ADVANCED WORKSHOP
                                      MEDICARE CLAIMS APPEALS

                                               JAMES P. KELLY
                                              LESTER J. PERLING
                                             ANDREW B. WACHLER

                                             TABLE OF CONTENTS

I.    INTRODUCTION ............................................................................................................ 1

      A.         Purpose. ................................................................................................................ 1
      B.         Five Level Appeal Process................................................................................... 1

                 1.          General. .................................................................................................... 1
                 2.          “Initial Determination.”........................................................................... 2
                 3.          First Level: Redetermination. ................................................................... 3
                 4.          Second Level: Reconsideration................................................................. 3
                 5.          Third Level: ALJ Hearings. ...................................................................... 7
                 6.          Fourth Level: Medicare Appeals Council. ............................................. 11
                 7.          Fifth Level: Federal Court...................................................................... 14

II.   SPECIAL PROBLEMS.................................................................................................. 15

      A.         Challenge to Regulations, Instructions and Methods..................................... 15

                 1.          Limited Authority of the Medicare Intermediaries Manual, Medicare
                             Carriers Manual and Medicare Coverage Issues Manual. .................... 15
                 2.          Contemporaneous Records. .................................................................... 16

      B.         Judicial Challenges. ........................................................................................... 16
      C.         “Consent Settlement” Demands and Agreements. ......................................... 17
      D.         Repetitive Denials After “Non-Precidential” Determinations. ...................... 18
      E.         Exhaustion of Administrative Remedies Not Required for Government
                 Overpayment Recovery Efforts........................................................................ 18
      F.         Asking CMS and DHHS for Help .................................................................... 19
      G.         Sampling and Extrapolation Claims. ............................................................... 19
      H.         Stay of Recoupment ........................................................................................... 22
      I.         Service of Documents to Beneficiaries ............................................................. 23
      J.         Parallel Proceedings. ......................................................................................... 24
      K.         Burden of Proof.................................................................................................. 24
      L.         Obtaining Records ............................................................................................. 25
      M.         RAC-Initiated Audits ........................................................................................ 27

      N.         Special Defenses; Untimely Reopening; Provider/Supplier Without Fault;
                 Waiver of Liability............................................................................................. 30

1.   Untimely Reopening................................................................................ 30
2.   Provider/Supplier Without Fault ............................................................ 31
3.   Waiver of Liability .................................................................................. 32
4.   Medical Necessity and the “Treating Physician” Rule. ......................... 32

                                ADVANCED WORKSHOP
                              MEDICARE CLAIMS APPEALS


                                     JAMES P. KELLY
                                    LESTER J. PERLING
                                   ANDREW B. WACHLER


     A. Purpose.

        The authors collectively have many decades of experience in bringing Medicare claims
appeals on behalf of providers, suppliers, and physicians. The purpose of this paper is to share
the authors’ experience and solutions in handling certain selected complications and difficulties
which arise, from time to time, in protecting entitlement to Medicare reimbursement.

       An excellent guide and reference collection to the full range of Medicare administrative
appeals is Cody & Scully-Hayes, A Practical Guide to Medicare Appeals, (American Bar
Association, 2007).

      More advanced coverage is available in Perling, Medicare Claims Appeals Process
Handbook (Aspen 2008).

     B. Five Level Appeal Process

         In the March 8, 2005 Federal Register (70 Fed. Reg. 11420), CMS issued interim final
regulations for Part A and Part B claims appeals. On February 27, 2009, CMS delayed the
publication of the final, final rule until March 1, 2010, to allow time for review of the interim
regulations by the Obama administration (74 Fed. Reg. 8867). To fully understand these interim
final regulations, one should read the commentary in both the March 8, 2005 Federal Register,
which contains the new rules, and the November 15, 2002 Federal Register in which the new
rules were originally proposed for comment.

                1.      General.

        The Medicare claims appeals rules establish a unified five step appeal process for Part A
and Part B claims. The rules became effective for new Part A “redeterminations” on May 1,
2005. They became effective for new Part B “redeterminations” on January 1, 2006. Here are
the principal features of the new rules:

                        a.      The new rules (a) by statute govern appeals of “initial
                                determinations” made on or after October 1, 2002 and (b) as a
                                matter of practicality in light of the dismantling of the prior
                                appeals process, will likely govern appeals of initial
                                determinations made before October 1, 2002.

                        b.      Reforms the appeals process and imposes time deadlines for
                                issuing decisions.

                         c.     Consolidates Part A and Part B into a uniform appeal process.

                         d.     Initial appeal is called a “redetermination” and replaces Part A’s
                                “reconsideration” and Part B’s “review” processes.

                         e.     For Part B claims, the new appeals process abolishes the carrier
                                fair hearing and replaces it with the “reconsideration” level
                                handled by a Qualified Independent Contractor (“QIC”). CMS
                                announced on October 18, 2004 contract awards to the following
                                eight organizations to act as QICs: Integriguard, LLC, Q2
                                Administrators, Island Peer Review Organization, Rivertrust
                                Solutions, Inc., Computer Sciences Corporation, Maximus, LLC,
                                First Coast Service Options, Inc., and Permedion. So far, CMS
                                has assigned responsibilities among the QICs as follows:

                                i.      Administrative QIC (“AdQIC”) – Q2 Administrators.
                                        (The AdQIC is to function as a file clearinghouse among
                                        the contractors, QICs, and ALJs. The AdQIC is also to
                                        develop procedures, training, and data analysis for the
                                        QICs and CMS.

                                ii.     Part A QICs     –       First Coast (West Jurisdiction)
                                                                Maximus (East Jurisdiction)

                                iii.    Part B QIC      -       Q2 Administrators (South
                                                                First Coast (North Jurisdiction)

                                iv.     Part B DME      -       Rivertrust Solutions

                                v.      Part C          -       Maximus

                                vi.     Part D QIC      -        Maximus (both East
                                                                and West Jurisdictions)

                         f.     QICs are to be independent of carriers and intermediaries.

                2.       “Initial Determination.”

         An “initial determination” must exist to start the Medicare claims appeal process. To
obtain an initial determination, one must present a claim for reimbursement, except in cases of
expedited prior approval appeals for Parts A, C and D. The contractor’s decision on that claim is
the “initial determination.”1 A common form of “initial determination” is the Medicare Summary
Notice (“MSN”) (the new term for Explanation of Medical Benefits) or “Remittance Advice”
forms sent by the contractor to the beneficiary, supplier or provider in response to a claim
presented for reimbursement.

        42 C.F.R. § 405.920.

         It is important to ascertain whether the provider/supplier has received an appealable
“determination.” Sometimes, providers/suppliers receive a “consent settlement” demand, which
superficially looks like a denial of payment, but which is not an appealable determination.
Additionally, contractors also deny claims based on “technical” deficiencies in the paperwork
accompanying the reimbursement claim, i.e., missing paperwork, incorrect signatures, etc. Some
contractors may deem these “technical denials” as non-appealable on the basis that they represent
a fatally defective presentation of a claim.2

         Under the new incoming rules, an initial determination which is revised in a reopening by
the contractor is binding unless reversed in a redetermination appeal.3 This rule indicates that
appeals of claims reopened by post-payment audits would have to start at the first level
(redetermination) of the new appeal process. This new rule differs from the outgoing Part B rule
in which a post-payment reopening of a claim is appealable directly to the second level of appeal
(the fair hearing officer level).

                3.       First Level: Redetermination.

                         a.      Request for “redetermination” must be made within 120 days of
                                 the initial determination. Use CMS Form 20027 to file the
                                 request. This form is available at www.cms.hhs.gov/cmsforms/

                         b.      Redeterminations must be decided by the contractor within 60
                                 days of the filing of the appeal request, unless additional
                                 evidence is submitted after the filing of the appeal request. The
                                 decision deadline is extended fourteen (14) days for each such

                         c.      No right to escalate to next level if contractor does not issue
                                 decision within 60-day (as extended) time frame.5

                         d.      Stricter rules for content of appeal notice.6

                         e.      Contractor has more latitude to dismiss appeals for technical or
                                 procedural defects.7

                         f.      No hearing, but desk review must be conducted by a different
                                 individual than the one who made the initial determination.8

                4.       Second Level: Reconsideration.

                         a.      Request for a “reconsideration” hearing before a QIC must be
                                 made within 180 days of receipt of the redetermination. Use

        42 C.F.R. § 405.926(n).
        42 C.F.R. § 405.984.
        42 C.F.R. § 405.950(b)(3).
        Compare 42 C.F.R. § 405.950 with 42 C.F.R. § 405.970(d), (e).
        42 C.F.R.§ 405.944.
        42 C.F.R. § 405.952.
        42 C.F.R. § 405.948.

