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June 30, 2005: 

The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate: 

Subject: Medicare: Concerns Regarding Plans to Transfer the Appeals 
Workload from SSA to HHS Remain: 

Medicare--the federal health insurance program that covers the nation's 
elderly and disabled--annually processes over 1 billion medical claims 
for services provided to beneficiaries. The Centers for Medicare & 
Medicaid Services (CMS), an agency within the Department of Health and 
Human Services (HHS), administers the Medicare program with the 
assistance of its claims administration contractors. These contractors 
are charged with processing and paying claims that are properly 
submitted and that are for medically necessary and covered services. 
The contractors also deny payment for claims considered invalid, 
incomplete, or otherwise improper. Medicare beneficiaries and providers 
have the right to appeal denied claims through a multilevel 
administrative process that includes a decision by an administrative 
law judge (ALJ). In fiscal year 2004, CMS's contractors denied over 158 
million Medicare claims, about 5 million of which resulted in the 
initiation of appeals. In the same year, about 113,000 denied claims 
were appealed to ALJs. 

Two federal agencies--HHS and the Social Security Administration (SSA)-
-play a role in resolving Medicare appeals, but neither agency manages 
the entire process. In recent years, the Medicare appeals process has 
been the subject of widespread concern because of poor coordination 
between HHS and SSA and the time it takes to resolve appeals. In 
December 2000, the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA) was enacted. It mandated appeals 
reform, including stricter time frames for processing Medicare appeals. 
Additional changes were required 3 years later by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). 
MMA mandated that SSA transfer its Medicare appeals workload to HHS, 
between July 1, 2005, and October 1, 2005--in effect, consolidating 
Medicare appeals within a single federal agency. 

In October 2004, we noted that transferring the Medicare appeals 
workload from SSA to HHS posed a complex challenge, requiring careful 
preparation and precise implementation of many interrelated 
tasks.[Footnote 1] We also reported that the plan that HHS and SSA 
jointly developed to transfer this workload lacked sufficient detail on 
how the transfer would be accomplished. We concluded that the absence 
of this information seriously jeopardized a successful and timely 
transition and threatened to compromise service to appellants. 

In light of our concerns, you asked us to monitor the transfer of the 
appeals workload from SSA to HHS. Specifically, our objectives were to 
(1) assess the agencies' progress in preparing to implement the 
transfer and (2) determine how HHS spent funds appropriated for 
transferring the appeals workload from SSA to HHS and related 
activities in fiscal year 2004 and the first half of fiscal year 2005. 

To address these matters, we followed up on the steps taken to address 
weaknesses cited in our October 2004 report. We obtained documentation 
on the transfer and discussed this information with HHS and SSA 
officials. We also examined relevant laws, regulations, policies, and 
procedures concerning the transfer of SSA's Medicare appeals workload 
to HHS. In addition, we reviewed the budget assumptions and 
documentation related to spending on transfer-related activities-- 
including reimbursements to SSA and CMS's implementation of BIPA 
reforms--and interviewed HHS, CMS, and SSA budget officials on these 
matters. We performed our work from October 2004 through June 2005, in 
accordance with generally accepted government auditing standards. 

We recognize that the implementation of the plan to transfer the 
Medicare appeals function from SSA to HHS is at a critical and dynamic 
stage. This report provides a snapshot of that progress as of May 26, 
2005. 

In summary, we found that, although HHS and SSA have taken steps to 
prepare for the required transfer of the appeals function as required 
by MMA, some of the concerns we cited in our October 2004 report 
continue. With the July 1, 2005, implementation of the transfer plan 
quickly approaching, we identified three areas of concern. 

First, ensuring sufficient appellant access to hearings will be 
challenging. HHS has severely limited access to in-person hearings by 
establishing 4 hearing offices, in contrast to the 141 maintained by 
SSA. HHS will have to make special arrangements to obtain hearing space 
in other locations to ensure that appellants have adequate and timely 
access to in-person hearings. Despite its heavy reliance on 
videoconferencing (VTC) technology, HHS has not provided convincing 
evidence that appellants generally consider VTC hearings an adequate 
substitute for in-person hearings. HHS also faces a complex logistical 
task in arranging for thousands of VTC hearings, but has not estimated 
its needs based on SSA's recent hearing experience or another 
reasonable surrogate. Instead, HHS plans to tap these resources on an 
as-needed basis, providing little assurance that VTC hearings can be 
scheduled and completed within the stricter time frame. 

Second, HHS is facing tight time frames to hire and train ALJs to hear 
Medicare appeals. HHS has not yet hired its Chief ALJ, and, although 23 
individuals have accepted offers to fill the 49 open positions for ALJs 
who are expected to hear appeals, HHS's hiring and training timetable 
is extremely ambitious and provides little margin for error. 

Third, HHS continues to face operational challenges that have not yet 
been resolved, such as implementing its new Medicare appeals case- 
tracking system at all levels of the appeals process. 

We are also concerned that, with such an enormous task still in front 
of it, HHS has not developed a specific contingency plan for processing 
appeals if for some reason it does not meet its October 1, 2005, 
deadline. 

We also reviewed HHS's spending on the transfer of the appeals function 
and related activities in fiscal year 2004 and the first half of fiscal 
year 2005. We found that for fiscal year 2004, HHS spent less than it 
had been appropriated for transfer-related activities and SSA appeals 
processing. Furthermore, HHS spent slightly more than half of its 
fiscal year 2005 appropriation during the first two quarters of the 
fiscal year. Enclosure I contains briefing slides that elaborate on our 
findings. 

We provided SSA and HHS with a draft of this report for comment. In its 
written comments, SSA did not indicate whether it agreed or disagreed 
with the information we presented in our report. However, SSA stressed 
its commitment to successfully transferring the appeals workload to 
HHS, while maintaining service to appellants. SSA also updated the 
information contained in our draft, most notably, that it submitted a 
plan to the Office of Management and Budget on June 1, 2005, for 
completing its pending Medicare appeals workload. SSA commented that it 
would have between 3,000 to 5,000 Medicare claims pending on October 1, 
2005--the date the transition is to be completed. Furthermore, SSA did 
not provide written assurance as to when these appeals would be 
completed. 

HHS also provided written comments and stated that it generally agreed 
with the report's contents and described its most recent progress in 
preparing for the transfer of the appeals function. However, HHS 
suggested that our report contained two inaccuracies. First, HHS took 
issue with our statement that it had not provided convincing evidence 
that appellants generally consider VTC hearings an adequate substitute 
for in-person hearings and concluded that our statement was based on a 
faulty premise. HHS said that the applicable statutory provision does 
not include any specific requirements regarding the form that hearings 
must take and that the only requirement is that they comport with due 
process. However, our concern extends beyond legal requirements and 
encompasses a variety of reasons why appellants may be uncomfortable 
with VTC hearings. For example, beneficiary appellants may be 
intimidated by the unfamiliar technology or may be concerned that a 
lack of personal contact with the ALJ may put them at a disadvantage. 
It is this type of information--the beneficiary appellants' perspective 
on the use of VTCs as opposed to in-person hearings--that HHS has not 
provided. Second, HHS said that our statement that those appealing to 
the ALJ level have a right to an in-person hearing is inaccurate. We 
recognize that the provision of the act governing hearings, which was 
enacted in 1939, does not specify the form they must take,[Footnote 2] 
but until 2003 the regulations did not contemplate VTC 
hearings.[Footnote 3] When SSA amended these regulations in 2003 to 
facilitate the use of VTC hearings, no changes were made to preclude or 
significantly burden an appellant's choice of an in-person 
hearing.[Footnote 4] We revised our wording to reflect that appellants 
may choose an in-person hearing. 

Both SSA and HHS provided technical comments, which we incorporated as 
appropriate. (See enclosure II for a copy of SSA's comments and 
enclosure III for a copy of HHS's comments.)

