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Department of Health and Human Services
OFFICE OF INSPECTOR GENERAL
IMPROVEMENTS ARE NEEDED AT THE ADMINISTRATIVE LAW JUDGE LEVEL OF MEDICARE
APPEALS
Daniel R. Levinson Inspector General
November 2012 OEI-02-10-00340

EXECUTIVE SUMMARY: IMPROVEMENTS ARE NEEDED AT THE ADMINISTRATIVE LAW JUDGE LEVEL OF MEDICARE APPEALS OEI-02-10-00340
WHY WE DID THIS STUDY
Administrative law judges (ALJ) within the Office of Medicare Hearings and Appeals (OMHA) decide appeals at the third level of the Medicare appeals system. In 2005, among other changes, ALJs were required to follow new regulations addressing how to apply Medicare policy, when to accept new evidence, and how the Centers for Medicare & Medicaid Services (CMS) participates in appeals. Medicare providers and beneficiaries may appeal certain decisions related to claims for health care services and items.
HOW WE DID THIS STUDY
We based this study on an analysis of all ALJ appeals decided in fiscal year (FY) 2010; structured interviews with ALJs and other staff; structured interviews with Qualified Independent Contractors (QIC), which administer the second level of appeal, and CMS staff; policies, procedures, and other documents; and data on CMS participation in ALJ appeals.
WHAT WE FOUND
Providers filed the vast majority of ALJ appeals in FY 2010, with a small number accounting for nearly one-third of all appeals. For 56 percent of appeals, ALJs reversed QIC decisions and decided in favor of appellants; this rate varied substantially across Medicare program areas. Differences between ALJ and QIC decisions were due to different interpretations of Medicare policies and other factors. In addition, the favorable rate varied widely by ALJ. When CMS participated in appeals, ALJ decisions were less likely to be favorable to appellants. Staff raised concerns about the acceptance of new evidence and the organization of case files. Finally, ALJ staff handled suspicions of fraud inconsistently.
WHAT WE RECOMMEND
We recommend that OMHA and CMS: (1) develop and provide coordinated training on Medicare policies to ALJs and QICs, (2) identify and clarify Medicare policies that are unclear and interpreted differently, (3) standardize case files and make them electronic, (4) revise regulations to provide more guidance to ALJs regarding the acceptance of new evidence, and (5) improve the handling of appeals from appellants who are also under fraud investigation and seek statutory authority to postpone these appeals when necessary. Further, we recommend that OMHA: (6) seek statutory authority to establish a filing fee, (7) implement a quality assurance process to review ALJ decisions, (8) determine whether specialization among ALJs would improve consistency and efficiency, and (9) develop policies to handle suspicions of fraud appropriately and consistently and train staff accordingly. Finally, we recommend that CMS: (10) continue to increase CMS participation in ALJ appeals. OMHA and CMS concurred fully or in part with all 10 of our recommendations.

TABLE OF CONTENTS
Objectives ....................................................................................................1 Background ..................................................................................................1 Methodology ................................................................................................4 Findings........................................................................................................8
Providers filed 85 percent of the appeals decided by ALJs in FY 2010............................................................................................8 For 56 percent of appeals, ALJs reversed prior-level decisions and decided fully in favor of appellants...........................9 Differences between ALJ and QIC decisions were due to different interpretations of Medicare policies and other factors ....10 The favorable rate varied widely by ALJ.......................................11 CMS participated in 10 percent of ALJ appeals; these appeals were less likely to be decided fully in favor of appellants.............13 Staff raised concerns about the acceptance of new evidence and the organization of case files..........................................................14 ALJ staff handled suspicions of fraud inconsistently ....................15 Conclusion and Recommendations............................................................17 Agencies’ Comments and Office of Inspector General Response .21 Appendixes ................................................................................................23 A: Administrative Law Judge Appeals Filed by Each Type of Appellant, Fiscal Year 2010 ...........................................................23 B: Percentage of Administrative Law Judge Appeals That Were Fully Favorable to Appellants, Fiscal Year 2010..................24 C: Actual Fully Favorable Rates Compared to Expected Fully Favorable Rates by Administrative Law Judge, Fiscal Year 2010 .......................................................................................25 D: Office of Medicare Hearings and Appeals Comments ............26 E: Centers for Medicare & Medicaid Services Comments ...........31 Acknowledgments......................................................................................35

