Senate Finance Committee Issues Report on AFIRM Act

Targeted News Service

WASHINGTON, Dec. 23 -- The Senate Finance Committee issued a report (S.Rpt. 114-177) on legislation (S. 236) to amend title XVIII of the Social Security Act to improve the efficiency of the Medicare appeals process. The report was advanced by Sen. Orrin Hatch, R-Utah, on Dec. 8.

Excerpts of the report follow:

I. LEGISLATIVE BACKGROUND

The Committee on Finance, having considered an original bill, Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015, to amend title XVIII of the Social Security Act intended to increase coordination and oversight of Medicare claims review contractors, implement new strategies to address the growing number of review contractor determination appeals, reduce review burdens on providers, and give review contractors the tools necessary to better protect the Medicare Trust Fund, having considered the same, reports favorably thereon as modified, and recommends that the bill, as modified, do pass.

Background and need for legislative action

Medicare audits and appeals pose a serious burden for health care providers and suppliers as well as for review contractors seeking to reduce federal healthcare programs' improper payments. The Improper Payments Information Act of 2002 requires the Department of Health and Human Services (HHS) to identify programs within HHS that may be susceptible to significant improper payments. Improper payment estimates reported by HHS and other federal agencies are not intended to be an estimate of fraud. Instead, improper payments include any payments that should not have been made or that were made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. Office of Management and Budget guidance directs agencies to include in their calculations any payments for which insufficient or no documentation was found.

Within HHS, the Centers for Medicare & Medicaid Services (CMS) measures the improper payment rate, and the associated dollar amount, each year for the Medicare fee-for-service program, Parts C and D, and Medicaid. In 2009, Medicare's improper payment rate was 10.8 percent, or $30.8 billion. In 2011, the error rate decreased to 8.6 percent, or $28.8 billion, and by 2013, the error rate was back up to 10.1 percent, or $36 billion. CMS has attributed the error rate's rise in part to new requirements for certain claims, particularly for DME and home health.

The Medicare improper payment rate includes many different types of payments to many different types of providers and suppliers. The most common cause of improper payments during the 2013 report period (accounting for 56.8 percent of total improper payments) was a lack of documentation to support the services or supplies billed to Medicare. Improper payments are not consistent across the fee-for-service programs. In 2013, Medicare Part A had an error rate of 8.1 percent. In Medicare Part B, payments to suppliers of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) had an error rate of 58.2 percent.

CMS hires a variety of private review contractors to identify improper Medicare payments and lower error rates. Medicare Administrative Contractors (MAC) primarily process claims and handle related functions. As part of their administrative role, MACs also conduct certain claims reviews to identify and correct improper payments. Zone Program Integrity Contractors (ZPIC) investigate instances of suspected fraud, waste, and abuse and take appropriate corrective actions. The Supplemental Medical Review Contractor (SMRC) was created to identify and employ more efficient methods of medical review, such as data extrapolation. The SMRC conducts nationwide medical reviews as directed by CMS, including issues identified by CMS data analysis and/or by agencies including the HHS Office of Inspector General (HHS-OIG), the Government Accountability Office, and the Comprehensive Error Rate Testing (CERT) auditor. CERT auditors measure improper payments in the Medicare fee-for-service program to determine the annual improper payment rate. Finally, Recovery Auditors (RA), formerly referred to as Recovery Audit Contractors (RAC), identify and correct improper overpayments and underpayments in the Medicare program. Unlike other types of Medicare contractors that are paid in fixed amounts based on their costs, RAs are paid on a contingency basis--receiving 9 to 12.5 percent of the corrected improper payment amounts. This contingency fee structure gives RAs a financial incentive to identify and collect improper payments.

Despite CMS's efforts, the improper payment rate in the Medicare program remains high. The Government Accountability Office found in fiscal year 2014, approximately 10 percent of the $603 billion Medicare payments were improperly paid. Dodaro, Gene L., Testimony before the Senate Committee on Finance, Fiscal Outlook: Addressing Improper Payments and the Tax Gap Would Improve the Government's Fiscal Position, GAO-16-92T at 6 (Oct. 1, 2015), available at http://www.gao.gov/assets/680/672884.pdf. The large number of improper payments has led to an increased number of audits to recapture improperly paid funds. Although CMS's contractors are making progress recovering funds, the increase in audits has contributed to an extraordinary increase in appeals of payment determinations.

