[Senate Hearing 114-259]
[From the U.S. Government Publishing Office]










                                                        S. Hrg. 114-259

                       CREATING A MORE EFFICIENT
                        AND LEVEL PLAYING FIELD:
                  AUDIT AND APPEALS ISSUES IN MEDICARE

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             APRIL 28, 2015
                               __________

        
        
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            Printed for the use of the Committee on Finance
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)















                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3
Carper, Hon. Thomas R., a U.S. Senator from Delaware.............     4

                               WITNESSES

Coston, Sandy, CEO and president, Diversified Service Options, 
  Inc., Jacksonville, FL.........................................     6
Naughton, Thomas, senior vice president, MAXIMUS Federal 
  Services, Inc., Reston, VA.....................................     7
Griswold, Hon. Nancy J., Chief Administrative Law Judge, Office 
  of Medicare Hearings and Appeals, Department of Health and 
  Human Services, Washington, DC.................................     9

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Carper, Hon. Thomas R.:
    Opening statement............................................     4
    Prepared statement...........................................    19
Coston, Sandy:
    Testimony....................................................     6
    Prepared statement...........................................    20
    Responses to questions from committee members................    26
Griswold, Hon. Nancy J.:
    Testimony....................................................     9
    Prepared statement...........................................    37
    Responses to questions from committee members................    42
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    54
Naughton, Thomas:
    Testimony....................................................     7
    Prepared statement...........................................    55
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    63

                             Communications

American Occupational Therapy Association, Inc. (AOTA)...........    65
National Association for Home Care and Hospice (NAHC)............    66
The Orthotic and Prosthetic Alliance (O&P).......................    67

                                 (iii)
 
                       CREATING A MORE EFFICIENT
                        AND LEVEL PLAYING FIELD:
                  AUDIT AND APPEALS ISSUES IN MEDICARE

                              ----------                              


                        TUESDAY, APRIL 28, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:15 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Crapo, Thune, Wyden, Stabenow, Carper, 
Bennet, and Casey.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Kimberly Brandt, Chief Healthcare Investigative 
Counsel; and Jill Wright, Detailee. Democratic Staff: Joshua 
Sheinkman, Staff Director; Jocelyn Moore, Deputy Staff 
Director; Matt Kazan, Health Policy Advisor; Elizabeth Jurinka, 
Chief Health Care Advisor; and Jennifer Phillips, Detailee.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. Welcome to 
everyone.
    Our hearing today will consider audit and appeals issues in 
Medicare. As some of you may recall, in July 2013 the Finance 
Committee held a hearing focused on audits of Medicare 
providers. At that time, Chairman Baucus and I were concerned 
about some of the stories we were hearing from hospitals, 
doctors, and others in the medical community.
    That particular hearing gave us insight into some of the 
problems audits pose for providers. Now we turn to an issue 
that is directly tied to those audits, and that is Medicare 
appeals. I hear a lot about this whenever I go home to Utah, 
where Medicare issues remain a serious concern for my 
constituents.
    For the past 2 years, like many members here, I continually 
hear about the terrible backlog of Medicare appeals. Before I 
move on to the appeals process in detail, I want to mention 
that improper Medicare payments continue to be a serious issue 
and a big part of the reason that we are seeing such a backlog 
in appeals.
    Last month, the GAO released a report on government 
efficiency and effectiveness. The report found that 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 10 percent, was improperly paid, totaling over 
$1,000 in improper payments for every single Medicare 
beneficiary.
    These numbers are unacceptable. This error rate must be 
lowered to ensure the viability of the Medicare trust fund so 
that Medicare can continue serving beneficiaries for years to 
come.
    CMS has, of course, taken steps to identify and recover 
improper payments, including hiring contractors to conduct 
audits of the more than 1 billion claims submitted to the 
Medicare program every year. These auditors have recovered 
billions for the Medicare program, over $3 billion in 2013 
alone. However, the increase in audits has led to a seemingly 
insurmountable increase in appeals, with the current backlog at 
over 500,000 cases, evidenced by that particular chart there.
    This increase in appeals has resulted in long delays for 
beneficiaries and providers alike. There are so many appeals 
that the Office of Medicare Hearings and Appeals cannot even 
docket them for 20 to 24 weeks. In fiscal year 2009, most 
appeals were processed within 94 days. In fiscal year 2015, it 
will take, on average, 547 days to process an appeal, far too 
long for beneficiaries to find out whether their medical 
services will be covered or for providers to find out if they 
will be paid.
    Additionally, large portions of the initial payment 
determinations are reversed on appeal. The HHS Office of 
Inspector General reported that, of the 41,000 appeals that 
providers made to administrative law judges in fiscal year 
2010, over 60 percent were partially or fully favorable to the 
defendant.
    Such a high rate of reversals raises questions about how 
the initial decisions are being made and whether providers and 
beneficiaries are facing undue burdens on the front end. On the 
other hand, we need to recognize that ALJs have more 
flexibility in their decision-making than Medicare contractors 
do.
    During the July 2013 hearing, we expressed our hope that 
CMS would consider the balance between program integrity and 
the administrative burden on providers. CMS has taken steps to 
show it is considering that balance. These steps include 
decreasing the burdens on providers, increased oversight of 
auditors, and more transparency in the programs.
    When any Medicare contractor, either an auditor or a 
contractor that processes claims, decides that a claim should 
not be paid, it has a real effect on beneficiaries and 
providers, which is why it is so important that the appeals 
process allow these appeals to be heard in a timely and 
consistent fashion.
    The Office of Medicare Hearings and Appeals has also taken 
steps to address its backlog, but there is only so much the 
agency can do with its current authorities and staffing. 
Senator Wyden and I, and the other members of this committee, 
are committed to finding ways to make the appeals process work 
more efficiently and effectively in order to ease the burden on 
beneficiaries and providers, and to protect the Medicare trust 
fund.
    Today we have the opportunity to hear from those who are 
closest to the Medicare appeals process. I want to thank all of 
our witnesses for appearing here today to help us understand 
the issues that they face in dealing with the large number of 
Medicare appeals. I do look forward to hearing their 
perspectives on how that process might be changed to create a 
more efficient and level playing field.
    Let me turn now to my ranking member, Senator Wyden, for 
his remarks.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    Mr. Chairman, since the days when I was director at the 
home of the Oregon Gray Panthers, I have heard from seniors and 
their providers how frustrating it can be to deal with the 
arbitrary nature of the appeals process. Back in those days, 
everybody was in the dark. Essentially, nobody knew what the 
rules were, and there were no deadlines.
    Now, some of those problems have been addressed. But today, 
the system is still broken, and that is the bottom line. There 
are new problems to confront, and today the backlog of cases is 
so large that the door to new appeals is essentially closed. 
New cases are no longer being heard.
    So nobody is immune. Certainly not Oregon, where the 
problem of clogged appeals is tragically real, and it is 
something I hear about from seniors and their providers 
continually.
    Now, we are going to hear a lot of statistics today. The 
numbers are big, and we are going to rattle them all off. The 
number of cases sent to the Office of Medicare Hearings and 
Appeals has soared from 60,000 to 654,000 over just a couple of 
years. We are talking about a tenfold increase in just a couple 
of years.
    Now, one number that has not changed, and we ought to be 
talking about that as well, is the number of hearing officers 
handling cases. Today, about 60 hearing officers are available 
to hear these cases, and that was the case back in 2011. So it 
is no wonder that the appeals system is buckling under its own 
weight, and that the average time to process a claim is now 560 
days.
    So these are important references, and I just want, in 
closing, to say that, amid this blizzard of numbers and 
statistics, the real story is what happens to seniors as they 
try to navigate this system.
    Here is a brief account of what happened to the late 
Stephen Lessler. Like many seniors, Mr. Lessler had hip 
surgery, and in 2013 he went to a nursing home for 
rehabilitation. About 1 month into his rehabilitation, Mr. 
Lessler was notified that his coverage under Medicare Advantage 
would soon stop. He was encouraged by the progress he was 
making, so he ultimately decided to pay out-of-pocket for 
another week. He also appealed the denial to Medicare.
    The process went on and on and on. After losing earlier 
appeals, Mr. Lessler requested a hearing before an 
administrative law judge in December of 2013. Not until August 
of 2014--277 days later--did Mr. Lessler actually get a 
hearing. Eventually, he received a favorable ruling on 
September 24, 2014. Unfortunately, Mr. Lessler passed away the 
day before, September 23, 2014, at the age of 92.
    It seems to me, the Senate has a duty to ensure that 
seniors receive the care that they are rightfully entitled to 
under Medicare. The Senate has a duty, as custodians of 
taxpayer dollars, to ensure those monies are spent in the best 
possible way. My view is that balancing these twin goals is 
going to take some fresh thinking.
    Now, one idea is to allow less complicated and contested 
cases to be handled by a different set of hearings officers so 
that they can be processed more quickly. That would leave the 
more complicated and difficult cases to administrative law 
judges. Another idea would be to establish a refundable filing 
fee to prevent providers who gamed the system from crowding out 
those seniors whose cases need to be heard.
    I want today's witnesses to give us their ideas for 
reforming Medicare's appeals process. I want to hear their 
thoughts on solving the problem and helping us creatively 
squeeze every drop of efficiency out of our current system. I 
do want to make clear that, with a tenfold increase in the 
number of cases, I believe that additional resources are going 
to be needed as well.
    Efforts ought to be made to reduce the time it takes for an 
appeal to make its way through the system. Finally, what is 
needed is to prevent appeals from ever happening by getting it 
right in the first place.
    So, Mr. Chairman, I look forward to working with you. This 
is an important hearing, and I think this is another area where 
there is an opportunity for creative and bipartisan approaches 
so that seniors get better and more prompt services and 
taxpayers' interests are represented as well.
    The Chairman. Well, thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Before I introduce our witnesses----
    Senator Carper. Mr. Chairman? Mr. Chairman? Could I just be 
recognized for maybe 1 minute, please?
    The Chairman. Yes.

          OPENING STATEMENT OF HON. THOMAS R. CARPER, 
                  A U.S. SENATOR FROM DELAWARE

    Senator Carper. Thank you. I apologize. I appreciate the 
chance to say something. My thanks to both of you for bringing 
this important matter before the committee today. As the 
immediate past chairman of the Homeland Security and 
Governmental Affairs Committee, this is something we focus on a 
lot. We focus on improper payments.
    GAO tells us that improper payments last year totaled $125 
billion, and more than a third of that is from Medicare. This 
is real money. This is real money that we are interested in. We 
need to save that money, as much of it as we can. We do not 
need to create undue headaches for providers of health care. 
So, this is important, trying to find the right balance. I am 
very, very grateful--I have a statement I would like to submit 
for the record, if I can.
    We are having a mark-up on the Toxic Substance Control Act 
in the Environment and Public Works Committee, pretty 
contentious, and I need to be back there. We are going to try 
to find the sweet spot. I think we have, maybe, and can pass 
good legislation there. We can hopefully find a sweet spot in 
this area as well. But thank you so much, and our thanks to the 
witnesses. My apologies. Thank you.
    The Chairman. Thank you, Senator. Your statement will be 
placed in the record at the appropriate place. We are glad to 
have you here when we can.
    [The prepared statement of Senator Carper appears in the 
appendix.]
    The Chairman. Now, before I introduce the witnesses, it is 
my understanding that we have some special guests with us 
today. I would like to extend a warm welcome to the delegates 
from Afghanistan and Nepal who are joining us today. The Afghan 
delegation includes members of both houses of Afghanistan's 
national assembly. From Nepal, the delegation includes members 
of Nepal's constituent assembly.
    The entire committee was deeply saddened to hear of the 
earthquake that struck Nepal on Saturday, and we do offer our 
condolences and our profound sympathy for all of those who have 
been affected. We certainly welcome you to this country, and to 
this hearing in particular, and hope you enjoy listening to 
these experts on this very important subject. We are grateful 
to have you here. We hope you enjoy your time while you are 
here in Washington, and especially in the U.S. Senate.
    Now, turning to today's hearing, our first witness is Sandy 
Coston. Ms. Coston is the CEO and president of Diversified 
Service Options--we will call it Diversified--and its wholly 
owned subsidiaries, First Coast Service Options and Novitas.
    First Coast and Novitas provide administrative services for 
processors for government-sponsored health care programs such 
as Medicare. In her role, Ms. Coston sets the strategy and 
vision and provides executive leadership for the Diversified 
enterprise. She has accountability for government contracts 
administration, including Parts A and B Medicare administrative 
contractor contracts, as well as managing a national provider 
reimbursement set of programs for undocumented alien emergency 
services and a financial management services contract for the 
national marketplace.
    Our next witness is Tom Naughton. Mr. Naughton serves as 
senior vice president of MAXIMUS Federal Services, a subsidiary 
of MAXIMUS, Inc. that is dedicated to serving government 
agencies and programs. In that role, Mr. Naughton is 
responsible for the management and performance of MAXIMUS 
Federal's largest book of business: insurance benefit appeals 
and independent medical review services. His client base 
includes more than 48 State and Federal agencies.
    Our last witness today is Judge Nancy J. Griswold. Judge 
Griswold was appointed Chief Administrative Law Judge for the 
Office of Medicare Hearings and Appeals on March 1, 2010. In 
this capacity, she oversees the third level of review for 
Medicare appeals within HHS and has responsibility for the 
second-largest administrative law judge corps in the Federal 
system.
    In June of 1995, Judge Griswold began her Federal career as 
an ALJ in the Shreveport, LA Social Security Office of Hearings 
and Appeals. She served as the Hearing Office's Chief ALJ from 
2002 until 2004, when she was appointed as acting, and then 
permanent, Regional Chief Judge for the Boston region. She was 
then promoted to Deputy Chief ALJ at Social Security, where she 
served as alter-ego for the Chief ALJ and worked closely with 
him on the formulation of Social Security's extremely 
successful backlog elimination plan.
    During her tenure as Deputy Chief ALJ, the Social Security 
Administration reached new levels of productivity and, I might 
add, prior to her departure had driven the backlog down for 14 
successive months. She also had oversight of the ALJ hiring 
program at Social Security and recommended over 300 ALJs for 
appointment during her tenure. As Deputy Chief ALJ for Social 
Security, she assisted the Chief Judge in the management of 
over 8,000 employees, including 1,200 ALJs in 142 hearing 
offices.
    So I want to thank you all for your willingness to come and 
be with us and to help us to understand these very important 
issues here, and I guess we will start with you, Ms. Coston.

   STATEMENT OF SANDY COSTON, CEO AND PRESIDENT, DIVERSIFIED 
            SERVICE OPTIONS, INC., JACKSONVILLE, FL

    Ms. Coston. Thank you. Good morning, Chairman Hatch, 
Ranking Member Wyden, and distinguished members of the 
committee. It is my honor to be here today to testify before 
you.
    As the chairman mentioned, we are a Medicare Part A and 
Part B administrative contractor, or a MAC, for 12 States and 3 
U.S. territories, representing approximately 32 percent of the 
traditional Medicare program across our Nation.
    The focus of my testimony today will be on ways to 
streamline the appeals process and to help in reducing the 
backlog, as previously mentioned. As a MAC contractor, one of 
the things that we do is we process the initial claims, and we 
also have accountability to process the first level of appeal.
    When we receive appeal requests, we go through a process of 
triaging those requests and make a determination as to whether 
or not the appeal is valid. About 60 percent of the cases we 
receive actually turn out to be valid appeal requests.
    The remaining 40 percent we handle administratively through 
either an inquiry response, or perhaps a clerical error 
reopening. This triage process is important so that we 
determine the appropriate course of action to take. The second 
through the fifth level of appeals are handled by other 
entities than us, and those are described in more detail in 
Exhibit 1 of my testimony.
    I want to talk a little bit about what we have seen as a 
MAC contractor, and the genesis of the appeals backlog. Over 
the last several years, the number of entities that are 
involved in the evaluation of claims has increased 
dramatically, as has the number of claims being scrutinized. In 
addition to the MAC contractors, these entities include the 
Zone Program Integrity Contractors, the Comprehensive Error 
Rate Testing Program Contractors, and the Recovery Audit 
Contractors. Our experience has shown that the most significant 
contributor to the changes in the volumes of appeals has been 
the recovery auditor. Using First Coast Part A claims data as 
an example, the overall percentage of appeals driven by the 
recovery auditor decisions jumped from 7 percent in 2011 to 63 
percent in 2013. Similarly, the overall volume of appeals went 
from approximately 23,000 to 66,000.
    To date, a number of actions have been taken by CMS and the 
Office of Medicare Hearings and Appeals to relieve that backlog 
that primarily exists at the third level, or the administrative 
law judge level.
    We have several recommendations that may effectively reduce 
the backlog of appeals at the ALJ level and be able to keep the 
backlog down. First, we recommend that we remand cases to the 
prior level or the second level of appeal, which are processed 
by the Qualified Independent Contractor, when the ALJ finds 
good cause for the submission of new evidence. In cases when 
the new evidence is submitted at the ALJ level, remanding these 
cases back to the second level or to the QIC for handling would 
result in a reduction at the ALJ level and, ideally, quicker 
resolution for the provider. Further, handling these cases at 
an earlier level of appeal not only preserves the ALJ level for 
the provider when needed, but reduces the expense of having the 
MAC and the QIC prepare for and participate in cases that could 
have been resolved based upon the introduction of new evidence. 
Additionally, for the appeals that are favorable, there is a 
significant cost avoided by the ALJ and the provider, and 
likely the provider would receive payment sooner.
    Our second recommendation is to establish a per-claim 
filing fee, as previously mentioned by the chairman. Our 
recommendation to streamline the appeals process would be to 
modify the work that the MAC does at the first level of appeal.
    We would recommend that we retain that triaging process to 
make sure that we validate which are valid cases for appeal, 
and then we would also recommend that, for those appeals that 
are clinical in nature, they go directly to the second level 
while we retain just the administrative, non-medical-necessity 
appeals.
    In eliminating this level of appeal of non-clinical 
appeals, we would also recommend that the funding be retained 
to further educate the provider community on how to 
appropriately address those claim denial findings that we see.
    In closing, we appreciate the leadership of this committee, 
and we thank you for the opportunity to provide our point of 
view and look forward to questions that you may have.
    The Chairman. Well, thank you.
    [The prepared statement of Ms. Coston appears in the 
appendix.]
    The Chairman. Mr. Naughton, we will take your testimony at 
this time.

 STATEMENT OF THOMAS NAUGHTON, SENIOR VICE PRESIDENT, MAXIMUS 
               FEDERAL SERVICES, INC., RESTON, VA

    Mr. Naughton. Thank you, Committee Chairman Senator Hatch, 
Ranking Member Senator Wyden, and honorable members of the 
committee, for providing us the opportunity to discuss the 
Medicare appeal process and potential efficiencies and 
enhancements to that process.
    Since 1989, MAXIMUS Federal Services and our affiliates 
have served as a Qualified Independent Contractor for the 
Centers for Medicare and Medicaid Services. In that role, we 
have completed more than 2 million Medicare appeals across all 
parts of Medicare, addressing all forms of Medicare benefit and 
payment disputes.
    Our QIC work is the hallmark of our largest market segment: 
independent benefit appeals and independent medical review. We 
are the largest provider of these services in the United 
States, and we currently serve more than 50 Federal and State 
agency clients.
    I would note that MAXIMUS--and the company we are owned by, 
MAXIMUS, Inc.--is a government-only company. We do not provide 
any services or have any contracts with health care providers 
or health care payers. The independence is part of our mission, 
and it is a statutory requirement of our QIC contracts and 
Medicare contracts we administer throughout the United States.
    Pursuant to section 1869 of the Social Security Act, a 
Qualified Independent Contractor is defined as ``an entity or 
an organization that is independent of any organization under 
contract with the Secretary that makes initial 
determinations.'' The organizations encompassed within the 
meaning of section 1869 include, but are not limited to, 
Medicare Administrative Contractors, Zone Program Integrity 
Contractors, Recovery Audit Contractors, and Quality 
Improvement Organizations.
    The primary goals of the QIC program are timely 
adjudication of reconsiderations--that would be the level two 
of appeal; case management of those appeals within the Medicare 
appeals system; and assuring timely and appropriate 
communication to the first level of appeal at the MACs or, on 
the Part C and the Part D side, Medicare Advantage plans and 
Medicare drug plans, as well as communicating with the ALJs at 
the third level of appeal.
    Similar to all stakeholders within this appeal process, 
within recent years the QICs have experienced unprecedented 
volumes. Nowhere was this more evident than in our Part A 
program, where, if you look at the chart here, you can see 
volumes growing exponentially over just a few-year period.
    Just as an example, in February 2010, we received a total 
of 4,900 appeals. In February of 2012, we received a total of 
12,000 appeals--just in the month of February--for that Part A 
program, which is an increase of 159 percent. In February 2015, 
we received 45,000 appeals, an increase of 253 percent over 
2012 and an increase of 815 percent in the prior 2-year period.
    This influx of appeals created a backlog and created 
significant issues for our infrastructure, and we were forced 
to act quickly to address this backlog and to ensure that these 
appeals were adjudicated as quickly and as appropriately as 
possible. We accomplished that through technology, through 
adding resources. You can see that we went from fewer than 30 
clinical staff in the Part A program to over 140 in that Part A 
program. But more importantly, we changed our processes and 
created specialized teams to address specific appeals.
    This change in process led to an end to the backlog which 
began in the spring of 2013 and was cleared by the fall of 
2013. And with the change in this technology, additional staff, 
and processes, we have been able to avoid further backlogs 
since 2013.
    Based on those lessons learned, we have a number of 
recommendations which we think will continue to help the 
appeals program evolve and provide more efficient services to 
beneficiaries, providers, and all stakeholders.
    I think the number-one issue for the current backlog would 
be to create a support unit for the ALJs. This was an idea that 
was considered back in 2004 prior to the ALJs coming to OMHA in 
2005, in which attorneys, nurses, physicians, certified coding 
specialists, other subject matter experts would provide support 
to the ALJs and help them make decisions and adjudicate the 
claims in a more timely fashion.
    I think in this issue, as was mentioned by Chairman Hatch, 
taking the less complicated appeals and having subject matter 
experts address those appeals for the ALJs would help address 
the backlog quickly. I also think creating a Recovery Audit 
Contractor-only QIC, so that a QIC specializes in audit 
contractor appeals, would help educate the program, assist all 
the stakeholders in adjudicating those appeals, and give us a 
centralized resource to understand exactly what is going on 
with the audit contractors and at all levels of appeals.
    I also agree with all of the recommendations of Ms. Coston. 
I think other recommendations would be to change audit 
contractor pricing to a per-case review, or to a more 
definitive cost, and do away with contingency pricing. That 
seems to cause concern for stakeholders, and I think there are 
ways to pay the audit contractors other than through 
contingency pricing.
    I think enhancing the scope of work for the Administrative 
QIC to provide greater education to all stakeholders would be 
helpful, and I also think, if we do not provide support to the 
ALJs through providing subject matter expertise, allowing the 
QICs to participate in a greater percentage of hearings would 
be helpful for adjudicating those hearings and getting a more 
consistent decision for those hearings.
    Just as an example, in 2014 we participated in less than 5 
percent of Part A hearings. The uphold rate for our decisions 
in which we participated was 66 percent, and, in hearings where 
we did not participate, the uphold rate was 37 percent--
obviously a large difference between when we are participating 
and not participating.
    I look forward to having further discussions on these 
potential efficiencies and enhancements, and thank you again 
for your time.
    The Chairman. Well, thank you.
    [The prepared statement of Mr. Naughton appears in the 
appendix.]
    The Chairman. Judge Griswold, we will turn to you to wrap 
up here.

