    Medicare Appeals: Disparity between Requirements and Responsible
    Agencies' Capabilities (29-SEP-03, GAO-03-841).

    Appellants and others have been concerned about the length of
    time it takes for a decision on the appeal of a denied Medicare
    claim. In December 2000, the Medicare, Medicaid, and SCHIP
    Benefits Improvement and Protection Act of 2000 (BIPA), required,
    among other things, shorter decision time frames. BIPA's
    provisions related to Medicare appeals were to be applied to
    claims denied after October 1, 2002, but many of the changes have
    not yet been implemented. GAO was asked to evaluate whether the
    current Medicare appeals process is operating consistent with
    BIPA's requirements and to identify any barriers to meeting the
    law's requirements.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-841
        ACCNO:   A08602
      TITLE:     Medicare Appeals: Disparity between Requirements and
    Responsible Agencies' Capabilities
         DATE:   09/29/2003
      SUBJECT:   Claims processing
    	     Health care programs
    	     Insurance claims
    	     Interagency relations
    	     Medical expense claims
    	     Medical information systems
    	     Noncompliance
    	     Decision making
    	     Managed health care
    	     Program coordination
    	     Timeliness
    	     Medicare Program

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    GAO-03-841

    United States General Accounting Office

    GAO

    Report to the Committee on Energy and

                           Commerce, House of Representatives

    September 2003

    MEDICARE APPEALS

         Disparity between Requirements and Responsible Agencies' Capabilities

    GAO-03-841

    Highlights of GAO-03-841, a report to the Committee on Energy and
    Commerce, House of Representatives

    Appellants and others have been concerned about the length of time it
    takes for a decision on the appeal of a denied Medicare claim. In December
    2000, the Medicare, Medicaid, and SCHIP Benefits Improvement and
    Protection Act of 2000 (BIPA), required, among other things, shorter
    decision time frames. BIPA's provisions related to Medicare appeals were
    to be applied to claims denied after October 1, 2002, but many of the
    changes have not yet been implemented. GAO was asked to evaluate whether
    the current Medicare appeals process is operating consistent with BIPA's
    requirements and to identify any barriers to meeting the law's
    requirements.

    GAO recommends that the Secretary of HHS and the Commissioner of SSA more
    closely coordinate their efforts to improve administrative processing,
    develop strategies for reducing the backlog of pending cases, and
    establish data requirements to facilitate the successful implementation of
    BIPA's mandated changes. HHS and SSA agreed that inefficiencies in the
    appeals process require attention and that the process would benefit from
    better coordination.

    www.gao.gov/cgi-bin/getrpt?GAO-03-841.

    To view the full product, including the scope and methodology, click on
    the link above. For more information, contact Leslie G. Aronovitz at (312)
    220-7600.

    September 2003

    MEDICARE APPEALS

    Disparity between Requirements and Responsible Agencies' Capabilities

    BIPA demands a level of performance, especially regarding timeliness, that
    the appeals bodies-the contract insurance carriers responsible for the
    first two levels of appeals, the Social Security Administration's (SSA)
    Office of Hearings and Appeals (OHA), and the Department of Health and
    Human Services (HHS) Medicare Appeals Council (MAC)-have not demonstrated
    they can meet. While the carriers have generally met their pre-BIPA time
    requirements, in fiscal year 2001, they completed only 43 percent of first
    level appeals within BIPA's 30-day time frame. In addition to average
    processing times more than four times longer than that required by BIPA,
    OHA and the MAC-the two highest levels of appeal-have accumulated sizable
    backlogs of unresolved cases. Delays in administrative processing due to
    inefficiencies and incompatibility of their data systems constitute 70
    percent of the time spent processing appeals at the OHA and MAC levels.

    Average Time Spent in Each Stage of Processing for Cases Adjudicated by
    OHA and the MAC in Fiscal Year 2001

    Sources: OHA and the MAC.

    The appeals bodies are housed in two different agencies-HHS and SSA. The
    lack of a single entity to set priorities and address operational
    problems-such as incompatible data and administrative systems-at all four
    levels of the process has precluded successful management of the appeals
    system as a whole. Uncertainty about funding and a possible transfer of
    OHA's Medicare appeals workload from OHA to HHS has also complicated the
    appeals bodies' ability to adequately plan for the future.

    Contents

      Letter

    Results in Brief
    Background
    Appeals Process Operations Inconsistent with BIPA's

    Requirements Appeals Bodies' Lack of Coordination and Resources Is a
    Barrier to

    BIPA Implementation Conclusions Recommendations for Executive Action
    Agency Comments and Our Evaluation

                                           1

                                          2 3

                                           9

    14 20 21 21

    Appendix I Scope and Methodology

    Appendix II 	The Scope of Part B Claims Rejections, Denials, and Appeals

    Appendix III Changes Mandated by Section 521 of BIPA

    Appendix IV 	Comments from the Department of Health and Human Services

    Appendix V Comments from the Social Security Administration

      Appendix VI GAO Contact and Staff Acknowledgments 45

    GAO Contact 45 Acknowledgments 45

      Tables

    Table 1: Reason for Denials of Initial Medicare Part B Claims in
    Fiscal Year 2001 29
    Table 2: Growth in Part B Appeals Cases Submitted by Appeal
    Level from Fiscal Year 1996 through Fiscal Year 2001 30

      Figures

    Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-
    Mandated Appeals Process 6

    Figure 2: Average Time Spent in Each Stage of Processing for
    Cases Adjudicated by OHA and the MAC in Fiscal Year
    2001 12

    Abbreviations

    ALJ administrative law judge
    BIPA The Medicare, Medicaid, and SCHIP Benefits Improvement

    and Protection Act of 2000 CMS Centers for Medicare & Medicaid Services
    CROWD Contractor Reporting of Operational and Workload Data DAB
    Departmental Appeals Board HCFA Health Care Financing Administration HHS
    Department of Health and Human Services LCD local coverage determination
    LMRP local medical review policy MAC Medicare Appeals Council MOU
    memorandum of understanding NCD national coverage determination OHA Office
    of Hearings and Appeals QIC qualified independent contractor SOW statement
    of work SSA Social Security Administration

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States General Accounting Office Washington, DC 20548

    September 29, 2003

    The Honorable W.J. "Billy" Tauzin
    Chairman
    The Honorable John D. Dingell
    Ranking Minority Member
    Committee on Energy and Commerce
    House of Representatives

    In fiscal year 2002, Medicare-the nation's largest health insurer-paid
    over $200 billion to provide medical care to 40 million elderly and
    disabled
    beneficiaries. The Centers for Medicare & Medicaid Services (CMS),1 an
    agency within the Department of Health and Human Services (HHS),
    administers the Medicare program with the help of about 50 claims
    administration contractors. Among other things, CMS is charged with
    protecting the program by identifying and denying health care claims that
    are invalid, incomplete, or otherwise appear to be improper. Beneficiaries
    and providers2 may pursue the payment of denied claims through a
    multilevel administrative appeals process. The entities-or appeals
    bodies-that constitute the process include the Social Security
    Administration (SSA) and HHS's Departmental Appeals Board (DAB), in
    addition to CMS. In fiscal year 2001, 3.7 million Part B3 appeals were
    submitted to the first level in the process.

    In recent years, there has been widespread concern about the length of
    time it takes the appeals bodies to render decisions. In December 2000,
    the
    Congress enacted the Medicare, Medicaid, and SCHIP Benefits
    Improvement and Protection Act of 2000 (BIPA). Section 521 of BIPA
    amended section 1869 of the Social Security Act by mandating shorter

    1On June 14, 2001, the Secretary of Health and Human Services announced
    that the name of the Health Care Financing Administration (HCFA) had been
    changed to the Centers for Medicare & Medicaid Services. In this report,
    we will refer to HCFA where our findings apply to operations that took
    place under that organizational structure and name.

    2For the purposes of this report, the term "provider" refers to any
    nonbeneficiary appellant, including physicians and other suppliers.

    3Medicare fee-for-service consists of two parts-A and B. Part A claims
    cover inpatient hospital, skilled nursing facility, hospice, and certain
    home health services. Part B claims cover physician services, diagnostic
    tests, and related services and supplies.

    time frames and expedited procedures for processing Medicare appeals.4 It
    also added the requirement that the Secretary of HHS report on the number
    of appealed claims and consistency of appeals decisions. The provisions
    were to be applied to claims denied on or after October 1, 2002.

