HOSPITALS LOOKING FOR SOLUTIONS TO THE MEDICARE APPEAL BACKLOG CRISIS
Part IV — Finance Strategy for Hospitals to Cope with the Medicare Appeals Backlog
This is the fourth part of a series covering the Medicare appeal backlog. In Part I, we examined a few backlog statistics. We concluded that the Office of Medicare Hearings and Appeals (OMHA) does not have the capacity to handle this case load. It can process only around 72,000 appeals per year, which is less than one-fifth of the needed capacity. As of July 2014, the backlog had risen to over 800,000 appeals. Now it is said to be well over 1,000,000 appeals. (Does anyone really know?) Appeals are taking more than ten times longer than the statutory framework of 10 months to resolve. That is more than 10 years!
Figure 1 Medicare Appeals are Running Far Slower Than the Statutory Limit. This ties up hospital claims money for very long periods of time.
We suggested that one way to cut down the number of appeals would be to use audit contractors who make mistakes only 1-2% of the time, instead of 66% of the time, as is the case now. Although this would dramatically reduce the number of appeals, it seems as though we are asking too much.
Another option would be to charge the auditors a tax for each denied claim that is reversed on appeal, and hand that money over to the provider (not to the government). Or we could have the auditor be forced to refund all of the provider’s legal fees spent during the appeal. Even though this is a satisfying fantasy, none of it is going to happen.
In Part II we examined the proposal to insert a new actor into the appeals process. Under new proposals, Attorney Adjudicators (AAs) will take over part of the Administrative Law Judge’s (ALJ) work. We concluded that under the current proposals, even if they are adopted, it is unclear how this would help with the backlog except incrementally. In reality, it would take hiring a very large number of Administrative Law Judges to make substantial cuts in the current appeals backlog.
In Part III we examined proposals for bulk settlement through an alternative dispute resolution process called “Settlement Conference Facilitation” (SCF). We concluded that even if the program was doubled, it would amount to a solution for less than one-third of 1% of the backlog. This option is a form of “throwing in the towel”. That is, OMHA wants to have the appeals simply erased, and is willing to pay out around 66% of the amount in question, which happens to be the average rate for over-turned denials.
The problem with this approach is that it simply skips the carefully thought-out process of litigation. Since the claims themselves are not analyzed in this process, and no ruling is made on whether or not they are valid, this option would allow much fraud to slip through the system, and it would deprive the healthcare community of vital feedback information needed to take corrective actions in filing subsequent claims. It is a type of administrative ground hog day.
Today we will look at some of the financial aspects of the backlog. Here, we find that hospitals are well aware of their problem. A large amount of their money is being held up in the appeals backlog, and we have shown that at least two-thirds of this money eventually will come back because the auditors are doing such a poor and inaccurate job in their work.
So now lets look at some of the strategies available for hospitals to adjust to a situation in which a large amount of their claims money is improperly withheld from them, and for indeterminate amounts of time. Some hospitals keep these future denial reversals on the books as account receivables for a while, before they are retired in to the bad debt pile.
For hospitals, in 2016, we can estimate there will be around 1,600,000 claims available for appeal. At current rates, approximately 708,000 will be appealed.
Given that there are 77 ALJs available to handle all of this appeals work, this is a rate of around 9,200 claim appeals per ALJ per year, which of course it far too many, and does not take into consideration either the standing backlog or other provider appeals. So there will be continued delays. Indeed, we see that in the first quarter of 2016, 75% of appeals to the ALJ were taking longer than the 90 days provided for in the statute.
We know that in 2015 approximately $1.3 billion was paid to 1,900 hospitals and that represented 68% of the value of the claims under appeal. These payments were made providing the hospital would withdraw its appeal. There was an average of 158 claims per hospital in this tranche. These numbers define an approximate value of $6,375 dollars per claim appeal.
We know that there are 4,818 hospitals registered with Medicare. So using ratio analysis, we can estimate that in 2016 the value of these claims to be held will be approximately $4.8 billion dollars for around 761,250 claim appeals.
One option would be to finance this amount. Such a bridge loan might come into play when triggered by the appeals process exceeding the statutory time limit, combined with the expectation that they will be resolved either with a bulk settlement, or with an ALJ hearing.
Since the backlog is greatly expanded to more than 130 months, instead of the statutory 10, then it is reasonable to use a 10 year mortgage type calculation, similar to a rolling home equity loan. So at a 3.5% interest rate, the payments would be only $48,000 per month for carrying the $4.8 billion that would be in play. If the interest rate were only 5%, then still the carry payments would be only $52,000 per month. Mere pennies, considering that these interest payments could be shared between all hospitals taken as a whole.
This type of arrangement could be set up through a forward-looking financial institution. Alternatively, hospitals as a purchasing group could enter into a joint self-insurance arrangement so that each could draw upon the pool as needed. The interest payments, minus administrative expenses, would simply expand the amount of funds available to draw upon.