 STATEMENT OF HON. NANCY J. GRISWOLD, CHIEF ADMINISTRATIVE LAW 
 JUDGE, OFFICE OF MEDICARE HEARINGS AND APPEALS, DEPARTMENT OF 
           HEALTH AND HUMAN SERVICES, WASHINGTON, DC

    Judge Griswold. Chairman Hatch, Ranking Member Wyden, 
distinguished members of the committee, it is my honor to be 
with you today to discuss proposals for creating a more 
efficient process for Medicare appeals.
    Chairman Hatch, I want to thank you and Senator Wyden and 
your staffs for your interest in resolving the challenges that 
are being faced by the Medicare appeals process. I also want to 
thank Secretary Burwell for her commitment to restoring the 
balance between the Department's audit efforts and its 
responsibility to provide a high-quality and timely appeals 
process.
    Three separate agencies within HHS are charged with 
administering the Medicare appeals process, with OMHA being 
generally responsible for the third level of review. OMHA was 
established in June of 2005 with the goal of reducing the then-
average 368-day waiting time for a decision to the 90-day time 
frame established in the Medicare, Medicaid, and CHIP Benefits 
Improvement and Protection Act of 2000.
    In order to make certain that OMHA's adjudicators would 
have decisional independence from CMS, OMHA was established as 
a separate agency reporting directly to the Secretary, having a 
second appropriation, and operating, both functionally and 
fiscally, separately from CMS.
    We are grateful for the enacted funding increases in fiscal 
years 2014 and 2015 which have allowed for the hiring of 12 
additional ALJ teams and the opening of a fifth field office. 
However, even this additional capacity pales in comparison to 
our incoming adjudication workload. In fiscal year 2013 alone, 
OMHA received over 384,000 appeals and, in fiscal year 2014, 
approximately 474,000 appeals. Although ALJ teams more than 
doubled their disposition capacity from fiscal year 2009 
through fiscal year 2013, they have not been able to keep pace 
with receipt levels, and adjudication times have now increased 
to 572 days.
    Several reasons for the increase in appeals can be 
identified. In fiscal year 2010, OMHA began to take on new 
workloads, including appeals resulting from the nationwide 
implementation of the Recovery Audit Program. There have also 
been increases in appeals filed by Medicare State agencies and 
in OMHA's traditional workload. Finally, Medicare enrollment 
has grown as the baby boom generation becomes Medicare-eligible 
and as younger individuals have been added to the disability 
rolls and become eligible for Medicare benefits as well.
    In response to this record growth, OMHA has taken a number 
of administrative actions, most significantly through ongoing 
development of an electronic case processing system and 
standardized business process. We have also enhanced our 
adjudication training programs. As part of its Settlement 
Conference Facilitation Pilot, OMHA has resolved over 1,000 
appeals, which represents the average productivity of an entire 
ALJ team working for a full year.
    The President's 2016 budget request would increase OMHA's 
current budget from $87.3 to $270 million and would allow us to 
add 119 new ALJ teams and 82 Medicare magistrates, increasing 
adjudication capacity from 77,000 to approximately 278,000 
appeals per year. The President's budget also proposes seven 
legislative reforms: expanding the Secretary's authority to 
retain a portion of recoveries from the Recovery Audit Program 
to fund the related appeals process at OMHA; establishing at 
the fourth level, the Departmental Appeals Board, a refundable 
per-claim filing fee; allowing sampling and consolidation of 
similar claims without appellant consent; requiring remand of 
appeals upon introduction of new evidence; increasing the 
minimum amount in controversy required for adjudication by an 
ALJ to the amount required for judicial review; establishing a 
Medicare magistrate program for appeals falling between the 
current amount in controversy and the new amount required for 
an ALJ hearing; and finally, providing for resolution of 
appeals having no material fact in dispute when the decision is 
governed by a binding authority.
    OMHA is privileged to have a dedicated and innovative 
workforce of ALJs and staff, who are committed to processing 
Medicare appeals that are both timely and reflect the highest 
quality of 
decision-making. However, administrative initiatives alone are 
insufficient to close the gap between workload and resources at 
OMHA.
    The Department believes that the funding and legislative 
proposals contained in the 2016 President's budget will begin 
to close this existing resource gap, and I look forward to our 
dialogue on these issues today. Thank you.
    [The prepared statement of Judge Griswold appears in the 
appendix.]
    The Chairman. We appreciate all three of you and the hard 
work that you are doing. We are naturally very interested in 
what you are doing. Your organizations really are very 
important to our society, especially as they process these 
appeals quickly and efficiently.
    Now, as I mentioned before, the backlog of appeals has real 
monetary implications for beneficiaries and basically everybody 
else, including our government. The beneficiaries and providers 
are both very concerned, and my colleagues and I are concerned 
about it as well.
    Now, each of you represents a different level of the 
appeals process. We understand that handling a large volume of 
appeals is a daunting task, and the American people place a 
great deal of trust in you, and of course your important work.
    My colleagues on this committee and I are committed to 
improving this system, and there are, in our opinion, a wide 
variety of approaches that must work in tandem if the process 
is to be reformed.
    I would like to ask each of you to explain your 
organization's role in the appeals process and your biggest 
challenge. You have basically explained your role, but give us 
the biggest challenge in fulfilling your role as you see it. We 
can start with you, Judge. Why don't we just go across?
    Judge Griswold. Well, we are an ALJ organization, 
administrative law judges, and our judges hold hearings in 
accordance with the Administrative Procedure Act. I think our 
biggest challenge right now is to handle the incoming workload. 
We are keenly aware of the impact that these delays are having 
upon our stakeholders, the people who file appeals before us.
    So, if I could expand to two challenges, I think one is to 
go to a fully electronic system. We are in that process right 
now, and that will gain us some efficiencies, but it is a 
multi-year project. Then the second would be just simply our 
capacity to handle the incoming receipts.
    The Chairman. Well, thank you.
    Ms. Coston?
    Ms. Coston. Thank you. I would describe our biggest 
challenge as beginning with the processing of the claims. We 
receive a significant portion, probably the high 90th 
percentile of claims, electronically. Those claims process 
through CMS's standard systems. There is a separate Part A and 
a Part B system. They process through that system, and we touch 
about 5 percent of those claims, so about 95 percent process 
automatically.
    There are edits and audits within the system that, if 
claims meet certain criteria, they will suspend for manual 
intervention, but we do not receive medical records on the 
front end to be able to process those claims. So I know, Mr. 
Chairman, when you talked about the overturn rate, one of the 
challenges that we have is that we adjudicate claims without 
medical records.
    So, when we ultimately would deny a claim and it is 
appealed, that is really the first look we get at the medical 
record behind that claim, unless of course we have a provider 
that is on pre-payment review--and we do have providers that 
are on pre-payment review based on data analytics. If they show 
aberrant behaviors, we will put them on pre-payment review.
    But I think really just understanding that the process by 
which we are held accountable--we do not really see that 
medical documentation until that appeal is filed, so it is 
really about education to the provider community to make sure 
that they are appropriately documenting that medical record. So 
often, the improper payment rate that you have referred to, is 
driven by lack of appropriate documentation.
    It is not that we are necessarily challenging that the 
services were medically necessary, it is that the providers are 
not adequately documenting that in the medical record. Thus, 
part of our recommendation is to increase the level of 
education to make sure those claims are appropriately 
documented so that, when they are denied, upon appeal we can 
see in the medical record that they were in fact medically 
necessary.
    The Chairman. Well, thank you.
    Mr. Naughton, let me just ask you this question. I could 
say to each of you, you could answer this question: providers 
report that the use of different appeals numbers at various 
levels of appeal is confusing and does hamper efficient 
tracking. Might you all consider implementing a uniform 
docketing system across various levels of appeal? I just would 
like--what do you think about that, Mr. Naughton?
    Mr. Naughton. Well, we would consider that, and I think we 
recommended that previously. One of the largest process issues 
for all stakeholders--and it has been referred to by Ms. Coston 
and Judge Griswold--is that there is not full electronic 
communication between all levels of appeal.
    Currently, we may be receiving electronic records. We then 
download them, print them, box them up and send them to the 
ALJ. If we were able to create a centralized database and a 
system for all parties to the appeal process, first of all, we 
would all know what the full record is.
    There would be no dispute of what the entire record is, and 
we would have access to that, and it would provide much greater 
transparency and visibility to providers to understand where 
their case file is, when it is expected to move, and what are 
the documents associated with that case file.
    The Chairman. Well, my time is up, but, Judge Griswold, it 
seems to me that the judges could standardize case 
administration so there is a uniform system of hearing 
instructions and processes. So, you might take that under 
consideration and see if you could recommend how to resolve 
that particular problem.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I 
also want to extend our condolences to our delegation from 
Nepal. I believe they are in the audience now. We are glad you 
are here, and we look forward to talking with all of you about 
issues and a happier time for your country.
    Let me start with you, Judge Griswold. I want to start with 
what I described in my opening statement, which is what this 
really means for seniors. The Center for Medicare Advocacy is 
one of our most influential and prestigious organizations 
advocating for the rights of seniors. They filed a class 
action, as I think you know, requesting relief for all of the 
seniors who have been up against these interminable delays.
    Mr. Lessler, the case that I mentioned, was one of those in 
the class. As you know, Mr. Lessler essentially got a refund 
after he died. He had been in the system, just kind of bouncing 
around in the system, for what was an interminable period.
    So to me, what this is really all about is not just these 
statistics and legalistic terms about various kinds of 
procedures, but the bottom line for me is, how do you keep that 
from happening again?
    So, I think what I would like to do is have you start and 
tell us what might help generate the kind of urgency that it is 
going to take in a challenging Congress to actually get this 
done. Because to me, to hear a story like Mr. Lessler's, where 
everybody says, ``gee, that is awful,'' and then everybody kind 
of goes about their business, reading position papers and the 
like, that is not what this is about. This is about keeping 
this from happening again. What do you think is necessary to do 
that?
    Judge Griswold. Well, at the Office of Medicare Hearings 
and Appeals, we definitely feel the urgency, because we are 
dealing with this pending level, which now comes in right at 
about 870,000 pending appeals at our level. So we definitely 
feel that. I think that what you are talking about, though, 
when you take those numbers and you start translating them into 
real-life stories and real-life impacts, I think that is what 
is needed.
    Senator Wyden. So what is needed to keep it from happening 
again?
    Judge Griswold. I think that we need to look at two pieces 
of it. One is dealing with the number of receipts that are 
coming in the door. There are a number of things that could be 
done on that end. The filing fee. This proposal for a 
refundable filing fee is one of those proposals that would 
impact the number of cases coming in.
    We have found that in 2015, 51 percent of our incoming 
appeals had been filed by 5 appellants. So I think the filing 
fee would encourage appellants to take a closer look at what 
they are appealing and to be a little more discriminating in 
what they bring before us.
    Senator Wyden. I think that last point is an important one 
to note. The Inspector General found that essentially this very 
small number of providers account for a very substantial number 
of the appeals.
    For you, Ms. Coston, and you, Mr. Naughton, your general 
finding is that a small number of providers are essentially the 
challenge. So what we ought to do is really laser in, in terms 
of tracking those people, monitoring those people, and 
watchdogging that population. Do you share that view, Ms. 
Coston?
    Ms. Coston. I do not think we see that so much at the first 
level. But to add to Judge Griswold's comments on your prior 
question, one thing that we see is there is--at the different 
levels, new evidence can be introduced.
    So, when we make a determination on the first level of 
appeal, we might not have as much information as the ALJ does 
when the appeal goes to their level. So one thing that we would 
recommend is that all evidence be introduced at the first level 
of appeal, and then perhaps we can resolve these appeals much 
sooner without escalating to the higher levels.
    Senator Wyden. That sounds logical. Maybe it is too much 
for Washington, but it certainly sounds logical to me.
    The Inspector General's report says that providers who have 
the resources almost automatically appeal. They just 
automatically appeal because they have a good shot at getting a 
favorable decision and getting people to settle. Is that 
something that you have found, Mr. Naughton, this process of 
sort of figuring you can beat the odds?
    Mr. Naughton. Yes.
    Senator Wyden. You automatically appeal? Just do it sort of 
by rote and figure you can win?
    Mr. Naughton. So, a couple points. In most appeal programs, 
it is usually a 20/80 problem, where 20 percent of the 
population is 80 percent of the appeals. I think in the audit 
contractor world, it is even greater than that, and I would 
agree that 5 percent is probably responsible for the majority 
of all appeals.
    I would also agree that these providers with resources--we 
know for a fact they are engaging high-powered law firms to 
represent them at ALJ hearings where the ALJs may have no 
support or no one is representing the other side of the story. 
And certainly they know, if we continue to appeal this, our 
odds of our winning are greater because we have the resources 
to get behind this and make sure we win it.
    Senator Wyden. Well, we are going to follow up with you on 
this, because my point is that the vast majority of providers 
are honest and straightforward in terms of their dealings with 
patients and taxpayer dollars. But clearly there is a small 
number that has figured out a way to really hotwire the system, 
to just game it and, like you say, play the odds. I think Ms. 
Coston's point about trying to get the evidence earlier in the 
process strikes me as sensible.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman and Mr. 
Ranking Member. Welcome to all of you. Let me just first say 
that Medicare is an incredibly important health care system, 
and has been since it was enacted in 1965. We want to make sure 
that it continues to be affordable and comprehensive and that 
it is a guaranteed program.
    I do have to say that, as we are getting ready to see the 
final budget come forward from the conference committee between 
the House and the Senate, I am very, very concerned about the 
billions of dollars being cut in that budget resolution, which 
is a broader discussion beyond today. But for the record, I 
continue to be very concerned about the cuts to Medicare and 
the attacks on the guaranteed system of Medicare. But it is 
incredibly important that we address fraud and abuse and that 
we are able to have a system with integrity, which is what all 
of you are talking about.
    So, a couple of questions. It is very important that we 
have a system that works, that is timely. My question relates 
to how we get ahead of this on the front end. We have a system, 
the Recovery Audit Program, that holds potential to do that. 
However, the high likelihood that appeals are found in favor of 
the provider on the one hand, not the auditor, suggests that we 
need updating. So the cases are being brought, but then the 
appeals are being filed and then the majority of the appeals, 
as I understand it, are found in favor of the provider.
    So on the one hand, we need oversight, and on the other 
hand, we need to make sure we have quality health care. So, 
when you think about the appeals backlog and the dollars spent 
in this whole process, I am wondering if each of you can 
suggest some ways on the front end to ensure that providers 
understand the evolving payment procedures, have clear 
expectations on the front end, and then second, Ms. Coston, you 
spoke about--and any of you can talk about this--the Recovery 
Audit Contractors. I realize none of you is in that end of 
things, but you mentioned the claims going from 7 percent to 63 
percent.
    Again, on the front end, as we look at how to get ahead of 
this, I am very concerned and really question at this point--
that system is on a contingency basis, so each claim that is 
denied and money that is clawed back, then, as I understand it, 
funds the system, funds the audits, the auditors.
    So I am concerned that if the hospitals are bearing the 
full cost of appealing the auditors' findings, I do not know of 
any consequences on the auditors' end for those outcomes. So if 
a majority of them end up siding with the provider, but yet the 
incentive is to deny the claim in that piece of it, it seems to 
me like we ought to be focused on some changes and getting this 
right on the front end.
    So on the front end, I guess I would ask each of you--
first, Ms. Coston, since I mentioned your comments--what should 
we be doing on the front end? Do we have the incentives, at 
least for part of this, in the wrong place? What should we be 
doing working with providers on the front end?
    Ms. Coston. Sure. Sure. Well, and to reiterate, I think 
there can be more education with the provider community to help 
them understand how to document that record and file the claim 
correctly the first time. So I think that is number one.
    Number two, as I mentioned, to be able to require the 
provider to submit all evidence at the first level of appeal 
would be helpful. I think that CMS has made some strides with 
the recovery auditors in terms of, there was a moratorium for a 
while because the recovery auditors were focused primarily on 
Part A claims, which are the very high-dollar claims, and that 
is where we saw the significant spike on the Part A side in 
that time period that I mentioned, because it was financially 
advantageous for the recovery auditors to focus on the Part A 
claims.
    CMS has also instituted the limit on the number of claims 
that the recovery auditors can look at, and they have to vet 
the services that they want to look at with the agency ahead of 
time. So I think there have been some things that have been 
implemented to try to reduce that heavy burden of those Part A 
appeals.
    Senator Stabenow. Let me just ask, if I might interrupt in 
the interest of time, do you think it makes sense that the 
Recovery Audit Contractors are paid on a contingency basis for 
each claim they deny? Is that the right incentive?
    Ms. Coston. That payment system has actually been changed--
--
    Senator Stabenow. It has been?
    Ms. Coston [continuing]. So that if indeed there ultimately 
ends up being an overturn of the recovery auditors' decision, 
that fee is no longer available to them. So initially, when the 
Recovery Audit Program was rolled out, they retained the 
contingent fee no matter what, but that has changed.
    Senator Stabenow. Does anyone else want to comment? I know 
my time is up.
    Mr. Naughton. I do think on the front end, again as I 
mentioned in my testimony, putting an end to the contingency 
payment can be done. It can be determined. We believe there is 
$500 million out there for you to get. If you get $500 million, 
we will pay you $50 million. If you do not reach that, you will 
get paid less; if you get more, you will be paid more. So there 
are ways to pay them outside of contingency on a per-claim 
basis.
    All QIC appeal programs are on a per-claim basis, so I 
think that is something that can be considered and is a 
possibility. I think at the level two, greater outreach, 
education to the providers, greater transparency of what is 
going on with the appeals to the providers, and providing 
providers the resources they need to understand what is going 
on with their appeal and the reasons for the denials, will help 
educate and prevent a high level of appeals going forward.
    Senator Stabenow. Thank you. I realize my time is up, Mr. 
Chairman. Thank you.
    The Chairman. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman. I appreciate the 
hearing, and I want to thank our witnesses for being here.
    Judge, I want to start with you. We know from the testimony 
today and from all of the evidence that is presented that this 
is a system that is stressed. That might be an understatement. 
We also know that the funding here is in the discretionary 
category and that the President's budget has included a 
proposal to access funds recovered by the so-called Recovery 
Audit Contractors.
    I guess the main question I have is one of resources. I 
think the operative word would be ``additional.'' What 
additional resources would allow you to operate more 
efficiently and process appeals more efficiently?
    Judge Griswold. Well, the $270 million which is in the 
President's budget would allow us to hire 119 ALJ teams, which 
essentially means 119,000 additional appeal dispositions per 
year. In coordination with other legislative proposals, we 
would also look at hiring magistrates, which would essentially 
be like a small claims court. These are individuals who would 
be less costly for us in terms of their team support, but they 
would be processing right at that same number. We project about 
1,000 appeals per magistrate. They would be handling appeals 
that would fall between the current amount in controversy, 
which is $150, and the Federal court limit, which is right now 
$1,460.
    Our thought with this is that the ALJ is really the one who 
prepares a record that is prepared in accordance with the APA 
and that is suitable for going to Federal district court. If 
the claim or if the case cannot get to Federal district court 
because of the amount in controversy, it makes sense to have 
that adjudication done by a less-costly official. So we think 
that with that combination of adjudicators, additional ALJs, 
and the Medicare magistrates, we would be able to up our 
disposition capacity from 77,000 per year, roughly, to 278,000 
per year.
    Senator Casey. Say that last number again.
    Judge Griswold. Two hundred and seventy-eight thousand 
appeals per year.
    Senator Casey. From?
    Judge Griswold. From 77,000.
    Senator Casey. Seventy-seven? All right.
    Judge Griswold. Right. Because we currently have 77,000, or 
will May 3rd. We have five new judges reporting May 3rd, and so 
we will have a capacity of 77,000 per year, given the current 
budget.
    Senator Casey. I appreciate that. I realize this is ground 
you already may have been plowing, as I was in and out today, 
but I am a great believer that resources matter, especially 
when you can very specifically focus on what resources would be 
used for. You can make the nexus as, I think, taxpayers have a 
right to expect, that we can make the case or the connection 
between an expenditure, the hiring of more judges, or the 
investment of greater resources----
    We have a similar problem in other parts of the Federal 
Government. We have, for example, black lung cases. This is the 
perfect storm: case numbers going up; the number of 
administrative law judges going down. That is a recipe for 
major problems.
    I guess in the remaining time, I have just one kind of 
broad question, if it is possible for any one of the three of 
you, or more than one, to kind of walk through an example of an 
appeal as it winds its way through the process and kind of the 
time line, if you can do that.
    You may have already done it with regard to your testimony, 
but just kind of, what is the typical case, especially in terms 
of time line, and why is that emblematic of, or an example of, 
what the problem is? Does that make sense? You have 16 seconds. 
[Laughter.]
    Ms. Coston. So we are the first level of appeals, as I 
believe I had mentioned earlier. Currently, I would say 
generally we are processing appeals timely. We are at the 
workloads that we expect. We have 60 days to process appeal 
cases. After the claim is processed, the appellant has 120 days 
to file that appeal. So depending on how long they take, we are 
generally processing within the 60-day time frame.
    Mr. Naughton. And we are the second level of appeal, and 
our time frames, depending on the case type, can be 72-hour 
expedited, 30-day pre-service appeal, or a 60 calendar-day 
retrospective appeal. At our level of appeal, all cases 
involving medical necessity are reviewed by a physician, which 
is different from some of the other levels of appeal. When we 
have completed our part, we can move to the ALJ.
    Senator Casey. Great. Well, thanks very much. I know we are 
out of time.
    Thank you, Mr. Chairman.
    The Chairman. Well, thank you. I want to thank our 
witnesses for appearing here today. I also want to thank the 
Senators who were able to participate, given our busy day 
today. It is one of the worst busy days we have had around 
here.
    This is an important issue, but the committee needs to give 
some thoughtful consideration to it in terms of legislative 
solutions. I do appreciate all three of you and your 
participation here today.
    Any questions for the record should be submitted no later 
than Tuesday, May 5th.
    With that, we will put the committee into recess. Thanks so 
much for being here. I appreciate you.
    [Whereupon, at 11:16 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


             Prepared Statement of Hon. Thomas R. Carper, 
                      a U.S. Senator From Delaware
    Without doubt, we must ensure that Medicare continues to provide 
critical care to our nation's seniors and at the same time finds ways 
to contain the growth of health care costs. I believe we can do both. 
And one critical approach for an effective, and cost-effective, 
Medicare program is to have appropriate and smart oversight and 
auditing.

    We need to make sure that taxpayer dollars are spent on appropriate 
health care services that are needed by Medicare beneficiaries. The 
Government Accountability Office estimates that almost $46 billion of 
the Medicare fee-for-service expenditures were lost due to improper 
payments in the last fiscal year. Unfortunately, that level has been 
increasing during the past few years.

    Medicare oversight and audits are conducted by a number of 
different types of oversight contractors working for the Centers for 
Medicare and Medicaid Services (CMS). Not surprising, the alphabet soup 
of oversight can be confusing to anyone. My staff has heard complaints 
regarding reviews of Medicare claims conducted by each type of audit, 
and the ongoing and understandable confusion about which auditor is 
looking at a claim. In addition, I have heard from Delaware hospitals 
about the financial burdens placed on health care providers from the 
oversight of Medicare claims by CMS and its audit contractors. Clearly, 
we can do a better job to identify unnecessary and ineffective 
oversight steps that put a burden on doctors, hospitals and other 
providers, and make sure CMS has a better process to help providers 
make their way through the maze of audits and rules.

    Furthermore, a key element of the Medicare auditing programs is to 
prevent overpayments before they are made. When a consistent error or 
payment vulnerability is identified by the auditing contractors, 
Medicare officials are supposed to keep track of the problem. CMS is 
then supposed to address the problem, by either changing how payments 
are approved and reviewed, or by communicating a solution or 
clarification to the health care provider community. However, I 
understand that a change in law is needed to allow some of the Medicare 
overpayment recoveries to be used for this outreach, which of course 
would help prevent future overpayment and reduce the burden on 
providers.

    As the Members of the Senate Finance Committee are well aware, the 
Medicare ``doc fix'' legislation--also known as the Medicare Access and 
CHIP Reauthorization Act--was enacted earlier this month. The 
legislation included some very good improvements to program integrity, 
including how CMS and its contractors reach out to health care 
providers to ensure a strong understanding of Medicare payment rules. I 
was also happy that the ``doc fix'' legislation included some important 
provisions of a bill I introduced this year, called the Preventing and 
Reducing Improper Medicare and Medicaid Expenditures Act, that consists 
of a range of steps to prevent waste and fraud. However, one provision 
of my legislation that did not make it into the new ``doc fix'' law 
would have provided more resources for Medicare provider outreach and 
education. I hope to find other avenues to provide these resources.

    From the testimony of the witnesses, and from past hearings of the 
Committee, I think there are a lot of straightforward and helpful steps 
to improve the Medicare audit rules and procedures. I am committed to 
working with the committee, the administration and the many 
stakeholders to improve how audits are performed.

                                 ______
                                 
        Prepared Statement of Sandy Coston, CEO and President, 
                   Diversified Service Options, Inc.
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the Committee, it is an honor to testify before you today. I am Sandy 
Coston, CEO and President of Diversified Service Options, Inc. 
(Diversified) and its wholly owned subsidiaries, First Coast Service 
Options, Inc. (First Coast) and Novitas Solutions, Inc. (Novitas). With 
over 20 years of experience in the Medicare program, I am very grateful 
for the opportunity to share my thoughts on how to improve the Medicare 
appeals process.

    First Coast and Novitas contract with the Centers for Medicare and 
Medicaid Services (CMS) to provide quality Medicare administrative 
services throughout the United States to approximately five hundred 
thousand health care providers who care for more than eleven million 
Medicare beneficiaries. The services we provide include claims 
processing, customer service, appeals adjudication, education and 
outreach activities, and functions that help ensure the integrity of 
Medicare Program payments.

    We are proud to serve as the Part A and Part B Medicare 
Administrative Contractor (MAC) for Florida, Puerto Rico, and U.S. 
Virgin Islands (Jurisdiction N), Delaware, District of Columbia, 
Maryland, New Jersey, and Pennsylvania (Jurisdiction L), and Arkansas, 
Colorado, Louisiana, Mississippi, New Mexico, Oklahoma and Texas 
(Jurisdiction H). Collectively, these three contracts represent 
approximately 32% of the national Part A and Part B Medicare workload. 
We take our responsibility of protecting the Medicare Trust Fund 
seriously and we have approximately 3,400 staff located in Florida, 
Georgia, Maryland, Pennsylvania, Texas, and Wisconsin that carry out 
these responsibilities on a daily basis. Our headquarters are in 
Florida and Pennsylvania and we have proudly served the Medicare 
Program since its inception.

    We applaud the Committee for holding this hearing to highlight the 
need to improve appeals processes. We also appreciate the work of 
Senator Hatch and Senator Wyden for their work focusing attention on 
making improvements with input from Medicare contractors such as ours 
and other key stakeholders who care about the Medicare program and are 
committed to making improvements.

    The focus of my testimony today will be on ways to streamline the 
appeals process and lower the appeals backlog; specifically, our role 
in the appeals process, a description of what we believe generated 
significant increases in appeals resulting in the current backlogs, 
efforts that currently take place to alleviate these backlogs, and 
provide our expertise on additional recommendations to improve the 
process and further reduce additional appeals backlogs.
                        current appeals process
    Medicare claims are submitted to a MAC for processing. 
Approximately 95% of Medicare Part A and Part B claims are processed by 
CMS claims systems without human intervention. Should the claim 
determination result in a decision that differs from the expectation of 
the physician, provider, supplier or beneficiary, they have a right to 
appeal the decision. Currently there are five different levels of 
appeal.

    As referenced in the attached Exhibit I--Claims Appeal Process, the 
MAC handles the first level of appeal, also referred to as a 
redetermination. When submitted within the 120 day time limit, the MAC 
reviews both its initial claim determination as well as any and all 
information submitted on or with the initial claim and/or the appeal 
request. This may include information regarding the claim provided to 
the MAC for the first time. The MAC then either modifies or affirms its 
original decision and effectuates any changes.

    It is important to understand that appeals are not all related to 
whether or not a particular service was or was not medically necessary 
(i.e. clinical reviews). In fact a significant number of submissions 
for appeals are non-clinical in nature (i.e. approximately 40%). In 
addition, there are a number of other factors that complicate the 
provider's decision to request an appeal as opposed to taking some 
other type of action. For example, rather than requesting an appeal, a 
provider might simply have made a clerical error and in fact needs to 
request a clerical error claim reopening. In this case, the provider 
would indicate what was missed or keyed wrong for example, and request 
that the MAC correct the claim and reprocess. Unfortunately, providers 
do not always understand when this can be done, nor do they make a 
clear distinction as to what they are asking the MAC to do (i.e. appeal 
or reopening) leaving it up to the MAC to review each request and 
determine the most appropriate course of action to take that will 
address the provider's request.

    Another common problem is that some providers deal with multiple 
MACs. This can lead to confusion as to which MAC should be sent the 
appeal for the claim at hand. MACs also must upon appeal receipt, sort 
out those appeals that belong to other MACs and reroute them for the 
providers.

    There are also issues that surface in appeal requests that are not 
``appealable issues.'' These types of requests are handled as inquiries 
and responded to with letters of explanation rather than as an appeal. 
These include things such as claims that never processed initially but 
may have been rejected for not having contained all the needed 
information.

    Finally, there are a number of claims actions that can occur 
resulting in an overpayment recovery wherein the claim was initially 
paid then determined to have been paid in error [e.g. probe reviews, 
Zone Program Integrity Contractor (ZPIC) investigations and Office of 
Inspector General special study results]. A letter is sent to the 
provider indicating the need to repay the Medicare Program; this action 
is eligible to be appealed. When MACs receive these types of appeals, 
there is an accompanying action that must be taken to cease overpayment 
recovery efforts within six days of receiving notification of a valid 
request for appeal.

    These sorting type issues are generally limited to the MAC level of 
appeal as subsequent levels of appeal require that the first level of 
appeal have been completed. As a result of all these activities 
performed by the MAC, over the past three years we have received 
approximately 4 million appeal requests across our three MAC contracts. 
Of these, approximately 60% were completed and closed as valid appeals 
while the remaining 40% fell into one of several sorting categories.