    Concerned about the appeals bodies' ability to implement BIPA's
    provisions, you asked that we conduct an assessment of the Medicare
    appeals process. Specifically, we examined whether (1) the current appeals
    process is operating consistent with BIPA's requirements and (2) there are
    any barriers in meeting the law's requirements.

    Because the majority of appeals are related to the denial of Part B
    claims, we limited our work to assessing the appeals process for these
    claims. We reviewed statutes, regulations, policies, and other
    documentation related to the four levels of the administrative appeals
    process, including Part B carriers,5 which conduct the first two levels of
    appeal; the Office of Hearings and Appeals (OHA) within SSA, which hears
    the third level of appeals; and the Medicare Appeals Council (MAC) within
    HHS's DAB, which reviews OHA's decisions. To assess the conditions present
    at the time BIPA was passed, we analyzed fiscal year 2001 appeals
    processing data. We subsequently reviewed more current data and confirmed
    that the conditions were relatively unchanged. We interviewed officials
    from CMS, OHA, and the MAC to discuss the management of the appeals
    process and the implementation of BIPA requirements. We conducted our work
    from November 2001 through September 2003, in accordance with generally
    accepted government auditing standards. (See app. I for more information
    on our scope and methodology.)

    Results in Brief 	The appeals bodies are not currently performing at the
    level that would enable them to meet BIPA's more rigorous timeliness
    requirements. Their performance is far from meeting BIPA requirements with
    the two higher levels of appeal taking, on average, more than four times
    the amount of time BIPA requires to complete an appeal. In addition, both
    OHA and the MAC face large backlogs of pending appeals because they have
    been unable to routinely resolve all of the appeals that they receive.
    Long-

    4Pub. L. No. 106-554, app. F, 114 Stat. 2763, 2763A-534 (codified at 42
    U.S.C. S: 1395ff (2000)).

    5Medicare contractors that process Part A claims are called fiscal
    intermediaries, while those that process Part B claims are called
    carriers.

    standing administrative problems among the appeals bodies, such as
    time-consuming transfers of paper appeals files and delays caused by
    outdated technology, which account for about 70 percent of the time spent
    in processing appeals at OHA and the MAC, have not been corrected. BIPA's
    provision allowing appellants the right to bypass appeals bodies that do
    not resolve their appeals within prescribed time frames by elevating them
    to the next level may only shift processing delays to the higher appeals
    bodies. The combined effect of these factors has prevented the appeals
    bodies from attaining the level of performance BIPA demands.

    The appeals bodies face several barriers to the successful implementation
    of BIPA. Because appeals bodies are housed in different agencies, the
    coordination among them is inherently difficult. Each agency has its own
    priorities and, although officials from the appeals bodies worked together
    to develop a proposed rule for the implementation of BIPA, they have not
    coordinated their BIPA implementation strategy. The lack of adequate data
    to pinpoint weaknesses in the appeals process and enable informed
    decision-making has further hindered BIPA's implementation. And, although
    some of the appeals bodies are planning to obtain or have implemented new
    data management systems, they have not coordinated with their counterparts
    to ensure compatibility of the systems across agencies. Uncertainty about
    funding and a possible transfer of the OHA's Medicare appeals workload
    from OHA to HHS has also complicated the appeals bodies' ability to
    adequately plan for the future.

    We are recommending that the Secretary of HHS and the Commissioner of SSA
    more closely coordinate their efforts to improve administrative
    processing, develop strategies for reducing the backlog of pending cases,
    and establish data requirements to facilitate the successful
    implementation of BIPA's mandated changes. HHS and SSA agreed that
    inefficiencies in the appeals process require attention and that the
    process would benefit from better coordination.

    Background 	Providers and beneficiaries may appeal any denied claim.
    Claims are denied for a variety of reasons. In fiscal year 2001, the most
    common reason for denying claims was that the services provided were
    determined not to have been medically necessary for the beneficiaries.
    Other reasons for denials include that Medicare did not cover the
    services, or that the beneficiary was not eligible for services. Claims
    that do not meet the

    requirements outlined in Medicare statutes and federal regulations may be
    denied.6 In addition, denials may be issued for claims that are
    inconsistent with CMS's national coverage determinations (NCD) and
    carrier-based policies, including local medical review policies (LMRP),
    local coverage determinations (LCD), and other carrier instructions.7
    Relatively few denied claims are ever appealed, and only a small fraction
    is appealed to the highest level. (App. II contains more information
    regarding the denial of claims, including common reasons for denials.)

    The Medicare Part B appeals process consists of four levels of
    administrative appeals performed by three appeals bodies. Medicare
    carriers are responsible for the first two levels of appeal-the carrier
    review8 and the carrier hearing. Through a memorandum of understanding
    (MOU) implemented in March 1995-when SSA was separated from HHS and became
    an independent agency-OHA's administrative law judges (ALJ) within SSA
    continue to hear the third level of appeal. OHA's continued role in
    Medicare appeals is uncertain, as SSA officials have indicated that they
    plan to discontinue adjudicating Medicare appeals and expect to transfer
    the workload to HHS. However, until an agreement between SSA and HHS is
    reached, OHA will continue to adjudicate Medicare appeals. The MAC
    adjudicates appeals at the fourth level of the administrative appeals
    process. In addition, appellants who have had their appeals denied at all
    four levels of the administrative appeals process have the option of
    filing their appeals in federal court.

    Section 521 of BIPA requires numerous administrative and structural
    changes to the appeals process, including moving the second level of
    appeals-the carrier hearing-from the Medicare carriers to a group of

    6The Medicare program is governed by title XVIII of the Social Security
    Act, 42 U.S.C. S:S: 1395 et seq. (2000), and related regulations, 42
    C.F.R. pts. 400-425 (2002).

    7NCDs are developed by CMS to describe the circumstances for Medicare
    coverage for a specific medical service, procedure, or device. All
    Medicare carriers must observe NCDs in determining if a claim is payable;
    appeals bodies at all levels must apply NCDs when adjudicating appeals.
    LMRPs and LCDs, developed by contractors, specify the clinical
    circumstances under which a service is covered to enhance or clarify
    national Medicare guidance. Due to carrier-based policies, services
    covered by Medicare in one area may not be covered in another area served
    by a different carrier. For more information on Medicare coverage policy,
    see U.S. General Accounting Office, Medicare: Divided Authority for
    Policies on Coverage of Procedures and Devices Results in Inequities,
    GAO-03-175 (Washington, D.C.: Apr. 11, 2003).

    8BIPA refers to the carrier review level as the "redetermination."

    yet-to-be-established contractors, known as qualified independent
    contractors (QIC). Figure 1 outlines the steps of the existing appeals
    process and the process BIPA requires. BIPA's changes to the appeals
    process were to apply with respect to initial determinations-that is,
    claims denials-made on or after October 1, 2002. Although CMS published a
    rule9 on October 7, 2002, the ruling implemented only two of BIPA's
    provisions-revising the deadline for filing an appeal to the carrier
    review level and reducing the dollar threshold for filing an appeal at the
    OHA level. The October 7th rule outlines the criteria used to select the
    changes that would be immediately implemented; among the criteria is that
    the provision can be implemented using existing CMS resources. CMS
    published a proposed rule for complete implementation of BIPA-mandated
    changes on November 15, 2002,10 but the final rule has not been issued. As
    of June 2003, the appeals process is generally operating in accordance
    with regulations established prior to BIPA's passage. (See app. III for a
    comprehensive list of BIPA's changes.)

    967 Fed. Reg. 62,478. 1067 Fed. Reg. 69,312.

      Figure 1: Levels and Time Frames for the Pre-BIPA and BIPA-Mandated Appeals
                                        Process

                   Sources: CMS, BIPA, and 20 CFR 422.210 S: (2002).

    Beneficiaries and providers have the right to appeal denied claims if
    appeals are filed within the deadline. CMS's October 2002 ruling
    implemented the BIPA-mandated deadline for filing an appeal at the

    carrier review level, shortening it from 180 to 120 days-one of two BIPA
    provisions implemented thus far. Appeals at the carrier hearing level must
    be submitted within 180 days of the denial or unfavorable determination.
    Appellants who are dissatisfied with decisions reached at the carrier
    hearing level may appeal to OHA and then to the MAC, and their appeals
    must be filed within 60 days of receiving an unfavorable determination at
    the previous level.

