GAO-05-45, Medicare: Incomplete Plan to Transfer Appeals Workload from SSA to HHS Threatens Service to Appellants


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Report to Congressional Committees:

United States Government Accountability Office:

GAO:

October 2004:

Medicare:

Incomplete Plan to Transfer Appeals Workload from SSA to HHS Threatens 
Service to Appellants:

GAO-05-45:

GAO Highlights:

Highlights of GAO-05-45, a report to the Senate Committee on Finance, 
the House Committee on Energy and Commerce, and the House Committee on 
Ways and Means

Why GAO Did This Study:

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 appeals—
the Department of Health and Human Services (HHS) and the Social 
Security Administration (SSA). Currently, neither agency manages and 
oversees the entire multilevel process. In the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA), Congress 
mandated that SSA transfer its responsibility for adjudicating 
Medicare appeals to HHS between July 1, 2005, and October 1, 2005. In 
addition, it directed the two agencies to develop a transfer plan 
addressing 13 specific elements related to the transfer. GAO’s 
objective was to determine whether the plan is sufficient to ensure a 
smooth and timely transition.

What GAO Found:

Transferring the Medicare appeals workload from SSA to HHS requires 
careful preparation and the precise implementation of many 
interrelated items. The transfer is mandated to take place no later 
than October 1, 2005. SSA and HHS have stressed their commitment to 
ensuring a successful transfer of the administrative law judge (ALJ) 
level of the Medicare appeals process, and both agencies have 
emphasized that they are continuing to further develop details of the 
plan. Although the plan generally addresses each of the 13 elements 
mandated by MMA, it omits important details on how each element will 
be implemented. Furthermore, the plan overlooks the need for 
contingency provisions, which could prove to be essential, should 
critical tasks not be completed in a timely manner. GAO believes that 
this essential information is needed to facilitate a smooth and timely 
transfer. Its absence makes it unclear how the transfer plan will be 
implemented and threatens to compromise service to appellants. 

Completeness of Medicare Appeals Transfer Plan: 

[See PDF for image]

[End of figure]

What GAO Recommends:

GAO recommends that the Secretary of HHS and the Commissioner of SSA 
take steps to complete a substantive and detailed transfer plan that 
includes contingency provisions. HHS, with one exception, and SSA 
generally agreed with the recommendations. HHS stated the 
recommendation to develop contingency plans for four elements was 
unnecessary. GAO believes a contingency plan for each congressionally 
mandated element would best ensure a smooth and timely transition.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Incomplete Transfer Plan Lacks Sufficient Detail to Ensure a Smooth and 
Timely Transition:

Conclusion:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Analysis of the Medicare Appeals Transfer Plan:

Appendix II: Comments from the Social Security Administration:

Appendix III: Comments from the Department of Health and Human 
Services:

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Table:

Table 1: MMA Requirements for the Transfer Plan by Category:

Figures:

Figure 1: Current and Future Medicare Administrative Appeals Process:

Figure 2: Completeness of Medicare Appeals Transfer Plan:

Abbreviations:

ALJ: administrative law judge:
BIPA: The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000:
CMS: Centers for Medicare & Medicaid Services: 
DAB: Departmental Appeals Board: 
HHS: Department of Health and Human Services: 
MAC: Medicare Appeals Council: 
MAS: Medicare Appeals System: 
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003:
OHA: Office of Hearings and Appeals: 
OPM: Office of Personnel Management: 
QIC: qualified independent contractor: 
SSA: Social Security Administration:

United States Government Accountability Office:

Washington, DC 20548:

October 4, 2004:

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

The Honorable Joe Barton: 
Chairman: 
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce:
House of Representatives:

The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives:

In fiscal year 2003, Medicare--the federal health insurance program 
that serves the nation's elderly and disabled--processed over 1 billion 
claims submitted by providers on behalf of the beneficiaries they 
serve. The Centers for Medicare & Medicaid Services (CMS), an agency 
within the Department of Health and Human Services (HHS), is 
responsible for administering the Medicare program. With assistance 
from 46 claims administration contractors, CMS is charged with 
identifying and denying health care claims that are invalid, 
incomplete, or otherwise improper. Medicare beneficiaries and providers 
have the right to appeal denied claims. In fiscal year 2003, the 
Medicare program denied about 136 million claims, or about 13 percent 
of all claims submitted. Of these denied claims, more than 5 million 
were appealed.

Medicare appeals are resolved through an administrative process 
consisting of multiple levels of review through several entities. The 
process allows appellants who are dissatisfied with decisions at one 
level to appeal to the next level. The entities tasked with resolving 
appeals are referred to as "appeals bodies." HHS is responsible for 
implementing and overseeing the Medicare appeals process. It includes 
using CMS's claims administration contractors that consider appeals of 
denied claims, administrative law judges (ALJ) from another federal 
agency--the Social Security Administration (SSA)--who adjudicate 
appeals, and the Medicare Appeals Council (MAC) within HHS's 
Departmental Appeals Board (DAB), which reviews decisions made by the 
ALJs.

SSA was an agency within HHS until 1994, when it was separated from HHS 
and became an independent agency. Despite its removal from HHS, SSA's 
Office of Hearings and Appeals (OHA) continued to hear, or 
"adjudicate," Medicare appeals. Although still a participant in this 
process, OHA's primary mission is to resolve Social Security appeals. 
Its Medicare workload is relatively small, representing about 11 
percent of the appeals it heard in fiscal year 2003. As a consequence, 
most of OHA's ALJs have greater expertise in Social Security matters 
than in Medicare. Because of their separate and distinct missions, and 
for the sake of administrative simplicity, HHS and SSA have 
contemplated transferring OHA's Medicare appeals workload from SSA to 
HHS for years, but an agreement between the two agencies on specific 
details of the transfer was never reached.

The Medicare appeals process has been the subject of widespread 
concern. Last year we reported that there has been poor coordination 
among the appeals bodies, which has affected their abilities to 
effectively manage the process.[Footnote 1] We also found that 
management by two federal agencies--HHS and SSA--with neither agency 
managing and overseeing the entire process, has complicated the appeals 
bodies' attempts to streamline the process. The appeals bodies have 
also been criticized for the length of time it takes them to render 
decisions, particularly SSA's OHA and HHS's MAC.

In the recently enacted Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Congress mandated that SSA transfer 
its responsibility for adjudicating Medicare appeals to HHS, with the 
result that all levels of the process would reside within a single 
federal agency.[Footnote 2] MMA specified that the transfer be 
completed not earlier than July 1, 2005, and not later than October 1, 
2005. The law also required that SSA and HHS develop a plan for 
transferring the work and specified 13 elements that were to be 
addressed in that plan.[Footnote 3] MMA directed SSA and HHS to submit 
the transfer plan to GAO for evaluation no later than April 1, 2004. 
Our objective was to evaluate this plan[Footnote 4] to determine 
whether it is sufficient to facilitate a smooth and timely transition.

To do our work, we assessed how well the plan addressed the specific 
requirements set out in MMA and interviewed officials at HHS and SSA 
responsible for developing the plan. We also reviewed laws and 
regulations relevant to the transfer. To learn more about the plan's 
implications, we interviewed ALJs who currently adjudicate Medicare 
appeals at OHA and judges at the MAC who review appealed OHA decisions. 
We also met with other officials at OHA, DAB, and CMS and 
representatives from two beneficiary advocacy groups to discuss the 
implications of the transfer plan. To learn more about HHS's ability to 
hire new ALJs, we spoke with officials from the Office of Personnel 
Management (OPM). We interviewed officials from the Office of 
Management and Budget to learn about the costs associated with the 
transfer and related budgetary matters. Representatives from the 
Association of Administrative Law Judges--the union representing ALJs-
-and the American Bar Association submitted written comments regarding 
the transfer plan, which we considered. Finally, we analyzed available 
information and other materials supporting the assumptions on which the 
plan is based, to determine their validity and to evaluate the 
appropriateness of the plan's strategies. We performed our work from 
March 2004 through September 2004 in accordance with generally accepted 
government auditing standards.

Results in Brief:

Transferring the Medicare appeals workload from SSA to HHS poses a 
complex challenge that requires careful preparation and the precise 
implementation of many interrelated tasks. Although the plan generally 
addresses each of the 13 elements mandated by MMA, it does not fully 
address 5 of them. For example, while MMA mandated that the plan 
address cost projections and financing by including funding levels 
required for fiscal year 2005 and subsequent fiscal years, the plan 
only contains information for fiscal year 2005. In addition, we found 
that the plan lacks detailed information for 11 of the 13 elements, 
making it difficult to understand how the transfer will be 
accomplished. For example, the plan contains insufficient information 
concerning the timing of the transfer, such as a detailed schedule or 
project plan to ensure that critical tasks are accomplished. Other 
elements of the plan required by MMA--including the development of new 
regulations to guide the appeals process and critical operational 
matters--have not been thoroughly addressed. Moreover, issues that 
establish the foundation for many other transfer activities--such as 
the geographic distribution of ALJs--have not been resolved. Finally, 
ambiguous details concerning plans for hiring and training ALJs, 
developing appropriate performance standards, and safeguarding their 
decisional independence leave it unclear exactly how these important 
components of the transfer will ultimately be accomplished. The 
scarcity of detailed information regarding specific dates, duties, and 
decisions prevents a full assessment of the plan's elements and the 
absence of contingency plans, should elements not be completed in a 
timely manner, threatens to compromise service to appellants.

We are recommending that the Secretary of HHS and the Commissioner of 
SSA take steps to help ensure a smooth and timely transition of the 
Medicare appeals workload from SSA to HHS, including the completion of 
a substantive and detailed transfer plan that includes contingency 
plans. HHS, with one exception, and SSA generally agreed with the 
recommendations. HHS stated the recommendation to develop contingency 
plans for four elements was unnecessary. We believe a contingency plan 
for each congressionally mandated element would best ensure a smooth 
and timely transition. The agencies also noted new efforts to 
facilitate the transfer of Medicare appeals to HHS. Although these 
efforts might have merit, we had no opportunity to evaluate them.

