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.
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.
A new report(*) by the U.S. Government Accountability Office (GAO), shows that the Medicare Appeals system is crashing because the number of appeals filed exceeds the capacity of the Administrative Law system. The number of cases filed has exploded, but there has been inadequate improvement in capacity.
For the period 2010 -2014, there has been a substantial growth in appeals. Here is the data:
Level 1 +62%
Level 2 +238%
Level 3 +936% <— look at that number!
Level 4 +267%
The greatest increase in appeals has taken place in that place where the appeal is the most complicated: Appeals to Administrative Law Judges (ALJs) increased by almost 1,000 percent.
This data indicates that providers increasing are dis-satisfied with the results of their audit. They are more likely to appeal. Also, they are considerably less satisfied with the decisions of the QICs.
So this places an incredible burden at the ALJ level. The +936% increase at Level 3 (ALJ) represents a change from 41,733 appeals in 2010 to 432,534 appeals filed in 2014.
An Administrative Law Judge (ALJ) gets the same benefits as other Federal Employees. Each year they get 26 vacation days, and 10 holidays. This leaves 329 working days per year for them to do their work.
The maximum number of cases recommended per month for an ALJ is 60, but the average is much lower.
At 60 hearings/month, taking into account the number of holidays, that is approximately 2.2 hearings per day for an ALJ.
There are 77 ALJs and this should lead to a total of 168 hearings/day; and 55,474 hearings/year.
If the number of appeals has risen to 432,534 hearings per year, and each gets a hearing, and the ALJs are working at the unrealistic maximum rate of 60 hearings per month, then in order to meet this new load, a minimum of 599 ALJs need to be on the job.
That is ten times the number of ALJs needed.
But this number assumes a sustained rate of 60 hearings per month, and that is unrealistic. A better number is 45 hearings per month.
If this number is used, then 821 ALJs are needed, based only only the 2014 data, which already is obsolete, as the number is increasing.
(*) See U.S. Government Accountability Office, Medicare Fee-for-Service: Opportunities Remain to Improve Appeals Process, May, 2016, 88 pps., Document number GAO-16-366.