    There is no dollar minimum required to file an appeal at the carrier
    review level. However, an appeal at the carrier hearing and OHA levels
    must meet specific dollar thresholds of $100 and $500, respectively. To
    meet the thresholds, multiple denied claims may be aggregated into a
    single appeals "case." The MAC does not have a dollar threshold for
    considering appeals. Finally, appellants who receive unfavorable
    determinations from the MAC may appeal the decisions in federal court if
    the amount in dispute is at least $1,000. BIPA provisions change the
    threshold amounts at the second level of appeal and OHA. When QICs replace
    carrier hearings as the second level of appeal, the dollar threshold for
    submitting an appeal at that level will be eliminated. Further, CMS's
    October 2002 ruling implemented BIPA's reduced dollar threshold for filing
    an appeal at OHA-the second of two BIPA provisions to be implemented thus
    far-by dropping the threshold from $500 to $100.

    BIPA also shortened the time frames the appeals bodies have for
    adjudicating appeals at the first two levels and established time frames
    for the first time at the higher levels. BIPA's provisions that revise the
    timelines for processing appeals have not been implemented, and the
    appeals bodies are following previously issued performance standards
    specifying that 95 percent of carrier reviews be completed within 45 days
    and 90 percent of carrier hearings be completed within 120 days. BIPA
    required that carrier reviews be completed in 30 days and that the QICs
    issue their decisions in 30 days. While OHA and the MAC have not
    previously been bound by time limits, BIPA required that they issue
    decisions within 90 days of the date an appeal was filed.11 BIPA also gave
    appellants the right to escalate their appeals to the next level in the
    process for adjudication when a decision is not issued within the
    specified time frame. Escalation is available from any level of appeal
    except the first-carrier review. However, CMS's November 2002 proposed
    rule regarding BIPA's implementation provides that appellants who escalate

    11OHA and MAC time limits may be waived at the appellant's request.

    their appeals to the next level will, in essence, be waiving their right
    to a decision within the statutory time frame governing that level. For
    example, an appeal that is escalated from the OHA to the MAC would not be
    subject to the 90-day limit that applies to appeals received by the MAC
    that have not been escalated.

    The first three levels of appeal share a protocol for adjudication, called
    de novo review, which permits adjudicators to consider results from
    earlier decisions but requires them to independently evaluate evidence and
    issue original decisions. The appeals bodies reexamine the initial claim
    to determine if it should be paid and consider any new documentation or
    information supporting the claim that the appellant submitted. The fourth
    level of review, the MAC, does not share this protocol. Rather than
    performing de novo review of evidence, it evaluates the appropriateness of
    OHA decisions and considers whether new evidence submitted will alter the
    decision. BIPA changes require that the MAC performs de novo review in all
    cases.

    The appeals bodies reach decisions through either a review of the file for
    the initial claim or through hearings. At the first level of appeal, a
    carrier review officer who was not involved in the initial denial
    reexamines the initial claim and any new supporting documentation provided
    by the appellant but does not conduct a hearing. The second level of
    appeal-the carrier hearing-provides the appellant with an opportunity to
    participate in a hearing at the carrier's facility or by telephone. OHA
    conducts hearings at the third level of review. OHA's hearings are held at
    its central office in Falls Church, Virginia, or at one of its 140 local
    hearing offices nationwide. The MAC's adjudication is based on a review of
    OHA's decisions, and it does not conduct hearings.

    Appeals bodies have several options when deciding a case. The case may be
    decided fully or partially in favor of the appellant and payment awarded
    for all or part of the claim or claims in dispute. Alternatively, the
    decision may be unfavorable to the appellant and the initial denial of
    payment upheld. The MAC has an additional option of remanding the appeal-
    returning it to the OHA judge who issued the original decision-for a
    variety of reasons. For example, the MAC may determine that more evidence
    is needed, additional action by OHA is warranted, or that OHA should issue
    a modified decision based on the MAC's instructions. Finally, the MAC may
    deny an appellant's request for review if it finds that OHA's decision is
    factually and legally adequate.

    In making a determination regarding whether the claim is payable or will
    continue to be denied, the first two levels of appeal are bound by the
    same guidance used in the initial denial determination-Medicare statutes,
    federal regulations, CMS's NCDs, the carrier's own LMRPs and LCDs, and,
    pursuant to carrier's contracts with CMS, CMS's general instructions, such
    as manuals and program memoranda. The statutes, regulations, and NCDs also
    bind OHA and the MAC-and the QICs, when they are established. But QICs,
    OHA, and the MAC only need to consider-rather than definitively follow-the
    carrier-based LMRPs and LCDs in rendering their decisions.

    Management of the Medicare appeals process is currently divided among CMS,
    SSA, and the MAC. CMS is charged with establishing procedures for carriers
    to follow in considering appeals-including developing guidelines for
    timeliness and quality of communications with the appellant-and is also
    responsible for ensuring that the carrier review and carrier hearing
    processes comply with statutory and regulatory requirements. SSA
    establishes its own requirements and procedures, with input from CMS, for
    OHA's review of third-level appeals. CMS reimburses OHA for its appeals
    work. The MAC independently establishes its own procedures and guidelines
    for completing Medicare appeals.

    Carriers generally meet CMS's existing time frames for processing appeals,
    but all appeals bodies-the carriers, OHA, and the MAC-fall far short of
    meeting BIPA's time frames. The large backlog of pending cases at OHA and
    the MAC, combined with BIPA's escalation provision and the requirement for
    de novo review at the MAC, will demand a level of performance that the
    appeals bodies have not demonstrated they can meet. Administrative delays,
    caused by inefficiencies such as difficulties in transferring and locating
    files and outdated technology, constitute a large portion of time spent in
    the appeals process-especially at OHA and the MAC. QICs have not yet been
    implemented and there is insufficient information to predict their ability
    to meet BIPA's performance measures.

      Appeals Process Operations Inconsistent with BIPA's Requirements

    Appeals Bodies' Current There is a substantial gap between carriers'
    current performance and that Performance Is Far from required by BIPA's
    standards. For example, at the first level of appeals- Meeting BIPA's
    Timeliness the carrier review-while carriers completed about 91 percent of
    their Standards reviews within CMS's current 45-day time frame, this is
    insufficient by

    BIPA's standards. Only about 43 percent of the carrier reviews completed
    in fiscal year 2001 met BIPA's mandated 30-day deadline. At the carrier
    hearing level-eventually to be replaced by the appeals to the QICs-the

    ability to meet BIPA's time frames remains largely unanswered because the
    QICs have not yet been established. Although the carriers exceeded CMS's
    performance standards in fiscal year 2001 by completing more than 90
    percent of the carrier hearings within 120 days, this standard is much
    less stringent than the one imposed by BIPA, which requires the QICs to
    complete all appeals within 30 days.

    Similarly, OHA and the MAC fall far short of BIPA's required 90-day time
    frame for completing 100 percent of their cases. For example, in fiscal
    year 2001, OHA took an average of 14 months from the date an appeal was
    filed to complete adjudication. The MAC took even longer to process
    appeals during the same year, with cases taking an average of 21 months to
    adjudicate. As of September 2003, OHA and the MAC had not implemented
    BIPA-mandated time frames and continued to operate without time frames for
    rendering decisions. Although officials at both appeals bodies told us
    that they are concerned with meeting BIPA time frames, neither body has
    developed strategies for doing so. Instead, the officials stated that they
    would take action once regulations implementing BIPA are finalized and
    they are more certain how the new regulations will affect them.

    Existing backlogs of unprocessed cases may also interfere with the appeals
    bodies' compliance with BIPA's mandated time frames for appeals of claims
    denied after October 2002. While backlogs at the carrier review and
    carrier hearing levels are relatively small,12 OHA and the MAC have been
    unable to meet workload demands. For example, OHA's backlog at the end of
    fiscal year 2001 included nearly 35,000 Part B cases-equal to about the
    average number of cases processed in 7 months. At the end of that same
    year, the MAC had a backlog of 15,000 cases-twice the number of cases it
    adjudicated in 2001. The MAC has been making strides to improve its
    efficiency and, near the end of fiscal year 2003, reported reducing its
    backlog to 10,100 cases. According to OHA and MAC representatives,
    BIPA-governed cases-appeals of claims denied after October 1, 2002-will
    have higher priority than cases filed earlier, virtually ensuring that
    pre-BIPA cases experience even longer delays. However, as of July 2003,
    none of the appeals bodies had determined how they would prioritize the
    processing of BIPA appeals while completing their pre-BIPA workloads.

    12At the end of fiscal year 2001, the backlog of cases past their pre-BIPA
    deadline at both the carrier review and carrier hearing levels was about
    the average number carriers process in a single month.