As soon as any settlement was paid out via a bulk negotiation, such as the 68% rule, or through an ALJ hearing, then the hospital would pay back the pool. In the meantime, for those many months that a hospital has its claims held, it will be able to make use of the money that it could expect, but at a small interest rate. For some hospitals, this might be well worth it.
This seems to be a reasonable opportunity for any financial intermediary who is interested in developing new products addressing new markets, particularly ones like Medicare appeals which seem to be rapidly expanding.
This type of financial solution will do nothing to relieve the appeals backlog, but it might help to make the financial pain more bearable for hospitals.
In Part V we will look at investments in IT as a strategy for many hospitals in building their capacities for both filing more acceptable claims, and also for better handling the information aspects of the claims appeals process when required. We will look at investments in Electronic Health Records (EHRs), patient portal software, e-prescribing and lab integration IT investments. For each of these massive investments, we will examine how it will have an impact on the backlog.
HOSPITALS LOOKING FOR SOLUTIONS TO THE MEDICARE APPEALS BACKLOG CRISIS
Part III — Settlement Conference Facilitation (SCF) As a Way Out of the Medicare Backlog
This is the third part of a series covering the Medicare appeals backlog. In Part I of this series, we examined a few statistics behind the backlog. The Office of Medicare Hearings and Appeals (OMHA) does not have the capacity to handle this case load. It can process only around 72,000 appeals per year, which is less than one-fifth of the needed capacity. As of July 2014, the backlog had risen to over 800,000 appeals. Now it is well over one million appeals. The time it is taking to resolve appeals is more than ten times longer that the statutory framework: What is supposed to take ten months, now is taking more than 10 years! This means that for all practical purposes, the appeals system has completely crashed.
We noted that much of the appeals backlog can be explained by the use of computerized programs that automatically generate audits, and also by the astounding number of errors made by the audit contractors.
Figure 1 Audits of Healthcare Providers are Very Inaccurate. More than 2/3-rds are incorrect, but still cost a great deal to appeal.
The errors made by contractors are substantial. For example, in hospital appeals, the audit contractors are wrong 2/3-rds of the time. In other words, the audit contractors are “mostly wrong”.
We suggested that one way to cut down the number of appeals would be to use audit contractors who make mistakes only 1-2% of the time, instead of 66% of the time. This would dramatically reduce the number of appeals. Why the government tolerates contractors who are wrong most of the time is a mystery.
In Part II we examined the proposal to add a new actor in the appeals process. Attorney Adjudicators (AAs) will take over part of the Administrative Law Judge’s (ALJ) work during the appeals process. The Attorney Adjudicator is defined as someone who is a licensed attorney “employed by OMHA having knowledge of Medicare coverage and payment laws and guidelines”. The AA’s duties would include (1) performing reviews of the administrative record; or (2) drafting appropriate orders.
Since the Attorney Adjudicator at this time is merely a proposal, it is unclear if OMHA will end up going this route. Some provider associations have objected. Although there is a logic to the Attorney Adjudicator, given the astounding and disabling backlog, it is unclear how this would help except incrementally.
In other words, AAs might help, but the backlog is so large this solution by itself would have little effect.
Today, in Part III, we will examine the proposal for bulk settlement. Bulk settlement of appealed claims can take place through an alternative dispute resolution process called “Settlement Conference Facilitation” (SCF). It is not entirely clear how a settlement is reached, except that there is a facilitator of the mediation process. The facilitator is not an external party, but instead works for the Office of Medicare Hearings and Appeals (OMHA).
This mediation is described as a discussion of the potential for “a mutually agreeable resolution for claims appealed to the Administrative Law Judge” (ALJ). If the settlement conference is successful, then a “settlement document” is drawn up, and that is the end of the matter.
The eligibility requirements are restrictive. The amount of each claim must be $100,000 or less. If the overpayment amount is extrapolated from a universe of claims, the total amount must be $100,000 or less. At least 50 claims must be at issue, and at least $20,000 must be in controversy.
There is a well-defined process that is quite specific regarding forms and decision points, but we have been unable to identify the rules for the actual settlement conference. For example, we have seen no published set of procedures or system of logic to follow in order to reach a settlement. What is peculiar is that the actual validity of the various claims is not reviewed. What do these meetings do instead? It is not clear.
This process was piloted in 2014, and so far around 2,000 Medicare Part B ALJ appeals have been handled. In 2015 Phase II of the pilot was started, and Phase III opened in February of this year.
This program, still in its pilot stage, does not cover all appeals, only a portion of them. It is not known how many appeals are in the $20,000 to $100,000 range. This is another example of where CMS data sets are lacking. But perhaps this “price” range accounts for the bulk of the claims in the backlog.
