ALJ Backlog: Latest Development

By: Jeffrey S. Baird, Esq.

The current administrative appeals process is beyond unfair to DME suppliers. A supplier will get hit with a post-payment audit involving multiple patients. The auditing contractor will look for reasons to deny the claims and seek recoupment. The contractor will send a recoupment letter to the supplier … and then the administrative appeals process begins. If the supplier timely appeals to the redetermination stage, then CMS will be unable to offset against payments in the pipeline, and against future payments, to pay for the claims denied during the audit. Under the auspices of a “stacked deck,” it is unlikely that the supplier will be very successful at the redetermination stage. If the supplier timely appeals to the reconsideration stage, then there will be no offsets. As with the redetermination stage, the chances of substantial success at the reconsideration stage are low.

And then the supplier enters a parallel universe. After the reconsideration stage, the supplier will appeal to the Administrative Law Judge (“ALJ”). The good news for the supplier is that the odds of success at the ALJ stage increase appreciably. The bad news is two-fold. First, CMS can offset while waiting for the ALJ decision. Secondly, because of the huge backlog of cases pending before ALJs, it will take years before the supplier’s appeal is heard. By the time the appeal is heard, CMS will have recouped all of the money that the supplier owes after the reconsideration stage. The supplier is in the proverbial “no win” situation.

Trial Court Ruling

Other providers are in the same boat. One such group is the hospital industry. The American Hospital Association (“AHA”) brought a lawsuit to force CMS’ hand. On December 5, 2016, the U.S. District Court for the District of Columbia granted summary judgement in American Hospital Association et.al., v. Burwell in favor the AHA in its lawsuit to reduce and eliminate the backlog of Medicare reimbursement appeals. The ruling requires DHHS to eliminate the backlog of Medicare reimbursement appeals by December 31, 2020, as part of a four year reduction plan. Specifically, the court adopted AHA’s proposal to reduce the appeals backlog pursuant to a four-year timetable:

• 30% reduction from the current backlog of cases, pending at the ALJ level, by December 31, 2017;
• 60% reduction by December 31, 2018;
• 90% reduction by December 31, 2019; and
• 100% reduction by December 31, 2020.

The court order also requires DHHS to file quarterly status reports to update the statistics for the current and projected backlog, in which DHHS must also describe any significant administrative or legislative actions that will affect the backlog.

Subsequently, DHHS filed a motion for reconsideration. In so doing, DHHS argued that it will be able to meet the deadline only by “blindly paying Medicare claims without regard to merit.” In rejecting the motion, the court stated: “The court is not unsympathetic to [HHS’] plight, nor does it take lightly the decision to intervene in an executive agency’s efforts to respond to a complex problem … This court must follow the instructions of the D.C. Circuit, however, and here the standard it set out led this court to conclude that equitable ground existed for [relief] and that the reductions timetable was the most appropriate form of such relief.”

Appeal by DHHS

DHHS appealed the District Court’s ruling to the D.C. Circuit, arguing that without increased funding from Congress, DHHS cannot meet this schedule unless it settles large numbers of claims without vetting their credibility. In its brief, DHHS said: “No principle of law authorized a district court to employ its equitable powers to effectively require settlement of claims regardless of their merit.” DHHS asked the appellate court to reverse the trial court’s order and let DHHS work to reduce the backlog at its own pace. DHHS acknowledged that there is no dispute that cleaning out the backlog is a priority of DHHS’ Office of Medicare Hearings and Appeals (“OMHA”) and that OMHA has dedicated all available funds to the job. “The backlog stems from inadequate appropriations and the agency has no lawful means of eliminating the backlog absent additional appropriations,” DHHS said. “A writ of mandamus cannot properly issue where an agency has marshaled all its available resources to meet statutory requirements, and the district court erred in holding otherwise.”