    At OHA, protocols for assigning appeals to ALJs may contribute to delays.
    Although OHA plays a critical role in resolving Medicare appeals, its
    primary focus is disability appeals for SSA, which constitute 85 percent
    of its total caseload. While they are a smaller workload, Medicare appeals
    are often more complex than disability appeals. Some local OHA hearing
    offices take advantage of their ALJs' Medicare expertise by assigning all
    Medicare cases to a single judge. However, other offices assign cases
    randomly, requiring judges to refamiliarize themselves with basic Medicare
    statutes each time they hear a Medicare case-potentially prolonging the
    process.

    While all of the appeals bodies are subject to BIPA's processing time
    frames, the MAC is uniquely challenged in meeting these deadlines because
    the requirement for de novo review expands the scope of the MAC's work.
    MAC officials pointed out that shifting from ensuring that OHA interprets
    policy correctly to becoming a fact-finding body requires a substantial
    amount of additional resources and more time to gather and evaluate
    evidence. MAC officials report that they do not have a strategy to address
    the expansion in the scope of their work and the contraction in time to
    render decisions.

        Delays in Administrative Processing at OHA and the MAC Further Suggest
        BIPA's Time Frames Will Not Be Met

    The bulk of time at OHA and the MAC is spent on assembling files and
    completing other administrative tasks rather than in performing legal
    analyses of appeals and adjudicating cases. Each agency takes more than a
    year, on average, to complete an appeal. For example, OHA spent 14 months,
    on average, to complete a case in fiscal year 200113 and an average of 10
    months of that was consumed obtaining case files from the lower level
    appeals bodies and performing related processing tasks. In that same year,
    the MAC adjudicated nearly 7,100 Part B cases and spent about 17 months,
    on average, performing administrative tasks. As shown in figure 2, on
    average, over 70 percent of the time to resolve OHA and MAC cases was
    spent on administrative activities, rather than on substantive legal
    analysis of the appeals.

    13OHA completed more than 56,300 Part B cases in fiscal year 2001.

    Figure 2: Average Time Spent in Each Stage of Processing for Cases
    Adjudicated by OHA and the MAC in Fiscal Year 2001

    Officials from both OHA and the MAC report that it may take months to
    receive appellants' case files from the previous level of review or the
    appropriate storage facility. Case files-which are all paper documents-
    are a critical component of the adjudication process as they contain all
    evidence submitted by the appellant in previous appeals. The MAC, in
    particular, requires OHA's case files to assess the evidence, the hearing
    tapes, and the letter of decision so that it may determine whether OHA's
    decision was appropriate.

    OHA and the MAC are dependent on the Medicare carriers to forward the
    appropriate files to their hearing offices for review. CMS allows carriers
    21 to 45 days to forward case files to OHA, depending on the number of
    appellants and dollar value of the case. However, locating files is
    further complicated by the fact that appellants are required to include
    little information in their appeal requests. Therefore, OHA and the MAC
    may receive appeals that do not identify the carrier that originally
    denied the claim. Locating files can also be hindered if the appeal has
    been in process for several years and the carrier that initially denied
    the claim is no longer a Medicare contractor. Although the defunct carrier
    should have transferred all of its files, including its appeals records,
    to the replacement carrier, such transitions are not always smooth.
    Instead, files are often difficult to locate, causing delays in forwarding
    specific requested cases.

    The MAC faces an additional challenge in locating case files.
    OHA-completed cases are routed to a special clearinghouse contractor for
    temporary storage. If OHA determines that the appellant is due a full or
    partial payment, the clearinghouse returns the files to the carrier that
    initially denied the claim so that payment may be processed. If OHA
    continues to deny payment, the clearinghouse holds the accompanying file
    for 120 days to expedite the MAC's retrieval should the appellant continue
    to appeal. However, the MAC may not know whether to approach the
    clearinghouse contractor or the relevant carrier to request needed files.
    And, like the carriers, the clearinghouse does not always provide files in
    a timely manner. In fiscal year 2001, the MAC waited an average of nearly
    3 months-the entire time allowed for the MAC to adjudicate appeals under
    the BIPA amendments-to receive case files. The MAC, which is empowered to
    remand, or return, cases to OHA when there is insufficient information in
    the existing record to issue a decision, in fiscal year 2001 remanded
    1,708 cases-nearly a quarter of the cases it adjudicated that year-to OHA
    because needed files were either missing or incomplete. Although CMS has
    not performed a comprehensive evaluation of the clearinghouse's accuracy
    in routing appeals files, it recently determined that the clearinghouse
    had a 10 percent error rate in routing case files to particular carriers
    for payment.

    Inadequate technology and the need for manual processing also indicate
    that the appeals bodies are not prepared to address BIPA's requirements.
    For example, providers often aggregate groups of claims for different
    beneficiaries to meet the dollar threshold for filing an OHA appeal. To
    maintain beneficiary confidentiality, a separate electronic
    file-containing the same provider information-is created for each
    beneficiary. While widely available technology allows the creation of
    multiple data files by

    entering the information one time and then quickly duplicating it, OHA's
    system requires administrative staff to separately enter repetitive
    information pertaining to each denied claim that constitutes the appeal.
    For example, if a provider is appealing a similar group of claims in a
    single appeal, OHA must nonetheless create a separate case file and data
    record for each beneficiary.

    BIPA provides that appellants may escalate their appeals from the QIC or
    OHA to the next level in the administrative appeals process when it is not
    resolved within the time frames mandated. MAC cases not meeting the time
    frame may be escalated to the federal district court. More than 95 percent
    of OHA appeals and about 85 percent of MAC appeals did not meet BIPA time
    frames in fiscal year 2001, suggesting that a number of cases would be
    eligible for escalation.14 However, escalation may not ensure that
    appellants secure timely adjudication. Escalated cases will lack
    comprehensive records because the prior level of appeal did not complete
    the cases and may not have the full collection of case documentation. OHA
    and MAC officials report that cases without complete records from earlier
    levels of appeal will require the next level to perform time-consuming
    research. The MAC may remand cases with incomplete files, causing
    additional time to be spent locating and transferring files between the
    appeals bodies.

    While appellants may view the consideration and resolution of their
    appeals as a single process, several separate and uncoordinated bodies are
    responsible for administering the various appeals levels. The appeals
    bodies have traditionally worked independently; however, close
    coordination is critical to successful planning for BIPA changes. Further,
    appeals bodies lack the management data to track cases and analyze case
    characteristics, preventing them from identifying barriers to efficiency-a
    first step in streamlining the process. Planning for BIPA implementation
    has also been hampered by (1) proposed regulations that have not been
    finalized, (2) the uncertainty of funding amounts for implementation, and
    (3) unresolved details regarding the possible transfer of OHA's appeals
    workload to HHS.

    14Since QICs have not yet been implemented, there are no data to assess
    whether any of their cases will be eligible for escalation.

      Appeals Bodies' Lack of Coordination and Resources Is a Barrier to BIPA
      Implementation

        Appeals Bodies Need Stronger Coordination to Successfully Implement BIPA's
        Requirements

    CMS, OHA, and the MAC-located within two federal agencies-are each
    responsible for administering a portion of the appeals process. However,
    neither the agencies nor the appeals bodies have the authority to manage
    the entire process. The appeals bodies focus primarily on their individual
    priorities, which may differ and complicate planning for making
    improvements to the process as a whole. Attempts to modernize the appeals
    process have been undermined when individual appeals bodies have
    identified opportunities for improvement, but have failed to sufficiently
    take into account the impact of their plans on the other bodies. For
    example, CMS issued a draft statement of work (SOW) outlining the
    expectations for QICs-the BIPA-mandated replacement for the workload of
    Medicare carriers at the second level of review, the carrier hearing. The
    draft SOW asks potential QIC applicants whether they have the capacity to
    convert paper case files into an electronic format, with the expectation
    that this would ease the transfer of needed files to the higher levels of
    appeals. However, CMS officials told us that they did not consult with OHA
    to ensure that it would have the capacity to use and store electronic
    files. OHA officials agree that electronic files offer an important
    opportunity to reduce lost files, speed transfers, and permit case
    tracking. However, OHA has focused its own plans to implement a system of
    electronic folders-scheduled for January 2004-exclusively on its SSA
    disability cases.

