OIG Report Poses Potential Problems For Medicare Providers

On Nov. 14, 2012, the Department of Health and Human Services’ Office of the Inspector General released a report entitled “Improvements Are Needed at the Administrative Law Judge (ALJ) Level of Medicare Appeals” (OEI 02-10-00340).  The report, which addresses changes made to the Medicare appeals system in 2005, has significant implications for all Medicare providers that may use the appellate system to combat alleged overpayments, especially considering the recent proliferation of Medicare audits (i.e. ZPIC, RAC).

The Medicare appeals system is comprised of four basic levels.  Level 1 is decided by a regional Medicare Administrative Contractor.  Level 2 is decided by a Qualified Independent Contractor (QIC).  Level 3 is decided by an Administrative Law Judge (ALJ).  Level 4 is decided by the Medicare Appeals Council.  Only appeals to the ALJ and Medicare Appeals Council may be granted a hearing; all other appeals are adjudicated on the papers.

In 2005, ALJs were required to follow new regulations regarding how and when to apply Medicare Local Coverage Determination policies, and when to accept new evidence prior to a hearing. This OIG report is the first to assess the impact of these changes on the ALJ process.  To that effect, the OIG reviewed how these changes affected ALJ decisions in fiscal year 2010.

According to the report, providers (physicians, suppliers, hospitals, etc.) filed 85% of all Medicare appeals in 2010; beneficiaries accounted for 11%; and state Medicaid agencies accounted for the remaining 3%.  Furthermore, a small number of providers accounted for the majority of appeals.   For example, one provider appealed over 1,000 claims, whereas the average provider appealed 6 claims. Additionally, ALJs reversed 56% of all prior-level decisions at appeal, in favor of appellants.  Reversals were highest for Part A providers – 62% (hospital appeal reversals were 72%).  Reversals for Part B providers were 59%; DMEPOS suppliers were 53%; Part C providers were 18%; and Part D providers were 19%.

The OIG maintains that the high reversal rate is due to the following chief factors: (1) ALJs interpret Medicare policies less stringently than QICs; (2) ALJs do not use clinical experts to the same degree as QICs when reviewing claims; and (3) CMS did not participate in 90% of appeals.

As a result of these findings and conclusions, the OIG offers the following recommendations (among others):

(1)   Develop and provide coordinated training on Medicare policies to ALJs and QICs;

(2)   Identify and clarify Medicare policies that are unclear and interpreted differently;

(3)   Standardize case files and make them electronic;

(4)   Improve handling of appeals from appellants who are also under fraud investigations, and seek statutory authority to postpone these appeals when necessary;

(5)   Establish a filing fee for appealing to the ALJ level;

(6)   Determine whether specialization among ALJs would improve efficiency; and

(7)   Increase CMS participation in appeals.

Many providers disagree with the report’s observations because the report does not consider the possibility that the ALJs’ interpretation of Medicare policies and procedures is correct.  Providers often prefer the ALJ level because they are able to explain and justify their actions using testimony and supplemental evidence that may not be located in the original record.  If ALJs employ a strict adherence to Medicare policies and procedures, there will be no room for interpretation at all, thus effectively eliminating the purpose and need for ALJs.

Furthermore, providers raise due process arguments in response to the OIG’s recommendation that appeals from providers under fraud investigation be postponed.  Incidentally, CMS echoed this same argument in a response letter to the OIG.

—Edward L. Vishnevetsky, an associate at Munsch Hardt, focuses on health law and commercial litigation.


Posted in Expert Opinions, Government/Law.