Major Medicare Audit and Appeals Developments

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Significant developments related to Medicare audits and appeals occurred this spring that impact all providers of Medicare services, including O&P practitioners and suppliers. Three issues that most directly involved O&P were: the announcement—and subsequent rescission, after coordinated objection from the O&P profession—of a Recovery Auditor Contractor (RAC) audit on Healthcare Common Procedure Coding System (HCPCS) code L-5845, an adjustable stance flexion feature used with a variety of single axis knee codes; two federal circuit courts held oral arguments in cases challenging the massive backlog of claim appeals at the Administrative Law Judge (ALJ) level and the delays by the Office of Medicare Hearings and Appeals (OMHA) in rendering Medicare claim denial decisions; and, finally, the U.S. Senate edged closer to reintroducing the Audit & Appeals Fairness, Integrity, and Reforms in Medicare (AFIRM) Act (formerly S. 2368 in the 114th Congress). The president's budget request for fiscal year (FY) 2018 essentially endorses most of the provisions of this act, including a massive increase in funding to hire more ALJs.

This article details these developments and analyzes how they impact the O&P community.

Performant Audit Quashed

On April 12, Performant Recovery, the Region 5 national RAC for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) and home health/hospice services, posted approved issue number 0049 on its website that signaled the initiation of a round of automated audits on code L-5845 (addition, endoskeletal, knee-shin system, stance flexion feature, adjustable). The National Association for the Advancement of Orthotics and Prosthetics (NAAOP) and its O&P Alliance partners viewed the approval of this audit issue as a major overreach by Performant and the Centers for Medicare & Medicaid Services (CMS) and took aggressive steps to oppose this issue and request withdrawal of this audit approval. On May 1, NAAOP, working through the O&P Alliance, submitted comments to CMS seeking immediate rescission of issue number 0049. This letter followed one from the American Orthotic & Prosthetic Association (AOPA) to Performant raising similar concerns.

Code L-5845 describes a knee component design feature that allows some prosthetic knees to bend slightly without collapsing when the heel of the prosthetic foot first strikes the floor. This allows people with transfemoral amputations to walk more safely by providing increased stability during the stance phase of the gait cycle, while at the same time promoting a smoother gait pattern.

In its letter, NAAOP asserted that Performant's audit of L-5845 exceeded its authority by creating new coverage and coding policy. Under the Social Security Act, CMS is authorized to contract with RACs "for the purpose of identifying underpayments and overpayments and recouping overpayments under this title with respect to all services for which payment is made under this title" (42 U.S.C. § 1395ddd(h)(1)). There is no authority granted in the statute about RACs or in the Statement of Work (SOW) between CMS and the RACs to create coverage or coding policy. For prosthetic limbs, coverage policy is the responsibility of CMS and the Durable Medical Equipment Medicare Administrative Contractors (DME MACs), while coding policy is the domain of the CMS HCPCS Workgroup; the Pricing, Data Analysis and Coding (PDAC) Contractor; and the National Correct Coding Initiative (NCCI).

By claiming that entire classes of prosthetic knees described by particular L-Codes cannot, by their very nature, include stance flexion, Performant changed how CMS covers—or in this case, does not cover—prosthetic knees. By taking the position that certain knee L-Codes are incompatible with L-5845, Performant also changed CMS' coding requirements for prosthetic knees.

In addition, the letter argued that the applicable coverage policy created by the DME MACs permits practitioners to use L-5845 with the codes referenced by Performant in its audit issue description. Similarly, the current list of Procedure to Procedure edits, which is created and maintained by NCCI, does not identify code L-5845 as incompatible with the specified base knee codes Performant listed. Performant ignored the coverage and coding policies that govern its activities, and CMS (or its RAC validation contractor) apparently acquiesced in this decision. Performant's actions also violated the requirements outlined in its SOW with CMS. The Alliance letter asserted that the CMS SOW for RACs limits the use of automated audits to only those instances where there is a certainty that the item or service is not covered or is incorrectly coded, and written Medicare policy on the matter already exists. Since Performant's audit proposition failed on both counts, CMS was asked to immediately rescind approval of this audit issue.