    Recent planning for BIPA implementation intensified the need for appeals
    bodies to work together because the demanding time requirements alone call
    for a more efficient appeals process. While officials from CMS, OHA, and
    the MAC worked together to develop the proposed rule for implementing the
    majority of BIPA's requirements, the agencies have not taken the
    opportunity to coordinate strategies to meet the time frames mandated by
    the act.

        Lack of Management Data Inhibits Appeals Bodies' Ability to Understand
        Barriers to Efficiency

    We found that the appeals bodies are not sufficiently coordinated to track
    an appealed claim, or group of claims, through all four levels of the
    process. This is attributable, in part, to the use of different numbering
    systems for case identification at each appeals body and the fact that the
    individual claims making up a "case" can change at every level. For
    example, appeals bodies often reconfigure cases to group claims with
    similar issues. Appellants also change the configuration of their cases by
    aggregating their claims to meet minimum dollar thresholds necessary to
    file an appeal at a given level. Case numbering is further complicated
    when a partially favorable decision is made. In these situations, some of
    the claims within the appeal are paid, while the remaining denied claims
    are

    eligible for further appeal by beneficiaries and providers and subject to
    further reconfiguration with new case numbers. Accordingly, assigning a
    variety of numbers to any particular claim or group of claims at each
    level of the process makes it virtually impossible to track an individual
    claim from one level to the next.

    Some problems with data quality are also a product of a lack of
    coordination between appeals bodies. CMS, OHA, and the MAC are making
    individual efforts to improve their data systems to better manage their
    caseloads, but their systems remain incompatible. For example, although
    CMS is gradually shifting its carriers to one common claims processing
    data system-also used to track appeals at the carrier level-it is not
    compatible with OHA's or the MAC's data systems. OHA has also initiated
    data system improvements, but did not consult with CMS in setting the
    parameters for new system requirements or provide CMS's appeals group with
    a copy of its planning document. The MAC does not know if the improvements
    it is instituting-such as its transition to more powerful data management
    software used to organize its caseload-will be compatible with OHA's,
    CMS's, or the carriers' systems. Compatible data systems would facilitate
    the transfer of case information between appeals levels and analyses of
    the process as a whole.

    Not only do appeals bodies have incompatible data systems, but data
    gathered individually by CMS from carriers and by OHA from local hearing
    offices are aggregated and not used to pinpoint problems and develop
    solutions to improve the appeals process. For example, CMS only collects
    workload data from its carriers in the form of monthly productivity
    totals. OHA collects aggregate data from each of its 140 hearing offices,
    despite the fact that the local offices are tracking individual cases. The
    aggregate numbers allow OHA and CMS to develop basic workload statistics,
    such as the number of cases they resolve and the average time frames for
    adjudication. However, the data do not allow CMS and OHA to perform more
    detailed analyses, such as isolating process steps that create a
    bottleneck or identifying specific cases that linger at an appeals level
    for unusually lengthy periods.

    The lack of specific data on case characteristics also limits the appeals
    bodies' understanding of the nature and types of appeals that they must
    resolve. For example, only the MAC collects data on the reason for the
    appeal, the type of denial being appealed, and the amount in controversy;
    however, the MAC is not consistent in ensuring that the information is
    routinely entered in the database. Furthermore, carriers do not collect
    data that allow CMS to distinguish if the appellant is a beneficiary or a

    provider, and none of the appeals bodies collects information on the rates
    of appeal among provider specialty groups. Analyses of case characteristic
    data could be valuable in identifying confusing or complex policies or
    requirements that lead to denied claims and the submission of appeals. The
    data would also be useful to the agencies in understanding the nature of
    denied claims that are appealed at each level and guiding more appropriate
    initial reviews of claims and educating providers about proper claim
    submission.

    BIPA mandated the use of QICs to replace the second appeals level and
    required them to develop management information through a data system that
    would identify (1) the types of claims that give rise to appeals, (2)
    issues that could benefit from provider education, and (3) situations that
    suggest the need for changes in national or local coverage policy. QICs
    must report their information to the Secretary of HHS and, among other
    things, must monitor appeals decisions to ensure consistency between
    similar appeals. However, the requirements do not affect data collection
    at the other appeals bodies. As a result, without corresponding changes at
    the other appeals bodies, it will remain difficult to evaluate the
    performance of the appeals process as a whole and make informed decisions
    affecting more than one appeals level. CMS stated that it plans to expand
    the QICs' data system to the third level of appeal-the ALJ-adjudicated
    level-and, eventually, to all levels of appeal. Until the compatible data
    systems are in place at all appeals bodies-which CMS plans for 2005-the
    appeals bodies will not be able to perform the most fundamental types of
    analyses to improve the management of the process.

        Uncertainties in Regulations, Funding, and the Role of OHA Hinder BIPA
        Implementation Planning

    While BIPA mandated several changes to the current appeals process, CMS,
    OHA and the MAC are charged with developing regulations for implementing
    BIPA's mandates in accordance with the Administrative Procedures Act.15 As
    of September 2003, guidance regarding two provisions-adjusted deadlines
    for appellants filing first-level appeals and reduced dollar thresholds
    required for filing appeals at OHA-have been issued. CMS officials stated
    that they expect that the proposed regulations16 implementing the
    remaining provisions of BIPA section 521

    15With limited exceptions, the Administrative Procedures Act requires
    agencies to publish proposed rules and provide an opportunity for the
    public to comment on them before they become effective. 5 U.S.C. S: 553(b)
    (2000).

    1667 Fed. Reg. 69,182 (Nov. 15, 2002).

    will be finalized by early 2004. The regulations, once finalized, will
    provide directions specifying how each body will operate. Without final
    regulations, officials from carriers, OHA, and the MAC said that they have
    had difficulty estimating what the actual effect on their workloads will
    be and, accordingly, have not made specific plans to comply with BIPA's
    mandates.

    Even after the regulations are finalized, several important issues will
    not have been resolved. For example, when it published its ruling on
    October 7, 2002, CMS acknowledged that transition issues from the current
    appeals process to the new process would require additional policy
    guidance prior to implementation. Specifically, questions will remain
    regarding the necessity of operating two separate appeals processes
    concurrently, dependent on the date of the initial claim determination.
    Appeals of claims denied before the effective date of the BIPA amendments
    are not governed by them, barring specific guidance to the contrary, and
    are subject to pre-BIPA guidelines and processes.

    No additional funding was provided to the appeals bodies in fiscal year
    2003 to implement BIPA's changes. Moreover, uncertainties exist about the
    funds available in fiscal year 2004. The first uncertainty concerns
    funding for HHS. The President's proposed budget for fiscal year 2004
    includes $126 million in funding for CMS to complete BIPA's changes-
    including establishing the QICs, developing the QIC data systems, and
    implementing the shortened time frames at the first and second appeals
    levels-as well as assuming the workload currently performed by OHA.
    However, this funding level was premised on the assumption that BIPA would
    be amended to reduce the number of QICs, increase the time frames for
    completing appeals at all levels, and require that providers pay a $50
    user fee for filing appeals at QICs. However, as of September 2003, BIPA
    had not been amended. Moreover, the proposed budget contained no
    additional funding for the MAC to implement BIPA. The second budgetary
    uncertainty concerns funding for the third level of the appeals process,
    currently performed by OHA. While SSA's fiscal year 2003 budget included a
    $90 million "direct draw" from the Medicare Trust Fund for Medicare
    appeals, the proposed 2004 budget eliminates the direct draw and does not
    include a new source for Medicare appeals funding, reflecting SSA's plan
    to transfer OHA's Medicare appeals workload to HHS.

    Although BIPA required CMS to establish QICs in time for them to begin
    adjudicating appeals of claims denied as of October 1, 2002, CMS
    estimated, in its fiscal year 2004 budget request, that QICs would become
    operational, at the earliest, February 2005. Agency officials detailed
    that

    the implementation of QICs would require approximately 10 months of
    drafting and finalizing the related regulations and conducting the bidding
    process, and 6 months for hiring staff, renting space, and performing
    other tasks associated with making QICs operational, including developing
    the QICs' data systems. In commenting on a draft of this report, HHS
    stated that CMS now plans for QICs to begin operation in fiscal year 2004.
    However, we were not provided with CMS's implementation plan or sufficient
    details to evaluate its feasibility.