We provided your staff with the information contained in this report on 
May 26, 2005. As discussed with your staff during that briefing, we 
agreed to issue this report to you containing the information we 
provided. As agreed with your office, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days after its issue date. At that time, we will send copies to the 
Secretary of HHS, the Commissioner of SSA, and other interested 
parties. We will also make copies available to others upon request. In 
addition, this report will be available at no charge on GAO's Web site 
at http://www.gao.gov. 

If you or your staff have any questions about this report, please call 
me at (312) 220-7600. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Geraldine Redican-Bigott, Enchelle Bolden, Helen Desaulniers, 
Shirin Hormozi, Barbara Mulliken, and Craig Winslow made key 
contributions to this report. 

Signed by: 

Leslie G. Aronovitz: 

Director, Health Care: 

Enclosures --3: 

GAO Briefing: 

MEDICARE: Concerns Regarding Plans to Transfer the Appeals Workload 
from SSA to HHS Remain: 

Briefing to the Staff of the Senate Committee on Finance: 

May 26, 2005: 

MEDICARE: Concerns Regarding Plans to Transfer the Appeals Workload 
from SSA to HHS Remain: 

* Introduction: 
* Objectives:
* Scope and Methodology: 
* Results in Brief:
* Background: 
* GAO Findings: 

Introduction: 

The Medicare appeals process has been the subject of widespread concern 
in recent years because of the time it takes to resolve appeals of 
denied claims. 

Two federal agencies play a role in deciding Medicare appeals, but 
neither agency manages the entire four-level administrative appeals 
process. The Department of Health and Human Services (HHS) is 
responsible for overseeing the Medicare program, including managing 
three levels of the appeals process. However, the Social Security 
Administration (SSA), formerly an agency within HHS, has continued to 
hear appeals at the third level in the process, despite the fact that 
it became an independent agency in 1995. 

To help expedite the adjudication of appealed claims, the Congress 
passed two laws: 

* The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000 (BIPA), which established stricter time frames for 
processing Medicare appeals. 

* The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA) mandated transfer of SSA's Medicare appeals function to HHS. 
As a result, all levels of the administrative appeals process will 
reside within a single federal agency. 

Our October 4, 2004, report, Medicare: Incomplete Plan to Transfer 
Appeals Workload from SSA to HHS Threatens Service to Appellants (GAO- 
05-45), noted that transferring the Medicare appeals function from SSA 
to HHS posed a complex challenge, requiring careful preparation and 
precise implementation of many interrelated tasks. We found that the 
plan developed by SSA and HHS to transfer the Medicare appeals workload 
lacked sufficient details. We concluded that the absence of specific 
information on how the transfer would be implemented seriously 
jeopardized a successful and timely transition and threatened to 
compromise service to appellants. 

Objectives: 

We were asked to: 

1. assess the progress in preparing to implement the transfer of the 
Medicare appeals function from SSA to HHS and: 

2. determine how HHS spent funds appropriated for transferring the 
appeals workload from SSA to HHS and related activities in fiscal year 
2004 and the first half of fiscal year 2005. 

Scope and Methodology: 

To perform our work, we: 

* followed up on steps the agencies have taken to address weaknesses 
cited in our October 2004 report, obtained documentation on transfer 
activities, and discussed this information with HHS and SSA officials;

* examined laws, regulations, policies, and procedures relevant to the 
transfer of the Medicare appeals workload; and: 

* reviewed the budget assumptions and documentation related to the 
allocation and spending of appeals transfer funds, and interviewed 
budget officials from HHS and SSA. 

We performed our work from October 2004 through June 2005, in 
accordance with generally accepted government auditing standards. 

Results in Brief: 

HHS and SSA are taking steps to prepare for the transfer of the 
Medicare appeals workload by October 1, 2005, as required by MMA. 
However, we are concerned that HHS's approach for accomplishing the 
remaining key tasks follows an ambitious schedule that leaves little 
margin for error. Our concerns focus on HHS's ability to maintain 
sufficient appellant access to hearings, meet critical resource needs, 
and resolve operational issues. 

In FY 2004, HHS spent $59.5 million of the $77 million appropriated for 
the transfer of the appeals function and related activities. In FY 
2005) HHS was appropriated $81 million for the transfer and related 
activities and an additional $49.6 million to reimburse SSA for hearing 
Medicare appeals. HHS spent slightly more than half of these funds 
through the first two quarters of the fiscal year. 

Background: 

Medicare covers a variety of health care services including inpatient 
hospital care, physician services, and diagnostic tests. In addition, 
as a result of MMA, beneficiaries will be able to participate in 
Medicare's new, voluntary prescription drug benefit, beginning in 
January 2006. Like other denied claims, denied prescription drug claims 
will also be subject to appeal. 

The Centers for Medicare & Medicaid Services (CMS), an agency within 
HHS, is responsible for administering the Medicare program, with 
assistance from its claims administration contractors. These 
contractors are charged with processing and paying claims that are 
properly submitted and that are for medically necessary and covered 
services. 

Medicare's claims administration contractors are also charged with 
identifying and denying claims that are invalid, incomplete, or 
improper. For example, a claim may be denied if a beneficiary received 
services that were medically unnecessary or not covered by Medicare, or 
if the deadline for filing claims had been exceeded. 

In FY 2004, over 158 million Medicare claims were denied and about 5 
million were appealed to the first level in the process. That same 
year, about 113,000 denied claims were appealed to the third level of 
the process, where administrative law judges (ALJs) hear and decide 
appeals. An appeal may consist of more than one denied claim. 

The administrative appeals process consists of four levels: 

* CMS's claims administration contractors resolve appeals at the first 
two levels. 

* ALJs from SSA hear and decide appeals at the third level of the 
process. At this level, appellants may choose an in-person hearing. 

* The Medicare Appeals Council, within HHS's Departmental Appeals 
Board, resolves appeals at the fourth level. 

* Appellants who are dissatisfied with decisions reached at one level 
in the appeals process may submit their appeal to the next level. 

Until FY 2004, the President's budget submission to Congress included a 
request for SSA to be provided with funds to process Medicare appeals. 
However, the FY 2004 submission requested that HHS be provided with 
funds to process appeals, instead of SSA. SSA subsequently entered into 
an agreement with HHS to hear appeals, and Congress appropriated funds 
to HHS to pay SSA for its work. 

HHS budgeted $50 million in both fiscal years 2004 and 2005 to 
reimburse SSA for adjudicating Medicare appeals. 

MMA specified that the ALJ function be transferred from SSA to HHS no 
earlier than July 1, 2005, and no later October 1, 2005. MMA also 
directed SSA and HHS to develop a plan detailing how the transfer would 
take place and specified that certain elements be addressed. Among 
other things, the plan was to: 

* provide for an appropriate geographic distribution of ALJs throughout 
the United States;

* identify steps for hiring ALJs and training them about Medicare law 
and regulation;

* establish appropriate staffing levels, considering the current and 
anticipated appeals workload;

* address the feasibility of conducting hearings using 
videoconferencing (VTC) technologies; and: 

* establish management tools, including specific regulations to govern 
the appeals process, a timetable for accomplishing the transfer, and a 
case-tracking system to facilitate the maintenance and transfer of data 
across all levels of the appeals process. 

In response to MMA's mandate, SSA and HHS jointly developed the 
required transfer plan. The plan provides that, beginning July 1, 2005- 
3 months before the mandatory transfer date established by MMA all 
Medicare appeals that otherwise would have been sent to SSA will 
instead be sent to HHS for adjudication, with one exception: Appeals 
related to Medicare's managed care claims will be sent to HHS beginning 
September 1, 2005. This approach was designed to enable SSA to 
concentrate on completing its pending Medicare appeals workload from 
July 1, 2005, through September 30, 2005. This strategy was also 
intended to permit HHS to fully assume the Medicare appeals hearing 
function on October 1, 2005, without inheriting a pending workload from 
SSA. 