Finally, the letter argued that this audit would trigger a major increase in the number of prosthetic claim denials submitted to OMHA and would pose an unnecessary burden on prosthetic practitioners in the provision of care to Medicare beneficiaries. Because the audit applies to historical claims, practitioners would have no option other than to appeal every attempt to enforce this unreasonable and retroactive coverage and coding decision. The appeals resulting from this audit issue would require technical analysis of the mechanical characteristics of every knee unit included in this audit, an inquiry that could only take place at an ALJ hearing. For these reasons, rescission of the audit approval was in order.

On May 15, CMS sent a letter to the O&P Alliance in response to its request to rescind approval of Performant audit issue number 0049. In the letter, CMS stated that it "found that an error was made during the approval process and determined that Issue #0049 is not viable for review by the Recovery Audit Contractor." This is a major victory for the O&P community that will avert a new wave of unnecessary and unwarranted audits of Medicare claims containing code L-5845. Therefore, at present, there are no approved issues at the Region 5 RAC related to prosthetic care.

Update on Legal Challenges to ALJ Backlog

Oral arguments for two federal cases challenging the extensive delay in Medicare ALJ decisions were held in May. While these decisions would apply primarily to hospitals, the implications of the cases have significant impacts on O&P providers with ALJ cases pending before OMHA. One case is pending in the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit), while the other is in the U.S. Court of Appeals for the Ninth Circuit, in California.

Both cases concern the extensive backlog of ALJ appeals, of which there are currently about 700,000 at OHMA. While Medicare statute 42 U.S.C. § 1395ff(d)(1)(A) requires that ALJs issue decisions in 90 days, the backlog is so significant that decisions issued in 2017 took over 1,040 days on average to be heard, more than two and a half years past the deadline. Cases being filed today may not be heard for years unless major changes to the appeals process are made. In both cases, the hospitals have requested a writ of mandamus, i.e. a court order requiring a government official to comply with a clear duty. Here, the duty is to decide ALJ appeals in 90 days.

The American Hospital Association (AHA) filed suit against the secretary of the U.S. Department of Health and Human Services (HHS) in 2014, which the court dismissed in December of that year (AHA v. Burwell, 76 F. Supp. 3d 43 (D.D.C. 2014)). The AHA appealed to the DC Circuit. The DC Circuit reversed the district court and held that hospitals have a clear right to ALJ decisions in 90 days; the [HHS] Secretary has a clear duty to decide ALJ appeals in 90 days; and hospitals have no adequate alternative remedy other than mandamus (AHA v. Burwell, 812 F.3d 183, 192 (D.C. Cir. 2016)). The DC Circuit then sent the case back to the district court. On December 5, 2016, the district court granted a writ of mandamus and ordered HHS to clear the backlog by 30 percent per year and to eliminate it by the end of 2020. In early February, HHS appealed to the DC Circuit Court.

In the California case, plaintiff Casa Colina Hospital for Rehabilitative Medicine filed suit in 2015 in the U.S. District Court for the Central District of California, after the AHA lost in the DC District Court. In late 2015, the district court dismissed the suit. Although the court believed that Casa Colina had "likely satisfied" the jurisdictional requirements of a clear right to relief and the agency's clear duty to act, the court believed that a mandamus order would unfairly permit Casa Colina to "jump the queue." Casa Colina appealed to the Ninth Circuit.

The Casa Colina oral argument was held in Pasadena, California, May 8. The Ninth Circuit judges made several comments that are positive for Casa Colina's case. One of the judges on the three-judge panel referred to the deadline as a "clear statutory command" and stated that it "looks like a clear entitlement." This is important to justify an order of mandamus. Another judge asked the attorney for HHS if mandamus would be appropriate if the backlog was 100 years, indicating that he is searching for the point at which mandamus would be appropriate rather than questioning whether it is appropriate at all. However, one judge did express concern about Casa Colina jumping to the front of the ALJ queue, which might be unfair to other providers that would be pushed further down the line. Casa Colina argued that a mandamus order should push HHS to take real steps to clear the ALJ backlog, which would benefit all providers, not just Casa Colina.

