The federal government recently awarded new contracts for Medicare recovery audits, and recovery audit contractors (“RACs”) will start showing up at hospitals, home health providers, and other facilities any time. But this latest round of audits for Medicare overpayments almost didn’t happen.

The U.S. Department of Health and Human Services (“HHS”) had informally put the brakes on new audit activity this year because of a lawsuit over the massive backlog of Medicare claims appeals. Late last year, a federal judge in Washington, D.C., ordered HHS to reduce the backlog 30 percent by the end of this year. The RAC audits have been playing a large role in the backlog. As my colleague Joy Hord likes to say, “The first rule of getting yourself out of a hole is to stop digging.”

However, a federal appeals court vacated that order about two months ago. That means Medicare RAC and other audits will be in full swing – and providers will continue to experience frustrating waits when they appeal the results.

How an Appeal Is Supposed to Work

Medicare hires recovery audit contractors to determine whether providers have received overpayments. Typically, this is done through documentation reviews. If the RACs find anything out of compliance, they send a notice saying the provider owes a certain amount of money back.

That amount can be huge: sometimes hundreds of thousands or millions of dollars. The overwhelming majority of those cases get appealed. The first two steps are essentially paper reviews. At the third level, you can go before an administrative law judge to argue your case. This step is really the best opportunity for providers and beneficiaries to tell their story and try to convince a judge to overturn the auditors.

It is also the exact part of the process where the backlog has ballooned. Under federal statute, an administrative law judge is required to issue a decision within 90 days of the request for a hearing. But as of December 2013, it took an average of 16 months before an administrative law judge even heard an appeal, let alone decided one.

The Lawsuit

In 2014, the American Hospital Association and several hospitals sued the U.S. Department of Health and Human Services over the appeals backlog. The district court judge noted that the appeals backlog quintupled between 2012 and 2013 and showed no signs of improving. The hospitals blamed the surge largely on the introduction of RAC audits a few years before, noting that the contractors receive a cut of any improper payment they recover. In other words, the contractors are incentivized to challenge claims.

The judge initially dismissed the case for jurisdictional reasons. The D.C. Circuit Court of Appeals reversed and remanded. The district court judge then asked both sides for a timetable to address the backlog. HHS refused to provide one. So in December 2016, the judge adopted the hospitals’ timetable, ordering HHS to reduce the backlog 30 percent by the end of this year and completely eliminate it by 2021.

HHS appealed, arguing that the only way to comply with the district court order would be to settle reimbursement claims en masse without regard for their merit, which would be a violation of the Medicare statute. In August, the D.C. Circuit court ruled that “courts must ensure that it is indeed possible to perform the act being commanded.” In a 2-1 decision, the appeals judges sent the case back to the district court to further evaluate HHS’ arguments.

The Backlog

As of June 2017, more than 600,000 appeals were pending review by administrative law judges. The D.C. Circuit noted that on the backlog’s current course, it would grow to nearly 1 million claims by the end of fiscal year 2021, and “some already-filed claims could take a decade or more to resolve.”

A resource issue is certainly part of the problem: The Office of Medicare Hearings and Appeals, which provides the administrative law judges at the third appeal step, does not have enough staff to handle the caseload. The Office has done a few things to try to ease the backlog. But the changes are only helping around the edges because a lot of the alternative dispute resolution approaches are not applicable to the majority of cases, particularly the ones with the most at stake for providers.

Ultimately, there are just too many cases going into the pipeline, and another round of RAC audits will exacerbate the problem. Hospitals, home health providers, and others should continue to be prepared to challenge the audits where they feel it’s necessary, but they should also be prepared for that process to take multiple years.

We’ll continue to cover the backlog on this blog.