D.C. Circuit Ruling Impacts Medicare Providers and Suppliers Seeking Relief from Medicare Audit Appeals Backlog

In yet another twist for Medicare providers and suppliers facing delays in Medicare reimbursement due to the growing backlog in Medicare appeals, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) reversed and remanded a federal district court’s order that required the Department of Health and Human Services (HHS) to clear the backlog of Medicare audit appeals within four years. On August 11, 2017, the D.C. Circuit held that the district court abused its discretion in ordering the HHS Secretary to clear the backlog within four years because it failed to seriously test the Secretary’s assertion that lawful compliance with the court’s order would be impossible.

Medicare’s recovery audit program was implemented to detect waste, fraud and abuse in federal health care programs. HHS contracts with third party auditors to review claims and identify improper payments on behalf of the federal government. The program has evolved over time to include Recovery Audit Contractors (RACs), Medicare Administrative Contractors (MACs), Zone Program Integrity Contractors (ZPICs), Unified Program Integrity Contractors (UPICs), and other types of contractors that vary based on geographic jurisdiction and mandate. Once a claim is denied, Medicare providers and suppliers may appeal the contractor’s determination through a five level appeal process. The third level of appeal is a hearing before an administrative law judge (ALJ) of the Office of Medicare Hearings and Appeals (OMHA). Per federal law, ALJs must hold a hearing and render a decision within ninety days of a provider’s request for hearing. While providers and suppliers may stop recoupment of any alleged overpayment during the first two stages of the appeals process, CMS withholds Medicare reimbursement from unrelated payable claims during the ALJ stage of review.

Due to a dramatic increase in Medicare appeals since 2011, HHS has been unable to meet the statutory deadlines. At time the district court ordered HHS to clear the backlog within four years, HHS statistics showed that the average timeframe for ALJ appeals was 935 days. Accordingly, Medicare providers and suppliers are often without Medicare reimbursement for periods of time not contemplated by Congress, which is compounded by the fact that providers and suppliers experience high success rates at the ALJ level of appeal.

The present case, American Hospital Association et al. v. Burwell, was filed in 2014 to compel the Secretary of HHS to process Medicare appeals within the statutory timeframes. After the district court initially dismissed the case for lack of jurisdiction, the D.C. Circuit remanded the case for a determination on the merits. On December 5, 2016, the district granted plaintiffs’ motion for summary judgement and ordered HHS to clear the Medicare appeals backlog in full by December 31, 2020. The district court’s order required HHS to reduce pending ALJ hearings by 30% in 2017, 60% in 2018, 90% in 2019, and 100% in 2020, respectively. Medicare providers and suppliers thus expected HHS to quickly pursue widespread initiatives to reduce the backlog in Medicare appeals.

Pursuant to the D.C. Circuit’s most recent ruling, the case has been remanded to the district court to determine whether compliance with the court-imposed deadlines is possible. HHS will be required to meet a high-legal standard to demonstrate that compliance is not possible, especially in light of both courts’ dismissal of HHS’ assertion that it has done all it can to reduce appeals. In making this determination, the court will evaluate the Secretary’s contention that adjustments to the Medicare program will be insufficient to clear the backlog, as well as the legality of utilizing mass settlements to eliminate the backlog.

In sum, while HHS is not currently required to meet the four year timetable, HHS will continue to pursue legislative and administrative initiatives to reduce the backlog in Medicare appeals. Current initiatives include the Settlement Conference Facilitation (SCF) and Statistical Sampling Initiative programs. Medicare providers and suppliers with pending appeals must evaluate these initiatives and other forthcoming opportunities in light of the continuing developments in this case and the ongoing backlog in Medicare appeals.