The AHA case was argued on May 15, one week after Casa Colina's oral argument. The panel the DC Circuit assigned to the AHA case was composed of three different judges than those who heard the case the first time AHA appealed it. Judge Merrick Garland was skeptical that the district court had correctly "weighed the equities" in favor of issuing the mandamus order. He also suggested that the district court judge should have held a fact-finding hearing to determine the measures HHS can take to clear the backlog and how long that would reasonably take. Concern was also expressed that it may not be possible for HHS to clear the backlog in four years. One of the judges agreed that mass settlements between CMS and provider appellants would be the only way to clear the ALJ backlog without additional funds from Congress. Decisions in these cases should be issued in the next several months.

AFIRM Act Being Prepared for Reintroduction

On April 21, multiple stakeholders submitted comments to Senators Orrin Hatch (R-UT) and Ronald Wyden (D-OR), chairman and ranking member of the U.S. Senate Finance Committee, respectively, about the AFIRM Act. The bill is being prepared for reintroduction for "increasing oversight of auditors and improving the appeals system that has delayed taxpayer dollars from reaching their correct source." In other words, the bill seeks to level the playing field to a greater extent to decrease extensive audit and appeal burdens on legitimate Medicare providers.

The AFIRM Act contains many provisions that NAAOP strongly supports, including a significant increase in resources to help fund additional ALJs, expedited access to appeals, authority to use sampling and extrapolation at the option of the provider, the creation of an appeals ombudsperson, the establishment of incentives and disincentives for Medicare contractors to improve the accuracy of their reviews, and the ability for providers and suppliers to obtain relief from persistent auditing when audit results are in their favor. NAAOP also supports a study to examine alternative ways to fund RACs instead of the current contingency fee system that has led to contractor abuses that have fueled the ALJ backlog.

Despite the AFIRM Act's attributes, there is a proposal to include the authority for RACs to conduct prepayment reviews on a contingency fee basis, a mechanism they are currently not able to use, in the bill's reintroduction. NAAOP strongly opposes this proposal and is working to keep it from being included in future iterations of the AFIRM Act.

FY 2018 Budget Proposal Consistent With AFIRM Act

President Trump's FY 2018 Budget Proposal, released May 23, includes several Medicare audit and appeal reforms that appear to be identical to multiple provisions in the AFIRM Act, cited previously. The budget increases discretionary funding for OMHA by $9.8 million to hire additional ALJs. The OMHA budget would increase from $107.381 million in the FY 2017 omnibus spending bill to $117.177 million. Other elements of the FY 2018 budget impacting Medicare audits and appeals include:

  • A legislative proposal to devote $125 million of mandatory funding per year for ten years to address the extensive backlog of appeals at the ALJ level, totaling nearly $1.3 billion. (Mandatory funding refers to funds taken directly out of the Medicare Trust Fund rather than being annually appropriated by Congress.)
  • An increase in the amount in controversy requirements to file Medicare appeals ($1,560 in calendar year 2017 and updated annually for each appeal), expediting claims where there is no material fact in dispute, remanding appeals to the redetermination level with introduction of new evidence, and consolidating claims (no budget impact).
  • $2.4 billion to Program Operations (part of CMS). These funds include:
    • Ongoing Medicare Contractor Operations: An approximately 36 percent increase, or $885 million, for FY 2018 Program Operations to support ongoing Medicare contractor operations.
    • Medicare Appeals: The budget includes $87 million to timely process approximately 970,000 provider and beneficiary claim appeals at the second level of appeal (i.e., reconsideration level).
  • $17 million for the HHS Departmental Appeals Board, the fourth and final level of administrative appeal, comprising $15 million in discretionary budget authority and $2 million in proposed mandatory funding. The budget increase for FY 2018 would provide additional support to the Medicare Appeals Council to keep pace with the growing number of Medicare appeals.


The government estimates that for every dollar spent on fraud and abuse prevention, it collects five dollars that replenish the Medicare Trust Fund. With this level of return on investment, there is little doubt that Congress, CMS, and its contractors will continue to aggressively pursue waste, fraud, and abuse in Medicare and other government programs. There is growing evidence, however, that as CMS pursues this cause, it has created unreasonable and unwarranted burdens on legitimate providers that are prompting reform of the Medicare audit and appeals system. This reform is slow in coming, but if the series of events detailed in this article are any measure, the movement is in the right direction.

Peter W. Thomas, JD, is general counsel for the National Association for the Advancement of Orthotics and Prosthetics (NAAOP).

Steven Postal, JD, is the director of health policy at Powers Pyles Sutter & Verville, Washington DC.