Background:

Medicare's fee-for-service health care program consists of two parts--
A and B. Part A covers inpatient hospital, skilled nursing facility, 
hospice, and certain home health services. Part B covers physician 
services, diagnostic tests, and related services and supplies. Medicare 
providers, on behalf of their beneficiaries, can appeal denied claims 
for services. Currently, there are four levels of administrative appeal 
(see fig. 1). Appeals for denied Part A and Part B Medicare claims 
currently follow similar, but not identical, paths. At the first level 
of appeal, the process is the same for both Part A and Part B denials. 
The Medicare claims administration contractor[Footnote 5] reexamines 
the claim along with any additional documentation provided by the 
appellant. At this level, in general, only written materials are 
reviewed; however, Part B appellants may request telephone hearings. If 
the appellant of a Part B claim is dissatisfied with a decision at the 
first level, he may proceed to the second level of review, conducted by 
the Medicare contractor. At this stage, the file is once again 
reviewed, including any additional documentation submitted by the 
appellant, and a hearing may be conducted. However, there is no 
comparable second level of review by Medicare contractors of Part A 
appeals.[Footnote 6]

Appellants of both Part A and Part B denied claims who remain 
dissatisfied with the decisions rendered by Medicare contractors may 
appeal to the third level--SSA's OHA--where appeals are adjudicated by 
ALJs.[Footnote 7] At this level, appellants have the option of 
attending a hearing conducted by telephone, by videoconference, or in 
person. OHA's ALJs adjudicated the appeal of about 122,000 Medicare 
claims in fiscal year 2003. Should appellants also be dissatisfied with 
the ALJ's decision, they can appeal to the MAC. The MAC's adjudication 
is the fourth and final level of the administrative appeals process. It 
is based on a review of OHA's decision; the MAC does not conduct 
hearings. Appellants who have had their appeals denied at all levels of 
the administrative appeals process have the option of appealing to a 
federal district court.

In addition to preparing for the transition of SSA's appeals workload, 
HHS continues to plan numerous administrative and structural changes 
required by the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA).[Footnote 8] Most of these changes have 
not yet been implemented, including the finalization of new 
regulations. Among other things, BIPA mandated shorter time frames; 
expedited procedures for processing Medicare appeals at all levels; and 
the establishment of new contractors, known as qualified independent 
contractors (QIC). Contracts for QICs have not yet been awarded, but 
once QICs become operational, they will provide a new second level of 
adjudication for Part A appeals and replace the existing second level 
of the appeals process for Part B claims.

As noted earlier, figure 1 shows the appeals bodies that are currently 
involved in Medicare appeals. It also shows those that will be 
responsible for resolving Medicare appeals once BIPA has been fully 
implemented and OHA's workload has been transferred to HHS.

Figure 1: Current and Future Medicare Administrative Appeals Process:

[See PDF for image]

[A] The second level of the current appeals process is relevant for 
Part B appeals only. At present, there is no comparable second level of 
appeals for denied Part A claims. Appellants whose Part A claims have 
been denied by the claims administration contractor may continue to 
appeal their claims by submitting them to OHA.

[End of figure]

The transfer of the appeals workload from SSA to HHS is not a new 
proposal. As early as 1988, while SSA was still a part of HHS, 
discussion regarding the transfer of this function was already under 
way and, throughout the years, the development of potential transfer 
plans and strategies has continued. Discussions were active as late as 
2003, culminating in SSA's decision not to seek funding for Medicare 
appeals in its fiscal year 2004 budget request. Instead, HHS requested 
and received funding to cover the cost in its fiscal year 2004 budget. 
Under a reimbursable agreement with CMS, SSA will continue to hear 
Medicare appeals until September 30, 2005.

In response to MMA's mandate to transfer the workload, SSA and HHS 
created an interagency team that drafted the required transfer plan. 
The team has continued to meet to deliberate various aspects of the 
plan and discuss its implementation. Representatives from both agencies 
have stressed their commitment to ensuring a successful transfer of the 
Medicare appeals process from SSA to HHS. The plan indicates that HHS 
will begin to exercise adjudicative authority for Part A and Part B ALJ 
appeals that are received on or after July 1, 2005. The plan notes that 
this schedule is being adopted so SSA may concentrate on reducing its 
pending workload between July 1, 2005 and September 30, 2005 and to 
permit HHS to prepare for and begin conducting ALJ hearings.

According to MMA, the plan is required to provide information regarding 
13 key elements. For purposes of this report, we have grouped these 
elements into six broader categories--timetable, scope of work, 
adjudication guidance, operational matters, staffing, and oversight. 
Table 1 lists these six categories and related elements and identifies 
the act's requirements for each element.

Table 1: MMA Requirements for the Transfer Plan by Category:

Category and related elements: (A) Timetable: (1) Transition timetable; 
MMA requirement: A timetable for the transition.

Category and related elements: (B) Scope of work: (2) Workload; 
MMA requirement: The number of ALJs and support staff required now and 
in the future to hear and decide Medicare appeals in a timely manner, 
taking into account current and anticipated claims volume, appeals, 
the number of beneficiaries, and statutory changes.

Category and related elements: (B) Scope of work: (3) Cost projections 
and financing; 
MMA requirement: Funding levels required for fiscal year 2005 and 
subsequent years to carry out the functions transferred under the plan.

Category and related elements: (C) Adjudication guidance: (4) 
Regulations; 
MMA requirement: The establishment of specific regulations to govern 
the appeals process.

Category and related elements: (C) Adjudication guidance: (5) 
Feasibility of precedential authority; 
MMA requirement: The feasibility of developing a process to give MAC 
decisions, addressing broad legal issues, binding precedential 
authority.

Category and related elements: (D) Operational matters: (6) Geographic 
distribution; 
MMA requirement: The steps that should be taken to provide for an 
appropriate geographic distribution of ALJs throughout the United 
States to ensure timely access.

Category and related elements: (D) Operational matters: (7) Access to 
ALJs; 
MMA requirement: The feasibility of (a) electronically filing appeals 
to the ALJ level and (b) conducting hearings using video-or 
teleconferencing technologies.

Category and related elements: (D) Operational matters: (8) Shared 
resources; 
MMA requirement: The steps that should be taken to enter into 
arrangements between HHS and SSA to share office space, support staff, 
and other resources, with appropriate reimbursement.

Category and related elements: (D) Operational matters: (9) Case 
tracking; 
MMA requirement: The development of a unified case tracking system 
that will facilitate the maintenance and transfer of case-specific 
data across both the fee-for- service and managed care components of 
the Medicare program.

Category and related elements: (E) Staffing: (10) Hiring; 
MMA requirement: The steps that should be taken to hire ALJs, taking 
into account their Medicare expertise and appropriate geographic 
distribution, and to hire support staff for ALJs.

Category and related elements: (E) Staffing: (11) Training; 
MMA requirement: Training for ALJs regarding Medicare laws and 
regulations.

Category and related elements: (F) Oversight: (12) Independence of 
ALJs; 
MMA requirement: The steps that should be taken to ensure the 
independence of ALJs through placement of ALJs in an administrative 
office organizationally and functionally separate from CMS and its 
contractors, and providing that ALJs report to, and be under the 
general supervision of, the Secretary of HHS, but not report to, or be 
subject to supervision by, another officer of HHS.

Category and related elements: (F) Oversight: (13) Performance 
standards; 
MMA requirement: The appropriateness of establishing performance 
standards for ALJs with respect to timeliness of decisions, taking 
into account applicable requirements. 

Source: GAO analysis of Section 931 of MMA.

[End of table]

Incomplete Transfer Plan Lacks Sufficient Detail to Ensure a Smooth and 
Timely Transition:

We found that HHS's and SSA's plan is too vague to serve as a blueprint 
for the transfer's implementation. We evaluated the plan's 13 elements, 
mandated by MMA, and grouped them into six categories to evaluate 
whether the plan was sufficient to ensure a smooth and timely 
transition. We found that in virtually every category, the information 
contained in the plan, as well as documentation provided to us in the 
course of our work, lacked sufficient detail to ensure that HHS will 
achieve a smooth and timely transfer. Further, the lack of detail and 
the fact that some aspects of the plan have not yet been finalized 
raise serious questions as to whether HHS and SSA have considered the 
breadth of challenges inherent in the transfer. Our review suggests 
that the plan's deficiencies, if not corrected, may compromise service 
to appellants. (App. I contains a summary evaluation of our analysis of 
the plan.)

Category A: Essential Milestones and Contingency Strategies Not 
Included in Transition Timetables:

Element 1: Timetable:

Transferring SSA's annual workload of appeals--about 122,000 claims in 
fiscal year 2003--to HHS requires the development of many interrelated 
components. For example, deciding where ALJs should be geographically 
located affects hiring and training plans and the need for office 
space. Because the transfer date is approaching, many of these 
activities must be completed simultaneously so that HHS can ensure that 
service to appellants will not be disrupted. With the exception of the 
development of a case tracking system, the plan contains few milestones 
for completing tasks. Some of the few dates that are mentioned merely 
reflect the MMA-imposed deadlines between July 1, 2005, and October 1, 
2005, without noting interim milestones. For example, there are no 
milestone dates associated with the vital tasks of producing training 
materials for newly hired ALJs or locating office space for ALJs to 
conduct hearings. Other elements of the plan are addressed without ever 
mentioning dates, such as the ensuring of independence for ALJs and the 
establishment of performance standards for them. Moreover, the plan 
does not assign responsibility to any group, office, or individual to 
perform the necessary tasks to execute key elements of the plan. In our 
view, the level of complexity associated with the transfer would 
warrant the development of a detailed schematic outlining all of the 
steps that need to be taken, as well as the corresponding dates for 
completing these steps, to ensure that the plan could be successfully 
executed. In response to our inquiries, the transfer team reported that 
it did not prepare a project plan nor could it supply information about 
ambiguous or absent milestones. Without specific milestones, HHS does 
not have a management tool for determining whether the general dates 
contained in the plan can be met as scheduled.

