percent              No.       Percent
                                    02-01-86                        i ,478               241            16.3                   c                    .
                                    05-01-86                        1,494                315            21.1                   c                    .
                                    08-01-86                        1,636                404            24.7                   c                    .
                                    11-01-86                        1,941                617            31.8                   c                    .
                                    02-01-87                        2,381                733            30.8                   c                    .
                                    05-01-87                        2,793                746            26.7                   c                    .
                                    08-01-87                        3,499                797            22.8                   c                    .
                                    11-01-87                        3,566                762            21.4             124                  4.0"
                                    02-01-88                        3.583                628            17.5             102                  2.9
                                    05-01-88                        3,591                572            15.9             116                  3.2
                                    08-01-88                        3,148d               405            12.94             85                  2.7"
                                    11-01-88                        3,627                548            15.1             152                  4.2
                                    Yncludes data from 8 of the 10 reglonal fiscal Intermediaries;   Flonda Aetna and Blue Cross and Blue
                                    Shield of South Carolina are excluded.

                                    bBased on denials from the pnor calendar quarter.

                                    ‘Technical   waiver became effective July 1, 1987.

                                    dExcludes Blue Cross of California. which serves about 400 home health agencies


                                     Like HCFA'S data, our data include providers without a waiver because of
                                     low utilization status. When intermediaries identified low utilization
                                     providers on their medical waiver reports, they represented as many as
                                     8.5 percent of the total home health agencies served by the
                                     intermediaries. Low utilization providers can represent a significant per-
                                     centage of the home health agencies without waiver for an individual
                                     intermediary. For example, for the fourth quarter of fiscal year 1988,
                                     Health Care Service Corporation (Illinois Blue Cross) reported that 80 of
                                     its 468 agencies were without a medical waiver-40     for low utilization
                                     and 40 because the number of denials exceeded 2.5 percent of total vis-
                                     its billed.




                                     Page 26                                     GAOjHRD9@14BR        Medicare   Home Health       Claims Denials
                       Section 4
                       Rffect of Increased   Denials   on Waiver   of
                       Liability Status




                       Intermediaries’ application of HCFA'S policy regarding low utilization
                       providers is inconsistent. Depending on which intermediary processes
                       its claims, a home health agency can lose its waiver of liability if it (1)
                       processes fewer than 10 claims in a g-month period, (2) exceeds the 2.5
                       percent denial rate regardless of the number of claims processed, or (3)
                       processes fewer than 10 claims in a 6-month period and has more than
                       2.5 percent of its claims denied in three consecutive quarters.


Problems With Waiver   For a time, intermediaries were using different methods to calculate
                       denial rates for determining eligibility for a waiver of liability, resulting
Calculation            in different treatment of home health agencies. Some intermediaries
                       were using all visits medically reviewed (which averaged about 62 per-
                       cent of visits processed) as the denominator in the waiver calculation,
                       while others were using all visits processed. In an October 1986 regional
                       home health intermediary meeting, intermediaries realized that they
                       were calculating the waiver using different methods, brought this to
                       HCFA'S attention, and requested clarification. In November 1987, HCFA
                       instructed all intermediaries to use all visits billed as the denominator in
                       calculating denial rates.




                        Page 27                                    GAO/RRB90-14BR   Medicare   Home Health   Claims Denials
Effect of Increased Denials on the
Appeals Process

                   The number of claims appealed to intermediaries and administrative law
                   judges increased substantially as initial denials increased. The percent-
                    age of denied claims reversed also increased. This latter increase does
                    not necessarily mean that the claim should have been allowed originally.
                    Many reversals occurred because home health agencies that had not
                    submitted sufficient information with their original claim submitted
                    additional information when they appealed.

                   The increased appeal activity resulted in increased administrative costs
                   for providers and intermediaries, but quantifiable cost data from the
                   Health Care Financing Administration, intermediaries, or the industry
                   are very limited. The cost to a home health agency for submitting a
                   reconsideration varies depending on the amount of new information
                   submitted. Appeals before a Social Security Administration ALJ are more
                   costly. It costs the Social Security Administration an average of $715 for
                   each appeal. Only about 3,300 AU hearings were completed in fiscal
                   year 1988, however.