                                     CMS Form 20033 to file the request. The form is available at

                          b.         QICs should complete the appeal decision within 60 days (unless
                                     period extended by submission of new evidence) or appellant
                                     can, upon request, “escalate” to ALJ level.9 Risk to appellant of
                                     escalation is that the record may not be sufficiently developed.
                                     If appellant does not request escalation, then QIC is not required
                                     to issue the appeal decision within 60 days.

                          c.         No hearing at QIC level.

                          d.         All evidence required at QIC level. New evidence cannot be
                                     considered at subsequent levels of appeal, unless good cause is
                                     shown. Evidence may be presented to the QIC at any time
                                     before its decision.      Generally, each such submission
                                     automatically extends the QIC’s decision making period by
                                     fourteen (14) days.10

                          e.         On questions of medical necessity, the QIC must use panels of
                                     physicians or other “appropriate health care professionals.”11

                          f.         QIC may obtain evidence on its own.12

                          g.         QICs are not bound by LCDs, LMRPs or CMS program
                                     guidance, “such as program memoranda or manual instructions,
                                     but [must] give substantial deference to these… .”13

                          h.         No hearing; only on-the-record (“OTR”) review.14

                          i.         Two QICs have been handling reconsideration appeals from Part
                                     A providers since May 1, 2005. They are: Maximus, LLC
                                     (www.maximus.com) and First Coast Service Options, Inc.
                                     (www.fcso.com). Maximus has the “east jurisdiction” 15 and
                                     First Coast has the “west jurisdiction.”16

        42 C.F.R. § 405.970.
        42 C.F.R. § 405.966(a)(2).
        42 C.F.R. § 405.968(a).
        42 C.F.R. § 405.968(a).
        42 C.F.R. § 405.968(b).
        42 C.F.R. § 405.968(a).
        Maximus Federal Services
        QIC Part A East Project
        1040 First Ave., Ste. 400
        King of Prussia, PA 19406
Colorado, New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Florida,
Tennessee, South Carolina, North Carolina, Virginia, West Virginia, Puerto Rico, Virgin Islands, Maine,
Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New Jersey, New York, Delaware,
Maryland, Pennsylvania, and Washington DC.

                          j.       Two QICs also handle the reconsideration appeals (except for
                                   DME appeals) from Part B providers.             They are: Q2
                                   Administrators (www.q2a.com) and First Coast Service Options,
                                   Inc. (www.fcso.com).       Q2 Administrators has the “south
                                   jurisdiction” 17 and First Coast has the “north jurisdiction.”.18
                                   The RiverTrust Solutions QIC handles all DME appeals.19

                          k.       A QIC’s geographic jurisdiction should be specified in the notice
                                   of redetermination,20 but generally will be determined by the
                                   state where the good or service was supplied or provided. In the
                                   case of chain providers, the jurisdiction is with the QIC with
                                   responsibility for the state within which the provider’s
                                   intermediary (for the claim in question) is located. The

        First Coast Service Options
        Part A Reconsiderations
        PO Box 45029
        Jacksonville, FL 32232-5029
Washington, Idaho, Montana, North Dakota, South Dakota, Iowa, Missouri, Kansas, Nebraska, Wyoming,
Utah, Arizona, Nevada, California, Alaska, Hawaii, Oregon, Kentucky, Ohio, Indiana, Illinois, Minnesota,
Michigan, Wisconsin, Guam, Northern Mariana Islands, and American Samoa.

        Q2 Administrators
        Part B QIC South Operations
        P.O. Box 183092
        Columbus, Ohio 43218-3092
        Attn: Administration Manager
Colorado, Connecticut, New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee,
Alabama, Georgia, Florida, North Carolina, South Carolina, Virginia, West Virginia, Puerto Rico, Virgin

        First Coast Service Options, Inc.
        Part B Reconsiderations
        P.O. Box 45029
        Jacksonville, FL 32232-5029

Alaska, Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, District of Columbia, New York,
Pennsylvania, New Jersey, Delaware, Maryland, Ohio, Kentucky, Indiana, Illinois, Michigan, Wisconsin,
Minnesota, Missouri, Iowa, Kansas, Nebraska, South Dakota, North Dakota, Wyoming, Montana, Idaho,
Washington, Oregon, California, Nevada, Arizona, Utah, Hawaii, Guam, Northern Mariana Islands,
American Samoa.
        (All DME)

        RiverTrust Solutions
        801 Pine Street
        Chattanooga, TN 37402
        42 C.F.R. § 405.964(a).

     exception to the chain provider rule is that, for claims
     redetermined by Mutual of Omaha, jurisdiction resides in the
     QIC which covers the state where the good or service was

l.   The Administrative QIC (“AdQIC”) is responsible for
     developing operational procedures and protocols for the Part A
     and B QICs, data analysis for CMS and the QICs, training of
     QIC personnel, and serving as a liaison in case file distribution
     between the Office of Medicare Hearings and Appeals, the Part
     A and B QICs, and the Medicare fiscal intermediaries, carriers,
     Medicare administrative contractors, and the Medicare
     administrative contractors formerly called Durable Medical
     Equipment Regional Carriers (“DMERCs”).                  Contact
     information for the AdQIC is as follows:

     “AdQIC” (Mailing Address)       “AdQIC” (Courier Address)
     Q2Administrators, LLC           Q2Administrators, LLC
     AdQIC Operations                AdQIC Operations
     PO Box 100179                   3060 Alpine Road
     Mail Code AX – 353              Columbia, SC 29223
     Columbia, SC 29202

m.   Use CMS Form 20033 for filing appeals to QICs as published at

n.   The office with general oversight responsibility over QICs is:

             Centers for Beneficiary Choices
             Medicare Enrollment and Appeals Group
             Division of Appeals Operations
             7500 Security Blvd.
             Mail Stop C2-12-16
             Baltimore, MD 21244

     To resolve problems with QICs on procedural issues, direct
     inquiries to the QIC project officer in the CMS Division of
     Appeals Operations, who is:

             Jennifer Smith, Project Officer
             Maria Ramirez

                  5.      Third Level: ALJ Hearings.

                          a.       Amount in controversy must be at least $100, adjusted annually
                                   beginning in 2005 by the medical care component of the
                                   consumer price index for all urban consumers. The amount in
                                   controversy requirement can be met by aggregation of (i)
                                   individual claims each under $100 if the claims involved the
                                   delivery of similar or related services to the same individual or
                                   involved common issues of law and fact arising from services
                                   furnished to two or more individuals, (ii) two or more suppliers
                                   involving common issues of law or fact arising from services
                                   provided to multiple beneficiaries,21 and (iii) “shoe box” claims
                                   in which a single supplier can include adverse determinations of
                                   all types for multiple beneficiaries.22        Disputed amounts
                                   previously paid under “limitations of liability” can be included in
                                   calculating the amount in controversy.23

                                   As a practical matter, the techniques of aggregating claims are
                                   less important for the purposes of meeting the $100 amount in
                                   controversy requirement than they are for the purpose of
                                   assembling cases of sufficient size to warrant the considerable
                                   expense of bringing such appeals. “Aggregation” of claims
                                   differs from “consolidation” of claims. “Consolidation” of
                                   claims is a matter within the ALJ’s discretion.