Providers and beneficiaries are able to appeal Part A and Part B improper payment determinations made by MACs or other Medicare review contractors through a four-stage administrative appeals process. The first level of appeal is reviewed by a MAC, the contractor that processes the claim submitted for payment and that may have made the original improper payment determination. 1 [Footnote] For the second level of appeal, providers and beneficiaries can appeal to a Qualified Independent Contractor (QIC) and receive an independent review conducted by clinicians. 2 [Footnote] The third level of appeal is heard by an Administrative Law Judge (ALJ) at HHS's Office of Medicare Hearings and Appeals (OMHA). For the third level, appellants must meet an amount in controversy threshold, which is updated on an annual basis ($150 for 2015). The fourth and final administrative stage of appeal is review by the Medicare Appeals Council (Appeals Council), which is a component of HHS's Departmental Appeals Board (DAB). After exhausting these four administrative appeals, parties can seek judicial review in federal District Court. For judicial review, appellants must again meet an amount in controversy threshold, which is also updated on an annual basis ($1460 for 2015).

[Footnote 1: Improper payment determinations by other Medicare contractors (for example, Medicare audit contractors like RAs and ZPICs) are also appealed to the MAC. Providers have an opportunity to question an overpayment determination with the contractor that made the determination before making the formal appeal (request for redetermination) to the MAC.]

[Footnote 2: QICs do not process claims or conduct audits--they are only involved in the appeals process. QIC conduct independent reconsiderations of Medicare overpayment determinations and claims denials and are required to use clinicians (nurses and physicians) for cases involving questions of medical necessity. QICs were created by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000, which included provisions to improve the Medicare appeals process. Part of these provisions mandate that all second-level appeals be conducted QICs.]

Although some beneficiaries appeal payment decisions, the majority of appellants (85 percent) are providers. Two percent of these providers accounted for nearly one-third of all ALJ appeals in FY 2010. And, some provider-appellants filed many more appeals than others. On average, providers filed six appeals each, but 96 providers filed at least 50 appeals each, and one provider filed over 1000 appeals. 3 [Footnote] The vast majority of RA audits are not appealed (in 2011, only 6.7 percent of RA improper payment determinations were appealed).

[Footnote 3: Improvements are Needed at the Administrative Law Judge Level of Medicare Appeals, HHS-OIG, OEI-02-10-00340 (November 2012); see also Nudelman, Jodi, Statement to the House Committee on Ways and Means, Subcommittee on Health, Current Hospital Issues in the Medicare Program, Hearing May 20, 2014.]

Although most RA audit decisions are not appealed, the expansion of RA audits has coincided with the rise in appeals, which has contributed to the backlog at OMHA. At the time of this report, there are so many appeals being filed that the Office of Medicare Hearings and Appeals (OMHA) cannot docket an appeal for 20 to 24 weeks and the backlog of cases is near 1,000,000.

The HHS-OIG report found that some ALJs were more likely than others to make decisions that were fully favorable to appellants. Among the 66 ALJs, the fully favorable rate ranged from 18 to 85 percent. HHS-OIG reported that ALJ staff stated that different philosophies among ALJs contribute to the variation in fully favorable rates. ALJ staff said that given the same facts and the same applicable Medicare policy, some ALJs would make decisions that are favorable to appellants, while others would not.

This bill addresses the primary causes of the increase in appeals and the backlog itself. First, the bill will improve CMS oversight of audit contractors and require better coordination between auditors and CMS. The bill will ensure that all parties receive transparent data regarding review practices and appeal outcomes at each level of review. Second, the bill will require that CMS create new incentives to improve auditor accuracy. It will also require that CMS create an independent Ombudsman for Medicare Reviews and Appeals to assist in resolving complaints by appellants and those considering appeal. Finally, the bill will make needed reforms to and increase funding for the Medicare appeals process to address the appeals backlog and ensure timely reviews, without sacrificing quality. The bill will raise the amount in controversy for review by an ALJ to match the amount for review by a District Court. The bill will create a new Medicare magistrate program for cases with lower costs, allowing senior attorneys with expertise in Medicare law and policies to adjudicate cases in the same way as ALJs. It will allow for the use of sampling and extrapolation, with the appellant's consent, to expedite the appeals process. The bill will also establish a voluntary alternate dispute resolution

process for multiple pending claims with similar issues to be settled as a unit, rather than as individual appeals.