                   Table 5.1 shows that the number of reconsiderations and ALJ decisions
Appeals Activity   increased substantially from fiscal year 1986 through 1988. Reconsider-
Increased          ations and ALJ hearings do not necessarily correspond to the denials in
Substantially      the fiscal year due to (1) the go-day period allowed for filing an appeal
                   and (2) the time required to process the appeal. Nonetheless, it appears
                   from the data that only about 11 percent of the claims denied in fiscal
                   years 1986,1987, and 1988 were appealed.




                    Page 28                     GAO/IElUHO-14BRMedim   Home Health Claims Deniala
                                      Section 5
                                      Bffect of Increased LIenida on the
                                      Appeals Process




Table 5.1: Reconsiderations and ALJ
Hearings (Fiscal Years 1986-88)                                                    FY 1986    FY 1967     FY 1966          Total
                                      Claims processed                         5,386,500      5,154,800   5,055,100   15,596,400
                                      Claims denied                              321,333        407,826     257,884      987,043
                                      Reconsiderations:
                                         Completeda                                  9,596       37,853      60,756      108,205
                                         Reversedb                                   2,351       12,023      20,037       34,411
                                         Percent reversed                             24.5         31.8        33.0         31.8
                                      ALJ hearings:
                                        Completeda                                     537        1,179      3,296        5,012
                                        Reversedb                                      349          543      2,447        3,339
                                        Percent reversed                               65.0        46.1        74.2         66.6
                                      Total reversed:                                2,700      12,566      22,464       37,750
                                        As a percent of completed
                                        reconsiderations                              28.1         33.2        37.0         34.9
                                        As a oercent of all denials                    0.8          3.1         8.7          3.8
                                      %zludes   withdrawn   and dismissed cases.
                                      blncludes partial reversals
                                      Source: HCFA



                                      As table 5.1 shows, the percentage of denied claims reversed upon
Reversals Have Also                   appeal has risen steadily, from about 0.8 percent in fiscal year 1986 to
Increased                             about 8.7 percent in fiscal year 1988.




                                       Page 29                                 GAO/HRD9@14BBMedicare Home Health Claims Denials
                                           Section 5
                                           Effect of Increased Denials on the
                                           Appeals Process




Figure 5.1: Reconsiderations   Completed
(FiscalYears 1985-88)
                                           70   Thousands of reconsidoratlons   compktd




                                                 1985      1996
                                                 Fiscal Year

                                                          Cases affirmed. withdrawn. or dismissed
                                                          Cases reversed

                                           Source: HCFA


                                           Also the percentage of completed reconsiderations that resulted in pay-
                                           ment of a claim initially denied increased each fiscal year from 24.5 per-
                                           cent in 1986 to 33.0 percent in 1988. The percentage of completed ALJ
                                           hearings reversed increased from 65 percent to 74.2 percent, except for
                                           fiscal year 1987, when 46.1 percent were reversed. Figures 5.1 and 5.2
                                           show the increase in appeal activity and reversal levels at the reconsid-
                                           eration and ALJ hearing levels during recent years.




                                            Page 30                                   GAO/HRD9@14BRMedicare Home Health Claims Demials
                                     Section 5
                                     Effect of Increased   Denials     on the
                                     Appeals Process




Figure 5.2: ALJ Hearings Completed
(Fiscal Years 1985-88)
                                     3500   Number of h-rings


                                     3009




                                             1985      1996          ‘1997      1998
                                             F&al Year


                                             I        Cases affirmed,withdrawn,or dismissed
                                                      Cases reversed

                                      Source: HCFA

                                      Providers contend that many denied claims are reversed on reconsidera-
Reasonsfor Reversals                  tion without the submission of additional information indicating that the
                                      claim was inappropriately denied. Intermediaries and HCFA officials have
                                      stated that reversals typically occur at the reconsideration level because
                                      additional information is provided’ and that the initial decision to deny
                                      the claim may have been appropriate, given the available data. We vis-
                                      ited two home health agencies in Maine and two in Vermont that claimed
                                      that reversals were being made by their regional intermediary without
                                      the benefit of any new information. When we visited the intermediary,
                                      however, we found that all of the reversals cited by the agencies were
                                      based on the submission of additional or explanatory information,
                                      which allowed the intermediary to reverse the original decision.

