i

FUNDAMENTALS OF

MEDICARE CLAIMS APPEALS

by JAMES P. KELLY

TABLE OF CONTENTS

I.  INTRODUCTION ............................................................................................................ 1 

A.  Purpose. ................................................................................................................ 1 B.  Other References ................................................................................................. 1 C.  Five Level Appeal Process .................................................................................. 1 

1.  General. .................................................................................................... 1 2.  “Initial Determination.” .......................................................................... 2 3.  First Level: Redetermination. ................................................................... 3 4.  Second Level: Reconsideration. ............................................................... 4 5.  Third Level: ALJ Hearings. ...................................................................... 7 6.  Fourth Level: Medicare Appeals Council. ............................................. 13 7.  Fifth Level: Federal Court. .................................................................... 16 

II.  SPECIAL PROBLEMS. ................................................................................................ 16 A.  Challenge to Manuals, Instructions and Methods. ......................................... 16 

1.  Limited Authority of the Medicare Internet Only Manual (IOM) and Other Medicare Manuals. ...................................................................... 16 

2.  Contemporaneous Records. ................................................................... 17 B.  Judicial Challenges ............................................................................................ 17 C.  “Consent Settlement” Demands and Agreements. ......................................... 19 D.  Repetitive Denials After “Non-Precedential” Determinations. ..................... 20 E.  Exhaustion of Administrative Remedies Not Required for Government

Overpayment Recovery Efforts. ...................................................................... 20 F.  Asking CMS and DHHS for Help .................................................................... 21 G.  Sampling and Extrapolation Claims. ............................................................... 21 H.  Stay of Recoupment .......................................................................................... 24 I.  Service of Documents to Beneficiaries ............................................................. 25 J.  Parallel Proceedings. ......................................................................................... 26 K.  Burden of Proof. ................................................................................................ 27 L.  Obtaining Records ............................................................................................. 28 M.  Special Defenses; Untimely Reopening; Provider/Supplier Without Fault;

Waiver of Liability ............................................................................................ 30 1.  Untimely Reopening ............................................................................... 30 2.  Provider/Supplier Without Fault ............................................................ 31 3.  Waiver of Liability .................................................................................. 32 4.  Medical Necessity. .................................................................................. 33 

1

FUNDAMENTALS OF

MEDICARE CLAIMS APPEALS

by JAMES P. KELLY

I. INTRODUCTION

A. Purpose.

The author has many decades of experience in bringing Medicare claims appeals on behalf of providers, suppliers, and physicians. The purpose of this paper is to share the author’s experience and solutions in handling certain selected complications and difficulties which arise, from time to time, in protecting entitlement to Medicare reimbursement.

B. Other References

An excellent guide and reference collection to the full range of Medicare administrative appeals is Cody & Scully-Hayes, A Practical Guide to Medicare Appeals, (American Bar Association, 2007).

More advanced, comprehensive coverage is available in Perling, Medicare Claims

Appeals Process Handbook (Aspen 2008). Another helpful source of guidance is the more than 80 selected recent decisions of the

Medicare Appeals Council at http://www.hhs.gov/dab/divisions/medicareoperations/macdecisions mac_decisions.html.

Of course, one should also become familiar with the Internet Only Manual, publication

100-4 Medicare Claims Processing Manual, Chapter 29 Appeals of Claims Decisions (Rev. 1986, June 11, 2010) which relates to claims appeals.

C. Five Level Appeal Process

In the December 9, 2009 Federal Register (74 Fed. Reg. 65296), CMS issued final

regulations for Part A and Part B claims appeals. To fully understand these final regulations, one should read the preambles to these final rules and their predecessor preambles in the March 8, 2005 Federal Register (70 Fed. Reg. 11420), which contained the interim final rules, and the November 15, 2002 Federal Register in which the rules were originally proposed for comment.

1. General.

The Medicare claims appeals rules establish a unified five step appeal process for Part A

and Part B claims. The rules became effective for new Part A “redeterminations” on May 1, 2005. They became effective for new Part B “redeterminations” on January 1, 2006. The principal features of these rules:

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a. (i) By statute govern appeals of “initial determinations” made on or after October 1, 2002 and (ii) as a matter of practicality in light of the dismantling of the prior appeals process, may, at least in part, likely govern appeals of initial determinations made before October 1, 2002.

b. Impose time deadlines for issuing decisions.

c. Consolidate Part A and Part B into a uniform appeal process.

d. Calls an initial appeal a “redetermination” and replaces Part A’s

“reconsideration” and Part B’s “review” processes.

e. For Part B claims, the new appeals process abolished the carrier fair hearing and replaced it with the “reconsideration” level handled by a Qualified Independent Contractor (“QIC”). Current QICs are: Integriguard, LLC, Q2 Administrators, Island Peer Review Organization, Rivertrust Solutions, Inc., Maximus, LLC, and C2C Solutions, Inc., CMS has assigned responsibilities among the QICs as follows:

i. Administrative QIC (“AdQIC”) – Q2 Administrators.

(The AdQIC is to function as a file clearinghouse among the contractors, QICs, and ALJs. The AdQIC is also to develop procedures, training, and data analysis for the QICs and CMS.

ii. Part A QICs – Maximus (East and West Jurisdictions) iii. Part B QIC - Q2 Administrators (South Jurisdiction) C2C Solutions (North Jurisdiction) iv. Part B DME - C2C Solutions v. Part C - Maximus vi. Part D QIC - Maximus

f. QICs are to be independent of carriers and intermediaries.

2. “Initial Determination.”

An “initial determination” must exist to start the Medicare claims appeal process. To obtain an initial determination, one must present a claim for reimbursement, except in cases of expedited prior approval appeals for Parts A, C and D. The contractor’s decision on that claim is the “initial determination.”1 A common form of “initial determination” is the Medicare Summary

1 42 C.F.R. § 405.920.

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Notice (“MSN”) (formerly called Explanation of Medical Benefits) or “Remittance Advice” forms sent by the contractor to the beneficiary, supplier or provider in response to a claim presented for reimbursement.

It is important to ascertain whether the provider/supplier has received an appealable

“determination.” Sometimes, providers/suppliers receive a “consent settlement” demand, which superficially looks like a denial of payment, but which is not an appealable determination. Additionally, contractors also deny claims based on “technical” deficiencies in the paperwork accompanying the reimbursement claim, i.e., missing paperwork, incorrect signatures, etc. Some contractors may deem these “technical denials” as non-appealable on the basis that they represent a fatally defective presentation of a claim.2

An initial determination which is revised in a reopening by the contractor is binding

unless reversed in a redetermination appeal.3 This rule indicates that appeals of claims reopened by post-payment audits would have to start at the first level (redetermination) of the appeal process.

3. First Level: Redetermination.

a. Request for “redetermination” must be made within 120 days of the initial determination. Use CMS Form 20027 to file the request. This form is available at http://www.cms.gov/Medicare/Appeals-and-Grievances/OrgMedFFSAppeals/Downloads/CMS20027a.pdf.

b. Redeterminations must be decided by the contractor within 60

days of the filing of the appeal request, unless additional evidence is submitted after the filing of the appeal request. The decision deadline is extended fourteen (14) days for each such submission.4

c. No right to escalate to next level if contractor does not issue

decision within 60-day (as extended) time frame.5 d. Stricter rules for content of appeal notice.6 e. Contractor has more latitude to dismiss appeals for technical or

procedural defects.7 f. No hearing, but desk review must be conducted by a different

individual than the one who made the initial determination.8

2 42 C.F.R. § 405.926(n). 3 42 C.F.R. § 405.984. 4 42 C.F.R. § 405.950(b)(3). 5 Compare 42 C.F.R. § 405.950 with 42 C.F.R. § 405.970(d), (e). 6 42 C.F.R.§ 405.944. 7 42 C.F.R. § 405.952. 8 42 C.F.R. § 405.948.

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4. Second Level: Reconsideration.

a. Request for a “reconsideration” before a QIC must be made within 180 days of receipt of the redetermination. Use CMS Form 20033 to file the request. The form is available at www.cms.gov/Medicare/Appeals-and-Grievances/OrgMedFFS Appeals/Downloads/cms20033.pdf.

b. QICs should complete the appeal decision within 60 days (unless

period extended by submission of new evidence) or appellant can, upon request, “escalate” to ALJ level.9 Risk to appellant of escalation is that the record may not be sufficiently developed. If escalation is requested, the QIC has 5 additional days to complete the reconsideration. If the reconsideration cannot be completed in that timeframe, then the QIC must forward the case file to the ALJ. However, if appellant does not request an escalation after the 60 days, then QIC is only required to issue the appeal decision as soon as possible.

c. Submit all necessary evidence required at QIC level. New evidence cannot be considered at subsequent levels of appeal, unless good cause is shown. Evidence may be presented to the QIC at any time before its decision. Generally, each such submission automatically extends the QIC’s decision making period by fourteen (14) days.10 There is, however, a catch. QICs are not required to wait to the end of the 60 day, or otherwise extended, pre-escalation-rights period to make their reconsideration decisions. In fact, sometimes without notice to appellants, QICs issue a decision earlier. An early QIC decision may put the appellant in the position of not having submitted all evidence which the appellant wished (a) the QIC to consider and (b) to be in the record for review by the ALJ. To reduce this risk, appellants should overcome probable QIC resistance and establish regular communication with the QIC adjudicator. If the appellant is planning to submit further evidence to the QIC, the appellant should notify the QIC in writing of this intent, ask the QIC not to issue a decision until the appellant has submitted the evidence, and keep track of where the QIC is in the QIC’s decision process. Even if the appellant does this, the QIC may still issue an early decision without receiving the additional evidence. Once the QIC issues its decision, then the limitation on recoupment ends, and the appellant can expect recoupments to start around forty-one (41) days later. If the QIC issues such an early decision, then one option for the appellant is to request that the QIC reopen its reconsideration decision. Reopening is purely discretionary with the QIC, and during the pendency of the request for reopening the 60 day period to appeal to the ALJ continues to run. If the situation is egregious, such as where the

9 42 C.F.R. § 405.970. 10 42 C.F.R. § 405.966(b).