    The remaining levels of appeal are performed by entities separate 
and distinct from the MAC. The second level of appeal, termed a 
reconsideration, is performed by a Qualified Independent Contractor 
(QIC) with whom CMS contracts specifically to perform this level of 
appeal. Their work is limited to those claims for which a MAC 
redetermination has been completed and the provider remains in 
disagreement with the outcome. This level of appeal again involves a 
complete case file review of all the MAC appeal materials as well as 
any new materials submitted by the appellant. The findings are issued 
in writing to the appellant and sent back to the MAC to effectuate any 
changes in claims payment outlined in the appeal decision.

    The third level of appeal is that conducted by the Office of 
Medicare Hearings and Appeals (OMHA) and is termed an Administrative 
Law Judge (ALJ) Hearing and results in a complete de novo review of the 
entire appeal case, which can also include appellant testimony, and the 
issuance of an ALJ decision. The decision issued is again returned to 
the MAC to effectuate any directed changes in claims payment.

    Should the appellant disagree with the ALJ decision, the fourth 
level of appeal is submitted to the Medicare Appeals Council. The 
Health and Human Services Departmental Appeals Board (DAB) administers 
this review. As with the other levels, should the DAB overturn the 
decision in whole or in part, the MAC effectuates the decision as 
directed. The final level of review is that of the Judicial Review in 
the U.S. District Court.
                       genesis of appeals backlog
    Over the last several years, the number of entities that are 
involved in the evaluation of claims both pre-claim payment and post-
claim payment has increased dramatically, as has the number of claims 
being scrutinized. In addition to the MAC, these entities include the 
ZPIC, the Comprehensive Error Rate Testing Program Contractor (CERT), 
and the Medicare Recovery Auditors (formerly Recovery Audit 
Contractors) (RA). Each of these entities approaches the review of 
claims from a slightly different perspective. The primary goal of ZPICs 
is to investigate instances of suspected fraud, waste, and abuse. ZPICs 
develop investigations early, and in a timely manner, take immediate 
action to ensure that Medicare Trust Fund monies are not 
inappropriately paid. They also identify any improper payments that are 
to be recouped by the MAC. CMS calculates the Medicare Fee-for-Service 
(FFS) improper payment rate through the CERT program. Each year, the 
CERT contractor evaluates a statistically valid random sample of claims 
to determine if they were paid properly under Medicare coverage, 
coding, and billing rules. Finally the RA's mission is to identify and 
correct Medicare improper payments through the efficient detection and 
collection of overpayments made on claims of health care services 
provided to Medicare beneficiaries, and the identification of 
underpayments to providers so that CMS can implement actions that will 
prevent future improper payments.

    The most significant contributor to changes in the volume of 
appeals has been the RA. As demonstrated in Exhibit II--First Coast 
Medicare Part A Appeals Volumes, and using First Coast Part A claims as 
the example, the overall percent of appeals driven by RA decisions 
jumped from 7% in 2011 to 63% in 2013. Similarly, the overall volume of 
appeals went from approximately 23 thousand to over 66 thousand for the 
same time periods. Further, this dramatic increase in appeals was also 
compounded by the type of claims being reviewed. Predominately the 
increase involved inpatient claims which are more time consuming to 
review than the majority of prior appeals received by a MAC, and also 
require a higher level clinical skill set. Therefore, the resources 
available to handle these appeals at all levels were impacted by both 
volume and an increase in needed time to conduct a single appeal. 
Finally, the high dollar value of these inpatient claims being appealed 
made it more financially important and more likely that providers would 
pursue all appeal levels available.
                 current efforts to alleviate backlogs
    To date, a number of actions have been taken to relieve the backlog 
that now lies primarily at the 3rd (ALJ) level which includes:

    Clarification and Standardization of Documentation Inpatient 
        Admission Rules: CMS published the ``Two Midnight Rule'' in 
        August of 2013. This rule clarified CMS's longstanding policy 
        on how Medicare contractors review inpatient hospital claims 
        for payment purposes. In addition to working with MACs to 
        ensure consistent understanding of the rules, CMS also 
        facilitated provider education in the form of probe and educate 
        claim reviews.

    Limited RA inpatient claims review: Along with the rule above, the 
        Protection Access to Medicare Act of 2014 signed into law on 
        April 1, 2014, prohibited RAs from conducting any inpatient 
        hospital status reviews on claims with dates of admission from 
        October 1, 2013 to March 31, 2015 to give the probe and educate 
        process time to be completed.

    Limited RA documentation requests: CMS reduced the minimum medical 
        record requests required of RAs to reduce the administrative 
        burdens on hospitals and other providers, as well as limited 
        the percentage of selected claims to 75% for any one claim 
        type. In addition, CMS carefully reviews each new claim review 
        initiative developed by RAs.

    Hospital Appeals Settlement Project: CMS initiated a project in 
        January of 2015 to allow all eligible hospitals to enter into 
        an administrative agreement in exchange for withdrawing their 
        pending inpatient status appeals. This agreement results in a 
        timely partial payment of 68% of the net allowed amount.

    OMHA Settlement Conference Facilitation Pilot: This pilot is 
        currently limited to Part B appeals for which an ALJ hearing 
        was filed in calendar year 2013 and those not yet assigned to 
        an ALJ. Following CMS and the Appellant reaching agreement, the 
        MAC calculates the settlement amount and issues payment 
        according to the terms of the settlement. As with the process 
        outlined above, the provider relinquishes any right to further 
        appeals on the claims involved.
 recommendations to streamline the appeals process and reduce backlogs
    The following is an overview of several recommendations that may 
effectively reduce the backlog of appeals at the ALJ level and or keep 
a backlog from reoccurring as well as a recommendation to improve the 
appeals process while gaining efficiencies.

    Remand cases to the prior level of appeal when the ALJ finds good 
        cause for the submission of new evidence: In cases where new 
        evidence is submitted at the ALJ level, remanding these cases 
        back to the prior level for handling would result in a 
        reduction in the ALJ backlog, as well as quicker resolution for 
        the provider. Further, handling these cases at an earlier level 
        of appeal not only preserves the ALJ level of appeal for the 
        provider when needed, but reduces the expense of having the MAC 
        and the QIC appeals staff prepare for and participate in cases 
        that may indeed be able to be resolved based on the new 
        evidence. Additionally, for reconsiderations that are 
        favorable, there is significant cost avoided by the ALJ as well 
        as the provider and likely the provider would receive payment 
        sooner.

    Establish a per-claim filing fee for appeals brought by providers 
        and suppliers which would be refunded on fully favorable 
        decisions: This would discourage the filing of non-meritorious 
        appeals thereby reducing the backlog and provide a level of 
        funding for reinvestment in program hiring and administration.

    The 1st level of appeal by the MAC could easily be modified to 
        focus on the needed triaging of cases and the processing of 
        cases which do not have a medical necessity component. This 
        would modify the MAC's role from that of performing all of the 
        1st level appeals to that of triaging appeal requests. This 
        triage would support the continued need to sort out the cases 
        properly addressed as reopenings and/or inquiries, allow 
        rerouting of misdirected appeals to the correct contractor, and 
        timely identification of those valid appeals requiring a hold 
        on the overpayment collection process. Additionally, by 
        limiting the MAC appeal case work to those non-clinical cases 
        would allow the MAC to focus its dollars on the cases most 
        likely to be reversed at this level. The QIC would then be 
        positioned to handle the appeals involving a more complex level 
        of clinical decision making. Most importantly this would 
        eliminate a back and forth of cases going into the QIC and 
        having to be rerouted to the MAC, and the QIC having to hold 
        its appeal receipt waiting for the MAC to prepare the documents 
        it needs to conduct its reconsideration or 2nd level of appeal. 
        Further and with all contractors linking the appeals process 
        through the Medicare Appeals System (MAS), a system that CMS 
        has already implemented, the MACs can initiate the file on the 
        appeals and electronically initiate a case at the QIC level 
        without having to transfer a file.

    The operational savings associated with the elimination of the 1st 
level of clinical appeal could then be redirected into provider 
education on the most common claim denial findings. These topics would 
include claims submission accuracy and common documentation pitfalls.

    As evidenced by common review findings Exhibit III--Common CERT 
Errors, providers frequently miss a key element of required 
documentation not because the patient didn't need the service being 
billed but because they did not add the few required elements reviewers 
are required to ensure are evident in the medical records. This error 
results in the finding of insufficient documentation. Closely related 
are the issues of medical necessity where the documentation lacks 
sufficient information to conclude that the patient needed the service 
billed. With additional funding, the MAC could deliver a more intensive 
level of training around these issues to keep these types of claim 
denials from occurring in the first place. Finally, by eliminating a 
level of appeal, the provider has fewer contractors to deal with and is 
able to reach the ALJ, Medicare Appeals Council and Federal District 
Court sooner should they chose those levels of appeal.

    In closing, we appreciate the leadership of this Committee in 
reviewing ways to improve the appeals process and reduce backlogs. We 
remain supportive of the program and look forward to being part of the 
solution to these complex challenges. I thank you for the opportunity 
to testify before this Committee and I look forward to answering your 
questions.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 ______
                                 
           Questions Submitted for the Record to Sandy Coston
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Providers report that the use of different appeals 
numbers at various levels of appeal is confusing and hampers efficient 
tracking. Might you consider implementing a uniform docketing system 
across various levels of appeal?

    Answer. Currently, there is not a single system that facilitates 
the use of a standardized case numbering protocol across all levels of 
appeal. The Medicare Appeals System (MAS) is currently used by all 
Qualified Independent Contractors (QIC) performing second level 
reconsideration appeals and CMS is in the process of transitioning all 
Medicare Administrative Contractors (MACs) to the same system (Part A 
currently transitioning with Part B planned in the near future). The 
MAS system allows for an indication of cases promoted to the 
Administrative Law Judge (ALJ) third level of appeal under the QIC MAS 
number so the two could be linked. The same will eventually be true for 
the MACs once all MACs have been transitioned to MAS. While the MAC, 
QIC and ALJ use different numbering systems, the MAS allows for a 
linkage of these three numbers. Technically, this linking of at least 
the first three levels of appeal may provide the elements needed to 
construct a view into the case at the first three levels.

    Question. Ms. Coston, are there areas where additional authority 
would help you address appeals issues prior to going before an ALJ? Are 
there ways to work through disputes (perhaps even over technical 
issues) and avoid the appeals system altogether?

    Answer. Additional authority that would help us address appeals 
issues includes requiring all documentation be submitted with the first 
level of appeal prior to being able to appeal to the next level.

    If this authority cannot be granted, then as we discussed, giving 
the QICs and the ALJs the authority to remand an appeal back to the 
prior level would be helpful to getting the documentation needed from 
the onset for all cases. Additionally, the first level of appeal could 
include an outreach (development for additional information) to the 
provider when it is clear that documentation is missing (example, a 
diagnostic test missing a physician order) although this would have a 
cost impact to the MAC's processes.

    With regard to working through disputes to avoid the appeal system 
altogether, there are ways to assist the provider in getting their 
claims paid through individual outreach and education. It is not 
unusual for MAC staff to walk a provider through a processing issue 
thatinvolves a number of claims. However, the key to success is for the 
provider to sustain the education as this individual outreach and 
education can be very costly.

    Question. What thoughts do you have on the President's budget 
proposals and whether they will make the differences purported, or do 
we need to continue to also explore other legislative alternatives?

    Answer. As this primarily affects ALJ resources, Chief 
Administrative Law Judge Griswold is in a better position to comment.

    Question. Finally, as we continue to develop our statutory response 
to these issues, what would be the one thing that you would change to 
improve the flow of the appeals process?

    Answer. As noted in our response to Question 2 above, we would 
recommend requiring all documentation be submitted with the first level 
of appeal prior to being able to appeal to the next level.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. For the last couple of years, there has been constant 
controversy over the battle between Medicare providers, especially 
hospitals, and recovery audit contractors (RACs). When an appeal is 
heard, someone wins and someone losses, but there's no public 
scorekeeping of wins and losses. We believe that open accounting could 
cut down on frivolous findings by RACs, frivolous appeals by providers, 
and lackadaisical rulings from the reviewers.

    There is a value in transparency when government is engaged in the 
people's business. In this case, the appeals process is in desperate 
need of transparency. Regularly, I will have providers tell me they win 
90% of their appeals. Then minutes later, I will get visits from 
auditors who tell me they are winning 90% of their appeals. Clearly, 
those numbers do not add up.

    The appeals process would benefit from an open and transparent 
accounting of appeals outcomes. If we are concerned about frivolous 
findings against providers, frivolous appeals of auditor findings, and 
reviewers not devoting adequate consideration to the policy issues, 
transparency would shine a light on all parties to the process.

    Is there any reason you can think of that we should NOT publish, in 
the aggregate, the appeals outcomes, essentially wins and losses by 
provider and auditor at your level of the appeal process?

    Answer. We are a proponent of transparency and distribution of 
information. However, it should be recognized that numbers and win/loss 
ratios can be deceiving. The system is much more complicated than can 
be represented by aggregate numbers on a portion of claims that have 
been appealed. For example, a provider may claim to have a 90% win rate 
but then again, they may have only appealed a small percentage of 
claims which were denied. Most providers are very selective about what 
they choose to take to the next level of appeal. Similarly, an auditor 
may claim a 90% win rate for the universe of cases that actually get 
appealed to the next level, but this does not mean that the provider 
referenced above appealed all their cases to the next level. To be 
accurate, one would have to take the universe of the denied claims, as 
the denominator and the universe of the ``won'' claims on appeal to 
arrive at the correct ratio.

    Further, there is an enormous variation in the different kinds of 
audits and auditors (e.g., MACs, QICs, Recovery Auditor Contractor 
(RAC), etc.) as to why they are reviewing a particular service. For 
example, a MAC might be reviewing a claim that was selected based on 
the aberrant billing pattern of the individual provider, while the RAC 
may being looking at a particular service across a larger universe of 
providers and is focused on verifying medical necessity. While we would 
agree therefore that publication is good, it would require careful 
consideration of the appropriate data elements and what the data means 
before publication.

    Question. Is there any reason you can think of that we should NOT 
publish, in the aggregate, the appeals outcomes by the specific ALJs so 
we can look at them comparatively?

    Answer. One would have to be very clear about the case mix each ALJ 
reviewed and the reasons for the original denial that drove the appeal. 
If one could outline all factors that cause appeal outcome variances, 
then publishing would be appropriate. This would however be very 
complex.

    One also would have to consider that all upheld unfavorable 
decisions at one level are not necessarily appealed to the next level. 
The best representation of activity would be to look at one type of 
audit (e.g., RAC inpatient status reviews) noting the initial volume of 
claims selected for audit, the initial denial rate, then noting the 
rate of reversal for those same claims as they move through the levels 
of appeal.

                                 ______
                                 
                 Question Submitted by Hon. John Thune
    Question. Ms. Coston, in your written testimony, you stated that 
approximately 40 percent of appeals are non-clinical in nature, and 
that providers often appeal to a Medicare Administrative Contractor 
(MAC) without making clear what action the provider would like to take. 
Why is it that after a decision is made by a Recovery Auditor (RA) that 
providers are still not sure whether they made a clerical error? Do RAs 
need to do more to educate providers about its determination?

    Answer. The 40 percent of appeal that are non-clinical in nature 
are not necessarily those driven by the RA. Most are related to claims 
submission issues where the decision to deny was a result of the MACs 
prepayment safeguards. That said, the MACs could develop and carry out 
additional educational efforts to assist providers in complex claim 
submission.

                                 ______
                                 
                Questions Submitted by Hon. Richard Burr
    Question. What opportunities exist to improve the consistency and 
predictability of the audit and appeals processes from both a provider 
and an auditor's perspective while striking the right balance to ensure 
Medicare program integrity?

    Answer. From a provider's perspective, there needs to be clear 
guidelines of coverage and examples associated with those guidelines as 
to what adequate documentation looks like. From the auditor's 
perspective, there needs to be provider documentation that is adequate 
to allow a determination to be made as to whether or not the patient 
meets the coverage guidelines.

    The educational focus needs to be on giving providers information 
about what services Medicare covers and under what circumstances those 
services are considered to be payable. This would include augmenting 
existing education and developing educational vehicles that engage the 
provider who is documenting the record vs. the provider's ancillary 
staff. Again, additional education should be focused on coverage 
criteria vs. claim coding and submission.

    Question. In 2013, Medicare's improper payment rate was above 10 
percent. In your testimony you note that the most significant 
contributor to changes in the volume of appeals has been the Recovery 
Auditors, and the overall percent of appeals driven by Recovery Auditor 
decisions increased from 7 percent to 63 percent in 2013. What are some 
of the quality checks currently in place to ensure that Recovery 
Auditors do not place undue burden on providers, and that their audits 
are efficient and error free?

    Answer. With respect to the current quality check in place to 
ensure that the Recovery Auditors do not place undue burden on 
providers, the Recovery Audit contractors and CMS would be best 
positioned to explain the safeguards in place.

    However, CMS has implemented several actions to limit the burden on 
any one provider in terms of the number of audits that are done at any 
given time. Additionally, CMS reviews each audit subject prior to its 
initiation.

    Question. What efficiencies and cost-savings could be gained by no 
longer having MACs as the first level of appeal?

    Answer. We recommended that the first level of appeal involving 
medical necessity clinical review be moved to the QIC. The result would 
eliminate the cost of clinical review activities at the first level of 
appeal and provide the appellant with quicker access to a decision 
maker with provider-like credentials, i.e., a physician, prior to any 
decision to uphold the denial.

    Question. Would provider education and outreach help to address the 
concern that providers may not always understand the distinction 
between appealing versus reprocessing a claim?

    Answer. Definitely. This education could be targeted to include the 
provider's ancillary staff as they can easily identify data entry 
errors, claim coding issues and submission errors where the addition or 
correction of information can be conducted via the reopening process 
and does not need to go through the appeal process.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
              appeals processed and resolved at each level
    Question. Providers, suppliers, and beneficiaries have the ability 
to appeal audit decisions through an administrative appeals process. 
The levels of administrative review and adjudication include the 
redetermination--as performed by the Medicare Administrative 
Contractor, the reconsideration--as performed by the Qualified 
Independent Contractor, the hearing conducted by an Administrative Law 
Judge in the Office of Medicare Hearings and Appeals (OMHA), and the 
review conducted by the Medicare Appeals Council, Department Appeals 
Board. In recent years, there has been a notable influx in the number 
of appeals requested. As a result, certain levels of the appeal process 
have become substantially backlogged.

    How many claims are appealed to your level of review annually? How 
does this number differ from historical annual appeal requests?

    Answer. Following is data for First Coast for Jurisdiction 9 (now 
Jurisdiction N):


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part A Appeals Volume.........................................    18,576    22,714    42,641    63,463    24,614
----------------------------------------------------------------------------------------------------------------
RAC A within the above........................................       738     1,615    16,851    41,436     7,329
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part B Appeals Volume.........................................   295,081   276,784   316,398   317,124   335,217
----------------------------------------------------------------------------------------------------------------
RAC B within the above........................................         0       841     4,022     2,205     2,202
----------------------------------------------------------------------------------------------------------------


    Following is data for Novitas for Jurisdiction H (note that 2012 is 
a partial year):


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part A Appeals Volume.........................................        NA        NA    11,597    89,664    72,341
----------------------------------------------------------------------------------------------------------------
RAC A within the above........................................        NA        NA     4,458    46,787    43,000
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part B Appeals Volume.........................................        NA        NA    18,351   287,664   225,064
----------------------------------------------------------------------------------------------------------------
RAC B within the above........................................        NA        NA     2,377    10,559     2,836
----------------------------------------------------------------------------------------------------------------


    Following is data for Novitas for Jurisdiction L:


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part A Appeals Volume.........................................    19,409    30,656    50,615    64,190    46,079
----------------------------------------------------------------------------------------------------------------
RAC A within the above........................................       110     5,928    20,098    25,191    15,196
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                             Year                                 2010      2011      2012      2013      2014
----------------------------------------------------------------------------------------------------------------
Part B Appeals Volume.........................................   182,433   181,788   198,360   200,214   227,576
----------------------------------------------------------------------------------------------------------------
RAC B within the above........................................       101     4,669     3,669     1,135     4,106
----------------------------------------------------------------------------------------------------------------


    Question. Of the total number of claims appealed to your level, how 
many receive an unfavorable decision? If possible, provide this 
information in aggregate and broken down by appeal claim type (e.g., 
Part A).

    Answer. Following is data for First Coast for Jurisdiction N:


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                                                                                  05/2014-04/2015
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part A..........................................................          18,619           8,136          43.70%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part A RAC......................................................           2,574           1,225          47.59%
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                                                                                  05/2014-04/2015
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part B..........................................................         332,897         158,393          47.58%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part B RAC......................................................           1,538           1,014          65.93%
----------------------------------------------------------------------------------------------------------------


    Following is data for Novitas for Jurisdiction H:


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                                                                                       2014
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part A..........................................................          71,386          52,596             74%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part A RAC......................................................          42,887          39,090             91%
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                                                                                       2014
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part B..........................................................         197,857         107,174             54%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part B RAC......................................................           2,017             564             28%
----------------------------------------------------------------------------------------------------------------


    Following is data for Novitas for Jurisdiction L:


                                                     Part A
----------------------------------------------------------------------------------------------------------------
                                                                                       2014
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part A..........................................................          45,768          24,844             54%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part A RAC......................................................          14,350          11,058             77%
----------------------------------------------------------------------------------------------------------------



                                                     Part B
----------------------------------------------------------------------------------------------------------------
                                                                                       2014
                          All Processed                          -----------------------------------------------
                                                                       Total        Unfavorable       Percent
----------------------------------------------------------------------------------------------------------------
Part B..........................................................         173,100          89,913             52%
----------------------------------------------------------------------------------------------------------------
RAC.............................................................    RAC is also included in the All Processed,
                                                                                       above
----------------------------------------------------------------------------------------------------------------
Part B RAC......................................................           2,982             881             30%
----------------------------------------------------------------------------------------------------------------


    Question. Of the total number of appeals that receive an 
unfavorable decision at your level, how many of those are subject to 
additional review at the request of the appellant (i.e., are appealed 
to the next level)? If you note any trends in cases that proceed for 
additional review, please break out the data accordingly.

    Answer. First Coast is only able to state the number of appeals 
that went to the next level of appeal (2nd Level QIC) based on their 
request for our case file:


                                 Part A
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................     12,912     44,680     10,873
------------------------------------------------------------------------



                                 Part B
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................     31,148     45,894     44,727
------------------------------------------------------------------------


    Novitas is only able to state the number of appeals that went to 
the next level of appeal (2nd Level QIC) based on their request for our 
case file for Jurisdiction H (note that 2012 is a partial year):


                                 Part A
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................      5,029     42,221     52,521
------------------------------------------------------------------------



                                 Part B
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................      4,220     31,291     25,743
------------------------------------------------------------------------


    Novitas is only able to state the number of appeals that went to 
the next level of appeal (2nd Level QIC) based on their request for our 
case file for Jurisdiction L:


                                 Part A
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................     18,679     32,408     19,406
------------------------------------------------------------------------



                                 Part B
------------------------------------------------------------------------
          QIC Request Received              2012       2013       2014
------------------------------------------------------------------------
Total..................................     17,132     17,245     17,381
------------------------------------------------------------------------

   the use of medical expertise to adjudicate medically complex cases
    Question. Anecdotally, I have been informed that cases involving 
``medical necessity,'' or those cases which require significant 
clinical review and input to effectuate, are most frequently subject to 
higher level appeal requests. I also understand that such cases are 
timely to review, and at the lower levels of appeal are reviewed by a 
clinician, such as a nurse and/or physician.

    Can you discuss how such cases are currently processed at your 
level of review?

    Answer. At the first level of review, cases are sorted upon initial 
receipt. Once those that can be handled as reopenings are identified, 
those that remain are sorted based on the basis of the initial claim 
denial. Any case that involved a clinical review prior to payment goes 
to a clinician to review at the appeal level. The rest are primarily 
technical in nature (e.g., modifiers, number billed, procedure and 
diagnosis coding) and generally involve cases that will be handled as 
inquiries or dismissed as not being valid appeals.

    MACs have nurses who review the cases and apply guidelines approved 
by the Office of the Contractor Medical Director. These cases are not, 
however, given a level of physician review unless the nurse is dealing 
with a very unusual case (mostly associated with new technology) where 
we have an established process for referring cases for a higher level 
of review.

    Question. Do you think there would be a benefit in requiring 
medical expertise to be uniformly incorporated at all levels of the 
administrative appeals process? Why or why not?

    Answer. Based upon our recommendation for the MAC to forward 
medical necessity cases to the QIC, effectively eliminating the first 
level of appeal, there would be an inherent uniformity of medical 
expertise.

    However, if the recommendation to eliminate the first level of 
appeal for medical necessity cases is not adopted, we do not 
necessarily think there would be a benefit in requiring medical 
expertise to be uniformly incorporated at all levels. Once a case is at 
the second level of review which is performed by the QIC, any case that 
the nurse determines cannot be overturned and paid will be secondarily 
reviewed by a physician before the denial of the case stands. This 
second level of review is more costly than the first level of review. 
Additionally, there tend to be fewer providers who ``appeal 
everything'' at the QIC level. These cases tend to be more likely to 
need clinical review. It would be much more efficient to have the MAC 
focus on logging cases and sorting those that can be handled as 
reopenings, leaving the clinical review to be focused at the QIC level.

    Currently, MACs and QICs have the option of participating at the 
ALJ level of appeal. We believe this participation provides medical 
expertise to be uniformly incorporated through the third level of 
appeal.

    Question. Do you have any other suggestions to improve the Medicare 
appeals process for cases involving medical necessity?

    Answer. Establish consequences for not submitting all the 
documentation the first time the case is appealed. The case history 
often reflects that the appellant did not provide the needed 
documentation (outlined in published policy) until the QIC or ALJ 
levels of review. Availability of this documentation increases the 
likelihood that a complete medical necessity review will be conducted 
at the first level of appeal.
        improving efficiency through electronic case files and 
                          ``interoperability''
    Question. During the hearing, each witness reiterated that the 
adoption of electronic case files across all levels of review could 
significantly improve the efficiency of the Medicare appeals process. 
Additionally, Mr. Naughton discussed the potential benefits of having 
interconnectivity between the existing and future electronic systems, 
so that: (i) appellants could more easily ascertain their current 
status in the administrative appeals process, and (ii) reviewing 
entities were assured that the case file was transmitted in its 
entirety.

    Can you share how documents are electronically processed at your 
level, including the interconnectivity of such systems?