                                      ‘Section 3783 of the Medicare Intermediary Manual indicates that the reconsideration of the amount
                                      of payment under part A is based on (1) information in the intermediary’s possession at the time the
                                      initial determination was made, (2) any statements or information that may be submitted by the
                                      party or parties, and (3) the medical and other records that are found to be required during the
                                      course of the reconsideration. In cases where the evidence taken as a whole is not clear and convinc-
                                      ing, a statement from the treating physician is to be obtained, in which the points at issue are
                                      discussed.



                                      Page 31                                      GAO/HRD-90.14BR   Medicare   Home Health   Claims Denials
               Section 5
               Effect of Increased   Denials   on the
               Appeals Process




               Several factors contribute to the number of reversals at the ALJ level,
               according to the HCFA administrator. First, the judge often has additional
               information gathered as part of the appeals process. Second, the AIJ is
               technically bound to follow only the law and regulations and is not
               bound by HCFA instructions or manuals that are not part of the regula-
               tions Therefore, the judge may find in favor of a beneficiary if the rea-
               son for the denial is not clearly supported by criteria stated in the law or
               regulations.


               We could not identify any central source of data to show what home
Appeals Cost   health appeals cost providers, intermediaries, or government agencies
               that adjudicate home health appeals. However, we developed estimates
               of the cost of appeals based on HCFA data on Administrative Budget and
               Cost reports, Social Security Administration data on Medicare part A
               and Adversarial Hearings, and discussions with intermediary officials
               on the cost to appeal.

               Administrative costs associated with reconsiderations and ALJ hearings
               increased between 1985 and 1987 but represent only a small portion of
               total Medicare part A home health expenditures. The cost for all Medi-
               care appeals to intermediaries, not just home health cases, rose from
               $3.2 million in fiscal year 1985 to $8.7 million in fiscal year 1987.

                In fiscal year 1987 the average administrative costs for an intermediary
                were about $95 for each reconsideration and $46 for each AU hearing.
                The Social Security Administration’s average administrative cost for
                each Medicare appeal was $7 15. Using these average costs and the com-
                pleted case figures in table 5.1 yields an estimated administrative cost to
                intermediaries and government agencies of about $4.5 million for fiscal
                year 1987, which represents about 0.2 percent of the $2.3 billion total
                Medicare part A home health expenditures.

                Aggregate information on provider appeal costs is not readily available.
                The provider’s cost of an individual appeal varies. At the reconsidera-
                tion level, if the agency provides no additional information beyond that
                submitted with the original claim, the appeals cost would consist of the
                administrative costs required to complete and mail (1) a Request for
                Reconsideration of Part A Health Insurance Benefits and (2) an
                Appointment of Representative form if the provider is representing the
                beneficiary. In addition to the aforementioned costs, if the agency pro-
                vided additional information beyond that which was submitted with the



                Page 32                                 GAO/HRD90-14RR   Medicare   Home Health   Claims Denials
Section 5
Effect of Increased   Deniab   on the
Appeals Process




original claim, the cost would increase in proportion to the tasks related
to collecting, reviewing, and submitting the additional data.

While appealing denied claims to the AW level may be much more costly
to providers, there are relatively few ALJ hearings completed (1,179 in
fiscal year 1987 and 3,296 in fiscal year 1988). By law, the provider
cannot charge the beneficiary any fee for representation before an AU
and may not be reimbursed if the appeal is unsuccessful.