Even if 3,000 of the cases have been handled through this alternative dispute resolution process, that would amount to less than one-third of 1% of the backlog. So, like the prospects for the Attorney Adjudicators, it is difficult to view this relatively new process as being more than a drop in the bucket insofar as cutting down the backlog is concerned.
In the final part of this series, we will examine some of the financial impacts of this backlog on hospitals, and see what coping strategies are being employees.
A line of crumpled elderly patients hobble into the office. Some are permanently bent over, supported by a walking cane. Others walk unsteadily, wobbling back and forth. They are of all ages, but mostly old. Lines criss-crossing their faces betray constant joint and muscle pain. For some it is the shoulder, for others the neck, or the hips, or chest, or knees, or lower back. All are patients of Dr. Nguyen.
The work is boring and repetitive, but Dr. Nguyen is cheerful, and listens to each patient as they express the frustrations with the fall season of their lives.
Parked out back is her 2007 Honda Civic. She purchased it used. A few dents, and duck tape covering a few holes in the seats, but it works. The office is drab, but spotlessly clean. Being a doctor is not making her rich.
On the wall, a small black and white photo taken from the time when she was trapped in an internment camp in Thailand. It seems like ages ago, but also like yesterday. This is what her life was like before coming to the United States, learning English, then working her way through medical school while serving Pho at a Vietnamese restaurant, scrubbing the floors at night, cleaning the grease traps and helping the owner with other matters.
For each of her patients, the procedure is the same. First, a conversation to record the patient’s history. Then a diagnosis followed by treatment. The doctor either performs manipulation of the tissue or if the pain is severe, she will relax the muscles with an injection. Apart from extraordinary knowledge of anatomy and an appreciation of true pain, for her the practice is not complicated. There are only three Medicare codes in her billing.
I am visiting because of a RAC audit. She explained the situation. The RAC had demanded a number of records, then wrote back denying almost 100% of the claims.
A hastily assembled extrapolation jacked-up the claw-back value. The money was due, pending appeal, and the doctor was very concerned about the interest that was being accumulated.
At the first level appeal, Dr. Nguyen had carefully written back to the RAC. Everything had been explained and documented in detail. LCDs were quoted, specific errors in the RAC’s analysis were pointed out, and reference was made to the voluminous documentation that had been submitted. The doctor had experienced a fleeting sense that since everything had been clearly explained, the RAC would see what should at first have seen, and then things would be ok.
But the RAC had merely mailed back a form letter rejecting outright her first level appeal. The RAC was in no mood to reverse its own judgment. They rarely are. In contrast to the detail and specificity provided in the doctor’s first level appeal, the RAC letter was 99% boiler-plate, repeating platitudes about billing and responsibility. There was no analysis at all. Only cut-and-paste of off-the-shelf language of a general nature explaining the policies. There was no discussion of specifics. The wait was difficult, but the first level decision was discouraging.
Now it was time to make the second level appeal to the QIC. Even after being warned that the QICs usually are little more than a rubber stamp, she wanted to make every good effort to submit an even better appeal to this next level.
“I’m not worried. Once we explain everything, it will be OK.
America is a fair place,” said she.
The QIC appeal document was a masterpiece. The doctor hired at attorney who instructed her to start with the rules and then show how the elements of each rule were satisfied in her documentation. She worked closely with the attorney. In order to save money, she made a deal to do most of the work with the attorney only directing what needed to be done.
The appeal was impressive. It started with each Local Coverage Determination (LCD) applicable to the appeal. For each LCD, she listed out the specific elements that must be present in order for a claim to be compliant. There are two types of elements: mandatory and advisory. Both types of elements were specified for each relevant LCD. In some cases, scientific articles were quoted to provide additional insight, and also a few notations from the Federal Register to supplement the record and clarify the applicable rules.
Then for each denied claim, the doctor showed with specificity exactly how the required elements were met, and pinpoint referenced where the information was located in the claim documents already filed with the RAC. Every single element was justified, and every single element was documented. The doctor was able to show also that even for those elements that were advisory and not mandatory, the bulk of those elements were met also.
Not only was the pinpoint reference made, but the actual information from the claim was quoted, so the RAC did not even need to look it up.
It had become clear that the RAC had made numerous mistake when it rejected so many claims. In some cases, it had misinterpreted the LCDs; in others, it had simply not bothered to read through the documentation. But the RAC did more than that. It fabricated rules where none exist. It did this by taking many of the advisory elements and claiming that they were mandatory.
When Dr. Nguyen mailed the QIC submission, it was more than 1,300 pages. She took the large bundle down to San Francisco’s Sutter Street Post Office herself, a package almost as big as she.
Again, the doctor allowed herself to feel relieved. The second level appeal to the QIC was comprehensive, detailed, and able to match each element documented to specific requirements of the LCDs. She could not imagine that the result would be anything else but complete reversal of the denials. Nothing could be so clear.
