Waiting Room: Medicare Appeals Tie Up Hospitals' Millions

Baxter Regional Medical Center
Baxter Regional Medical Center (Wil Chandler)
Ron Peterson, president and CEO of Baxter Regional Medical Center in Mountain Home, said hospitals might have to wait years before they receive a decision on their appeals of Medicare claim cases.
Ron Peterson, president and CEO of Baxter Regional Medical Center in Mountain Home, said hospitals might have to wait years before they receive a decision on their appeals of Medicare claim cases. (Wil Chandler)

At Baxter Regional Medical Center in Mountain Home, Ron Peterson waited about a year before he decided to replace the leaky roof.

Spending about $400,000 fixing the roof meant the 268-bed hospital couldn’t buy a type of X-ray machine that was needed, said Peterson, president and CEO of Baxter.

Peterson said the hospital didn’t have the cash to do both projects because it has $3 million in limbo in a seeming black hole of Medicare claim appeals at the U.S. Department of Health & Human Services.

Baxter Regional’s money is tied up because recovery audit contractors, known as RACs, have decided that care the hospital provided to some Medicare patients didn’t meet Medicare guidelines. The RACs force the hospitals to return the money, and the hospitals then have to turn around and fight to get the money back.

Adding to hospital frustration is the way that the RACs, which are private companies, are paid: They have a financial incentive to deny as many claims as possible because they receive up to 12.5 percent of the money recovered.

Because of the massive logjam in the appeals process experienced by Baxter and other hospitals around the country, hospitals might have to wait up to 16 months before they get a hearing to plead their case that the billings were justified and the Medicare money should be returned. Then it might take months after the hearing to get a ruling.

“It’s hitting our cash flow,” Peterson said. “If this process continues, then it will definitely affect the operating income. This will max our reserves.”

Last month, Baxter joined the American Hospital Association of Washington and two out-of-state hospitals in filing suit against HHS in U.S. District Court in Washington. The plaintiffs are trying to force HHS to comply with federal law by issuing decisions in their appeal cases within 90 days.

Hospitals reported that when they appeal the RAC denials, the hospitals win 72 percent of the time, the lawsuit said.

“There is no other remedy that folks have in order to resolve their cases,” said Lawrence Hughes, assistant general counsel for the AHA.

Making matters worse, in December, the HHS’ Office of Medicare Hearing & Appeals declared a moratorium on assigning new provider appeal cases to administrative law judges for at least two years — and possibly longer — because of the backlog, the lawsuit said.

More than 480,000 appeals were awaiting assignment with OMHA as of Feb. 12, with about 15,000 appeals filed each week, the lawsuit said.

The delays are “causing severe harm to providers of Medicare services,” such as hospitals, and “must be eliminated,” the lawsuit said.

“The stakes for America’s hospitals are high — billions of dollars in Medicare reimbursement hang in the balance,” the lawsuit said. “Deprived of the value of the services they already provided, hospitals are unable to use these funds to furnish patient care in the communities.”

HHS hadn’t filed a response in the lawsuit as of Wednesday. HHS referred calls to the press office of the Centers on Medicaid & Medicare Services, which administers the Medicare program for HHS. CMS didn’t respond to emails.

The RAC that handles the 17-state region that includes Arkansas is Connolly Healthcare of Conshohocken, Pennsylvania. It also didn’t immediately return an email for comment on Wednesday.

On its website, however, Connolly said that as many as 10 percent of all insurance payments are made in error. It said its work to “identify errors and address their root cause can help improve health care and make it more affordable for all of us.”

The RAC program is “aimed at reducing improper payments within Medicare programs as well as identifying process improvements to reduce or eliminate future improper payments,” Connolly said on its website.

The company touted the RAC program, saying it has “resulted in the correction of more than $8 billion in erroneous payments.”

Government Action

In February, 111 members of Congress, both Democrats and Republicans, signed a letter urging Kathleen Sebelius, secretary of HHS, to take action to improve the RAC program.

“Without more oversight measures in place, RACs have imposed a huge administrative burden on hospitals, which must spend valuable time and resources to appeal denied claims in order to be reimbursed for Medicare services provided,” the letter said.

The backlogs were also a concern to the members of Congress, who found it “alarming” that the “OMHA operates with 65 Administrative Law Judges, who already have 375,000 claims currently before them,” according to the Feb. 10 letter.