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QIC knew that the appellant would be submitting additional significant evidence, an appellant may consider contacting the CMS Division of Appeal Operations and the CMS Office of Financial Management (which oversees recoupment procedures) to encourage the QIC to exercise its discretion to reopen the decision with retroactive effect by declaring its prior decision of no effect. If the decision is reopened in this manner, then recoupment is to stop and recouped amounts should be refunded. If the QIC will not reopen its decision, then the appellant should consider submitting its additional evidence for the QIC to include in its post-decision records. Arguably, if such evidence is in the QIC’s files prior to the ALJ receiving the record from the QIC, then such evidence should not be considered inadmissible “new evidence” by the ALJ. Alternatively, one can argue to the ALJ that the QIC’s early decision without all the evidence is “good cause” for the ALJ to admit the “new evidence” which would have been submitted to the QIC during the pre-escalation-rights period, but which was not considered by the QIC.

d. On questions of medical necessity, the QIC must use panels of

physicians or other “appropriate health care professionals.”11

e. QIC may obtain evidence on its own.12

f. QICs are not bound by LCDs, LMRPs or CMS program guidance, “such as program memoranda or manual instructions, but [must] give substantial deference to these… .”13

g. No hearing at the QIC level; only on-the-record (“OTR”)

review.14

h. A dismissal by the MAC can be reviewed by the QIC, but not at a higher level.

i. Maximus, LLC is the QIC for both the Part A East and West

jurisdictions. (http://www.maximus.com/services/federal/health-appeals/appeals-inquiries) 15 16

11 42 C.F.R. § 405.968(a). 12 42 C.F.R. § 405.968(a). 13 42 C.F.R. § 405.968(b). 14 42 C.F.R. § 405.968(a). 15 Maximus Federal Services QIC Part A East 3570 Monroe Ave., Ste.701 Pittsford, NY 14534

Colorado, New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Florida, Tennessee, South Carolina, North Carolina, Virginia, West Virginia, Puerto Rico, Virgin Islands, Maine,

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j. Q2 Administrators17 (www.q2a.com) is the QIC for the Part B

South jurisdiction and C2C (www.c2cinc.com) handles the reconsideration appeals for both the Part B North jurisdiction18 and DME.19

k. A QIC’s geographic jurisdiction should be specified in the notice

of redetermination,20 but generally will be determined by the state where the medical equipment, supply or service was supplied or provided. In the case of chain providers, the jurisdiction is with the QIC with responsibility for the state within which the provider’s intermediary (for the claim in question) is located. The exception to the chain provider rule is that for claims redetermined by WPS in Jurisdiction 5 reconsideration appeals are directed to Maximus Federal QIC.

Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New Jersey, New York, Delaware, Maryland, Pennsylvania, and Washington DC.

16 MAXIMUS Federal Services, Inc. QIC Part A West 3570 Monroe Ave., Ste.706 Pittsford, NY 14534

Washington, Idaho, Montana, North Dakota, South Dakota, Iowa, Missouri, Kansas, Nebraska, Wyoming, Utah, Arizona, Nevada, California, Alaska, Hawaii, Oregon, Kentucky, Ohio, Indiana, Illinois, Minnesota, Michigan, Wisconsin, Guam, Northern Mariana Islands, and American Samoa. 17 Q2 Administrators Part B QIC South Operations P.O. Box 183092 Columbus, Ohio 43218-3092 Attn: Administration Manager Colorado, New Mexico, Texas, Oklahoma, Arkansas, Louisianan, Mississippi, Tennessee, Alabama, Georgia, Florida, North Carolina, South Carolina, Virginia, West Virginia, Puerto Rico, Virgin Islands. 18 C2C Solutions, Inc. Part B North Reconsiderations P.O. Box 45208 Jacksonville, FL 32232-5208 Alaska, Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island, District of Columbia, New York, Pennsylvania, New Jersey, Delaware, Maryland, Ohio, Kentucky, Indiana, Illinois, Michigan, Wisconsin, Minnesota, Missouri, Iowa, Kansas, Nebraska, South Dakota, North Dakota, Wyoming, Montana, Idaho, Washington, Oregon, California, Nevada, Arizona, Utah, Hawaii, Guam, Northern Mariana Islands, American Samoa. 19 C2C Solutions, Inc. DME Reconsiderations P.O. Box 44013 Jacksonville, FL 32231-4013 20 42 C.F.R. § 405.964(a).

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l. The Administrative QIC (“AdQIC”) is responsible for

developing operational procedures and protocols for the QICs, data analysis for CMS and the QICs, training of QIC personnel, and serving as a liaison in case file distribution between the Office of Medicare Hearings and Appeals (OMHA), and the Medicare Appeals Council. For additional information on the AdQIC, please visit www.q2a.com.

a. Use CMS Form 20033 for filing appeals to QICs as published at

www.cms.gov/Medicare/Appeals-and-Grievances/OrgMedFFS Appeals/Downloads/cms20033.pdf.

b. The office with general oversight responsibility over QICs is:

CMS Centers for Medicare Medicare Enrollment and Appeals Group Division of Appeals Operations ATTN: Maria Ramirez 7500 Security Blvd. Mail Stop C2-12-16 Baltimore, MD 21244

To resolve problems with QICs on procedural issues, direct inquiries to the QIC project officer in the CMS Division of Appeals Operations, who is:

Maria Ramirez maria.ramirez@cms.hhs.gov 410-786-1122 410-786-9963 (fax)

c. The office with oversight of overpayment recoupment is the

Financial Services Group, Division of Medicare Debt Management. Debbie Miller Deborah.Miller3@cms.hhs.gov 410-786-0331 This is the office to contact if a contractor has prematurely commenced recoupment in violation of a stay of recoupment.

5. Third Level: ALJ Hearings.

a. Amount in controversy (for 2013) must be at least $140, adjusted annually by the medical care component of the consumer price index for all urban consumers. The amount in controversy requirement can be met by aggregation of (i) individual claims

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each under $140 (for 2013) if the claims involved the delivery of similar or related services to the same individual or involved common issues of law and fact arising from services furnished to two or more individuals, (ii) two or more suppliers involving common issues of law or fact arising from services provided to multiple beneficiaries,21 and (iii) “shoe box” claims in which a single supplier can include adverse determinations of all types for multiple beneficiaries.22 Disputed amounts previously paid under “limitations of liability” can be included in calculating the amount in controversy.23

As a practical matter, the techniques of aggregating claims are less important for the purposes of meeting the $100 amount in controversy requirement than they are for the purpose of assembling cases of sufficient size to warrant the considerable expense of bringing such appeals. “Aggregation” of claims differs from “consolidation” of claims. “Consolidation” of claims is a matter within the ALJ’s discretion.

b. When: within sixty (60) days of receipt of the QIC determination.

c. Specify exactly which determinations you are appealing. Avoid

general appeal statements, such as, “I appeal the QIC’s decision.” Often, the QIC will decide some determinations in your favor, and some against you. You do not want to appeal the favorable determinations. If an ALJ indicates that he or she wants to re-open determinations which the QIC decided in your favor, remind the ALJ that (i) Medicare policy is that “It is not intended that the appeals procedure be used as a vehicle to audit favorable initial determinations to the detriment of the party that is appealing the denied portion of the claim”24 and (ii) the regulations specify that it is the appellant who designates the specific claims to be aggregated for an appeal.25 However, if evidence is presented to the ALJ before or during the hearing which causes the ALJ to question a fully favorable determination, he or she may re-open and re-decide the fully favorable determination.26 A dismissal by a QIC may be appealed to an ALJ, but to no higher level.

d. How: by a writing clearly evidencing a request for an ALJ

hearing on forms or with all information required on the prescribed DHHS forms. The prescribed form to request an ALJ

21 Moore v. Sullivan, 785 F. Supp. 44 (S.D.N.Y. 1992), Medicare and Medicaid Guide (CCH) ¶ 40,011. 22 See 42 C.F.R. § 405.1006(e). 23 42 C.F.R. § 405.1006(d)(2). 24 IOM 100-4, Medicare Claims Processing Manual, Ch. 29. 25 42 C.F.R. § 405.1006. 26 42. C.F.R. § 405.1000(d).

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appeal is Form CMS 20034A/B which may be found at www.cms.gov/Medicare/CMS-Forms/CMS-Forms/Downloads /CMS20034AB.pdf. The request must be filed with the entity specified in the QIC’s reconsideration determination.27

e. ALJs must decide the case within 90 days, or appellant may

escalate to Medicare Appeals Council. The 90 days starts when the appeal request is received at OMHA; not when the record is received from the QIC.

f. Appellant may waive 90 day deadline, and it may be wise to

waive escalation in order to receive favorable consideration of “good cause” requests for new evidence, such as statistical expert witness testimony.

g. QICs may participate in ALJ hearings “as required by the

Secretary.”

h. Four regional centers for OMHA ALJs. OMHA is part of DHHS, but not part of CMS. OMHA administratively houses the ALJ function.

1. In a recent change, OMHA requires appellants to file

appeals for ALJ review with its new “Centralized Docketing” office. Its address is:

HHS OMHA Centralized Docketing 200 Public Square, Suite 1260 Cleveland, OH 44114-2316

Depending on caseload balance among the four OMHA Filed Offices, the Centralized Docketing Office may assign an appeal to any of the Field Offices, rather than appeals always being sent to the Field Office previously serving the appellant’s HHS Region.

2. Please direct inquiries to any one of the following toll-

free numbers: a) Mid-Atlantic Field Office28 (866) 231-3087 b) Southern Field Office29 (866) 622-0382 c) Mid-West Field Office30

27 42 C.F.R. § 405.1014(b). 28 42 C.F.R. § 405.1037(a) 29 42 C.F.R. § 405.1037(a)

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(866) 236-5089 d) Western Field Office31 (866) 495-7414

i. Videoconference hearings.

- In-person appearance of right only for appellant, if approved by presiding ALJ.

- To increase odds of receiving an inperson hearing, consider offering to present the case in person before the ALJ at his or her regional center. Such an offer should remove DHHS’s hesitancy to have inperson ALJ hearings because of government travel costs.

- OMHA may offer to pay for at least one OMHA-

approved remote VTC studio access for an appellant. j. New evidence admitted only for good cause.

- Exceptions: oral testimony at the hearing; CMS; or unrepresented beneficiaries.

k. Discovery available, if CMS enters as a party.32 l. Tip: Seek inperson hearing (be prepared to travel to ALJ regional

hearing center).

m. Tip: Specify if there is a dire need for earlier scheduling of the hearing.

n. Tip: Examine, and if possible obtain a copy of, the ALJ’s copy

of the Record.33

o. Tip: Request a prehearing conference.34 There is not a right to a prehearing conference, but ALJs can be expected to grant them because they are usually very helpful to the ALJ in managing the adjudication of the appeal. A prehearing conference may present an opportunity to meet the ALJ’s attorney advisor and support staff, who can be very helpful in the smooth handling of problems which may arise. The topics which can be covered include, but are not limited to:

1. Witnesses

30 42 C.F.R. § 405.1037(a) 31 42 C.F.R. § 405.1037(a) 32 42 C.F.R. § 405.1037(a). 33 42 C.F.R. § 405.1042. 34 42 C.F.R. § 405.1040.