    Finally, one of the critical issues related to BIPA's implementation
    involves the possible transfer of the Medicare caseload currently
    adjudicated by SSA's OHA to HHS. Several issues remain unresolved. In
    1995, when SSA separated from HHS and became an independent agency, SSA
    entered into an MOU with the Health Care Financing Administration to
    continue to perform the Medicare appeals work it had been conducting.
    Recently, SSA has taken the position, which is reflected in its budget
    request for fiscal year 2004, that it intends for OHA to discontinue
    adjudicating Medicare appeals and has proposed a revised MOU outlining the
    transfer of OHA work to HHS. However, as of September 2003, HHS had not
    signed the revised MOU and the transfer of the workload to HHS had not
    been finalized. In addition, legislation has been introduced that would
    expressly provide for the transfer of Medicare appeals to HHS.17 However,
    provider and beneficiary groups have protested because they believe
    shifting responsibility to HHS will compromise the ALJs' independence.

    OHA's departure from the appeals process would create a new challenge for
    HHS. OHA's process for adjudicating administrative appeals includes 140
    local hearing offices and over 1,000 ALJs. Because SSA disability appeals
    constitute about 85 percent of OHA's work, OHA would continue to require
    the use of its hearing offices and judges regardless of whether it
    continues to hear Medicare appeals. BIPA language specifies that the third
    level of appeal be adjudicated by ALJs, but because HHS has far less
    capacity than OHA to hear ALJ cases,18 HHS would have to compensate for

    17H.R. 810, 108th Cong. (2003); S. 1127, 108th Cong. (2003); H.R. 1, 108th
    Cong. (2003); and H.R. 2473, 108th Cong. tit. IV (2003).

    18HHS has nine additional ALJs-one at the Food and Drug Administration and
    eight who hear enforcement cases including those on Medicare fraud and
    provider penalties. The latter have a backlog of 700 unresolved cases.
    HHS's DAB, which houses both the MAC and the Medicare fraud ALJs, is
    located in Washington, D.C. It has five satellite locations but no hearing
    rooms-its ALJs use the hearing rooms of local courts or other agencies.

    Conclusions

    OHA's departure by developing plans that would enable it to adjudicate the
    current workload demands within BIPA's time frames and to address the
    backlog of cases accumulated before the transfer to HHS. As of June 2003,
    CMS was evaluating OHA's Medicare operations, workload, and facilities and
    developing and assessing the feasibility of various options. A CMS
    official stated that assuming OHA's workload would be a notable challenge
    for the agency.

    BIPA demands a level of performance-especially regarding timeliness- that
    the appeals bodies have not demonstrated they can meet. In addition to
    lengthy processing times, OHA and the MAC have developed sizable backlogs
    of unprocessed cases. The backlogs raise a question about how
    BIPA-governed cases, with their mandated time frames, will be prioritized
    relative to unresolved cases filed before BIPA's mandated implementation
    date. Administrative and systemic inefficiencies, which span all levels of
    appeals, strongly indicate the need for improvement. Without significant
    improvements, the appeals bodies will be unable to meet BIPA's more
    rigorous performance requirements. Uncertainties regarding BIPA
    regulations and funding further complicate the challenge the appeals
    bodies face in implementing BIPA and meeting its requirements. Moreover,
    the transfer of OHA's Medicare appeals work from SSA to HHS involves major
    challenges, and until all of the stakeholders resolve workload and
    timeliness issues, the full impact of such a transfer will not be known.

    CMS, its carriers, OHA, and the MAC have traditionally not coordinated
    their management of the appeals process. Instead, each has operated as
    though the process consisted of discrete and independent segments. Greater
    coordination could enable them to resolve the barriers that currently
    preclude successful management of the appeals process as a whole.
    Inefficiencies in file transfer and case file tracking, developing
    comprehensive and meaningful data, and planning for BIPA implementation
    require a joint effort including each appeals body and its agency. The
    lack of a single entity that sets priorities and addresses operational
    problems at all four levels of the process makes it imperative that all
    bodies work closely together. If OHA's Medicare appeals workload is to be
    transferred to HHS, it is critical that all of the current appeals bodies
    work together to develop a carefully planned transition and build
    efficiencies to help HHS assume the workload. We believe that the creation
    of a Medicare appeals process that can consistently address BIPA's
    requirements will require a commitment for close coordination from all
    appeals bodies.

      Recommendation for Executive Action

    o

    o

    o

      Agency Comments and Our Evaluation

    We recommend that the Secretary of HHS and the Commissioner of SSA
    create an interagency steering committee with representatives from CMS,
    the carriers, OHA, and the MAC to serve as an advisory body to the
    Secretary of HHS and the Commissioner of SSA with the following
    responsibilities:

    make administrative processes, such as file tracking and transfer,
    compatible across all appeals bodies;
    negotiate responsibilities and strategies for reducing the backlog of
    pending cases, especially at OHA and the MAC, and establish the priority
    for adjudicating pre-BIPA cases relative to BIPA-governed cases; and
    establish requirements for reporting specific and comparable program and
    performance data to CMS, SSA, and HHS so that management can identify
    opportunities for improvement, and determine the resource requirements
    necessary to ensure that all appeals bodies will be able to meet BIPA's
    requirements.

    We provided a draft of this report to HHS and SSA and received written
    comments from both agencies. In its comments, HHS emphasized its
    commitment to implementing the appeals provisions in BIPA and
    highlighted the steps it has taken to do so. Similarly, SSA emphasized its
    efforts to provide quality service to Medicare appellants. We have
    reprinted HHS's and SSA's letters in appendixes IV and V, respectively.

    HHS agreed with our conclusion that a more coordinated approach to the
    appeals process is needed. HHS said, however, that we understated its
    progress in this area and described a variety of efforts it has engaged in
    to
    facilitate improved coordination between the appeals bodies. As we noted
    in the draft report, HHS has made strides in enhancing coordination, but
    we believe that greater progress can be made by creating an interagency
    steering committee to develop a consolidated and strategic approach to
    implementing BIPA.

    SSA's comments also emphasized the benefits of enhanced coordination
    between the appeals bodies. It largely attributed the inefficiencies that
    exist in the current appeals process to the lack of a single entity with
    ownership of, and accountability for, Medicare appeals. SSA indicated that
    it believes that HHS is the sole entity with the authority to unify the
    policies and procedures for the Medicare appeals process.

    HHS stated that it would consider the appropriateness of an interagency
    steering committee but did not specifically agree or disagree with our
    recommendation to create such a body. However, it stated that the transfer
    of the work performed by SSA's OHA to HHS is critical to achieving the
    level of coordination needed to address the inefficiencies outlined in our
    report. SSA indicated that it generally agreed with the specific
    responsibilities of the steering committee. It also stated that it
    believes that HHS has ultimate responsibility for Medicare appeals and
    that HHS should carry out the functions of the steering committee through
    CMS. SSA stated that its budget anticipates the transfer of OHA's appeals
    workload to HHS, and SSA has submitted a new MOU to HHS to facilitate a
    smooth transition. While SSA emphasized its commitment to serving Medicare
    appellants during the expected transition, it also pointed out that
    Medicare appeals make up a small portion of its work. Therefore, SSA
    cautioned that while it will participate in efforts to improve the
    Medicare appeals process, it must consider the demands of its total
    workload in allocating its resources.

    While HHS did not specifically comment on our recommendation to make
    administrative processes, such as file tracking and transfer, compatible
    across all levels of appeal, SSA agreed that an interagency steering
    committee could be beneficial in ensuring such compatibility among appeals
    bodies. SSA also noted that the steering committee would be helpful in
    defining the roles of the appeals bodies both in their current operating
    status and during the anticipated transfer of the OHA workload to HHS.

    Regarding our recommendation to negotiate responsibilities for reducing
    the backlog of pending cases, HHS agreed that a strategy for setting clear
    requirements to prioritize pre-BIPA and BIPA cases and reduce the backlog
    of cases at all levels is needed. HHS also reported that the MAC has
    already reduced its backlog and we revised the report to reflect the
    reduction. HHS also said that prioritizing cases and other transition
    matters would be addressed in the forthcoming final regulations. SSA
    agreed that strategies for reducing both the backlog of pending cases and
    the lengthy processing times for Medicare appeals are needed and expressed
    a willingness to help resolve the backlogs and delays.

    HHS agreed with our recommendation to establish comparable program and
    performance data across appeals levels and indicated that improved appeals
    data capabilities are needed. To that end, HHS noted that it has issued a
    request for proposals to develop the data system required by BIPA. SSA
    acknowledged that fragmentation of the appeals process has

    precluded the development of comparable data. However, SSA pointed out
    that preparations to transfer OHA's work to HHS have created a need for
    greater data sharing. SSA also pledged to work to capture comparable data
    to facilitate the transfer of the OHA's work.