                          b.       When:     within sixty (60) days of receipt of the QIC

                          c.       Specify exactly which determinations you are appealing. Avoid
                                   general appeal statements, such as, “I appeal the QIC’s
                                   decision.” Often, the QIC will decide some determinations in
                                   your favor, and some against you. You do not want to appeal the
                                   favorable determinations. If an ALJ indicates that he or she
                                   wants to re-open determinations which the QIC decided in your
                                   favor, remind the ALJ that (A) Medicare policy is that “It is not
                                   intended that the appeals procedure be used as a vehicle to audit
                                   favorable initial determinations to the detriment of the party that
                                   is appealing the denied portion of the claim”24 and (B) the
                                   regulations specify that it is the appellant who designates the
                                   specific claims to be aggregated for an appeal.25 However, if
                                   evidence is presented to the ALJ before or during the hearing
                                   which causes the ALJ to question a fully favorable
                                   determination, he or she may re-open and re-decide the fully

          Moore v. Sullivan, 785 F. Supp. 44 (S.D.N.Y. 1992), Medicare and Medicaid Guide (CCH) ¶
          See 42 C.F.R. § 405.1006(e).
          42 C.F.R. § 405.1006(d)(2).
          IOM 100-4, Medicare Claims Processing Manual, Ch. 29, § 40.4.1.B.
          42 C.F.R. § 405.1006.

                                  favorable determination.26 A dismissal by a QIC may be
                                  appealed to an ALJ, but to no higher level.

                          d.      How: by a writing clearly evidencing a request for an ALJ
                                  hearing on forms or with all information required on the
                                  prescribed DHHS forms. The prescribed form to request an ALJ
                                  appeal is Form CMS 20034A/B which may be found at
                                  www.cms.hhs.gov/cmsforms/downloads/cms20034ab.pdf. The
                                  request must be filed with the entity specified in the QIC’s
                                  reconsideration determination.27

                          e.      ALJs must decide the case within 90 days, or appellant may
                                  escalate to Medicare Appeals Council. The 90 days starts when
                                  the appeal request is received at OMHA; not when the record is
                                  received from the QIC.

                          f.      Appellant may waive 90 day deadline, and it may be wise to
                                  waive escalation in order to receive favorable consideration of
                                  “good cause” requests for new evidence, such as statistical
                                  expert witness testimony.

                          g.      QICs may participate in ALJ hearings “as required by the

                          h.      Four regional centers for DHHS ALJs. The DHHS Office of
                                  Medicare Hearings and Appeals (“OMHA”) administratively
                                  houses the ALJ function.

                                  i.       Mid-Atlantic Field Office28
                                           1700 North Moore St., Suite 1600
                                           Arlington, VA 22209
                                           (866) 231-3087

                                  ii.      Southern Field Office29
                                           100 S.E. 2nd Street, Suite 1700
                                           Miami, FL 33131-2100
                                           (866) 622-0382

         42. C.F.R. § 405.1000(d).
         42 C.F.R. § 405.1014(b).
         The Mid-Atlantic Field Office covers Maryland, Virginia and the District of Columbia and
provides overflow capacity to process appeals from any of the other three offices.
        Jurisdiction      HHS Region 4     HHS Region 6
                          Alabama          Arkansas
                          Florida          Louisiana
                          Georgia          New Mexico
                          Kentucky         Oklahoma
                          Mississippi      Texas
                          North Carolina
                          South Carolina

                                iii.    Mid-West Field Office30
                                        BP Tower, Suite 1300
                                        200 Public Square
                                        Cleveland, OH 44114-2316
                                        (866) 236-5089

                                iv.     Western Field Office31
                                        27 Technology Drive, Suite 100
                                        Irvine, CA 92618-2364
                                        (866) 495-7414

                      i.        Videoconference hearings.

                                -       Inperson appearance of right only for appellant, if
                                        approved by presiding ALJ at the Center
                                -       To increase odds of receiving an inperson hearing,
                                        consider offering to present the case in person before the
                                        ALJ at his or her regional center. Such an offer should
                                        remove DHHS’s hesitancy to have inperson ALJ
                                        hearings because of government travel costs.

                      j.        New evidence admitted only for good cause.

                                -       Exceptions: oral testimony at the hearing; CMS; or
                                        unrepresented beneficiaries.

                      k.        Discovery available, if CMS enters as a party.32

                      l.        Tip: Seek inperson hearing (be prepared to travel to ALJ regional
                                hearing center).

     Jurisdiction:    HHS Region 1      HHS Region 2     HHS Region 3    HHS Region 5
                      Connecticut       New York         Delaware        Illinois
                      Maine             New Jersey       Pennsylvania    Indiana
                      Massachusetts     Puerto Rico      West Virginia   Ohio
                      New Hampshire     Virgin Islands                   Michigan
                      Rhode Island                                       Minnesota
                      Vermont                                            Wisconsin
     Jurisdiction:    HHS Region 7      HHS Region 8     HHS Region 9 HHS Region 10
                      Iowa              Colorado         Arizona            Alaska
                      Kansas            Montana          California         Idaho
                      Missouri          North Dakota     Hawaii             Oregon
                      Nebraska          South Dakota     Nevada             Washington
                                        Utah             Guam
                                        Wyoming          Trust Territory of
                                                         the Pacific
                                                         American Samoa
     42 C.F.R. § 405.1037(a).

                     m.      Tip: Specify if there is a dire need for earlier scheduling of the

                     n.      Tip: Examine, and if possible obtain a copy of, the ALJ’s copy
                             of the Record.33

                     o.      Tip: Request a prehearing conference.34 There is not a right to a
                             prehearing conference, but ALJs can be expected to grant them
                             because they are usually very helpful to the ALJ in managing the
                             adjudication of the appeal. A prehearing conference may present
                             an opportunity to meet the ALJ’s attorney advisor and support
                             staff, who can be very helpful in the smooth handling of
                             problems which may arise. The topics which can be covered
                             include, but are not limited to:

                             1.      Witnesses

                                     a)        Will ALJ have his/her own witness(es)
                                     b)        Expert witnesses.
                                     c)        Remote testimony of witnesses.
                                     d)        Use of affidavits in lieu of live testimony.
                                     e)        What role will QIC play?

                             2.      Parties

                                     a)        Is CMS intervening as a party?
                                     b)        Will CMS be filing briefs as an “intervening”

                             3.      Documents.

                                     a)        Review the record.
                                     b)        Arrange copying of the record.

                             4.      Stipulations/Issues/Discovery Needs.

                                     a)        Discuss possible stipulations.
                                     b)        Offer to prepare prehearing briefs on critical
                                               issues and pertinent law.
                                     c)        Discuss discovery needs, subpoenas, etc.
                                     d)        Determine what will help the ALJ handle the

                             5.      Determination of place and time of the hearing.

                             6.      Hearing Planning.

                                     a)        Estimate length of hearing.

     42 C.F.R. § 405.1042.
     42 C.F.R. § 405.1040.

                                     b)      Order of presentation.
                                     c)      Discuss types of exhibits (especially if other
                                             than paper exhibits).
                                     d)      Discuss any complications in a “big box” appeal
                                             (namely, an appeal with voluminous records).

                             7.      Obtain permission to use a court reporter (as unofficial

                             8.      Videoconferencing arrangements.

                                     a)      Coordinating and obtaining approval of location,
                                             equipment and VTC technicians.
                                     b)      Coordination of document numbering and
                                             indexing for coordinated remote referencing of
                                     c)      Coordination of exhibit marking system.
                                     d)      Determine system for handling non-paper
                                             exhibits, PowerPoint presentations, physical
                                             evidence, videos, etc.
                                     e)      Obtain firewall access authorizations and pretest
                                             of electronic measures.

                     p.      There are only approximately 80 DHHS ALJs, so their
                             individual workloads will be very heavy. Do everything you can
                             to make it easy for the ALJ to decide your case. For example,
                             specify in the appeal request or in a prehearing brief the issues
                             involved, an explanation of the relevant law, and a summary of
                             the evidence.

                     q.      ALJs may remand a case to the QIC for certain reasons,
                             including where “the written record is missing information that
                             is essential to resolving the issues on appeal and that information
                             can only be provided by CMS or its contractors… .”35

                     r.      ALJs have subpoena power.36

                     s.      Tip: Be proactive on transfer of appeal records. Don’t assume
                             that they will be transferred in complete or accurate form or

