Kusserow on Compliance: Court will not reconsider order to clear Medicare claims appeals backlog

On December 15, 2016, HHS asked the U.S. District Court for the District of Columbia to reconsider its December 5 order requiring the agency to clear the Medicare appeals within four years, stating it would not be able to meet the requirements under the schedule recently ordered without “substantial new resources and authorities.”  The court rejected this argument, as it had already been presented by HHS and considered by the court in reaching its order.  Unless HHS appeals the Court’s decision in American Hospital Association v. Burwell (U.S. District Court for the District of Columbia, January 4, 2017), this will conclude the 2.5 year litigation initiated by the American Hospital Association (AHA) and several hospitals.   Plaintiffs challenged the failure of HHS to meet statutory timeframes related to adjudication of Medicare claims appeals. The Court adopted the plaintiffs’ proposed timetable for clearing the backlog, requiring a 30% reduction of the current backlog of cases pending at the administrative law judge (ALJ) level by December 31, 2017, a 60% reduction by December 31, 2018, a 90% reduction by December 31, 2019, and a 100% reduction by December 31, 2020.

A failure to meet the deadlines would mean that claimants may move for default judgment in their favor. HHS is further obligated to submit a report every 90 days on its “progress in reducing the backlog and includ[ing] updated figures for the current and projected backlog, as well as a description of any significant administrative and legislative actions that will affect the backlog.” The HHS Secretary argued that the timetable would require her to “make payment on Medicare claims regardless of the merit of those claims.”  The Court responded by noting that HHS has already violated Medicare statute by not complying with statutory deadlines for Medicare appeals and the timetable provides a reasonable period for “proper claim substantiation.”  “If the Secretary fails to meet the [court ordered] deadlines, plaintiffs may move for default judgment or otherwise enforce the writ of mandamus.”

Tom Herrmann, JD, who served over twenty years as a former ALJ and executive in the Office of Counsel to the Inspector General, observed that health care providers and suppliers with pending appeals will welcome the court action requiring HHS to take steps to comply with the statutory deadlines for resolution of appeals.  He explained that governing law and regulations require an ALJ to hold a hearing and render a decision within 90 days of a party’s filing of an appeal with Office of Medicare Hearings and Appeals (OMHA).  However, they have been unable to meet this deadline, resulting in a backlog of 1 million pending appeals.  A Government Accountability Office (GAO) report last June was highly critical of the HHS appeals process and the failure to meet deadlines, and the OMHA moratorium on accepting new appeals requests in order to catch up has not worked.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2017 Strategic Management Services, LLC. Published with permission.

AHA opens the door to hospital access strategies

The integration of rural hospitals with health clinics and the use of technology to provide 24/7 care are among the strategies developed by an American Hospital Association task force to assist hospital leaders with preserving access to health services in vulnerable rural and urban communities. The strategies set out in the task force’s report are designed to assist providers amidst growing pressures on the health care sector. The report recommends reforms for health care delivery and payment designed to identify and provide the essential health care services individuals need. The report also considers policies which may serve as a barrier to implementation of the strategies.

Status quo

The country has nearly 2,000 rural community hospitals and more than 2,000 urban community hospitals. Because of their location, the hospitals are what the AHA calls “the anchor for their area’s health-related services.” The report notes, however, that the hospitals face challenges in the form of: remote location, limited workforce, constrained resources, and financial instability. The survival of the hospitals is important because the hospitals serve as a critical health care access point in vulnerable communities.