CMS published procedures and guidance on implementing statutory changes 
to the appeals process resulting from both BIPA and MMA in an Interim 
Final Rule with Comment Period in March 2005. As a result, additional 
changes to the appeals process will include: 

* replacing the claims administration contractors who resolve the 
appeals at the second level of the process with a new type of 
contractor, called qualified independent contractors (QIC) and: 

* meeting the requirements for faster resolution of appeals: 

QICs will have to resolve appeals in 60 days, compared with the current 
120-day requirement for the hearing officers at the claims 
administration contractors. 

HHS ALJs will have to resolve appeals within 90 days. SSA ALJs 
currently have no time limit but, between October 2004 and March 2005, 
took an average of 295 days to resolve appeals. 

These changes were implemented for some QICs on May 1, 2005, and will 
be fully implemented when the remaining QICs become operational on 
January 1, 2006. 

In our October 2004 report, we recommended that, to facilitate the 
transfer of SSA's ALJ workload to HHS, the Secretary of HHS and the 
Commissioner of SSA should, among other things,

* identify where staff and hearing facilities including VTC equipment 
are needed;

* develop an approach to ensure that ALJs and support staff can be 
hired and adequately trained; and: 

* prepare a detailed project plan that includes key elements essential 
to the transfer of the ALJ function from SSA to HHS, including 
contingency plans for appeals to be decided, if the transfer is not 
completed by October 1, 2005. 

GAO Findings: 

Objective 1: Preparations to Implement the AU Transfer Plan: 

Since we issued our October 2004 report, HHS and SSA have made progress 
in completing tasks necessary to facilitate the transfer of the ALJ 
workload from one agency to the other. However, as of May 26, 2005, 
some of the recommendations we made in that report had not been fully 
addressed. 

Specifically, since the issuance of our October 4, 2004, report, we 
have identified three ongoing concerns related to the implementation of 
the ALJ transfer plan: 

1. Maintaining Sufficient Appellant Access to Hearings: 

* reliance on widespread use of VTC hearings. 

* in-person hearings result in waiver of the statutory 90-day deadline. 

2. Meeting Critical Human Resource Needs: 

3. Resolving Operational Issues: 

* delay in fully implementing appeals case-tracking system: 

* lack of contingency planning: 

Objective 1: Preparations to Implement the ALJ Transfer Plan: 
Maintaining Sufficient Appellant Access-Reliance on Widespread Use of 
VTC Hearings Raises Concerns: 

As of October 4, 2004: 

* HHS reported it would locate the central office in the Baltimore/ 
Washington area and planned to develop a process to identify other 
hearing office locations. 

As of May 26, 2005: 

* HHS will locate a central hearing office in Arlington, VA; and three 
other hearing offices in Miami, FL; Cleveland, OH; and Irvine, CA. The 
Arlington site will also function as a hearing office. HHS stated that 
having a small number of offices is cost-effective and will enable it 
to open them quickly. HHS noted it may later need to realign this 
structure on the basis of workload experience. (See fig. 1.)

Objective 1: Reliance on Widespread Use of VTC Hearings Raises 
Concerns: 

Figure 1: Distribution of SSA's and HHS's Hearing Offices: 

Distribution of SSA's 141 Hearing Offices New HHS Hearing Offices: 

[See PDF for image]

Source: SSA. Source: GAO. 

[A] The Arlington, VA office will be smaller than the other three 
hearing offices. It will serve the Washington, DC metro area and also 
assist in processing cases for other regions as needed. 

[End of figure] 

As of October 4, 2004: 

HHS indicated it planned to relV heavily on VTCs but had not determined 
the proportion of appellants willing to conduct hearinqs usin this 
technology. Several ALJs~old us that beneficiaries are often 
uncomfortable using VTC facilities and prefer in-person hearings. HHS 
said it would study how best to employ VTCs in the hearing process. 

As of May 26, 2005: 

HHS expects most appellants to use VTCs. According to HHS, about 90 
percent of appellants are providers, many of whom are familiar with 
VTCs, and are represented by law firms with their own VTC equipment. 
HHS stated that some ALJs and beneficiaries will still travel to 
hearinq locations. CMS's rule does not address whether appellants would 
be paid for travel,.but HHS said it will issue quidance on this by the 
time its ALJs begin hearing appeals. 

As of October 4, 2004: 

HHS did not provide information on the number of hearings it expected 
to conduct in-person and by VTC. 

As of May 26, 2005: 

HHS estimates that its ALJs will receive 42,000 Medicare appeals in FY 
2006, excluding appeals resulting from the new prescription drug 
benefit. HHS acknowledged that it does not have a reliable projection 
of future appeals associated with this new benefit but believes that 
the number will be small. HHS noted that not all appeals require 
hearings. It estimates about three-quarters of appeals received will 
result in hearings. 

As of October 4, 2004: 

HHS did not specify its VTC needs, including the number of sites needed 
or the location of anticipated VTC sites. 

As of May 26, 2005: 

HHS said it cannot precisely specify its equipment needs but will have 
31 VTC facilities in its 4 hearing offices. It may also use VTC 
facilities in its 10 regional offices. HHS also told us it has access 
to VTC facilities in 503 cities nationwide. This includes access to 
sites operated by (1) private vendors that have existing federal 
contracts and (2) SSA, which will give HHS access to VTC facilities i n 
69 of its locations. 

As of October 4, 2004: 

CMS is testing a Web site for beneficiaries to access their claims 
information. HHS planned to study the feasibility of using this Web 
site for electronic filing of appeals. 

As of May 26, 2005: 

CMS is conducting its test for a limited population and may expand 
participation over the next 2 years. There is no timetable, however, 
for when it may be possible for appeals to be filed electronically. 

GAO Observations: 

While HHS provided a rationale for choosing its four locations that it 
believes is cost-effective, the number of hearing sites dedicated to 
HHS's use for in-person hearings will be greatly reduced. HHS will have 
to make arrangements to schedule hearings elsewhere on an as-needed 
basis to ensure that appellants granted in-person hearings have 
reasonable and timely access to them. 

In addition, although HHS told us that most providers and attorneys are 
familiar with VTC technology, it has not shown that these appellants or 
beneficiaries generally consider VTC hearings an adequate substitute 
for in-person hearings. 

HHS faces a complex logistical task in arranging for thousands of VTC 
hearings that may be required to resolve appeals within the statutory 
90-day deadline. However, HHS has indicated that it cannot determine 
the number of hearings it will hold by VTC, and, as a result, it has 
not calculated how many hearings it can conduct using its equipment and 
VTC facilities available from private vendors and SSA. While it is 
understandable that HHS cannot anticipate the locations where it will 
need to conduct VTC hearings with great precision, it has not developed 
estimates of its VTC needs based on SSA's recent hearing experience or 
another reasonable surrogate to help it address this overwhelming task. 
Instead, HHS plans to tap these resources as needed, providing little 
assurance that VTC hearings can be scheduled and completed in a timely 
manner. 

While HHS is studying the feasibility of using CMS's beneficiary Web 
site for electronic appeals submissions, it will not be available to 
beneficiaries in the short-term. 

Objective 1: Preparations to Implement the ALJ Transfer Plan: 
Maintaining Sufficient Appellant Access-In-Person Hearings Result in 
Waiver of the Statutory 90-day Deadline: 

As of October 4, 2004: 

HHS said that its regulations would also address the use of VTCs in 
lieu of in-person hearings. 

As of May 26, 2005: 

Under CMS's rule, appellants who request and show good cause for in- 
person hearings may, with management approval, be granted one. But such 
requests will constitute waiver of the statutory 90-day requirement for 
a decision. Although HHS said it will revise the rule to clarify that 
there will be no waiver when requests are denied, appellants granted in-
person hearings will lose the benefit of any deadline. 