             6.      Fourth Level: Medicare Appeals Council.

                     a.      When: within sixty (60) days of receipt of notice of ALJ

     42 C.F.R. § 405.1034.
     42 C.F.R. § 405.1036.
     42 C.F.R. § 405.1102.

                      b.        How: by a writing clearly evidencing desire for a Medicare
                                Appeals Council review and otherwise complying with 42
                                C.F.R. §405.1112 or by Form DAB 520. Time sensitive appeals
                                may be faxed. On urgent matters call the Operations Director to
                                arrange expedited handling of the appeal after it is filed. Forms
                                are available at www.hhs.gov/dab. In the appeal petition,
                                reference both the ALJ docket number and the individual
                                Medicare health insurance numbers of the beneficiaries whose
                                claims are being appealed. Also reference the date of the ALJ
                                decision, the original carrier, intermediary and type of
                                claim/service being appealed. With the request for appeal, you
                                should submit all documents or other supporting evidence which
                                you wish to be considered, although as a practical matter
                                additional information may not be available for submission until
                                later with subsequent briefs or motions. At a minimum, include
                                the ALJ decision and its attachments, if any. In voluminous
                                filings, point out or highlight pertinent points and information to
                                assist the Medicare Appeals Council personnel in organizing the
                                case for consideration by the judges.

                      c.        If the ALJ has ruled favorably for you on a substantial number of
                                determinations under appeal, think carefully about whether you
                                want to risk reversal of those favorable determinations by
                                appealing to the Appeals Council. The reason for this risk is that
                                the Appeals Council is authorized to review de novo all elements
                                of the ALJ’s decision.38 While the Appeals Council can review
                                all determinations, the practice of the Appeals Council is not to
                                open all issues but is to focus on the issues specified by the

                      d.        The Medicare Appeals Council was formerly a part of the Social
                                Security Appeals Council, but several years ago was
                                consolidated with the DHHS Departmental Appeals Board
                                (“DAB”). The contact information for the Medicare Appeals
                                Council is:

                                        Department of Health and Human Services
                                        Departmental Appeals Board
                                        Medicare Appeals Council, M.S. 6127
                                        Cohen Building – Room G-644
                                        330 Independence Ave., S.W.
                                        Washington, D.C. 20201

                                        Phone: (202) 565-0100
                                        Fax: (202) 565-0227

                      e.        The Medicare Appeals Council rules of procedure are set forth at
                                42 C.F.R. § 405.1100, et seq.

     42 C.F.R. § 405.1108(a).

                      f.        Upon proper request, the Medicare Appeals Council will allow
                                you to file briefs and other written statements.39

                      g.        The Medicare Appeals Council may initiate a review of an ALJ
                                decision on its “own motion” within sixty (60) days of the date
                                of the ALJ decision. CMS or its contractors can refer a case to
                                the Medicare Appeals Council for consideration of “own
                                motion” review, particularly if CMS or its contractor participated
                                in the ALJ hearing.40

                      h.        The Medicare Appeals Council must implement its “own
                                motion” review within the sixty (60) days -- this time period
                                cannot be extended. The Medicare Appeals Council must file
                                the notice of acceptance of the own motion review on or before
                                the sixtieth (60th) day.

                      i.        If the sixty (60) days ends on a holiday or weekend, then the last
                                working day before the sixtieth day becomes the final day to
                                accept review.

                      j.        The Medicare Appeals Council usually limits its Own Motion
                                Review of the record to (i) error material to the decision,
                                (ii) abuse of discretion, (iii) conclusions not supported by the
                                preponderance of the evidence, and (iv) issues of broad public
                                policy.41 Review is usually on the record, although in certain
                                circumstances, new material evidence may be submitted.42 A
                                party to the appeal can file briefs.43 Usually, the Medicare
                                Appeals Council does not grant a hearing, but it has the
                                discretion to grant a hearing.44

                      k.        The Medicare Appeals Council may remand a case to the ALJ
                                for further consideration or action. One common cause for
                                remand is the absence from the record of the official audiotape
                                (and videotape) of the ALJ hearing. Follow-up promptly with
                                the ALJ’s office to make sure the audiotape (and videotape) does
                                not become lost and is included in the record when the ALJ’s
                                office sends the record to the Medicare Appeals Council. Also,
                                if a federal court has remanded a case to the Medicare Appeals
                                Council for further evidence, the Medicare Appeals Council will
                                likely further remand such a case to the ALJ.

     42 C.F.R. § 1120.
     42 C.F.R. § 405.1110.
     42 C.F.R. § 405.1110(c).
     42 C.F.R. § 405.1122.
     42 C.F.R. § 405.1120.
     42 C.F.R. § 405.1124.

                      l.       Even if the Medicare Appeals Council does not accept a case for
                               “own motion” review, it has (i) 180 days to re-open the case for
                               good cause, and (ii) no time limit to re-open the case for fraud.45

                      m.       CMS claims it can also ask the Medicare Appeals Council to re-
                               open a decision after the sixty (60) days has expired. The
                               Medicare Appeals Council’s reopening of ALJ decisions in
                               response to a CMS request has been attacked in court with
                               differing results. One court has held that only claimant’s
                               requests for reopening can be honored.46 Another court has
                               allowed reopenings contrary to claimant’s desires.47

                      n.       See www.hhs.gov/dab/macdecision for selected decisions of the
                               Medicare Appeals Council.

                      o.       Medicare Appeals Council must decide within 90 days, unless
                               the appeal has been escalated from the ALJ level.

                      p.       If the Medicare Appeal Council fails to decide within 90 days (or
                               as appropriately extended), then appellant can escalate to federal
                               court review.

                      q.       Appellants may waive the 90 day deadline.

                      r.       Oral argument may be allowed in special cases.

                      s.       Standard of review is de novo.48

             7.       Fifth Level: Federal Court.

                      a.       When: within sixty (60) days of Medicare Appeals Council’s

                      b.       $1,000 minimum amount in controversy (“AIC”) (adjusted
                               annually for inflation, beginning in 2005). The 2005 AIC is

                      c.       Where: file complaint in district where supplier/provider is
                               located or in Washington, D.C.

                      d.       Defendant: the Secretary of HHS.
                               - adversarial process

                      e.       Substantial evidence rule as to findings of fact,50 if not otherwise
                               arbitrary, capricious or an abuse of discretion.51

     42 C.F.R. § 405.980(d)(3).
     See, e.g., McCuin v. Bowen, 817 F.2d 161 (1st Cir. 1987).
     See, e.g., Fox v. Bowen, 835 F.2d 1159 (6th Cir. 1987).
     42 C.F.R. § 405.1108(a).
     42 U.S.C. § 405(g).

                          f.       Government motions for remand are likely under 42 U.S.C.
                                   § 405(g), which provides two (2) remand procedures: a
                                   “Sentence 4” remand and a “Sentence 6” remand. These
                                   colloquial terms refer, respectively, to the fourth and sixth
                                   sentences of 42 U.S.C. § 405(g). Under “Sentence 4,” the court
                                   retains jurisdiction and essentially decides the case, although the
                                   formal outcome may be a remand for implementation of the
                                   court’s decision. In contrast, under a “Sentence 6” remand, the
                                   court relinquishes jurisdiction so that the merits of the case (most
                                   likely based on additional evidence) are decided on remand by
                                   the Medicare Appeals Council or, most likely, by the ALJ to
                                   whom the Medicare Appeals Council will likely further remand
                                   the case when it returns from federal court.

                          g.       Expect inadequately developed cases to be remanded.


      A. Challenge to Regulations, Instructions and Methods.

                 1.       Limited Authority of the Medicare Intermediaries Manual, Medicare
                          Carriers Manual and Medicare Coverage Issues Manual.

