THE BROKEN MEDICARE APPEALS SYSTEM: FAILED REGULATORY SOLUTIONS AND THE PROMISE OF FEDERAL LITIGATION.

Author:Donley, Greer
 
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ABSTRACT

The Medicare Appeals System is broken. For years, the System has been unable to accommodate a growing number of appeals. The result is a backlog so large that even if no new appeals were filed, it would take the System a decade or more to empty. Healthcare providers wait many years for their appeals to be heard before an Administrative Law Judge (ALJ), and because the government recoups providers' Medicare payments while they wait, the delays cause them serious financial harm. Even worse, providers are more likely than not to prevail before the ALJ, proving that the payment should never have been recouped in the first place. The financial pressure on providers creates widespread reverberations in the healthcare market, and consumers ultimately pay the price. Nevertheless, the government appears unwilling or unable to fix the problem.

This Article explores how the System works, why the System broke, and what legal or legislative remedy could solve its problems. The Article articulates the central concern underlying the System's backlog: small providers lack the liquidity and revenue stream to endure the uncertainty and delayed gratification that is now required to participate in the Medicare Program. As a result, these companies collapse or are purchased by larger providers--contributing to the consolidation of the healthcare market. An optimal remedy would relieve the pressure small providers face; it could be achieved by delaying the government's ability to recoup Medicare payments before the provider has received an ALJ determination. Though legislative or administrative action could most easily accomplish this goal, providers have asked the judiciary to step in where the government is failing. Of the various legal challenges that providers have lodged against the government to protest the System's delays, the one most likely to help small providers is under the Due Process Clause. This Article concludes that a due process challenge--though difficult to win--could have merit and might be small providers' best chance of obtaining relief, at least in the short term.

INTRODUCTION I. BILLING MEDICARE: HOW CMS PAYS AND REVIEWS MEDICARE CLAIMS II. THE MEDICARE APPEALS SYSTEM A. Statutory Framework for Medicare Appeals B. The System in Practice: Then and Now III. IMPACT OF THE SYSTEM'S DELAYS ON CONSUMERS AND THE BROADER HEALTHCARE SYSTEM IV. FAILED REGULATORY AND LEGISLATIVE SOLUTIONS V. THE PROMISE OF FEDERAL LITIGATION A. Litigation Seeking to Force Compliance with the 90-Day Timeframe B. Litigation Seeking to Delay Recoupment Until After the ALJ Hearing 1. Exploring the Merits of a Due Process Claim a. The Severity of the Interest Affected b. The Likelihood That an ALJ Hearing Would Improve Agency Decision Making c. The Government's Conflicting Interest d. Early Victories Suggesting that a Procedural Due Process Challenge Could Be Successful 2. Legal and Practical Challenges Associated with a Due Process Challenge a. Jurisdiction b. Property Interest c. Practical Implications VI. CONCLUSION INTRODUCTION

Over the past six years, the Medicare Appeals System ("System"), which handles appeals from Medicare payment determinations, has experienced extreme bureaucratic inefficiency. The problems began in 2010 when Congress implemented a new Medicare auditing program. (1) This program dramatically increased the number of appeals entering the System, but did not expand the budget or modify the System's structure to accommodate the influx. (2) By the end of 2015, the Department of Health and Human Services ("HHS") admitted that the System was so backlogged that it could take eleven years for the System's Administrative Law Judges ("ALJs") to resolve the appeals pending before them, even assuming no new appeals were filed. (3)

This backlog has caused enormous delays. Though Medicare providers are statutorily entitled to an ALJ determination within ninety days, the average provider waits at least three years. (4) And as they wait, the government recoups providers' money as if it has already won often totaling millions of dollars per provider. (5) This early recoupment would be justified by administrative efficiency if the underlying decisions were generally correct, but in reality, a significant proportion of these recoupments are erroneous and eventually returned. (6) Delays associated with the backlog have hit small providers particularly hard. (7) Many small providers face insolvency as they wait for an ALJ determination a dynamic that exacerbates systemic healthcare problems for consumers. Most notably, it contributes to the consolidation of the healthcare market, which reduces competition and increases prices.