Objective 1: In-Person Hearings Result in Waiver of the Statutory 90- 
day Deadline: 

GAO Observations: 

The rule does not provide clear standards for appellants to show good 
cause when requesting in-person hearings. It also does not include any 
deadlines for scheduling such hearings or deciding these appeals. This 
may most affect the 10 percent of appellants who are beneficiaries as 
opposed to providers represented by law firms and who may not be 
familiar with VTCs or have easy access to VTC facilities. 

HHS Faces Challenges in Meeting Critical Human Resource Needs: 

As of May 26, 2005: 

HHS stated that it was working with the Office of Personnel Management 
(OPM) to expedite the hiring of at least 50 ALJs. 

As of October 4, 2004: 

HHS plans to hire 54 ALJs a Chief ALJ, 4 managing ALJs, and 49 ALJs who 
will hear appeals. Offers have been accepted for all 4 managing ALJ 
positions. One of the managing ALJs is currently serving as the acting 
Chief Judge. In addition, offers have been accepted for 23 of the 49 
positions for ALJs who will hear Medicare appeals. HHS plans to hire 
half of its ALJs by mid-June 2005 and the other half by late July 2005. 

Objective 1: HHS Faces Challenges in Meeting Critical Human Resource 
Needs: 

As of October 4, 2004: 

HHS said that, in addition to relying on workload and staffing data 
from SSA, it would conduct its own additional analysis to develop its 
workload forecasts and staffing needs. 

As of May 26, 2005: 

HHS maintains that 54 ALJs will be a sufficient number to manage the 
anticipated appeals workload within its statutory 90-day deadline. It 
based this on SSA's staffing data and discussions with SSA officials. 
HHS said that it expects to be very efficient, which will enable it to 
resolve appeals more quickly than SSA. HHS will also set aggressive 
processing standards for hearing offices and plans to monitor their 
performance. 

As of October 4, 2004: 

HHS had not determined how it would distribute its ALJ positions. 

As of May 26, 2005: 

HHS determined that it will place a Chief ALJ and 4 ALJs in its 
Arlington office and 15 ALJs in each of the other 3 locations. I n 
addition, each of HHS's 4 hearings offices will be headed by a managing 
ALJ. 

As of October 4, 2004: 

In addition to working with OPM to obtain ALJs, HHS was also relying on 
OPM for assistance in hiring support staff. 

As of May 26, 2005:
According to HHS, offers have been accepted for each of the 4 hearing 
office manager positions. HHS also plans to hire half of its support 
staff-including 85 attorneys-by mid-June 2005 and the other half by 
late July 2005. Seventeen attorneys have accepted positions, and 63 
offers are outstanding. HHS noted that its appeals workload will not be 
at full strength on July 1, 2005, and that more staff will be added 
following the transfer. 

As of October 4, 2004: 

HHS stated it would consider Medicare expertise as a factor in hiring 
its ALJs. However, OPM's registry of ALJ applicants does not indicate 
whether they have Medicare expertise. 

As of May 26, 2005: 

HHS stated that many of the individuals who have accepted ALJ positions 
are SSA employees with Medicare experience, but said it could not 
supply precise information until a later date. HHS also emphasized that 
MMA did not require that it hire ALJs with Medicare expertise only that 
HHS consider this as a factor in the hiring process. 

As of October 4, 2004: 

HHS reported that it had contracted with HHS University its internal 
training unit to analyze training needs, oversee the development of 
training materials, and schedule classes. 

As of May 26, 2005: 

HHS plans to begin training the first group of newly hired ALJs and 
support staff in mid-June 2005. Three weeks of training will be 
provided, including 3 days devoted to Medicare law. In addition, those 
beginning careers as ALJs will attend 2 weeks of training at the 
National Judicial College in mid-July 2005. HHS stated that the 
majority of training will be conducted before ALJs hear cases. 

GAO Observations: 

With about 5 weeks remaining before implementation of the transfer plan 
is due to begin, HHS has not yet hired a Chief Judge. Although a 
managing ALJ is currently acting as Chief Judge, and, according to HHS, 
has authority to develop policies and make key human resource 
decisions, we believe that the delay in hiring a permanent Chief Judge 
is less than ideal. The uncertainty that inherently accompanies an 
acting status, in our view, adds to the complexities associated with an 
already challenging task and makes a smooth transition more difficult. 

HHS has assured us that it will be ready to begin implementing the 
transfer on July 1, 2005, as planned. However, we are concerned with 
HHS's tight schedules for hiring and training staff. HHS's hiring and 
training timetables are ambitious and provide little margin for error. 
A delay in meeting either schedule could affect the agency's ability to 
begin hearing appeals on time or resolving appeals within the required 
statutory 90-day deadline. 

While not an MMA requirement, the hiring of ALJs with Medicare 
expertise would help facilitate a successful transition, as cases may 
be resolved more expeditiously by ALJs already familiar with Medicare 
law. However, it is unclear whether the majority of ALJs that HHS will 
be able to ultimately hire will have such expertise. Other than 
providing 3 days of initial Medicare training, HHS has not specified 
how it plans to cultivate this expertise among its ALJs and other 
professional staff who have little or no Medicare experience. 

Although HHS expects to have a sufficient number of ALJs to manage its 
workload and also plans to operate more efficiently than SSA, we remain 
skeptical, given an anticipated workload of 42,000 appeals in FY 2006. 
Assuming that one-quarter of these appeals do not require hearings, HHS 
ALJs will still need to complete, on average, about 3 appeals a day in 
order to manage this workload. Moreover, any administrative or 
logistical difficulties such as the inability to arrange for VTC access 
at key times or obtain necessary case files could hamper HHS's ability 
to resolve appeals in a timely manner. 

Resolving Operational Issues-Delays in Fully Implementing New Appeals 
Case-Tracking System: 

As of October 4, 2004: 

HHS's incremental approach to implementing its newly developed appeals 
case-tracking system intended to correct existing system 
incompatibilities between all four levels of the process seemed 
reasonable. However, initial plans to test the functionality of the 
system with QICs did not occur in the summer of 2004, as planned. 

As of May 26, 2005: 

Full implementation of the new system is delayed. HHS tested the system 
at the QIC and ALJ levels in April 2005 and said it is ready to be 
implemented at those two levels. However, it was to be available at the 
first level of the appeals process by June 2005. HHS reports that this 
will not occur but stated that it will consider the feasibility of 
expanding the system to the first level in FY 2006. 

Objective 1: Delays in Fully Implementing New Appeals Case-Tracking 
System: 

GAO Observations: 

HHS's appeals case-tracking system was intended to facilitate the 
maintenance and transfer of case-specific data throughout the four 
levels of the appeals process and to correct long-standing case 
management problems. However, it is now scheduled to be implemented 
only at the second and third levels. HHS is reconsidering its 
implementation at the first level and also has not indicated when it 
will be used to track appeals at the fourth level of the process. 

Resolving Operational Issues Lack of Contingency Planning: 

As of October 4, 2004: 

HHS stated that it would address contingencies as needed but did not 
provide details on the specific steps that might be taken. 

As of May 26, 2005: 

HHS stated that its plan to begin transferring the ALJ workload on July 
1, 2005-3 months before MMA's deadline will allow the agency sufficient 
time to address potential problems. 

Objective 1: Lack of Contingency Planning: 

As of October 4, 2004: 

HHS reported having a mechanism to continue using SSA ALJs after the 
mandatory transfer date, if necessary. 

As of May 26, 2005: 

HHS mentioned, among other things, the MMA and the Economy Act, as 
possible bases for a mechanism to allow SSA ALJs to continue hearing 
Medicare appeals if the transfer is not fully accomplished on time. 
However, HHS and SSA have not developed plans for using a specific 
mechanism or formalized an agreement for completing SSA's pending 
workload. 

