HHS Delays ALJ Hearing Scheduling by Two Years: Continues to Fail to Adhere to Its Own Regulations

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By Peter W. Thomas, JD, and Christina Hughes, JD, MPH
tired man with files

The provision of prostheses and orthoses to Medicare beneficiaries has come under heavy fire over the past few years with the imposition of new documentation requirements that were issued without the Centers for Medicare & Medicaid Services (CMS) following proper procedures. This created extensive auditing and shifting medical necessity criteria. The advent of the Recovery Audit Contractor (RAC) program, along with ramped up efforts by benefit integrity contractors such as Zone Program Integrity Contractors (ZPICs), have fueled auditing to reach new heights. Of course, O&P is not the only provider group under attack. Virtually all settings of providers under Medicare are mired in heavy auditing activities.

Not surprisingly, based on the overzealous nature of many of the contractors in issuing denials, the number of administrative appeals filed by providers and suppliers has mounted quickly, reaching alarmingly high numbers in the past few years. With each new contractor added to the Medicare mix-there is now the Supplemental Medical Review Contractor (SMRC) to contend with as well-and every refinement or change in Medicare coverage criteria, the appeals burden only continues to grow.

The administrative appeals process for Medicare is established by statute and is implemented through federal regulations. The regulations set out specific procedures and timeframes for filing and adjudicating appeals of Medicare claim denials. These regulations were updated and significantly revised in 2005. This entire system has been under extreme pressure due to the large number of appeals passing through the system for quite some time. In the past year or so, the Administrative Law Judge (ALJ) level has shown considerable strain.

The strain has manifested in ALJs routinely failing to comply with the rules related to deadlines for rendering decisions, with delays of many months for most providers and suppliers. It now appears, however, that the system has completely broken. A memorandum was recently issued by the Chief Judge of the U.S. Department of Health and Human Services (HHS) Office of Medicare Hearings and Appeals (OMHA) that no new appeals will be assigned to ALJs for the next two years or more, so that ALJs can process the extensive backlog of pending Medicare denials. According to the memorandum, only appeals filed directly by beneficiaries will be assigned to ALJs in the normal course.

As explained herein, OMHA appears to have sent a distress signal to the HHS Secretary, and perhaps to Congress, to assist the 65 ALJs throughout the country with a backlog of about 450,000 Medicare cases. In fact, the OMHA memo states that it currently receives on average 15,000 new hearing requests per week. With this flow of cases entering the Medicare appeals system, providers and suppliers with new appeals will be the ones left holding the short end of the stick unless something changes this most recent development.

The ALJ Appeal Regulations

The appeal regulations allow a provider or supplier to file a request for an ALJ hearing within 60 days of receiving an unfavorable decision from the Qualified Independent Contractor (QIC) at the "reconsideration" level of appeal (42 Code of Federal Regulations (C.F.R.) § 405.1002). In turn, the ALJ is supposed to schedule a hearing and issue a written decision within 90 days after the appeal is filed with OMHA (42 C.F.R. § 405.1016). Further, ALJs are supposed to accept additional written evidence, including briefs, up until ten days after the notice of hearing is issued (42 C.F.R. § 405.1018).

The OMHA Memorandum

The OMHA Chief Judge issued the appeals memorandum on December 24, 2013. To date, only those entities with a large number of appeals pending before OMHA have been sent the notification directly. The memo sets forth OMHA's decision to suspend the assignment of new hearing requests. Appeals filed directly by beneficiaries will continue to be handled upon receipt. Apparently, OMHA began deferring assignment of new Medicare cases as of July 15, 2013. The memo states that OMHA does not expect assignment of ALJs to resume for at least 24 months, but the OMHA website currently lists the effective date of the deferral as April 1, 2013, and the wait time as being up to 28 months. Even upon resuming the assignment of ALJs, OMHA expects delays of six months or more for actual hearings to occur post-assignment.

Any objective analysis of this situation would suggest that as OMHA attacks the backlog of cases, the new cases being appealed will completely jam the system, so that in two years, there is no way ALJs will be able to render decisions within a six-month timeframe. Even if they were able to achieve this timeframe, it would still be twice the time limit that by regulation ALJs have to made decisions in these types of Medicare cases.