         Contractors often will rely on provisions from the Medicare Intermediaries Manual,
Medicare Carrier Manual and the Medicare Coverage Issues Manual as legal authority for their
actions in connection with the post-payment audits. Some question exists, however, as to
whether or how these Manuals are binding on suppliers. Regardless of whether they are binding
on suppliers, the Manuals may be important evidence of what the suppliers knew or should have
known about a particular Medicare coverage instruction or other policy. Such knowledge may
determine whether a supplier can avail itself of the “limitation of liability” or “without fault”
defenses. Because the Manuals are binding on the contractors in their relations with CMS,
contractors take the position that the Manuals bind suppliers. While the Manuals may be
persuasive, at least two courts have held that suppliers cannot be held accountable under Carriers
Manual provisions.52 Also, ALJ’s are not bound by the Manuals,53 although ALJs must give the
Manuals substantial deference.54

         42 U.S.C. § 405(g)
         5 U.S.C. § 706(2)(A).
         Physicians and Surgeons Laboratories, Inc. d/b/a Physicians Reference Laboratory v. Bowen, No.
C87-112A (N.D. Ga., February 12, 1987), Medicare and Medicaid Guide (CCH) ¶ 36,680; Glick v.
Secretary of HHS, 714 F. Supp. 39 (D. Mass. 1989).
         See, Schweiker v. Hansen, 450 U.S. 785, 789 (1981) (Social Security Claims Manual is not a
regulation and is not binding as a matter of law); Shalala v. Gurnsey Memorial Hospital, 514 U.S. 87, 99
(1995) (HHS Manuals are not accorded like force and effect of law in adjudicatory proceedings); In Home
Health, Inc. v. Shalala, 188 F.3d 1043, 1046 (8th Cir. 1999); Christensen v. Harris County, 529 U.S. 576,
587 (agency opinion letter interpreting Fair Labor Standards Act was not binding law, nor are agency
policy statements, enforcement guidelines or manuals).
         42 C.F.R. § 405.1062.

                 2.       Contemporaneous Records.

         Contractors have in some cases attempted to impose a requirement that suppliers rebut
contractor “medical necessity” determinations only through the use of records created
contemporaneously with the furnishing of the services or goods to the beneficiary. There is no
statutory basis for requiring this standard. Often records of claims involved in post-payment
audits were prepared years ago before suppliers could have known of current carrier expectations
of explanatory documentation. While records should never be altered, additional narrative
explanation from the physician’s or other supplier’s personal knowledge and memory should be
admissible evidence. The QIC and ALJ can assess its credibility.

     B. Judicial Challenges.

         On the basis of general federal question jurisdiction, the United States Supreme Court
extended limited federal court jurisdiction to Part B appeals in Bowen v. Michigan Academy of
Family Physicians55. This decision, however, limited judicial review to the issue of the method
under which payment and payment amounts are determined, but did not extend judicial review to
the amount of reimbursement payable to the physician. Michigan Academy thereby provided a
limited right of judicial review of claims for services arising prior to January 1, 1987. The
Supreme Court’s recent decision in Shalala v. Illinois Council on Long Term Care, Inc.56 has
apparently severely limited the Michigan Academy holding. Illinois Council requires a
“channeling” of virtually all legal attacks through the Medicare administrative appeal processes
before federal judicial review would be available.

         For medical services and goods furnished on or after January 1, 1987, the amendment to
Social Security Act § 1869(b) (42 U.S.C. § 1395ff) extends judicial review to disputes under Part
B under basically the same conditions as Part A. However, some issues are not reviewable under
the Section 1869(b) review processes (such as “national coverage issues”), so judicially-created
rights of appeal are still important.

         With varying results, CMS has resisted supplier efforts to reach federal court by arguing
that the suppliers’ cases were challenges to payment determinations rather than to the validity of
CMS’s methodology and the Carriers Manual and instructions.57

         Prior to Illinois Council, supra, some thought that National Kidney Patients Association
v. Sullivan58 might weaken CMS’s ability to resist judicial challenges because the decision blurs
the Michigan Academy distinction between challenges to methods and challenges to payment
computation. Farkas v. Blue Cross-Blue Shield of Michigan59 held that the 1986 amendments

          476 U.S. 667, 106 S. Ct. 2133 (1986).
          120 S. Ct. 1084, 520 U.S. 1, 2000 WL 223551 (U.S.) (Feb. 29, 2000).
          See Colorado Clinical Labs v. Sullivan, No. 383-89-1834-d (N.D. Tex. May 24, 1990) (rejecting
federal question jurisdiction to review alleged carrier methodology for computing fees); Medical
Rehabilitation Services v. Bowen, No. 86-CV-73056-DT (E.D. Mich. May 3, 1990) (refusing to recognize
jurisdiction for review of carrier’s method of auditing physical therapy records); American Ambulance
Service of Pennsylvania v. Sullivan, No. 89-1582 (3d Cir. August 14, 1990), Medicare and Medicaid Guide
(CCH) ¶ 38,660, rev’g, 716 F. Supp. 861 (E.D. Pa. 1989) (found jurisdiction and remanded to the district
court because the provider “presented colorable challenges to the method by which the Medicare Part B
reimbursement decisions. . . are made”).
          958 F.2d 1127, Medicare and Medicaid Guide (CCH) ¶ 40,057, (D.C. Cir. 1992).
          802 F.Supp. 87 (E.D. Mich. 1993) aff’d, 24 F.3d 853, Medicare and Medicaid Guide (CCH)
¶ 40,950 (6th Cir. 1994).

wiped out the payment/method distinction of Michigan Academy so that all claims in the Sixth
Circuit would have to be reviewed pursuant to the five part appeal process. However, prior to
Illinois Council, supra, the Michigan Academy doctrine still held sway in the First Circuit, as
evidenced in the trial court’s opinion in Warder, et al. v. Shalala, et al.60, which allowed
beneficiaries and suppliers to present claims directly in federal court in connection with a
challenge to the validity of CMS Ruling 96-1 (which would have re-classified items thought by
suppliers to be orthotics (which are reimbursable for nursing home residents) to DME (which is
not reimbursable under Part B if provided in a nursing home).

     C. “Consent Settlement” Demands and Agreements.

         In some cases of post-payment audits, the carrier will notify the supplier that the carrier
has performed a pilot audit of a sample of the supplier’s claims and projected a potential
overpayment based on several years of claims. The carrier may offer the provider three options:
(1) repay the projected overpayment and execute a consent settlement, (2) provide further
information and documentation to rebut the disallowances found in the sample, or (3) proceed to
a further “statistically valid” sample audit and projection of the detected overpayment rate to a
supplier’s past claims. Under CMS’s instructions, the carrier is to project the detected error rate
only to the universe of claims from which the audit sample was drawn. Also, under CMS’s
instructions, the carriers are not supposed to be coercive in consent settlement procedures. For
example, a carrier should not threaten the supplier with doing a statistically valid audit of a larger
universe (namely, more years of claims) than the consent settlement sample universe, if the
supplier does not agree to the consent settlement.

        The consent settlement procedure set forth in the Carriers Manual is patterned for
suspected overutilization of procedures by physicians.61 CMS has informally instructed carriers
on how to conduct consent settlement procedures for other suppliers.

        Because a consent settlement proposition does not involve a “determination” and because
the consent settlement process is not established expressly by regulation, there is no authority for
CMS or the carrier to collect the projected overpayment in a “consent settlement” procedure, if
the supplier does not agree to a settlement. Generally, however, it is best to find a way to settle
consent settlement allegations to avoid forcing the carrier to take more aggressive steps under
harsher procedures.

        Although consent settlement demands are not determinations, file an appeal request to
preserve appeal rights to guard against attempts to recharacterize the demands as determinations.

          Extreme care should be taken in reviewing or drafting the final settlement or consent
agreement. Regard consent settlement forms sent by the carrier with great caution. Generally,
the first draft from the carrier will provide little protection to the supplier. Redraft the settlement
agreement to indicate that, among other things, settlement is being made of a disputed claim
without admission of the validity of the disallowance of the sampling or other methodologies
used by the carrier. It is important that no adverse admissions be made, particularly since the
matter may be reviewed by CMS or the OIG for other purposes.

         Civil Action No. 97-10424-MEL, 1997 WL 263733, 65 USLW 2799, Medicare and Medicaid
Guide (CCH) 1997-1 Transfer Binder ¶ 45,268 (D. Mass. May 7, 1997), rev.’d on other grounds 149 F.3d
73, 57 Soc. Sec. Rep. Serv. 847 (1st Cir. 1998).
         See MCM § 7158.

        Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of
2003 provides a number of reforms to be observed by CMS and its contractors in implementing
the consent settlement procedure.

     D. Repetitive Denials After “Non-Precidential” Determinations.

         The concept of administrative regularity may be invoked in situations where a Medicare
carrier or intermediary continues to deny claims on the same issue in which a provider has
repeatedly prevailed in administrative proceedings. In these situations, the contractor typically
justifies such repetitive denials on the basis that prior administrative appeal decisions are not
binding precedent.