Objective 1: Lack of Contingency Planning: 

As of October 4, 2004: 

SSA ended FY 2004 with about 28,700 pending Medicare appeals. SSA 
estimated it would need to resolve about 74,900 Medicare appeals cases 
by the end of FY 2005 to finish its Medicare appeals workload. This 
includes the 28,700 cases pending at the end of FY 2004 and about 
46,200 new cases it expected to receive in FY 2005. 

As of May 26, 2005: 

SSA's pending workload has increased. As of late April 2005, SSA had 
30,918 pending appeals cases about 2,200 more than were pending when 
the fiscal year began. While SSA is committed to completing this 
workload, it acknowledged that it is unlikely that it will be able to 
do so by the October 1, 2005, transfer deadline. 

GAO Observations: 

HHS indicates that it is on schedule for completing the transfer by 
MMA's October 1, 2005, deadline and that beginning the transfer on July 
1, 2005, will provide sufficient time to address potential problems. 
However, if significant problems develop, HHS has not formulated a 
specific contingency plan to resolve them. 

SSA and HHS have not formalized an agreement that outlines SSA's 
commitment to complete its pending Medicare workload after the transfer 
date. As a result, there is little assurance that SSA will not 
ultimately transfer this workload to HHS. 

Without preparing for SSA to continue hearing Medicare appeals, HHS 
provides little assurance that disruption to the process can be 
avoided, should it be unable to begin hearing such appeals on time. 

Objective 2: HHS Spending on the Appeals Transfer and Related 
Activities: 

* HHS spent a little over three-quarters of the funds appropriated for 
the transfer of the appeals function and related activities in FY 2004. 
HHS has spent slightly more than half of the funds appropriated for the 
transfer and related activities in the first two quarters of FY 2005. 

* HHS spent only $59.5 million of the $77 million appropriated for the 
appeals transfer and related activities in FY 2004. This lower spending 
was due to, among other things, HHS's reimbursing SSA $37.5 million for 
hearing appeals substantially less than the $50 million HHS had 
originally budgeted. 

* In FY 2005, the appropriation for the appeals transfer and related 
activities was increased to $81 million. In the first two quarters of 
FY 2005, HHS spent $47.6 million on appeals activities. In addition, 
another $49.6 million was appropriated to reimburse SSA for continuing 
to adjudicate Medicare appeals. HHS paid SSA $24.8 million for 
adjudicating appeals in the first two quarters of FY 2005. (See table 
1.)

Table 1: FY 2004 and FY 2005 Budget Requests, Appropriations, and 
Actual Spending (Dollars in millions): 

[See PDF for image] 

Source: HHS. 

Notes: Amounts include funds spent by HHS and CMS, an agency within 
HHS. N/A = not applicable. 

[End of table] 

[End of slide presentation] 

[End of section] 

Comments from the Social Security Administration: 

SOCIAL SECURITY: 

The Commissioner: 

June 15, 2005: 

Ms. Leslie G. Aronovitz: 
Director, Health Care-Program Administration and Integrity Issues: 
U.S. Government Accountability Office: 
Room 5-A-14:
441 G Street NW: 
Washington, D.C. 20548: 

Dear Ms. Aronovitz: 

Thank you for the opportunity to review and comment on the draft 
Government Accountability Office (GAO) correspondence "MEDICARE: 
Concerns Remain Regarding Plans to Transfer the Appeals Workload from 
SSA to HHS" (GAO-05-703R). 

First and foremost, I wish to reiterate my commitment to making the 
Social Security Administration's (SSA) transfer successful and to 
maintaining service to appellants throughout the process. The draft 
correspondence correctly notes that the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) transfers authority 
from SSA to the Department of Health and Human Services (HHS) for the 
Medicare appeals hearings function, effective October 1, 2005. However, 
in the event that it is necessary, SSA and HHS have identified a 
mechanism for HHS to continue to use SSA Administrative Law Judges to 
adjudicate Medicare appeals after the statutory date of transfer. 

Enclosed are detailed comments and suggestions we have on the draft 
correspondence. If you have any questions, please have your staff 
contact Ms. Candace Skurnik at (410) 965-4636. 

Sincerely,

Signed by: 

Jo Anne B. Barnhart: 

Enclosure: 

SOCIAL SECURITY ADMINISTRATION: 
BALTIMORE MD 21235-0001: 

COMMENTS ON THE GOVERNMENT ACCOUNTABILITY OFFICE (GAO) DRAFT 
CORRESPONDENCE "MEDICARE: CONCERNS REMAIN REGARDING PLANS TO TRANSFER 
THE APPEALS WORKLOAD FROM SSA TO HHS" (GAO-05-703R): 

We appreciate the opportunity to comment on the GAO draft 
correspondence concerning the transfer of the Medicare appeals workload 
from the Social Security Administration (SSA) to the Department of 
Health and Human Services (HHS). 

SSA recognizes there are considerable challenges remaining in the 
effort to transfer the Medicare appeals workloads to HHS. While much of 
the responsibility for addressing these challenges rests with HHS, SSA 
will continue to work with them to accomplish an orderly transition of 
this workload. 

For example, SSA and HHS have jointly studied opportunities for sharing 
video-teleconferencing (VTC) sites. SSA and HHS are developing options 
that will allow HHS access to our VTC sites in a variety of locations 
to help meet HHS' needs. SSA plans to permit the use of its VTC sites 
to the extent that it will not interfere with SSA workloads, and in a 
manner which will not inconvenience SSA claimants. SSA will continue to 
provide data regarding its experience in processing Medicare appeals to 
assist HHS in estimating their VTC and Medicare appeals hearing 
workload needs. 

As to the specific findings, we offer the following comments. 

Page 50: As of May 26, 2005, SSA's pending workload has increased. As 
of late April 2005, SSA had 30,918 pending appeals cases - about 2,200 
more than were pending when the fiscal year began. While SSA is 
committed to completing this workload, it acknowledged that it is 
unlikely that it will be able to do so by the October 1, 2005, transfer 
deadline. 

We offer the following updated Medicare appeals workload information 
for the month of May 2005: 

Medicare pending: 30,879 cases; 
Medicare receipts: 9,620 cases; 
Medicare dispositions: 9,659 cases. 

The pending Medicare workload in May continues to be higher than it was 
at the beginning of the fiscal year. However, the total pending at the 
end of May 2005 is more than 10,000 cases below the same time last year 
and Medicare dispositions are far ahead of the pace issued in 2004 
(more than 6,500 cases ahead of last year at this time). And as of June 
2005, more than half of all of the pending Medicare cases at SSA (52 
percent) are either scheduled for a hearing or ready to be scheduled 
for a hearing. 

We remain committed to processing all Medicare cases pending with SSA 
as of September 30, 2005, including remanded cases issued by SSA that 
are received through September 30, 2005. We anticipate that between 
3,000 and 5,000 Medicare cases will be pending in SSA as of October 1, 
2005, but we will be able to more precisely assess both the number and 
when the pending workload will be completed after the flow of most new 
receipts ends on June 30, 2005. 

Page 51: SSA and HHS have not formalized an agreement that outlines 
SSA's commitment to complete its pending Medicare workload after the 
transfer date. As a result, there is little assurance that SSA will not 
ultimately transfer this workload to HHS. 

SSA submitted a contingency plan to OMB on June 1, 2005, under which 
SSA has committed in writing to processing to completion all those Part 
A and B appeals received by June 30, 2005, and all those Part C appeals 
received by August 31, 2005. While we intend to execute an MOU which 
will discuss any necessary details about this and other aspects of the 
transfer, we believe that the plan submitted to OMB sufficiently 
formalizes the commitment we gave in our response to GAO on this same 
point on April 14, 2005. Also, we have recently agreed with HHS to 
process remanded cases decided by SSA that are received in SSA through 
September 30, 2005. Further, SSA will process remands on cases decided 
by SSA that are received from October 1 through December 31, 2005, for 
which a hearing is not required. 