Practical Impact

While OMHA has placed a hold on its own responsibilities for handling appeals in a timely manner, the same deadlines as set forth in the regulations still apply to providers and suppliers delivering healthcare services to Medicare beneficiaries. There is no corresponding grace period for filing appeals, with requests for an ALJ hearing due within 60 days of the QIC decision. Given CMS' continued auditing activity, combined with the large caseload of appeals already pending at the lower administrative levels, the number of appeals on hold at the ALJ level will likely expand exponentially over the next two years.

stack of files and phone

Given this, it is virtually impossible for the deferral of ALJ assignment to have any positive impact on the appeals process. This extensive backlog and delay may spur some providers and suppliers with pending appeals to escalate them to the Medicare Appeals Council for a review of their claim denials. But traditionally, the ALJ hearing has been the most favorable venue for providers and suppliers to win their Medicare appeals. The Medicare Appeals Council has a supplier-unfriendly reputation and an equally appalling backlog of appeals. With far fewer judges at the Medicare Appeals Council than at the ALJ level, escalation is not a very realistic outlet for the pressure created by the high number of appeal requests.

In addition, even for those providers and suppliers who have already filed an appeal, any attempt to submit additional information in the form of a written statement or a brief will be rejected by OMHA until an ALJ is assigned. This places additional burdens on healthcare providers and suppliers-and especially orthotists and prosthetists who are required to have corroboration from physician documentation- to essentially maintain evidence and arguments at the ready for several years until an ALJ is finally assigned and the brief will be accepted by the assigned ALJ.

The alternative for providers and suppliers is to draft supplemental arguments or briefs soon after the QIC decision is rendered and hold those documents for months and perhaps years before an ALJ is assigned to the case. In both instances, providers and suppliers are prejudiced due to the passage of time before an ALJ hearing is finally held. Memories fade, documents get misplaced or lost, and personnel move on for a variety of reasons, making it significantly more difficult to win appeals when cases are finally heard before an ALJ.

This delay, assuming it is not corrected by Congress or the HHS Secretary in some way, does make the decision as to whether to stay recoupment an easier one. When providers or suppliers elect to stay recoupment, they are due interest payments from the government for the value of the claim from the time between the QIC denial and a favorable decision by the ALJ or Medicare Appeals Council (42 C.F.R. § 405.378). (This interest payment from CMS is not available to suppliers who do not trigger the stay on recoupment however.) The interest rate that CMS pays is significant, currently between 10 percent and 11 percent annually.

Ordinarily, after the usual ALJ appeal process following the required timeframes, the interest payment due from CMS may not be worth the agonizing hassle of paying interest on the recouped amount and then trying to collect all amounts due from the Medicare contractor later. However, if interest will accrue for two, three, or four years or more, the hassle may just be worth it. Of course, many suppliers would gladly forego such interest just to have their appeals decided in a reasonably timely fashion, without the extensive burden on their business' cash flow.

Conclusion

This move by OMHA has largely flown under the radar until recently. A swell of outrage has begun to bubble up as providers and suppliers, not just orthotists and prosthetists, learn of ALJ assignment delays. A daylong public meeting to discuss these issues was scheduled for mid-February. Both legislative and legal action is quite possible to rectify this problem. Two potential proposals include permitting a stay in recoupment through the ALJ decision or freezing all auditing activities of Medicare contractors until OMHA can process claims according to the timeframes in its own regulations.

While many orthotists and prosthetists were already encountering extraordinarily long delays in obtaining ALJ decisions, this formal policy of delay in violation of HHS' own regulations is nonetheless quite shocking. Many providers and suppliers are asking how OMHA can so blatantly disregard federal regulations while continuing to hold providers and suppliers to the regulatory timeframes. From one point of view, the actions taken by OMHA may be seen as a cry for help in the form of more resources for handling the enormous backlog of appeals. But the fact remains that OMHA is part of HHS, just as CMS and its contractors are part of the same department.

The National Association for the Advancement of Orthotics and Prosthetics (NAAOP) and its O&P Alliance partners (American Academy of Orthotists and Prosthetists; American Orthotic & Prosthetic Association; American Board for Certification in Orthotics, Prosthetics & Pedorthics; and Board for Certification/Accreditation) have drafted legislation to address this set of issues involving audits and appeals of O&P claims, including provisions to address the recent problems with new physician documentation requirements. The O&P community continues to take an aggressive posture in pushing back against overzealous auditing activity by CMS and its contractors, and new information on this set of issues will be shared as developments occur.

Peter W. Thomas, JD, serves as general counsel for the National Association for the Advancement of Orthotics and Prosthetics (NAAOP). Christina Hughes, JD, MPH, is an associate with Powers Pyles Sutter & Verville, Washington DC.