        Even though such administrative decisions are not precedental like judicial opinions are,
an agency may still be required to follow prior decisions made on its behalf by an appeal entity
(QIC, ALJ or MAC). To the extent that the appeal entity’s decision becomes that of the agency,
then there is room to argue, as was recognized in the St. Francis case involving the CMS
Administrator, that:

                  The Administrator’s departure from his earlier opinions cannot
                  be permitted. “It is an elementary tenet of administrative law
                  that the agency must either conform to its own precedent or
                  explain its departure from them.” [Citing International Union v.
                  NLRB, 459 F.2d 1329 (D.C. Cir. 1972).] 62

         Cases involving estoppel similarly suggest that there should be a limit to the carrier or
intermediary repetitively denying claims where the issues at stake have been resolved against the
carrier or intermediary in prior administrative adjudications.63 See also Dewall Enterprises v.
Thompson64, where the court held that the Secretary owed the DME claimant a non-discretionary duty to
apply the rulings in earlier administrative appeals to later claims involving the identical claimant, identical
device and identical regulation.65

     E. Exhaustion of Administrative Remedies Not Required for Government
        Overpayment Recovery Efforts.

        Although providers and suppliers almost always have to exhaust administrative remedies
through the administrative appeals process for relief on disputed Medicare claim denials, the First
Circuit holds that the exhaustion requirement does not apply to the federal government when it
seeks to recover alleged Medicare overpayments. In U.S. v. Lahey Clinic Hospital, Inc.66, the
United States sued in federal district court under 28 U.S.C. §1345 to assert common law causes of

         St. Francis Community Hospital v. Schweiker, [1984-2 Transfer Binder] Medicare and Medicaid
Guide (CCH) ¶34,156 at page 10,188 (D.S.C., Civil Case No. 82-97-3, March 10, 1983), aff’d, No. 83-
1303 (4th Cir., Jan. 17, 1984).
         See United States v. Utah Constr. & Mining Co., 384 U.S. 394, 422, 86 S.Ct. 1545 (1966); Ingalls
Shipbuilding v. United States, 21 Cl.Ct. 117 (1990). See also Stern v. Shalala, 14 F.3d 148 (2d Cir. 1994),
cert denied, 516 U.S. 821, 116 S.Ct. 82 (1995). (“Petitioner presents a substantial argument that the
imposition of penalties based on a finding of scienter is barred by the collateral estoppel effect of the prior
administrative determination that there was a ‘legitimate difference of opinion’ whether Stern’s services
were reimbursable.”)
         206 F.Supp.2d 992 (D. Neb. 2002).
         See also Gessler v. Dept. of Business and Prof. Reg., 627 So.2d 501, 504 (Fla. 4th DCA, 1993).
         399 F.3d 1 (1st Cir. 2005), cert. denied 126 S.Ct. 339 (2005).

action for recovery. The provider defended on the grounds, among others, that the court lacked
jurisdiction because the government had failed to invoke and exhaust administrative remedies,
such as claim reopening and denial which would trigger administrative appeal remedies. The
First Circuit held that the federal court had jurisdiction because federal statutes did not limit the
government’s recourses to the Medicare administrative reopening and appeal processes.

    F. Asking CMS and DHHS for Help

       Procedural difficulties sometimes arise, particularly at the QIC reconsideration level,
through misinterpretations or unnecessary inflexibilities by staff. Often these practices are
unknown to CMS or DHHS. Many times, if the matter cannot be resolved with supervisors at the
QIC, relief is for the asking by contacting CMS. The office with general oversight responsibility
over QICs is:

                                  Centers for Beneficiary Choices
                                  Medicare Enrollment and Appeals Group
                                  Division of Appeals Operations
                                  7500 Security Blvd.
                                  Mail Stop C2-12-16
                                  Baltimore, MD 21244

         To resolve problems with QICs on procedural issues, direct inquiries to the QIC project
officer in the CMS Division of Appeals Operations, who is:

                                  Jennifer Smith, Project Officer
                                  Maria Ramirez

         In our experience, the DHHS Medicare ALJs are skilled in the reasonable exercise of
discretion to accommodate solutions to procedural and administrative needs or problems in the
ALJ appeal level. Intractable administrative or procedural problems with unreasonable ALJ or
other personnel in ALJ appeal centers may be brought to the attention of David Cade, Esq.,
DHHS Office of General Counsel, Washington, D.C.

    G. Sampling and Extrapolation Claims.

         Carriers conduct post-payment audits by reviewing a sample of patient files from a multi-
year period. The rate of overpayment found in the sample will then be projected (“extrapolated”)
on all claims submitted during the period in question to estimate an alleged overpayment. Many
times, this sampling and extrapolation technique generates recoupment demands against the
provider in the hundreds of thousands of dollars.

        The authority of the carriers to use a “sampling” technique as the basis upon which to
extrapolate a universal overpayment has usually been upheld by the courts.67

        For challenging denials (especially Part B claims) arising from audits conducted prior to
January 8, 2001, use CMS’ “minimum standards” detailed in the “Sampling Guidelines
Appendix” found in the Medicare Carriers Manual, Part B, Part 3, Claims Processing. These
standards are further indicated in CMS Ruling 86-1 (“CMSR 86-1”) and in cases (such as Chaves
County, supra) ruling on sufficiency of statistical procedures.68

         For audits conducted after January 8, 2001, the carrier or intermediary is to meet the
statistical procedure standards set forth in CMS’s January 8, 2001 Program Memorandum as
updated in CMS Pub. 60B, Transmittal B-03-022 (www.cms.hhs.gov/Transmittals/
Downloads/B03022.pdf). The Program Memorandum is less specific than the Sampling
Guidelines Appendix, but ALJs have been known to continue to refer to the Sampling Guidelines
Appendix for illustrations of specific reasonable standards by which to apply the Program
Memorandum’s more general guidance.

        The Sampling Guidelines Appendix provides that a number of criteria must be met in
order for intermediaries and carriers to use statistical sampling.

        -        The sampling and extrapolation methodologies must be sufficiently disclosed to
                 allow verification of the statistical sufficiency of those methodologies as applied
                 to the supplier;

        -        There must be a statistically valid random sample, which is representative of a
                 proper universe of claims and with a degree of confidence that is fair to both the
                 supplier and the contractor; and

        -        Complete readjudication of all claims must be excessively costly or

         Despite guidance in the Sampling Guidelines Appendix and the Program Memorandum,
applicable case law, and CMSR 86-1, carriers may fail to meet the “minimum standards” for
“statistically valid” sampling and extrapolation. Such failure may violate due process. For
example, carriers often neglect to project underpayments along with overpayments (“two-tailed
testing”), remove aberrantly small or large claims (“outliers”) from the sample, test samples for
degree of representativeness of the universe, or statistical confidence levels or margins of error.
Challenging the carrier’s methodology may, therefore, be a very effective defense to the carrier’s
overpayment demand.69 It is important to obtain the assistance of an expert statistician.

          United States v. Lahey Clinic Hosp., 399 F.3d 1 (1st Cir. 2005); Chaves County Home Health
Services v. Sullivan, 931 F.2d 914, Medicare and Medicaid Guide (CCH) ¶ 39,181, (D.C. Cir. 1991, cert.
denied, 502 U.S. 1091, 112 S.Ct. 1160, 117 L.Ed. 408 (1992); Ratanasen v. Calif. Department Health
Services, 11 F.3d 1467, Medicare and Medicaid Guide (CCH) § 42,040, (9th Cir. 1993); see, e.g. Mile
High Therapy Centers, Inc. v. Bowen, 735 F.Supp. 984, Medicare and Medicaid Guide (CCH) ¶ 37,180 (D.
Colo 1988); Illinois Physicians Union v. Miller, 675 F.2d 151, Medicare and Medicaid Guide (CCH)
¶ 37,895, (7th Cir. 1982); Glick v. Secretary of HHS, 714 F.Supp. 39 (D. Mass. 1989).
          See also Medicare Intermediary Manual § 2229 and the Program Integrity Manual, IOM 100-08,
Chapter 3, Section 10, on postpayment review of claims for guidelines on sampling.
          See, e.g., Daytona Beach General Hospital, Inc. v. Weinberger, 435 F.Supp. 891, Medicare and
Medicaid Guide (CCH) ¶ 28,619 (M.D. Fla. 1977) (finding sampling method whereby less than ten percent
of the total cases were used denied plaintiff due process).