The transfer plan also lacks a contingency component, to be used in the 
event that something prevents the transfer from occurring as scheduled. 
Given the importance of having a system in place for adjudicating 
appeals, we view this as a considerable oversight. Failure to 
successfully implement even one element of the plan, such as the 
development of a geographic distribution plan to ensure appellants 
appropriate access to ALJs throughout the country, could derail the 
transfer. Although this is a critical element of the plan, there is no 
contingency provision. HHS officials maintained that they are confident 
the transfer will be executed in a timely manner, eliminating the need 
for a contingency plan. However, they indicated that if necessary, they 
could renew their reimbursable agreement with SSA to adjudicate 
Medicare appeals for another year. In contrast, SSA officials 
emphasized to us that responsibility for all Medicare appeals will 
pass, under MMA, to HHS on October 1, 2005. According to them, it is 
not a given that SSA will have the capability, or even the legal 
authority as of that date, to adjudicate Medicare appeals under any 
arrangement with HHS. In our view, this is the type of issue a 
contingency plan could address. In agency comments, both SSA and HHS 
reported that they have identified a mechanism for HHS to continue to 
use SSA ALJs to adjudicate Medicare appeals after the date of the 
transfer, if necessary. However, neither agency provided details 
concerning this mechanism in their comments. As a result, we are unable 
to evaluate it.

Category B: The Plan's Assumptions to Predict the Scope of Work Are Not 
Credible:

Understanding the size of the appeals workload is a critical first step 
in planning for the transfer because other decisions, such as the 
number of ALJs needed to complete the adjudications, are predicated on 
it. We found that the transfer plan does not present a thorough 
analysis of the expected workload and the costs to transfer the 
function and adjudicate appeals. Further, the plan is based on 
unreliable staff and cost data, which undermine the validity of the 
plan's projections. MMA mandated that certain external factors be 
incorporated into the plan's analyses, such as changes in the number of 
appeals and the effect of statutory changes. However, the plan did not 
contain a detailed discussion of the implications of these factors on 
workload and costs.

Element 2: Workload:

HHS's plan to initially hire 50 ALJs is based on information from OHA 
that it uses an average of 46 ALJs to adjudicate Medicare appeals each 
month. However, SSA does not have a dedicated corps of ALJs who are 
exclusively devoted to hearing Medicare appeals, and based its estimate 
on the average amount of time ALJs spend doing Medicare work. OHA has 
no formal timekeeping system for its ALJs, and instead, the chief of 
each local hearing office estimates the amount of time ALJs spend each 
month adjudicating Medicare appeals. Individual ALJs do not provide 
their own time estimates, and the information supplied by each local 
office is not otherwise verified. The transfer team did not 
independently determine the accuracy of this information, despite the 
plan's heavy reliance on it.

Despite the fact that MMA requires the plan to address the number of 
ALJs and support staff required to hear Medicare appeals now and in the 
future, the plan limits itself to the present. It does not specifically 
address how the implementation of recent statutory changes to Medicare 
may affect the appeals workload and increase the need for personnel. 
For example, the plan does not address the potential impact of 
additional appeals resulting from MMA's new prescription drug 
benefit.[Footnote 9] Further, the largest impact may result from the 
implementation of BIPA's changes, which will not become effective until 
the QICs are fully established--now slated for October 2005. BIPA's 
changes to the appeals process were to apply to appeals of claims 
denied on or after October 1, 2002. However, CMS issued a ruling on 
October 7, 2002,[Footnote 10] that held that the majority of BIPA's 
provisions apply only to appeals adjudicated by QICs. Because QICs are 
not yet operational, the appeals process is currently operating in 
accordance with regulations established prior to BIPA's 
passage.[Footnote 11] The establishment of the QICs and new regulations 
implementing BIPA's provisions are now expected to occur simultaneously 
with the plan to transfer the OHA workload. As a result, it will be 
HHS's ALJs who will be expected to comply with BIPA's shorter time 
frames for processing appeals. While their OHA colleagues, who faced no 
deadlines, took an average of 327 days to complete a Medicare appeal in 
fiscal year 2003, HHS ALJs will be expected to render decisions much 
more quickly--within 90 days. The plan is silent as to how HHS's new 
corps of ALJs will meet BIPA's time frames by completing the same 
workload in less than one-third the time taken by OHA.

In addition, the plan states that efficiencies will be gained from 
hiring ALJs and staff who are specialized in Medicare, increasing 
reliance on teleconferences and videoconferences to minimize travel, 
and improving the management of appeals cases. While efficiencies may 
be gained in the long term, we found that the plan did not provide a 
sound quantitative basis to support HHS's claim that efficiencies would 
mitigate demand for more resources in the first year of operation. 
Further, the plan does not contain a contingency provision to address 
the possibility that greater efficiencies may not be achieved. In our 
view, this is significant as, in the short term, HHS may experience a 
period of diminished efficiency while new staff--both ALJs and support 
personnel--take time to attend training, develop expertise with 
Medicare issues, and gain familiarity with their new organization and 
infrastructure.

Element 3: Cost Projections and Financing:

The plan notes that $129 million was requested for fiscal year 2005 for 
Medicare appeals reforms, which includes start-up funds for HHS's ALJ 
unit; funds to reimburse SSA for continuing to process Medicare 
appeals; and funds to implement other BIPA reforms, as amended by MMA. 
In fiscal year 2004, $50 million was intended for processing appeals 
submitted to ALJs. HHS officials told us that they anticipate requiring 
the same amount for fiscal year 2005. The $50 million for processing 
appeals is based upon SSA's agreement to adjudicate approximately 
50,000 cases,[Footnote 12] at a cost of $1,000 each, in fiscal year 
2004. We learned that HHS expects to use $8 million in fiscal year 2005 
to meet start-up costs for the transfer of ALJ functions. Although the 
plan notes that start-up funds will allow HHS to begin hiring attorneys 
and other staff, it makes no mention of office space, equipment, and 
other infrastructure development costs. Most of the remaining balance 
is expected to be used for establishing QICs. We also noted that the 
plan does not provide cost projections for years subsequent to 2005, as 
required by MMA.

Office of Management and Budget officials, who are responsible for 
approving HHS's requests, and HHS officials could not provide specific 
budgetary details related to the plan. Moreover, HHS's estimate of the 
costs of adjudicating Medicare appeals in fiscal year 2005 is based on 
its assumption that those costs will mirror what it is paying SSA to 
resolve appeals this fiscal year under its reimbursable agreement. 
However, OHA reported that the actual costs of adjudicating these 
appeals exceeded the amount it was being paid. After adjusting for 
inflation and overhead, OHA officials estimated that their actual cost 
in fiscal year 2003--the most current data available--was closer to 
$1,300 per case. MMA allows for increased financial support to ensure 
that the HHS ALJ unit meets its workload demands. However, should 
additional funds be needed, the plan does not include a contingency 
provision that defines criteria and other relevant measures to justify 
future requests for increased financial support.

Category C: Completion of Adjudication Guidance for ALJs Not Fully 
Addressed:

The timely issuance of regulations governing the appeals process will 
have a significant effect on the implementation of the transfer plan. 
Without regulations implementing the provisions of BIPA, and more 
recently MMA, the appeals process will lack guidance critical for its 
operation. Nonetheless, the plan does not address time frames for 
establishing these regulations nor does it discuss what actions will be 
taken should the regulations not be finalized by the time of the 
transfer. It appears, however, that no regulations will be needed 
regarding the use of MAC decisions as binding precedents on lower 
levels of the appeals process, including ALJs, at least in the near 
future. The plan has addressed this matter by retaining current policy, 
which allows ALJs and the other appeals bodies to consider these 
decisions as guidance, but does not require them to be viewed as 
binding precedents. However, the plan suggests that this decision may 
only be for the short term.

Element 4: Regulations:

To implement MMA's provisions to transfer SSA's workload to HHS, 
regulations will need to be drafted and finalized by October 1, 2005--
the date that the transfer is required to be complete. As required by 
MMA, the plan acknowledges the need for specific regulations and 
mentions that regulations will be developed in several areas, such as 
providing appellants the opportunity to file appeals electronically and 
a reliance on videoconferences in lieu of in-person hearings. However, 
the plan is silent on the anticipated time frames for issuing these 
regulations and does not include interim dates to ensure they are 
finalized on time. In the absence of regulations, it is not clear how 
appellants will be assured of having sufficient access to ALJs. For 
example, without regulations it is uncertain what forum will be used to 
provide information to beneficiaries and providers, how access to this 
information will be provided, and what will be used as the basis for 
this information. The plan also does not address whether there will be 
a need to issue additional regulations on other aspects of the 
transfer, such as procedures for hiring ALJs, initiating a training 
program, developing ALJ performance standards, and identifying 
opportunities for HHS and SSA to share resources. Given the ambiguity 
in the plan, it is unclear how the required transfer of the appeals 
function to HHS could proceed on a timely basis.

Moreover, although the plan recognizes that regulations implementing 
most of BIPA's provisions have not been finalized, it does not address 
the impact of this situation. This is particularly troubling because, 
according to CMS, the implementation of QICs will be delayed if final 
regulations are not issued by November 2004. As a result, HHS may be 
compelled to develop and operate two separate processing systems--one 
that follows current rules, and another that complies with BIPA's 
mandated deadlines and other requirements.