    In addition, in response to HHS's specific comments, we have

    o  revised the use of the word "rule" to "ruling;"

    o  	clarified that the scope of our work excluded managed care, Medicare
    entitlement, and overpayment cases, as well as Part B claims processed by
    durable medical equipment contractors and fiscal intermediaries;

    o  	defined the term "provider," as used in this report, to include any
    nonbeneficiary appellant, including physicians and other suppliers;

    o  	distinguished between claims that are rejected because they are
    duplicate or missing information and those that are denied for substantive
    reasons, in appendix II;

    o  revised the legend of figure 1;

    o  	modified our description of BIPA's escalation provision to recognize
    that CMS has developed specific requirements for escalation in its notice
    of proposed rulemaking;

    o  	revised our explanation of the MAC's procedures regarding the
    parameters for accepting evidence in its current decision-making process
    and the MAC's criteria for denying an appellant's request for review; and

    o  added that CMS policy is a binding element in carrier review.

    However, we did not revise the draft report in response to HHS's specific
    comment regarding our use of the word "review." While BIPA refers to the
    first level of appeal as "redetermination," we have used the term "carrier
    review" because the adjudication process at the review level is unchanged
    by BIPA. Nor did we make revisions in response to HHS's specific comment
    that both OHA and the MAC use their own systems for processing appeals and
    conduct their own hiring. As we noted in the draft report OHA and the MAC
    independently establish their own procedures and guidelines. Finally, we
    did not revise the draft in response to HHS's specific comment that we
    imply that the MAC has done no planning related to BIPA requirements. As
    we noted in the draft report, the MAC has made some improvements, but as
    MAC officials told us, and as HHS indicated in its comments, a detailed
    action plan to meet BIPA requirements has not been developed. In its
    comments, HHS noted that a detailed plan is premature because the MAC will
    not receive BIPA cases for some time- until after they have passed through
    the other levels of appeal-however, BIPA requirements apply to claims
    denied on or after October 1, 2002, and such cases have already been
    submitted.

    HHS also provided us with technical comments, which we incorporated as
    appropriate.

    As agreed with your offices, unless you announce its contents earlier, we
    plan no further distribution of this report until 30 days after its
    issuance
    date. At that time, we will send copies to the Secretary of HHS, the
    Commissioner of SSA, interested congressional committees, and other
    interested parties. We will then make copies available to others upon
    request. In addition, the report will be available at no charge on GAO's
    Web site at http://www.gao.gov.

    If you or your staff have any questions about this report, please call me
    at
    (312) 220-7600. An additional GAO contact and other staff who made
    contributions to this report are listed in appendix VI.

    Leslie G. Aronovitz
    Director, Health Care-Program

    Administration and Integrity Issues

                           Appendix I: Scope and Methodology

    Our analyses were limited to the appeals process for denied Part B
    claims-rather than managed care, Medicare entitlement, and overpayment
    cases-because Part B cases constitute the majority of appeals. We also
    excluded Part B claims processed by durable medical equipment contractors
    and fiscal intermediaries to focus on the work performed by carriers. We
    reviewed the four levels of the administrative appeals process; our scope
    did not extend to the federal district court level.

    To gain a better understanding of the process for Part B appeals at the
    time the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
    Act of 2000 (BIPA) was passed and the changes it mandated, we reviewed
    agency procedures for completing Part B appeals regulations and agreements
    guiding Medicare appeals and other laws. We also analyzed appeals workload
    data and interviewed officials at the Centers for Medicare & Medicaid
    Services (CMS) and at all levels of the administrative appeals process-the
    carriers, the Office of Hearing and Appeals (OHA), and the Medicare
    Appeals Council (MAC).

    We reviewed regulations and procedures pertaining to the initial denials
    of claims and the submission of appeals by providers and beneficiaries. We
    also examined the processes for data management and guidelines and
    regulations for adjudicating cases at all levels. We reviewed the
    memorandum of understanding between the Health Care Financing
    Administration and the Social Security Administration, which outlines the
    responsibilities of both agencies in the adjudication of Medicare appeals.
    In addition, we reviewed the October 2002 ruling implementing selected
    BIPA amendments and the proposed rule for the implementation of the
    balance of the BIPA amendments to the appeals process.

    We also analyzed appeals data from CMS, four selected carriers, OHA, and
    the MAC to understand the scope and efficiency of the Medicare appeals
    process and the characteristics of appeals. All data examined were for
    cases adjudicated from fiscal years 1996 through 2001, with a primary
    focus on fiscal year 2001, which represents the conditions that existed at
    the time BIPA was passed. In reviewing later data and in conversations
    with the appeals bodies, we confirmed that the conditions reflected in the
    data are relatively unchanged. Limitations in collected and reported data
    at each level precluded comprehensive and consistent analyses in some
    cases. CMS and the MAC alerted us to some limitations in their data,
    including inconsistency in data entry, changes in data systems that caused
    the loss of data, and poorly defined variables. At some levels, only
    aggregated data were available, which did not permit detailed analysis.

    Appendix I: Scope and Methodology

    We studied carrier performance by selecting four carriers located in
    different regions of the country and obtaining processing data on appeals
    submitted to those carriers at the first two levels of appeals. We also
    reviewed the results of CMS's contractor performance evaluations of
    carriers' appeals activities in fiscal years 1999, 2000, and 2001.

    We visited three OHA local hearing offices located in proximity to three
    of the four selected carriers' appeals operation centers to learn more
    about their role in the appeals process and to assess the impact of
    carrier performance on their operations. We also examined the processes
    and procedures used at the OHA local hearing offices. To understand the
    efficiency of the appeals process, we examined the average total time to
    process appeals at each level, and the average time spent in each step of
    the adjudication process at OHA and the MAC. We also examined MAC data to
    determine the number of cases remanded to OHA because of lost files in
    fiscal year 2001.

    Appeals bodies performed analyses of their appeals data at our request.
    CMS performed analyses of the Contractor Reporting of Operational and
    Workload Data (CROWD), including the reason for initial claims denials,
    the time each carrier took to process carrier reviews and carrier
    hearings, and the number of cases at the first three levels of appeal. CMS
    analyses of CROWD, OHA analyses of its data, and our analyses of the MAC's
    data also provided information on the average time spent in adjudicating
    appeals and the number of pending cases. OHA's central facility analyzed
    its Part B data based on our request, and we analyzed data provided by the
    MAC to determine the time elapsed between processing milestones at OHA and
    the MAC. In the analysis of the time spent in the various phases of case
    processing at the MAC, cases with missing date information or cases with
    negative dates were omitted. All results of, and methodologies for, our
    analyses of MAC data were examined and confirmed by the MAC.

    To gain a better understanding of the concerns of appellants regarding the
    current appeals process and the potential effects of BIPA, we interviewed
    representatives from three Medicare beneficiary advocacy organizations
    that assist beneficiaries with Medicare appeals-the Center for Medicare
    Advocacy, the Center for Medicare Rights, and the Medicare Advocacy
    Project of Massachusetts. We conducted a focus group with representatives
    from billing companies through an association for billers and coders-the
    Health Care Billing and Management Association. In addition, we
    interviewed representatives from nine medical professional associations:

                           Appendix I: Scope and Methodology

    o  American Academy of Ophthalmology

    o  American College of Physicians-American Society of Internal Medicine

    o  American Hospital Association

    o  American Orthopedic Association

    o  American Medical Association

    o  American Podiatric Medical Association

    o  American Urological Association

    o  California Medical Association

    o  Medical Group Management Association

    Appendix II: The Scope of Part B Claims Rejections, Denials, and Appeals

    In fiscal year 2001, carriers processed about 773 million Medicare Part B
    claims and rejected or denied, in full or in part, about 161 million-or 21
    percent-of the claims processed. Many claims are rejected because they are
    missing information or are duplicates of claims previously processed and
    paid or denied.1 In fiscal year 2001, carriers rejected over 19.5 million
    claims that were missing information and more than 40 million claims that
    they considered duplicate. Duplicate claims may be submitted for several
    reasons. For example, inconsistent regulations may confuse providers
    causing them to resubmit denied Part B claims-even though Medicare rules
    do not allow this-because Medicare allows denied Part A claims to be
    resubmitted for payment. Also, turnover in administrative and billing
    personnel at providers' offices may result in confusion about whether a
    claim was previously submitted, and under what circumstances a claim can
    be resubmitted for payment. According to officials from the Centers for
    Medicare & Medicaid Services' (CMS), carrier error also contributes to the
    rate of duplicate submissions because some carriers have system
    limitations that do not always recognize appropriate claims. For example,
    if a claim is submitted that appropriately includes the performance of the
    same service to two separate limbs, the two distinct services may be
    construed as duplicate claims by some carrier systems.