         If the carrier fails to adhere to the “minimum standards” set forth in the Sampling
Guidelines Appendix or the Program Memorandum, as applicable, then the entire extrapolated
portion of the alleged overpayment may be set aside as a violation of due process.70 Additionally,
the carrier’s statistical methods must be consistent with what are known as “generally accepted
statistical procedures” (“GASP”), especially given the lack of specificity in the Program

       If each claim is for a large sum, the Sampling Guidelines Appendix recommends review
of 100% of the claims.

          If the number of claims is “small” or 100% review is “manageable,” then you may argue
that full review (rather than sampling and extrapolation) should be used because “small” and
“manageable” are not defined in the Sampling Guidelines Appendix. Note also that there are
special statistical tests to be applied to small samples to determine the “degree of confidence” that
such sample is representative of the universe of such claims. If the carrier or intermediary fails to
apply such special statistical tests, then the sample may be invalidated for statistical insufficiency
or violation of due process.

        Appellants can challenge the validity of the sampling methodology used to determine an
overpayment beginning at the redetermination level of appeal. If an appellant does so, CMS has
issued specific instructions to contractors in the form of Transmittal 1457
(www.cms.hhs.gov/transmittals/downloads/R1457CP.pdf). Transmittal 1457, which updates the
Medicare Claims Processing Manual, requires that contractors review the statistical sampling
used to extrapolate the overpayment and determine whether the amount of overpayment was
correctly calculated and extrapolated in all cases in which an appellant challenges the sampling
methodology used to calculate an overpayment.

          To defend against sampling and extrapolation procedures, focus first on defending the
cases selected in the sample to prove that reimbursement should be paid as claimed by the
supplier. Focus second on obtaining documentation of the statistical procedures used in your case
by the contractor. Compare those documented procedures against the minimum standards
required by the Sampling Guidelines Appendix, the Program Memorandum, and GASP. Be
prepared to challenge the sample selection and the statistical techniques used. Consult an expert
statistician to determine (a) whether GASP was followed; (b) the probability that the contractor
actually performed the statistical procedures which the contractors’ proffered methodology
documentation indicates was used; and (c) the sufficiency of the statistically determined “degree
of confidence” (namely, error rate) in the contractor’s methodology. Retain a forensic statistical
expert witness for the hearing.

           Physicians’ Affiliated Services, Inc., DAB Medicare Appeals Council, Docket No. 000-45-1313
(1997) (extrapolation invalid where carrier failed to document sufficiently the statistical sampling
methodology or justify the “universe” used to select the sample); Morrow Skin Clinic and David M.
Morrow, M.D., Inc., Social Security Administration (“SSA”) Office of Hearings and Appeals, (ALJ
decision) Docket No. 000-90-0338 (December 20, 1994) (extrapolation invalid where minimum standards
for statistical techniques in Sampling Guidelines Appendix were not followed, sample size was inadequate,
no estimate of precision [“degree of confidence”] was documented, and sample stratification was invalid
and disproportionate); Clinical Lab Works, Inc., SSA Office of Hearings and Appeals, (ALJ decision)
Docket No. 000-46-0129 (January 9, 1998) (extrapolation invalid where there was insufficient “degree of
confidence” because of an estimated coefficient of variation (“the degree of error”) of approximately thirty
(30%) percent).

        For a more comprehensive discussion of sampling in the context of Medicare appeals, see
Perling and Intriligator, Statistical Sampling in the Medicare Program: Challenging Its Use,
American Health Lawyers Association (2001).

         Section 935 of the Medicare Prescription Drug, Improvement and Modernization Act of
2003 limits the use of statistical sampling and extrapolation by providing that contractors may
only use extrapolation to determine overpayment amounts where the Secretary had made a
determination that “a high level of payment error” exists or that “documented educational
intervention has failed to correct the payment error.” A high level of payment error can be
indicated through a variety of means, including (a) error rate determinations; (b) probe samples;
(c) data analysis; (d) provider/supplier history; (e) information from law enforcement
investigations; (f) allegations of wrongdoing by current or former employees of a provider or
supplier; and (g) audits or evaluations conducted by the OIG.71 Determinations by the Secretary
that a high level of payment error exists are not considered initial determination, and therefore,
are not appealable.72

     H. Stay of Recoupment

         Section 935(f)(2) of the Medicare Modernization Act (“MMA”) requires that recoupment
of an alleged overpayment is to cease or not be commenced after a request for “reconsideration”
has been initiated.

        CMS has published proposed regulations to set forth this principle and other
comprehensive instructions and interpretations regarding the stay of recoupment required by
MMA.73 These proposed rules also provide for CMS’s payment of interest on recouped monies
in cases where the denied claims are reversed at the ALJ and higher appeal levels. In the proposed
regulation, CMS recognizes that although the MMA provides for the cessation of recoupment
during a “reconsideration,” Congress actually intended that recoupment is to cease upon the filing
of a request for redetermination and not be commenced until the date a reconsideration is

         Though a final rule has not yet been issued, CMS has currently implemented this
provision allowing for the cessation of recoupment during the first two levels of the appeals
process, but only for overpayments appealed under Medicare Part B. A case challenging CMS’s
failure to implement Section 935(f)(2) in the context of Medicare Part A claims is currently
pending in the Southern District of Florida. The complaint is attached as Attachment A. After
that complaint was filed, CMS issued new instructions, which were scheduled to become
effective in July 2008, providing for the cessation of recoupment proceedings until the issuance
of a reconsideration for claims under Part A. These instructions are attached as Attachment B.

         More recently, CMS issued additional and more specific instructions to further
implement Section 935’s changes to the recoupment process for Medicare provider and supplier
overpayments under both Medicare Part A and Part B. These instructions are attached as
Attachment C. In them, CMS clarifies that although a provider generally has 120 days from the
date of the demand letter to request a redetermination, filing within that time period will not

        Program Integrity Manual, IOM 100-08, Chapter 3, Section 10.1.4.
        42 C.F.R. § 405.926(p).
        71 Fed. Reg. 55404 (September 22, 2006).
        Id. at 55407.

necessarily stop recoupment from starting; it will only prevent any further recoupment. To
prevent CMS from initiating the recoupment process, a redetermination must be requested within
30 days from the date of the demand letter. If an appeal is not filed within 30 days, recoupment
can begin on day 41 and any amount recouped is retained until final determination.

                 A similar requirement applies in order to prevent the initiation of recoupment at
the reconsideration phase. If a redetermination produces unfavorable results, providers and
suppliers may then request reconsideration by a QIC, and again halt the initiation of recoupment.
However, filing for reconsideration will only prevent recoupment if the request is received within
60 days following the date of the redetermination, although providers and suppliers have 180
days in which to request reconsideration. Providers and suppliers should use the time that the
contractor uses to conduct the redetermination and the 60 days to request a reconsideration to
gather all additional evidence for submission to the QIC. In this way, even if all such evidence
was not considered at the redetermination stage, it will be considered at reconsideration before
recoupment is commenced.