Page 33                                 GAO/HRD9@14JSR   Medicare   Home Health   Claims Denials
Section 6

Recent ChangesAffecting the Home
Health Program

               Administrative actions by the Health Care Financing Administration
               resulted in declines in denial rates, regional variation in denial rates, and
               the number of home health agencies that have lost their waiver of liabil-
               ity since early 1987.


               HCFA acted to address some of the reasons cited for the high denial rates
Denials Have   of 1986 and 1987, resulting in decreased denials. Specifically:
Decreased
               1. In May 1987, HCFA instructed the intermediaries to stop denying
               claims solely for missing information and, instead, to request additional
               documentation needed to process the claim.

               2. HCFA'S Bureau of Program Operations eliminated two questions from
               the HCFA form 486 that industry officials felt were leading to increased
               denials: (1) block 11, which asked, “Is the patient receiving additional
               medically reasonable and necessary skilled care pursuant to a physi-
               cian’s plan of treatment paid for by other than Medicare?” and (2) block
                18, which asked, “Is there an available, able, and willing care giver?”
               According to industry officials, intermediaries were denying claims
               based on positive responses to these questions on the grounds that the
               beneficiary’s care needs exceeded the limits of the Medicare benefit or
               that Medicare-financed services were not needed because of the avail-
               ability of alternative sources of care. In our opinion, eliminating block
                11 from the form would likely decrease denials because this action limits
               the ability of intermediaries to identify beneficiaries whose care needs
               exceed Medicare coverage criteria. HCFA'S policy provides for denying
                aide services when there is a family member or other caring person who
                will provide care. Eliminating block 18 limits the intermediaries’ ability
                to enforce this policy by reducing the amount of information obtained
                on alternative care givers.

               3. HCFA revised the standardized forms and developed a training video to
               facilitate implementation of the revisions.

               The director of HCFA'S Bureau of Program Operations said that the
               extensive training given to home health agencies by the regional fiscal
               intermediaries on coverage issues and proper documentation of claims
               also contributed to the reduction in denials.

               As a result of these actions, denials decreased considerably (from 9 per-
               cent in the first quarter of fiscal year 1987 to 4.3 percent in the third
               quarter of fiscal year 1989) even though intermediaries continued to
                                       .

                Page 34                       GAO/HRDW14BR    Medicare   Home Health   Claims Denials
                        !3ection 6
                        Recent Changes Affecting   the Home
                        Health Program




                        perform medical reviews on about 62 percent of claims processed. As
                        the number of denials has decreased, so has the number of home health
                        agencies that have lost their waiver of liability. While we also expect the
                        number of appealed claims to eventually decrease, the data did not yet
                        reflect a decrease in appeals at the time of our review.


                        As national and regional claims denial rates have generally decreased,
Regional Variation Is   regional variation has narrowed. HCFA has taken action to reduce varia-
Narrowing               tion in medical review practices by clarifying that claims are not to be
                        denied solely for missing information, and by meeting routinely with the
                        regional intermediaries to discuss medical review, regional nursing prac-
                        tices, and other issues. In addition, home health agencies have had the
                        time to adjust to the medical review practices of their new fiscal
                        intermediaries.




                                                     .

                         Page 36                              GAO-Mb-14J.SR   Medicare   Home Health   Claims Denials
Appendix I

List of CongressionalR&questers


                  Olympia J. Snowe
House of          Claudine Schneider
Representatives   David O’B. Martin
                  Christopher H. Smith
                  Don Sundquist
                  Robert Garcia
                  William F. Goodling
                  James R. Olin
                  Gus Yatron
                  Richard H. Stallings
                  Peter H. Kostmayer
                  Arlan Stangeland
                  Frederick C. Boucher
                  James H. Saxton
                  Edward J. Markey
                  Lynn Martin
                  James H. Bilbray
                  Cardiss Collins
                  Joe Kolter
                  Lawrence J. Smith
                  Steve Gunderson
                  Matthew J. Rinaldo
                  Butler Derrick
                  W. J. (Billy) Tauzin
                  Marge Roukema
                  Doug Walgren
                  Paul E. Kanjorski
                  Gerry E. Studds
                  Stephen J. Solarz
                  Robert W. Davis
                  Harris W. Fawell
                  Patricia Schroeder
                  Robert C. Smith
                  Norman Sisisky
                  Robert A. Borski
                  Sherwood L. Boehlert
                   Virginia Smith
                   Dale E. Kildee
                   Wayne Owens
                   Robert T. Matsui
                   Dennis E. Eckart
                   Martin Frost
                   Byron L. Dorgan