SSA is committed to complete the processing of Medicare cases for which 
we have responsibility pursuant to these arrangements. Until the 
pending Medicare workload is completed, the necessary infrastructure 
will remain in place to ensure that the workload is completed. For 
example, SSA will continue to operate the Medicare management workgroup 
which is responsible for managing and monitoring the Medicare workload 
in SSA. Also, SSA's Medicare screening unit will continue in operation 
to provide assistance in processing the workload. 

Page 51: Without preparing for SSA to continue hearing Medicare 
appeals, HHS provides little assurance that disruption to the process 
can be avoided, should it be unable to begin hearing such appeals on 
time. 

SSA is prepared to continue to hear new Medicare appeals, if necessary. 
While we are processing the remaining Medicare cases pending in SSA, we 
will continue to maintain the infrastructure needed to receive and 
process new Medicare appeals, if needed. 

Technical comments: 

Page 13: Like other denied claims, denied prescription drug claims will 
also be subject to appeal. 

The right to appeal does not depend on the fact that the claim was 
denied. The sentence should state that "Individuals who are 
dissatisfied with the determination made on their claim may appeal the 
determination." This change would make the language consistent with 
that on the bottom of page 15 of the report. 

Page 15: ALJs from SSA hear and decide appeals at the third level of 
the process. At this level, appellants have the right to an in-person 
hearing. 

The phrase "in-person" should be deleted, since the statute does not 
specify whether or not the hearing has to be "in-person." See, e.g. 
section 1869(d) of the Act (referring to a hearing by an administrative 
law judge). 

Page 19: In response to MMA's mandate, SSA and HHS jointly developed 
the required transfer plan. The plan provides that, beginning July 1, 
2005 - 3 months before the mandatory transfer date established by MMA- 
all Medicare appeals that otherwise would have been sent to SSA, will 
instead be sent to HHS for adjudication. 

The statement should be revised to reflect that the Transfer Plan 
provides that all Medicare appeals will be sent to HHS beginning July 
1, 2005, except Part C, which will be sent to HHS beginning September 
1, 2005. 

[End of section] 

Comments from the Department of Health and Human Services: 

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Office of Inspector General: 

JUN 16 2005: 

Ms. Leslie G. Aronovitz: 
Director, Health Care:
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Aronovitz: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO's) draft correspondence entitled, 
"MEDICARE: Concerns Remain Regarding Plans to Transfer the Appeals 
Workload from SSA to HHS" (GAO-05-703R). The comments represent the 
tentative position of the Department and are subject to reevaluation 
when the final version of this report is received. 

The Department appreciates the opportunity to comment on this draft 
report before its publication. 

Sincerely,

Signed by: 

Daniel R. Levinson: 
Acting Inspector General: 

Enclosure: 

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft correspondence in our capacity as the 
Department's designated focal point and coordinator for U.S. Government 
Accountability Office reports. OIG has not conducted an independent 
assessment of these comments and therefore expresses no opinion on 
them. 

COMMENTS OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES ON THE U.S. 
GOVERNMENT ACCOUNTABILITY OFFICE'S DRAFT CORRESPONDENCE ENTITLED 
"MEDICARE: CONCERNS REMAIN REGARDING PLANS TO TRANSFER THE APPEALS 
WORKLOAD FROM SSA TO HHS" (GAO-05-703R): 

The Department of Health and Human Services (HHS) appreciates the 
opportunity to review and comment on the U.S. Government Accountability 
Office's (GAO's) draft correspondence, which was prepared as a follow 
up to GAO's earlier report entitled, "MEDICARE-Incomplete Plan to 
Transfer Appeals Workload from SSA to HHS Threatens Service to 
Appellants" (GAO-05-45), published October 4, 2004. 

Section 931 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) mandated that responsibility for the 
functions of administrative law judges (ALJs) who hear Medicare appeals 
under Title XVIII of the Social Security Act (the Act) be transferred 
from the Social Security Administration (SSA) to HHS not earlier than 
July 1, 2005, and not later than October 1, 2005. It also required SSA 
and HHS to submit a report to the Congress (the Transfer Plan) by April 
1, 2004, providing a plan for the transfer of this responsibility. GAO 
was mandated to evaluate that plan and report to the Congress, which it 
did in GAO-05-45. 

Following release of that report, GAO was asked to monitor the transfer 
of the appeals workload and update the Congress. This draft 
correspondence recognizes, on page 2, that "...the implementation of 
the plan to transfer the Medicare appeals function from SSA to HHS is 
at a critical and dynamic stage. This report provides a snapshot of 
that progress as of May 26, 2005. 

While HHS generally agrees with most of the statements made by GAO in 
the slide presentation that constitutes the draft correspondence, there 
are several issues that HHS would like to clarify or update, and would 
also like to supply additional information regarding steps taken since 
the snapshot was taken on May 26, 2005. 

Video Teleconferencing: 

The MMA mandated that the Transfer Plan explore the feasibility of 
conducting ALJ hearings using teleconference or videoconference 
technologies. HHS will fulfill this obligation by improving the 
hearings process and expanding access to ALJs through the use of video 
teleconference (VTC) hearings. The use of VTC hearings will allow 
prompt hearings in order to ensure that decisions will be rendered 
within the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA)-mandated timeframe, and create more 
access points than SSA currently provides through its offices. HHS is 
achieving these improvements in access through office locations 
established as "coordinating hubs" or field offices, rather than 
through Department-owned buildings to which appellants must travel. 

This technology is now commonly used in the medical community with 
patients (telemedicine), and in courtrooms throughout the country. SSA 
has introduced VTC hearings successfully and has been expanding their 
use each year. VTC equipment is widely available and used extensively 
throughout the United States. It is prevalent not only in the legal 
realm, but also in the healthcare arena and other areas where spanning 
geographic distance to meet the needs of customers (e.g. appellants, 
patients) is critical and time-sensitive. The very positive feedback 
from SSA on their implementation of VTC supports user acceptance of VTC 
for use in hearings. 

In addition, VTC equipment is widely available in law firms. According 
to the 1999 Report from the Office of Inspector General 
(http://oi2.hhs.gov/oei/reports/oei-04-97-00160.pdf) the appeals 
process is no longer a process predominately for individual 
beneficiaries, but rather a provider/supplier dominated process. This 
report states that in excess of 90 percent of all appellants are 
providers, suppliers, or hospitals, many of whom use private law firms 
that already have their own VTC equipment. 

The VTC equipment for each of the HHS, Office of Medicare Hearings and 
Appeals (OMHA) hearing rooms has been specified and ordered. Delivery 
and installation is on time for hearings. 

HHS has also identified VTC resources available from SSA, HHS Regional 
Offices, other organizations, and private vendors and is establishing 
relationships and procedures for using these VTC resources. HHS and SSA 
are developing a Memorandum of Understanding giving HHS access to 69 of 
SSA's VTC sites for an SSA estimate of approximately 9,000 hearings a 
year. SSA has continued to assure HHS that they wish to cooperate in 
supporting availability of their VTC equipment, in compliance with the 
mandates of the MMA. In addition, HHS has conducted test-hearing 
scheduling and is developing a database of all VTC sites for use in 
scheduling hearings. HHS anticipates continuing to build the VTC 
network of resources over the first year of operation, expanding access 
to appellants even further. 

HHS privacy officials were involved in the specifications for the VTC 
equipment and the encryption for compliance with the Privacy Act. 
Additionally, HHS' information technology and VTC experts were involved 
in the preparation of the specifications for the equipment with privacy 
as an essential criterion. HHS has been in contact with VTC providers 
and has verified that VTC services are regularly used for depositions 
and other confidential matters and that the VTC providers have private 
rooms and secured networks to assure privacy. 

The VTC equipment includes not only the capability to transmit the 
picture and sound of the video teleconference, but also state-of-the- 
art digital audio recording capability, with automatic back up 
recordings of the hearings. This surpasses the past practice of audio 
recordings, which were frequently not backed up and often lost or 
misplaced, causing a significant remand and rework workload. 