The members of Congress also “strongly recommended” that CMS provide more money to help clear the backlog of cases. And it suggested finding another way to pay RACs “to ensure RACs are not improperly incentivized to deny claims for profits and to ensure they focus on prevention of errors,” the letter said.

U.S. Sen. Mark Pryor, D-Ark., also is pushing for legislation to rein in the RAC program.

Pryor was a sponsor of Senate Bill 1012, introduced in May 2013 and now in the Senate Finance Committee.

“I introduced this common-sense bill to help eliminate duplicative audits, unmanageable medical record requests, and inappropriate payment denials related to Medicare Recovery Audit Contractors that are overwhelming our health providers and diverting much-needed resources from patient care,” he said in an email statement to Arkansas Business last week. “I’m also continuing to work with Arkansas Medicare providers and my colleagues to ensure there is a fair, timely process for appeals.”

‘Common’ in Arkansas

Baxter isn’t the only hospital in Arkansas frustrated with the appeals process, said Paul Cunningham, executive vice president of the Arkansas Hospital Association. “It’s very common throughout the state,” he said.

Baptist Health of Little Rock, a health system with eight hospitals in its network, has $14.5 million tied up in the appeals process, said Chief Financial Officer Bob Roberts.

He said Baptist has “limited capital spending pretty significantly during this period.” No specific project has been shelved, he said, but replacing or upgrading equipment might be deferred.

“As long as the equipment is still working effectively, we may delay [upgrades] a few months or a year until the money is available,” Roberts said.

In the meantime, Baptist has a full-time employee and other part-time workers assigned to handling the paperwork in connection with the audits and the appeals.

“There’s a lot of record-keeping that goes with making sure we’re staying on track with their deadlines,” Roberts said.

Payment Problems

The Medicare Modernization Act of 2003 created the Medicare Recovery Audit Contractor program. But it wasn’t until 2010 that it became a massive headache for hospitals.

During the federal government’s 2009 fiscal year, there were only 35,831 appeals filed with the Office of Medicare Hearing & Appeals for a review from an administrative law judge. In just four years, that number ballooned to nearly 385,000, the American Hospital Association’s lawsuit said.

Peterson, Baxter’s CEO, said it was around 2012 that Baxter Regional began getting notices from Connolly, the RAC for Arkansas, questioning the hospital’s judgment when it admitted patients.

“If you were getting 10 percent of whatever you recouped, wouldn’t you send out a great big fishing net?” he said.

After combing through medical records, Connolly found some patients didn’t “meet admission criteria, and so it should have been treated as an outpatient or observation patient,” Peterson said. “And we believe they met inpatient criteria.”

He said the hospital would receive, on average, about $8,900 a day for an inpatient patient, while if the patient was classified as an observation or outpatient, the pay would be $950 a day.

Melissa Jackson, senior associate director for policy at the American Hospital Association, told Arkansas Business last week that the RACs in some cases are going back and looking at the records of patients treated three years ago.

“The RAC is using, in most cases, someone who is not a physician to look at the claim,” Jackson said.

Based on the patient’s charts, the RAC will determine whether that patient should have been treated as an outpatient instead of an inpatient, she said.

CMS said on its website that each RAC has on its staff nurses, therapists and a physician.

Over the past two years, Connolly has questioned Baxter Regional about $11.6 million in charges to Medicare, Peterson said.

He said Baxter was able to prove its case and didn’t have to repay $7 million.

Baxter, like other hospitals, is waiting its turn to explain to an administrative law judge why it should have the $3 million returned to it that Connolly claims was improperly paid. By the end of the year, Peterson said the amount Baxer will be fighting to reclaim will rise to $4.6 million. Baxter expects to have a 90 percent success rate at the appeals level.

Peterson said the hospital is thorough before it decides that a patient should be admitted in the first place. Not only is the case looked at by the treating physician and nurses, but a patient’s medical records are also computer analyzed to make sure the patient meets the appropriate criteria.

The hospital also pays $1 million a year to Executive Health Resources of Newtown Square, Pennsylvania, which helps hospitals deal with Medicare and Medicaid compliance, Peterson said.

“So we spend, give or take, $500 per admission just to make sure that we’re trying to comply with the law,” he said.

Peterson finds it frustrating that after the hospital takes all these precautions, an auditor determines that the treated patient didn’t meet admission requirements and holds up the hospital’s money, forcing the hospital to fight to recover the money.

“If you want to talk about wasted dollars in health care, what a way to waste dollars,” Peterson said. “It’s just amazing.”