The Committee recognizes the need to address this serious backlog to ease the burden on physicians and other health care providers and on beneficiaries.

II. EXPLANATION OF THE BILL

The present law applicable to sections 2 through 6, and 8 of the bill is discussed at the beginning of section II, part A (there are no provisions in present law for sections 1, 7 and 9). Part A then explains the provisions of each section separately. The present law and provisions of sections 10, 11, 12, and 13 of the bill are discussed in section II, parts B, C, D, and E respectively.

III. BUDGET EFFECTS OF THE BILL

A. COMMITTEE ESTIMATES

In compliance with paragraph 11(a) of Rule XXVI of the Standing Rules of the Senate, the following Congressional Budget Office estimate is made concerning the estimated budget effects of the revenue provisions of the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015' as reported.

The bill is estimated to have the following effects on federal budget receipts for fiscal years 2016-2025:

Insert graphic folio 21 SR177.001

Summary

The bill would authorize the appropriation of $127 million per year from the Medicare Hospital Insurance (HI) and Supplemental Medical Insurance (SMI) Trust Funds (in amounts to be determined at the Secretary HHS's discretion) beginning in FY2016, providing $125 million to OMHA and $2 million to the Departmental Appeals Board of HHS for purposes of conducting reviews, hearings, and appeals. The funds appropriated would be available until spent and would be in addition to any other funds that may be available to OMHA and the Departmental Appeals Board for the same purposes. Implementing the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015 would cost $1.31 billion over the 2016-2025 period, assuming appropriation of the specified amounts.

For this estimate, CBO assumes that the legislation will be enacted near the beginning of fiscal year 2016 and that the amounts specified will be appropriate in that year. Enacting the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015 would affect direct spending or revenues; therefore, pay-as-you-go procedures apply. The bill would not impose intergovernmental or private sector mandates as defined in the Unfunded Mandates Reform Act and would impose no costs on state, local, or tribal governments. The annual estimated budgetary impact of the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015 is shown in the table above.

B. BUDGET AUTHORITY

Budget authority

In compliance with section 308(a)(1) of the Congressional Budget and Impoundment Control Act of 1974 (Budget Act') the Committee states that the bill as reported involves increased budget authority (see table in Part A., above).

Tax expenditures

In compliance with section 308(a)(1) of the Budget Act, the Committee states that the bill does not involve increased tax expenditures.

C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

In accordance with section 403 of the Budget Act, the Committee advises that the Congressional Budget Office has submitted the preceding cost estimate on the bill.

IV. VOTES OF THE COMMITTEE

In compliance with paragraph 7(b) of rule XXVI of the Standing Rules of the Senate, the Committee states that, with a majority present, the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015' or the AFIRM Act' was amended and ordered favorably reported on June 3, 2015 as follows:

Final Passage of the Audit & Appeals Fairness, Integrity, and Reforms in Medicare Act of 2015 or the AFIRM Act--approved by voice vote.

V. REGULATORY IMPACT AND OTHER MATTERS

A. REGULATORY IMPACT

Pursuant to paragraph 11(b) of rule XXVI of the Standing Rules of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying out the provisions of the bill.

Impact on individuals and businesses, personal privacy and paperwork

The bill is not expected to impose additional administrative requirements or regulatory burdens on individuals. The bill is expected to reduce administrative requirements and regulatory burdens on some businesses.

The provisions of the bill do not impact personal privacy.

B. UNFUNDED MANDATES STATEMENT

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-4).

The Committee has determined that the bill does not contain any private sector mandates. The Committee has determined that the bill contains no intergovernmental mandate.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In the opinion of the Committee, it is necessary in order to expedite the business of the Senate, to dispense with the requirements of paragraph 12 of rule XXVI of the Standing Rules of the Senate (relating to the showing of changes in existing law made by the bill as reported by the Committee).

The full text of the report is found at: http://thomas.loc.gov/cgi-bin/cpquery/30?cp114:temp/~cp114EbuAM&sid=cp114EbuAM&item=30&sel=TOCLIST&l_f=151&l_file=list/cp114cs.lst&l_b=101&l_file=list/cp114cs.lst&report=sr177.114&hd_count=50&4&&&l_t=184&&&

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com

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