OBJECTIVES
1. To describe the characteristics of appeals decided by Medicare administrative law judges (ALJ) in fiscal year (FY) 2010.
2. To describe differences between ALJ and prior-level decisions and differences among ALJs.
3. To determine the extent to which the Centers for Medicare & Medicaid Services (CMS) participated in ALJ appeals in FY 2010.
BACKGROUND
Medicare providers and beneficiaries may appeal certain decisions related to claims for health care services and items.1 The administrative appeals process includes four levels; ALJs decide appeals at the third level. In 2005, the responsibility for conducting ALJ appeals was transferred from the Social Security Administration (SSA) to the Department of Health and Human Services (HHS).2
Among other changes, ALJs were required to follow new regulations that addressed how Medicare policy must be applied, when new evidence may be accepted, and how CMS can participate in appeals.3 Before these changes were introduced, two Office of Inspector General (OIG) reports found a number of problems with Medicare appeals.4 In particular, OIG found that the different levels of appeal did not consistently apply the same standards and that CMS’s ability to defend its decisions was limited. The 2005 regulatory changes were intended to address many of these concerns.
This report is the first to assess the impact of these changes on ALJ appeals. In particular, it describes the characteristics of appeals decided by ALJs, differences between ALJ and prior-level decisions, differences among ALJs, and CMS’s participation in ALJ appeals.
The Medicare Administrative Appeals Process There are four levels of appeal:
• Level One, administered by CMS Medicare Administrative Contractors;
1 For the purposes of this report, we use “provider” to refer to both providers and suppliers that provide items and services under Medicare Parts A and B. 2 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, P.L. 108-173 § 931. 3 42 CFR §§ 405.1010, 405.1012, 405.1028, and 405.1062(a). 4 OIG, Medicare Administrative Appeals: ALJ Hearing Process, OEI-04-97-00160, September 1999; OIG, Medicare Administrative Appeals: The Potential Impact of BIPA, OEI-04-01-00290, January 2002.

• Level Two, administered by CMS Qualified Independent Contractors (QIC);
• Level Three, administered by ALJs; and • Level Four, administered by the Medicare Appeals Council.5
When a party is dissatisfied with CMS’s payment decision on a claim, that party may appeal. The party that files an appeal is called the appellant. If appellants receive unfavorable decisions at one level, they may appeal to the next level.6 Appellants include Medicare beneficiaries; Medicare providers, such as physicians, suppliers, and hospitals; and State Medicaid agencies. State Medicaid agencies may appeal when there is a question of whether Medicare, rather than Medicaid, should pay for the services or items received by beneficiaries who are eligible for both Medicare and Medicaid coverage (known as dually eligible beneficiaries).
The first level of appeal is administered by the CMS contractors that make the initial decisions to pay or deny claims.7 At the second level, two QICs conduct Part A appeals; two conduct Part B appeals; and one conducts appeals for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). At the first two levels, decisions are made after the contractors review the evidence in the case files.8
The third level of appeal is conducted by ALJs and differs substantially from the first two levels. One of the major differences is that the appellant has the right to a hearing before an ALJ. Under certain circumstances, however, the ALJ may not conduct a hearing and instead may make a decision after reviewing the evidence in the case file (known as an on-the-record review).9
An ALJ may make a decision that is fully favorable, partially favorable, or unfavorable to the appellant.10 These decisions must be based on evidence in the

5 The third and fourth levels apply to most types of appeals, but the first two levels apply only to appeals related to Medicare Parts A and B claims. 6 The first two levels of appeal do not require a minimum dollar amount to be at issue, but the ALJ level does. In FY 2010, this threshold was $130. See 42 CFR § 405.1006. None of the levels of appeal require appellants to pay a filing fee. 7 Of the 1.1 billion Parts A and B claims that CMS contractors processed in 2010, 117 million were denied and 2.7 million were appealed to the first level. See CMS, Fact Sheet: Original Medicare (FeeFor-Service) Appeals Data – 2010. Accessed at https://www.cms.gov/Medicare/Appeals-andGrievances/OrgMedFFSAppeals/Downloads/Factsheet2010.pdf on August 8, 2012. 8 The case file refers to the administrative record and includes claims, medical records, and other evidence. See 42 CFR § 405.1044(b). 9 An ALJ may make a decision after an on-the-record review if the parties waive their right to a hearing or if the evidence supports a fully favorable decision for the appellant. See 42 CFR §§ 405.1000(e)–(g). See also 42 CFR § 405.1038. 10 Under certain circumstances, an ALJ may also dismiss an appeal or remand it to the prior level. See 42 CFR §§ 405.1034 and 405.1052.

