Hearing of the Senate Finance Committee - Creating a More Efficient and Level Playing Field: Audit and Appeals Issues in Medicare

Hearing

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

Now we turn to an issue that is directly tied to those audits: Medicare appeals.
I just returned from my home state of Utah, where Medicare issues remain a serious
concern for my constituents. For the past two years, like many members here, I have heard
about the terrible backlog of Medicare appeals.

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

Last month the GAO released a report on Government Efficiency and Effectiveness. The
report found that, in Fiscal Year 2014, Medicare covered health services for approximately 54
million elderly and disabled beneficiaries at a cost of $603 billion. Of that figure, an estimated
$60 billion, or approximately ten percent, were improperly paid, totaling over $1,000 in
improper payments for every single Medicare beneficiary.

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

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

This increase in appeals has resulted in long delays for beneficiaries and providers alike.
There are so many appeals that the Office of Medicare Hearings and Appeals can't even docket
them for 20 to 24 weeks. In FY 2009, most appeals were processed within 94 days. In FY 2015,
it will take, on average, 547 days to process an appeal -- far too long for beneficiaries to find out
whether their medical services will be covered or for providers to find out if they will be paid.
Additionally, large portions of the initial payment determinations are reversed on
appeal. The HHS Office of Inspector General reported that, of the 41,000 appeals that providers
made to Administrative Law Judges in FY 2010, over 60 percent were partially or fully favorable
to the defendant.

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

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

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

The Office of Medicare Hearings and Appeals has also taken steps to address its backlog,
but there is only so much the agency can do with their current authorities and staffing.
Senator Wyden and I, and the other members of this committee, are committed to
finding ways to make the appeals process work more efficiently and effectively in order to ease
the burden on beneficiaries and providers and to protect the Medicare Trust Fund.

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

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