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a) Will ALJ have his/her own witness(es) b) Expert witnesses. c) Remote testimony of witnesses. d) Use of affidavits in lieu of live testimony. e) What role will QIC play?

2. Parties

a) Is CMS (or a MAC or QIC) intervening as a “party” or participating as a “participant”?

b) Will CMS be filing briefs or offering evidence as a “participating” non-party?

c) Will “participants” be subject to cross-examination by the appellant?

3. Documents.

a) Review the record. b) Arrange copying of the record. c) Identify defects in the record. d) Ascertain how OMHA has organized and

marked the exhibits in the record. Ascertain if there is a master file in addition to files for claims for individual beneficiaries.

4. Stipulations/Issues/Discovery Needs.

a) Discuss possible stipulations. b) Offer to prepare prehearing briefs on critical

issues and pertinent law. c) Discuss discovery needs, subpoenas, etc. d) Determine what will help the ALJ handle the

case.

5. Determination of place and time of the hearing. 6. Hearing Planning.

a) Estimate length of hearing. b) Order of presentation. c) Discuss types of exhibits (especially if other

than paper exhibits). d) Discuss any complications in a “big box” appeal

(namely, an appeal with voluminous records).

7. Obtain permission to use a court reporter (as unofficial recorder). The transcript will be helpful for post-hearing briefs and proposed findings of fact, if such are allowed by the ALJ. To hedge against OMHA’s or other’s loss of the OMHA digital recording of the hearing (which is

12

the official record of the hearing), obtain a duplicate of the digital recording at the conclusion of the ALJ hearing. The digital recording will be a necessary part of the record, if further appeal is necessary.

8. Videoconferencing arrangements.

a) Coordinating and obtaining approval of location,

equipment and VTC technicians. b) Coordination of document numbering and

indexing for coordinated remote referencing of documents.

c) Coordination of exhibit marking system. d) Determine system for handling non-paper

exhibits, PowerPoint presentations, physical evidence, videos, etc.

e) Obtain firewall access authorizations and pretest of electronic measures.

p. There are only approximately 80 OMHA ALJs, so their

individual workloads will be very heavy. Do everything you can to make it easy for the ALJ to decide your case. For example, specify in the appeal request or in a prehearing brief the issues involved, an explanation of the relevant law, and a summary of the evidence.

q. ALJs may remand a case to the QIC for certain reasons,

including where “the written record is missing information that is essential to resolving the issues on appeal and that information can only be provided by CMS or its contractors… .”35

r. ALJs have subpoena power.36

s. Tip: Be proactive on transfer of appeal records. Don’t assume

that they will be transferred in complete or accurate form or timely.

t. If unresolved administrative problems arise in dealing with an

OMHA ALJ regional office, consider seeking assistance or intervention from the OMHA or an attorney from the DHHS Office of General Counsel. If there is an unresolved problem in the QIC’s assembly or transmittal of the appeal record to the ALJ, consider contacting the CMS Division of Appeal Operations (see page 7 supra.).

35 42 C.F.R. § 405.1034. 36 42 C.F.R. § 405.1036.

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6. Fourth Level: Medicare Appeals Council.

a. When: within sixty (60) days of receipt of notice of ALJ decision.37

b. How: by a writing clearly evidencing desire for a Medicare

Appeals Council review and otherwise complying with 42 C.F.R. §405.1112 or by Form DAB 520. Time sensitive appeals may be faxed. On urgent matters call the Operations Director to arrange expedited handling of the appeal after it is filed. Forms are available at www.hhs.gov/dab. In the appeal petition, reference both the ALJ docket number and the individual Medicare health insurance numbers of the beneficiaries whose claims are being appealed. Also reference the date of the ALJ decision, the original carrier, intermediary, or Medicare administrative contractor and type of claim/service being appealed. With the request for appeal, you should submit all documents or other supporting evidence which you wish to be considered (assuming, of course, that such evidence has been admitted by the ALJ). At a minimum, include the ALJ decision and its attachments, if any. In voluminous filings, point out or highlight pertinent points and information to assist the Medicare Appeals Council personnel in organizing the case for consideration by the judges. The AdQIC (see page 7 supra) is formally in charge of transmitting the record of the ALJ hearing to the Medicare Appeals Council. It may be wise to confer with the AdQIC to insure that it has acquired and is transmitting all parts of the ALJ’s record. This is particularly important with respect to easily misplaced or overlooked items such as the digital recording of the hearing, passcodes to encrypted electronic data, and lack of corruption in electronic data and evidence files. If there is an unresolved problem with the AdQIC in the transmittal of the appeal record to the Medicare Appeals Council, consider contacting the CMS Division of Appeals Operations (see page 7 supra).

c. If the ALJ has ruled favorably for you on a substantial number of

determinations under appeal, think carefully about whether you want to risk reversal of those favorable determinations by appealing to the Appeals Council. The reason for this risk is that the Appeals Council is authorized to review de novo all elements of the ALJ’s decision.38 While the Appeals Council can review all determinations, the practice of the Appeals Council is not to open all issues but is to focus on the issues specified by the appellant.

d. The Medicare Appeals Council was formerly a part of the Social

Security Appeals Council, but is now consolidated with the

37 42 C.F.R. § 405.1102. 38 42 C.F.R. § 405.1108(a).

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DHHS Departmental Appeals Board (“DAB”). The contact information for the Medicare Appeals Council is:

Department of Health and Human Services Departmental Appeals Board Medicare Appeals Council, M.S. 6127 Cohen Building – Room G-644 330 Independence Ave., S.W. Washington, D.C. 20201

Phone: (202) 565-0100 Fax: (202) 565-0227 http://www.hhs.gov/dab/

e. The Medicare Appeals Council rules of procedure are set forth at

42 C.F.R. § 405.1100, et seq.

f. Upon proper request, the Medicare Appeals Council will allow you to file briefs and other written statements.39

g. The Medicare Appeals Council may initiate a review of an ALJ

decision on its “own motion” within sixty (60) days of the date of the ALJ decision. CMS or its contractors can refer a case to the Medicare Appeals Council for consideration of “own motion” review, particularly if CMS or its contractor participated in the ALJ hearing.40

h. The Medicare Appeals Council must implement its “own

motion” review within the sixty (60) days -- this time period cannot be extended. The Medicare Appeals Council must file the notice of acceptance of the own motion review on or before the sixtieth (60th) day.

i. If the sixty (60) days ends on a holiday or weekend, then the last

working day before the sixtieth day becomes the final day to accept review.

j. The Medicare Appeals Council usually limits its Own Motion

Review of the record to (i) error material to the decision, (ii) abuse of discretion, (iii) conclusions not supported by the preponderance of the evidence, and (iv) issues of broad public policy.41 Review is usually on the record, although in certain circumstances, new material evidence may be submitted.42 A party to the appeal can file briefs.43 Usually, the Medicare

39 42 C.F.R. § 1120. 40 42 C.F.R. § 405.1110. 41 42 C.F.R. § 405.1110(c). 42 42 C.F.R. § 405.1122. 43 42 C.F.R. § 405.1120.

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Appeals Council does not grant a hearing, but it has the discretion to grant a hearing.44

k. The Medicare Appeals Council may remand a case to the ALJ

for further consideration or action. One common cause for remand is the absence from the record of the official audiotape (or videotape, CD or DVD) of the ALJ hearing. Follow-up promptly with the ALJ’s office to make sure the audiotape (or videotape, CD or DVD) does not become lost and is included in the record when the ALJ’s office sends the record to the Medicare Appeals Council. Also, if a federal court has remanded a case to the Medicare Appeals Council for further evidence, the Medicare Appeals Council will likely further remand such a case to the ALJ.

l. Even if the Medicare Appeals Council does not accept a case for

“own motion” review, it has (i) 180 days to re-open the case for good cause, and (ii) no time limit to re-open the case for fraud.45

m. CMS claims it can also ask the Medicare Appeals Council to re-

open a decision after the sixty (60) days has expired. The Medicare Appeals Council’s reopening of ALJ decisions in response to a CMS request has been attacked in court with differing results. One court has held that only claimant’s requests for reopening can be honored.46 Another court has allowed reopenings contrary to claimant’s desires.47

n. See http://www.hhs.gov/dab/divisions/medicareoperations

/macdecisions/mac_decisions.html for selected decisions of the Medicare Appeals Council.

o. Medicare Appeals Council must decide within 90 days, unless

the appeal has been escalated from the ALJ level.

p. If the Medicare Appeal Council fails to decide within 90 days (or as appropriately extended), then appellant can escalate to federal court review.

q. Appellants may waive the 90 day deadline.

r. Oral argument may be allowed in special cases.

s. Standard of review is de novo.48

44 42 C.F.R. § 405.1124. 45 42 C.F.R. § 405.980(d)(3). 46 See, e.g., McCuin v. Bowen, 817 F.2d 161 (1st Cir. 1987). 47 See, e.g., Fox v. Bowen, 835 F.2d 1159 (6th Cir. 1987). 48 42 C.F.R. § 405.1108(a).

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7. Fifth Level: Federal Court.

a. When: within sixty (60) days of Medicare Appeals Council’s decision.49

b. $1,000 minimum amount in controversy (“AIC”) (adjusted

annually for inflation, beginning in 2005). The 2013 AIC is $1,400 (77 Fed. Reg. at 59618, Sept. 27, 2012).

c. Where: file complaint in district where supplier/provider is

located or in Washington, D.C.

d. Defendant: the Secretary of HHS. - adversarial process

e. The standards of review for Medicare claims on appeal to federal

court are “substantial evidence” as to findings of fact;50 arbitrary, capricious or an abuse of discretion as to procedural matters,51 and de novo as to matters of law.

f. Government motions for remand are likely under 42 U.S.C.