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case files and on hearing testimony.11 The law protects ALJs’ independence to ensure that their decisions are impartial and free from HHS influence.12 Any party who is dissatisfied with the ALJ’s decision may appeal to the Medicare Appeals Council. When deciding appeals, adjudicators at all four levels conduct a new, independent review of the evidence and are not bound by the prior levels’ findings and decisions.13 After exhausting the four levels of the administrative appeals process, parties may seek judicial review in Federal District Court.
Changes to Medicare ALJ Appeals In 2005, HHS established the Office of Medicare Hearings and Appeals (OMHA), which created a group of ALJs dedicated to deciding Medicare appeals. These ALJs were required to follow new regulations that addressed how Medicare policy must be applied, when new evidence may be accepted, and how CMS may participate in appeals.
Prior to 2005, ALJs were bound by Medicare laws, regulations, and National Coverage Determinations when making decisions, but were not bound by Local Coverage Determinations or CMS program guidance. In 2005, new regulations were introduced that required ALJs to “give substantial deference” to these latter policies and to provide an explanation if they decline to follow one of these policies in an appeal.14
Prior to 2005, appellants were allowed to submit new evidence at the ALJ level without restrictions. Beginning in 2005, an appellant must explain in writing the reason for submitting new evidence and ALJs may accept the new evidence only if they determine that the appellant had “good cause” for waiting until the ALJ level to submit it.15
Before 2005, CMS was not allowed to participate in ALJ appeals, which were established as a nonadversarial system for appellants to present their cases before neutral judges.16 Under the new regulations, however, CMS may choose to participate in ALJ appeals as either a participant or a party. As a participant, CMS

11 42 CFR § 405.1046(a). 12 5 U.S.C. § 554(d). 13 This type of review is referred to as de novo. See CMS, Medicare Claims Processing Manual, Pub. No. 100-04, ch. 29, § 110; 42 CFR §§ 405.948, 405.968(a)(1), 405.1000(d), and 405.1100(c). 14 42 CFR § 405.1062(a)–(b). Prior to these regulations, Federal case law established that adjudicators should give deference to agency guidance, such as Local Coverage Determinations. See Shalala v. Guernsey Memorial Hospital, 514 US 87 (1995). QICs are also bound by Medicare laws, regulations, and National Coverage Determinations and must give substantial deference to Local Coverage Determinations and CMS program guidance. See 42 CFR § 405.968(b). 15 42 U.S.C. § 1395ff(b)(3). This restriction applies to providers and represented beneficiaries, but not to unrepresented beneficiaries. It also does not apply to oral testimony presented during the hearing. See 42 CFR §§ 405.1018(c) and 405.1028. 16 Before 2005, CMS participated occasionally when an ALJ requested its participation. See 70 Fed. Reg. 11459 (Mar. 8, 2005).

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may submit position papers and provide testimony during the hearing.17 As a party, CMS may also submit evidence to the ALJ, call or cross-examine witnesses during the hearing, and appeal to the next level.18 CMS contractors, rather than the agency, typically participate in ALJ appeals.
Related Work This report is part of OIG’s continuing work on Medicare ALJ appeals. Two OIG reports evaluated ALJ appeals when they were administered by SSA.19 These reports found that the different levels of appeal did not consistently apply the same standards and that CMS’s ability to defend its decisions was limited. OIG recommended requiring the different levels of appeal to apply the same standards, creating a dedicated ALJ corps for Medicare, and allowing increased participation from CMS at the ALJ level.
In addition, two OIG reports evaluated ALJ appeals after the transition from SSA to OMHA.20 These reports were focused on the timeliness of ALJ appeals and on the format of ALJ hearings, which included, for the first time, telephone and video teleconference hearings in addition to the in-person hearings used by SSA. The reports found that OMHA did not decide a number of its cases in a timely manner during its first 13 months of operation, but that timeliness improved by its third year of operation. In addition, OIG found that most appellants who were interviewed were satisfied with their hearing formats.
METHODOLOGY
We based this study on an analysis of: (1) data on appeals decided in FY 2010; (2) structured interviews with ALJs and other OMHA staff; (3) structured interviews with QIC and CMS staff; (4) policies, procedures, and other documents; and (5) data on CMS participation in ALJ appeals.
Appeals Data We obtained data on ALJ appeals from the Medicare Appeals System (MAS), a database that tracks appeals at the second and third levels. Using these data, we examined several characteristics of the appeals decided by ALJs in FY 2010.
We calculated the percentage of ALJ appeals for each appellant type— beneficiaries, providers, and State Medicaid agencies. We determined whether

17 42 CFR § 405.1010(c). 18 42 CFR § 405.1012. 19 OIG, Medicare Administrative Appeals: ALJ Hearing Process, OEI-04-97-00160, September 1999; OIG, Medicare Administrative Appeals: The Potential Impact of BIPA, OEI-04-01-00290, January 2002. 20 OIG, Medicare Administrative Law Judge Hearings: Early Implementation, 2005–2006, OEI-02-06-00110, July 2008; OIG, Medicare Administrative Law Judge Hearings: Update, 2007–2008, OEI-02-06-00111, January 2009.