To assist the hospitals, the task force identified: characteristics and parameters for vulnerable communities, essential health care services, and emerging strategies to ensure the hospitals are able to provide those essential services. The nine strategies include:

  • addressing the social determinants of health (housing, utility needs, food insecurity, interpersonal violence, education, employment, low income);
  • implementing global budget payments, which provide greater financial certainty for vulnerable hospitals;
  • shifting inpatient resources to resources devoted to outpatient care;
  • the use of emergency medical centers to allow existing facilities to provide emergency medical services without having to maintain inpatient beds;
  • the use of urgent care centers as a viable outpatient alternative to emergency medical centers and inpatient hospitals;
  • implementing virtual care strategies like telehealth;
  • the creation of local, integrated health care organizations (called Frontier Health Systems) for very small, isolated frontier communities;
  • integration between rural hospitals and health clinics like Federally Qualified Health Centers (FQHCs); and
  • improved coordination between Indian Health Service (IHS) facilities and other providers.


The task force acknowledged several barriers to the implementation of its strategies, including federal statutory and regulatory barriers. Additionally, the task force noted that certain facilities may have difficulty transitioning to new payment models or novel care delivery mechanisms like telehealth. The AHA acknowledged that the ability to attract and retain health care providers will continue to be a difficulty at the community level. To be successful, the AHA report notes that communities will need to expend time, effort, and finances, while hospitals will need to improve technology infrastructures and care planning.

AHA criticizes CMS for ‘information void’ on short hospital stay claims

In a qui tam action that the American Hospital Association (AHA) characterized as an attempt to retrospectively review the medical judgments that doctors make every day, the association urged the court and the Department of Justice to approach short-stay hospital stays with “sensitivity” to the challenges that providers face in the “information void” left by CMS. While the AHA said in its amicus curiae brief that it took no position on the proper outcome of the case and sought only to provide background, it made clear its position that CMS’s standards for observation admissions are ambiguous.

In 2011 Karin Berntsen, an employee of Prime Healthcare Services, Inc., filed a qui tam action against the hospital system, its founder, and 14 of its hospitals alleging that emergency departments improperly admitted patients who could have been placed in observation, treated as outpatients, or discharged. She alleged that as a result of these unnecessary admissions, the hospitals submitted false claims to the federal health care programs. The federal government intervened in May 2016.

In its brief, the AHA explained that observation is a distinct type of hospital care, not to be confused with inpatient, emergency, clinic, or recovery services, that involves ongoing monitoring, testing, and assessment solely for the purpose of determining the need to admit a patient. There are, however, no clear standards for these admission decisions, said the AHA.

For example, argued the AHA, in the hospital inpatient prospective payment system (IPPS) proposed rule for calendar year 2014, CMS asked doctors to use a 24-hour period and the expectation of a patient’s need for an overnight stay as inpatient admission benchmarks (Proposed rule, 78 FR 27486, 27646, May 10, 2013), then in August 2013 promulgated the two-midnights rule (Final rule, 78 FR 50495, 50944, August 19, 2013). Indeed, the Medicare Payment Advisory Commission (MedPAC) noted that the difference between the inpatient criteria and the criteria for outpatient observation status are often unclear to providers.

In light of these ambiguous standards, which the AHA said CMS has struggled unsuccessfully to refine and clarify, the association asked courts to require the government in False Claims Act litigation to allege with specificity why inpatient claims are improper.

AHA not buying into OMHA’s backlog reduction plan

The American Hospital Association (AHA) submitted comments on August 26, 2016, on the HHS Proposed rule (81 FR 44456, July 7, 2016) intended to reduce the Medicare appeals backlog in the Office of Medicare Hearings and Appeals (OMHA), arguing that the proposal barely scratches the surface of the issue and “that merely tweaking the appeals system will not adequately address the problem.” At best, the AHA stated, the proposals would take five years to eliminate the backlog. The association cautioned that attorneys should only be permitted to adjudicate cases after thorough training and expressed concern with the lack of detail in the OMHA’s suggestion that certain decisions be designated as precedential.  It also rejected the OMHA’s proposals to eliminate the requirement that administrative law judges (ALJs) issue a decision within 90 calendar days of receiving a request for hearing and limit adjudicators’ ability to issue decisions without hearings when CMS or its contractor becomes a party to an appeal.

