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Update on the Medicare appeals backlog [PODCAST]

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The Hospital Finance Podcast

In this episode, Knicole Emanuel, partner in the Raleigh office of Gordon & Rees, reviews the history of the Medicare appeals backlog and offers perspectives on recent court decisions affecting it .
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Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.

Today, we’re going to be talking about something on the minds of most hospital finance professionals, the Medicare appeals backlog. And to help me sort that out, I’m joined by Knicole Emanuel.

Knicole is a partner in the Raleigh office of Gordon & Rees, a member of the Healthcare Practice Group. For more than 17 years, Knicole has maintained a litigation practice concentrating on Medicare and Medicaid litigation, healthcare regulatory compliance, administrative law, and regulatory law. Knicole frequently lectures on healthcare law, the impact of the Affordable Care Act and regulatory compliance for providers including physicians, home health and hospice, dentists, chiropractors, hospitals and durable medical equipment providers.

Knicole served as North Carolina Assistant Attorney General in the Health and Public Assistance section where she gained a thorough understanding of the Medicaid system that informs her practice today.

Knicole, welcome to the program.

Knicole Emanuel: Thank you! Thank you for having me.

Mike: So, Knicole, could you give us a short background on the Medicare appeals backlog and explain how we got to where we are today.

Knicole: Sure, absolutely! The Medicare appeal backlog really came into play about 2011. As your listeners, I’m sure, are well aware, the Medicare appeal procedure is a five level step procedure—the first being the redetermination by the company who made be adverse to termination in the first place, and the second being a reconsideration by a qualified independent contractor.

The third level is where we have the Medicare appeals backlog. It is at the level where you actually appear before an administrative law judge or an ALJ. At that level, in 2011, we had approximately 59,600 Medicare appeals. By 2013, we had 384,000. And now we’ve got over 600,000. And how do we get to that big backlog?

A lot of people think it’s because of the Affordable Care Act. In 2011, when it was enacted, there was a congressionally mandated Medicare recovery audit program or a RAC program. And this program was implemented to get or recoup funds from healthcare providers if there were billing errors, just mistakes in billing that you shouldn’t have gotten paid that Medicare reimbursement and we’re going to come back and take that money.

Well, because of the over-zealousness of the RAC auditors, particularly because of the fact that they’re paid by contingency fee, the number of RAC audits just skyrocketed. And all of a sudden, we had this big bottleneck of both Medicare appeals, a big backlog up at the ALJ level.

And it’s very disconcerting for any sort of healthcare provider who accepts Medicare and Medicaid because this backlog really does create financial issues.

See, at the first two levels, the government does not start recouping funds. They allow you to go through the appeal process kind of unscathed. But at the third level, at the ALJ level, they do start calling back money. And this can really create hardship, financial hardship, on healthcare providers. And quite frankly, most of these cases are going to get reversed. If they were the provider, there’s a very large success rate on the Medicare appeal. And they’re going to have to take the money back. But in the meantime, these healthcare providers are in real financial distress.

Mike: And we know that the United States District Court for the District of Columbia weighed in on this situation in the American Hospital Association versus Burwell. Can you tell us about that ruling and the implications for HHS at the time?

Knicole: Yes. So basically, the district court for the District of Columbia ruled in favor of the American Hospital Association. The American Hospital Association asked the judge to—they were basically seeking what’s called a mandamus order to compel the Health and Human Services Secretary to clear the backlog and comply with the 90-day statutory timeframe for ALJ hearings.

Let’s just go back and just make sure that the listeners know that.

So, according to statute, when you are at the ALJ level, there is a statute that states that you have to have your ALJ hearing and the decision within 90 days. Currently, that is far from the truth. We’re seeing Medicare appeals with three to six to seven years time. Sometimes, it’ll be a couple of years before the ALJ is even appointed.

The court, the district court, it was December of 2016, the district court ruled in favor of the Hospital Association and ordered that the Health and Human Services secretary reduce the backlog by 30% by December 31st 2017—so obviously, that was a very important deadline because we would have hit that in the next few months—and then also reduce 60% by December 31st 2018, and a 100% reduction by 2020.

So, the judge took this very seriously and said, “No, you cannot just allow these appeals to sit there for years and years while these providers are having to pay this recoupment that they may not even have to pay.

The district judge ruled in favor and HHS appealed.

Mike: And what has HHS done to date to try to reduce the appeals backlog?

Knicole: Quite frankly, not much at all. They have come out since this decision. They have come out and expressed their opinion that it is impossible to meet the order that the district court judge placed on them and really have not amended anything.

They amended this hyper-technical procedure that they said it would reduce the backlog by about 25,000 appeals. But that’s no way close to the 30% that they would have to do by the end of the year.