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the different types of appellants were more likely to file appeals related to certain Medicare program areas (e.g., Part A hospital appeals).21 We also calculated the number of appeals associated with each unique appellant and identified the appellants who filed frequently.22 We considered appellants to be frequent filers if they had 50 or more appeals decided in FY 2010.
Next, we calculated the percentage of appeals associated with each type of ALJ decision: fully favorable to the appellant, partially favorable to the appellant, unfavorable to the appellant, or other.23 In addition, we determined the extent to which the fully favorable rate varied by Medicare program area and by appellant type.
We then analyzed how the fully favorable rate varied by ALJ.24 We determined whether the variation in fully favorable rates was associated with some ALJs’ deciding more appeals in certain Medicare program areas than other ALJs. To conduct this analysis, we compared each ALJ’s actual fully favorable rate to that ALJ’s expected fully favorable rate.25 In addition, we determined the extent to which frequent filers received different favorable rates from different ALJs. Finally, we determined whether certain ALJs were more likely than others to decide appeals after an on-the-record review of the case file.
We also obtained data from MAS on appeals that QICs decided in FY 2010. We used these data to calculate the percentage of QIC appeals that were fully favorable to appellants.
Structured Interviews With ALJs and Other OMHA Staff We conducted structured interviews with the Chief ALJ, the Executive Director of OMHA, the Managing ALJ from each field office, and a sample of ALJ teams.26

21 We analyzed DMEPOS appeals separately from other Part B appeals throughout the report. 22 To identify unique appellants, we took into account appellant information, such as name and Medicare identifier. In MAS, the Medicare identifiers include National Provider Identifiers and Health Insurance Claim Numbers, among others. Additionally, for appellants who were providers, we linked Medicare identifiers to information in CMS’s Provider Enrollment, Chain, and Ownership System to determine which providers were part of a chain. We considered all providers that had the same Medicare identifier or that were part of the same chain to be unique appellants. 23 Under certain circumstances, ALJs may dismiss appeals or remand them to the prior level; appellants may also escalate appeals to the next level if ALJs do not make timely decisions. See 42 CFR §§ 405.1034, 405.1052, and 405.1104. 24 For this analysis, of the 72 ALJs, we included the 66 who decided at least 50 appeals as fully favorable, partially favorable, or unfavorable during FY 2010. These ALJs accounted for 99 percent of all appeals. 25 To determine each ALJ’s expected rate, we first calculated the fully favorable rate among all ALJs for each Medicare program area; next, we multiplied these rates by the percentage of appeals that the ALJ had in that program area and summed the results. 26 OMHA’s central office and one of its field offices are located in Arlington, Virginia. The other three field offices are in Miami, Florida; Cleveland, Ohio; and Irvine, California. At the time of the interviews, the Virginia field office had 4 ALJ teams and the other three had 13, 21, and 18 ALJ teams, respectively. For the purposes of this report, we refer to all respondents as ALJ staff.

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We randomly selected 20 percent of the ALJ teams from each field office, for a total of 12 ALJ teams. The teams were each made up of an ALJ, an attorney, and other staff. We interviewed the ALJ and the attorney from each team. Our questions focused on ALJs’ approaches to decisionmaking, including their application of Medicare policies and their acceptance of new evidence, and on their experience with CMS participation in appeals. We conducted these interviews in December 2010 and January 2011.
Structured Interviews With QIC and CMS Staff We conducted structured interviews with key staff from the three CMS divisions that oversee the contractors that administer the first two levels of appeal, as well as other contractors that participate in ALJ appeals.27 We also conducted structured interviews with key staff from each of the five QICs and the Administrative QIC, which provides support to the QICs.28 Our questions focused on the QICs’ and other contractors’ experience participating in ALJ appeals and on the QICs’ approaches to decisionmaking. We conducted these interviews in August and September 2011.
Review of Documentation In the fall of 2010, we requested and reviewed written policies, procedures, and training materials from OMHA and CMS. We used these documents primarily to validate the information from our interviews.
CMS Participation Data We obtained data from CMS regarding its contractors’ participation in ALJ appeals that were decided in FY 2010.29 For each appeal, CMS indicated which contractor participated, whether the contractor was a participant or a party, and whether it submitted a position paper or testified at the ALJ hearing. We merged these data with the MAS data.
We then calculated the percentage of all ALJ appeals in which CMS participated and assessed how the rate of participation varied by Medicare program area and by type of contractor. We also determined the extent to which CMS was a participant versus a party and the extent to which it submitted position papers versus testified at ALJ hearings. Lastly, we compared the ALJ favorable rates when CMS participated to when it did not participate.

27 These other contractors include the Zone Program Integrity Contractors, Program Safeguard Contractors, and Recovery Audit Contractors, all of which take steps to recoup inappropriate Medicare payments. 28 For the purposes of this report, we refer to CMS and contractor respondents as CMS staff. 29 These data were limited to Medicare Part A, Part B, and DMEPOS appeals. CMS does not participate in Parts C and D appeals, which typically involve disputes between appellants and their private plans.

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Standards This study was conducted in accordance with the Quality Standards for Inspection and Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency.

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