HHS believes that access to ALJ hearings for appellants will be as good 
or better than the current access under SSA. Not only will access be 
available via VTC at SSA VTC sites, OMHA offices, HHS regional offices, 
and many other locations throughout the country, but also beneficiaries 
will continue to be able to request, and in appropriate circumstances, 
obtain in-person hearings. 

Finally, HHS would like to take this opportunity to correct several 
items that it believes to be factually or legally inaccurate, as 
follows: 

GAO mentions in two places in the draft correspondence (pages 3 and 31) 
that "HHS has not provided convincing evidence that appellants 
generally consider VTC hearings an adequate substitute for in person 
hearings."

Although this statement is intended to convey GAO's opinion regarding 
HHS' efforts to plan for the transition of the ALJ function, HHS 
believes that this opinion is based on a faulty premise. Pursuant to 
the Social Security Act (the Act) at section 1869(b)(1)(A), parties are 
entitled to a hearing "to the same extent as is provided in section 
205(b)." The Act does not include any specific requirements regarding 
the form the hearing must take. Rather, the only requirement is that 
the hearing process comport with due process. Thus, HHS is required 
only to show that VTC hearings are consistent with the requirements of 
due process. As HHS has previously advised, in many cases a hearing 
conducted by telephone or VTC will comport fully with the requirements 
of due process. Furthermore, ALJs, with the concurrence of the Managing 
Field Office ALJ, are permitted to schedule an in-person hearing when 
there are special or extraordinary circumstances that would make a VTC 
hearing inappropriate, or when an appellant shows good cause to grant a 
request for an in-person hearing. Thus, HHS believes that the use of 
VTC hearings is consistent with the requirements of due process. 

On page 15 of the draft correspondence, GAO includes the following 
statement regarding the hearing procedures that are applied by the SSA 
ALJs currently responsible for hearing Medicare appeals: "At this 
level, appellants have the right to an in-person hearing."

HHS believes that this statement is legally inaccurate. Although all 
appellants have the right to a hearing, the Act does not specify the 
form that the hearing must take. Accordingly, as was previously noted, 
HHS believes that it may be appropriate in many cases for hearings to 
be held by telephone or VTC. HHS believes that the statement by GAO is 
intended to indicate that under existing SSA regulations, all parties 
may request an in-person hearing, and that such a request will 
constitute good cause for scheduling an in-person hearing. 

Waiver of 90-day Timeframe: 

Although the Interim Final Rule with Comment Period (IFC) (70 FR 11420) 
provided that appellants may request an in-person hearing, it 
inadvertently indicated that the request would constitute a waiver of 
the 90-day BIPA timeframe for conducting the hearing and rendering a 
decision. A Correcting Amendment has been drafted and will be published 
in the Federal Register prior to the opening of the HHS ALJ offices 
clarifying that the mere request by a party for an in-person hearing 
does not relieve the AU of the 90-day hearing and decision-making 
timeframe requirement. Rather, waiver of the 90-day hearing and 
decision-making timeframe requirement results only after the AU has 
granted the request for an in-person hearing. Although the timeframe 
will be waived, HHS will make every effort to process these appeals in 
the most expeditious manner possible. 

Hiring and Staffing: 

Hiring is proceeding on a daily basis to staff the OMHA Field Offices. 
The administrative staff and half of the ALJs and their direct reports 
will be hired and training began on June 13, 2005. The remaining half 
of the ALJs and their direct reports will be hired and will begin 
training toward the end of July. This two-phased hiring plan is based 
on the commitment from SSA that HHS will not inherit a pending workload 
from SSA. The workload therefore will steadily increase from zero 
percent of full workload the morning of July 1, 2005, to 100 percent of 
the workload 90 days later (September 30, 2005), which is one full 
cycle for processing cases. During the first half of the 90-day cycle 
of case processing, only half of the staff are necessary to process the 
cases received. Therefore, the second half of the staff will be trained 
and begin hearing cases approximately half way through the 90-day 
cycle. This two-phase hiring plan allows for staff to be trained, be 
available to hear cases, and appropriately uses taxpayer dollars to 
align the hiring of staff with the need to begin hearing cases. 

The attached chart depicts the hiring results as of June 14, 2005. 

Based on these staffing numbers, HHS is confident that it has a 
sufficient number of ALJs to manage the Medicare hearings workload. 
Based on the information provided by SSA in its Caseload Analysis 
Report (CAR), in fiscal year (FY) 2003, SSA was able to dispose of 
78,005 docketed items, of which 48,971 were Medicare hearings, using 
46.18 ALJs. In FY 2004, SSA disposed of 64,082 docketed items, of which 
31,223 were Medicare hearings, using 37.55 ALJs. Based on these 
numbers, HHS clearly can accommodate the anticipated case receipts with 
its workforce of ALJs. 

As mentioned in an earlier submission, HHS has hired an Acting Chief 
Judge to oversee the implementation of the Transfer Plan. Judge Perry 
Rhew was appointed to be the Managing Administrative Law Judge for the 
Cleveland OMHA in March 2005. On April 22, 2005, the Office of the 
Assistant Secretary for Administration and Management appointed Judge 
Rhew to be the Acting Chief Administrative Law Judge of the OMHA. This 
appointment conveyed all the rights, authority, and responsibility of 
the Chief Judge to Judge Rhew. 

Since his appointment, Judge Rhew has led the selection and hiring of 
the ALJs and other staff for OMHA, directed policy development for the 
appeals process, and overseen the finalization of training plans and 
facilities development. Prior to Judge Rhew joining HHS, he was the 
Acting Chief Administrative Law Judge for the SSA Cleveland Office of 
Hearings and Appeals, where he streamlined operations and made changes 
that made the office more efficient, increased overall productivity, 
and personally mentored six new judges. 

Judge Rhew is a dynamic, experienced leader, and is a veteran of the 
Medicare appeals process at SSA. He was selected to be the Acting Chief 
ALJ because of his talent at hiring and leading judges and staff, his 
passion for ensuring a fair and timely hearing process, and his 
excitement about the opportunities for efficiencies in the Medicare 
appeals system. Judge Rhew has the full confidence of Secretary Leavitt 
and the entire HHS leadership. 

Training: 

The training has been designed as a 5-week program, with all staff, 
including judges, receiving 3 weeks of training. New judges receive an 
additional 2 weeks of training designed exclusively for HHS' new judges 
by the National Judicial College. The first half of the staff will 
receive 2 weeks of training from June 13 to June 24, 2005, and the 
second half of the staff will receive the same 2 weeks of training from 
July 24 to August 5, 2005. All staff will receive 1 week of training 
from August 8 to August 12, 2005. In addition, new judges will receive 
2 weeks of training at the National Judicial College from July 11 to 
July 22, 2005. 

Training specific to Medicare law will be provided for 3 days at both 
sessions and will include the following topics: 

Medicare entitlement and enrollment; 
Medicare coverage process; 
Payment of claims:
Overview of the appeals process - Parts A and B:
Limitations on judicial review in the Medicare program: Concepts of 
exhaustion and "channeling"
The Medicare Advantage Program (Part C): 
Part D: 

In addition, other training is provided encompassing an entire week of 
training specific to the Medicare appeals workload, including: 

Appeal case flow walk-through: 
Appeal field office workflow process: 
Consolidation and aggregation:
Case management: 
Procedural issues: 
Amount in controversy: 
Use of expert witnesses: 
Substantive issues: 
Death of the beneficiary: 
Lessons from the SSA experience:
The merits - issues SSA commonly encountered:
Part A - hospital, skilled nursing facility, home health care, partial 
hospitalization: 
Part B - assignment, aggregation, Durable Medical Equipment, equipment, 
overpayment:
Multiple beneficiary cases: 
Medicare Advantage: 
BIPA:
Conduct of Medicare hearing: 
Medicare decision writing: 
VTC tools and management: 

In addition to the above training, new judges will receive 2 weeks of 
training designed exclusively for Medicare ALJs, including mock 
Medicare hearings using VTC. 