    Answer. When cases are received (whether by secure Internet portal, 
traditional mail or fax), it generates an imaged document which is 
housed in our image repository. Most MACs have developed some type of 
home grown system to facilitate the processing of these appeal cases. 
When the appellant request the 2nd level of appeal of the QIC, the QIC 
sends a faxed case file request. The fax is scanned and also becomes an 
imaged document. Once this request is received, a case file is created 
that links our original case file (the documents and decisions 
associated with the 1st level appeal) with the request and returns the 
package electronically to the QIC via a secured connection. The only 
connectivity we have with the QIC is this connection to send case files 
to them. See also response to the question below.

    Question. How could electronic case files be more thoroughly 
integrated across all levels of review?

    Answer. If all parties were using the MAS (currently in place at 
all QICs with CMS rolling out use to all MACs for Part A case work with 
plans to eventually include Part B), the MAC could create the initial 
case file once it determines the submission to be a valid appeal. All 
of the documents would then be uploaded into MAS for immediate access 
by the QIC. Additionally, if the ALJs were also linked into this system 
or had a method of moving their case file requests and decisions to 
MAS, the first 3 levels of appeal (the overwhelming majority of cases) 
could be accessed by all. This would also tremendously increase the 
level of analysis that could be done on case trends, reversal trends 
and the reasons for those reversals to feed the quality improvement 
processes at each contractor.

    Question. Please expand on the expected benefits to the appeals 
process should such suggestions be adopted.

    Answer. As stated above, virtually all of the time spent 
requesting, preparing and sending case files across contractors would 
be eliminated. There would be transparency of decision making across 
the contractors to facilitate quality initiatives around better and 
more consistent decision making. Ultimately, the time to conduct the 
appeal would be reduced for the provider and beneficiary by eliminating 
the portion of time spent routing case files and decisions back and 
forth.

                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
                  redetermination and reconsideration
    Question. One of the ways the Department of Health and Human 
Services (HHS) helps to protect the Medicare Trust Fund is by 
conducting audits to ensure the appropriateness of the services 
provided. Providers and beneficiaries have the ability to appeal audit 
decisions through an administrative appeals process.

    Medicare Administrative Contractors (MACs) are charged with 
auditing claims for appropriateness, processing claims through the 
system to provide payment, and educating providers about Medicare 
rules. MACs generally conduct their reviews prior to payment, and are 
paid through traditional contracts. Redetermination reviews, performed 
by the MACs, are the first level of review under the Medicare audit and 
appeals process. They are conducted by clinicians for medical necessity 
purposes and non-clinicians for other types of appeals.

    Ms. Coston--what is the annual budget (or how much does HHS spend) 
per year on processing redeterminations?

    Answer. We do not have the HHS numbers. However, our annual appeals 
budget is approximately $28.5 million to process reopenings, 
redeterminations and other appeals related work.

    Question. Reconsideration reviews are the second level of review, 
performed by Qualified Independent Contractor (QICs)--generally a nurse 
or a physician--operating under the oversight of CMS.

    Ms. Coston--do you believe that current policies and procedures at 
the MAC and QIC levels provide sufficient support to beneficiaries, who 
are often left to pursue these claims on their own?

    Answer. Often times beneficiaries are confused by the appeals 
process due to the complexity of the Medicare program. The 1-800 
Medicare line is their source of receiving direct assistance. MAC 
contractors are separate and apart from the 1-800 Medicare contractor.

    We do believe that our current policies and procedures as a MAC are 
sufficient to support beneficiaries. The MACs are charged with 
obtaining from the beneficiaries' provider any needed medical record 
documentation that may be missing in order to conduct a beneficiary 
submitted appeal. We are unable to comment on the QIC's policies and 
procedures.

    Question. What more can be done to ensure beneficiaries are aware 
of their rights and understand the appeals process and the information 
necessary to make a successful claim? What more can be done to make 
sure that the Redetermination and Reconsideration levels of appeal are 
more meaningful for beneficiaries?

    Answer. The 1-800 Medicare contractor has the direct relationship 
with the beneficiaries for outreach and education. This work has never 
been part of the MAC contracts. We are completely familiar with all of 
the efforts of the 1-800 Medicare contractor, so this question would be 
better answered by them. Additionally, most beneficiaries are dependent 
upon their physician to tell them what Medicare will and will not 
cover.

    Question. Ms. Coston's written testimony suggests that the MACs' 
role should be modified to ``triaging'' cases and appeals and limiting 
its processing to non-clinical cases.

    Ms. Coston--would it be possible to go further and have one 
contractor handle both the triaging function and the processing of 
cases under one roof, effectively merging those functions into one 
entity and dispensing with one of the two lower levels of review? If 
yes, do you have suggestions for how that could work? If no, why not?

    Answer. Currently the MACs are responsible for triaging and the 
processing of the first level of appeal. As we recommended, we do 
believe the first level of appeal can be eliminated for medical 
necessity cases by routing these cases directly to the QIC.
                   recovery audit contractors (racs)
    Question. RACs are another tool CMS uses to audit potentially 
improper payments. The RAC system was permanently established by 
Congress in 2010, following a 3-year demonstration. RACs are paid on a 
contingency-fee basis based on their identification of improper 
payments.

    In 2012, RACs returned almost $2 billion to Medicare. Over half of 
the funds appeals received by the Office of Medicare Hearings and 
Appeals (OMHA) are RAC-related. Today, OMHA is funded only by 
discretionary appropriations.

    It seems as though the enormous spike in appeals that has 
overwhelmed the system is mainly attributable to hospital appeals of 
RAC determinations.

    Ms. Coston--would you support a separate appeals system for those 
claims? Do you have suggestions for how that could work?

    Answer. We would not suggest a separate appeals system for RA claim 
audits. The RAs are still looking at claims that were processed by the 
MACs. Each MAC knows how and why, the rules followed and such 
particular to that claim that can be very different from MAC to MAC 
depending again on the system editing and local coverage policy in 
effect for that jurisdiction.
           making the system more friendly for beneficiaries
    Question. Despite the fact that the Medicare appeals system was 
created with beneficiaries in mind, we know that it is providers who 
file the vast majority of appeals. In 2010, for example, Medicare 
beneficiaries filed just 11% of the appeals heard by ALJs.

    Today, beneficiary-initiated appeals continue to make up a 
proportionally small percentage of the total number of appeals, but 
they continue to get lost in the shuffle.

    Ms. Coston--what can be done to help beneficiaries who filed before 
the prioritization process was put into effect, and have been waiting 
the longest? How are their inquiries handled if they call 1-800-
Medicare?

    Answer. This question is best answered by either the ALJs or the 1-
800-Medicare contractor. Once the appeal is promoted to the QIC or ALJ 
level, the MAC has no jurisdiction to engage in the processing of that 
appeal. Certainly all beneficiary appeals could be handled by a special 
council which could include MAC staff to handle them but this would 
certainly be outside of the rules currently.

    The 1-800-Medicare calls are handled by a contractor other than the 
MACs.

                                 ______
                                 
             Question Submitted by Hon. Benjamin L. Cardin
    Question. Thank you for your testimony highlighting the serious 
issue of the Medicare appeals backlog. In your testimony, you stated 
that the most significant contributor to changes in the volume of 
appeals has been the Medicare Recovery Auditors (RAs, formerly known as 
Recovery Audit Contractors or RACs), noting that, using First Coast 
Part A claims as an example, ``the overall percent of appeals driven by 
RA decisions jumped from 7% in 2011 to 63% in 2013.''

    I would like to bring to your attention an article recently 
published in the Journal of Hospital Medicine regarding RAC audits and 
appeals of complex Medicare Part A cases at three academic medical 
centers (University of Wisconsin Hospital, University of Utah Health 
Care and Johns Hopkins University Hospital).\1\ Sheehy et al. found 
that:
---------------------------------------------------------------------------
    \1\ Sheehy AM, Locke C, Engel JZ, Weissburg DJ, Mackowiak S, Caponi 
B, Gangireddy S, Deutschendorf A, Recovery audit contractor audits and 
appeals at three academic medical centers, J Hosp Med. 2015 
Apr;10(4):212-9.

    RAC overpayment determinations increased nearly three-fold during 
        the last two calendar years of the study (from 680 in 2010-2011 
        to 1,856 in 2012-2013), while the hospitals won, either in 
        discussion or appeal, a combined greater percentage of 
        contested overpayments each year (from 36.0% in 2010, to 38.5% 
---------------------------------------------------------------------------
        in 2011, to 46.1% in 2012, to 68.0% in 2013).

    One-third (33.3%, 645/1935) of all resolved cases were decided in 
        favor of the hospital during the discussion period, with these 
        discussion cases accounting for two-thirds (66.8%) of all 
        favorable resolved cases for the hospital.

    As noted above, the majority of successfully contested cases 
occurred in the discussion period. However, because the discussion 
period is not considered part of the formal appeals process, those 
cases are not included in CMS or OIG reports of RA activity, suggesting 
that RA auditing accuracy may have overestimated in those reports. 
Additionally, the percentage and total number of determinations 
successfully disputed by hospitals increased in each year studied, 
reaching two-thirds of all cases in 2013, which raises questions about 
the RAs' internal quality control processes.

    Given your role in processing Medicare appeals, would you support a 
proposal to mandate future federal reports of RA auditing and appeals 
to include cases overturned in the discussion period; carefully 
describe the denominator of total audits and appeals given the 
likelihood that many appeals in a given year will not have a decision 
in that year; and report Complex Part A, complex Part B, semiautomated, 
and automated reviews separately?

    Answer. We support publishing the results of audits; however, the 
most accurate way to track the accuracy of any audit process is to 
segregate numbers based on the type of claim reviewed within a single 
audit. For example, the RAC initiated inpatient claim reviews and 
selected claims in distinct data runs. Each claim selected within a 
data run should become a discrete denominator and tracked across the 
appeals process until the appeals process is exhausted. To mix samples 
and denominators would not display an accurate representation. At the 
end of each data run, that summary data could be aggregated for 
reporting on the results of the audits for the inpatient claims only as 
used in this example.

                                 ______
                                 
             Questions Submitted by Hon. Michael F. Bennet
    Question. As the panel has pointed out, the Office of Hearings and 
Appeals (OMHA) received more than 654,000 claims in FY2013, up from 
under 60,000 in FY2011, which has increased the backlog and average 
processing time for an appeal's decision. What do you believe are the 
primary causes of this dramatic increase in claims? And to follow-up, 
what are some commonsense, balanced fixes to address the backlog that 
could help ensure that seniors and their physicians are able to receive 
and provide needed care?

    Answer. The backlog, as stated in my written testimony, was 
directly attributed to the implementation of the RAC contractors. With 
the method of their payment being dependent on their recoveries, it 
makes sense that the RAC reviewed the highest dollar claims where it 
was likely that the documentation would be insufficient. It also is 
logical that the hospitals, with so much money at risk, have continued 
to pursue relief through the appeals process. CMS has effectively 
implemented a solution with the Hospital Appeals Settlement Program 
which has allowed providers to elect tosettle cases in lieu of 
continuing through the appeals process.

    Question. It's my understanding that while the vast majority of 
providers are acting in good faith and filing appropriate and necessary 
appeals, there may be a few bad actors taking advantage of this broken 
system. As highlighted in a recent HHS Office of the Inspector General 
(OIG) report, two percent of providers represent one-third of all 
appeals. It is important that the Medicare audits and appeals system 
has the capability to protect taxpayer dollars from exploitation by the 
few who are bogging down the system for their own financial gain. In 
your view, what can be done to alleviate the system from the burden of 
these bad actors?

    Answer. We recommend a two-prong approach. The first is to levy a 
fee on providers who submit appeals. If they are found to be fully 
favorable, the fee would be refunded. This would discourage the filing 
of non-meritorious appeals thereby reducing the backlog and provide a 
level of funding for reinvestment in program hiring and administration. 
This should follow some level of documented provider education by the 
contractor and a pattern of continuing to submit appeals when the 
provider has received prior denials upheld. The second is to make this 
behavior criterion in determining whether or not a provider should be 
sanctioned. Repeated behavior that demonstrates a refusal to submit 
claims correctly should have consequences, such as removal from 
participation in the Medicare program.

    Question. Historically, CMS has relied on claims administration 
contractors to protect taxpayer dollars in the Medicare Trust Fund. 
Since 2005, Medicare has used Recovery Audit Contractors (RACs) to 
recover improper payments to providers. Although RACs have had some 
success in returning improper payments to Medicare, their incentives to 
recover payments for Medicare have come under significant scrutiny. 
RACs are paid a percentage of every overpayment they identify and 
collect from providers, and while some adjustments have been made to 
their payment structure, their contingency-based payment contracts 
still incentivize RACs to recover as many payments as possible. Some 
have argued that aggressive RAC payment recoupment behavior has 
contributed to the increase in appeals, as providers appeal more and 
more claims. What role do you think RACs play in contributing to the 
backlog of claims that is preventing seniors from getting needed care?

    Answer. The backlog, as stated in my written testimony, was 
directly attributed to the implementation of the RAC contractors. We 
are not aware that this backlog has prevented seniors from getting 
needed care.

    Question. Ms. Coston, as you are well aware, many rejected claims 
and appeals result from differences in regional coverage of services or 
therapies. I have heard from many Colorado seniors who find out that a 
service or therapy they need is covered in another Medicare region but 
not in theirs. Often, it can take months or even years to get that same 
service or therapy covered, leaving patients to suffer as they wait for 
approval. Can you please provide some thoughts on the Local Coverage 
Determination process, and whether it benefits seniors in the most 
efficient way to ensure they have access to needed services and 
therapies?

    Answer. MACs develop local coverage determinations (LCD) through a 
very specific process that involves input from the Medicare provider 
community. Representatives from professional physician groups across 
the jurisdiction participate in providing discussion and comment on 
policy based on standard medical practice in that jurisdiction. LCD 
topics are selected based on requests from providers for coverage and/
or to support the implementation of prepayment claims review activities 
around services that are being used improperly in the jurisdiction. It 
is not unusual for one part of the country with an academic center of 
excellence to develop new technology and have it become more main 
stream in practice ahead of other parts of the country. Similarly, some 
jurisdictions have pockets of improper use and abuse of services that 
necessitates establishing a LCD to support audit activities.

    Question. Ms. Coston, I believe you mentioned that there is an 
opportunity to better educate providers on appropriate documentation 
and the proper claims submissions process. You also mention in your 
testimony that some requests from providers might be better addressed 
outside of the appeals process. Without adding additional 
administrative burden, can you please elaborate on the best ways to 
educate providers on the appeals process?

    Answer. We routinely test ways to aid the provider community in 
submitting claims correctly, correcting claim errors quickly and 
helping them to appeal with adequate documentation to minimize rework 
on everyone's part. While certainly funding is always a factor, one of 
the ways in which we are trying to change this situation is through the 
development of self service solutions such as our secure Internet 
portals. The portals are designed to guide providers through the use of 
templates to follow the process to submit the correct information.

                                 ______
                                 
Prepared Statement of Hon. Nancy J. Griswold, Chief Administrative Law 
 Judge, Office of Medicare Hearings and Appeals, Department of Health 
                           and Human Services
    Chairman Hatch, Ranking Member Wyden, and Members of the Committee, 
thank you for the opportunity to discuss proposals for creating a more 
efficient process for Medicare appeals. The Office of Medicare Hearings 
and Appeals (OMHA), a staff division within the Office of the Secretary 
of the U.S. Department of Health and Human Services (HHS), administers 
the nationwide Administrative Law Judge (ALJ) hearing program for 
Medicare claims and entitlement appeals under sections 1155, 1869, 
1876, 1852, and 1860D, of the Social Security Act (the Act). OMHA is 
charged with providing a fair and impartial forum in which Medicare 
beneficiaries, and the providers and suppliers that furnish items or 
services to Medicare beneficiaries, as well as Medicare Advantage 
Organizations and Medicaid State Agencies, are able to resolve 
disagreements with Medicare claim determinations.
                               background
    Three separate agencies within HHS are charged with administering 
the four levels of administrative review of Medicare claims appeals 
within HHS. There is a fifth level of review with the federal district 
courts after administrative remedies within HHS have been exhausted. 
The first two levels of review are administered by the Centers for 
Medicare and Medicaid Services (CMS) and conducted by Medicare 
contractors. The third level of review is administered by OMHA and is 
conducted by ALJs. Subsequent reviews are conducted at the fourth level 
of appeal within the Medicare Appeals Council, which is within the 
Departmental Appeals Board (DAB), and at the fifth level by the federal 
district courts. In addition to Medicare claims appeals, individuals 
may appeal a determination by the Social Security Administration (SSA) 
that they are not entitled to Medicare benefits. This Medicare 
entitlement appeals process consists of three levels of administrative 
review and a fourth level of review with the federal district courts 
after administrative remedies have been exhausted.

    HHS established OMHA in June 2005, pursuant to section 931 of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(Pub. L. 108-173) (MMA), which required the transfer of responsibility 
for the ALJ hearing function of the Medicare claims and entitlement 
appeals process from the SSA to HHS. OMHA was established to improve 
service to appellants and to reduce the then average 368-day waiting 
time for a hearing decision that appellants experienced with SSA to the 
90-day time frame for issuing dispositions established in the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554).

    In order to make certain that OMHA's adjudicators would have 
decisional independence from CMS, OMHA was established as a separate 
agency within HHS, reporting directly to the Secretary. Accordingly, 
OMHA operates under a separate appropriation and is both functionally 
and fiscally separate from CMS.

    At the time OMHA was established, Congress envisioned that OMHA 
would receive the same mix of work which had been handled by SSA:

    Claim and entitlement appeals workload from the Medicare Part A 
        and Part B programs;

    Coverage appeals from the Medicare Advantage (Part C) program;

    Appeals of Income Related Monthly Adjustment Amount (IRMAA) 
        premium surcharges assessed by SSA, and

    A new workload of appeals from the Medicare Prescription Drug 
        (Part D) program.

    With this mix of work at the expected levels, OMHA was initially 
able to meet the 90-day time frame that Congress contemplated for most 
appeals coming before the new agency. However, starting in Fiscal Year 
(FY) 2010, OMHA began to experience an upward trend in the number of 
requests for hearings being filed, which resulted in longer average 
processing times for appeals.

    Although it is impossible to assign any single cause to the rapid 
growth in Medicare appeals, it is possible to identify a number of 
probable contributing factors. In 2010, OMHA began to take on new 
workloads, including appeals that result from the Recovery Audit 
program, which Congress established in 2006 and expanded nationwide 
beginning in 2010. While the program has led to more appeals as 
providers exercised their right to a hearing, the program has also 
reduced improper payments and returned significant dollars to the 
Medicare Trust Funds. During these same years, OMHA also experienced a 
concurrent growth in its traditional workload. Between FY 2009 and FY 
2014 OMHA's traditional workload increased 543%. In FY 2011 and FY 
2012, OMHA also noted an increase in the number of appeals filed by 
Medicaid State Agencies (MSAs) related to treatment for beneficiaries 
dually enrolled in both Medicare and Medicaid. Finally, Medicare 
enrollment has grown as the Baby Boom generation becomes Medicare-
eligible. Recent increases in SSA disability adjudications have also 
resulted in the influx of larger numbers of younger disabled 
individuals becoming eligible for Medicare benefits. This increase in 
the number of beneficiaries utilizing Medicare services may be 
resulting in a higher universe of potential disputes.

    Although ALJ team productivity (dispositions per ALJ team) has more 
than doubled from FY 2009 through FY 2014 (from an average of 472 
dispositions per ALJ team per year in FY 2009 to 1,049 in FY 2014),\1\ 
the magnitude of the increase in workload has exceeded OMHA's ability 
to adjudicate incoming appeals within the 90-day time frame that 
Congress contemplated for most appeals. As a result of the significant 
disparity between workload and capacity, adjudication time frames have 
increased to their current level of 572 days (as of February 28, 2015), 
and will continue to increase until receipt levels and adjudication 
capacity are brought into balance.
---------------------------------------------------------------------------
    \1\ These numbers do not include dismissals or remands. When 
dismissals are included, the disposition numbers are 551 per ALJ team 
per year in FY 2009 and 1,505 per ALJ team per year in FY 2014. The 
dismissal numbers were higher than normal in FY 2014 due to appellants 
withdrawing Part A appeals to avail themselves of a then-new option for 
rebilling of hospital services under Part B and a single appellant's 
withdrawal of a significant number of appeals as the result of a 
negotiated court settlement. However, these levels do not represent a 
sustainable disposition capacity for the agency.

    In an effort to mitigate the impact of increased wait times on 
individual beneficiaries, who we believe to be our most vulnerable 
appellants, OMHA implemented a prioritization policy to ensure that 
appeals filed by beneficiaries are assigned to ALJs and heard as 
quickly as possible. These beneficiary-initiated appeals comprise 
approximately 1% of all appeal requests OMHA receives, but often 
concern emergent issues such as requests for pre-service authorization. 
As a result of this prioritization policy, the average time to decision 
for beneficiary appeals has improved. In February 2015, we estimated 
that the average time to decision for beneficiary appeals decreased 
from 244.6 days in FY 2013 to 125.0 days in FY 2014 (this calculation 
does not include Part D expedited appeals, which operate on a much 
---------------------------------------------------------------------------
shorter (10-day) time frame).

    Over the past 5 years, OMHA has worked to maximize its productivity 
by supporting each of its ALJs with enhanced processing teams 
consisting of attorneys and other support staff. This has allowed each 
ALJ to focus on hearing and deciding appeals--functions which can only 
be performed by ALJs. However, OMHA's adjudication capacity is still 
limited by the number of funded ALJ teams. Under the 2014 continuing 
resolution, OMHA's funding level supported 65 ALJ teams. Enacted 
funding increases in FY 2014 and FY 2015 have allowed for the hiring of 
12 additional ALJ teams, bringing OMHA's adjudication capacity to 
77,000 appeals. This funding also enabled OMHA to open its fifth field 
office in Kansas City, the first additional office since OMHA opened 
its doors in 2005. However, even this additional capacity pales in 
comparison to the adjudication workload. In FY 2013 alone, OMHA 
received approximately 384,000 appeals, and in FY 2014, approximately 
474,000 appeals were received.

    In the face of dramatically increasing workloads, the Department 
recognized the need to deliver high quality and timely decisions on 
benefits and services to the Medicare community with greater 
efficiency, and under Secretary Burwell's leadership the Department has 
undertaken a three-pronged strategy to improve the Medicare Appeals 
process: (1) Take administrative actions to reduce the number of 
pending appeals and to appropriately resolve claims at earlier levels 
of the appeals process; (2) Request new resources to invest at all 
levels of appeal to increase adjudication capacity and implement new 
strategies to alleviate the current backlog; and (3) Propose 
legislative reforms that provide additional funding and new authorities 
to address and mitigate the appeals volume. The FY 2016 Budget includes 
a comprehensive legislative package of seven proposals aimed both at 
helping HHS process a greater number of appeals and facilitating the 
appropriate resolution of appeals at earlier levels of the process. The 
FY 2016 Budget also requests additional resources to enhance OMHA's 
capacity to process appeals.
  administrative actions to reduce the number of pending appeals and 
 appropriately resolve appeals at earlier levels of the appeals process
    OMHA has taken the following administrative actions:

    Leveraging Information Technology to Increase Efficiency--OMHA's 
        ALJ Appeal Status Information System (AASIS) was released in 
        December of 2014, and increases the accessibility of basic 
        information related to appeal status by implementing a 
        searchable database, which appellants can access through OMHA's 
        website. Electronic Case Adjudication and Processing 
        Environment (ECAPE) is OMHA's most ambitious electronic 
        initiative and will convert our business process from paper to 
        electronic over the next two years. ECAPE is planned as a three 
        phase implementation with the first release tentatively 
        scheduled for early spring of 2016. In anticipation of the 
        movement from paper files to electronic records, OMHA has 
        entered into a scanning contract, which will allow conversion 
        of existing paper appeal files into electronic format. OMHA has 
        also developed a Medicare Appeals Template System (MATS), which 
        simplifies the work of our staff by providing standardized 
        fillable formats for routine word processing.

    Judicial Education Training--In July 2010, OMHA implemented 
        mandatory yearly training for ALJs, and expanded the program to 
        include other members of the adjudication staff in 2012. These 
        sessions provide consistent training to adjudicators on policy 
        issues related to Medicare appeals and routinely involve 
        collaborative training using policy experts from OMHA, CMS, and 
        the DAB. Special sessions have also included participation from 
        the HHS Offices of the Inspector General and General Counsel. 
        This joint training has been designed to increase decisional 
        consistency between adjudicators at all levels of appeal. Since 
        implementation of this joint training, the rate at which OMHA 
        ALJs reverse decisions from lower levels of appeal has 
        decreased from 63.2 percent in 2010 to their current rate of 
        43.0 percent, reflecting a more consistent application of 
        policy at all levels.

    In Service Training Days were added to the training curriculum at 
        OMHA in 2013 to provide critical adjudicatory and 
        administrative training to all employees simultaneously via 
        video-teleconference.

    OMHA's Quality Assurance Program assesses adjudicatory compliance 
        with procedural requirements and adjudicative norms, identifies 
        trends (both procedurally and substantively) encountered in the 
        adjudication of Medicare appeals and disseminates the lessons 
        learned as part of OMHA's continuing education program. 
        Although OMHA recognizes that decisions of the Medicare Appeals 
        Council are not precedential, we have implemented an enhanced, 
        searchable database of decisions by the Medicare Appeals 
        Council for use by our adjudicators.

    Settlement Conference Facilitation Pilot uses alternative dispute 
        resolution techniques to resolve multiple appeals filed by a 
        single appellant without hearing. OMHA attorneys, who have been 
        trained in mediation techniques, facilitate a settlement 
        conference between an individual appellant and CMS 
        representatives.

    Statistical Sampling Pilot allows appellants with qualifying 
        appeals to choose to have their claims adjudicated using 
        statistical sampling and extrapolation and would allow for the 
        resolution of large numbers of claims based upon resolution of 
        a statistically valid sample.

    OMHA Case Processing Manual (OCPM) incorporates best practices in 
        case processing and establishes a standardized business 
        practice in all our field offices. The phased release of this 
        manual started in February, 2015.

    Just to highlight one of the administrative initiatives listed 
above, OMHA has implemented the Settlement Conference Facilitation 
Pilot using existing staff, budget, and regulatory authorities. 
Although new to the Medicare appeals process, mediation is a common 
means of resolving disputes throughout the judicial and administrative 
processes of government. To date, OMHA's settlement conference 
facilitators have resolved over 1,000 appeals during this extremely 
limited pilot. This represents the average productivity of an entire 
ALJ team working for a full year. It is also important to note that 
because these appeals are resolved by settlement of the underlying 
dispute, there is no possibility of further appeal to the DAB.
  request new resources to invest at all levels of appeal to increase 
  adjudication capacity and implement new strategies to alleviate the 
                            current backlog
    The 2016 President's Budget recognizes that even after efficiencies 
have been obtained through the administrative actions discussed above, 
significant additional funding will be required in order for OMHA to 
handle the number of appeals reaching the third level.