Element 5: Feasibility of Precedential Authority:

In response to an MMA requirement to address precedential authority, 
the plan makes clear that MAC decisions will not be binding on lower 
levels of the appeals process, including ALJs. The plan acknowledges 
that precedential authority may contribute to more consistent decisions 
by ALJs. However, it concludes that the risk of an inaccurate or 
incomplete interpretation of an agency ruling could result in greater 
problems when the same issue is raised more clearly or in different 
circumstances. The plan therefore concludes that the risks inherent in 
giving the MAC precedential authority outweigh the benefits. The plan 
also suggests that high-level decisions could serve as guidance to the 
lower levels in the process, without having the full force of 
precedent. Although the plan indicates that HHS will reevaluate its 
stand on the merits of granting binding precedential authority to MAC 
decisions, it does not specify what might contribute to a change in its 
current position on the issue.

Category D: Operational Matters Need Greater Specificity:

Absent or insufficient details and vague descriptions regarding 
critical operational aspects of the transfer prevented us from fully 
evaluating these components and, in our view, put the successful 
implementation of the transfer at risk. The lack of a geographic 
distribution plan for HHS ALJs alone threatens to undermine efforts to 
accomplish the transfer in a timely manner. Beyond this, the lack of 
specific plans to ensure access to ALJs nationwide and to share 
resources with SSA to enhance appellant access may well compromise 
service to appellants. Finally, although the plan outlines important 
details concerning the establishment of a new case tracking system, its 
implementation is linked to the establishment of the QICs in July 2005, 
making a current evaluation impractical.

Element 6: Geographic Distribution:

While the plan addresses the topic of the future geographic 
distribution of ALJs, it does not include the steps to be taken to 
ensure that appellants across the country will have timely access to 
such judges, as MMA requires. Rather than detailing a specific 
geographic distribution strategy, the transfer plan indicates that a 
central hearing support office will be located in the Baltimore, 
Maryland and Washington, D.C., metropolitan area and that a field 
structure will be established. Because many issues relating to the 
successful implementation of the transfer, such as hiring staff, hinge 
on the strategy for distributing ALJs throughout the country, its 
absence from the plan is a serious shortcoming.

The plan notes that HHS will develop a process for determining the size 
and location of the field structure and will reach a final decision 
about the geographic distribution of ALJs by the end of calendar year 
2004. However, the plan does not include key information that would 
enable us to analyze this critical component of the plan, such as the 
anticipated number of field office locations or the size and resources 
required for each office. The plan also does not supply information 
about the number of judges to be housed in each location or details 
concerning whether certain case processing activities--such as case 
receipt, research, and preparation for hearings--will be centralized or 
regionally based.

Element 7: Access to ALJs:

MMA required the plan to address the feasibility of electronically 
filing appeals to the ALJ level. CMS is developing a beneficiary Web 
site, which, in its pilot at one contractor, allows beneficiaries 
Internet access to claims information. The plan anticipates that HHS 
will use this Web site to allow electronic appeals submissions. 
Although the plan does not discuss when this feature will be available, 
a CMS official estimated it would not be ready for testing for at least 
2 years. HHS is also exploring the possible development of another 
Internet-based filing system that does not depend on CMS's beneficiary 
Web site.

MMA also required that the plan address the feasibility of using video-
and teleconferencing to provide access to ALJs. Although the plan 
identifies a variety of sources for providing ALJs and appellants with 
videoconference access--including SSA, private contractors, and other 
government agencies--no analysis has been conducted to determine where 
videoconference sites are needed, where such sites are actually 
available, and the costs of such services. Moreover, SSA does not 
expect appellants to travel more than 75 miles to attend hearings, but 
the plan does not address HHS's expectations in this regard. Appellants 
in remote areas of the country may be unlikely to find access to 
videoconference facilities within such a radius. In regard to 
teleconferences, the plan notes that a small number of appeals are 
currently conducted in this manner, but more commonly, teleconferences 
are used to obtain the testimony of expert witnesses. The plan refers 
to HHS's willingness to expand its use of teleconferences, where 
appropriate, but does not define the conditions that would constitute 
"appropriate" use.

Moreover, no analysis has been done to determine what proportion of 
appellants would actually be interested in having their appeals heard 
using videoconferences or teleconferences. Several ALJs told us that 
beneficiaries are often uncomfortable using videoconference facilities 
and prefer to have their cases heard face-to-face. While appellants 
have the right to request in-person hearings, the plan does not include 
an assessment of HHS's capacity to conduct such hearings. There is no 
contingency provision to facilitate in-person hearings, should this be 
appellants' preference. Further, as a result of changes to the appeals 
process due to BIPA, hearings by ALJs will provide an appellant's sole 
opportunity to be heard in person, making access to them all the more 
important. Although OHA has been able to accommodate appellants through 
its network of 10 regional offices and an additional 143 field offices 
with hearing rooms throughout the United States and Puerto Rico, HHS 
currently has no available capacity to hear Medicare claims 
appeals.[Footnote 13]

Element 8: Shared Resources:

The plan does not address MMA's mandate that it include steps for SSA 
and HHS to share office space, support staff, and other resources. 
Moreover, it does not include a contingency element should HHS be 
unable to use SSA resources to complete the Medicare workload. Instead, 
the plan focuses exclusively on sharing videoconference facilities, but 
the arrangements for sharing this resource are ambiguous. For example, 
while the plan notes that SSA is willing to share its videoconference 
sites, it also makes clear that SSA will have priority over the use of 
the equipment and does not include a protocol for ensuring that HHS 
will have sufficient and timely access. One SSA official told us the 
agency anticipates that it will have excess videoconference capacity 
once it expands its videoconference system. Currently, SSA has 148 
videoconference units available but plans to increase this number to 
351 units at 302 different sites by 2006. However, the agency has not 
yet performed an analysis to establish where and when excess capacity 
is anticipated. Because SSA ALJs schedule their hearings well in 
advance, HHS ALJs may have difficulty scheduling videoconferences in 
their localities to meet their 90-day BIPA-mandated deadline. Moreover, 
even with access to 302 facilities, depending on the location of 
available equipment, HHS ALJs may have to travel to videoconferences, 
which could be as time-consuming as traveling to in-person hearings.

Element 9: Case Tracking:

The plan addresses the mandate's directive to develop a unified case 
tracking system for all appeals levels, and outlines a new tool 
designed to fulfill the mandate's requirements--the Medicare Appeals 
System (MAS). We found that the design and approach to implementing MAS 
appear reasonable. However, the plan was drafted with the expectation 
that MAS would be first used by QICs in the summer of 2004. The delay 
in implementing QICs, which are now not expected to become fully 
operational until October 2005, has reduced the time available for live 
testing of the system to determine if it will perform as expected. 
Currently, HHS is unable to conduct such testing. This delay may leave 
insufficient time to fully test MAS and make necessary adjustments to 
the system, but the plan leaves no margin for such an occurrence. 
However, should MAS be unavailable at the time of the transfer, CMS has 
an alternate case tracking system that could be temporarily deployed 
until the new system becomes operational.

Category E: Strategy for Staffing HHS's ALJ Unit Is Undeveloped:

The plan lacks a detailed staffing strategy to ensure that HHS can 
attract both ALJs and support staff by the time of the transfer. MMA 
required the plan to include steps to hire ALJs, taking into account 
their expertise in Medicare, and to address training in Medicare laws 
and regulations.

Element 10: Hiring:

As required by MMA, the plan addresses steps that should be taken to 
hire ALJs and support staff. It outlines HHS's intention to hire ALJs 
from various sources, including OPM's register of qualified ALJs, the 
list of retired ALJs who have expressed interest in returning to work 
and are available for temporary reappointment, and ALJs currently 
employed and adjudicating administrative appeals at other 
agencies.[Footnote 14] However, it does not discuss how HHS will be 
able to ensure that it can attract the 50 ALJs it plans to hire. 
Moreover, we expect that it may be difficult for HHS to identify and 
hire 50 ALJs with Medicare knowledge. For example, OPM's register, the 
largest source of new ALJs with 1,300 potential candidates, does not 
include information indicating whether candidates have Medicare 
expertise. Similarly, HHS cannot tell which of the 110 retired ALJs on 
the register of those interested in returning to work have Medicare 
expertise. And, although ALJs already employed at other agencies may be 
interested in seeking employment at HHS, few of them are likely to have 
knowledge of Medicare rules. Given that the majority of ALJs currently 
employed by SSA focus primarily on disability appeals, few of them are 
likely to have significant Medicare expertise.

HHS's plan to hire ALJs and other professional and administrative staff 
in a manner that ensures an appropriate geographic distribution is a 
major staffing consideration. However, the plan does not address how 
HHS will incorporate this feature into its hiring plans. Given the lack 
of such a geographic distribution plan, there is no way for ALJ 
candidates to know where new positions will be located--which may have 
a great bearing on their interest. As a result, even the OHA ALJs with 
Medicare expertise may not be interested in transferring to HHS, if 
this would require them to relocate.

The plan lacks other details concerning HHS's hiring plans. For 
example, it is not explicit about whether HHS will hire the 50 ALJs and 
200 support staff all at once, or if it intends to conduct several 
rounds of hiring and training. The plan does not outline who is to be 
involved in the hiring process and, as of July 2004, HHS had not 
decided whether a chief judge might be hired first to participate in 
the hiring of the ALJs and support staff. Finally, the plan does not 
acknowledge the possibility that HHS may be unable to hire all needed 
staff by the time of the transfer. By not recognizing this possibility, 
the plan misses the opportunity to develop critical contingency 
arrangements.

Element 11: Training:

As required by the mandate, the plan describes HHS's plans to develop a 
training strategy but, nonetheless, leaves key questions unanswered. 
Although the plan establishes four broad categories for short-term 
training, it does not include substantive information on the training's 
content. It also lacks other critical information, such as a detailed 
description of its plans to provide initial training for HHS's ALJs. 
While OHA's ALJ training of new hires lasts 5 weeks, the plan does not 
describe the duration of HHS's planned training or the depth of 
material to be covered. It also does not specify who will be 
responsible for developing the training curriculum and course materials 
or presenting the training to new ALJs. The plan mentions that HHS is 
also developing a long-term training strategy, but there are no details 
for providing ongoing training and refresher classes to ALJs in future 
years. Even OHA ALJs with Medicare knowledge may need additional 
training, as some indicated to us that their understanding of the 
program's rules is not current.