The training curriculum is designed to be Medicare-specific and will 
enable the Medicare ALJs to render fair, impartial, and informed 
decisions. As is the case with any Federal judge, if an issue arises in 
which the Medicare ALJ is not an expert, he or she will quickly acquire 
the knowledge necessary to hear the case and render a decision, as 
judges do by training and education. 

Medicare Appeals System (MAS): 

The Medicare Appeals System (MAS) as planned will eventually encompass 
all five levels of appeals, beginning with the Affiliated Contractors 
and ending at the Federal District Court level. However, for cost and 
efficiency reasons, the MAS is being developed and deployed 
incrementally. MAS testing took place from April 11 through April 22, 
2005, prior to the Qualified Independent Contractor (QIC) 
implementation. The MAS was fully functioning when the QICs began 
processing cases on May 1, 2005, consistent with the requirement of the 
BIPA statute. 

The MAS will be available for appeals to the new HHS ALJ hearing 
offices when they begin hearing appeals on July 1, 2005. Although there 
has never been a commitment to implement the MAS at the 55 contractors 
that conduct first level appeals, each of whom has its own data system, 
as planned, CMS is looking into the feasibility and cost-effectiveness 
of making the MAS available to these contractors under a future 
increment, most likely in conjunction with implementation of the 
Medicare contractor reform initiative. 

Spending for FY 2004 and FY 2005: 

There are two primary reasons why HHS spent only $59.9 million of the 
$77 million appropriated in FY 2004 for the full Medicare appeals 
process. 

First, at the time of the appropriation, $11 million of the $77 million 
was appropriated to CMS for QIC implementation (BIPA section 521). This 
amount assumed phase-in of Part A and Part B QICs would begin in FY 
2004. HHS and CMS subsequently made a business decision to align the 
phase-in of QICs with the planned transfer of the appeals function from 
SSA to HHS on July 1, 2005. Had both Part A and Part B QICs been in 
place at the time OMHA become operational on July 1, the ability of the 
new OMHA to hear cases forwarded from QICs within the BIPA time frames 
would have been comprised. Thus, HHS and CMS made a business decision 
to gradually phase-in QICs, with Part A QICs (the smaller workload) 
becoming operational on May 1, 2005, and Part B QICs becoming 
operational January 1, 2006. Since OMHA will be gradually ramping up to 
full capacity from July 1 to October 1, 2005, this phased-in QIC 
approach ensures that OMHA is positioned to accommodate the cases 
forwarded by Part A QICs within the 90-day BIPA time frame. As a result 
of this business decision, CMS only spent $2 million of the $11 million 
for QIC implementation in FY 2004. 

Second, at the time of the appropriation, $3 million of the $77 million 
was appropriated to CMS for local coverage decision and national 
coverage decision appeals, per section 522 of BIPA. This caseload has 
yet to materialize at the levels originally assumed, and as such, the 
appropriated money was not spent for this activity. 

HHS would also like to clarify why in FY 2004 it only reimbursed SSA 
$37.5 million of the $50 million appropriated for the ALJ-level of 
Medicare appeals. In FY 2004, HHS and SSA operated under a Memorandum 
of Understanding (MOU), whereby HHS would reimburse SSA $1,000 per unit 
of service. Unit of Service was defined in the MOU as "the adjudication 
of request(s) for hearing on one or more claims involving one or more 
beneficiaries that are properly disposed of by a single decision or 
dismissal. Request(s) for hearing may involve multiple units of service 
and be assigned multiple docket numbers only when a beneficiary's claim 
or claims require unique findings of fact and/or application of the law 
to fact, e.g., individual medical necessity determinations." Through 
its diligent enforcement of this unit of service reimbursement 
methodology, HHS reimbursed SSA $12.5 million less than the $50 million 
appropriated. A portion of this $12.5 million, $4.3 million, was used 
to advance Medicare appeals activities within HHS, most notably, 
critical start-up funding for the new OMHA. The remainder, $8.2 
million, was used by CMS for one of its most mission-critical 
functions, claims processing; actual claims in FY 2004 exceeded 
estimates assumed in the appropriation by 32 million. It should be 
emphasized that none of this $12.5 million lapsed. 

Finally, HHS would like to make a clarification regarding the spending 
table found on page 54 of the GAO draft correspondence. Nearly all of 
the funding on this table is CMS spending (not HHS as the title 
indicates), with the exception of the ALJ Appeals line. The ALJ Appeals 
line -funds used to reimburse SSA for processing ALJ appeals prior to 
the transfer-has different sources of funding for FY 2004 and FY 2005. 
In FY 2004, the $50 million was appropriated to CMS, who then entered 
into an MOU to reimburse SSA for this work. However, in FY 2005, 
Congress appropriated $49.6 million (post-recission) for this same 
purpose within HHS's General Departmental Management (GDM) 
appropriation, not CMS's appropriation, as the table on page 54 would 
imply. 

Pending SSA Workload: 

Consistent with the Transfer Plan, SSA has committed to completing all 
appeals received by it prior to July 1, 2005, with no backlog. 

Other Clarifications: 

HHS would like to make the following clarifications to statements in 
the draft correspondence: 

On page 20 of the draft correspondence, GAO states that, "CMS published 
procedures and guidance on implementing statutory changes to the 
appeals process resulting from both BIPA and MM.4 in an Interim Final 
Rule with Comment Period on March 8, 2005."

HHS would like to note that although the interim final rule with 
comment period (IFC) appeared in the Federal Register on March 8, 2005, 
the IFC was actually published on March 1, 2005. 

Also on page 20 of the draft correspondence, the statement is made that 
the IFC includes the following change: "Replacing the claims 
administration contractors who resolve the appeals at the second level 
of the process with a new type of contractor called qualified 
independent contractors(QIC) ..."

At the present time, in the Part B appeals process, second level 
appeals are handled by a carrier fair hearing officer. Currently, there 
is no carrier fair hearing under Part A. The new QICs will be 
responsible for resolving appeals at the second level of the process 
under Part A and Part B. 

On page 21 of the draft correspondence, GAO states that: "QICs will 
have to resolve appeals in 60 days, compared to the 120-day 
requirementfor the claims administration contractors."

HHS believes the reference to claims administration contractors is 
inaccurate and potentially confusing. The current 120-day requirement 
applies to carrier fair hearing officers under the existing Part B 
appeals process. 

Conclusion: 

HHS appreciates GAO's thoughtful consideration of the progress made in 
preparing to implement the transfer of the Medicare appeals function 
from SSA to HHS and welcomes the opportunity to review and comment on 
the resultant draft correspondence. As the slides noted, the 
implementation of the Transfer Plan is at a critical and dynamic stage, 
and HHS is pleased to be able to offer this additional information and 
updates. 

HHS Office of Medicare Hearings & Appeals (OMHA) Hiring Status as of 
Tuesday evening, June 14: 

Note: Hiring statistics are subject to change on a daily basis: 

[See PDF for image] 

[End of table] 

[End of section] 

(290423): 

FOOTNOTES

[1] See GAO, Medicare: Incomplete Plan to Transfer Appeals Workload 
from SSA to HHS Threatens Service to Appellants, GAO-05-45 (Washington, 
D.C.: Oct. 4, 2004). 

[2] Social Security Act Amendments of 1939, ch. 666, sec. 201,  
205(b), 53 Stat. 1360, 1368 (codified as amended at 42 U.S.C.  405(b) 
(2000). 

[3] 20 C.F.R.  404.929 and 404.936 (2002). 

[4] 68 Fed. Reg. 5,210, 5,218 (codified at 20 C.F.R.  404.929 and 
404.936(d) and (e) (2004)).