    The 2016 President's Budget funds increases in adjudication 
capacity at OMHA by increasing its current budget of $87.3 million to 
$270 million. The President's Budget proposes three sources for this 
funding--$140 million from OMHA's discretionary appropriation, $125 
million from recoveries resulting from the Recovery Audit program, and 
$5 million (estimated) from new filing fees. The latter two funding 
mechanisms are dependent upon passage of legislation which is included 
in the President's Budget. This additional funding would provide for 
the addition of 119 new ALJ teams and 82 Medicare Magistrates and 
increase OMHA's yearly adjudication capacity from 77,000 appeals per 
year to approximately 278,000 appeals per year. The President's Budget 
assumes that appeal process reforms in the nature of those listed below 
will be enacted which will allow OMHA to implement alternative 
adjudication models at lesser cost and to receive partial funding of 
its administrative costs from recovery audit reimbursements and filing 
fees. The President's Budget also assumes that reforms will slow the 
growth in the rate of appeals reaching OMHA.

  propose legislative reforms that provide additional funding and new 
               authorities to address the appeals volume

    The significant increase in adjudication capacity at OMHA is 
dependent upon the enactment of the appeal reforms contained in the 
President's Budget.

    Provide Office of Medicare Hearings and Appeals and Departmental 
        Appeals Board Authority to Use RA Collections. This proposal 
        would expand the Secretary's authority to retain a portion of 
        Recovery Audit (RA) program recoveries for the purpose of 
        administering the recovery audit program and will allow RA 
        program recoveries to fully fund the appeals process for RA 
        related appeals at the OMHA and the DAB.

    Establish a Refundable Filing Fee. This proposal would institute a 
        refundable per claim filing fee for providers, suppliers, and 
        Medicaid State Agencies, including those acting as a 
        representative of a beneficiary, at each level of appeal. 
        Appeals filed by beneficiaries or representatives of 
        beneficiaries other than providers, suppliers, and Medicaid 
        State Agencies would be exempt from the fee. Fees will be 
        returned to appellants who receive a fully favorable 
        determination. Under current law, there is no administrative 
        fee paid to the adjudicating entity for filing an appeal. A 
        filing fee would encourage those who frequently file to more 
        carefully assess the merits of their appeals before filing.

    Sample and Consolidate Similar Claims for Administrative 
        Efficiency. This proposal would allow the adjudication of large 
        numbers of appeals through the use of sampling and 
        extrapolation techniques without appellant consent. 
        Additionally, this proposal would authorize the consolidation 
        of similar appeals into a single administrative appeal at all 
        levels of the appeals process for purposes of adjudicative 
        efficiency. This provision would also require that all appeals 
        that were included within an extrapolated overpayment or were 
        consolidated previously would remain a part of the extrapolated 
        or consolidated file on appeal.

    Remand to Redetermination Level upon Introduction of New Evidence. 
        This proposal would require remand of a Medicare appeal to the 
        first level of review at CMS when new documentary evidence is 
        submitted into the administrative record at the second level of 
        appeal or above. The proposal would include exceptions to 
        mandatory remands if the basis for the submission is that new 
        evidence was provided to the lower level adjudicator but 
        erroneously omitted from the record, or an adjudicator denies 
        an appeal on a new and different basis than earlier 
        determinations. This proposal provides a strong incentive for 
        all evidence to be produced early in the appeals process and to 
        ensure the same record is reviewed and considered at the second 
        and subsequent levels of appeal.

    Increase Minimum Amount in Controversy for ALJ Adjudication of 
        Claims to Equal Amount Required for Judicial Review. This 
        proposal would increase the minimum amount in controversy 
        required for adjudication by an ALJ to the Federal district 
        court amount in controversy requirement ($1,460 in 2015). It 
        would also clarify the circumstances under which claims can be 
        aggregated to meet the amount in controversy limit.

    Establish Magistrate Adjudication for Claims with Amount in 
        Controversy Below New ALJ Amount in Controversy Threshold. This 
        proposal would allow OMHA to use attorney adjudicators to 
        resolve those appeals that meet the current ALJ amount in 
        controversy threshold ($150 in 2015) but fall below the amount 
        currently required to file an appeal in federal district court 
        ($1,460 in 2015), reserving ALJs for development of a record in 
        more complex cases involving higher amounts in controversy, 
        which have the potential for appeal to federal district court. 
        Decisions of a Medicare Magistrate could be appealed to the 
        DAB, but would not meet the amount in controversy required to 
        be appealable to federal district court.

    Expedite Procedures for Appeals with No Material Fact in Dispute. 
        This proposal would allow OMHA to issue decisions without 
        holding a hearing when there is no material fact in dispute and 
        the decision is governed by a binding authority. These cases 
        include, for example, appeals in which Medicare does not cover 
        the cost of a particular drug or the ALJ cannot find in favor 
        of an appellant due to binding limits on authority. This 
        proposal would increase the efficiency of the Medicare appeals 
        system and result in faster adjudications of appeals at the ALJ 
        level of appeal.

                      interdependency of proposals
    The President's Budget maximizes adjudication capacity at OMHA by 
incorporating appeals process reforms that allow for the utilization of 
less expensive adjudication models for some appeals. For example, OMHA 
estimates that the proposed Medicare Magistrate program would fund the 
adjudication of approximately 82,000 appeals annually at a cost of $27 
million. Funding the same 82,000 appeals using the existing ALJ process 
would be almost twice as expensive at $52 million. Full implementation 
of the Medicare Magistrate program is dependent upon two legislative 
proposals currently in the President's Budget--the Increase Minimum 
Amount in Controversy and the Medicare Magistrate proposal. Similarly, 
if authorizations are not passed allowing OMHA to receive reimbursement 
for the administrative costs of adjudicating recovery audit appeals and 
to institute filing fees, its available resources would be cut in half 
and its projected disposition capacity would be similarly reduced.
                               conclusion
    OMHA is privileged to have an extremely dedicated workforce of both 
ALJs and staff who remain committed to processing Medicare appeals that 
are both timely and reflect the highest quality of decision making. The 
Department continues to work to address the backlog of pending appeals 
and to appropriately resolve disputed claims at earlier levels of the 
appeals process. However, it has become apparent that administrative 
initiatives which are possible within current budget authority and the 
existing statutory framework are insufficient to close the gap between 
workload and resources at OMHA. The Department is committed to bringing 
these efforts and the resulting appeal workload into balance and 
believes that the proposals contained in the 2016 President's Budget 
will provide additional authorities which will enable us to begin to 
restore that balance. With that goal in mind, OMHA continues to work 
with departmental leaders to develop comprehensive solutions to its 
growing workloads and looks forward to working with this committee and 
our stakeholders to develop and implement these solutions.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Nancy J. Griswold
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Providers report that the use of different appeals 
numbers at various levels of appeal is confusing and hampers efficient 
tracking. Might you consider implementing a uniform docketing system 
across various levels of appeal?

    Answer. The Office of Medicare Hearings and Appeals (OMHA) is the 
third of four levels of appeal within HHS for Medicare claims appeals, 
and currently uses the Medicare Appeals System (MAS) for case 
management. MAS is also currently used by some Medicare Administrative 
Contractors (MACs) for level 1 appeals, and all Qualified Independent 
Contractors (QICs) for level 2 appeals. MAS assigns a new unique appeal 
number for each new level of appeal. Changing the programing to re-
purpose the same appeal number would be costly and compete with other 
essential upgrades to the system in a resource constrained environment. 
However, OMHA is exploring the possibility of repurposing the level 2 
appeal number for level 3 appeals when the OMHA Electronic Case 
Processing Adjudication System (ECAPE) is implemented.

    Question. Although the Office of Medicare Hearings and Appeals did 
not oversee the CMS Global Settlement Offer because it was a CMS 
initiative, the outcome of it directly affected your office. Do you 
know how many claims have been dismissed pursuant to CMS's Global 
Settlement Offer? In your opinion, did this make a dent in the appeals 
backlog?

    Answer. HHS is still in the process of verifying and completing the 
review of the claims submitted for administrative settlement. The 
Centers for Medicare and Medicaid Services (CMS) hospital appeals 
settlement initiative will have a substantial effect on the number of 
appeals pending before OMHA Administrative Law Judges (ALJs), as well 
as those awaiting assignment. As appeals are verified as being 
appropriately included in the settlement, they are dismissed by OMHA 
and removed from the count of pending appeals. We anticipate that we 
will have more precise numbers in the near future.

    Question. There has been some controversy over whether the correct 
Medicare policy standards are being applied and whether ALJ rulings 
have been consistent across the board. The Administration's Fiscal Year 
2016 budget request provides for increased ALJ training on Medicare 
policy. This is an issue that the Office of Medicare Hearings and 
Appeals has been working on. What progress can you report in this 
regard?

    Answer. In July 2010, OMHA implemented its Judicial Education 
Symposium (JES) program, which is an annual series of in-depth 
continuing education events on Medicare law and policy that all ALJs 
are required to attend. The JES provides consistent training to OMHA 
ALJs on Medicare policy issues and coverage standards. In addition, in 
February 2011, OMHA implemented a formal week-long training program for 
all new ALJs hired by OMHA focused on Medicare law and policy, and the 
administrative appeals processes. OMHA delivered the fifth new ALJ 
training session in May of 2015. Finally, in 2013, OMHA implemented a 
monthly ``In-Service'' program of seminars and training sessions for on 
board ALJs, also focused on Medicare law and policy, and the 
administrative appeals processes.

    OMHA has partnered with Departmental experts from CMS, the Food and 
Drug Administration (FDA), the Office of Inspector General (OIG), the 
Office of the General Counsel (OGC), and the Departmental Appeals Board 
(DAB) to deliver JES sessions, and other continuing education events. 
The joint training has been designed to increase decisional consistency 
among OMHA ALJs through education by policy experts. Since 
implementation of the JES, new ALJ training, and the In-Service 
programs, OMHA has seen significant change in the rate at which ALJs 
reverse decisions from lower levels of appeal. The reversal rate has 
decreased from 63.2 percent in FY 2010 to the current rate of 43.0 
percent.

    Question. What thoughts do you have on the President's budget 
proposals and whether they will make the differences purported, or do 
we need to continue to also explore other legislative alternatives?

    Answer. The legislative proposals, taken together with the 
additional resources requested in the FY 2016 President's Budget, are 
instrumental to reducing the appeals backlog and setting the framework 
for bringing the Medicare appeals process into balance going forward. 
OMHA believes that instituting a refundable filing fee will encourage 
more providers, suppliers, and other non-beneficiary appellants to 
consider the merits of their claims before filing appeals, which will 
address some of the demands currently being placed on the appeals by 
appellants who do not appear to consider the merits of their claims 
before filing appeals. Providing authority for case consolidation and 
the authority to group claims together to allow for a single decision 
on multiple claims, would ensure future appeals are handled more 
efficiently. Also, the addition of 119 ALJs and 82 Medicare magistrates 
will increase OMHA's decision-making capacity from 77,000 appeals per 
year to approximately 278,000 appeals per year, which will make a 
significant difference in addressing the backlog and establishing a 
sustainable model for the timely adjudication of future appeals. If the 
case consolidation provision is given retroactive application and 
applied to pending appeals, it will further help address the backlog by 
providing a tool to more efficiently group pending appeals for 
adjudication. These proposals work in tandem and are dependent on one 
another to have the projected impacts.

    While enacting the proposals is a critical first step, the 
Department continues to pursue additional measures that may be taken at 
a legislative or regulatory level. OMHA received 92 responses to a 
November 5, 2014, Request for Information from program stakeholders 
with suggestions on how to improve the appeals process. The Department 
is currently reviewing those suggestions. In addition, a Departmental 
inter-agency workgroup was established in 2013, which includes leaders 
from the agencies involved in the Medicare claims appeals process (CMS, 
OMHA, and DAB). This inter-agency group reviewed the appeals process 
and developed a series of initiatives that both OMHA and CMS are 
implementing to reduce the current backlog of pending appeals and the 
number of appeals that reach OMHA, and continues to meet on a regular 
basis.

    Question. Finally, as we continue to develop our statutory response 
to these issues, what would be the one thing that you would change to 
improve the flow of the appeals process?

    Answer. Adding adjudicatory flexibilities to the statutory appeals 
framework would have the greatest impact on the flow of the appeals 
process. Specifically, alternate adjudicators (Medicare magistrates) 
could be authorized to make decisions on those claims which have no 
possibility of reaching federal court due to the low amounts in 
controversy. Other flexibilities, such as summary disposition authority 
when no material facts are at issue and the outcome of the appeal is 
mandated by a binding authority, and the ability to decide appeals 
using statistical sampling and extrapolation techniques, would add 
efficiencies to the appeals process at all levels. These changes alone 
would improve the flow of cases from one level of appeal to the other.

    The existing Medicare claims appeal structure is a complex process 
controlled by a fixed statutory and regulatory framework. Increased 
receipts have stressed the appeals process and there are limited 
adjustments OMHA can make to adequately accommodate the influx of 
appeals. For example, the current statutory and regulatory framework 
requires that all level-three appeals be adjudicated by an 
Administrative Law Judge, and all appeals must be adjudicated 
independently, even in repetitive circumstances such as ongoing, 
monthly rentals of durable medical equipment (DME). If Medicare 
providers and suppliers continue to avail themselves of their right to 
appeal adverse determinations in record numbers, adjudicators would 
benefit from additional authorities that allow for more efficient 
adjudication as proposed in the FY 2016 President's Budget, such as the 
Medicare magistrates. The measures proposed in the FY 2016 President's 
Budget would create a more flexible (and cost-efficient) appeals 
process and allow OMHA to become more nimble and to more quickly 
respond to rising workloads.

    Question. Recent data from OMHA indicate that a large portion of 
the dollars recouped by RACs from Part B providers, as much as 50%, is 
coming from patient care providers of prosthetics and orthotics--
artificial replacement limbs and bracing--but this group of health 
professionals account for less than 0.5% of Medicare expenditures. The 
unit cost of replacement limbs is relatively high so RACs, which are 
incentivized by percentage of funds they recoup, are focusing on this 
group even though data show that these limb providers have the highest 
success ALJ appeal rate of any Part B providers. Are there any controls 
on RACs from concentrating excessively in one area simply because 
returns per efforts expended in the short run may be substantial?

    Answer. OMHA defers to our colleagues at CMS as the agency that 
oversees the Recovery Auditor program. In order to make certain that 
OMHA's adjudicators would have decisional independence from CMS, OMHA 
was established as a separate agency within HHS, reporting directly to 
the Secretary. Accordingly, OMHA operates under a separate 
appropriation and is both functionally and fiscally separate from CMS.
                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. For the last couple of years, there has been constant 
controversy over the battle between Medicare providers, especially 
hospitals, and recovery audit contractors (RACs). When an appeal is 
heard, someone wins and someone losses, but there's no public 
scorekeeping of wins and losses. We believe that open accounting could 
cut down on frivolous findings by RACs, frivolous appeals by providers, 
and lackadaisical rulings from the reviewers.

    There is a value in transparency when government is engaged in the 
people's business. In this case, the appeals process is in desperate 
need of transparency. Regularly, I will have providers tell me they win 
90% of their appeals. Then minutes later, I will get visits from 
auditors who tell me they are winning 90% of their appeals. Clearly, 
those numbers do not add up.

    The appeals process would benefit from an open and transparent 
accounting of appeals outcomes. If we are concerned about frivolous 
findings against providers, frivolous appeals of auditor findings, and 
reviewers not devoting adequate consideration to the policy issues, 
transparency would shine a light on all parties to the process.

    Is there any reason you can think of that we should NOT publish, in 
the aggregate, the appeals outcomes, essentially wins and losses by 
provider and auditor at your level of the appeal process?

    Answer. OMHA is committed to data transparency and continues to 
examine what data are available and relevant to our stakeholders. 
However, OMHA appeal outcomes represent only the third of four levels 
of administrative appeal within HHS, so these data would provide only a 
limited snapshot of the larger picture. For example, an ALJ decision 
may be subject to further review by the Medicare Appeals Council if the 
appellant files a request for review,CMS (or its contractors) refers 
the case to the Council for review, or the Council decides on its own 
motion to review the ALJ decision.

    In addition, we note that the primary challenge for OMHA in 
providing this type of information is the availability and structure of 
the data in our version of the Medicare Appeals System (MAS) case 
management system, which is necessarily focused on data related to case 
processing at the ALJ level of appeal. Aggregate provider appeal 
outcome data can most easily be expressed in relation to a Medicare 
Part (such as Part A or Part B), or a category of services (for 
example, inpatient hospital services, physicians, durable medical 
equipment suppliers, skilled nursing facilities, and ambulance 
companies). We do not believe that our data currently identify the 
underlying auditor associated with an appeal.

    Question. Is there any reason you can think of that we should NOT 
publish, in the aggregate, the appeals outcomes by the specific ALJs so 
we can look at them comparatively?

    Answer. While there is no statutory impediment to publishing these 
data and OMHA is considering doing so in the near future, OMHA believes 
that ALJ outcome data may be subject to misinterpretation because large 
numbers of appeals involving a single or similar issue may be assigned 
to an ALJ. The decision on the issue may then have a significant impact 
on the ALJ's outcome statistics. These data anomalies may increase as 
OMHA works through its backlog and assigns larger groups of similar 
cases to ALJs. There is also a potential issue with comparative 
statistics having some influence on decision outcomes, if ALJs feel 
pressure to achieve outcome statistics within a specific range. 
Additionally, publishing an individual ALJ's outcomes could result in 
appellants attempting to forum shop by seeking recusals from ALJs who 
they believe may not rule in their favor based on outcome data, even 
though the ALJ is acting impartially.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. Rural providers often operate on the margins and these 
types of delays leave providers in limbo for far too long. At the ALJ 
level is there any consideration being given to expedite the appeals of 
small or rural providers' appeals?

    Answer. Currently, OMHA prioritizes appeals filed by beneficiaries, 
who are our most vulnerable appellants. These appeals, which include 
Part D expedited appeals and other beneficiary-appellant appeals--
including pre-service appeals arising under Part C, receive first 
priority at every stage of the appeals process; they are immediately 
assigned to an ALJ, and prioritized for hearing and decision by the 
assigned ALJs. Provider, supplier, and other non-beneficiary appeals 
are assigned and heard in the order in which they were received. We 
have considered additional prioritization of our workload as a result 
of suggestions received from appellants in response to our Request for 
Information. However, additional prioritization is problematic for a 
number of reasons. First, OMHA's case tracking system does not have a 
way to identify small or rural providers. Second, in addition to rural 
or small providers, there have been multiple requests for 
prioritization of other workload. We have also received requests to 
prioritize high dollar value appeals and appeals in which large 
overpayments are being recouped. We recognize that processing delays 
have a significant impact on providers and suppliers regardless of the 
number of claims at issue or the amount in controversy, but since 
prioritizing one group will necessarily be at the expense of another, 
additional prioritization is not advisable at this time.

    We also note that where an appellant has submitted a request for 
hearing following a Medicare Part A or Part B Qualified Independent 
Contractor (QIC) reconsideration, the appellant may request an 
escalation to the next level of review (the Medicare Appeals Council) 
if the ALJ does not render a decision within 90 days after a complete 
request for hearing was timely filed with OMHA. This ``escalation'' 
process was built into the statute to ensure that appellants can 
continue to pursue their appeals if the ALJ is unable to adjudicate an 
appeal within the 90-day timeframe envisioned by Congress. More 
information on the escalation process is available on the OMHA website 
(www.hhs.gov/omha), under the ``Coverage and Claims Appeals'' tab.

    Question. A 2012 Health and Human Services (HHS) Office of 
Inspector General (OIG) Report stated that in FY 2010, Administrative 
Law Judges (ALJ) reversed prior-level decisions and ruled fully 
favorable or partially favorable to the appellant over 60 percent of 
the time. How can we reform the appeals process to ensure that there is 
greater continuity in decisions at both the ALJ and the prior-levels in 
order to give providers more predictability in the audit and appeals 
process?

    Answer. The difference in outcomes across appeal levels is 
attributable to a number of factors, including: the introduction of new 
and additional evidence, the opportunity for an appellant to orally 
present his or her testimony at the ALJ level of appeal, the non-
binding authority of informal CMS manuals and other program guidance on 
ALJs, and the winnowing of appeals as some appellants select only their 
most meritorious claims for appeal. These occurrences are a natural 
consequence of the Medicare appeals system as established by Congress, 
and are not necessarily attributable to a lack of training or knowledge 
of Medicare policy on the part of OMHA ALJs.

    Generally, under the current appeals structure, CMS or its 
contractors may also refer ALJ decisions or dismissals to the Medicare 
Appeals Council for ``own motion review'' if they believe that an ALJ 
decision contains an error of law material to the outcome of the claim 
or presents a broad policy or procedural issue that may affect the 
public interest.

    CMS, OMHA, and the Medicare Appeals Council communicate at the 
leadership and staff levels on a variety of appeals process 
coordination matters. When there are large numbers of appeals in a 
given area that implicate a current or potential policy interpretation 
variance, the general matter can be raised and discussed, and 
appropriate action on the general issue taken, such as conducting 
additional training with OMHA and Medicare Appeals Council staff.

    In addition, as reflected in the response to the Chairman's third 
question, OMHA has developed multiple training and continuing education 
resources for OMHA ALJs, and OMHA has seen significant change in the 
rate at which ALJs reverse decisions from lower levels of appeal. The 
reversal rate has decreased from 63.2 percent in FY 2010 to the current 
rate of 43.0 percent.

    Question. Information provided in the same 2012 HHS OIG report 
stated there were concerns about consistency in individual ALJ approval 
and rejection rates. Approvals ranged from 18 to 85 percent in FY 2010. 
What can Congress do to again provide more consistency in ALJ rulings 
that would in effect provide greater certainty at all level of appeals?

    Answer. ALJs must act within the scope of legal authorities and 
give deference to local coverage determinations and CMS program 
guidance. However, each ALJ has qualified decisional independence under 
the Administrative Procedure Act (APA). Because individual adjudicators 
are applying the law and coverage policy to facts (which vary from case 
to case), some level of disparity in outcomes is inherent in the 
adjudication process. Although every effort is made to ensure 
consistent decision making, differences in decisional outcomes occur 
between adjudicators at the ALJ level, as well as between claims 
reviewers at the lower levels of the appeals process.

    While some variances among adjudicators will continue, OMHA has 
made significant efforts to maximize consistency. OMHA works with CMS 
to deliver expert-led training sessions on Medicare policy and its 
application to common claims scenarios such as emergency medical 
treatment, non-emergency ambulance transport, billing and coding 
initiatives, and determinations of inpatient admission status. CMS also 
provides regular updates to OMHA adjudicators as it adjusts or 
clarifies existing policies, such as the Two-Midnight Rule for 
inpatient hospital stays and continuation of care issues resulting from 
Jimmo v. Sebelius. These sessions have been extremely instructive for 
adjudicators and have led to greater consistency among appeal levels. 
As a result of these and other training initiatives, OMHA has seen a 
marked decrease in the rate at which ALJs reverse decisions from lower 
level adjudicators, down from 63.2 percent in FY 2010 to the current 
level of 43.0 percent.

    One area where standardization is possible is the OMHA business 
process. This is one way to ensure that ALJs are applying the relevant 
authorities consistently and availing themselves of the most efficient 
means to process an appeal. Standardization also provides a more 
uniform experience for appellants nationwide, regardless of where or by 
whom their appeal is heard.

    OMHA's commitment to business process standardization is evidenced 
in two initiatives: the OMHA Case Processing Manual (OCPM) and the 
Medicare Appeals Template System (MATS). OMHA launched its new manual 
internally in March 2015, documenting agency policy and incorporating 
best practices from the field. The OCPM will increase efficiency in 
case processing and can be updated to allow for continued innovation. 
It also increases the flexibility of support staff to move between 
judge teams. In addition, OMHA has developed MATS, a sophisticated 
document generation system that will improve the quality and 
consistency of OMHA decisions and documents and increase overall 
efficiency. First rolled out to field offices in March 2014, MATS 
standardizes and streamlines decision and document drafting and is 
being updated on a rolling basis. These templates do not decide cases, 
but can be used to guide analysis and standardize language articulating 
the applicable law and policy. The system prevents common document 
errors by pulling data from our electronic case management system and 
populating that data directly into documents, which is especially 
important in such a high volume environment.

    These initiatives are a foundation for a more consistent and 
efficient process going forward and with the funding and authorities 
proposed in the FY 2016 President's Budget, Congress can ensure that 
resources are available to continue and further these standardization 
efforts.
                                 ______
                                 
                Questions Submitted by Hon. Richard Burr
    Question. Between Fiscal Year 2009 and Fiscal Year 2014, the number 
of appeals received by the Office of Medicare Hearings and Appeals 
increased by more than 1,300 percent. What are the most significant 
contributing factors to the changes in the volume of appeals?

    Answer. Several factors have contributed to the growth in Medicare 
Appeals. In FY 2010, OMHA started receiving appeals from the permanent 
Recovery Audit program, which represented a new source of appeals 
workload. During this same time period, OMHA experienced concurrent 
growth in the traditional appeals workload that OMHA had been receiving 
since it began operations in 2005; between FY 2009 and FY 2014 OMHA's 
traditional workload alone increased by 543%. In FY 2011 and FY 2012, 
OMHA also saw an increase in the number of appeals filed by Medicaid 
State Agencies related to the treatment of dual-eligible beneficiaries 
(beneficiaries who are enrolled in both Medicare and Medicaid). 
Finally, the increase in workload may be partially attributable to 
increases in Medicare enrollment as the ``baby boom generation'' and 
more individuals determined to be disabled under the Social Security 
disability program become Medicare-eligible, which may be increasing 
the number of beneficiaries utilizing Medicare services and resulting 
in a higher universe of potential disputes.

    Question. How would annual judicial education training address some 
of the issues associated with the timeliness and predictability of the 
appeals process for both providers and beneficiaries going through an 
appeal?

    Answer. OMHA's annual Judicial Education Symposium provides an 
opportunity to train adjudicators on emerging issues in Medicare 
coverage policy and frequentlyinvolves experts from CMS as presenters. 
In addition, OMHA implemented a formal, mandatory training program for 
all new ALJs that focuses on Medicare law/policy and adjudicative 
business processes.

    OMHA is working toward providing appellants with a more uniform and 
predictable experience with the appeals process by standardizing our 
business process through the creation and issuance of the OMHA Case 
Processing Manual (OCPM). OMHA launched this manual internally in March 
2015, and plans to provide public notice via the Federal Register and 
then post the manual on our public website. The OCPM documents agency 
policy and incorporates best practices from the field. It will increase 
efficiency in case processing and can be updated to allow for 
innovation. This initiative will help to ensure that judges are 
applying the relevant authorities consistently and availing themselves 
of the most efficient means to process an appeal. This standardization 
also provides a more uniform experience for appellants nationwide, 
regardless of where or by whom their appeal is heard. It also increases 
the flexibility of support staff to move between judge teams.