                  Page 36                GAO/HRD-So-14BRMedicare Home Health Claims Denials
                         Appendix I
                         List of Congressional   Requesters




                          Bill Green
                          William J. Hughes
                          Clarence E. Miller
                          John J. LaFalce
                          Herbert H. Bateman
                          Constance A. Morella
                          Edward F. Feighan
                          Jim Kolbe
                          Daniel K. Akaka
                          Amo Houghton
                          Mickey Edwards
                          Mike Synar
                          Edward R. Roybal
                          Norman D. Shumway
                          Ben Nighthorse Campbell
                          Larry E. Craig
                          Louis Stokes
                          Robert Lindsay Thomas
                          Ted Weiss
                          George W. Crockett, Jr.
                       -. Dan Daniel
                           Hal Daub
                           Ferdinand J. St Germain


                          James M. Jeffords
United States Senate




                           Page 37                            GAO/HRD90-14BR   Medicare   Home Health   Claims Denials
Appendix II

Industxy Concerns and CongressionalActions
Related to Medicare’s Home Health Benefit

                                 The side captions for this appendix represent some of the industry con-
                                 cerns relating to the denial of home health claims. The text that follows
                                 describes congressional actions taken in response to each concern.


Too Many Home Health             The Omnibus Budget Reconciliation Act of 1986
Care Claims Are Being    . required that the Secretary of Health and Human Services report to the
Denied                     Congress annually in March 198’7 and March 1988 on denial activity.
                           The reports were required to address (1) the frequency of denials, (2)
                           the reasons for denials, (3) the extent to which payments were made to
                           providers under the limitation of liability provision, (4) the rate of
                           reversals, and (5) an assessment of the appropriateness of any percent-
                           age standard for granting favorable presumption of liability to
                           providers.
                         . required a demonstration program under which intermediaries will
                           review and decide home health claims shortly after the onset of
                           services.

                                 The Medicare Catastrophic Coverage Act of 1988

                         .       required the Administrator of HCFA to appoint an 1 l-member Advisory
                                 Committee on Medicare Home Health Claims to study the reasons for the
                                 increase in denial rates during 1986 and 1987, its ramifications, and the
                                 need for reforms. (This provision was repealed by the Medicare Cata-
                                 strophic Coverage Repeal Act of 1989.)


Denial Letters Do Not            The Omnibus Budget Reconciliation Act of 1987
Explain Why Claims Are           required that intermediaries furnish home health agencies a written
Denied                   l


                                 explanation citing the statutory and regulatory basis for denying a
                                 claim.


Definitions Are Too              The Omnibus Budget Reconciliation Act of 1986
Stringent and                    extended the waiver of liability to technical denials-those         based on
Interpretations Differ       l


                                 “not homebound” or “not intermittent care.”
Among Intermediaries




                                 Page 38                      GAO/HRD90-14BR   Medicare   Home Health Claim.9 Denials
Industy Concerns and CongressionalActions
Related to Medicare’s Home Health Benefit

                                 The side captions for this appendix represent some of the industry con-
                                 cerns relating to the denial of home health claims. The text that follows
                                 describes congressional actions taken in response to each concern.


Too Many Home Health             The Omnibus Budget Reconciliation Act of 1986
Care Claims Are Being            required that the Secretary of Health and Human Services report to the
Denied
                         l


                                 Congress annually in March 1987 and March 1988 on denial activity.
                                 The reports were required to address (1) the frequency of denials, (2)
                                 the reasons for denials, (3) the extent to which payments were made to
                                 providers under the limitation of liability provision, (4) the rate of
                                 reversals, and (5) an assessment of the appropriateness of any percent-
                                 age standard for granting favorable presumption of liability to
                                 providers.
                         l       required a demonstration program under which intermediaries will
                                 review and decide home health claims shortly after the onset of
                                 services.

