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OIG Publishes Study on Claim and Payment Denials by Medicare Advantage Organizations

The HHS Office of the Inspector General (“OIG”) has reported the results of a study assessing service and payment denials by Medicare Advantage Organizations (“MAOs”). The study revealed “widespread and persistent MAO performance problems related to denials of care and payment.” As a result, OIG has recommended changes to CMS oversight of MAOs.

MAO Reimbursement and Appeals

Medicare beneficiaries have the option to participate in MAOs, private health insurers, as an alternative to the traditional Medicare program. These MAOs are reimbursed by Medicare on a capitated basis (per beneficiary rather than per service rendered) for the provision of all Medicare Part A and Part B benefits to each beneficiary. Because MAOs are reimbursed a lump sum per beneficiary for the bucket of services they cover, one major concern with the capitated reimbursement system has always been the financial incentive for MAOs to improperly deny patients coverage of services, and deny payments to providers for services rendered. As the report points out, because MAOs cover more than 20 million beneficiaries, “even low rates of inappropriately denied services or payment can create significant problems for many Medicare beneficiaries and their providers.”

Beneficiaries and providers have access to four levels of appeal for MAO coverage and payment denials. Typically, when a beneficiary or provider appeals a denial, the appeal is initially reviewed by the MAO. Upheld denials are then automatically forwarded to an independent review entity for a second level of review. If the independent review entity also upholds the denial, beneficiaries and providers can further appeal the denial to an administrative law judge (“ALJ”). Finally, beneficiaries, providers, and the MAO can petition the Medicare Appeals Council to appeal an ALJ’s decision.

OIG’s Study Objectives

OIG’s study had two objectives:

  1. To determine the extent of appeals and overturns of Medicare Advantage service and payment denials at each level of the appeals process during 2014-2016.
  2. To assess CMS’s 2015 audit findings and enforcement actions related to denials and appeals.

Study Findings

OIG found that at the first level of appeal, beneficiaries and providers who appealed denials were fully successful 70% of the time, and partially successful 5% of the time. Overturned denials do not necessarily mean that the MAO inappropriately denied the initial request. In some instances, the MAO may determine that it made the correct decision based on the information available at the time the denial was issued, but that new information presented in the appeal justifies payment or coverage. Regardless of fault, and as OIG notes, “each overturned denial represents a case in which beneficiaries or providers had to file an appeal to receive services or payment covered by Medicare.”

A high rate of overturned denials does indicate that the MAO review process is functioning appropriately. However, OIG also noted that rate of overturned denials is concerning given the relatively few appeals taken in comparison to the total number of denials issued every year. Beneficiaries and providers only sought review of 1% of all denials from 2014 to 2016. One potential explanation for this: filing an appeal is administratively complex, and can be particularly burdensome on beneficiaries with serious or urgent health conditions and providers with limited spare time or resources.

OIG also reviewed CMS audits of and enforcement actions against MAOs related to denials and appeals. The report notes that during the studied timeframe CMS cited more than half of audited MAOs for inappropriately denying requests for services or payment. CMS also cited 45% of audited MAOs for sending incorrect or incomplete denial letters, which OIG suggests may inhibit beneficiaries and providers from appealing denials.

OIG’s Recommendations to CMS

In response to the study’s findings, OIG made the following three recommendations to CMS:

  1. CMS should enhance its oversight of MAO contracts, including those with high overturn rates or low appeals rates.
  2. CMS should address persistent problems related to inappropriate denial letters. Corrective actions could include a combination of technical assistance, training, and education, as well as increased monitoring and enforcement initiative.
  3. CMS should develop a method for clearly informing beneficiaries of violations by MAOs identified in audits, including those that lead to civil monetary penalties, such that beneficiaries can evaluate differences in MAO performance.

In response to the report, CMS stated that it is strongly committed to oversight and enforcement of the Medicare Advantage program and that CMS agrees with OIG’s recommendations. The full report can be found here.

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Daryl M. Berke

Associate

Daryl M. Berke is a Mintz attorney who focuses his practice on compliance with federal and state health law statutes, including anti-kickback laws and the Stark Law, as well as Medicaid and managed care reimbursement. He also represents clients in health law matters before state and federal courts.