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.
A Corporate Integrity Agreements (CIA) is a document that outlines the obligations a health care provider agrees to as part of a civil settlement.
The provider agrees to the CIA obligations in exchange for the Office of Inspector General (OIG) agreement that it won’t seek to exclude the provider from participation in Medicare, Medicaid or other Federal health care programs. The OIG is part of the Department of Health & Human Services.
CIAs are put in place at the discretion of the OIG, and are designed to get a provider back on the path of compliance.
As shown in the figure below, the number of CIAs has increased steadily. In a 5 year period (2009 to 2014), the number of CIAs has increased more than 10 times.
Why Does a CIA Happen?
In a typical scenario, a provider has been audited and found to be afoul of various OIG regulations. The provider has then been forced to make a repayment of faulty claims and also possibly suffer a Civil Money Penalty (CMP). CMPs can be a fine of up to $10,000 per claim.
What Relief Does a CIA Offer?
In many cases, adopting an integrity agreement has been the only way to stay in business. The alternative is a suspension of the right to do business with the Federal Government.
If this happens, the provider is cut off of Medicare and also Medicaid. Their name is placed on a “do not do business with” list, and for all practical purposes, this means the end of their medical business.
CIAs and the Health Care Provider Obligation
CIAs place a heavy burden on the health care provider, and failure to comply with the terms brings heavy penalties.
Among the more popular components of a CIA are:
Mandatory hiring of a permanent compliance officer;
Written standard operating procedures for all activities;
Extensive training and education activities for all employees;
Hiring an Independent Review Organization (IRO) to double-check filed claims;
Detailed retention of records (liable to inspection);
Systematic claims review and validation;
Numerous mandatory disclosures that includes tracking of excluded service providers; and
A number of annual reports and certifications.
What Barraclough Interviews Reveal about a CIA
Our interviews indicate that providers which need to set up a CIA face a number of hurdles.
The most significant complaint is the cost and complexity of putting everything into place and the inherent difficulty of designing the mandatory procedures that must be completely documented.
This is done with a combination of legal expertise, feedback from the IRO, and use of consultants. None are particularly cheap, but the provider has no choice.
There is no standard CIA. Each one is customized to fit the particular circumstances of the provider.
Although there are a number of predictable complaints as the CIA is being put in place, our interviews reveal that after a time, the health care provider comes to appreciate its protection against further audits.
An expert on health care issues, Professor Leonard is widely published in the field and teaches courses on Health Care Financing and Regulation and Health Care Fraud and Abuse at the University of Georgia Law School.
Barraclough LLC recommends this article to our readers; it is available at this link.
The CMS Two-Midnight rile “clarifies the circumstances under which Medicare will consider a given hospital stay to be an inpatient service (and therefore reimbursable at a higher rate under Medicare Part A), versus an outpatient service (and therefore reimbursable at a lower rate under Part B).”
“The Two-Midnight Rule largely replaced medical judgment with regulatory benchmarks for inpatient versus outpatient admissions.”
Professor Leonard further explains:
The Two-Midnight Rule was precipitated by a number of factors. One was a trend of aggressive Recovery Audit Contractor (RAC) claims reviews, identifying a high error rate for medically unnecessary Part A inpatient services that should have been submitted by the provider as lower reimbursement Part B outpatient services.
The RAC Program is a component of the federal government’s crackdown on health care fraud. RACs are essentially private bounty hunters, authorized to ferret out improper payments. They are paid on a contingency basis, typically receiving 9 percent to12.5 percent of any amounts recovered.
RAC Involvement and Rise in Appeals
“Short-stay hospitalizations became a favorite RAC target. But given the regulatory uncertainty and complex medical judgment involved in determining the appropriateness of an inpatient versus an outpatient stay, RAC audits also spawned high rates of provider appeals.”
Barraclough notes that “The number of pending appeals overwhelmed the Office of Medicare Hearings and Appeals, leading to CMS’ offer to settle hospitals’ claims for partial payment—68 cents on the dollar—of net allowable amounts.”
Hence, one of the reasons for all the settlements that have been in the news lately.
As a result, CMS recently proposed incremental changes to the Two-Midnight Rule.”
Read more about how the RACs lost control of the Two-Midnight rule and the issues of claims and settlements going forward.
After receiving an enormous demand for reimbursement based on a statistical extrapolation, it may be possible to get the extrapolation thrown out by the Administrative Law Judge (ALJ) for a Medicare claim reversal.
If this occurs, you won’t have to pay the large extrapolated amount, but may need to pay only for any individual claims that have been ruled to be invalid, an amount that usually is much smaller.
How do you get this situation to be reversed in your favor? Barraclough Health does it by using an accurate statistical methodologyrather than let the results of the inaccurate methodology used by RACs stand.
In this Barraclough Health Medicare Claims Reversal Case Study, we show how using our statistical methodology saved the client $1,297,700 dollars.