    Question. How have the alternative dispute resolution techniques 
been received by providers seeking to appeal decisions? Are a certain 
subset of providers utilizing this option? Have any lessons emerged 
from the Settlement Conference Facilitation Pilot that could be drawn 
upon as we continue to look for ways to address concerns with the 
current state of the audit and appeals processes?

    Answer. When OMHA offered appellants the option to resolve pending 
appeals through the OMHA Settlement Conference Facilitation pilot, we 
did so in a limited capacity due to staffing and resource limitations. 
As it currently exists, the pilot is limited to appellants who filed 
requests for hearing on a Medicare Part B Qualified Independent 
Contractor (QIC) reconsideration during a particular period of time and 
that met certain other criteria. As such, the appellants who have 
participated thus far have been primarily Part B suppliers of Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and 
outpatient therapy. As of May 13, 2015, OMHA received 24 requests 
involving a total of 4,273 claims to participate in the pilot. 
Currently, eight requests are pending. Of the remaining 16 requests, 6 
requests resulted in a settlement of a combined 1,574 appeals involving 
1,617 claims. OMHA rejected five for failure to meet eligibility 
criteria, three did not result in settlement between the parties, and 
CMS declined to participate in two.

    OMHA is encouraged by the results of the initial pilot, which, as 
of May 2015, has resolved the equivalent of one-and-a-half ALJ teams' 
annual workload (1,500 appeals), at a considerable cost savings to 
OMHA. The primary lesson learned from this pilot is that the initial 
eligibility criteria may have been too restrictive, as many other 
appellants have informally expressed an interest in being able resolve 
their appeals through an alternative dispute resolution process.

    Question. If the Office of Medicare Hearings and Appeals were to 
move forward with the concept of allowing adjudication of large numbers 
of appeals through the use of sampling and extrapolation techniques, 
how would this be done in a statistically sound manner?

    Answer. OMHA would manage this effort through a current contract 
that provides access to qualified, independent statistical experts. The 
OMHA experts would ensure sampling conducted at the ALJ level conformed 
to the standards outlined in the CMS Program Integrity Manual, which 
provide instructions to CMS contractors on the use of statistical 
sampling to calculate and project overpayment amounts to a universe of 
claims.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
             resources needed to improve the appeals system
    Question. During the hearing you shared that the current 
adjudication capacity of the Office of Medicare Hearings and Appeals 
(OMHA) is approximately 77,000 appeals. You also shared that in FY 2014 
alone, your Office received approximately 474,000 appeal requests. 
These requests are in addition to the pervasive backlog already 
existing at your level of review.

    Simple math makes it quite clear that this type of capacity falls 
severely short. While I appreciated your testimony regarding efforts 
that have increased adjudication capacity within your current 
resources, it sounds as though many of these concepts have been 
exhausted. This year, the President's budget suggested that an 
additional $127 million be appropriated to the Department of Health & 
Human Services, OMHA, to address the growing backlog of appeals.

    Can you please share how your office would utilize the $127 
million, if so appropriated, to decrease the backlog?

    Answer. The funding and legislative proposals requested in the FY 
2016 President's Budget include both discretionary budget authority and 
program level funding from proposed legislation, totalling $182.6 
million above the FY 2015 enacted level. This request positions OMHA to 
process more Medicare appeals by providing resources to establish six 
new field offices and expand two current field offices to the full 
complement of 18 ALJ teams. These offices will support 119 new ALJ 
teams nationwide, compared with the projected 77 teams on board by the 
end of FY 2015. These new teams will collectively increase output by 
119,000 additional appeal dispositions a year.

    The additional funding also supports several HHS and OMHA 
initiatives to address the workload by alternate adjudication methods 
such as 82 Medicare Magistrates and additional attorney adjudicators 
and settlement conference facilitators.

    Question. How many appeals could be processed annually if this 
Congress were to adopt the recommendations of the President?

    Answer. OMHA's annual adjudication capacity would increase by 261% 
(from 77,000 appeals per year to approximately 278,000 appeals per 
year) with just the increase in ALJ teams and the establishment of 
Medicare Magistrates. It is anticipated that other alternative 
adjudication methods such as expansion of OMHA's Settlement Conference 
Facilitation pilot will further increase adjudication output.

    Question. How would the President's policy recommendations 
otherwise impact the incoming requests for appeal?

    Answer. It is anticipated that the legislative proposals in the FY 
2016 President's Budget will have an impact in reducing the number of 
new appeals entering the system. For example, the institution of a 
refundable filing fee at each level of appeal should encourage 
providers to more carefully assess the merits of their appeals before 
filing.
   the use of medical expertise to adjudicate medically complex cases
    Question. Anecdotally, I have been informed that cases involving 
``medical necessity,'' or those cases which require significant 
clinical review and input to effectuate, are most frequently subject to 
higher level appeal requests. I also understand that such cases are 
timely to review, and at the lower levels of appeal are reviewed by a 
clinician, such as a nurse and/or physician.

    Given that the majority of your staff do not have clinical 
backgrounds or expertise, can you please walk through how such cases 
are typically handled under the current process?

    Answer. The cases that are appealed to and processed by OMHA 
include a variety of issues. Many issues do not require a clinical 
background or expertise to properly adjudicate because they involve 
appeals of technical denials for services that are not covered or 
appeals where regulatory guidelines or policies set forth criteria that 
establishes medical necessity, and therefore coverage. These types of 
appeals require the application of a specific set of policies or rules 
to a specific set of facts to establish coverage. In cases where 
medical necessity is not well defined by either a specific regulation 
or policy, OMHA adjudicators have the opportunity to obtain clinical 
opinions regarding medical necessity. Options for obtaining clinical 
opinions include adjudicator review of the medical opinions from the 
medical review panel at the lower level of appeal (in the QIC's 
decision and administrative record); allowing expert medical opinion 
testimony by the appellant or any other party (including CMS 
contractors if they appear as a party or participant); and review of 
medical records and testimony by an independent medical expert at the 
request of OMHA. OMHA maintains a contract to ensure that expert 
testimony is available to its adjudicators if necessary. These 
independent experts are compensated for their testimony out of OMHA's 
budget and are independent of CMS or any other parties. Therefore, in 
the cases where clinical expertise is required, OMHA adjudicators have 
the opportunity to obtain clinical opinions regarding medical necessity 
and to weigh the opinions in light of the entire evidence in the 
record.

    Question. Do you think that it may be useful to uniformly require 
adjudicators at OMHA to seek the clinical opinion of an independent 
expert in making such appeal decisions? Why or why not?

    Answer. As discussed above, OMHA adjudicators have the opportunity 
to obtain several clinical opinions regarding medical necessity. 
However, a significant number of appeals adjudicated by OMHA do not 
require specific clinical expertise or opinion, but rather are legal 
decisions. Requiring independent expert opinions in all appeals 
regardless of need would significantly increase the cost and time 
required to adjudicate OMHA appeals. The best use of OMHA's resources 
is to make decisions concerning the need for clinical opinions on a 
case by case basis.

    Question. Do you believe the use of a clinical expert could 
increase consistency and decrease the potential for variation? Why or 
why not?

    Answer. Anecdotally, OMHA experience is that there is as much 
variation in the opinions of clinical experts as there is within OMHA 
adjudicators; thus, we are not confident that mandating the use of 
clinical experts would increase consistency or decrease the potential 
for variation. As mentioned previously, OMHA has maintained a clinical 
expert witness contract since its inception, and OMHA adjudicators have 
used significant numbers of clinical expert witnesses in a variety of 
appeals over the years. It has been OMHA's experience that there were 
some experts who were more likely to give favorable testimony to 
appellants, while others were more likely to offer favorable testimony 
to support the denial, for similar facts. In these cases OMHA 
adjudicators often act to increase consistency and decrease the 
potential for variation by assigning appropriate weight to the clinical 
expert opinions before them, after considering the entire record and 
clinical expert testimony from all parties/participants. A significant 
number of appeals OMHA processes do not require specific clinical 
expertise, and therefore would not benefit from the use of a clinical 
expert.
        improving efficiency through electronic case files and 
                           interconnectivity
    Question. During the hearing, Tom Naughton of Maximus Federal 
Services explained that if a claim the QIC has reviewed is then 
appealed to OMHA under the current appeals system, the QIC employees 
must print out their electronic copy so that the OMHA may perform the 
third level of review using a paper copy. I also understand that OMHA 
is diligently working towards an electronic case file system--expected 
to be released next spring--entitled the Electronic Case Adjudication 
and Processing Environment, or ``ECAPE.'' I commend your efforts and 
look forward to its timely release.

    The testimony also indicated that this type of interconnectivity is 
currently limited, but could assist with both providing transparency 
for the appellant regarding their appeal's status, as well as 
assurances to the reviewer that the case file is unaltered and 
complete.

    Once the ECAPE system is activated, do you anticipate that all 
levels of review will be electronically interconnected so that case 
files may be safely and electronically accessed and/or transmitted at 
all review levels?

    Answer. Adjudicators at levels 1 and 2 of the Medicare Parts A and 
Part B claims appeals process currently use the electronic case files 
in the Medicare Appeals System (MAS). ECAPE will interface with MAS, 
allowing level 3 adjudicators secure, electronic access to claims 
files. At this time, the Medicare Appeals Council does not use MAS for 
case management but is exploring the use of electronic records.

    Question. Do you think the use of electronic case files will help 
OMHA to monitor the incidence of new evidence that is submitted at the 
third level of review?

    Answer. Yes, ECAPE will include the capability to track the 
submission of new evidence at level three.

                                 ______
                                 
             Questions Submitted by Hon. Charles E. Schumer
    Question. The New York State Office of the Medicaid Inspector 
General has seen alarming increases in the percentage of Medicare 
appeal denials as well as substantial increases in the time to obtain 
decisions. At the first two levels of appeal, Medicare contractors are 
denying over 99% of the appeals. For ALJ's the 90 day statutory 
requirement is not being met in over 99% of cases. The current wait is 
averaging 562 days and will continue to grow since OMHA has announced 
that they have suspended the assignment of new appeals for 2 years. 
Overall, there are currently 124,246 episodes backlogged at the ALJ 
level and for appeals that have actually reached a final decision, we 
are averaging 1,135 days from the Medicaid date of service. Despite 
seminal decisions in federal district courts that support the 
appellants, we are seeing favorable decisions rates by the ALJs trend 
downward--from 26% for FFY 2008 cases to 16% for FFY 2010 cases. Under 
the demonstration project where third party arbitration services were 
used instead of OMHA's ALJs, favorable decisions were granted in 69% of 
the cases.

    The Office of Medicare Hearings and Appeals (OMHA) has yet to offer 
a feasible administrative remedy to State Medicaid agencies (sampling, 
mediation). Further, State Medicaid agencies are excluded from 
participating in some of the offered remedies.

    Will the OMHA be willing to discuss the potential for a revised 
demonstration model with the State of NY?

    Answer. The goal of this demonstration would be to reduce the 
administrative burdens on both the current Medicare appeals system and 
its stakeholders. More importantly, assist with clarifying coverage 
guidelines related to home health services for dual eligible 
beneficiaries thus reducing the frequency of misdirected claims/
appeals.

    While OMHA does not have demonstration authority or authority to 
settle appeals on its own, OMHA has been working with CMS and a limited 
number of appellants in certain circumstances through our Settlement 
Conference Facilitation pilot. As we gain experience with the 
Settlement Conference Facilitation pilot, we will consider whether we 
can use this experience to improve the appeals process for Medicaid 
State Agencies.

    Question. You testified in July that more than 800,000 appeals were 
pending. What is that status of the backlog today, following the 
completion of the CMS settlement, and how long will it take to clear 
the remaining backlog? What will you do to prevent the backlog from 
rising again?

    Answer. HHS is in the process of verifying and completing the 
review of the claims submitted for administrative settlement. As 
appeals are verified as being appropriately included in the settlement, 
they will be dismissed by OMHA and removed from the count of pending 
appeals. We anticipate that we will have more precise numbers in the 
near future. As of March 31, 2015, OMHA had 870,000 appeals pending.

    Any projections related to reducing the backlog of appeals must 
take into consideration the projected impact of the administrative 
initiatives underway and the full adoption of the FY 2016 President's 
Budget. Because several of the proposals in the President's Budget are 
designed to appropriately resolve disputes at earlier levels of the 
appeals process, thus reducing appeal levels at OMHA, a portion of the 
success of the proposals is dependent upon the way in which appellants 
respond to the proposed changes. For example, the implementation of a 
filing fee is designed to provide an incentive for providers to 
carefully evaluate their claims prior to filing and to appeal only 
their most meritorious claims to the later levels of the appeals 
process. The impact of other provisions concerning the way appeals may 
be aggregated to reach the required amount in controversy for an ALJ 
hearing and provisions related to early submission of evidence (which 
would require lower level reviewers to have access to the same 
information being relied upon at the ALJ level) will also be largely 
dependent upon appellant behavior. Regardless, there still must be a 
balance between receipts and capacity to adjudicate incoming appeals 
without expanding adjudication capacity too rapidly and over building 
the agency. With the current pause of the Recovery Audit program, there 
is a projected leveling of receipts, but the end state of annual 
receipt levels is uncertain. OMHA recognizes that any comprehensive 
endeavor of this magnitude would be better addressed over several years 
for fiscal as well as programmatic reasons to ensure resources match 
what our future annual workloads are likely to require while carefully 
monitoring the impact of Departmental initiatives and legislative 
reforms.

    Under Secretary Burwell's leadership, the Department has developed 
an approach to reduce the risk of a future backlog through 
administrative actions, additional funding, and legislative reforms to 
mitigate the appeals volume, including initiatives to resolve disputed 
claims at earlier levels of the appeals process. OMHA, with 
Departmental support, is committed to bringing these efforts to 
fruition. The full adoption of the FY 2016 President's Budget will 
allow OMHA to significantly increase its adjudicatory capacity above 
its FY 2015 level and will begin to restore the balance between 
workload and resources going forward.

                                 ______
                                 
               Questions Submitted by Hon. Sherrod Brown
                   recovery audit contractors (racs)
    Question. RACs are another tool CMS uses to audit potentially 
improper payments. The RAC system was permanently established by 
Congress in 2010, following a 3-year demonstration. RACs are paid on a 
contingency-fee basis based on their identification of improper 
payments.

    In 2012, RACs returned almost $2 billion to Medicare. Over half of 
the funds appeals received by the Office of Medicare Hearings and 
Appeals (OMHA) are RAC-related. Today, OMHA is funded only by 
discretionary appropriations.

    It seems as though the enormous spike in appeals that has 
overwhelmed the system is mainly attributable to hospital appeals of 
RAC determinations.

    Judge Griswold--would you support a separate appeals system for 
those claims? Do you have suggestions for how that could work?

    Answer. Because the same coverage rules apply regardless of whether 
a claim arises from pre-payment or post-payment review, establishing a 
separate appeals system for Recovery Audit appeals would add complexity 
and uncertainty to the system and would ultimately be 
counterproductive. A separate appeals system would also result in 
greater disparities in outcomes, and would likely confuse appellants. 
OMHA already hears appeals arising from separate claims/coverage 
appeals processes for Part A and B appeals; Part C Medicare Advantage 
appeals; Part D prescription drug appeals. OMHA also hears Medicare 
eligibility and entitlement appeals arising from the Social Security 
Administration (SSA), including Part B Late Enrollment Penalties (LEPs) 
and Income Related Monthly Adjustment Amounts (IRMAAs). Even within 
these separate appeals processes, differences arise. For example, the 
first level of appeal for a Part A or B appeal may be conducted by the 
Medicare Administrative Contractor (MAC), a Quality Improvement 
Organization (QIO), or the Benefits Coordination and Recovery Center 
(BCRC). From there, most of the redeterminations (excluding certain QIO 
medical necessity and appropriateness of setting reviews) have a second 
level of appeal conducted by a QIC. While most decisions made by a QIC 
or QIO are appealable to an ALJ, certain decisions, such as QIO 
Diagnosis Related Group (DRG) coding validations, are not. Introducing 
a separate appeals process for Recovery Audit appeals would increase 
confusion, make an already complex appeals system more intricate, lead 
to greater disparity in decisional outcomes and frustrate the primary 
goal of streamlining the appeals process.
                 administrative law judge (alj) appeal
    Question. In FY 2013, OMHA received more than 654,000 claims. This 
was up from just under 60,000 in FY 2011. Despite the significant 
increase in claims, the total number of judges available to hear and 
decide cases remained the same, at just over 60.

    As a response to this increase in claims, OMHA temporarily 
suspended the assignment of most new requests for ALJ hearings from 
providers, and HHS has attempted to put in place some reforms to help 
speed the system along. However, despite the pause in new cases, these 
delays persist for both beneficiary and provider appeals.

    I have heard from both providers and beneficiaries in Ohio who 
believe that the first and second level of appeals are often a ``rubber 
stamp'' of the initial determination, and that very little 
consideration is given until the ALJ appeal, where it seems that a 
large percentage of claims are reversed.

    Judge Griswold--of those claims that are appealed to the ALJ level, 
what is the reversal rate for provider-initiated claims? What is the 
reversal rate for beneficiary- initiated claims?

    Answer.

    Reversal Rate for Non-Beneficiary-Initiated Claims

    FY13  50.5%

    FY14  40.0%

    FY15  (year to date)  43.0%

    Reversal Rate Beneficiary-Initiated Claims

    FY13  31.5%

    FY14  33.4%

    FY15  (year to date)  34.1%

    The calculation includes all non-beneficiary appeals instead of 
only provider requested appeals to account for those appeals that have 
a requester type other than provider and beneficiary. Reversal rate is 
the total of Favorable and Partially Favorable dispositions divided by 
the total appeals with Favorable, Partially Favorable, Unfavorable, and 
Dismissed dispositions.
           making the system more friendly for beneficiaries
    Question. Despite the fact that the Medicare appeals system was 
created with beneficiaries in mind, we know that it is providers who 
file the vast majority of appeals. In 2010, for example, Medicare 
beneficiaries filed just 11% of the appeals heard by ALJs.

    Today, beneficiary-initiated appeals continue to make up a 
proportionally small percentage of the total number of appeals, but 
they continue to get lost in the shuffle.

    Judge Griswold--what has OMHA done to prioritize beneficiary-
initiated appeals? What more can be done to ensure timely review of 
beneficiary-initiated cases and make the current system more 
beneficiary-friendly?

    Answer. Individual beneficiaries are among the most vulnerable 
appellants. In 2013, OMHA began prioritizing beneficiary-initiated 
appeals, and in 2014, established a dedicated mail-stop for 
beneficiary-initiated appeals, to ensure those appeals are quickly 
identified and assigned to an ALJ for hearing. OMHA worked with CMS to 
update lower level appeal instructions to alert beneficiaries to this 
mail-stop. Our prioritization measures have resulted in beneficiaries 
getting a decision more quickly. In February 2015, we estimated that 
the average time to decision for beneficiary appeals decreased from 
244.6 days in FY 2013 to 125.0 days in FY 2014 (this calculation does 
not include Part D expedited appeals, which operate on a much shorter 
(10-day) time frame). Similarly, the total number of aged beneficiary 
appeals at the agency has been reduced.

    At the beginning of the first quarter in FY 2014, OMHA had 1,620 
beneficiary appeals older than 90 days. As of April 26, 2015, OMHA had 
358 beneficiary appeals older than 90 days. This figure includes 
appeals that have been delayed at the beneficiary's request, such as 
postponing a hearing to accommodate a hospitalization, to obtain a 
representative/attorney, or to obtain and submit additional records.

    Question. Judge Griswold--what can be done to help beneficiaries 
who filed before the prioritization process was put into effect, and 
have been waiting the longest? How are their inquiries handled if they 
call 1-800-Medicare?

    Answer. If a beneficiary filed a request for hearing and believes 
that it has not been prioritized, he or she may contact OMHA 
Headquarters by writing to OMHA Headquarters, 1700 N. Moore St., Suite 
1800, Arlington, VA 22209, calling 703-235-0635, or emailing 
[email protected] Beneficiaries may also contact OMHA using our 
national toll-free number 855-556-8475.

    Question. Judge Griswold--given that beneficiaries are often the 
most vulnerable appellants and are who the Medicare program is meant to 
serve, in addition to the fact that beneficiary-initiated appeals 
represent such a small percentage of overall appeals, would you support 
maintaining full procedural rights and protections for them, e.g., not 
assigning their cases to ``Magistrate'' ALJs, and not increasing the 
amount-in-controversy threshold?

    Answer. OMHA recognizes the vulnerability of individual 
beneficiaries and has prioritized beneficiary-initiated appeals to 
expedite their processing and resolution. In most cases, Medicare 
beneficiaries and enrollees have already received the item or service 
that is the subject of a claim or coverage dispute, and the only 
remaining question is payment responsibility. Only in certain 
circumstances (e.g., Part D requests for drug coverage, Part C pre-
service authorization requests, hospital discharge appeals, and 
provider service terminations) might provision of an item or service 
depend on the outcome of the appeal. We continue to prioritize 
expedited Part D appeals that must be adjudicated within 10 days, as 
well as pre-service appeals arising under Part C and other beneficiary 
appellant appeals.

    In their current formulation, the legislative proposals contained 
in the FY 2016 President's Budget are designed to provide flexibility 
and additional protection to beneficiary-appellants. For example, 
beneficiaries would be exempt from the filing fee proposal and the 
proposal requiring remand to the redetermination level when new 
evidence is introduced at a later level of appeal. However, we 
acknowledge that some portion of beneficiary appeals would fall within 
the proposed changes to the amount in controversy and the Medicare 
magistrate process. We believe that procedures can be put in place 
through regulations to balance the impact on the beneficiary population 
with the efficiencies gained through the magistrate process.

                                 ______
                                 
             Questions Submitted by Hon. Michael F. Bennet
    Question. As the panel has pointed out, the Office of Hearings and 
Appeals (OMHA) received more than 654,000 claims in FY 2013, up from 
under 60,000 in FY 2011, which has increased the backlog and average 
processing time for an appeal's decision. What do you believe are the 
primary causes of this dramatic increase in claims? And to follow-up, 
what are some commonsense, balanced fixes to address the backlog that 
could help ensure that seniors and their physicians are able to receive 
and provide needed care?

    Answer. The legislative proposals outlined in the FY 2016 
President's Budget will provide the most balanced, effective means of 
reducing the Medicare appeals backlog, and ensuring that OMHA and other 
HHS components have the continuing resources to prevent another backlog 
from developing.

    Several factors have contributed to the growth in Medicare Appeals. 
In FY 2010, OMHA started receiving appeals from the permanent Recovery 
Audit program, which represented a new source of appeals workload. 
During this same time period, OMHA experienced concurrent growth in the 
traditional appeals workload that OMHA had been receiving since it 
began operations in 2005; between FY 2009 and FY 2014 OMHA's 
traditional workload alone increased by 543%. In FY 2011 and FY 2012, 
OMHA also saw an increase in the number of appeals filed by Medicaid 
State Agencies related to the treatment of dual-eligible beneficiaries 
(beneficiaries who are enrolled in both Medicare and Medicaid). 
Finally, the increase in workload may be partially attributable to 
increases in Medicare enrollment as the ``baby boom generation'' and 
more individuals determined to be disabled under the Social Security 
disability program become Medicare-eligible, which may be increasing 
the number of beneficiaries utilizing Medicare services and resulting 
in a higher universe of potential disputes.

    OMHA believes that the legislative proposals outlined in the FY 
2016 President's Budget will provide the most balanced, effective means 
of driving down the Medicare appeals backlog, and ensuring that OMHA 
and other HHS components have the continuing resources to prevent 
another backlog from developing.

    Question. It's my understanding that while the vast majority of 
providers are acting in good faith and filing appropriate and necessary 
appeals, there may be a few bad actors taking advantage of this broken 
system. As highlighted in a recent HHS Office of the Inspector General 
(OIG) report, two percent of providers represent one-third of all 
appeals. It is important that the Medicare audits and appeals system 
has the capability to protect taxpayer dollars from exploitation by the 
few who are bogging down the system for their own financial gain. In 
your view, what can be done to alleviate the system from the burden of 
these bad actors?

    Answer. To some extent, the number of appeals filed by an 
individual provider or supplier is the result of the level of scrutiny 
and auditing to which the provider or supplier is subject. However, 
OMHA believes that instituting a refundable filing fee will encourage 
more providers, suppliers, and other non-beneficiary appellants to 
consider the merits of their claims before filing appeals, which will 
address some of the demands currently being placed on the appeals by 
appellants who do not appear to consider the merits of their claims 
before filing appeals. Currently, OMHA sees instances in which 
providers and suppliers appear to have not reviewed, or only cursorily 
reviewed, the basis for the denial of their claims at the initial 
determination level and the lower levels of appeal. These appellants 
provide only the most basic argument with their request for hearing and 
frequently do not address specific documentation deficiencies 
identified by the Medicare contractors. Some appellants also withdraw 
their request for hearing just prior to a hearing, after considerable 
resources have already been devoted to processing the appeal, 
supporting the conclusion that they gave the claims only a cursory 
review prior to appealing. OMHA believes a refundable filing fee would 
be the most reliable measure to discourage this behavior.

    Question. Historically, CMS has relied on claims administration 
contractors to protect taxpayer dollars in the Medicare Trust Fund. 
Since 2005, Medicare has used Recovery Audit Contractors (RACs) to 
recover improper payments to providers. Although RACs have had some 
success in returning improper payments to Medicare, their incentives to 
recover payments for Medicare have come under significant scrutiny. 
RACs are paid a percentage of every overpayment they identify and 
collect from providers, and while some adjustments have been made to 
their payment structure, their contingency-based payment contracts 
still incentivize RACs to recover as many payments as possible. Some 
have argued that aggressive RAC payment recoupment behavior has 
contributed to the increase in appeals, as providers appeal more and 
more claims. What role do you think RACs play in contributing to the 
backlog of claims that is preventing seniors from getting needed care?

    Answer. OMHA defers to our colleagues at CMS as the agency that 
oversees the Recovery Auditor program. In order to make certain that 
OMHA's adjudicators would have decisional independence from CMS, OMHA 
was established as a separate agency within HHS, reporting directly to 
the Secretary. Accordingly, OMHA operates under a separate 
appropriation and is both functionally and fiscally separate from CMS.

    However, we do note that the Recovery Audit appeals in the backlog 
involve claims for services that have already been furnished (that is, 
the Medicare beneficiary has already been provided with the care). 
There is a small subset of non-Recovery Audit pending appeals that 
involve pre-service or termination of coverage issues filed by 
beneficiaries, but these are prioritized as beneficiary appeals and 
immediately assigned to an ALJ, and then prioritized for a hearing and 
decision as quickly as possible.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a committee hearing 
on Medicare audit and appeals:

    Our hearing today will consider audit and appeals issues in 
Medicare. As some of you may recall, in July 2013, the Finance 
Committee held a hearing focused on audits of Medicare providers. At 
that time, Chairman Baucus and I were concerned by some of the stories 
we were hearing from hospitals, doctors, and others in the medical 
community. That hearing gave us insight into some of the problems 
audits pose for providers.