OMHA, which oversees the nationwide ALJ hearing program for Medicare reimbursement appeals, is funded via a line-item appropriation in the federal budget each year. According to DHHS, despite repeatedly asking for funding increases for itself and OMHA, DHHS has been unsuccessful in obtaining the requested funding increases. According to DHHS, it has undertaken a series of measures that have “significantly reduced” the number of pending cases but without increased funding it cannot do any more. Because the problem stems from a lack of resources, it is a problem for the political branches, the agency says.

In its appellate brief, DHHS stated that the combined outstanding claims are worth about $6.6 billion, and based on the 2016 success rate of providers in Medicare appeals hearings, the agency expects less than 30% of the backlog to meet payment requirements. Given these statistics, the agency says, the trial court is ordering DHHS to ignore its statutory responsibility to only pay claims that deserve to be paid and to instead pay out hundreds of millions of dollars that DHHS should not be paying.

DHHS made the same argument before the trial court. The court rejected the argument, saying that the agency is dodging the fact that it is also legally bound to meet deadlines for how fast the appeals should be resolved … deadlines that are flagrantly being ignored.

And so this is the proverbial “chicken and egg” scenario. DHHS is saying that the law requires it to carefully scrutinize claims and only pay those that DHHS (or more specifically, its hired contractors) deems to be appropriate. DHHS contends that it cannot meet its legal obligations unless Congress gives DHHS more money. In other words, DHHS is essentially saying: “It is not our fault. It is Congress’ fault.” On the other hand, the trial court is essentially saying: “Enough is enough. DHHS, you cannot ignore your statutory duty to expeditiously process ALJ appeals by claiming a lack of funding.”

It is unfair to health care providers, including DME suppliers, for DHHS to “kick the can down the road” and say “let us fix this in our own due time.” The trial court is forcing the issue.

Decision by the Appellate Court

In a recent ruling, the D.C. Circuit Court of Appeals concluded that the trial court “acted too hastily” in ordering DHHS to clear the backlog of ALJ appeals by December 31, 2020. In a 2-1 ruling, the D.C. Circuit ordered the trial court to take a “deeper look” at whether DHHS can clear the backlog of approximately 600,000 appeals by the end of 2020 “while still protecting taxpayer dollars.”

According to the appellate court, the trial court erred because it did not evaluate DHHS’ contention that it can only clear the backlog by entering into mass settlements that pay providers and suppliers regardless of the merits of their appeals … something that might violate DHHS’ legal duty to pay only legitimate Medicare claims. The appellate court said: “By declining to evaluate [DHHS’] claims, the [trial] court was, in effect, saying, ‘Hit the targets by any means necessary….But if the necessary means were unlawful, the [trial] court could not have mandated them; equity courts, like any other, may not order parties to break the law.”

The appellate court said that the trial court should have assessed DHHS’ assertion that the four year timetable would encourage providers/suppliers to file even more appeals in the hope that DHHS would have no choice but to pay them.

At the same time, the D.C. Circuit said that DHHS has a “heavy burden” when it comes to proving that it will be impossible to clear the backlog while adhering to its legal obligations. The dissenting opinion stated that the trial court’s decision should have been left in place, noting that DHHS should have made a “strong threshold showing of impossibility.”

And so the trial court is now required to consider the arguments made by DHHS and then render another decision. As to what that decision will be is unknown. Perhaps the trial court will give DHHS a longer period of time to clean up the ALJ backlog. Perhaps the trial court will be able to craft a different type of solution to the backlog. We will see …

Conclusion

The ALJ backlog, which is now 10 times larger than it was six years ago, has been blamed on the country’s fast-growing Medicare population, aggressive audits, and the inclination of providers/suppliers to appeal denied claims. More than $6.5 billion in claims are now tied up in pending appeals, and appeals take an average of over 1000 days to process. The current state of affairs is unacceptable. Hopefully, the trial court will issue an order that is fair to all providers and suppliers, including DME suppliers.

Attribution: Portions of this article were taken from Law360 articles written by Stewart Kameen, Esq., Jeff Overley, and John Kennedy.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.