In addition to our concerns regarding the content of this plan element, 
the lack of a detailed schedule for developing and presenting the new 
training program raises concerns about HHS's ability to have an 
adequately prepared staff to adhere to its plans to begin processing 
appeals by July 1, 2005. The only date included in HHS's training 
schedule indicates that both hiring and training will begin in the 
second quarter of calendar year 2005--at most, 3 months before the plan 
anticipates HHS ALJs will begin hearing appeals. This poses a 
challenging time frame for HHS, especially if its training will mirror 
OHA's 5-week program. Given the plan's timeline, there is little 
opportunity to pursue alternate training arrangements, should delays 
occur.

Category F: Issues of Oversight Remain Unresolved:

Although the plan recognizes the importance of ALJ decisional 
independence--an element critical to the integrity of the appeals 
process--it does not specify, organizationally, where ALJs will be 
housed within HHS nor does it discuss the safeguards that will be put 
in place to ensure ALJs are insulated from undue influence from HHS. 
The plan outlines the circumstances under which performance standards 
can be applied to ALJs without threatening their independence. However, 
other than meeting time frames prescribed by law, the plan proposes no 
standards nor does it describe the process that might be used to 
develop such standards.

Element 12: Independence of ALJs:

Despite the fact that the independence of ALJs is critical to ensuring 
due process to appellants, the plan is silent on what steps will be 
taken to shield ALJs from real or perceived external pressures, 
including pressure from elsewhere in HHS, which is tasked with 
overseeing the Medicare program. ALJs throughout the federal government 
may have to issue rulings against the agencies that employ 
them.[Footnote 15] However, since SSA became an independent agency in 
1994, OHA ALJs hearing Medicare appeals, as SSA employees, have not 
been in this position.

The plan notes that SSA has a long history of maintaining independence 
of ALJs. MMA required that the plan provide information on steps to be 
taken to ensure the independence of ALJs hearing Medicare appeals once 
this function has been transferred to HHS. However, the plan merely 
repeats MMA's requirement--that the HHS ALJ unit will report solely to 
the Secretary of HHS and that it will be separate from CMS. The plan 
provides no information about the proposed, new organizational 
structure, nor does it specify who, in terms of title and duties, will 
direct and manage the HHS ALJ unit. Furthermore, the plan does not 
define the relationship of ALJs to other HHS offices, such as CMS and 
the MAC--with which the ALJ unit will have to communicate and 
coordinate--or where, organizationally, the ALJ unit will be housed. 
The plan also does not include standards that either HHS, or the new 
ALJ unit, could use to evaluate whether the independence of the ALJ 
unit is being achieved. Similarly, the plan makes no reference to the 
steps that will be taken to ensure the objectivity of ALJ training. 
Finally, the plan does not recognize the possibility that the 
independence of the ALJ unit could be questioned nor does it specify a 
contingency plan to ensure--and if necessary, restore--the continued 
independence of ALJs.

Element 13: Performance Standards:

The plan addresses the appropriateness of establishing performance 
standards for ALJs, as required by MMA. Although the plan acknowledges 
that it is important that ALJs adhere to the new time frames for 
processing appeals as established by BIPA, it is unclear whether any 
other performance standards for ALJs will be established. The plan 
notes that the law allows the imposition of "administrative practices 
and programming policies that ALJs must follow," including timeliness 
of decisions, so long as the agency does not use the guidelines to 
influence the ALJs' decisions. In addition, the plan holds that it is 
not unreasonable to expect a minimum level of efficiency and that ALJs 
can be disciplined for "good cause," which may be based on performance 
or unacceptably low productivity. However, the plan does not discuss 
whether such guidelines will be imposed, by what means the agency would 
evaluate a minimum level of efficiency, who would evaluate the judges, 
and what actions might be taken based on unsatisfactory findings. 
Similarly, the plan does not include specific steps the agency would 
take to ensure that any guidelines and performance standards that are 
imposed would not interfere with ALJ independence. Finally, the plan 
does not address how ALJs would be evaluated should any new standards 
be challenged.

Conclusion:

SSA and HHS have stressed their commitment to ensuring a successful 
transfer of the ALJ level of the Medicare appeals process from SSA to 
HHS. Addressing the 13 elements specified in MMA and developing and 
implementing contingency provisions are key to ensuring that the 
transition is smooth and that services to appellants are not disrupted. 
Although both agencies have stressed that they are continuing to 
further develop details of the plan, based on the information they have 
developed thus far, we believe that the plan does not comprehensively 
address the 13 elements and, thus, seriously jeopardizes a successful 
and timely transition. For example, the absence of specific milestones, 
the use of unreliable data, and the lack of an acknowledgement that HHS 
may ultimately need to develop two separate processing systems to 
adhere to current practices and those required by BIPA are serious 
shortcomings. Moreover, the absence of details related to providing 
appellants access to ALJs, hiring and training staff with expertise in 
Medicare, and preserving ALJ independence further undermine the plan's 
credibility. The plan's lack of specific details jeopardizes HHS's 
ability to begin adjudicating appeals as scheduled. Unless SSA and HHS 
act quickly to effectively address the 13 elements required by MMA and 
finalize the transition plan for transferring responsibility for 
adjudicating Medicare appeals from SSA to HHS, the appeals process 
could be compromised.

Recommendations for Executive Action:

To help ensure a smooth and timely transition of the Medicare appeals 
workload from SSA to HHS, we recommend that the Secretary of HHS and 
the Commissioner of SSA take steps to complete a substantive and 
detailed transfer plan. Specifically, we recommend that the Secretary 
and Commissioner take the following six actions:

* Prepare a detailed project plan to include interim and final 
milestones, individuals or groups responsible for completing key 
elements essential to the transfer, and contingency plans.

* Validate data and perform analyses to support decisions regarding key 
elements, such as workload, staffing needs, and costs.

* Outline a strategy that addresses the possible need for two separate 
processing systems at HHS--one for appeals that follows the current 
processing practices and one that complies with BIPA's time frames and 
other requirements--in the event that the BIPA provisions establishing 
the QICs are not implemented as scheduled.

* Identify where staff and hearing facilities--including 
videoconference equipment--are needed as well as opportunities to share 
staff and office space.

* Develop an approach to ensure that ALJs and support staff with 
Medicare expertise can be hired, and that all staff are adequately 
trained to process and adjudicate Medicare appeals.

* Define the relationship of HHS's ALJ unit to the other organizations 
within the department, and identify safeguards that will be established 
to ensure decisional independence.

Agency Comments and Our Evaluation:

We provided a draft of this report to both SSA and HHS for their 
review. In its written comments, HHS agreed with all but one of our 
recommendations. HHS said that contingency plans for several plan 
elements--regulations, feasibility of precedential authority, 
independence of ALJs, and performance standards--were unnecessary. 
Because of the critical nature of these provisions and the inter-
dependence of the plan's components, we continue to believe that the 
establishment of such plans for each congressionally mandated element 
would best ensure a smooth and timely transition.

Further, HHS emphasized that it attempted to ensure that it provided us 
with the most current information available regarding decisions 
associated with the transition. However, we do not believe that HHS has 
kept us fully apprised of all of its efforts. For example, in its 
comments, HHS described the establishment of the Office of Medicare 
Hearings and Appeals Transition and the activities of this new office 
related to the transfer. Although HHS indicated that this office was 
established in July 2004, before our work was complete, this 
information was not shared with us. In addition, although HHS noted 
several other efforts to enhance the transition process--such as its 
analysis of internal data to make caseload projections for fiscal years 
2005 and 2006--this information also was not provided to us during the 
course of our work. Although this, and other efforts HHS cited to 
facilitate the transfer of Medicare appeals might have promise, we had 
no opportunity to evaluate them.

We are also concerned with HHS's characterization of our findings and 
its own progress in implementing the transfer. For example, HHS 
interprets figure 2 in our report as indicating that we believe that 
the plan meets substantially all MMA requirements. However, figure 2 
clearly shows that 5 of the 13 plan elements do not completely address 
these requirements. Moreover, figure 2 shows that the plan lacks 
detailed information and contingency plans for the vast majority of the 
elements. Such significant deficiencies suggest that a smooth and 
timely transfer may be in jeopardy. HHS also stated that the public 
comments it received concerning the plan were positive. Our information 
does not support this assertion. Our evaluation of these comments 
showed that they mirrored the concerns addressed in our report and 
raised serious questions about the ability of SSA and HHS to effect the 
transfer in a manner that would preserve the independence of ALJs and 
ensure the quality of service to appellants.

In its written comments, SSA agreed with our recommendations by either 
expressing its concurrence or by citing steps it has taken to aid with 
their implementation. SSA also noted that it shared our concern that 
adequate planning needs to take place and agreed that detailed 
contingency planning is important. Although SSA's comments focused on 
its continuing contribution to enhance HHS's understanding of the 
current Medicare appeals process, it also emphasized that some elements 
of the plan are the sole responsibility of HHS. While we agree that HHS 
must ultimately assume full and complete responsibility for the appeals 
process, until the transition is complete, we believe that both 
agencies are accountable for ensuring that appeals are adjudicated 
promptly and competently, and for coordinating their efforts so that 
the transfer occurs on a smooth and timely basis.