                                 The Medicare Catastrophic Coverage Act of 1988

                             . required the Administrator of HCFA to appoint an 1 l-member Advisory
                               Committee on Medicare Home Health Claims to study the reasons for the
                               increase in denial rates during 1986 and 1987, its ramifications, and the
                               need for reforms. (This provision was repealed by the Medicare Cata-
                               strophic Coverage Repeal Act of 1989.)


Denial Letters Do Not            The Omnibus Budget Reconciliation Act of 1987
Explain Why Claims Are       . required that intermediaries furnish home health agencies a written
Denied                         explanation citing the statutory and regulatory basis for denying a
                               claim.


Definitions Are Too              The Omnibus Budget Reconciliation Act of 1986
Stringent and                    extended the waiver of liability to technical denials-those        based on
Interpretations Differ       l


                                 “not homebound” or “not intermittent care.”
Among Intermediaries




                                 Page 38                      GAO/HRD-9lS14BR   Medicare Home Health Claims Denials
                                  Appendix II
                                  Industry Concerns and Gmgressional  Actions
                                  Related to Medicare’s Home Health Benefit




Appealing Denied Claims           The Omnibus Budget Reconciliation Act of 1986
Takes Too Long and Costs .        required a special denial report including the number of denials reversed
Too Much                          on appeal.

                                  The Omnibus Budget Reconciliation Act of 1987

                          l       required the timely processing of reconsiderations.


Many Claims Denied                As a result of individual members’ inquiries to HCFA,
Becauseof $5 to $1                HCFA reduced standard to $2 to $1 in March 1987, and eliminated the
Savings-to-Cost Ratio     l


                                  standard from the fiscal year 1988 Contractor Performance and Evalua-
Standard                          tion Program.


HCFA’s Standardized               The Medicare Catastrophic Coverage Act of 1988
Forms Create Unnecessary.         required the Administrator of HCFA to appoint an 1 l-member Advisory
Administrative Burden             Committee on Medicare Home Health Claims. (Repealed by the 1989
                                  act.)


Home Health Benefit Is            The Medicare Catastrophic Coverage Act of 1988
Being Eroded, and Unmet         expanded the number of covered days of daily home care. (Repealed by
Needs Are Increasing          l


                                the 1989 act.)
                              l expanded benefit to include respite care. (Repealed by the 1989 act.)
                              . expanded benefit to include intravenous drug therapy. (Repealed by the
                                1989 act.)

                                  The Older Americans Act Amendments of 1987

                              l   added a new program for support of nor-medical in-home services for
                                  the frail elderly.
                              l   authorized consumer protection demonstration project for services pro-
                                  vided in the home.




                                   Page 40                             GAO/HRD-9@14BR   Medicare   Home Health   Claims Denials
Appendix III

Bill Denials by Region



Figure 111.1:Denials of Home Health Agency Bills-Atlanta     Region
25   Percent of bills denied




     -        Atlanta Region Average
     -m-m     Florida-Aetna
     m        South Carolina Blue Cross


                                             Source: HCFA.




                                                                      .



                                             Page 41                      GAO/HRD-So-14RR   Medicare   Home Health   Claims Denials
                                             Appendix Ill
                                             Bill Deniala by Region




Figure 111.2:Denials of Home Health Agency Bills-Boston       Region
25      Psrcsnt of bills denied



20



15



10



 5



 0




     QuarterFiscal    Year

         -           Boston Region Average
         I I I I     Maine Blue Cross


                                             Source: HCFA




                                              Page 42                  GAO/HRD-9@14BR   Medicare   Home Health   Claims Denials
                                                Appendix ICI
                                                Bill Deniala by Region




Figure 111.3:Denials of Home Health Agency Bills-Chicago          Region
25      Perani of billr daniod




 0

      68                8
                       E
 6                   o*
     CwarlerFkal            Year

           -           Chicago Region Average
           I I I I     Illinois Blue CrosS
           m           Wisconsin Blue Cross


                                                Source: HCFA.