But also nothing could be so straight. After the statutory time, the response from the QIC came back. The excitement felt upon opening the letter quickly faded. Like the RAC letter, the QIC response was mostly boiler plate. And like usual, the QIC rubber-stamped the RAC.
The QIC work was disturbing, and there were a number of anomalies. From the claim-by-claim spreadsheet supplied by the QIC, it was obvious that some denials were never even considered.
RAC demands treatment without diagnosis
One problem in the audit involved claims what included an evaluation component. It is standard for any doctor to examine patient before making a diagnosis. But when a patient came back for an entirely different problem, the RAC had rejected the need for an evaluation. They claimed the next visit was a “follow up” visit, and if a visit is a follow-up, then there can be no evaluation.
The problem is that each visit was to address pain in a different part of the body, and of course this was clearly documented, because each part of the body has a different diagnostic code. The doctor explained: “You will note that each evaluation was for a completely different condition,” she said, “We have a policy never to schedule follow-up treatments.”
It is important to understand the implications of the RAC’s decision. It means, in effect, that doctors are required to engage in prescribing treatment without having made an evaluation of the problem. Treatment without a diagnosis would be a classic case of malpractice, but that is what the RAC is demanding.
Arbitrary Time Cuts
Another policy of the RAC was to arbitrarily shorten all patient encounters to 15 minutes instead of the 45 minutes that were consumed. Every single patient encounter was documented completely with begin times and end times, and it is easy to see from the doctor’s calendar that she never engaged in the crooked practice of billing for large numbers of patients that would be impossible to service in the day. But in spite of all the documentation, and for no reason whatsoever, the RAC just said it would pay for 15 minutes, but not for the actual amount of time consumed, 45 minutes.
There is no justification for the RAC cutting back the time like this, and the RAC didn’t provide any justification, it just did it.
Re-writing the LCDs
The RAC also changed the LCD rules by making optional elements required. And the irony in all of this was that even in those cases where optional elements had been made mandatory, still the doctor had met those elements as well in her documentation. Yet still the claims were denied.
So first the RAC made some optional elements mandatory, and when the doctor met even those elements, still the RAC denied the claims. What is going on?
The bottom line is that there was simply nothing wrong with the doctor’s claims. Nothing.
As the doctor started to prepare the documentation to the third level appeal to the Administrative Law Judge (ALJ), a FedEx package arrived. It was from the RAC. The doctor was notified that she was being put on pre-payment review. Note that this is before any resolution of her outstanding case. Again, the RAC just decided to do it. It was a shock out of the blue.
The doctor’s cash has started to run short. In the last meeting, we discussed her future. The doctor looked off into the distance to a place known only to her. “I went into medicine to help people. Perhaps I’ll drop out of this and just go to an all-cash system.”
Something needs to be done to regulate the activities of the RACs or develop an entirely new approach to auditing.
Part II — Defending Against the Tyranny of Algorithms
In Part I of this series, we reviewed how the number of Medicare audits has increased by almost 1,000% in the past five (5) years, and how virtually no decisions by ALJs are being handed back within the statutory time frame.
We discussed also how RACs have started to rely on big data mining of hospital claims to generate large numbers of Diagnosis-Related Group (DRG) downgrades. This is costing hospitals plenty, not only in the reduction in payment revenue, but also in the constantly increasing cost of defending against audits.
The use of computer algorithms has drastically reduced the cost of conducting audits, but there has been no corresponding reduction in defensive costs for hospitals, and this is an example of what military people call “asymmetric warfare”, where the cost of defense is always disproportionately greater than the cost of offense. It is an impossible game to win.
We will now examine a few of the legal issues that are presented by the need to defend against not an audit, but against an algorithm.
The MPIM specifies that the decision to conduct an audit is “not reviewable” in a hearing. This means that even if a provider is being profiled or targeted through an artificial intelligence algorithm, they are fair game, no matter what the reason.
This lack of review-ability does not extend to the review itself. That is handled by the appeal system. The typical appeal has little success in the first two levels — reconsideration, redetermination — so the grass gets mowed with the Administrative Law Judge (ALJ). Appeals generally are based on a claim-by-claim argument regarding each patient or procedure, combined with a refutation of the statistical extrapolation, which is almost always based on shoddy work.
This litigation profile will change. Why? Rather than challenging the expertise or judgment of the audit reviewer who rejected a claim, the argument instead will be aimed at dis-crediting the algorithm responsible for the claim rejection.
But since these algorithms do not make decisions based on medical logic, but only on a pattern of statistical probabilities, the arguments against them will by necessity be couched in quasi-mathematical terms. To do so will require resort to an entirely different type of expert, and understanding of what we might call “algorithm law”. Yet, for the most part, many of today’s health law attorneys are ill-prepared to litigate this type of case.