Finally, both SSA and HHS expressed concern with the title of our 
report. HHS said that the title might raise unnecessary fears among the 
advocate and beneficiary communities. Further HHS stated that it is on 
track for an efficient and effective transfer of the ALJ function at 
the earliest possible time allowed by the MMA. Although HHS indicated 
that much progress has been made in key areas, such as development of 
regulations and the assurance of ALJ independence, it provided no new 
information in support of these efforts. In addition, many other 
significant questions raised in our report, such as the geographic 
distribution of ALJs, were not addressed in its comments. Therefore, we 
continue to have significant concerns about the agencies' abilities to 
effectuate the transfer on a timely basis. Both agencies also reported 
that they had identified a mechanism for HHS to continue to use SSA 
ALJs to adjudicate Medicare appeals after the statutory date of the 
transfer, if necessary. However, neither SSA nor HHS described this 
mechanism and we therefore were unable to evaluate it. Consequently, we 
continue to believe that our evaluation of the evidence supports the 
report title. SSA's and HHS's comments are reprinted in appendixes II 
and III, respectively.

We are sending copies of this report to the Secretary of HHS, the 
Commissioner of SSA, and other interested parties. In addition, this 
report will be available at no charge on GAO's Web site at http://
www.gao.gov. We will also make copies available to others upon request.

If you or your staffs have any questions about this report, please call 
me at (312) 220-7600. An additional GAO contact and other staff members 
who prepared this report are listed in appendix IV.

Signed by: 

Leslie G. Aronovitz: 
Director, Health Care--Program Administration and Integrity Issues:

[End of section]

Appendix I: Analysis of the Medicare Appeals Transfer Plan:

Based on our review of the plan and additional materials provided by 
the transfer team, we found that the plan to transfer the Medicare 
appeals function from the Social Security Administration to the 
Department of Health and Human Services is insufficient to ensure a 
smooth and timely transition. Although the plan generally addresses 
each of the 13 elements mandated by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA), as indicated in 
figure 2, it omits important details on how each element will be 
implemented. Furthermore, the plan overlooks the need for contingency 
provisions, which could prove to be essential, should critical tasks 
not be completed in a timely manner.

Figure 2: Completeness of Medicare Appeals Transfer Plan:

[See PDF for image]

[End of figure]

[End of section]

Appendix II: Comments from the Social Security Administration:

SOCIAL SECURITY:

The Commissioner: 
September 24, 2004:

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) report "Medicare: Incomplete 
Plan to Transfer Appeals Workload from SSA to HHS Threatens Service to 
Appellants (GAO-04-1055).

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 
report correctly notes that the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) transfers authority 
from SSA to HHS for the Medicare appeals hearings function, effective 
October 1, 2005. However, in the event that it is necessary, SSA and 
the Department of Health and Human Services (HHS) have identified a 
mechanism for HHS to continue to use SSA ALJs to adjudicate Medicare 
appeals after the statutory date of transfer.

We wish to assure GAO, Congress, and the public that we are confident 
that the two agencies, working together, can ensure that case 
processing is not interrupted. For this reason, we recommend that GAO 
revise the title of the report. We believe that the title "Incomplete 
Plan to Transfer Appeals Workload from SSA to HHS Threatens Service to 
Appellants" may raise unnecessary fears among the advocate and 
beneficiary communities. We suggest "Prompt Action Needed to Complete 
Planning for Transfer of the Appeals Workload from SSA to HHS.":

In the draft report, GAO expressed concern about a successful transfer 
of the Administrative Law Judge (ALJ) level of the Medicare appeals 
process from SSA to HHS. Generally, GAO's concerns relate to the level 
of detail in the Report to Congress.

We share GAO's concern that adequate planning takes place to address 
the full range of issues and contingencies. We also agree that detailed 
contingency planning is important in order to ensure that appeals 
continue to be processed, even if the transfer is not completed by the 
statutory deadline.

Enclosed are detailed comments and suggestions we have on the draft 
report. In addition, I have enclosed a summary of SSA's role in each of 
the 13 required elements from the MMA addressed in the draft report. If 
you have any questions, please have your staff contact Candace Skurnik 
at (410) 965-4636.

Sincerely,

Jo Anne B. Barnhart:

Enclosures:

COMMENTS OF THE SOCIAL SECURITY ADMINISTRATION (SSA) ON THE GOVERNMENT 
ACCOUNTABLITY OFFICE (GAO) DRAFT "MEDICARE: INCOMPLETE PLAN TO TRANSFER 
APPEALS WORKLOAD FROM SSA TO HHS THREATENS SERVICE TO APPELLANTS" (GAO-
04-1055):

We appreciate the opportunity to review the subject report. We are 
taking this opportunity to provide comments and supplemental 
information to clarify and more fully describe major actions SSA has 
taken in preparation for the transfer of the Medicare appeals function.

Decisions on the structure and procedures for the Department of Health 
and Human Services (HHS) appeals process are within the purview of HHS, 
and SSA defers to that agency on these points. Thus, as the draft 
report makes clear, SSA's role in the transfer has two major elements:

Assisting HHS in developing its system for handling these appeals, and 
Ensuring a smooth handoff of the Medicare appeals workload from SSA to 
HHS.

SSA takes these responsibilities seriously and has worked with HHS to 
ensure that our sister agency is provided with the tools it needs to 
develop their new process. In order to facilitate the exchange of 
information and ideas, SSA established a work group led by the 
Executive Counselor to the Commissioner to coordinate the agency's 
participation in the joint SSA-HHS Medicare Workgroup.

SSA assumed its joint responsibility with HHS for the development and 
implementation of the transfer plan by providing open access and 
complete information about the Medicare hearing process. In addition to 
providing a vast array of information to HHS to assist in making 
decisions and developing plans for how it will carry out the hearing 
function, SSA has given particular attention to coordination and 
development of those aspects of the transfer which directly affect 
SSA's ability to provide service. These areas include the 
implementation of initiatives to process SSA's pending Medicare 
workload, effective interface of databases and sharing of information 
necessary to let appellants know the status and location of their 
cases, and coordinated planning to meet each agency's needs for 
Administrative Law Judges (ALJ) and other staff.

Information Sharing:

SSA has shared with HHS information on areas such as:

* The current and historic Medicare Appeals workload as well as its 
geographical distribution;

* Startup costs of hearing offices, including the space and equipment 
requirements per staff position and the timeline for acquiring space 
through the General Services Administration; and:

The timeline and process for hiring ALJs, staff learning curves, and 
the timeline for staff to achieve full productivity, along with basic 
training materials.

SSA Preparation for Medicare Appeals Transfer to HHS:

To expedite handling of its current Medicare appeals workload, the 
Office of Hearings and Appeals (OHA) has developed and implemented, 
with the contribution of HHS resources, a centralized Medicare 
Screening Unit. The Screening Unit is designed to identify appeals that 
can be resolved at the earliest stage possible in the appeal process. 
The Screening Unit was staffed beginning in June 2004, and immediately 
began the screening process for all Parts B and C appeals. Beginning in 
July 2004, all Part A appeals were forwarded directly to the Screening 
Unit from the Centers for Medicare and Medicaid Services (CMS) 
contractors. We have an established cadre of ALJs to handle Medicare 
cases, and have streamlined assignment of cases to these ALJs. We also 
are identifying ways to direct cases not handled by the Medicare cadre 
ALJs to ALJs with experience handling Medicare cases. To further 
facilitate the processing of Medicare appeals, we have developed plans 
to hold video hearings scheduled from the Screening Unit beginning in 
October 2004.

Database Continuity:

During the transition period when both SSA and HHS will be processing 
Medicare hearings, it is critical that both agencies have the ability 
to advise appellants and their representatives as to whether their 
cases are located at SSA or HHS. SSA and HHS are exploring the most 
efficient way to provide current Medicare hearings data to both 
agencies. SSA will continue to monitor and track the status and 
location of cases within its jurisdiction in the Hearing Office 
Tracking System (HOTS). Systems experts from HHS and SSA have met to 
discuss the technical issues, including the possible exchange of 
Medicare hearings data between SSA and HHS, as well as resources needed 
to provide the necessary information. We expect to resolve these issues 
well before implementation.

Our responses to the specific recommendations are provided below:

Recommendation 1:

Prepare a detailed project plan to include interim and final 
milestones, individuals or groups responsible for completing key 
elements essential to the transfer, and contingency plans.

SSA Response:

We agree. SSA will expand upon our plans, described above, to process 
the Medicare appeals workload prior to transfer. As noted above, we are 
working with HHS to develop a contingency plan to ensure uninterrupted 
handling of appeals if a complete transfer does not take place before 
the statutory deadline.

Recommendation 2:

Validate data and perform analyses to support decisions regarding key 
elements, such as workload, staffing needs, and costs.

SSA Response:

As indicated in our response to recommendation l, SSA has provided HHS 
with extensive information and analysis regarding the Medicare appeals 
workload, staffing, and costs. As we operate under our expedited 
procedures for handling Medicare appeals, we will provide additional 
information and analysis to HHS.

Recommendation 3:

Outline a strategy that addresses the possible need for two separate 
processing systems at HHS-one for appeals that follows the current 
processing practices and one that complies with the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protect Act of 2000 (BIPA)'s 
timeframes and other requirements, in the event that the BIPA 
provisions establishing the qualified independent contractors (QICs) 
are not implemented as scheduled.

SSA Response:

Because SSA has not been involved with the QICs, our contribution in 
this area of planning is limited.

Recommendation 4:

Identify where staff and hearing facilities-including videoconference 
equipment-are needed as well as opportunities to share staff and office 
space.

SSA Response:

SSA/HHS jointly studied opportunities for sharing resources, and 
determined that, generally, it is feasible to do so only for 
videoconference equipment and space. SSA is in the process of a major 
expansion of its videoconference facilities. In planning the need for 
and location of these new facilities, we have taken into account 
projected use for Medicare video hearings.

Recommendation 5:

Develop an approach to ensure that ALJs and support staff with Medicare 
expertise can be hired, and that all staff are adequately trained to 
process and adjudicate Medicare appeals.

SSA Response:

As noted above, SSA has provided HHS with information about hiring and 
training ALJs and support staffing needs, as well as with basic 
training materials.