                                                 Page 43                   GA0/HRD!%14BR   Me&are   Home Health   Claims Denials
                                             Appendix III
                                             Bill Denials by Region




Figure: 111.4:Denials of Home Health Agency Bills-Dallas     Region
25   Percant of bills doniod



20



15



10
                                                                                                                            \

 5



 0




     -         Dallas Region Average
     m-mm      Blue Cross New Mexico


                                             Source: HCFA




                                              Page 44                 GAO/IiRD-9@14BR   Medicare   Home Health   Claims Denials
                                            Appendix III
                                            Bill Lknials by   Region




Figure: 111.5:Denials of Home Health Agency Bills-Denver       Region
25   Percent of bills denled



20




                                             Note: Data do not reflect claims processed by Denver’s regtonal intermediary:   Blue Cross of Iowa

                                             Source: HCFA.




                                             P8ge 46                                  GAO/HELM%14BR         Medicare   Home Health     Claims Denials
                                                    Appendix Ill
                                                    Bill Denida by Region




Figure: 111.6:Denials of Home Health Agency Bills-Kansas             Clty Region
25      Porcont of bills drnid



20



15



10



 5



 0




     OuatlerFiscal    Year

         -           Kansas City Region Average
         I I I I     Iowa - Des Moines Blue Cross


                                                    Source: HCFA




                                                     Page 46                       GAO/HRlS9tSl4BR   Medicare   Home Health   Claims Denials
                                           Appendix     III
                                           Bill Deniala by Region




Figure: 111.7:Denials of Home Health Agency Bills-New         York Region
25   Pemnt of bills denied



20


15



10



 5



 0




     -         New York Region Average
     - - - -   New Jersey - Prudential


                                            Source: HCFA




                                            Page 47                         GAO/HBD90-14BRMedicare Home Health Claims Denials
                                                                  Appendix III
                                                                  Bill Jkdds   by Region




Figure: 111.6:Denials of Home Health Agency Bills-Philadelphia                             Region
25      Percent of bills denied



20




 5



 0

      E8                 E9         39        8             Q
                                             P             E
 $                   Q          8          0”          6
     Quarter/Fiscal Year

           -             Philadelphia Region Average
           I I I I       Pennsylvania - Philadelphia Blue Cross


                                                                  Source: HCFA.




                                                                   Page 48                          GAO/HRD90-14BR   Medicare   Home Health Claims Denials
                                                Appendix III
                                                Bill Denials by Region




Figure: 111.9:Denials of Home Health Agency Bills-San         Francisco Region
25      Percent of bills denied



20



15



10



 5



 0




     Quarter/Fiscal Year

        -         San Francism Region Average
        I -I I    California Blue Cross

                                                Source. HCFA.




                                                 Page 49                         GAO/HRDSO-14BR   Medicare Home Health Claims Denials
                                             Appendix IlI
                                             Bill Denials by Region




Figure: 111.10:Denials of Home Health Agency Bills-Seattle       Region
25      Perwnf of bills denied



20



15



10




     QuartorlAscal   Year


                                              Note: Data do not reflect claims processed by Seattle’s regional intermedii:   California     Blue Cross.

                                             Source: HCFA




                                              Page 60                                  GAO/HRD90-14BR        Medicare   Home Health       Claims Denials
       .
Appendix IV

Major Contributors to This Report


                              Jane Ross, Senior Assistant Director, (202) 275-6196
Human Resources               James R. Linz, Assistant Director
Division, Washington,
                -
D.C.
                              William A. Moffitt, Evaluator-in-Charge
Boston     Re@ona1   Office   Teresa D ’ Dee, Site Senior




                                                     .

(lollra)                      Page 61                      GAO/HRD9@14RR   Medicare   Home Health   Claima Denials