§ 405(g), which provides two (2) remand procedures: a “Sentence 4” remand and a “Sentence 6” remand. These colloquial terms refer, respectively, to the fourth and sixth sentences of 42 U.S.C. § 405(g). Under “Sentence 4,” the court retains jurisdiction and essentially decides the case, although the formal outcome may be a remand for implementation of the court’s decision. In contrast, under a “Sentence 6” remand, the court relinquishes jurisdiction so that the merits of the case (most likely based on additional evidence) are decided on remand by the Medicare Appeals Council or, most likely, by the ALJ to whom the Medicare Appeals Council will likely further remand the case when it returns from federal court.

g. Expect inadequately developed cases to be remanded.

II. SPECIAL PROBLEMS.

A. Challenge to Manuals, Instructions and Methods.

1. Limited Authority of the Medicare Internet Only Manual (IOM) and

Other Medicare Manuals.

Contractors often will rely on provisions from the IOM or other Medicare Manuals as legal authority for their actions in connection with the post-payment audits. These Manuals are not binding per se on suppliers or providers, but they do state CMS’s interpretation of regulations and law and are not to be ignored. The appeals system will give a substantial, but not total,

49 42 U.S.C. § 405(g). 50 42 U.S.C. § 405(g) 51 5 U.S.C. § 706(2)(A).

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deference to these Manuals. In addition, the Manuals may be important evidence of what the suppliers or providers knew or should have known about a particular Medicare coverage instruction or other policy. Such knowledge may determine whether a supplier or provider can avail itself of the “limitation of liability” or “without fault” defenses. Because the Manuals are binding on the contractors in their relations with CMS, contractors take the position that the Manuals bind suppliers and providers. While the Manuals may be persuasive, at least two courts have held that suppliers cannot be held accountable under Carriers Manual provisions.52 Also, ALJ’s are not bound by the Manuals,53 although ALJs must give the Manuals substantial deference.54

2. Contemporaneous Records.

Contractors have in some cases attempted to impose a requirement that suppliers rebut contractor “medical necessity” determinations only through the use of records created contemporaneously with the furnishing of the services or goods to the beneficiary. There is no statutory basis for requiring this standard. Often records of claims involved in post-payment audits were prepared years ago before physicians, providers or suppliers could have known of current contractor expectations of explanatory documentation. While records should never be altered, additional narrative explanation from the physician’s, provider’s or supplier’s personal knowledge and memory should be admissible evidence. The QIC and ALJ can assess its credibility.

B. Judicial Challenges

As a general rule, direct challenges in federal court for matters arising under the

Medicare program lack subject matter jurisdiction.55 In Illinois Council, the Supreme Court took a broad view of the exclusivity of the judicial review method set forth in Section 405(g) & (h) of the Social Security Act (incorporated into the Medicare Act by virtue of 42 U.S.C. § 1395ii), which provides that “no action against the United States, the [Secretary], or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under this subchapter.”56 The bar of jurisdiction under 405(h) “reaches beyond ordinary administrative law principles of ‘ripeness’ and ‘exhaustion of administrative remedies’” and effectively requires the “channeling” of virtually all controversies through administrative appeals processes established by the agency.57 Illinois Council, substantially narrowed the exception to the jurisdictional bar understood by courts from the Supreme Court’s prior decision in Bowen v. Michigan Academy of Family Physicians.58 This decision, had been interpreted to permit limited direct judicial review of issues relating to the method under which payment and payment amounts

52 Physicians and Surgeons Laboratories, Inc. d/b/a Physicians Reference Laboratory v. Bowen, No. C87-112A (N.D. Ga., February 12, 1987), Medicare and Medicaid Guide (CCH) ¶ 36,680; Glick v. Secretary of HHS, 714 F. Supp. 39 (D. Mass. 1989). 53 See, Schweiker v. Hansen, 450 U.S. 785, 789 (1981) (Social Security Claims Manual is not a regulation and is not binding as a matter of law); Shalala v. Gurnsey Memorial Hospital, 514 U.S. 87, 99 (1995) (HHS Manuals are not accorded like force and effect of law in adjudicatory proceedings); In Home Health, Inc. v. Shalala, 188 F.3d 1043, 1046 (8th Cir. 1999); Christensen v. Harris County, 529 U.S. 576, 587 (agency opinion letter interpreting Fair Labor Standards Act was not binding law, nor are agency policy statements, enforcement guidelines or manuals). 54 42 C.F.R. § 405.1062. 55 See. Illinois Council on Long Term Care, Inc v. Shalala, 529 U.S. 1 (2000). 56 Id. at 19. 57 Id. 58 476 U.S. 667, 106 S. Ct. 2133 (1986).

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are determined under Medicare Part B, but did not extend judicial review to the amount of reimbursement payable to Part B suppliers. Illinois Council clarified that the Michigan Academy exception applies only when the application of the jurisdictional bar in section 405(h) would not simply channel review through the agency, but would mean no review at all.59

From a practical standpoint, this means that the appeals processes established under (for

example) 42 C.F.R. § 405.900 et seq. and 405.1800 et seq. must (with certain limited exceptions discussed below) be utilized for challenges to agency policy, even when such challenges may be based on statutory or Constitutional grounds. This does not mean that all such futile challenges must proceed through each level of the administrative appeals process. For example, a supplier my seek expedited access to judicial review if the controversy involves no disputed material issues of fact and the only factor precluding a decision favorable to the supplier is a statutory provision that is unconstitutional, a provision of a regulation or national coverage decision, or a CMS Ruling.60 The request for expedited access to judicial review cannot be made prior to receiving a reconsideration determination from a QIC, however, and it must be affirmatively granted by a review entity comprised of ALJ members of the DAB.61 Thus, not all levels of the administrative review process may be skipped, and the agency must acquiesce to the request.

While Illinois Council makes direct challenges to agency regulations, etc. extremely

difficult, there are situations in which such challenges can be made. For example, courts have consistently held that the jurisdictional bar in section 405(h) does not apply to section 1361 (mandamus) jurisdiction.62 While mandamus is an extraordinary form of relief, limited to actions attempting to compel an agency to perform an allegedly non-discretionary duty owed to the supplier, as the example cases noted illustrate, there are instances in the Medicare context where it may arise. In addition, the D.C. Circuit interpreted the Illinois Council exception to recognize that in certain situations the prospect of financial ruin and major penalties could make administrative procedures, for all ‘practical purposes’ unavailable, including the judicial review that would follow.63 In such instances, the American Lithotripsy court held that administrative review was effectively not available, and federal court jurisdiction lies.64 Finally, the D.C. Circuit has held that, while ‘the Illinois Council exception is primarily concerned with whether a particular claim can be heard though the Medicare Act channels, we see nothing in the case law requiring us to disregard factors that speak to a potential proxy’s willingness and ability to pursue the plaintiff’s claim’ where the plaintiff has no direct channel to the administrative appeals process.65

59 Illinois Council, 529 U.S. at 19. 60 42 C.F.R. § 405.990(d). 61 42 C.F.R. § 405.900(a) & (b). 62 See e.g., Monmouth Med. Ctr. v. Thompson, 257 F.3d 807, 813 (D.C.Cir. 2001); Cordodoba v. Massanari, 256 F.3d 1044, 1047 (10th Cir. 2001); Buchanan v. Apfel, 249 F.3d 485, 491-92 (6th Cir. 2001). 63 American Lithotripsy Society v. Thompson, 215 F.Supp. 2d 23 (D.C.Cir. 2002) (Challenge to the regulatory interpretation of the Stark law precluding reimbursement for physician referrals to their own lithotripsy centers. In order to challenge the interpretation administratively, the physicians risked statutory penalties of up to $15,000 per claim, potential criminal penalties and exclusion from Medicare.) 64 Id. at 29-30. See also, Physician Hospitals of America v. Sebelius, 770 F.Supp. 2d 828 (E.D. Tex. 2011) (To challenge Constitutionality of Section 6001 of PPACA the physician-owned hospital would be required to construct or expand a hospital at significant expense, which was an ‘inconceivable gamble’ for a hospital to take, thus the Illinois Council exception was met). 65 Council for Urological Interests v. Sebelius, 2011 WL 6450767 (D.C. Cir. 2011) (Association of doctor-owned equipment providers challenged Stark regulation affecting joint ventures, when there was no willingness of hospitals to challenge the interpretation).

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Thus, with limited exceptions, providers and suppliers seeking to challenge a regulation, manual provision, or method, will need to pursue their remedies through administrative channels. It is only in exceptional cases where a supplier or provider can show that it has been precluded from such review that a direct judicial challenge can be made.

C. “Consent Settlement” Demands and Agreements.

In some cases of post-payment audits, the carrier or a Medicare administrative contractor

(“MAC”) will notify the supplier that it has performed a pilot audit of a sample of the supplier’s claims and projected a potential overpayment based on several years of claims. The carrier or Medicare administrative contractor may offer the provider three options: (1) repay the projected overpayment and execute a consent settlement, (2) provide further information and documentation to rebut the disallowances found in the sample, or (3) proceed to a further “statistically valid” sample audit and projection of the detected overpayment rate to a supplier’s past claims. Under CMS’s instructions, the carrier or MAC is to project the detected error rate only to the universe of claims from which the audit sample was drawn. Also, under CMS’s instructions, the carriers and MACs are not supposed to be coercive in consent settlement procedures. For example, a carrier or MAC should not threaten the supplier with doing a statistically valid audit of a larger universe (namely, more years of claims) than the consent settlement sample universe, if the supplier does not agree to the consent settlement.

The consent settlement procedure set forth in the IOM is designed to deal with suspected

overutilization of procedures by physicians.66 CMS has informally instructed carriers and MACs on how to conduct consent settlement procedures for other suppliers.

Because a consent settlement proposition does not involve a “determination” and because

the consent settlement process is not established expressly by regulation, there is no authority for CMS or the carrier or MAC to collect the projected overpayment in a “consent settlement” procedure, if the supplier does not agree to a settlement. Generally, however, it is best to find a way to settle consent settlement allegations to avoid forcing the carrier to take more aggressive steps under harsher procedures.

Although consent settlement demands are not determinations, file an appeal request to

preserve appeal rights to guard against attempts to recharacterize the demands as determinations. Extreme care should be taken in reviewing or drafting the final settlement or consent

agreement. Regard consent settlement forms sent by the carrier or MAC with great caution. Generally, the first draft from the carrier or MAC will provide little protection to the supplier. Redraft the settlement agreement to indicate that, among other things, settlement is being made of a disputed claim without admission of the validity of the disallowance of the sampling or other methodologies used by the carrier. It is important that no adverse admissions be made, particularly since the matter may be reviewed by CMS or the OIG for other purposes.

Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of

2003 provides a number of reforms to be observed by CMS and its contractors in implementing the consent settlement procedure.

66 See MCM § 7158.

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D. Repetitive Denials After “Non-Precedential” Determinations.

The concept of administrative regularity may be invoked in situations where a Medicare administrative contractor, carrier, or intermediary continues to deny claims on the same issue in which a provider has repeatedly prevailed in administrative proceedings. In these situations, the contractor typically justifies such repetitive denials on the basis that prior administrative appeal decisions are not binding precedent.

Even though such administrative decisions are not precedential like judicial opinions are,

an agency may still be required to follow prior decisions made on its behalf by an appeal entity (QIC, ALJ or MAC). To the extent that the appeal entity’s decision becomes that of the agency, then there is room to argue, as was recognized in the St. Francis case involving the CMS Administrator, that:

The Administrator’s departure from his earlier opinions cannot be permitted. “It is an elementary tenet of administrative law that the agency must either conform to its own precedent or explain its departure from them.” [Citing International Union v. NLRB, 459 F.2d 1329 (D.C. Cir. 1972).] 67

Cases involving estoppel similarly suggest that there should be a limit to the carrier,

intermediary, or Medicare administrative contractor repetitively denying claims where the issues at stake have been resolved against the carrier, intermediary, or Medicare administrative contractor in prior administrative adjudications.68 See also Dewall Enterprises v. Thompson69, where the court held that the Secretary owed the DME claimant a non-discretionary duty to apply the rulings in earlier administrative appeals to later claims involving the identical claimant, identical device and identical regulation.70

E. Exhaustion of Administrative Remedies Not Required for Government Overpayment Recovery Efforts.

Although providers and suppliers almost always have to exhaust administrative remedies

through the administrative appeals process for relief on disputed Medicare claim denials, the First Circuit holds that the exhaustion requirement does not apply to the federal government when it seeks to recover alleged Medicare overpayments. In U.S. v. Lahey Clinic Hospital, Inc.71, the United States sued in federal district court under 28 U.S.C. §1345 to assert common law causes of action for recovery. The provider defended on the grounds, among others, that the court lacked jurisdiction because the government had failed to invoke and exhaust administrative remedies, such as claim reopening and denial which would trigger administrative appeal remedies. The

67 St. Francis Community Hospital v. Schweiker, [1984-2 Transfer Binder] Medicare and Medicaid Guide (CCH) ¶34,156 at page 10,188 (D.S.C., Civil Case No. 82-97-3, March 10, 1983), aff’d, No. 83-1303 (4th Cir., Jan. 17, 1984). 68 See United States v. Utah Constr. & Mining Co., 384 U.S. 394, 422, 86 S.Ct. 1545 (1966); Ingalls Shipbuilding v. United States, 21 Cl.Ct. 117 (1990). See also Stern v. Shalala, 14 F.3d 148 (2d Cir. 1994), cert denied, 516 U.S. 821, 116 S.Ct. 82 (1995). (“Petitioner presents a substantial argument that the imposition of penalties based on a finding of scienter is barred by the collateral estoppel effect of the prior administrative determination that there was a ‘legitimate difference of opinion’ whether Stern’s services were reimbursable.”) 69 206 F.Supp.2d 992 (D. Neb. 2002). 70 See also Gessler v. Dept. of Business and Prof. Reg., 627 So.2d 501, 504 (Fla. 4th DCA, 1993). 71 399 F.3d 1 (1st Cir. 2005), cert. denied 126 S.Ct. 339 (2005).

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First Circuit held that the federal court had jurisdiction because federal statutes did not limit the government’s recourses to the Medicare administrative reopening and appeal processes.

F. Asking CMS and DHHS for Help

Procedural difficulties sometimes arise due to misinterpretations or complexities of the

case at issue. Often these practices are unknown to CMS or DHHS. Many times, if the matter cannot be resolved with supervisors at the QIC, relief is for the asking by contacting CMS. The office with general oversight responsibility over QICs is:

CMS

Centers for Medicare Medicare Enrollment and Appeals Group Division of Appeals Operations ATTN: Maria Ramirez 7500 Security Blvd. Mail Stop C2-12-16 Baltimore, MD 21244

To resolve problems with QICs on procedural issues, direct inquiries to the QIC project officer in the CMS Division of Appeals Operations, who is:

Maria Ramirez maria.ramirez@cms.hhs.gov 410-786-1122 410-786-9963 (fax)

In our experience, the OMHA ALJs are skilled in the reasonable exercise of discretion to

accommodate solutions to procedural and administrative needs or problems in the ALJ appeal level. Intractable administrative or procedural problems with unreasonable ALJ or other personnel in ALJ appeal centers may be brought to the attention of David Cade, Esq., DHHS Office of General Counsel, Washington, D.C.

G. Sampling and Extrapolation Claims.

Carriers and Medicare administrative contractors conduct post-payment audits by

reviewing a sample of patient files from a multi-year period. The rate of overpayment found in the sample will then be projected (“extrapolated”) on all claims submitted during the period in question to estimate an alleged overpayment. Many times, this sampling and extrapolation technique generates recoupment demands against the provider in the hundreds of thousands of dollars.

The authority of the carriers and Medicare administrative contractors to use a “sampling”

technique as the basis upon which to extrapolate a universal overpayment has usually been upheld by the courts.72

72 United States v. Lahey Clinic Hosp., 399 F.3d 1 (1st Cir. 2005); Chaves County Home Health Services v. Sullivan, 931 F.2d 914, Medicare and Medicaid Guide (CCH) ¶ 39,181, (D.C. Cir. 1991, cert. denied, 502 U.S. 1091, 112 S.Ct. 1160, 117 L.Ed. 408 (1992); Ratanasen v. Calif. Department Health Services, 11 F.3d 1467, Medicare and Medicaid Guide (CCH) § 42,040, (9th Cir. 1993); see, e.g. Mile High Therapy Centers, Inc. v. Bowen, 735 F.Supp. 984, Medicare and Medicaid Guide (CCH) ¶ 37,180 (D.

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Chapter 8 of the Medicare Program Integrity Manual (“MPIM”) sets forth, in

occasionally tortured language, general parameters (but not detailed “cookbook” instructions or standards) to be followed (but not necessarily read literally with plain English meanings) in statistical sampling and extrapolation. A difficulty in understanding the MPIM’s parameters is that the MPIM often uses many plain English words with very different coded statistical meanings. It is difficult to determine when the MPIM intends that a word have its plain English meaning or its “statspeak” meaning. Examples of seemingly plain English words in Chapter 8 of the MPIM which have very different (and often mathematically measured) meanings in statspeak include but are not limited to: valid, precision, confidence, independence, and normal.

Despite guidance in the MPIM, applicable case law, and CMS Ruling 86-1, Medicare

administrative contractors (such as Program Safeguard Contractors (“PSCs”), Zone Program Integrity Contractors (“ZPICs”), intermediaries and carriers) may fail to meet the “minimum standards” for “statistically valid” sampling and extrapolation. Such failure may violate due process. For example, PSCs, ZPICs, carriers, intermediaries and Medicare administrative contractors have been known to fail: to project underpayments along with overpayments (“two-tailed testing”), to remove aberrantly small or large claims (“outliers”) from the sample, to test samples for degree of representativeness of the universe, to properly utilize statistical confidence levels or margins of error, to properly apply complex (and often counter-intuitive) statistical methodologies, to preserve original electronic data and audit workpapers to allow replication of the audit (which must be more information than simply enough information to repeat the auditor’s mistakes), or to recognize “non normally” distributed data which cannot be analyzed with the parametric statistical procedures applicable to “normally” distributed data. Any one of these failures and other methodological errors can be cause for invalidating the projected portion of the alleged overpayments. Challenging the Medicare administrative contractor’s methodology may, therefore, be a very effective defense to the Medicare administrative contractor’s overpayment demand.73

It is essential to obtain the assistance of one or more expert statisticians. If the Medicare administrative contractor fails to adhere to the properly interpreted

minimum parameters set forth in the MPIM, as applicable, then the entire extrapolated portion of the alleged overpayment may be set aside as a violation of due process.74 Additionally, the

Colo 1988); Illinois Physicians Union v. Miller, 675 F.2d 151, Medicare and Medicaid Guide (CCH) ¶ 37,895, (7th Cir. 1982); Glick v. Secretary of HHS, 714 F.Supp. 39 (D. Mass. 1989). 73 See, e.g., Daytona Beach General Hospital, Inc. v. Weinberger, 435 F.Supp. 891, Medicare and Medicaid Guide (CCH) ¶ 28,619 (M.D. Fla. 1977) (finding sampling method whereby less than ten percent of the total cases were used denied plaintiff due process); Idaho Falls Chiropractic Clinic, P.L.L.C., DAB Medicare Appeals Council, Docket No. M-2010-263 (2010)(probe sampling methodology used to calculate overpayment extrapolations was invalid; probe review does not allow projection of overpayments to the universe of claims reviewed, rather overpayments are collected only on claims that are actually reviewed). 74 Physicians’ Affiliated Services, Inc., DAB Medicare Appeals Council, Docket No. 000-45-1313 (1997) (extrapolation invalid where carrier failed to document sufficiently the statistical sampling methodology or justify the “universe” used to select the sample); Morrow Skin Clinic and David M. Morrow, M.D., Inc., Social Security Administration (“SSA”) Office of Hearings and Appeals, (ALJ decision) Docket No. 000-90-0338 (December 20, 1994) (extrapolation invalid where minimum standards for statistical techniques in Sampling Guidelines Appendix were not followed, sample size was inadequate, no estimate of precision [“degree of confidence”] was documented, and sample stratification was invalid and disproportionate); Clinical Lab Works, Inc., SSA Office of Hearings and Appeals, (ALJ decision) Docket No. 000-46-0129 (January 9, 1998) (extrapolation invalid where there was insufficient “degree of

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PSC’s, ZPIC’s, carrier’s, intermediary’s or Medicare administrative contractor’s statistical methods arguably should be consistent with “generally accepted statistical procedures” (“GASP”), especially given the lack of specificity in the MPIM. At the same time, appellants should be cautious about relying on GASP to prove their case, because the Medicare Appeals Council in the Transyd75 case ruled that the MPIM does not command use of better methods expected under GASP and concluded surprisingly that less professional methods may sustain an auditor’s statistical sampling and extrapolation as long as a “probability sample” was obtained and the chosen statistical methodology was “correctly applied.” Much confusion has attended adjudicators understanding of what is, in statspeak, a “probability sample.”