    Now we turn to an issue that is directly tied to those audits: 
Medicare appeals.

    I just returned from my home state of Utah, where Medicare issues 
remain a serious concern for my constituents. For the past two years, 
like many members here, I have heard about the terrible backlog of 
Medicare appeals.

    Before I move on to the appeals process in detail, I want to 
mention that improper Medicare payments continue to be a serious 
issue--and a big part of the reason that we're seeing such a backlog in 
appeals.

    Last month the GAO released a report on Government Efficiency and 
Effectiveness. The report found that, 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, was improperly 
paid, totaling over $1,000 in improper payments for every single 
Medicare beneficiary.

    These numbers are unacceptable. This error rate must be lowered to 
ensure the viability of the Medicare Trust Fund so that Medicare can 
continue serving beneficiaries for years to come.

    CMS has, of course, taken steps to identify and recover improper 
payments, including hiring contractors to conduct audits of the more 
than one billion claims submitted to the Medicare program every year. 
These auditors have recovered billions for the Medicare program--over 
$3 billion in 2013 alone. However, the increase in audits has led to a 
seemingly insurmountable increase in appeals, with a current backlog of 
over 500,000 cases, evidenced by this chart

    This increase in appeals has resulted in long delays for 
beneficiaries and providers alike. There are so many appeals that the 
Office of Medicare Hearings and Appeals can't even docket them for 20 
to 24 weeks. In FY 2009, most appeals were processed within 94 days. In 
FY 2015, it will take, on average, 547 days to process an appeal--far 
too long for beneficiaries to find out whether their medical services 
will be covered or for providers to find out if they will be paid.

    Additionally, large portions of the initial payment determinations 
are reversed on appeal. The HHS Office of Inspector General reported 
that, of the 41,000 appeals that providers made to Administrative Law 
Judges in FY 2010, over 60 percent were partially or fully favorable to 
the defendant.

    Such a high rate of reversals raises questions about how the 
initial decisions are being made and whether providers and 
beneficiaries are facing undue burdens on the front end. On the other 
hand, we need to recognize that ALJs have more flexibility in their 
decision-making than Medicare contractors do.

    During the July 2013 hearing, we expressed our hope that CMS would 
consider the balance between program integrity with administrative 
burden on providers. CMS has taken steps to show it is considering that 
balance. These steps include decreasing the burdens on providers, 
increased oversight of auditors, and more transparency in the programs.

    When any Medicare contractor--either an auditor or a contractor 
that processes claims--decides that a claim should not be paid, it has 
a real effect on beneficiaries and providers, which is why it is so 
important that the appeals process allow these appeals to be heard in a 
timely and consistent fashion.

    The Office of Medicare Hearings and Appeals has also taken steps to 
address its backlog, but there is only so much the agency can do with 
their current authorities and staffing.

    Senator Wyden and I, and the other members of this committee, are 
committed to finding ways to make the appeals process work more 
efficiently and effectively in order to ease the burden on 
beneficiaries and providers and to protect the Medicare Trust Fund.

    Today we have the opportunity to hear from those that are closest 
to the Medicare appeals process. I want to thank our witnesses for 
appearing today to help us understand the issues that they face in 
dealing with the large number of Medicare appeals. I look forward to 
hearing their perspectives on how that process might be changed to 
create a more efficient and level playing field.

                                 ______
                                 
     Prepared Statement of Thomas Naughton, Senior Vice President, 
                     MAXIMUS Federal Services, Inc.
                              introduction
I would like to thank Committee Chairman Senator Hatch, Ranking Member 
Senator Wyden, and honorable members of the Committee for providing 
MAXIMUS Federal Services the opportunity to discuss the Medicare appeal 
program and areas for potential efficiencies and enhancements to the 
program.

Since 1989 MAXIMUS Federal Services, Inc. (MAXIMUS Federal) and our 
affiliates have served as a Qualified Independent Contractor (QIC) for 
the Centers for Medicare and Medicaid Services (CMS). In this role we 
have completed more than two million Medicare appeals across all Parts 
of Medicare addressing all forms of Medicare benefit and payment 
disputes.

Throughout our partnership with CMS we served as the Part A East QIC 
(since 2005), the Part A West (from 2008 to 2015), the Part B South QIC 
(from 2005 to 2014), the Part C QIC (since 1989), the Part D QIC (since 
2006) and the Administrative QIC (since 2004).

Our QIC work is the hallmark of our largest market segment--Independent 
Benefit Appeals and Independent Medical Review. We are the largest 
provider of these services in the United States and currently serve 
more than 50 Federal and state clients.

MAXIMUS Federal Services is a wholly owned subsidiary of MAXIMUS, Inc. 
MAXIMUS, Inc. is a global government services organization, based in 
Reston, Virginia that provides services to Federal, State, and Local 
government entities. We have no contracts with any commercial entity 
including any health care payer or provider. We take pride in the fact 
that MAXIMUS has no direct or material in-direct conflict of interest 
in helping government serve the people. This independence is part of 
our mission and is also a statutory requirement for our QIC contracts 
and Medicaid contracts we administer throughout the United States.
              the qualified independent contractor program
Pursuant to 1869(a)(1) of the Social Security Act a qualified 
independent contractor (QIC) is defined as ``an entity or organization 
that is independent of any organization under contract with the 
Secretary that makes initial determinations.'' The organizations 
encompassed within the meaning of section 1869(a)(1) include, but are 
not limited to, Medicare Administrative Contractors (MACs), Zone 
Program Integrity Contractors (ZPICs), Recovery Audit Contractors 
(RACs), and/or Quality Improvement Organizations (QIOs).

The primary goals of the QIC program include:

u  Timely adjudication of reconsiderations and expedited 
        reconsiderations of initial determinations using established 
        protocols

u  Case management and documentation into the Medicare Appeals System 
        (MAS) (including document imaging)

u  Collection and transmission of information regarding the receipt and 
        disposition of reconsiderations and expedited reconsiderations 
        via the MAS

u  Integrated document imaging to produce a complete second level 
        electronic case file

u  Participation and coordination with other entities in the Medicare 
        appeals chain including CMS, the Administrative QIC (AdQIC), 
        ACs, the ALJ Hearing Offices, and the Departmental Appeals 
        Board (DAB)

CMS awards task orders to perform QIC work under an Indefinite 
Delivery/Indefinite Quantity (IDIQ) contract for QIC work based on 
established jurisdictions and/or claim type as follows:

u  Two QIC jurisdiction-based task orders (East and West) for Part A 
        appeals

u  Two QIC jurisdiction-based task orders (North and South) for Part B 
        appeals,

u  One QIC jurisdiction-based task order for DME appeals

u  One QIC task order for Part C appeals

u  One QIC task order for Part D appeals

In addition to these seven task orders, CMS awards one task order to 
perform administrative and data analysis tasks for Parts A, B, and DME 
of the QIC program, otherwise referred to as the Administrative QIC 
(AdQIC) task order.

At a very high level the process of an appeal is illustrated below.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


There is a five-level appeals process \1\ that affords providers, 
suppliers, beneficiaries, and other parties an opportunity to dispute 
initial payment decisions on Medicare claims. While some differences 
exist in processing and terminology based on the type of claim being 
appealed (Part A/B/durable medical equipment (DME), Part C, or Part D), 
the levels themselves are relatively consistent as described in the 
table below.
---------------------------------------------------------------------------
    \1\ 42 CFR Subpart 1, Sec.  405.
    \2\ The Part C IRE work is currently competed as a task order under 
the QIC Indefinite Delivery/Indefinite Quantity (IDIQ) contract.
    \3\ The Part C IRE work is currently competed as a task order under 
the QIC Indefinite Delivery/Indefinite Quantity (IDIQ) contract.

------------------------------------------------------------------------
                                  Medicare Fee-
                                   For-Service    Medicare     Medicare
          Appeal Level             (FFS) Claim     Part C       Part D
                                     Appeals      Appeals      Appeals
------------------------------------------------------------------------
Level One                         Redeterminat  Reconsidera  Redetermina
                                   ion by a      tion by      tion by
                                   Medicare      Health       Part D
                                   Administrat   Plan         Plan
                                   ive                        sponsor
                                   Contractor:
                                  An
                                   independent
                                   review of
                                   an initial
                                   determinati
                                   on of a
                                   Medicare
                                   fee-for-
                                   service
                                   (FFS)
                                   claim.
------------------------------------------------------------------------
Level Two                         Reconsiderat  Reconsidera  Reconsidera
                                   ion by a      tion by an   tion by an
                                   QIC:          Independen   IRE: \3\
                                                 t Review
                                                 Entity
                                                 (IRE): \2\
                                  An            An           An
                                   independent   independen   independen
                                   , on-the-     t review     t review
                                   record,       of a         of a
                                   review of     health       sponsor's
                                   an initial    plan's       adverse
                                   determinati   adverse      redetermin
                                   on,           reconsider   ation or
                                   including     ation or     an
                                   the           an           independen
                                   redetermina   independen   t review
                                   tion and      t review     when the
                                   all issues    when the     plan fails
                                   related to    health       to meet
                                   payment of    plan fails   the
                                   the claim.    to meet      adjudicato
                                                 the          ry
                                                 adjudicato   timeframes
                                                 ry           of an
                                                 timeframes   initial
                                                 for an       coverage
                                                 organizati   determinat
                                                 on           ion or
                                                 determinat   redetermin
                                                 ion or       ation
                                                 reconsider   request.
                                                 ation
                                                 request.
------------------------------------------------------------------------
Level Three                        Hearings before an Administrative Law
                                      Judge (ALJ) within the Office of
                                       Medicare Hearings and Appeals
                                    within the Department of Health and
                                              Human Services:
 
                                    Under FFS provisions, if a party is
                                         dissatisfied with a QIC's
                                         reconsideration or if the
                                     adjudication period for the QIC to
                                     complete the reconsiderations has
                                    elapsed, a party may request an ALJ
                                    hearing. Under Part C provisions, if
                                      any party to the reconsideration
                                        (except the Health Plan) is
                                        dissatisfied with the IRE's
                                     reconsideration determination, the
                                     party may request an ALJ hearing.
                                      Under Part D provisions, if the
                                   enrollee or enrollee's representative
                                         is dissatisfied with IRE's
                                     reconsideration, the enrollee may
                                          request an ALJ hearing.
 
                                    The amount in controversy (AIC) to
                                    appeal at the ALJ level for 2015 is
                                                 $1,504.\4\
------------------------------------------------------------------------
Level Four                        Review by the Medicare Appeals Council
                                   within the Departmental Appeals Board
                                   in the Department of Health and Human
                                                 Services:
 
                                    An on-the-record review of an ALJ's
                                                 decision.
------------------------------------------------------------------------
Level Five                          Judicial review in Federal District
                                                   Court:
 
                                    A review of the decision by Federal
                                    District Court. The AIC to appeal at
                                    the Federal District Court for 2015
                                                 is $1,460.
------------------------------------------------------------------------


Part A Qualified Independent Contractors (QIC)
MAXIMUS Federal Services has been the Part A East contractor since 
2005. Part A East reviews disputed claims from Part A providers, 
including disputes involving claims processed by MACs, RACs, QIOs, 
ZPICs, and PSCs.
---------------------------------------------------------------------------
    \4\ The AIC requirement for all ALJ hearings and Federal District 
Court reviews is adjusted annually in accordance with the medial care 
component of the Consumer Price Index. The table above reflects the 
calendar year 2015 AIC amounts.

Medicare Part A covers some of the costs of providing medically 
necessary inpatient hospital care, skilled nursing facility care 
following a hospital stay, home health care, and hospice care. 
Individuals entitled to Social Security or Railroad Retirement benefits 
are automatically entitled to Part A hospital insurance beginning with 
the first day of the month in which the individual attains the age of 
65. Those younger than age 65 who receives Social Security disability 
benefits and those with end-stage renal disease (ESRD) are also 
entitled to Part A. Individuals who worked in certain Medicare-
qualified federal, state, or local government employment may also 
---------------------------------------------------------------------------
qualify for coverage provided certain conditions are met.

Part A also provides CMS support in ALJ hearings through party and non-
party participation in a select number of hearings and through adhoc 
reporting.
Volume Challenges
MAXIMUS faced several issues that are directly related to the rapid, 
unprecedented volume that inundated us with appeals in spring and 
summer of 2013. We were faced with drastic increases in the appeal 
volumes that were not anticipated in the initial contract. These 
increases were so dramatic that they effectively constituted 
requirements far beyond any foreseeable expectation of performance 
under this contract. To provide some context, in February 2010, we 
received a total of 4,953 appeals. In February 2012, we received a 
total of 12,865 appeals, an increase of 159%. In February 2013, 1 year 
later, we received 45,520 appeals, which is an increase of 253% over 
2012 and 815% in the prior 2 year period.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

In order to respond to the increasingly high volumes of appeals, we 
established an approach to increase our staff and our contracted 
physician medical reviewer panel and by adding subcontractors. We built 
and implemented Expert Gateway (EG) to allow remote users to connect to 
our Virtual Desktop Infrastructure (VDI) server. The driving force 
behind using the VDI solution was data security. The VDI is a secure 
environment that is controlled by MAXIMUS. Users cannot save data 
locally or copy, paste, or print data. All data is processed, saved, 
and archived on our VDI server.

In addition to adding staff and improving technology to address the 
increased volume we evolved our work processes. Such process changes 
included developing specialized teams to address specific case types 
allowing them to become Subject Matter Experts in their case types. 
This approach allowed us to be more agile with our responsiveness to 
volume fluctuations as we are able to rapidly increase the number of 
available clinicians. Using increased staff, new technology and 
improved processes, MAXIMUS Federal Services was able to resolve the 
backlog that began in Spring of 2013 as of September 2013.
Part B South Qualified Independent Contractors (QIC)
MAXIMUS Federal Services, through its wholly owned subsidiary Q2 
Administrators, has been the Part B South contractor since 2006. Part B 
South reviews disputed claims from Part B providers, including disputes 
involving claims processed by MACs, RACs, ZPICs, and PSCs.

Medicare Part B covers some of the costs of receiving medically 
necessary services from physicians and other health care providers. 
Part B also covers some of the costs of medically necessary outpatient 
care, durable medical equipment, transportation, home health care, and 
some preventive services.

Part B also provides CMS support in ALJ hearings through party and non-
party participation in a select number of hearings and through adhoc 
reporting.
Part C Qualified Independent Contractor (QIC)
MAXIMUS has been the sole Part C contractor since 1989 (the contract 
was originally held by a firm which MAXIMUS acquired). We address 
expedited pre-service cases (72-hour turnaround), standard pre-service 
cases (30-day turnaround) and standard retrospective claim payment 
cases (60-day turnaround) from various types of Medicare Advantage 
plans.

We review appeals for denials related to all services covered by 
Medicare Parts A and B: inpatient hospital, skilled nursing facility, 
hospice, and home health care and services; services from doctors and 
other health care providers, outpatient care, durable medical 
equipment; and some preventive services. In addition, most plans also 
include extra (``supplemental'') benefits and services such as routine 
dental care, eyewear, or fitness programs. In addition to medical 
necessity issues, we also review cost-sharing, ``lock-in,'' and health 
plan dismissals. Most appeals are submitted by Medicare beneficiaries 
and non-contract providers, both physicians and facilities.
Part D Qualified Independent Contractors (QIC)
The Part D QIC provides independent reconsideration of denials 
affecting Medicare beneficiaries. We have adjusted our staff and 
resources as necessary over the years to accommodate the fluctuations 
in both drug and Late Enrollment Penalty (LEP) appeals. MAXIMUS has 
been the only contractor in Part D since the inception of the program. 
We review prescription drug denials from MAPDs and PDPs. We process 
both Redeterminations and Reopenings for issues in dispute which 
include formulary and tiering exceptions, prior authorization and other 
utilization management issues, medical necessity, off-label usage, and 
cost sharing. We review Late Enrollment (LEP) appeals as well.
The Administrative QIC (AdQIC)
MAXIMUS, through our wholly owned subsidiary Q2Administrators, has been 
the AdQIC since 2004. Under the AdQIC task, we provide administrative 
processes associated with Fee-for-Service (FFS) QICs. We develop, 
deliver, and update standard work protocols and training curriculums; 
produce Joint Operating Agreement (JOA) templates between the QICs and 
outside contractors; analyze data to identify appeals trends and spot 
improvement opportunities; analyze ALJ decisions for possible 
Departmental Appeals Board (DAB) review; manage document imaging; 
retain and store case files; and prepare draft CMS reports to Congress 
about the appeals processes. We support appeal statistics and 
programmatic support, the Office of General Council, and DOJ with case 
files for pending litigation.
Five Year QIC Volumes


                                                                     QIC Part A East
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                        Year Received                         Dismissed  Escalated  Favorable  Misrouted  Partially  Unfavorable    Percent   Overturned
                                                                                                          Favorable               Overturned     (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................      2,758                 3,965        150      2,316      55,099        10.2%        9.8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................................      3,641                 6,942        162      3,069      58,813        14.5%       13.8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................................      4,624        620     23,572        108      2,900     183,247        12.6%       12.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................................      8,190        990     43,965        357      6,999     306,687        14.2%       13.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................................................      2,985         13     36,999        278      3,524     187,570        17.8%       17.5%
--------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                     QIC Part A West
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                        Year Received                         Dismissed  Escalated  Favorable  Misrouted  Partially  Unfavorable    Percent   Overturned
                                                                                                          Favorable               Overturned     (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................      1,251                 1,763        243      1,671      15,082        18.5%       17.2%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................................      1,401                 3,298        115        908      24,610        14.6%       13.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................................      2,224        525     16,258         75      1,134      79,532        17.9%       17.5%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................................      4,328        584     37,377        177        846     149,923        20.3%       19.8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................................................      1,657         12     26,595        206      2,318      85,074        25.4%       25.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                    QIC Part B South
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                       Year Received                        Dismissed  Favorable  Misrouted  Partially  Unfavorable                 Percent   Overturned
                                                                                             Favorable                            Overturned     (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
 2010.....................................................     14,227     37,912        436     22,617      68,455                     46.9%       42.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011......................................................     12,185     34,679        414     27,032      68,986                     47.2%       43.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012......................................................     29,801     55,397        492     32,291     101,589                     46.3%       39.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013......................................................     20,016     45,670        548     31,779      81,658                     48.7%       43.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014......................................................     14,356     38,268        397     28,162      76,978                     46.3%       42.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                       QIC Part C
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Partly
                                                               Dismiss    Overturn   Overturn    Uphold    Withdraw                 Percent     Percent
                        Year Received                           Appeal      MCO        MCO        MCO       Appeal                Overturned  Overturned
                                                                           Denial     Denial     Denial                                          (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................     27,623      5,996        962     25,737      2,218                    21.3%       11.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................................     36,117      4,677        675     24,671      2,458                    17.8%        7.8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................................     73,848      4,829        730     27,725      2,592                    16.7%        5.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................................     82,936      3,956        338     28,029      4,084                    13.3%        3.6%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................................................     10,605      3,412        306     30,048      2,411                    11.0%        7.9%
--------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                    QIC Part D--Drug
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Fully    Partially                                                 Percent
                         Year Received                           Dismiss    Reverse    Reverse     Remand     Uphold    Withdraw    Percent   Overturned
                                                                  Appeal      Plan       Plan     to Plan      Plan      Appeal   Overturned     (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010..........................................................      6,438      5,654        219          1      6,572         75       47.2%       31.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011..........................................................      5,036      3,372        200          7      5,107         30       41.2%       26.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012..........................................................      5,836      2,105        119          8      6,018         46       27.0%       15.7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013..........................................................      5,127      4,091        210        144     14,108         36       23.4%       18.1%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014..........................................................      5,923      3,731        291         60     12,666         21       24.1%       17.7%
--------------------------------------------------------------------------------------------------------------------------------------------------------



                                                                     QIC Part D--LEP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                Percent
                        Year Received                          Dismiss     Fully    Partially    Uphold    Withdraw                 Percent   Overturned
                                                                          Reverse    Reverse                                      Overturned     (All)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................      8,137     17,152      1,713      7,931        320                    70.4%       53.5%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................................      9,158     15,134      1,813      9,638         53                    63.7%       47.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................................      7,025     17,469      2,190     10,521         51                    65.1%       52.8%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................................      7,926     17,228      2,142     11,186         55                    63.4%       50.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014........................................................      9,368     20,688      2,565     13,558         49                    63.2%       50.3%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent Overturned excludes Dismissed, Withdrawn, Escalated, Misrouted, Remanded Dispositions in the denominator.
Percent Overturned (All) includes all Dispositions in the denominator.

                   quality assurance in our qic work
Our QA Department regularly and continuously selects a random sample of 
appeals in progress for each staff member. We recognize the importance 
of monitoring the quality of all aspects of an appeal, from the 
accuracy of the decision itself to the rationale used to arrive at the 
decision to the data recorded in the MAS. We draw a statistically valid 
sample of appeals from the previous month that exceeds the USOW minimum 
requirement of 50 decisions per month. This sample includes at least 
one decision per adjudicator per month. Sampling at this level allows 
for the evaluation of each staff member as well as the overall project 
performance. We review the validity of the decision, parties to the 
appeal, handling of requests for information, quality of the medical 
review, rationale supporting the decision, quality of the decision 
letter, and accuracy of the Medicare Appeal System (MAS) data. The 
results of the quality reviews and in-line structured audits are 
recorded and measured to identify trends or weaknesses in the process.

In addition to our internal QA processes each of our QIC programs is 
evaluated annually by CMS's outside independent Evaluation and 
Oversight contractor, Optimal Solutions.

Based upon our most recently reported audit by Optimal Solutions on our 
Part A East project, CMS rated MAXIMUS very good for quality of 
product. Under this audit CMS conducted a review of the quality of the 
QIC activities and overall compliance with the Statement of Work (SOW) 
requirements under this contract including review of more than 70 
appeal case files. Through this quality review, CMS found that 95% (57 
of the 60) of the standard and expedited reconsiderations reviewed were 
accurate, and 90% (70 of the 78) of the total cases reviewed met all of 
the remaining contractual requirements for overall timeliness of 
activities, quality of decision letters and/or case file organization 
in accordance with the SOW. Similarly for our Part A West project CMS 
rated us very good for quality of product finding 98.0% (59/60) of the 
standard and expedited reconsiderations reviewed were accurate and 
92.0% (59/64) of the total cases reviewed met all of the remaining 
contractual requirements for overall timeliness of activities, quality 
of decision letters and/or case file organization in accordance with 
the SOW.

For our Part B South project CMS rated MAXIMUS very good for quality of 
product. CMS found that 97% (58 out of 60) of the reconsiderations 
reviewed were accurate and 90% (63 out of 70) of the total cases 
reviewed met all of the remaining contractual requirements for quality 
decision letters and/or case file organization in accordance with the 
SOW.

For our Part C project CMS found MAXIMUS exceptional for quality of 
product indicating agreement with 98% of the reviewed decisions. For 
the AdQIC project CMS rated MAXIMUS exceptional for quality of product 
finding 98% (112/114) of the cases sampled without error. The results 
or our most recent Part D audit have yet to be released.
                     efficiencies and enhancements
CMS continually works diligently with all stakeholders in the audit and 
appeals process to improve the efficiency and effectiveness of the 
programs. Examples of recent CMS enhancements to the program include:

u  Support of electronic records. Medicare Administrative Contractors 
        are permitted to send case file records via secure electronic 
        delivery system which ensures faster, cheaper and more 
        efficient transfer of information. CMS is providing 
        organization support to MFS creation of portal to receive 
        appeal requests/information from appellants and Level 1 
        entities.

u  MACs' use of the Medicare Appeal System (MAS). This permits first 
        level reviewers to utilize MAS to record pertinent case file 
        information and allow QIC access to case file used by MAC.

u  Adjusting Appointment of Representation (AOR) requirements for 
        treating providers in Part C appeals permitting greater access 
        to appeal process for enrollees.

In addition to the above we believe the following efficiencies and 
enhancements could assist overall program performance and satisfaction.

u  Institute auto-escalation of Part D appeals. In Medicare Managed 
        Care (Part C), beneficiary appeals are automatically escalated 
        to the QIC after a Level 1 denial. However, with the exception 
        of when a Part D plan misses its processing time frame, the 
        beneficiary, or the prescriber on behalf of the beneficiary, is 
        required complete an appeal request for Level 2 (IRE) Part D 
        appeals. We believe this is a significant barrier for 
        beneficiaries and is one of the likely reasons for the lower 
        volume of Part D appeals. Allowing auto-escalation of Part D 
        appeals to the IRE when the plan issues a redetermination 
        denial would eliminate the burden on beneficiaries and their 
        prescribers to take affirmative action, under tight deadlines, 
        to continue the appeals process.

u  Initiate coordination with Part D plans, enrollees and past 
        employers to assist in addressing Part D Late Enrollment 
        Penalties (LEPs). A reason for the high volume of LEP appeals 
        is that at the time of joining a Part D plan, it is not 100% 
        established whether a new member to the plan has had prior 
        creditable coverage. This often leads to an LEP being assessed. 
        Through the appropriate facilitation of communication between 
        the new member, the entity proving prior coverage, if any, and 
        the Part D plan, we believe an accurate creditable coverage 
        determination can be made immediately upon enrollment, 
        resulting in many fewer LEP appeals.

u  Administratively establish a RAC/Audit Contractor only QIC in 
        conjunction with administrative RAC (AdRAC) responsibilities. 
        Along with processing RAC/Audit Contractor appeals the RAC QIC 
        would provide support services to providers as well as a system 
        to allow providers information on case status and other case 
        related information including a customer services center and 
        portal to provide stakeholders access to case status and other 
        case processing information. Similar to the specialized teams 
        we created to address the increase in volume we believe a RAC/
        Audit Contractor only QIC would ensure the most consistency for 
        the program as well as a centralized resource to assist with 
        program oversight and provider education.

u  Create a RAC/Audit Contractor only ALJ unit while providing ALJs 
        appropriate subject matter support such as nurses, physicians, 
        certified coding specialists to assist ALJs in making 
        determinations. We believe this will assist in ensuring 
        consistent decisions and provide resources to significantly 
        reduce existing backlog in a timely manner.

u  In lieu of providing ALJ SME support, allow QICs to participate in a 
        greater percentage of hearings. QIC hearing participation 
        generally results in a significantly lower overturn rate at the 
        ALJ level and provides appropriate subject matter expertise at 
        the hearing.

u  Have ALJ cases wherein a provider appellant submits new evidence 
        remanded to the QIC for re-review. This will ensure the 
        complete record is reviewed and will assist in reducing ALJ 
        volumes.

u  Change Audit Contractor pricing to a per case review as opposed to 
        contingency pricing.

u  Continue transition to fully electronic communication and access to 
        case files between all appeal levels. Fully electronic 
        communication and access to a case will provide the program 
        significant time and cost efficiencies while ensuring access to 
        the complete case file. Currently, QICs are required to provide 
        ALJs with paper case files, even though the QICs most likely 
        received the case as electronic records. This means we are 
        receiving electronic records and printing; organizing; 
        packaging; shipping the files. Then ALJ must unpackage, 
        organize, store, and retrieve paper files as opposed to placing 
        electronic files in an electronic folder.

u  Enhance the Scope of Work of the AdQIC making it responsible for the 
        consistent and uniform application of all Medicare policies 
        that relate to reviewing provider and supplier claims for 
        medical necessity.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
WASHINGTON--Senate Finance Committee Ranking Member Ron Wyden, D-Ore., 
today made the following statement at a Senate Finance Committee 
hearing examining the Medicare's appeals process:

    Since the days when I was director of the Oregon Gray Panthers, 
seniors and their providers have been frustrated by what they 
considered to be the arbitrary nature of the appeals process. Back 
then, everybody was in the dark. Nobody knew what the rules were. There 
were no deadlines.

