Appeals of Recovery Audit Contractor Decisions are Overwhelming the Office of Medicare Hearings and Appeals

If a Medicare provider’s claim for payment is denied or if a Recovery Audit Contractor (RAC) determines that a past payment was made improperly, the provider may appeal the denial. Medicare provides a 5-level appeal process that begins with a request that the Medicare Administrative Contractor (MAC) make a redetermination on the claim. If that is unsuccessful, the provider may seek reconsideration from a Qualified Independent Contractor (QIC). If the QIC agrees that the denial was proper, the provider may request a hearing before an Administrative Law Judge (ALJ) in the Office of Medicare Hearings and Appeals (OMHA).

OMHA was established by § 931of the Medicare Drug, Improvement and Modernization Act of 2003. In § 931(b)(2), Congress provided that:

The Secretary shall assure the independence of administrative law judges performing the administrative law judge functions … from the Centers for Medicare & Medicaid Services and its contractors. In order to assure such independence, the Secretary shall place such judges in an administrative office that is organizationally and functionally separate from such Centers.

There are currently 65 OMHA ALJs in 4 regional field offices. The ALJs are organized into teams and supported by OMHA attorneys, paralegals and legal assistants. While OMHA ALJs hear appeals involving, among other things, an individual’s eligibility for Medicare and coverage determinations under Parts C and D, the largest part of the ALJs workload comes from Part A and B provider appeals of pre and/or post payment denials by one of Medicare’s audit contractors.

The Effect of RAC Audits on the ALJ’s Caseload.

According to the latest appeal statistics from CMS, RACs issued payment denials for 903,372 claims in fiscal year 2011 and providers filed 56,620 appeals in fiscal year 2011. According to statistics maintained by OMHA, it received 132,446 appeals in fiscal year 2012. Out of the 132,446 appeals filed, 40,386 or 30.5% were filed from RAC denials by Part A hospitals. By comparison, Part A hospitals filed just 1,545 appeals in FY 2011.

The increase in ALJ appeals is certainly not unexpected as a result of the nationwide expansion of the RAC program in 2010. The increased caseload has already impacted the ALJ’s ability to comply with the regulatory mandate set forth at 42 C.F.R. §405.1006 that appeals to the ALJ be decided within 90 days. There is little doubt that as more and more appeals reach the ALJs, providers will experience ever increasing delays in decisions by the ALJs. While some delay may be acceptable, a restrictive CMS policy regarding the payment of reasonable and necessary Part B services provided by a hospital to a beneficiary may cause such an increase in the level of ALJ appeals as to make timely decisions by an ALJ impossible and deprive a provider of the legally required prompt resolution of its appeal.

Appeals for Payment of Part B Outpatient Services Will Further Delay ALJ Decisions

CMS, relying on the language in Chapter 6 § 10 of the Medicare Benefits Policy Manual, claims that if a RAC determines that a Part A inpatient claim was improperly paid, the hospital may only be paid under Part B for the limited ancillary services listed in §10. In a number of rulings, the Medicare Appeals Council and various ALJs, relying on various sections of the Medicare Financial Management Manual and the Medicare Claims Processing Manual, have held that once the RAC has reopened a claim, the RAC and the MAC are obligated to adjust the claim and pay the hospital for all reasonable and necessary Part B services provided to the beneficiary. Although CMS disagrees with the holdings of the Medicare Appeals Council and the ALJs, it has instructed the MACs to make any Part B payment ordered by an ALJ.

Now, in addition to hospitals appealing inpatient claims they believe to have been improperly denied by a RAC, it is extremely likely that they will, in addition, appeal denied inpatient claims not because they disagree with the RACs decision that the inpatient claim was improper, but to receive payment for services provided and properly payable under Part B.

The inescapable result of the tidal wave of appeals crashing over OMHA will be less careful consideration by the ALJs of the merits of a provider’s appeal and unreasonable delays in ALJ resolution of provider appeals, further straining a provider’s financial resources. One can only hope that the staggering number of appeals generated by the RAC program do not deprive all Medicare providers and beneficiaries of the accurate and timely resolution of their claims.

Please contact us if we can be of any assistance with issues relating to ALJ appeals or in helping to resolve any other issue with any of the legion of CMS auditors in the Medicare-Medicaid Audit World.