They did come out, however, in January with a final ruling in hopes of decreasing the backlog. But again, it did not do that much. Basically, it just said, “Okay, now with the Medicare appeals decision are going to have precedential effect.” And what that means is that, before, one ALJ could rule one way, and another ALJ could rule another way, and what they’re saying is that we’re going to have more consistency, and we’re going to make them have precedential effect in that they become rules and laws that you have to follow. And it would also make providers not continue to appeal repeat issues, or if the issue has already been decided, they would already know where they stand.

The other thing the final ruling of January 2017 did was it expanded the pool of adjudicators to not just ALJ’s, but it would also include licensed attorneys employed by the Office of Medicare Hearings and Appeals. So, the thought process behind that was that if you have more judges, they can adjudicate more cases, which is extremely logical.

So, they did implement a couple of other things. For example, you can appear by telephone. And that just streamlines the process. The ALJ’s can now vacate their own dismissals instead of having to go up to the Medicare Appeals Council. Little things like that, but the final ruling that came out, it obviously came out because of the December 2016 decision ordering them to decrease the backlog.

But the final ruling did not do that much. And it certainly did not make HHS decrease their backlog as much as the judge ordered them to.

Mike: And as we’ve seen, this is a fast-moving process, Knicole. On August 11th 2017, the US Appeals Court for the District of Columbia overturned the earlier ruling from the district court and sent the case back for reconsideration. Practically, what happened and what are some possible outcomes from here?

Knicole: Well, this was a huge decision that impacts all healthcare providers across the country who accept Medicare. And I actually think that this decision has not received much publicity, but it’s a really big, big decision that impacts everyone.

The Court of Appeals found that the district court judge, before ordering the secretary to do something, i.e. reduce the backlog, the district court judge should have made a ruling that the procedure that they were getting ordered to do was actually possible. It was basically putting the Court of Appeals, the court is saying, “Hey, district court, for your opinion, you need to put the cart after the horse.”

And it is interesting that they made this decision because there’s not very much precedential cases that require a district court to find the order in which he’s saying, i.e. reducing the backlog of Medicare appeals, is possible to do. And quite frankly, the Court of Appeals took HHS’ contention that the action was impossible without even having them give evidence to that fact.

So, what I mean by that is the HHS secretary came out and said, “Hey, this is impossible. We can’t do this. We’re not going to be able to comply with this order. In fact, it’s going to get worse. There’s going to be about a million appeals by the time 2021 comes around. So, we’re not going to get better. We’re not going to comply. We’re going to get worse.”

But instead of having to prove that—this is a prediction. Health and Human Services did not go out and really show they couldn’t do it. They just said it at face value. But the Court of Appeals accepted their argument and sent it down to the district court to determine.

And there’s a dissent in this opinion. There is a judge that disagrees with the majority opinion. And I think I fall within the dissenting opinion. The dissent points out this fact that the Court of Appeals is requiring the district court to find out whether something is possible or not before ordering it is a hyper-technical reading of a procedural statute.

We’re working in the real world. We have real world issues with this Medicare appeal backlog. It’s so long and so big. And it’s causing financial stress to many, many healthcare providers because, as I discussed earlier, the money is recouped at the level of the third level in front of the administrative law judge. So, the money is getting taken from the provider without their due process appeal rights.

And the dissent points out that this is very serious. And it affects a lot of hospitals.

Mike: And to that point, Knicole, what should hospitals be doing now regarding their outstanding appeals?

Knicole: Well, they have multiple options. There is a way to expedite your third level appeal. And I think you and the hospital and its attorney really should contemplate whether or not you want to escalate. If you escalate the appeal, that basically means you’re skipping the administrative law judge level. But you need to be very careful in determining whether or not you want to expedite because you do lose some procedural due process. You don’t get in front of an ALJ to show all your evidence.

So, you really have to weigh the pros and cons and have a very detailed conversation with your attorney to determine whether expediting your Medicare appeal is the way you want to go.

The other thing that they need to do is they really need to prepare for these audits. There’s been a 2-year hiatus on these RAC audits. And now they’re going to come back. They already have the new contracts signed. They’re going to start coming back and implementing them again. And you really need to be ready to have to defend these RAC audits, i.e. making sure you’ve got enough funds to hire your lawyer and to defend these audits.

Like I said, a lot of these audits are overturned. I mean, the appeals success rate is over 80% at least.

Mike:  Yes. Great, great direction there, Knicole, and certainly something that hospital finance professionals need to keep an eye on in this sort of ongoing saga of the Medicare appeals backlog.

So, thanks for coming by the program today and providing your perspective on that.

Knicole: Thank you, thank you so much for having me.

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