Medicare ZPIC Claims Demand
Dr. X received a Medicare reimbursement demand for approximately $1,300,000 dollars.
But the auditor (the ZPIC) had examined only 35 of the thousands of Dr. X’s claims.
Of these 35 claims, they had rejected 17 of them.
The value of those claims was approximately $2,300 dollars.
Dr. X then contacted Barraclough LLC.
Barraclough’s VALID Statistical Methodology
Barraclough’s expert team completed an extensive analysis of the 4 statistical methodology used by the ZPIC, a formidable task.
The Barraclough team checked:
all of the calculations that were made
the details of how the sample was taken
the formulas that were used in picking the sample size
By doing this extrapolation, the general pattern of decisions was revealed.
The Barraclough team found that the contractor had made many errors in their work, including:
Manufactured data was an essential part of the calculations used in determining the needed sample size.
Picking sample sizes is not an arbitrary act – there should be a method behind it.
One of the formulas that is needed to determine sample size requires an input representing the underlying variation in the variable being estimated.
For an over payment analysis, this would mean that it is necessary to understand the underlying variation in the over payments.
The only way to get this information is to analyze a number of claims to make a measurement.
But the contractor had skipped this step entirely, and had simply manufactured this number, plugged it into the formulas, and decided to use a sample size of 35.
When the Barraclough Team double-checked the calculations, we put the correct number into the same formulas and found that the required sample size was more than 100 times larger.
During the hearing the contractor admitted that they had failed to make the required measurement.
After finding many other problems with the statistical work, it was possible to conclude that the contractor had failed to use an acceptable statistical methodology.
ZPIC Work Falls Short of Standard
Since the MPIM (Medicare Program Integrity Manual) requires that a valid statistical methodology must be used, we were able to show that the work of the ZPIC had fallen short of the standard.
Result: Medicare Claim Reduced Significantly
The extrapolation was thrown out by the ALJ.
Instead of having to pay the extrapolated amount of approximately $1,300,000 dollars, Dr. X. ended up paying approximately $2,300 dollars, a difference of $1,297,700.
Saying he fears “no retaliation from anyone,” the CEO of a small California hospital has filed suit in U.S. District Court claiming that $1.1 million in Medicare claims flagged by recovery audit contractors have been in limbo “for years.”
California’s only non-profit independent rehabilitation hospital has filed suit to force the federal government to resolve disputed Medicare billing appeals within its mandated 90-day window.
Felice Loverso, president and CEO of the 68-bed Casa Colina Hospital and Centers for Healthcare in Pomona, says the federal government has “for years, years” been holding about $1.1 million in claims that were flagged by recovery audit contractors. Casa Colina has appealed the claims denials, but, he says, HHS hasn’t come close to providing a hearing in front of an administrative law judge within the 90-day window mandated by Medicare law.
“Chasing a System that Seems to be Broken”
Casa Colina generates about $11 million in net revenue each year, Loverso says, so the $1.2 million in deferred claims and the $2.1 million in reserves represent “a big chunk of money.”
“When you run a small hospital and you have to reserve $2.1 million, there is a lot of children with autism who could be treated with that money, there is a lot of free care I could be doing, prostheses I could be putting on people. There are a lot of things I could do with that $2.1 million rather than chasing a system that seems to be broken.”
The article is worth the read. Click on the link below for the whole story…
In most cases, an audit of a Medicare or Medicaid provider will find a number of claims that are invalid. When the health care provider already has submitted claims and then collected a payment from the government, then any money from improper claims must be returned.
But what happens if the government suspects that the improper claims aren’t the result of innocent mistakes? If the government suspects that your mistakes were intentional?
Medicare Rule Changes and Drug Testing Advances
Up until January 1st, 2011, providers would bill Medicare once for each drug assay performed, even from the same urine sample. For example, a single sample would be used for 11 assays, and 11 claims lines would be submitted for the patient, each for a different drug that was being tested for.
But technology became more advanced, and testing improved to be more efficient. Machines could now check for a number of drugs at the same time. As a result, Medicare changed the rules so that testing for multiple drugs would be considered to be a single test.
This new rule would potentially reduce revenue by -90% for health care providers.
Many providers use outsourced coding specialists to perform the paperwork of claim entry. In one case, the coders continued to submit 11 claims for each patient.
What was the result? More than 19,000 bad claims.
A ZPIC audit found these mistakes. It calculated the amount of improper payments and demanded reimbursement by the doctor, whereupon the doctor promptly paid all the money back. The ZPIC sent back a letter stating that “the matter is closed”.
But the matter may not be closed when you are audited by a ZPIC and then you pay back the money.
It could be as much as $10,000 for each wrongful act. Each improper claim would be considered separately. Another option for the government to pursue is to collect 2-3 times the amount of the over payment. So if you have paid back $250,000, then the additional penalty would be $500,000–$750,000.