Recommendation 6:

Define the relationship of HHS's ALJ unit to the other organizations 
within the department, and identify safeguards that will be established 
to ensure decisional independence.

SSA Response:

This task is one that uniquely lies with HHS. We will, of course, 
continue to provide any information that would assist HHS in making 
these determinations but will defer to HHS on how its ALJ unit should 
be structured.

Social Security Administration Role MMA Transfer Plan Elements from 
Draft GAO Report (Terminology Taken from Tables in the Draft Report):

1. Transition Timetable: Provide HHS with information on processes and 
startup times and with a suggested timetable. 

2. Workload: Provide current and historical information on Medicare 
appeals case load and anticipated case volume.

3. Cost Projections/Financing: Provide salary information and startup 
costs for hearing offices. 

4. Regulations: Task specific to HHS. 

5. Precedential Authority: Task specific to HHS. 

6. Geographic Distribution: Provide HHS with a breakdown on the 
Medicare caseload by geographic area. 

7. Access to ALJs: Consider Medicare appeals load in selecting sites 
for new SSA video hearing facilities Share electronic disability 
appeals processing technology if requested. 

8. Shared Resources: Provide HHS access to video hearing facilities. 

9. Case Tracking: Maintain the Hearing Office Tracking System through 
the transition Share development work on the Case Processing Management 
System if requested. 

10. Hiring: Share full information on workloads, AU productivity and 
support staff needs. 

11. Training: Provide HHS with basic ALJ training materials Share 
experience on helping new ALJs reach full productivity. 

12. Independence of ALJs: Task specific to HHS. 

13. Performance standards: Share information on SSA/OPM standards. 

[End of section]

Appendix III: Comments from the Department of Health and Human 
Services:

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

SEP 24 

Ms. Lelsie G. Aronovitz, Director: 
Health Care-Program Administration and Integrity Issues:
United States Government Accountability Office: 
Washington, D.C. 20548:

Dear Ms. Aronovitz:

Enclosed are the Department's comments on your draft report entitled, 
"Medicare: Incomplete Plan to Transfer Appeals Workload from SSA to HHS 
Threatens Service to Appellants" (GAO-04-1055). 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 report in our capacity as the Department's 
designated focal point and coordinator for 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 (HHS) ON THE 
GOVERNMENT ACCOUNTABILITY OFFICE'S (GAO) DRAFT REPORT "MEDICARE-
INCOMPLETE PLAN TO TRANSFER APPEALS WORKLOAD FROM SSA TO HHS THREATENS 
SERVICE TO APPELLANTS" (GAO-04-1055):

The Department of Health and Human Services (HHS) appreciates the 
opportunity to review and comment on the Government Accountability 
Office's (GAO) Draft Report No. GAO-04-1055, which was prepared in 
accordance with section 931 of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (MMA) Pub. L. No. 108-173. 
Consistent with section 931, HHS and the Social Security Administration 
(SSA) reported to the Congress in March 2004 on their plan to 
accomplish the transfer of responsibility for the functions of 
administrative law judges (ALJs) responsible for hearing Medicare 
appeals under title XVIII of the Social Security Act (the Act) to HHS 
from SSA. GAO's report will fulfill its obligation under section 
931(a)(4) to report to the Congress on its evaluation of that plan. In 
the interim, the Secretary of HHS and the Commissioner of SSA have 
continued working together to ensure a successful transition and the 
availability of an efficient and effective appeals process both during 
the transition and after the transfer of responsibility for the appeals 
function to HHS is complete.

Since the enactment of the MMA on December 8, 2003, HHS has taken a 
series of steps toward the statutory goal of assuming responsibility 
for the appeals workload no later than October 1, 2005. HHS has 
completed the essential groundwork needed for successful effectuation 
of the transfer of the AU function. HHS notes that GAO, in Table 2 of 
the draft report "Evaluation of Medicare Appeals Transfer Plan's 
Implementation Readiness," concludes that HHS meets substantially all 
MMA requirements.

As GAO recognized on page 4 of the draft report, "Transferring the 
Medicare appeals workload from SSA to HHS poses a complex challenge 
that requires careful preparation and the precise implementation of 
many inter-related tasks." Given the complexity of the transfer of the 
AU function, HAS is using the time remaining to complete the transition 
(approximately 1 year) to take a prudent and responsible course by 
evaluating input from all stakeholders and implementing the transition 
plan in a deliberative manner while aggressively seeking to take 
responsibility for the appeals function at the earliest time the 
statute will allow. Moreover, it should be noted that although the GAO 
report calls for more specificity in certain areas, the plan did 
address all of the elements required by the statute.

It is important to note that the March 2004 report to the Congress was 
completed in just over 3 months after enactment of the MMA. Thus, the 
report inevitably could not supply the degree of detail that the GAO's 
evaluation suggests would have been desirable. HHS has taken a 
deliberative approach to establishing the new ALJ appeals entity that 
is aimed at ensuring both a timely transition and the long-range 
success of the appeals process.

Throughout this ongoing process, HHS has attempted to ensure that GAO 
and the Congress have the most current information available regarding 
decisions associated with the transition and the development of the new 
AU appeals entity. On May 12, 2004, HHS briefed GAO about the 
President's fiscal year (FY) 2004 budget, the Centers for Medicare & 
Medicaid Services (CMS) FY 2004 operating plan, and the President's FY 
2005 budget request for needs associated with the new appeals workload. 
Moreover, HHS staff has had ongoing communication, including a meeting 
and conference calls with Senate and House staff of the committees of 
jurisdiction, to receive input and address issues and concerns. As HHS 
moves forward with this transition, conference calls will continue as 
necessary to ensure that the Congress is kept up-to-date on transition 
progress.

GAO Recommendations:

HHS generally agrees with the recommendations in the draft report. 
However, we believe that the title "Incomplete Plan to Transfer Appeals 
Workload from SSA to HHS Threatens Service to Appellants" may raise 
unnecessary fears among the advocate and beneficiary communities. We 
suggest "Prompt Action Needed to Complete Transfer of Appeals Workload 
from SSA to HHS." Below are GAO's recommendations, and HHS' responses, 
as well as additional information regarding steps HHS has taken since 
the transfer plan was submitted to the Congress on March 25, 2004.

GAO Recommendation:

Prepare a detailed project plan to include interim and final 
milestones, individuals or groups responsible for completing key 
elements essential to the transfer, and contingency plans.

HHS Response:

HHS agrees that project planning is an important and integral element 
of a successful transition. To that end, HHS created the Hearing and 
Appeals Restructuring Team (HAR), which includes senior leadership from 
across the Department, to provide overall direction and guidance. In 
addition, on July 25, 2004, HHS established the Office of Medicare 
Hearings and Appeals Transition (OMHAT) within the Office of the 
Secretary/Assistant Secretary for Administration and Management.

Since it was established, OMHAT has reviewed and evaluated materials 
provided by SSA concerning, among other things, workload, training, and 
processes. Building on this information, OMHAT has completed several 
actions that further the timely and efficient transfer of the hearings 
function from SSA. First, OMHAT issued three task orders: one to assess 
how best to employ videoconferencing and audio-conferencing 
technologies in the hearings process; one to assess HHS staffing needs 
for the ALJ hearings function and to develop a weighted workload 
system; and another to create a simulation of the anticipated case 
workflow for the Medicare hearings function. Second, OMHAT contracted 
with "HHS University" (an intra-Department educational network that 
offers HHS employees training opportunities) for a project manager to 
oversee the development of all training materials and the scheduling 
and coordination of training for all new staff associated with the 
hearings function, and for a complete analysis of HHS' future training 
needs for staff in the new ALJ appeals entity.

In addition, HHS staff are actively working with a contractor to 
develop the documentation and workflow analysis for the ALJ portion of 
the data system.

The basics of project management involve taking actions to effect a 
positive outcome, as well as thinking through possible roadblocks, how 
to prevent them, and what arrangements would be needed if they arise. 
The Department is assuring that the project management process 
considers contingencies as one of the many inherent steps in 
approaching each area of this initiative.

The HHS/SSA transition plan anticipates addressing necessary 
contingencies. For example, the plan states that HHS will adjust the 
hiring of ALJs and other staff depending on actual workload volume, and 
will consider any possible expansion or re-alignment of the initial 
location of appeals offices depending on experience. Although the GAO 
report recommends contingencies for all of the MMA transfer plan 
requirements, several items in the plan, however, do not require 
specific contingency planning, e.g., regulations, feasibility of 
precedential authority, independence of ALJs, and performance 
standards.

GAO Recommendation:

Validate data and perform analyses to support decisions regarding key 
elements, such workload, staffing needs, and costs.

HHS Response:

HHS agrees with the recommendation to perform further data analysis and 
is taking steps to accomplish this independent of reliance on any prior 
data. Given the short time period in which the transition plan had to 
be developed, HHS, of necessity, relied on SSA staff and cost data. 
Presently, HHS is analyzing its internal data to make FY 2005 and FY 
2006 caseload projections for all Part A, B, and C appeals, as well as 
the new Part D appeals. In addition, HHS is reviewing the SSA Medicare 
ALJ caseload by conducting a real-time activity-based review of the 
appeals function, including examining actual appeal case files. The 
knowledge garnered through this review will be used to develop 
workload, staffing, and budget forecasts. The actual caseload 
projections have not been finalized and the review is ongoing.

In the short term, efforts have focused on coordinating with SSA to 
finalize caseload data to assist in the transition. HHS will closely 
evaluate the data using the Medicare Case Tracking System (MCATS) to 
develop information regarding caseload projections and future funding 
requirements. As the new ALJ appeals entity begins hearing cases, MCATS 
data will be supplemented and eventually superceded by data collected 
in the new Medicare Appeals System (MAS), the long-range data system 
currently being developed by HHS. As the GAO report notes, the MAS 
will, for the first time, provide appeals-specific information on each 
claim that reaches the Qualified Independent Contractors (QIC) 
reconsideration, ALJ, or Departmental Appeals Board (DAB) level. HHS is 
working closely with all involved parties to produce a shared data 
system that will provide the data needed by each component for claim 
and case tracking purposes.