    Since the days when I was director of the Oregon Gray Panthers, 
seniors and their providers have told me how frustrating it is to work 
with the arbitrary nature of the appeals process. Back then, everybody 
was in the dark. Nobody knew what the rules were. There were no 
deadlines.

    Some of those problems have been addressed. But today, the system 
is still broken and there are new problems to confront. Today, the 
backlog of cases is so enormous that the door to new appeals is closed; 
new cases are no longer being heard. Nobody is immune. Certainly not 
Oregon, where the problem of clogged appeals is sadly real and is 
something I hear about from frustrated seniors and providers alike.

    The Committee will hear a lot of statistics and big numbers today 
that illustrate the point. An important one is this: the number of 
cases sent to the Office of Medicare Hearings and Appeals has soared 
from 60,000 in fiscal year 2011 to 654,000 claims in fiscal year 2013. 
That's an astonishing 10-fold jump in only two years.

    One number that hasn't changed, however, is the number of hearing 
officers handling cases. Today, approximately 60 hearing officers are 
available to consider these cases, just as it was back in 2011. It's no 
wonder that the appeals system is buckling under its own weight and 
that the average time to process a claim is now 560 days.

    Those are important reference points. But the most important fact 
is, that amid the blizzard of numbers and statistics, each case is the 
story of an actual person. Every case. Every time.

    Let's not forget stories like the late Stephen Lessler. Like many 
seniors, he had hip surgery and in 2013 he went to a nursing home for 
rehabilitation. About one month into his rehabilitation, Mr. Lessler 
was notified that his coverage under Medicare Advantage would soon 
stop. Encouraged by the progress he was making, he ultimately decided 
to pay out-of-pocket for another week. He also appealed the denial to 
Medicare.

    The process was lengthy and arduous. After losing earlier appeals, 
Mr. Lessler requested a hearing before an administrative law judge in 
December of 2013. Not until August of 2014--277 days later--did he 
actually receive his hearing. Eventually Mr. Lessler did receive a 
favorable ruling--on Sept. 24, 2014. Unfortunately, he passed away the 
day before, Sept. 23, 2014. He was 92 years old.

    We have a duty to ensure that seniors receive the care they are 
rightfully entitled to receive under Medicare. We also have an equal 
duty as custodians of taxpayer dollars to ensure those dollars are 
spent in the best possible manner. To balance both these goals we need 
some fresh thinking.

    One idea is to allow less complicated and contested cases to be 
handled by a different set of hearing officers so that they can be 
processed more quickly. That will leave the more complicated and 
difficult cases to administrative law judges. Another idea is to 
establish a refundable filing fee to prevent providers who are gaming 
the system from crowding out people whose cases need to be heard.

    I want today's witnesses to offer ideas for reforming Medicare's 
appeal process. I want to hear from the witnesses their thoughts on 
solving this problem. We need to squeeze every drop of efficiency out 
of our current system, but with a 10-fold increase in the number of 
cases, it's clear that additional resources are needed too. We need to 
reduce the time it takes for an appeal to make its way through the 
system. And finally, we need to prevent appeals from even happening by 
getting it right the first time.

    Mr. Chairman, all of these issues need to be addressed. I thank you 
for calling this hearing today and I look forward to the testimony and 
positive changes it will bring for all those who rely on Medicare.

                                 ______
                                 

                             Communications

                              ----------                              


         American Occupational Therapy Association, Inc. (AOTA)

             4720 Montgomery Lane, Bethesda, MD 20814-1220

            301-652-2682  301-652-7711 fax  800-377-8555 TDD

                              www.aota.org

                              May 12, 2015

Chairman Orrin G. Hatch             Ranking Member Ron Wyden
Senate Committee on Finance         Senate Committee on Finance
219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
Washington, DC 20510                Washington, DC 20510

Dear Chairman Hatch and Ranking Member Wyden,

Mr. Chairman, Ranking Member, and distinguished members of the Senate 
Finance Committee, the American Occupational Therapy Association (AOTA) 
is pleased to submit, for the record, a statement per the hearing on 
April 28, entitled ``Creating a More Efficient and Level Playing Field: 
Audit and Appeals Issues in Medicare.''

AOTA is the national professional association representing the 
interests of more than 185,000 occupational therapy practitioners and 
students. The practice of occupational therapy is science-driven, 
evidence-based, and enables people of all ages to live life to its 
fullest by promoting health and minimizing the functional effects of 
illness, injury, and disability. Occupational therapy practitioners and 
their patients are greatly impacted by Medicare rules and payment 
policies. With that in mind, AOTA appreciates the opportunity to voice 
its concerns over the audit and appeals process in Medicare.

As you may be aware, Section 3005 of the Middle Class Tax Relief and 
Job Creation Act of 2012 established a new review process for 
outpatient therapy claims, where claims over a threshold amount of 
$3,700 were made subject to manual medical review. The requirement was 
initially approved for 2012, and has been extended through 2017, most 
recently with the passage of the Medicare Access and CHIP 
Reauthorization Act in April of 2015.

Providers are encountering enormous challenges with respect to the 
medical review process, including major delays, overly burdensome 
documentation requests (ADRs), insufficient rationale for denials, and 
delays due to significant backlogs in the appeal process. As a result, 
beneficiary access to medically necessary outpatient therapy is being 
threatened. Increasingly, we hear that patients are stopping or 
interrupting therapy prematurely, a trend that will undoubtedly 
increase the chances of more costly health episodes and 
rehospitalization.

AOTA continues to be concerned with the appeals backlog and its impact 
on occupational therapy practitioners, hospitals, and post-acute care 
facilities that provide critical, medically necessary therapy services 
to Medicare beneficiaries. When the Centers for Medicare and Medicaid 
Services (CMS) suspended the ability of Recovery Auditor Contractors 
(RACs) to request documents for claims review until completion of the 
procurement process for new RAC contracts on February 18, 2014, CMS 
assured health care providers that the pause in additional 
documentation requests (ADRs) would permit CMS to wind down current RAC 
contracts and allow the RACs to finish any outstanding claims reviews. 
To date, AOTA has seen no evidence that the outstanding claims have 
been resolved, leaving significant numbers of health care providers in 
limbo for well over one year.

Further, CMS stated that the suspension would help efforts to improve 
the RAC program and review ADR processes, including limits, time frames 
and communications between Recovery Auditors and providers. Appeals 
processes in all areas on the legal, regulatory and legislative systems 
are subject to fair and specific time frames for review, yet CMS has 
been granted an exception from any such rules. The livelihood of 
occupational therapy practitioners and other providers of Medicare 
services are being threatened by this exception.

AOTA urges Congress to act to require CMS to resolve outstanding 
Medicare provider claims in an equitable and efficient manner. The 
recently passed Medicare Access and CHIP Reauthorization (MACRA) Act 
(Public Law No: 114-10) includes changes to the outpatient therapy 
services manual medical review process and appears to provide 
flexibility to CMS as it pertains to reviewing claims above the $3,700 
threshold by enacting a ``targeted'' review process. AOTA is hopeful 
that the provision s contained in Public Law No: 114-10 will, in fact, 
improve the current process for outpatient therapy medical manual 
review by (1) reducing the Medicare appeals backlog and (2) identifying 
true bad actors that are improperly providing therapy services that are 
not medically necessary.

AOTA appreciates the opportunity to provide this comment to Congress as 
it contemplates methods for easing the Medicare appeals backlog. Please 
contact me at [email protected], if we can be of any future assistance.

Sincerely,

Tim Casey
Director of Federal Affairs
American Occupational Therapy Association, Inc.

                                 ______
                                 
             National Association for Home Care and Hospice

    Representing the Nation's Home Health Agencies, Home Care Aide 
                      Organizations, and Hospices

              228 Seventh Street, SE, Washington, DC 20003

                    202-547-7424  202-547-3540 fax

Denise Schrader, RN, MSN, NEA-BC                    Val J. 
Halamandaris, JD
Chairman of the Board                                  President

                             April 28, 2015

    The National Association for Home Care and Hospice (NAHC) is the 
leading association representing the interests of the home care and 
hospice community since 1982. Our members are providers of all sizes 
and types from the small, rural home health agencies to the large 
national companies, including government-based providers, nonprofit 
voluntary home health agencies and hospices, privately owned companies, 
and public corporations. NAHC has worked constructively and 
productively with Congress and the regulators for three decades, 
offering useful solutions to strengthen the home health and hospice 
programs.

    As the Senate Finance Committee conducts a hearing on ``Creating a 
More Efficient and Level Playing Field: Audit and Appeals Issues in 
Medicare,'' NAHC appreciates this opportunity to provide our views. We 
agree with the Chairman and Ranking Member that when Medicare 
contractors deny claims, the adverse effect on beneficiaries and 
providers makes it so important that Medicare appeals be heard in a 
timely and consistent fashion.

    As you know, under Medicare law a decision must be issued by a 
Medicare Administrative Law Judge (ALJ) within 90 days following the 
filing of the appeal by the Medicare beneficiary or provider. However, 
the appeal system is irreparably backlogged with nearly 900,000 appeals 
pending review before a handful of ALJs. With stepped up claims reviews 
in all provider sectors in Medicare, the number of appeals has 
increased exponentially. Despite efforts by the Office of Medicare 
Hearings and Appeals (OMHA) to expand the number of ALJs and achieve 
greater efficiencies in processing appeals, with 14,000 new appeals 
filed every week, a decision on any current ALJ appeal is years away.

    Alternative remedies must be considered as a means to reduce 
erroneous claim denials and resulting appeals. NAHC recommends the 
following:

    1.  CMS should take all necessary steps to improve the quality and 
accuracy of initial claim determinations to limit the need for an 
administrative appeal;

    2.  CMS should monitor its contractors that handle early-stage 
administrative appeals to ensure a high degree of accuracy and to 
reduce the number of appeals that end up before an ALJ;

    3.  CMS should provide a settlement option to all appellants with 
claims pending before an ALJ in order to reduce the backlog. That 
settlement should be based on historical data on ALJ reversal rates and 
the cost savings achieved by Medicare coming through the avoidance of 
an ALJ appeal; and

    4.  OMHA should increase its resources to handle the level of 
demand and establish alternative dispute resolution processes to 
resolve some appeals.

    NAHC wishes to thank the Committee for its leadership in addressing 
this urgent issue. We are open and available to the Committee to help 
in any way we can to resolve the Medicare appeals backlog.

                                 ______
                                 
                  The Orthotic and Prosthetic Alliance

                      1501M Street, NW., 7th Floor

                          Washington, DC 20005

                          Phone: 202-466-6550

                           Fax: 202-785-1756

                      Email: [email protected]

                             April 28, 2015

Chairman Hatch, Ranking Member Wyden, and Members of the Committee:

    On behalf of the Orthotic and Prosthetic (``O&P'') Alliance, a 
coalition of the leading national organizations representing the 
orthotic and prosthetic profession, thank you for the opportunity to 
submit testimony for the written record with respect to the hearing 
entitled, ``Creating a More Efficient and Level Playing Field: Audit 
and Appeals Issues in Medicare,'' held by the Committee on April 28, 
2015.

    The five groups listed below on this letterhead comprise the O&P 
Alliance and represent the scientific, research, professional, 
business, and quality improvement aspects of the field. Collectively, 
the Alliance represents over 13,000 O&P professionals and 3,575 
accredited O&P facilities. The O&P Alliance advocates for federal and 
state policies that improve the practice and quality of orthotic and 
prosthetic care and maximize access to these services provided to 
patients in need of artificial limbs and orthotic braces. The 
Alliance's priorities include ensuring patients receive services from 
appropriately trained, educated, and credentialed practitioners, and 
promoting fair and equitable coverage and reimbursement policies, 
including fair and equitable audit and appeals procedures.

    As the Committee considers recommendations for improving the 
Medicare auditing system as well as the extreme backlog and resulting 
delay in Administrative Law Judge (``ALJ'') hearings under the Medicare 
appeals process, we would like to express our concerns about certain 
proposals and our support for others. In addition, we wish to call your 
attention to bipartisan legislation introduced by Senator Grassley and 
Senator Warner to improve the Medicare audit and appeals process for 
O&P providers and patients.

    Entitled the Medicare Orthotics and Prosthetics Improvement Act of 
2015 (S. 829/H.R. 1530), the bill would, among other things, link 
Medicare billing privileges with the level of education and training of 
the O&P provider or supplier. This legislation would implement long-
overdue federal regulations that would significantly prevent fraud and 
abuse in this area while improving the quality of patient care. We 
discuss this legislation in depth later in this written testimony.
                               background
    Like many provider groups, O&P practitioners have experienced 
extensive auditing of Medicare claims over the past several years 
initiated by all Medicare contractors, especially Recovery Auditors 
(commonly known as ``RACs'' or ``RAs''). The impetus for this activity 
in the O&P context stems largely from the publication of an HHS Office 
of Inspector General (OIG) report in 2011 entitled, Questionable 
Billing by Suppliers of Lower Limb Prostheses (OEI-02-10-00170). 
However, this report seriously overstated the extent of improper O&P 
claims based on a highly technical reading of required documentation to 
support a claim.

    Based primarily on this report, CMS changed its documentation 
standard, without public notice and comment, for O&P claims, stating in 
an open letter to Medicare physicians, ``It is the treating physician's 
records, not the prosthetist's, which are used to justify payment,'' 
and applying this new policy retroactively to challenge claims filed up 
to 2 years (back to August 2009) before the change was announced. This 
``Dear Physician'' letter was interpreted by Medicare contractors and 
Administrative Law Judges to mean that the clinical records of the 
prosthetist were largely irrelevant and were not even considered part 
of the medical record of the patient.

    As a result, the OIG (in subsequent reports) and Medicare 
contractors began denying rafts of prosthetic limb claims because they 
were ignoring the detailed clinical notes of prosthetists and solely 
basing the medical necessity of the claim on the notes created by the 
physician alone. Many physicians rely on the prosthetist as an integral 
part of the rehabilitation team to recommend appropriate prosthetic 
care and do not routinely record extensive documentation in their 
notes. Over the past several years, denials stemming from this 
situation have caused tremendous financial strain on prosthetic and 
orthotic providers, large and small, with numerous facilities closing 
their doors or reducing capacity to serve Medicare beneficiaries. This 
has also had a chilling effect on prosthetic prescriptions; whereby, 
Medicare beneficiaries are simply not getting access to the most 
functional and appropriate prosthetic technologies available to them. 
Therefore, limiting the beneficiary activity level in this way may 
increase the risk of comorbidity.
                     discussion of recommendations
    In attempting to address the severe backlog of ALJ hearing 
requests, a number of recommendations have been proposed, including the 
creation of refundable, per-claim filing fees and remanding appeals 
when new evidence is submitted. There has also been discussion of 
changes to the way in which recovery auditors are paid. We would like 
to address each of these points individually.
Refundable Filing Fees
    It has been recommended by a number of the witnesses at this 
hearing that one way to reduce the volume of hearing requests would be 
to institute a per-claim, refundable filing fee. Such filing fees would 
be refundable if the appellant prevailed on its appeal. The 
acknowledged aim of instituting such filing fees is not to speed up the 
hearing process or otherwise address the root causes of the appeals 
backlog but rather to simply discourage providers and suppliers from 
appealing denied claims. Thus, the true purpose of such filing fees is 
to erect additional financial barriers between potential appellants and 
their right to due process. For this reason, the O&P Alliance urges 
Congress not to implement this provision in future Medicare audit and 
appeals legislation.

    Furthermore, making filing fees refundable is not an adequate step 
to mitigate the harm done to the potential appellant's rights. The 
reason so many providers and suppliers appeal is because of the 
significant financial harm they experience when Medicare claims are 
denied and the funds are recouped. At the point where an appellant 
reaches the ALJ hearing level, the reimbursement due for the claim has 
either never been paid (in the case of pre-payment denials) or has been 
recouped. With the lengthy delay in securing an ALJ hearing and 
decision, the financial strain is compounded. Adding further to this 
financial strain by requiring payment of a filing fee could be a 
significant deterrent for providers and suppliers to pursue their 
rights to appeal, especially smaller entities without the financial 
resources to withstand the loss of significant income from Medicare 
claims.

    The institution of filing fees will have a disproportionately 
negative effect on those providers and suppliers that are most impacted 
by Recovery Auditors and other audits. It has been noted that a large 
portion of ALJ hearing requests are submitted by a relatively small 
number of providers and suppliers. If these data are accurate, we do 
not believe that this reflects bad actors ``gaming'' the appeals 
system. Rather, we believe this reflects the impact of focused and 
potentially discriminatory auditing by the RAs and other contractors. 
As noted previously, the O&P community has itself been a major target 
for such concentrated auditing. We believe that the targeted auditing 
carried out by the RAs has created the circumstances that lead 
particular providers and suppliers to appeal large numbers of claim 
denials.

    We also believe that the concentration of appeals amongst a 
relatively small number of providers and suppliers reflects the 
economic realities of the audit and appeals process as a whole. 
Providers and suppliers must dedicate additional resources to 
addressing audits as a matter of course. But the draw on resources 
becomes quite burdensome when dealing with targeted audits, such as 
those initiated by the RAs. And, even before the ALJ hearing backlog 
exploded, it takes a certain amount of resources--administrative and 
financial--to pursue appeals of claim denials. Now, with the backlog, 
the draw on provider and supplier resources during the appeals process 
is enormous. Not all providers and suppliers are equipped to handle 
such a drain, and many opt to forgo claim appeals past a certain point 
or altogether.

    Just as not all providers are equal in their available resources, 
not all claims are equal in the potential benefit to be gained from 
appealing. Providers and suppliers must engage in careful cost-benefit 
analysis when determining whether and how far to appeal many claims to 
avoid wasting precious resources. Thus, depending on the type of claims 
audited, certain providers and suppliers will have greater resources 
for and impetus to pursue appeals. Far from exhibiting any sort of 
underhanded or abusive behavior by health care entities, this pattern 
more likely reflects that legitimate providers with multiple denials 
are exercising their due process rights to appeal for a more objective 
determination before an ALJ.
Remand of Appeals When New Evidence Is Submitted
    Several witnesses at the hearing recommended remand of appeals when 
new evidence is submitted at the ALJ hearing. While this approach could 
be workable when new evidence is submitted without good cause, it 
becomes impractical and entirely punitive when applied where good cause 
for the submission of new evidence does exist.

    First, under the current appeals instructions issued by the Office 
of Medicare Hearings and Appeals (``OMHA'') and in light of the extreme 
ALJ hearing backlog, remanding appeals is completely unworkable. At 
this time, appellants are instructed by OMHA to hold off on submitting 
any additional evidence until their appeals are assigned to an ALJ. 
This policy makes sense as it is only the ALJs who may make a 
determination as to whether good cause for accepting the new evidence 
exists. However, if an appellant is to wait 28 months (or more) to have 
an ALJ assigned, then wait to receive a ruling on the good cause of the 
submission, only to be sent back to the Qualified Independent 
Contractor (``QIC'') or even the Medicare Administrative Contractor 
(``MAC'') once good cause is determined to exist, the process 
completely breaks down.

    Under such a system, the appellant, who has established good cause 
for failing to previously submit the new evidence, is bounced from the 
critical ALJ hearing it has waited years to schedule, only to restart 
the process all over from the end of the backlog. The alternative, of 
course, is to pressure the provider into proceeding with the ALJ 
hearing without the admission of relevant evidence that was not 
previously available for good reasons, prejudicing the outcome of the 
provider's appeal.

    In addition, a system requiring remand of appeals with new evidence 
ignores the realities of the appeals process which allows QICs to issue 
claims denials for reasons wholly unrelated to any rationale for 
denying the claim provided by the lower-level contractor (i.e., the 
MAC). We believe this routine practice by the QIC negates the value of 
the multi-level appeals process, instead creating one new hurdle after 
another for providers and suppliers. We believe this practice is a 
major factor in creating a virtually useless set of lower-level 
appeals, feeding the delay at the ALJ level. By preventing an appellant 
from introducing new evidence at the ALJ hearing to address reasons for 
denial raised for the first time by the QIC without risking being sent 
back to a lower level of appeal, this proposal will only exacerbate the 
impact of this inequitable practice and unfairly punish providers and 
patients seeking due process.
Payment of Contingency Fees
    While the O&P Alliance has serious concerns about the utility and 
equity of some of the proposals that are the subject of this hearing, 
we strongly share the concerns raised by the witnesses and members of 
the committee about the payment of contingency fees to the Recovery 
Auditors. As acknowledged by the witnesses, the recovery auditors' 
auditing activity has been a major driving force in creating the ALJ 
appeals backlog. The simple addition of the RAs as a new auditing 
entity in 2010 is not what has caused the backlog, however. Instead, 
the financial incentive (i.e., contingency fees) that the RAs have to 
deny as many Medicare claims as possible is the driving factor in 
generating the volume of appeals currently choking the administrative 
appeals system.

    The RAs have significant financial motivation to deny even those 
claims that may be overturned on appeal, taking a chance that the 
provider or supplier will opt not to appeal or will otherwise make an 
error in the appeals process that compromises the chance of prevailing. 
Therefore, the O&P Alliance strongly supports a legislative change that 
would eliminate the contingency-based payment system for the Recovery 
Auditors.
       medicare orthotics and prosthetics improvement act of 2015
    In addition to the proposals discussed at the hearing, legislation 
has been proposed to alleviate some of the problems that exist with 
respect to the audit and appeals process. With respect to O&P services 
specifically, the Centers for Medicare and Medicaid Services (``CMS'') 
could take several additional steps to curtail payment of inappropriate 
O&P claims, without the need for post-payment auditing and any 
accompanying appeals. CMS has failed to implement claims edits related 
to qualified practitioners and suppliers of custom orthotics and 
prosthetics that were mandated by Section 427 of the Beneficiary 
Improvements and Protection Act of 2000 (``BIPA'').

    CMS has not implemented regulations for this section of the federal 
law for the past 15 years, since passage of BIPA in the year 2000. The 
Medicare Orthotics and Prosthetics Improvement Act of 2015 (S. 829) 
directs CMS to finally issue these regulations. The O&P Alliance 
encourages Congress to enact this legislation and compel CMS to finally 
implement this federal law. Linking Medicare billing privileges to the 
qualifications of the O&P practitioner--as BIPA Section 427 clearly did 
and S. 829 clearly does--will not only curtail overpayments for custom 
orthotics and prosthetics but will improve the quality of patient care 
provided to Medicare beneficiaries.

    The legislation also clarifies that O&P practitioners' notes are 
considered to be part of the medical record. This provision will serve 
to halt many of the incorrect claim denials issued by the RAs and 
Durable Medical Equipment (``DME'') MACs \1\ on the basis of an 
erroneous understanding of what constitutes the patient's medical 
record. Many of the O&P claims currently pending appeal stem from this 
misunderstanding, and statutory clarification could serve to eliminate 
a high volume of future appeals on the same basis.
---------------------------------------------------------------------------
    \1\ DME MACs are the lower level contractors responsible for 
processing DME and O&P claims, similar to the general MACs with respect 
to hospital and physician claims.

    S. 829 contains two additional provisions, both of which are 
significant. First, the bill creates a separate section of the 
regulations that distinguishes the Medicare rules applicable to durable 
medical equipment suppliers from those applicable to orthotic and 
prosthetic providers. Too often CMS applies regulations designed to 
address DME problems to O&P providers in a manner that is inappropriate 
considering the very different services provided by orthotists and 
prosthetists. This bill will enable CMS to distinguish and separately 
treat O&P and DME in a manner that will benefit patients and the 
---------------------------------------------------------------------------
providers who serve them.

    Second, the bill seeks to clarify Congressional intent with respect 
to ``off-the-shelf'' (OTS) orthotics. Most orthotics--except for OTS 
orthotics--and all prosthetics are exempt from Medicare competitive 
bidding. CMS has inappropriately defined off-the-shelf orthotics 
expansively by misinterpreting the term ``minimal self-adjustment.'' 
Contrary to limiting OTS orthotics to those devices that only require 
minimal self-adjustment, as the statute requires, CMS has stated in 
regulation that orthoses that can be adjusted by the beneficiary, 
caretaker, or certain suppliers qualify as ``off-the-shelf.'' This is a 
facially-invalid interpretation of this term and could lead to the 
elimination of clinical services being provided with a wide swath of 
orthoses that require appropriate fitting by a qualified provider in 
order to function properly.
                               conclusion
    The O&P Alliance believes that many of the modifications to the 
Medicare audit and appeals process discussed during this hearing are 
little more than additional barriers designed to discourage legitimate 
providers from pursuing their right to appeal claim denials. Contrary 
to the name of this hearing, we believe provisions such as refundable 
filing fees and remand of appeals when new evidence is submitted do not 
level the playing field, but only make it steeper for providers to 
obtain due process.

    However, there is one major exception. The O&P Alliance strongly 
supports the elimination of contingency fee payments to Recovery 
Auditors which create powerful financial incentives to deny Medicare 
claims. The O&P Alliance also supports the specific provisions in the 
Medicare Orthotics and Prosthetics Improvement Act, S. 829, and urges 
the committee to pass this legislation. This bill is designed to 
implement long-overdue regulations to reduce fraud and abuse and 
improve the quality of O&P patient care, while recognizing the 
professionalism and clinical care provided to Medicare beneficiaries by 
orthotists and prosthetists.

    Thank you for the opportunity to submit this statement for the 
written record.

          Submitted on May 12, 2015 by Peter W. Thomas, J.D. 
  ([email protected]; 202-466-6550), Counsel to the Orthotic and 
                          Prosthetic Alliance.

_______________________________________________________________________

         American Academy of Orthotists and Prosthetists (AAOP)

    American Board for Certification in Orthotics, Prosthetics, and 
                         Pedorthics, Inc. (ABC)

          American Orthotic and Prosthetic Association (AOPA)

       Board of Certification/Accreditation, International (BOC)

 National Association for the Advancement of Orthotics and Prosthetics 
                                (NAAOP)

                                   [all]