If the number of claims is “small” or 100% review is “manageable,” then you may argue

that full review (rather than sampling and extrapolation) should be used. Note also that there are special statistical tests to be applied to small samples to determine whether such small sample is sufficiently representative of the universe of such claims. If the PSC, ZPIC, carrier, intermediary, or Medicare administrative contractor fails to apply such special statistical tests, then the sample may be invalidated for insufficient reliability in predicting the amount of alleged overpayment.

Appellants can challenge the validity of the sampling methodology used to determine an

overpayment beginning at the redetermination level of appeal. However, it is unrealistic to expect a redetermination adjudicator to reverse a ZPIC’s statistical conclusions.

When an appeal to an ALJ from the QIC’s reconsideration involves an overpayment issue

in which the QIC used a statistical sample in reaching its decision, the ALJ must base his or her decision on a review of the entire statistical sample used by the QIC.76

To defend against sampling and extrapolation procedures, focus first on defending the

cases selected in the sample to prove that reimbursement should be paid as claimed by the provider, physician or supplier. Focus second on obtaining documentation of the statistical procedures used in your case by the Medicare administrative contractor.77 Compare those documented procedures against the minimum parameters required by Chapter 8 of the MPIM and GASP. Be prepared to challenge the sample selection and the statistical techniques used. Consult an expert statistician to determine, among other things, (a) whether GASP was followed, (b) the probability that the Medicare administrative contractor actually performed the statistical procedures which the Medicare administrative contractor’s proffered methodology documentation indicates was used, (c) whether parametric and non parametric statistical methodologies were impermissibly mixed, (d) whether the auditor retained sufficient electronic and other records to allow the sampling and extrapolation to be replicated, and (e) the sufficiency of the statistically determined degree of probability that the projected overpayment falls within an acceptable corridor of confidence (namely, as measured, in statspeak, for normally distributed data, by “confidence intervals” and/or “precision”) in the contractor’s methodology. Retain a forensic statistical expert witness for testimony at the hearing. This expert might have a different skill set

confidence” because of an estimated coefficient of variation (“the degree of error”) of approximately thirty (30%) percent). 75 In re Transyd Enterprises, LLC d/b/a Transpro Medical Transport, Medicare Appeals Council 09/15/09. 76 42 C.F.R. § 405.1064. 77 See, e.g., Podiatric Medical Associates, DAB Medicare Appeals Council, Docket No. M-10-230 (2010)(reversing extrapolation results based on PSC’s failure to provide documentation sufficient to assess the validity of the sample).

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(namely, persuasive speaking) than the statistical expert retained for prehearing analysis and affidavits.

For a more comprehensive discussion of sampling in the context of Medicare appeals, see

Perling and Intriligator, Statistical Sampling in the Medicare Program: Challenging Its Use, American Health Lawyers Association (2001) and decisions (often disputed by experts) posted in the website of the Medicare Appeals Council.

Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of

2003 limits the use of statistical sampling and extrapolation by providing that contractors may only use extrapolation to determine overpayment amounts where the Secretary had made a determination that “a high level of payment error” exists or that “documented educational intervention has failed to correct the payment error.” A high level of payment error can be indicated through a variety of means, including (a) error rate determinations; (b) probe samples; (c) data analysis; (d) provider/supplier history; (e) information from law enforcement investigations; (f) allegations of wrongdoing by current or former employees of a provider or supplier; and (g) audits or evaluations conducted by the OIG.78 Determinations by the Secretary that a high level of payment error exists are not considered initial determination, and therefore, are not appealable.79 In an appropriate splitting of legal hairs, some providers and suppliers have acquiesced in the non-appealabilty of such determinations when made, but have objected on the grounds that such determinations were never made.

H. Stay of Recoupment

Section 935(f)(2) of the Medicare Modernization Act (“MMA”) provides for a limited right of a stay of recoupment. As interpreted by CMS, Section 935(f)(2) requires that recoupment of an alleged overpayment is to cease or not be commenced after a request for appeal is filed by certain deadlines in advance of appeal deadlines at the redetermination or reconsideration levels. Stays of recoupment are not available under Section 935(f)(2) at the ALJ and higher levels of appeal.

CMS published proposed regulations to set forth this principle and other comprehensive instructions and interpretations regarding the stay of recoupment required by MMA.80 These proposed rules also provide for CMS’s payment of interest on recouped monies in cases where the denied claims are reversed at the ALJ and higher appeal levels. In the proposed regulation, CMS recognized that although the MMA provides for the cessation of recoupment during a “reconsideration,” Congress actually intended that recoupment is to cease upon the filing of a request for redetermination and not be commenced until the date a reconsideration is rendered.81

CMS published implementing instructions in its Medicare Financial Management Manual, Chapter 3, Section 200.

To further implement Section 935’s changes to the recoupment process for Medicare provider and supplier overpayment under Parts A and B, CMS then issued additional and more specific instructions on September 12, 2008. In them, CMS clarified that although a provider generally has 120 days from the date of the demand letter to request a redetermination, filing

78 Program Integrity Manual, IOM 100-08, Chapter 3, Section 10.1.4. 79 42 C.F.R. § 405.926(p). 80 71 Fed. Reg. 55404 (September 22, 2006). 81 Id. at 55407.

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within that time period will not necessarily stop recoupment from starting; it will only prevent any further recoupment. To prevent CMS from initiating the recoupment process, a redetermination must be requested within 30 days from the date of the demand letter. If an appeal is not filed within 30 days, recoupment can begin on day 41 and any amount recouped is retained until final determination.

A similar requirement applies in order to prevent the initiation of recoupment at the reconsideration phase. If a redetermination produces unfavorable results, providers and suppliers may then request reconsideration by a QIC, and again halt the initiation of recoupment. However, filing for reconsideration will only prevent recoupment if the request is received within 60 days following the date of the redetermination, although providers and suppliers have 180 days in which to request reconsideration. Providers and suppliers should use the time that the contractor uses to conduct the redetermination and the 60 days following the redetermination decision to gather all additional evidence for submission to the QIC (and appeal to the QIC within such 60 days). In this way, even if all such evidence was not considered at the redetermination stage, it will be considered at reconsideration and, hopefully, will convince the QIC that no or a lesser amount of overpayment occurred before recoupment is commenced after the QIC’s decision.

A final rule implementing these recoupment limitations was published on September 16, 2009.82

In the event that a stay of recoupment is prematurely imposed, seek assistance from CMS’s helpful Financial Services Group, Division of Medicare Debt Management (see Section I.C.4.o. above). Premature impositions of recoupment often occur because the appeals department of the intermediary or carrier or the QIC often do not communicate effectively or timely to the Overpayment Recovery Unit of the carrier or intermediary that an appeal has been filed so that a stay of recoupment is in effect. Practitioners should consider giving notice to Overpayment Recovery Units when appeals are filed that are to initiate stays of recoupment.

I. Service of Documents to Beneficiaries

During the fourth and fifth levels of the claims appeals process, all parties to an ALJ hearing and Medicare Appeals Council review must be provided with copies of various documents submitted to ALJs and the Medicare Appeals Council. In most cases, beneficiaries who file a claim for payment, or on whose behalf a claim was filed under Part A or Part B, are considered parties to the ALJ hearing or Appeals Council review.83

Specifically, at the ALJ hearing stage, a copy of the request for ALJ hearing must be provided to all parties to the hearing, including beneficiaries.84 A party to an ALJ hearing may

82 Medicare Program: Limitation on Recoupment of Provider and Supplier Overpayments, 74 Fed. Reg. 47458 (Sept. 16 2009). 83 A beneficiary who files a claim for payment, or one on whose behalf a claim for payment is filed, will not be considered a party if he or she assigns his or her appeal rights pursuant to 42 C.F.R. § 405.912. 42 C.F.R. § 405.906. A beneficiary’s appeal rights may only be assigned to providers or suppliers who furnished an item or service to a beneficiary and are not already parties to the initial determination. 42 C.F.R. § 405.912. Providers are parties to the initial determination as long as they file a claim for the items or services furnished to the beneficiary, while suppliers are parties to the initial determination when they accepted assignment for the items or services furnished to a beneficiary that are at issue in the claim. 42 C.F.R. § 405.906. 84 42 C.F.R. § 405.906.

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submit written statements objecting to issues before an ALJ, written summaries of the case, or statements about the facts or law material to the case to the ALJ for inclusion in the record.85 However, if a party does so, all parties to the ALJ hearing, including beneficiaries, must be provided with copies of the statements.86

The rules are similar at the Appeals Council level of review. Requests for Appeals Council review should be sent to all parties to the appeal, including beneficiaries.87 Proof that copies of the request were sent to all other parties should be included with the request. Should a party fail to do so, the Appeals Council will send a notice informing the party that the appeal is incomplete and that, as a result, the Appeals Council will not act on the case until all parties are notified. In addition, briefs filed with the Appeals Council must also be provided to all parties to Appeals Council review.88

This requirement of notice to beneficiaries is not uniformly enforced by ALJs or the Appeals Council. When it is enforced, it presents potentially significant impediments to the appeals process in cases with a large number of beneficiaries.

This service requirement may also be deemed waived by an ALJ if the appellant, on the record, waives any right to collect unpaid, uncovered claims from beneficiaries. Such waiver removes any economic interest of the beneficiary which might otherwise entitle the beneficiary to be a party with right to notice.

J. Parallel Proceedings.

It is possible for CMS to assert overpayment claims under the Medicare false claims/civil monetary penalty laws and for the Department of Justice to assert overpayment claims under the general federal civil False Claims Act and under various criminal statutes, such as mail fraud laws. Such generally more serious claims can be asserted concurrently with determinations appealable under the new administrative appeals process. In cases of such concurrent actions, providers must consider protecting their rights separately in each avenue of attack. In parallel proceedings, suppliers have rights to seek determinations and file appeals under the new administrative appeals process, in addition to defending against the other parallel proceedings. In some of these situations, seeking a delay of the administrative appeals processes may be a wise choice in order to focus resources in defending against the more serious attacks or to preserve Fifth Amendment rights. In other situations, the non-adversarial administrative appeals process may provide an easier way to prove entitlement to payment than would be provided by adversarial investigative and judicial proceedings. The favorable determinations, which may be more likely obtained in the administrative process, may establish a preclusive argument that no fraud or violation of civil monetary penalty laws occurred.