GAO Recommendation:

Outline a strategy that addresses the possible need for two separate 
processing systems at HHS-one for appeals that follows the current 
processing practices and one that complies with BIPA's timeframes and 
other requirements, in the event that the BIPA provisions establishing 
the QICs are not implemented as scheduled.

HHS Response:

HHS anticipated the need for two processes. Work is on track to 
finalize the relevant regulations and implement the QICs in order to 
facilitate and complement the transfer of the appeals function. Because 
the two processes will be quite similar and will parallel one another 
in most respects, the system will accommodate both types of appeals.

GAO Recommendation:

Identify where staff and hearing facilities-including videoconference 
equipment-are needed as well as opportunities to share staff and office 
space.

HHS Response:

HHS agrees with this recommendation and has evaluated issues associated 
with the geographic distribution and organizational structure of the AU 
appeals entity. Final decisions are expected soon and will be shared 
with the Congress.

HHS has made decisions regarding the internal organization of the ALJ 
appeals entity. The director's office for the new ALJ appeals entity 
will be located in the Office of the Secretary and report directly to 
the Secretary-a structure that is nearly identical to the 
organizational structure of the DAB. The structure meets statutory MMA 
requirements that the new ALJ appeals entity be independent of and 
physically separate from CMS.

GAO Recommendation:

Develop an approach to ensure that ALJs and support staff with Medicare 
expertise can be hired, and that all staff is adequately trained to 
process and adjudicate Medicare appeals.

HHS Response:

HHS agrees with this recommendation and is working with OPM to address 
hiring and staffing needs, including consideration of Medicare 
expertise, classification of the AU position, and the need for an 
expedited hiring process. HHS is also evaluating training needs and is 
developing a comprehensive training strategy.

GAO Recommendation:

Define the relationship of HHS's ALJ unit to the other organizations 
within the Department, and identify safeguards that will be established 
to ensure decisional independence.

HHS Response:

HHS agrees that decisional independence is of paramount importance and 
will take steps to ensure that this occurs. The organizational 
structure of the new ALJ appeals entity will also reflect this 
independence.

Other Matters:

In addition to the areas highlighted by the draft report, HHS has taken 
significant steps in other areas since the transition plan was 
submitted to the Congress to ensure the successful and timely 
transition of the appeals function. These steps include the following:

Public Input:

To ensure that stakeholder expectations are taken into consideration in 
establishing the new ALJ appeals entity, HHS published a Federal 
Register notice on June 28, 2004 soliciting input from stakeholders on 
the issues related to the process of transferring the responsibility 
for the Medicare appeals from SSA to HHS, with comments due July 28, 
2004. Overall, the comments received were positive and provided 
significant input into aspects HHS should consider in designing the new 
ALJ appeals entity. Many of the comments centered around issues 
regarding the organizational structure, the geographic distribution of 
hearing offices, and ALJ decisional independence from CMS. Responders 
raised many of the same questions HHS has been meticulously addressing 
over the last nine months, such as the manner in which the backlog of 
cases will be handled and the process for hiring and training ALJs. 
Again, HHS has spent considerable time and energy over the last 5 
months collecting information pertinent to the questions raised by 
responders, and is evaluating and considering the information as part 
of the decision-making process.

Budget Formulation:

Much effort has focused on the numerous budget issues associated with 
the transfer of the appeals responsibility and the establishment of the 
new ALJ appeals entity. This includes evaluating both FY 2004 budget 
issues for SSA and HHS, as well as the HHS funding issues for 
subsequent years. For example, HHS is working with SSA to develop the 
Memorandum of Understanding (MOU) for FY 2005, which ensures that, 
consistent with the Medicare appeals transition plan submitted to the 
Congress in March 2004, SSA completes the processing of all Medicare 
appeals received by it prior to July 1, 2005. In addition, HHS and SSA 
have identified a mechanism for HHS to continue to use SSA ALJs to 
adjudicate Medicare appeals after the date of the transfer, if 
necessary.

Policy Development:

HHS has been working on the development and clearance of the final 
regulations needed to implement the BIPA and MMA changes to the 
Medicare claims appeals process, including the BIPA section 521 changes 
to the appeals procedures. Work is on track to finalize the regulations 
and implement the QICs in order to facilitate and complement the 
transfer of the appeals function.

A significant amount of work also has been conducted to identify the 
numerous procedures that must be in place to ensure that operations run 
smoothly once the new AU appeals entity assumes responsibility. For 
example, HHS has identified and begun evaluating policies associated 
with the manner in which cases will be identified that involve multiple 
claimants with common issues, and the practicality of the electronic 
filing of appeals.

Operational Policy Coordination:

HHS also is working to make sure that a coordinated operational 
approach is in place among all the key components in the appeals 
process that need to play a role in bringing about a successful AU 
hearing function. HHS is continuing to examine methods to address AU 
performance standards. HHS has also worked to ensure smooth 
communication at the pre-ALJ and post-ALJ levels of the appeals 
process, including seeking input from the DAB to assure that appeals 
data and case files will be transferred timely between the new ALJ 
appeals entity and the DAB once HHS assumes responsibility for the 
hearings function.

Conclusion:

HHS appreciates GAO's thoughtful consideration of the Medicare appeals 
transition plan delivered to the Congress in March 2004 and welcomes 
the opportunity to review and comment on the GAO draft report 
evaluating the plan. As the report noted, this is a complex undertaking 
that requires careful preparation and the precise implementation of 
many interrelated items. The careful, deliberative work necessary to 
successfully manage the transfer of responsibility is ongoing and 
steady progress is being made in every area. By its responsible actions 
now, HHS is on track for an efficient and effective transfer of the AU 
function at the earliest possible time al lowed by the MMA. 

[End of section]

Appendix IV: GAO Contact and Staff Acknowledgments:

GAO Contact:

Geraldine Redican-Bigott, (312) 220-7678:

Acknowledgments:

Margaret Weber, Craig Winslow, Shirin Hormozi, and Barbara Mulliken 
made key contributions to this report.

FOOTNOTES

[1] See GAO, Medicare Appeals: Disparity between Requirements and 
Responsible Agencies' Capabilities, GAO-03-841 (Washington, D.C.: 
Sept. 29, 2003).

[2] Pub. L. No. 108-173, § 931, 117 Stat. 2066, 2396. 

[3] The 13 elements were transition timetable, workload, cost 
projections and financing, regulations, feasibility of precedential 
authority, geographic distribution, access to ALJs, shared resources, 
case tracking, hiring, training, independence of ALJs, and performance 
standards.

[4] The Secretary of Health and Human Services and the Commissioner of 
Social Security, Report to Congress: Plan for the Transfer of 
Responsibility for Medicare Appeals (March 2004). 

[5] In addition to processing and paying claims, the claims 
administration contractors currently administer the first level of the 
Part A appeals process and the first two levels of the Part B appeals 
process.

[6] Currently, appellants whose Part A appeals are denied by Medicare 
contractors at the first level, and who wish to continue to appeal 
their denied claims, proceed directly to the third level of the 
administrative appeals process--SSA's OHA. 

[7] OHA employs most--about 1,000--of the 1,300 ALJs who are employed 
by the federal government. Because OHA's primary mission is to 
adjudicate Social Security disability appeals, its resources are 
largely devoted to these matters. Although it does not have a dedicated 
corps of ALJs for Medicare appeals, it has a cadre of 34 ALJs with 
significant Medicare hearings experience. However, few of these ALJs 
adjudicate Medicare appeals exclusively. Other ALJs may also have 
Medicare experience, to varying degrees. As a result, some Medicare 
appeals are randomly assigned to ALJs who may not be familiar with 
Medicare statutes and program rules. 

[8] Pub. L. No. 106-554, app. F, § 521, 114 Stat. 2763A-463, 2763A-534. 


[9] MMA created a new, voluntary prescription drug benefit for Medicare 
beneficiaries, to start in 2006. 

[10] 67 Fed. Reg. 62,478. 

[11] There are two exceptions that resulted from the October 7, 2002 
ruling, implementing BIPA's changes--revising the deadline for filing 
an appeal for the first level of review and reducing the dollar 
threshold for filing an appeal at the OHA level.

[12] An appellant may aggregate multiple denied claims into a single 
appeal or "case" to meet OHA's minimum dollar threshold for filing an 
appeal. In addition, the appeals bodies may reconfigure a "case" to 
group denied claims related to similar issues.

[13] Although HHS employs nine ALJs, they focus on other departmental 
matters. One of these ALJs adjudicates appeals at the Food and Drug 
Administration. The remaining eight work at DAB and hear enforcement 
appeals, including those related to Medicare fraud and provider 
penalties. The latter have a backlog of almost 500 pending cases. 
However, these ALJs have no hearing rooms and, instead, use the hearing 
rooms of local courts or other agencies. 

[14] OPM administers the ALJ examination and maintains a hiring 
register. Federal agencies that intend to hire ALJs must specify the 
number and locations of the judgeships they would like to fill and 
submit their requests for candidates to OPM. OPM supplies three to five 
of the highest ranked candidates for each slot. Those not hired are 
returned to the register. Agencies may also hire temporary ALJs from a 
roster of retired judges who have made themselves available for 
reemployment. This roster is also maintained by OPM. In addition, 
federal agencies may hire ALJs who are already employed in that 
capacity at other agencies by posting vacancy announcements and 
evaluating applicants.

[15] To ensure that ALJs feel free to exercise their independent 
judgment, federal law provides them with several protections. For 
example, ALJs are excluded from the definition of "employee," for the 
purposes of performance appraisal systems applicable to other federal 
employees. 5 U.S.C. § 4301(2)(D) (2000).

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