CCAGW and NTU concerns regarding ALJ appeals and future of RACs | Council For Citizens Against Government Waste

CCAGW and NTU concerns regarding ALJ appeals and future of RACs

Letters to Officials

Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, D.C. 20510


Dear Senator,

The Senate Finance Committee is holding a hearing tomorrow on “Creating a More Efficient and Level Playing Field: Audit and Appeals Issues in Medicare.”  You are scheduled to hear the testimony of the Honorable Chief Administrative Law Judge (ALJ) for the Office of Medicare Hearings and Appeals (OMHA) at the U.S. Department of Health and Human Services Nancy Griswold; CEO and President of Diversified Service Options Sandy Coston; and Senior Vice President of MAXIMUS Federal Services Thomas Naughton.

While OMHA is struggling with a severe claims backlog, the Council for Citizens Against Government Waste (CCAGW) and the National Taxpayers Union (NTU) are both concerned that the ALJ appeals crisis may be a manufactured or artificially exaggerated component of an effort to lay the groundwork to dismantle the Centers for Medicare and Medicaid Service’s (CMS) Recovery Audit Contracting (RAC) program.

Between fiscal year (FY) 2010 and FY 2013, the number of claims denials that were appealed jumped 766 percent, from 44,361 to 384,151.  The vast majority of the appeals are related to RAC post-payments review denials and originate with hospitals.  However, some sources in the provider community have persistently disseminated misinformation about the number of RAC claims denials that are overturned on appeal, asserting that 60 percent of hospital claims denied by RACs are in error.  According to CMS, only 9.3 percent of the total number of RAC claim denials appealed to the ALJ level were overturned in FY 2013.  Yet, providers have continued to flood the system with specious appeals, thereby bringing it to a grinding halt and agitating for a complete gutting of the RAC program. 

CMS has documented that the RACs deliver a 97 percent accuracy rate.  In fact, before a claim denial reaches the third level of appeal at the administrative law judge level, it has already been denied twice by two lower post-payment auditors, both of which are required to make decisions based upon CMS’s rules on medical necessity. A November, 2012 HHS Office of Inspector General report noted that “[m]any ALJ staff raised concerns about the frequent filers. Several staff noted that some of these appellants appeal every payment denial.  A few staff said that these appellants have an incentive to appeal because the cost is minimal and a favorable decision is likely.”

CCAGW and NTU are very concerned about CMS’s proposed solution to this OMHA backlog:  CMS is offering a “hospital settlement” to reduce the volume of inpatient status claims currently pending in the appeals process.  The settlement will permit hospitals that enter into an administrative agreement with CMS to receive a one-time partial payment of 68 percent of the net allowable amount of claims currently under adjudication, in exchange for dropping their appeals.   

Taxpayers and Medicare beneficiaries have a right to know how many hospitals have met the October 31, 2015 settlement application deadline, how many hospitals were given extensions on the deadlines, the total costs associated with the settlements so far, and the anticipated total cost to taxpayers of this administrative agreement.

CMS’s hospital settlement agreement could also set an expensive precedent, inviting other sectors of the Medicare provider community with high improper payments rates  to follow this “appeal everything” model, costing taxpayers hundreds of millions of dollars.  Durable medical equipment providers, for example, currently have a 53 percent improper payment rate and are currently also subject to RAC post-payment reviews. Furthermore, this settlement rewards providers who have abused the process by appealing virtually all of their claims denials in order to reach the more subjective ALJ level. 

Since 2011, the rate of improper Medicare payments has gone from 8.5 percent to 12.7 percent, a 50 percent increase that equates to a $46 billion loss to Medicare for FY 2014 alone.  It is not a coincidence that this increase occurred during the period of time when CMS placed severely restricted RAC audits. 

While CCAGW and NTU recognize the need to address the serious ALJ claims backlog, reform must begin with repair of CMS’s post-payment auditing system, which is characterized by overlap, duplication, uncertainty over CMS’s rules, and inconsistent application of those rules at the third level of appeals.  We urge the committee to not allow the ALJ workload issue to become an excuse to undermine or weaken the RAC program, which is the most successful tool at the taxpayers’ disposal to mitigate Medicare improper payments and recover billions for the Medicare Trust Fund.   


Tom Schatz

President, Council for Citizens Against Government Waste

Pete Sepp

President, National Taxpayers Union 



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