The law is written so that even if you had no intent to defraud the government, that is not considered.
Under 42 USC 1320a–7a (i)7B “no proof of specific intent to defraud is required”. What can trigger Civil Money Penalties? The health care provider must “act in reckless disregard of the truth or falsity of the information” or could act “in deliberate ignorance”.
Blame it on the coder?
For most health care providers, subcontractors do the coding. Can they be blamed? Well, perhaps they could, but this will not get you out of Civil Money Penalties because the rules are such that any provider is responsible for their “agents”, and billing companies are considered to be “agents” for the provider.
“A principal is liable for penalties, assessments, and an exclusion under this section for the actions of the principal’s agent acting within the scope of the agency.”
How to Avoid Civil Money Penalties
Perform a Self-Audit.The law is written so that the way you act can make a difference.
By promptly performing a self-audit, at your own expense, and then paying back any wrong claims that are discovered, it may help give the impression that you are not a criminal, but instead only a provider who has temporarily run into a coding problem.
Take Education Seriously. When you receive an education letter, stop what you are doing and study the issue carefully.
Even if a doctor is not doing the day-to-day coding, they nevertheless should know the exact coding details of their services.
Document Your Actions. Keep detailed records of your communications with your coders.
Document every event in which you discuss coding with them, and if you send instructions to your coder on how to file proper claims, get a confirmation back from them that they received it and will be making an needed changes to their procedures.
Maintain a Chronology. If you get a letter from the OIG (Office of Inspector General) then have ready a complete chronology of every communication with your coders, ZPICs and others in connection to the matter.
This may be one of the most valuable things you can do to show that you are not acting recklessly.
The more you do these things, the less likely is the OIG to conclude that you deserve to pay back much more than you already have.
RAC Medicare Audit Data From Senate Chairman Hatch
RAC Medicare Audits recovered over $3 billion
A large portion of the initial payment determinations are reversed on appeal. The Department of Health and Human Services Office of Inspector General reported that, of the 41,000 appeals made to Administrative Law Judges in FY 2012, over 60 percent were partially or fully favorable to the defendant.
In Fiscal Year 2014, Medicare covered health services for approximately 54 million elderly and disabled beneficiaries at a cost of $603 billion.
Of that figure, an estimated $60 billion, or approximately ten percent, were improperly paid, averaging more than $1,000 in improper payments for every Medicare beneficiary.
The Barraclough Blog features latest news on events and policies, as well as original Barraclough features and blogs about Litigation support for Medicare and Medicaid appeals and statistical overpayment extrapolations.
The Congress continues to try to fix Medicare’s arduous healthcare audit procedures, as the RAC audit process and healthcare providers continue to be locked into a claims remediation nightmare. The Audit and Appeal Fairness, Integrity, and Reforms in Medicare, or AFIRM, Act of 2015, was introduced on June 3, 2015.
Senator’s Wyden statement about the Finance Committee Markup of this bipartisan effort is that it “will streamline the appeals and audits process so cases are resolved quickly and at the earliest possible step.” The legislation provides for:
More HHS personnel resources pick up the pace in order “to keep up with the enormous increase in appeals.” The Office of Medicare Hearings and Appeals can currently adjudicate 77,000 appeals in a year, far below the 474,000 appeals OMHA received in 2014.
HHS can use its resources more efficiently and process more appeals because of a new track for lower-cost, less-complex cases to be considered by a different set of hearing officers than other cases.
Requiring CMS to better coordinate provider audits “to ensure the entire process is more transparent and efficient, including the creation of an independent Ombudsman position at CMS” in order to assist those considering appeals. Providers who consistently bill correctly are exempted for burdensome audits, as a reward for their business practices.
Although this markup provides some improvement by separating high value from low value cases, Barraclough LLC is dubious about the additional number of people on the CMS payroll to deal with the appeals backlog and the overall impact of the Audit and Appeals Ombudsman which has yet to be fully explained. RAC Audit Appeals would be better served with more data transparency, a change in RAC auditors contingency fee payments, and the quality of initial determinations.
For the full text of Senator Wyden’s statement, click here.
As the AFIRM legislation progress, Barraclough LLC will continue to analyze the impacts and make recommendations for the best course of action.
The report is full of statistics on the Medicare auditing program. It presents a picture of “profit”, that is, less money is spent by the government on running the auditing program than is recovered.
The report, however, does not address the discrepancies between states for recovery “claw back” of Medicare claims. The calculation is shown in the figure below.
When we chart the amount recovered and compare it to the number of persons living in the state, the difference is vast. In Maine, for example, there was $2 per state resident recovered. However, in North Dakota, there was $36 dollars recovered for each resident.
Does this mean that the health care providers in some states are being more strictly audited than in others? The CMS report does not give any clue to the answer.