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.
Part II — Attorney Adjudicators (AAs) Proposed to Help Administrative Law Judges (ALJs) handle Medicare Appeal Backlog Crisis
The backlog in appeals is so long that for all practical purposes the entire system has come to a halt. It has crashed. In Part I of this series we examined a few statistics behind the backlog. We noted that much of the appeals backlog can be explained by the astounding number of errors made by the audit contractors. In Part II we will examine the proposal to add a new role for Attorney Adjudicators (AAs) who can take over part of the Administrative Law Judge’s (ALJ) work during the appeals process. In Part III we will examine the proposal for bulk settlements based on a simple percentage of claims, but with no review of the claims themselves — the “Eighty Percent Rule”. In Part IV we will examine financial strategies being used by Hospitals to handle the massive impounding of their claim payments.
CMS recently published in the Federal Register(*) a proposal to relieve the burden on ALJs by adding a new class of persons to be called Attorney Adjudicators (AAs). As reviewed previously, the number of pending appeals now is more than 1,100,000 cases, and there are only 77 Administrative Law Judges. From 2009 until 2014, the number of requests for an ALJ hearing went up 1,222 percent! In 2014, each ALJ issued 1,048 decisions and 456 dismissals. There is a capacity for around 77,000 appeals per year, and that is expected to go up to 92,000 appeals per year by the end of 2016. Still it is not enough. It does not take much math to realize there is a crisis.
OMHA has three strategies to address this backlog. First, try to get a larger budget; Second, “take administrative actions to reduce the number of pending appeals” (but we don’t know what these actions will be); Third, hire more adjudicators and “streamline” the appeals process.
Another part of the proposed solution will involve Attorney Adjudicators. It is noted that “well-trained attorneys” should be able to do a number of things that today are done by the ALJ. These include (1) performing reviews of the administrative record; or (2) drafting the appropriate orders. Examples of orders that might be drafted by the AAs include (a) issuance of dismissals, (b) remanding appeals in order to obtain additional information needed for a decision, or (c) carrying out reviews of QIC dismissals.
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”.
Consideration also is being given to allowing AAs to decide cases that are submitted without a request for an oral hearing. This would allow the AAs instead of ALJs to issue decisions when it is not required that an ALJ conduct an oral hearing.
An AA decision would have the same authority as one issued by an ALJ. For example, it would be possible to reopen or appeal AA decisions, just as if they were issued by an ALJ. The time frames involved, escalation options or rights of appeal to the Medicare Appeals Council would remain the same. By the way, from no on, the Medicare Appeals Council is to be referred to only as “The Council”.
The proposal also includes a pathway for the AA to pass along a case to an ALJ. Example: The parties have agreed to waive their right to an oral hearing. The AA reviews the case and concludes that an oral hearing may be needed in order to clarify some crucial issue in the case. The AA then can refer the matter to an ALJ asking them to determine if an oral hearing should be ordered.
In sum, the Attorney Adjudicator proposal takes several important parts of the appeals work that today is done through the ALJ and hands it over to non-judges who have authority to make a narrow range of decisions. Not much is known about whether or not any aspect of the appeals process as seen from the outside will change significantly. We must assume that appeals would be submitted the same way, and under the same set of statutory guidelines for timing that now are impossible to fulfill.
In addition, it is not clear why the proposal is not simply to hire more ALJs instead of creating an even more complex process. It may be a case of simply hiring judge-like people on the cheap, or “outsourcing” part of the work of the ALJs so that they can focus more on complex matters.
The comment period for this change has recently expired, so we are waiting to see the outcome. Apparently several important provider associations opposed creation of Attorney Adjudicators.
In Part III we will examine the proposed “80% rule”, and in Part IV we will look at emerging financial bridge strategies being used by hospitals.
Part I — Statistics Show Hospitals Cutting Services, Damaged by Post-QIC Recoupment
The situation at OMHA continues to deteriorate. The backlog in appeals continues to explode, and different options are being considered to solve the problem. In Part I we will examine the statistics behind the backlog. In Part II we will examine the proposal to add a new role for Attorney Adjudicators (AAs) who can take over part of the Administrative Law Judge’s (ALJ) work during the appeals process. In Part III we will examine the proposal for bulk settlements based on a simple percentage of claims, but with no review of the claims themselves — the “Eighty Percent Rule”. In Part IV we will examine financial strategies being used by Hospitals to handle the massive impounding of their claim payments.
Figure 1 The number of Medicare Appeals has increased so much that the entire system is frozen.
The recent ruling in American Hospital Association v. Burwell (*) keeps up the pressure on OMHA to dig out of the backlog. In the ruling, we see that the exploding backlog is “especially harmful to hospitals because HHS recoups funds after the QIC stage” under 42 U.S.C. § 1395ddd(f)(2)(A). This is the time gap in the appeals process preceding the hearing with the ALJ. The essence of the backlog problem is that this time gap plus the time when an ALJ decision finally is rendered is rapidly increasing. The prospect for any hospital to get their money is running away into the distant future, thus draining the cash reserves of the hospital or leaving its banking account empty.
For hospitals that have a large share of patients relying on Medicare, this seizure of funds is particularly damaging. Some are faced with decisions to suspend some services, or even defer maintenance on physical plant. One hospital reported the inability to repair a leaking roof covering its ER facility.
In 2011, 59,600 appeals were filed. In 2013, the number had shot up to 384,000 appeals. The RAC program is responsible for 46% of these appeals.
Hospitals frequently appeal because statistics show there is a reasonable chance of success in turning around claim denials made by over-zealous auditors. These are denials that never should have been made in the first place. For example, hospitals appeal around 52% of RAC denials, and hospitals win around 66% of the time. That amounts to a good chunk of change.
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.
Just as a reminder, here are a few of the deadlines: Redetermination by MACS – 60 days (42 U.S.C. § 1395ff(a)(3)(C)(ii)); Reconsideration by QICs – 60 days (§ 1395ff(c)(3)(C)(i)); Hold hearing and render a decision by ALJ – 90 days (§ 1395ff(d)(1)(A); Review by DAB and decision or remand – 90 days (§ 1395ff(d)(2)(A)). This adds up to 10 months.
Simple math shows that at this rate, appeals easily could take more than 130 months to resolve. In simple terms, the amount of time to resolve claims is at least thirteen times greater than required by the statutory framework.
OMHA long ago went into “crisis mode”. Back in 2013, the Chief ALJ of OMHA notified hospitals that it was “temporarily suspending appeals to ALJ dockets” and that this suspension would last “at least 24 months”.
That is like saying “I would love to pay you back, but you have to wait at least two years for me to think about it again”.
In summary we can say: Medicare Appeals Backlog. The number of Medicare Appeals increased more than 900%. Statutory time for appeals has been exceeded. Backlog more than 10 years. No solution in sight.
In Part II we will examine proposals published in the Federal Register (**) to off-load some of the appeal work onto a new class of administrative lawyers to be called “Attorney Adjudicators” (AAs). In Part III we will examine the proposed “80% rule”, and in Part IV we will look at emerging financial bridge strategies being used by hospitals.