    Claims are denied if they do not meet the requirements in Medicare
    statutes, federal regulations, or CMS's national coverage determinations.
    Carriers may also deny claims based on their own local medical review
    policies and local coverage determinations, which may enhance or clarify
    national Medicare policy.

    CMS compiles data submitted by carriers categorizing the reason for
    denying claims. Table 1 shows the reasons for denials of Part B claims in
    fiscal year 2001, excluding rejections. Although CMS has established the
    categories for data submission shown in table 1, it has not provided
    strict definitions of these categories for carriers to follow. Instead,
    each carrier has developed its own unique set of definitions for each
    category. As a result, these data do not provide a precise or reliable
    explanation of the reasons for denial. For example, the category "other,"
    which comprised more than 17 percent of reported Part B denials in fiscal
    year 2001, may

    1In its comments on a draft of this report, HHS pointed out that
    unprocessable claims- duplicate claims and claims missing information-are
    rejected, rather than denied. According to HHS, such claims can be
    resubmitted but not appealed.

    Appendix II: The Scope of Part B Claims Rejections, Denials, and Appeals

    include denials at one carrier that another carrier would have included in
    another category.

    Table 1: Reason for Denials of Initial Medicare Part B Claims in Fiscal
    Year 2001

                Reason for denial Number of denials Percentage of total

                                     Medically unnecessary a  32,480,000     29.4
                                        Services not covered  26,536,000     24.1
                                                       Other  19,795,000     17.9
                 bClaim part of a global fee for a procedure  14,351,000     13.0
                      Medicare is secondary payer for claimc   7,697,000
                                         Claimant ineligible   7,324,000
                                 Filing limitation exceededd   2,150,000
                                               Total denials  110,333,000    100e

    Source: CMS.

    aMedicare law requires that for services to be covered, they must be
    "reasonable and necessary for the diagnosis or treatment of illness or
    injury or to improve the functioning of a malformed body member." 42
    U.S.C. S: 1395y (a) (A) (1) (2000).

    bGlobal fee is a total charge for a bundled set of services, such as a
    single surgery that encompasses presurgical and postsurgical care or a
    diagnostic service that represents physician and equipment charges.
    Individual services included in the global fee cannot be paid separately.

    cMedicare is the secondary payer when a beneficiary has an insurance
    policy or health plan, other than Medicare, that has primary
    responsibility for covering the cost of the beneficiary's care. 42 U.S.C.
    S: 1395ff (2000).

    dTo be eligible for payment, claims must be filed no later than the end of
    the calendar year following the year the service was provided.

    ePercentage does not total to 100 due to rounding.

    Relatively few cases are appealed when compared to the number of denials,
    and only a small fraction is appealed to the highest level. CMS, the
    Office of Hearings and Appeals (OHA), and the Medicare Appeals Council
    (MAC) do not track the number of denied claims that are appealed, although
    CMS collects the number of claims that are adjudicated in the appeals
    process for the carrier review, carrier hearing, and OHA levels. In fiscal
    year 2001, about 7.1 million claims-less than 7 percent of denied Part B
    claims-were adjudicated at the carrier review level.2 In that year

    2Postpayment denials-denials of claims that have been paid but selected
    for medical review at a later date-are not included in the denial rates
    shown. Postpayment denials generate some appeals; however, CMS does not
    collect data on the proportion of appeals resulting from post-payment
    denials.

    Appendix II: The Scope of Part B Claims Rejections, Denials, and Appeals

    about 554,000 Part B appeals were adjudicated at the carrier hearing level
    and over 201,000 at OHA. The MAC received about 8,800 Part B appeals cases
    in fiscal year 2001; however, the MAC does not track the number of claims
    comprising cases.

    Appeals requests at the higher levels have grown rapidly in recent years,
    as shown in table 2. For example, requests for Medicare appeals at OHA-the
    third level of appeals-increased a total of 200 percent from fiscal year
    1996 to fiscal year 2001, and the MAC's workload grew by nearly 500
    percent from fiscal year 1997 to fiscal year 2001.

    Table 2: Growth in Part B Appeals Cases Submitted by Appeal Level from
    Fiscal Year 1996 through Fiscal Year 2001

                                      Carrier    Carrier        OHA           MAC
                        Fiscal year   review     hearing   hearing   adjudication
                               1996  4,100,000   69,000    21,000               a
                               1997  3,900,000   87,000    35,000           1,500
                               1998  3,500,000   95,000    35,000           2,700
                               1999  3,500,000   93,000    61,000           6,300
                               2000  3,300,000   101,000   62,000           7,600
                               2001  3,700,000   102,000   63,000           8,800
              Total growth over the  -400,000    32,000    42,000           7,300
                   period (percent)       (-10)      (47)   (200)           (487)

    Sources: CMS, OHA, and the MAC.
    Note: Appeals cases may contain several claims.
    aMAC data for fiscal year 1996 were not available.

    Appendix III: Changes Mandated by Section 521 of BIPA

    Section 521 of the Medicare, Medicaid, and SCHIP Benefits Improvement and
    Protection Act of 2000 (BIPA) mandates administrative, structural, and
    management changes in the appeals process. It includes the following:

    o  	Revises the filing deadline for appellants at the first level of
    appeal: reduced from 180 days to 120 days

    o  Reduces the minimum thresholds for filing appeals:

    o  To second level, from $100 to no minimum

    o  To third level, from $500 to $100

    o  Changes adjudication time frames at all levels of appeal:

    o  	At first level, from completing 95 percent in 45 days to completing
    100 percent in 30 days

    o  	At second level, from completing 90 percent in 120 days to completing
    100 percent in 30 days

    o  At third level, time frames of 90 days where none previously existed

    o  At fourth level, time frames of 90 days where none previously existed

    o  	Allows appellants to escalate the appeal to the next level, including
    federal district court, when adjudication time frames have not been met at
    the second, third, or fourth levels of appeal

    o  	Replaces the second level of appeal, currently known as a carrier
    hearing, with a redetermination by qualified independent contractors (QIC)

    o  	The Department of Health and Human Services (HHS) must establish
    3-year contracts with at least 12 QICs

    o  	QICs, like the Office of Hearings and Appeals (OHA) and the Medicare
    Appeals Council (MAC), are not bound by, but shall consider, local
    coverage determinations

    o  	Establishes that the MAC adjudicate cases de novo1 instead of
    evaluating OHA's decisions, as had been done

    o  	Requires that QICs have a comprehensive data system to collect and
    share information

    o  	QICs must maintain accurate records of each decision that enable it to
    identify specific types of claims that give rise to appeals, situations
    suggesting the need for provider education, situations suggesting changes
    in national or local coverage policy, and situations suggesting changes in
    local medical review policy

    o  	QICs must monitor their decisions to ensure consistency in outcomes
    between similar appeals

    o  QICs must make all decisions available to carriers

    o  QICs must report annually to the Secretary of HHS

    1De novo review allows for new evidence and an in-depth and independent
    review.

    Appendix III: Changes Mandated by Section 521 of BIPA

    o  	Requires that, at least every 5 years, the Secretary of HHS survey a
    sample of appellants regarding their satisfaction with education on the
    appeals process and with the process itself; and that the Secretary must
    report the results and any recommendations to the Congress

    o  	Requires that the Secretary of HHS annually report the following to
    the Congress:

    o  The number of appeals

    o  	Issues that require administrative or legislative action and
    recommendations with respect to actions

    o  	Analysis of consistency of decisions at QICs, including any reasons
    for inconsistency

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

    Appendix IV: Comments from the Department of Health and Human Services

                          Page 40 GAO-03-841 Medicare Appeals

                          Page 41 GAO-03-841 Medicare Appeals

                          Page 42 GAO-03-841 Medicare Appeals

                          Page 43 GAO-03-841 Medicare Appeals

                          Page 44 GAO-03-841 Medicare Appeals

    Appendix VI: GAO Contact and Staff Acknowledgments

    GAO Contact Geraldine Redican-Bigott, (312) 220-7678

    Acknowledgments 	Ankit Mahadevia, Margaret J. Weber, Anne Welch, and Craig
    Winslow made major contributions to this report.

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