Despite the government's awareness of and attention to the situation, HHS (8) has been unable to control the increasing number of appeals entering the System. The agency has requested additional funding from Congress for four years in a row, finalized a rule aimed at streamlining the System, and lobbied for legislative solutions. (9) Nevertheless, Congress has failed to increase the budget or legislate reforms. And there is little evidence that the agency's administrative reforms will impact the backlog in any significant way.

Once it became clear that lobbying efforts were unlikely to be successful, both large and small Medicare providers took their complaints to the federal courts, pursuing different legal strategies that reflected their various needs. These efforts largely failed early on, but starting in late 2015, the courts became more receptive to these challenges. The litigation surrounding the System's delays presents an interesting case study on how the federal courts, though reluctant, can intervene when private parties, agencies, and Congress cannot solve administrative problems on their own. Unlike the legislature, however, the judiciary's solutions are necessarily limited by the nature of the relief sought. One provider group, for instance, obtained a writ of mandamus, which ordered the government to empty the backlog and comply with the System's statutory deadlines. But mandamus is an imperfect remedy: even if the writ reduces the backlog of appeals, it will do so at the expense of small providers and further perpetuate some of the problems associated with the System's delays. A successful due process challenge, on the other hand, could create an optimal remedy by relieving the pressure small providers experience while waiting for an ALJ hearing.

This Article explores how the System became so backlogged, why administrative solutions have failed, and what the best legal remedy could be. In Section I, I explain the process by which CMS or its contractors initially pay Medicare providers and subsequently identify and recoup overpayments. In Section II, I explore the System as Congress initially envisioned it, how it currently functions, and why it became so dysfunctional. Next, in Section III, I discuss how the delays associated with the System's backlog play into problems that affect our healthcare market as a whole. Section IV then discusses the various regulatory and legislative proposals, explaining why these attempted solutions have failed, and how the agency or legislature could create meaningful change.

Finally, in Section V, I explore two different kinds of legal challenges: mandamus and due process. The former aims to force compliance with the ninety-day statutory timeline, while the latter seeks to delay recoupment until after an ALJ hearing. Though only mandamus has been successful thus far, this Article argues a remedy in due process will provide more protection for small businesses, and consequently, consumers. While small providers have achieved some preliminary relief in their due process challenges, they all settled their cases with the agency before the merits were reached. This result is unsurprising given that small providers generally lack the financial capacity or incentive to litigate the issue to finality. This section concludes that a due process challenge has merit, and if small providers can overcome the obstacles inherent in litigating a due process claim, it may present their best chance at achieving the desired result absent legislative action.

  1. BILLING MEDICARE: HOW CMS PAYS AND REVIEWS MEDICARE CLAIMS

    The government provides health insurance for individuals over sixty-five or who live with disabilities through the Medicare program. (10) The government is the largest single healthcare payer in the United States, and as a result, it has a large and disproportionate influence on the healthcare market. (11) Most healthcare providers and suppliers (12) treat at least some Medicare patients, (13) though certain providers do not generally service any Medicare enrollees (e.g. pediatricians) and others treat a disproportionately high number Medicare beneficiaries (e.g., hospice providers). (14) Providers can also refuse to accept Medicare patients and, though it remains unusual, it is becoming more common for certain providers to do so. (15)

    After treating a Medicare patient, a provider submits a claim for payment to the government. If the government approves the claim, then the provider receives compensation. (16) In this way, Medicare functions like any health insurer: it contracts with providers to treat its beneficiaries in exchange for payment. (17) CMS, however, does not function as the insurer itself; rather, it contracts with Medicare Administrative Contractors ("MACs") to perform various insurance functions on its behalf. (18) For instance, MACs review providers' claims for payment and pay providers for approved claims. (19)

    When a provider submits a claim for payment, MACs conduct a prepayment review to determine whether the claim meets Medicare's conditions of payment. (20) Contractors create a system that automatically pays certain claims, automatically denies certain claims, and tags other claims for additional review (21) Whether a claim...

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