Proposed rule

The Medicare appeals backlog is a source of great concern for providers.  As of April 30, 2016, over 750,000 appeals were pending, while the OMHA only had the capacity to adjudicate 77,000 per year (with an additional capacity of 15,000 by the end of fiscal (FY) year 2016). The AHA noted that the most recent data reflect an increase in average processing time of 140 days—to 935.4 days, or two and a half years—since the beginning of FY 2016. In an effort to address this backlog, CMS issued a Proposed rule that would allow attorneys, in lieu of ALJs, to adjudicate certain decisions that would not go to hearing, and permit the Chair of the Departmental Appeals Board (DAB) to designate certain final Medicare Administrative Council decisions as precedential. However, it would also limit adjudicators’ ability to issue decisions without hearings when CMS or one of  its contractors becomes a party to a case and would eliminate the mandatory 90-day time period that adjudicators have to issue decisions.

AHA comments

Although the AHA conceded that the use of attorney adjudicators could address matters that do not require ALJ attention, including those decisions that can be issued without a hearing, those cases in which an appellant withdraws a request for hearing, and those appeals which must be remanded for information that can only be provided by CMS or a contractor,  it cautioned that attorneys must be properly trained to ensure they have “significant knowledge of and experience in applying Medicare regulations.”

The association was not accepting, however, of CMS’s proposal to allow the DAB Chair to designate select decisions that address repetitive legal and policy questions as precedential, and to designate factual decisions as precedential where relevant facts are the same and the underlying factual circumstances have not changed since the decision was issued. The AHA expressed “strong concerns” regarding the lack of specifics included in the proposal, noting, “it is difficult to evaluate the merits of the proposal, but easy to speculate how it could harm appellants if the process favors decisions that are beneficial to CMS.” Instead, it suggested gathering stakeholder feedback and engaging in future notice-and-comment rulemaking.

The AHA specifically opposed the proposal to amend 42 C.F.R. sec. 405.1016, which states that, after a qualified independent contractor (QIO) has issued a reconsideration, “the ALJ must issue a decision, dismissal order, or remand . . . no later than the end of the 90 calendar day period beginning on the date the request for hearing is received,” (emphasis added) by removing the word “must.” According to the AHA, the OMHA indicated that the requirement is not absolute, since appellants are statutorily permitted to escalate claims when the timeframe is not met.  The AHA referred to the reasoning as “too clever by half,” noting that amending the regulation would do nothing to eliminate the statutory mandate.

The association also rejected proposed changes to 42 C.F.R. sec. 405.1038(a), which currently states that ALJs may issue a decision without notice or hearing where the evidence on record “supports a finding in favor of appellant(s) on every issue.” According to the AHA, the proposed changes, which would prevent an adjudicator from issuing such a decision where CMS or its contractor chooses to become a party to the appeal, could allow contractors to force a hearing to justify inappropriate denials.

Ongoing issues

The AHA argued that HHS has refused to acknowledge that the backlog results predominately from “excessive inappropriate denials of claims by Medicare contractors, and specifically the Recovery Audit Contractors (RACs),” which have financial incentives for denying claims. While recognizing that the OMHA cannot control the RAC process, the AHA encouraged the agency to provide information about the process to Congress.  It also continued to urge the OMHA to:

  • delay recoupment of payments until an appeal is decided and prevent interest from accruing prior to a decision;
  • eliminate the one-year filing limit to rebilled Part B claims and allow hospitals to submit Part B claims within 180 days of a final Part A claim denial determination;
  • create a defined time period during which RACs may audit providers on a particular issue, after which RACs must petition CMS to perform additional audits on the issue, but only after a defined time period has passed, during which providers have been educated; and
  • codify, in regulation, a statement made in the FY 2014 inpatient prospective payment system Final rule that Medicare contractors may only evaluate the medical necessity of an inpatient stay based on “the information available to the admitting practitioner at the time of the admission” (78 F.R. 50495, August 19, 2013).