Despite the provision of 42 C.F.R. § 405.372(d)(3) that an administrative process may be

delayed pending an “on-going investigation,” the Fourth Circuit has ruled that the administrative process for determining Medicare Part B claims may proceed simultaneously with judicial

85 42 C.F.R. §§ 405.1024(b), 405.1036(c). 86 42 C.F.R. §§ 405.1024(b), 405.1036(c). 87 42 C.F.R. § 405.1106(a). 88 42 C.F.R. § 405.1120.

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proceedings about whether a supplier has defrauded Medicare and other federal health programs.89

K. Burden of Proof.

One of the evidentiary perplexities of the new administrative appeal process is that the burden of proof is nowhere clearly addressed in the rules, nor did the rules under the prior system of separate Part A and Part B appeal processes explain how to determine who has the burden of proof. However, experience indicates that ALJs are more likely to place the burden of proof on the government than are carrier fair hearing officers. In this regard, and particularly with respect to the burden of establishing a prima facie case, ALJs are likely to be influenced by ALJ Kessel’s observation that the Medicare Conditions of Participation must be implemented in a manner that protects suppliers from arbitrary denials by Medicare and its contractors.90 According to ALJ Kessel, a Medicare contractor is:

required to set forth a specific basis for its determinations and, if challenged, to come forward with evidence establishing a prima facie case on any disputed findings (emphasis supplied). The major purpose of requiring [Medicare] to establish a prima facie case is to assure that the action taken by [Medicare] has a legally sufficient foundation . . .91

The existence of a prima facie case must be ascertainable before the provider is obligated to put on its entire case.92 Only after Medicare has met its burden does:

the [supplier have] the ultimate burden of showing that it is in substantial compliance with the relevant Medicare requirements, as well as coming forward with evidence to establish any affirmative argument or defense. (Emphasis supplied).93

If necessary, the supplier must prove that it has “substantially complied” with the relevant Medicare requirements by a preponderance of the evidence. 94 In physician overpayment cases, a number of courts have required a significant amount of evidence in order for Medicare to establish a prima facie case of lack of medical necessity where a treating physician’s order is present. For example, Schisler v. Bowen, 851 F.2d 43, 47 (2d Cir. 1988), which is cited in the Medicare case of State of New York o/b/o Holland v. Sullivan, 927 F.2d 57 (2d Cir. 1991), teaches that:

89 United States ex rel Rahman v. Oncology Associates, P.C., 201 F.3d 277 , 65 Soc. Sec. Rep. Service 573 , Medicare and Medicaid Guide (CCH) ¶ 300,402 (4th Cir. 1999). 90 Hillman Rehabilitation Center v. Health Care Financing Administration, DAB No. 1663 (1998), Medicare and Medicaid Guide (CCH) 1999 Transfer Binder ¶ 120,025 at 2. 91 Id. at 3. 92 Id. at 4. 93 Id. at 2. 94 Id. at 3. In Hillman, the DAB held that in termination hearings before an ALJ, the sanctioned facility bears the burden of persuasion once HHS has made a prima facie showing to justify the CMP. This rule was later extended to civil monetary penalty cases in Cross Creek Health Care Center v. HCFA, DAB No. 1665 (1998).

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Where the opinion of a treating source is being rejected or overridden, there must be a discussion documented [by the contractor] in the file of the opinion(s) and medical findings provided by the medical sources, an explanation of how [the contractor] evaluates the reports, a description of any unsuccessful efforts to obtain information from a sources(s), the pertinent nonmedical findings, and an explanation as to why the substantial medical evidence of record contradicts the opinion(s) of a treating source(s). This discussion must be set out in a determination or decision rationale.

As a practical matter, however, in most Medicare claims administrative appeal hearings, the decision-maker’s findings will not be determined by strict evidentiary formalities. Instead, the findings will be most affected by the quality of the supplier’s documentation and explanations.

L. Obtaining Records

When appealing an unfavorable audit determination, providers and suppliers may find it

advantageous to view Medicare’s audit file. This is particularly true given that providers and suppliers generally are required to submit all evidence by the reconsideration stage, or qualified independent contractor stage of appeal, absent good cause for not doing so.95 Knowing the contents of the audit file will assist providers and suppliers in determining what evidence must be submitted in the appeals process.

Medicare providers and suppliers can request the opportunity to view Medicare’s audit

file under the Freedom of Information Act. In order to best challenge unfavorable decisions rendered as part of a Medicare audit, providers and suppliers should request to view the complete audit file, including:

1. The information on the statistical projection used to arrive at the

overpayment request (if applicable); 2. The notes, correspondence, and memos (handwritten or typed) of the auditors

setting forth the specific reasons for the denials; 3. The hand-written audit sheets; 4. The names and credentials of all of those who participated in the audit and

denial decisions; 5. The medical records reviewed as part of the audit; and 6. Any other information used by the auditors in making the audit decisions.

As a practical matter, providers and suppliers may face extensive time delays awaiting

receipt of a requested audit file, and it is possible that CMS or its contractors never release the file. One way to shorten the delay is to offer to review the file where it is located. However, the failure of CMS to produce the complete audit file, or any portion thereof, may be advantageous to providers and suppliers in their appeals. For example, some providers have been successful challenging the validity of statistical extrapolations, where CMS has failed to produce information regarding the methodology it used for the extrapolation after repeated requests. In these cases, some administrative law judges have found that the statistical extrapolation failed to

95 42 C.F.R. § 405.966.

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meet the minimum standards for “statistically valid” sampling and extrapolation, as discussed in paragraph F above, and have thrown out the extrapolation altogether.

An alternative means of obtaining relevant records and documents is through discovery

and/or the issuance of subpoenas during later stages of the appeals process. Medicare appeals regulations allow for limited discovery during ALJ hearings.96 Discovery is permitted only when CMS participates in the hearing as a party. An ALJ can permit discovery of matters that are relevant to a specific subject matter relevant to the appeal as long as the matter is not privileged or in some other way protected from disclosure.97 Discovery requests must not be unreasonable, unduly burdensome or expensive, or otherwise inappropriate.98

Discovery before an ALJ is limited to depositions and production of documents. A party can request from other parties the reasonable production of documents for inspection and copying.99 A party also can depose other parties if the proposed deponent agrees to the deposition or the ALJ finds that the proposed deposition is necessary and appropriate in order to secure the deponent’s testimony for an ALJ hearing.100

In addition to discovery, subpoenas may be issued, though under very limited circumstances, by an ALJ or the Medicare Appeals Council. Parties may request that the ALJ or Medicare Appeals Council issue a subpoena for the appearance and testimony of witnesses or for the production of documents. An ALJ or the Medicare Appeals Council can also issue subpoenas on their own initiative. In any case, they can only do so “when it is reasonably necessary for the full presentation of a case.”101

There are additional limitations. At the ALJ level, subpoena requests must be made, in writing, no later than the end of the discovery period established by the ALJ.102 ALJs and the Medicare Appeals Council may only issue subpoenas in cases in which CMS is a party and the requesting party has sought discovery, has filed a motion to compel, has had that motion granted by the ALJ or the Medicare Appeals Council, and still has not received the requested discovery.103 Because subpoenas are issued only under these relatively rare circumstances, appellants should not rely on an adjudicator’s authority to issue subpoenas in any given appeal.

96 See generally 42 C.F.R. § 405.1037. 97 42 C.F.R. § 405.1037(a)(2). 98 42 C.F.R. § 405.1037(a)(2). 99 42 C.F.R. § 405.1037(b)(1). 100 42 C.F.R. § 405.1037(b)(2). 101 42 C.F.R. §§ 405.1036(f), 405.1122(d). Though the regulations seems to limit the ALJ’s and Medicare Appeals Council’s ability to issue subpoenas for the production of documents or records to “parties” to an appeal, other regulations allow parties or non-parties to seek review of an ALJ’s or the Medicare Appeals Council’s subpoena ruling and provide that an ALJ or the Medicare Appeals Council may seek enforcement of a subpoena against parties and non-parties. See 42 C.F.R. §§ 405.1036(f)(5)(iii), 405. 1036(f)(6)(i), 405.1122(e)(2)(i), 405.1122(f). As a result, it is unclear whether the regulations preclude an ALJ or the Medicare Appeals Council from issuing a subpoena to a non-party for the production of records. In practice, however, ALJs and the Medicare Appeals Council do sometimes issue subpoenas to individuals who are not “parties” to the appeal. 102 42 C.F.R. § 405.1036(f)(3). Under 42 C.F.R. § 405.1037(c), an ALJ must set a time period by which all discovery requests must be made. 103 42 C.F.R. §§ 405.1036(f)(4), 405.1122(d)(4).

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M. Special Defenses; Untimely Reopening; Provider/Supplier Without Fault; Waiver of

Liability

1. Untimely Reopening According to federal regulations governing the Medicare appeals process, once an initial

determination to pay a claim has been made, the claim can only be reopened for review within a certain time period. Specifically, pursuant to 42 C.F.R. § 405.980 (b), a contractor may reopen and revise its initial determination:

(1) Within 1 year from the date of the initial determination for any reason. (2) Within 4 years of the date of the initial determination for good cause as defined in Sec. 405.986. (3) At any time if there exists reliable evidence as defined in Sec. 405.902 that the initial determination was procured.

Pursuant to 42 C.F.R. § 405.986, “good cause” may be established when: (a) There is new and material evidence that—

i. Was not available or known at the time of the determination or decision; and

ii. May result in a different conclusion; or

(b) The evidence that was considered in making the determination or

decision clearly shows on its face that an obvious error was made at the time of the determination or decision.

Some Medicare providers and suppliers had been successful challenging a Medicare audit

or claim denials based upon the above-cited regulations, where the claims chosen for review and reopening were over one year old, and the RAC, carrier, intermediary, or Medicare administrative contractor failed to articulate “good cause” for reopening the claims. With respect to Medicare audits and claim denials initiated by RACs, some medical directors or employees of the RACs have been attending Administrative Law Judge hearings for the specific purpose of arguing the RACs’ “good cause” to reopen the claims at issue, even though “good cause” was not established at the time the claims were reopened. 104 Several Medicare Appeals Council decisions have concluded that Administrative Law Judges lack jurisdiction to determine whether or not the contractor met the good cause standards for reopening set forth in 42 C.F.R. § 405.980(b)(2).105

104 The Statement of Work for the permanent RAC program specifically requires that “If a provider chooses to appeal an overpayment determined by the RAC, the RAC shall assist CMS with support of the overpayment determination throughout all levels of the appeal.” Statement of Work, available at http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-CMS-2007-0022/Attachments.html, at p. 38. 105 Critical Care of North Jacksonville v. First Coast Service Options, Inc. (February 29, 2008); In re Providence St. Joseph Medical Center v. United Government Services, LLC, (July 23, 2008); In re Memorial Hospital of Long Beach v. PRG Schultz, (July 23, 2008).

