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HFMA comments on the Delay of RAC Appeals assigned to Administrative Law Judges

March 25, 2014 3:13 pm

March 24, 2014

Marilyn Tavenner
Centers for Medicare & Medicaid Services
Department of Health and Human Services
P.O. Box 8011
Baltimore, MD 21244-1850

Re: Recent Improvements to Recovery Audit Contractor (RAC) Program and Unacceptable Delay in Assignment of Hospital Appeals to Administrative Law Judges

Dear Ms. Tavenner:

The Healthcare Financial Management Association (HFMA) would like to thank the Centers for Medicare & Medicaid Services (CMS) for the recent improvements to the RAC program that were announced on February, 14, 2014 and will be effective with the new contractor awards. We recognize this effort that CMS has taken to listen to stakeholders and address concerns about the RAC program. To that end, HFMA would like to take this opportunity to comment on the recent Office of Medicare Hearings and Appeals (OMHA) decision to suspend assignment of new cases to Administrative Law Judges (ALJs).

HFMA is a professional organization of more than 40,000 individuals involved in various aspects of healthcare financial management. HFMA is committed to helping its members improve the management of and compliance with the numerous rules and regulations that govern the industry.


A December 2013 letter from OMHA states that it will suspend assignment of most new requests for ALJ hearings for at least the next 24 months. Further, the letter states that even after it restarts assigning cases it will take at least six months for a case to reach determination. Under the best case scenario, it will be at least 30 months for ALJs to adjudicate a newly submitted appeal.

The reason cited for suspending case assignments is the rapid growth in appeals submitted to the ALJ that quickly developed into a significant backlog as a result of constrained resources to resolve appeals in a timely manner. This rapid growth in appeals is the direct result of increased RAC activity combined with the RACs’ penchant for inappropriately denying payment for medically necessary services to Medicare beneficiaries. The American Hospital Association’s (AHA’s) most recent RACTrac survey data finds that hospitals prevail on almost 70 percent of appealed cases1. This strongly suggests that RACs are succumbing to the misaligned economic incentives in the program (which reward them for the quantity of denied claims, not the accuracy of their denials) and denying a significant number of medically necessary claims.

HFMA has noted in earlier comments (link to letter included below), the RAC program violates a number of payment reform principles around fairness/sustainability, societal benefit, simplification, alignment of incentives, and quality. We believe the current delay in assigning cases to ALJs—particularly in light of the RACs’ low historic accuracy rate upon appeal—further exacerbates the inequity in the program and is completely unacceptable. Not only is it a direct violation of the Medicare statute, which requires ALJs to render a decision within 90 days of receiving a request for a hearing, but it denies providers adequate reimbursement for medically necessary services provided to eligible Medicare beneficiaries in a timely manner. 

Steps CMS Should Take:

To rectify the situation, HFMA believes that CMS needs to:
1) Suspend RAC audits until the backlog (at all levels of the appeals process) is resolved and turnaround times for appeals submitted to ALJs conform to statutory deadlines. While only a significant overhaul of the RAC program will prevent the backlog from reoccurring in the future, at least suspending RAC audits will prevent it from getting worse. 

2) Moving forward, delay recoupment of funds related to disputed claims until after ALJs have rendered a decision. When a provider pursues an appeal, it must choose whether to keep the disputed funds during the appeals process or to allow them to be recouped immediately. If a provider keeps the funds and ultimately loses the claim, it must remit the funds plus interest to CMS.

Alternatively, if CMS insists on maintaining its current policy, HFMA strongly believes that CMS should impose financial costs for the RAC when denials are ultimately overturned. Similar to the value-based payment program for hospitals—CMS should pay the Recovery Audit Contractors for quality not quantity. This could be done with several mechanisms:

  • by reducing the payment rate on all other denials when there are higher percentages of appeals that are overturned
  • require the RAC to pay the hospital interest when an denial is overturned
  • require the RAC to reimburse the hospital for reasonable appeal expenses when the hospital successfully appeals an erroneous decision
  • pay the RAC contingency fee only after all levels of appeal are exhausted as opposed to the recent change which delays payment until after second level appeals are exhausted.

This approach would better align incentives by encouraging both more judicious initial determinations by RACs and better use of the pre-appeal discussion period.

HFMA looks forward to any opportunity to provide assistance or comments to support CMS’s efforts to improve Medicare program integrity and administrative simplification. As an organization, we take pride in our long history of providing balanced, objective financial technical expertise to Congress, CMS, and advisory groups.

We are at your service to help CMS gain a balanced perspective on this complex issue. If you have additional questions, you may reach me or Richard Gundling, Vice President of HFMA’s Washington, DC, office, at (202) 296-2920. The Association and I look forward to working with you.


Joseph J. Fifer, FHFMA, CPA
President and Chief Executive Officer
Healthcare Financial Management Association

About HFMA

HFMA is the nation’s leading membership organization for more than 40,000 healthcare financial management professionals. Our members are widely diverse, employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members’ positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant.

HFMA is a nonpartisan professional practice organization. As part of its education, information, and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards. 

Related Comment Letters

2013 RAC Comment Letter


1 Results of AHA RACTRAC Survey, 3rd Quarter 2013, November 21, 2013, pg 5



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