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The issue of good cause for reopening was recently decided by the United States District

Court for the Southern District of California in Palomar Medical Center v. Sebelius.106 In Palomar, the court held that the RACT’s decision to reopen a claim submitted by Palomar was not appealable, even though regulations require a RAC to have “good cause” to reopen such a claim. The court accepted CMS’s argument that §§ 405.926(1) and 405.980(a)(5) foreclose a provider from challenging a RAC’s good cause to reopen a claim outside the one year period where a claim can be reopened for any reason.

2. Provider/Supplier Without Fault

The Provider Without Fault provisions of the Social Security Act are found at Section

1870,107 and state the following (in pertinent part):

(a) Any payment under this title to any provider of services or other person with respect to any items or services furnished to an individual shall be regarded as payment to such individual.

(b) Where -

(1) more than the correct amount is paid under this title to a provider of services… and the Secretary determines… that such provider of services… was without fault with respect to the payment of such excess over the correct amount…

(2) proper adjustments shall be made…

[S]uch provider of services… shall, in the absence of evidence to the contrary, be deemed to be without fault if the Secretary’s determination that more than such correct amount was paid was made subsequent to the third year following the year in which notice was sent to such individual that such amount had been paid; except that the Secretary may reduce such three-year period to not less than one year if he finds such reduction is consistent with the objectives of this title.

(c) there shall be no adjustment provided in subsection (b) (nor shall there be

recovery) in any case where the incorrect payments have been made . . . with respect to an individual who is without fault …

Based on the presumption that a provider is without fault if the determination is made

after three years, the regulations set forth the following provision at 42 C.F.R. § 405.355(b):

Adjust or recovery of an incorrect payment against an individual who is without fault shall be deemed to be against equity and good conscience if the determination that such payment was incorrect was made subsequent to the third year following the year in which notice of such payment was sent to such individual.

106 2010 WL 2985837 (2010) 107 42 U.S.C. § 1395gg.

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Notably, with respect to Medicare audits and claim denials initiated by RACs, the Statement of Work for the permanent RAC program, as amended, specifically states that the RACs “shall not attempt to identify any overpayment or underpayment more than 3 years past the date of the initial determination made on the claim.”108

In addition to the three-year limitation, as a general rule, a provider will be considered without fault if he exercised reasonable care in billing for and accepting payment. Specifically, a provider will be considered without fault if he complied with all pertinent regulations, made full disclosure of all material facts, and on the basis of the information available, had a reasonable basis for assuming that the payment was correct.109 “Fault” for purposes of the provider without fault provision of the Social Security Act is defined by the federal regulations as follows:

(a) An incorrect statement made by the individual which he knew or should

have known to be incorrect; or

(b) Failure to furnish information which he knew or should have known to be material; or

(c) With respect to the overpaid individual only, acceptance of a payment,

which he knew or could have been expected to know, was incorrect.110 In a recent Medicare Appeals Council case, the Medicare Appeals Council decided that a

supplier exercised reasonable care in billing when it shipped surgical dressings to a beneficiary who was enrolled in home health care at the time.111 Normally, Medicare would not cover surgical dressings for a beneficiary also enrolled in home health care, but the Medicare Appeals Council determined that by relying on the treating physician’s order indicating the beneficiary was not enrolled in home health, and contacting appropriate organizations to determine eligibility, the supplier was not at fault and liability for the overpayment was waived.

3. Waiver of Liability

The statutory authority for application of Waiver of Liability is set forth in Section 1879 of the Social Security Act,112 which states the following, in relevant part:

(a) Where--

a. a determination is made that, by reason of Section 1862(a) (1) or (9) . . . payment may not be made under Part A or Part B of this title for any expenses incurred for items or services furnished an individual by a provider of services or by another person pursuant to an assignment under section 1842 (b) (3) (B) (ii); and

108 Statement of Work, available at http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-CMS-2007-0022/Attachments.html, at p. 7. 109 Medicare Financial Management Manual (CMS-Pub. 100-06) Section 90. 110 20 C.F.R. § 404.507. 111 In the case of Comprehensive Decubitus, (March 13, 2009) See also, In the case of Whidbey General Hospital (Dec. 3, 2007). In Whidbey, the Medicare Appeals Council also held that language in § 1870(c) that gives an ALJ discretion to waive liability when recovery would be “against equity and good conscience” only applies to beneficiaries and not providers. Providers are not subject to an equity standard for waiver of liability. 112 42 U.S.C. § 1395pp.

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b. both such individual and such provider of services or such other person, as

the case may be, did not know, and could not reasonably have expected to know, that payment would not be made for such items or services under Part A or B, then to the extent permitted by this title, payment shall, notwithstanding such determination, be made for such items or services . . . as though section 1862(a) (1) and section 1862 (a) (9) did not apply . . . (emphasis added).

Pursuant to statutory and regulatory authority, once waiver of liability applies the relevant inquiry focuses on whether the Medicare provider or supplier knew or could have reasonably been expected to know that payment would not have been made for the services.113 The Medicare Appeals Council recently ruled that a hospital-provider was entitled to § 1879 waiver of liability when it billed Medicare at an inpatient level for implantable cardioverter defibrillators in reliance on a final rule published in the Federal Register indicating these types of procedures would be billed at an outpatient rate only in the “simplest” cases.114 The Medicare Appeals Council did, however, disallow payment for services billed at an inpatient level later than the date CMS published guidance that indicated these procedures would not be “uniformly” covered. In the context of durable medical equipment (DME) suppliers, the courts have found that the supplier is not entitled to waiver of liability in instances where the supplier did not obtain the patient’s medical records to support the need for the ordered equipment.115 Specifically, even if a supplier has a physician order on file, failure of the patient’s medical records to substantiate the condition for which Medicare approved reimbursement subjects the supplier to liability.116

4. Medical Necessity. Medical necessity disputes usually involve a subjective determination about (1) the

adequacy of documentation or (2) the applicable “standard of care.” “Medical necessity” decisions on standard of care are made initially by the contractor’s medical director or other medical consultants, who may or may not be qualified to make such a determination. (For example, is a medical director who is a retired gynecologist “qualified” to make “medical necessity” determinations on complicated cardiology cases?)

Medical necessity disputes may be resolved by a battle of experts. Experts such as

physicians, registered nurses, coding experts, and inpatient rehabilitation specialists may be helpful in appealing a contractor determination. At the earliest stages of appeal, experts can help to assess the strength of the case and assist in developing a strategic plan. Experts such as registered nurses may also be helpful to assist with the interpretation and organization of medical records. Experts can be used as advocates to defend the medical necessity of services or the appropriateness of codes through an affidavit at the redetermination or reconsideration levels or, even more effectively, via live testimony at the ALJ hearing. Although outside experts may be viewed as more objective by decision makers, experts from within the organization, including the

113 Medicare Claims Processing Manual (CMS-Pub. 100-04) Section 20. 114 In the case of Baptist HealthCare (June 26, 2009). 115 Mackenzie Medical Supply, Inc. v. Leavitt, 419 F.Supp.2d 766 (D. Md. 2006); Maximum Comfort, Inc. v. Secretary, HHS, 512 F.3d 1081 (9th Cir. 2007). 116 Mackenzie Medical Supply, Inc. v. Leavitt, 419 F.Supp.2d 766, 774 (D. Md. 2006).

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treating caregivers, can also be very effective. Often, a supplier will have an advantage on payment issue disputes because the caregiver will have seen the patient and would be in a much better position to explain the medical necessity.

Note that several courts have adopted the “treating physician” rule which provides that,

with respect to medical necessity, the judgment of the treating physician (particularly when such physician derives no economic benefit from prescribing the good or service) should be given “great weight,” and should not be rejected “except under unusual circumstances.”117

CMS Ruling 93-1 established that, at least with respect to Part A claims, the treating

physician’s opinion “is considered evidence, but not presumptive evidence,” of medical necessity. In addition, several recent Medicare Appeals Council decisions have applied CMS Ruling 93-1 to appeals of Part B claims.118

Even though the Medicare Appeals Council has decided in a number of cases that the

treating physician’s opinion that a service is medically necessary is evidence, and not a rebuttable presumption in favor, of medical necessity, other Medicare rules, including Hospital Conditions of Participation (COP) make clear that CMS intended that the treating physician’s opinion, in certain circumstances, be given substantial weight. Hospital COP requires that hospitals establish a Utilization Review (UR) Committee comprised of two or more practitioners, two of whom must be physicians. 119 The UR Committee is responsible for reviewing such decisions as when a patient should be treated as an inpatient or an outpatient. In order to overturn the decision of the admitting physician who determines that a patient should be treated as an inpatient, at least two members of the UR committee, one of whom is a doctor, must agree that the treating physician decision was wrong. In this way, the COP reinforces the primacy of the treating physician by requiring two reviewers to agree to overrule a decision made by a doctor responsible for the patient’s care.

March 11, 2013

117 Hamon v. Weinberger, Civ. No. 72-283-CH (S.D. W.Va. Feb. 20, 1974), Medicare and Medicaid Guide (CCH) 1974 Transfer Binder ¶ 26,923; Gartmann v. Secretary of United States Department of Health and Human Services, 633 F. Supp. 671, 680-81 (E.D.N.Y. 1986); Klementowski v. Secretary of Health and Human Services, 801 F.Supp. 1022, 1025-26 (W.D. N.Y. 1992); State of New York o/b/o Holland v. Sullivan, 927 F.2d 57, 60 (2d Cir. 1991); e.g., Schisler v. Bowen, 851 F.2d 43, 47 (2d Cir. 1988); Baxter v. Sullivan, 923 F.2d 1391, 1396 (9th Cir. 1991); Magallanes v. Bowen, 881 F.2d 747 (9th Cir. 1989). 118 In the case of Kinetic Concepts, Inc., (June 5, 2009); BioniCare Medical Technologies, Inc., (July 13, 2009). 119 42 C.F.R. § 482.30.