     I. Service of Documents to Beneficiaries

        During the fourth and fifth levels of the claims appeals process, all parties to an ALJ
hearing and Medicare Appeals Council review must be provided with copies of various
documents submitted to ALJs and the Medicare Appeals Council. In most cases, beneficiaries
who file a claim for payment, or on whose behalf a claim was filed under Part A or Part B, are
considered parties to the ALJ hearing or Appeals Council review.75

       Specifically, at the ALJ hearing stage, a copy of the request for ALJ hearing must be
provided to all parties to the hearing, including beneficiaries.76 A party to an ALJ hearing may
submit written statements objecting to issues before an ALJ, written summaries of the case, or
statements about the facts or law material to the case to the ALJ for inclusion in the record.77
However, if a party does so, all parties to the ALJ hearing, including beneficiaries, must be
provided with copies of the statements.78

         The rules are similar at the Appeals Council level of review. Requests for Appeals
Council review should be sent to all parties to the appeal, including beneficiaries.79 Proof that
copies of the request were sent to all other parties should be included with the request. Should a
party fail to do so, the Appeals Council will send a notice informing the party that the appeal is
incomplete and that, as a result, the Appeals Council will not act on the case until all parties are
notified. A copy of one such notice is attached as Attachment D. In addition, briefs filed with
the Appeals Council must also be provided to all parties to Appeals Council review.80

          A beneficiary who files a claim for payment, or one on whose behalf a claim for payment is filed,
will not be considered a party if he or she assigns his or her appeal rights pursuant to 42 C.F.R. § 405.912.
42 C.F.R. § 405.906. A beneficiary’s appeal rights may only be assigned to providers or suppliers who
furnished an item or service to a beneficiary and are not already parties to the initial determination. 42
C.F.R. § 405.912. Providers are parties to the initial determination as long as they file a claim for the items
or services furnished to the beneficiary, while suppliers are parties to the initial determination when they
accepted assignment for the items or services furnished to a beneficiary that are at issue in the claim. 42
C.F.R. § 405.906.
          42 C.F.R. § 405.906.
          42 C.F.R. §§ 405.1024(b), 405.1036(c).
          42 C.F.R. §§ 405.1024(b), 405.1036(c).
          42 C.F.R. § 405.1106(a).
          42 C.F.R. § 405.1120.

        This requirement is not uniformly enforced by ALJs or the Appeals Council. When it is
enforced, it presents potentially significant impediments to the appeals process in cases with a
large number of beneficiaries.

     J. Parallel Proceedings.

        It is possible for CMS to assert overpayment claims under the Medicare false claims/civil
monetary penalty laws and for the Department of Justice to assert overpayment claims under the
general federal civil False Claims Act and under various criminal statutes, such as mail fraud
laws. Such generally more serious claims can be asserted concurrently with determinations
appealable under the new administrative appeals process. In cases of such concurrent actions,
providers must consider protecting their rights separately in each avenue of attack. In parallel
proceedings, suppliers have rights to seek determinations and file appeals under the new
administrative appeals process, in addition to defending against the other parallel proceedings. In
some of these situations, seeking a delay of the administrative appeals processes may be a wise
choice in order to focus resources in defending against the more serious attacks or to preserve
Fifth Amendment rights. In other situations, the non-adversarial administrative appeals process
may provide an easier way to prove entitlement to payment than would be provided by
adversarial investigative and judicial proceedings. The favorable determinations, which may be
more likely obtained in the administrative process, may establish a preclusive argument that no
fraud or violation of civil monetary penalty laws occurred.

        Despite the provision of 42 C.F.R. § 405.372(d)(3) that an administrative process may be
delayed pending an “on-going investigation,” the Fourth Circuit has ruled that the administrative
process for determining Medicare Part B claims may proceed simultaneously with judicial
proceedings about whether a supplier has defrauded Medicare and other federal health

     K. Burden of Proof.

        One of the evidentiary perplexities of the new administrative appeal process is that the
burden of proof is nowhere clearly addressed in the rules, nor did the rules under the prior system
of separate Part A and Part B appeal processes explain how to determine who has the burden of
proof. However, experience indicates that ALJs are more likely to place the burden of proof on
the government than are carrier fair hearing officers. In this regard, and particularly with respect
to the burden of establishing a prima facie case, ALJs are likely to be influenced by ALJ Kessel’s
observation that the Medicare Conditions of Participation must be implemented in a manner that
protects suppliers from arbitrary denials by Medicare and its contractors.82 According to ALJ
Kessel, a Medicare contractor is:

                required to set forth a specific basis for its determinations and, if
                challenged, to come forward with evidence establishing a prima
                facie case on any disputed findings (emphasis supplied).

         United States ex rel Rahman v. Oncology Associates, P.C., 201 F.3d 277 , 65 Soc. Sec. Rep.
Service 573 , Medicare and Medicaid Guide (CCH) ¶ 300,402 (4th Cir. 1999).
         Hillman Rehabilitation Center v. Health Care Financing Administration, DAB No. 1663 (1998),
Medicare and Medicaid Guide (CCH) 1999 Transfer Binder ¶ 120,025 at 2.

                    The major purpose of requiring [Medicare] to establish a prima
                    facie case is to assure that the action taken by [Medicare] has a
                    legally sufficient foundation . . .83

        The existence of a prima facie case must be ascertainable before the provider is obligated
to put on its entire case.84 Only after Medicare has met its burden does:

                    the [supplier have] the ultimate burden of showing that it is in
                    substantial compliance with the relevant Medicare requirements,
                    as well as coming forward with evidence to establish any
                    affirmative argument or defense. (Emphasis supplied).85

         If necessary, the supplier must prove that it has “substantially complied” with the relevant
Medicare requirements by a preponderance of the evidence. 86 In physician overpayment cases, a
number of courts have required a significant amount of evidence in order for Medicare to
establish a prima facie case of lack of medical necessity where a treating physician’s order is
present. For example, Schisler v. Bowen, 851 F.2d 43, 47 (2d Cir. 1988), which is cited in the
Medicare case of State of New York o/b/o Holland v. Sullivan, 927 F.2d 57 (2d Cir. 1991), teaches

                    Where the opinion of a treating source is being rejected or
                    overridden, there must be a discussion documented [by the
                    contractor] in the file of the opinion(s) and medical findings
                    provided by the medical sources, an explanation of how [the
                    contractor] evaluates the reports, a description of any
                    unsuccessful efforts to obtain information from a sources(s), the
                    pertinent nonmedical findings, and an explanation as to why the
                    substantial medical evidence of record contradicts the opinion(s)
                    of a treating source(s). This discussion must be set out in a
                    determination or decision rationale.

         As a practical matter, however, in most Medicare claims administrative appeal hearings,
the decision-maker’s findings will not be determined by strict evidentiary formalities. Instead,
the findings will be most affected by the quality of the supplier’s documentation and

     L. Obtaining Records

        When appealing an unfavorable audit determination, providers and suppliers may find it
advantageous to view Medicare’s audit file. This is particularly true given that providers and
suppliers generally are required to submit all evidence by the reconsideration stage, or qualified
independent contractor stage of appeal, absent good cause for not doing so.87 Knowing the

        Id. at 3.
        Id. at 4.
        Id. at 2.
          Id. at 3. In Hillman, the DAB held that in termination hearings before an ALJ, the sanctioned
facility bears the burden of persuasion once HHS has made a prima facie showing to justify the CMP. This
rule was later extended to civil monetary penalty cases in Cross Creek Health Care Center v. HCFA, DAB
No. 1665 (1998).

contents of the audit file will assist providers and suppliers in determining what evidence must be
submitted in the appeals process.

         Medicare providers and suppliers can request the opportunity to view Medicare’s audit
file under the Freedom of Information Act. In order to best challenge unfavorable decisions
rendered as part of a Medicare audit, providers and suppliers should request to view the complete
audit file, including:

                1. The information on the statistical projection used to arrive at the
                   overpayment request (if applicable);
                2. The notes, correspondence, and memos (handwritten or typed) of the auditors
                   setting forth the specific reasons for the denials;
                3. The hand-written audit sheets;
                4. The names and credentials of all of those who participated in the audit and
                   denial decisions;
                5. The medical records reviewed as part of the audit; and
                6. Any other information used by the auditors in making the audit decisions.

         As a practical matter, providers and suppliers may face extensive time delays awaiting
receipt of a requested audit file, and it is possible that CMS or its contractors never release the
file. One way to shorten the delay is to offer to review the file where it is located. However, the
failure of CMS to produce the complete audit file, or any portion thereof, may be advantageous to
providers and suppliers in their appeals. For example, some providers have been successful
challenging the validity of statistical extrapolations, where CMS has failed to produce
information regarding the methodology it used for the extrapolation after repeated requests. In
these cases, some administrative law judges have found that the statistical extrapolation failed to
meet the minimum standards for “statistically valid” sampling and extrapolation, as discussed in
paragraph E above, and have thrown out the extrapolation altogether.

        An alternative means of obtaining relevant records and documents is through discovery
and/or the issuance of subpoenas during later stages of the appeals process. Medicare appeals
regulations allow for limited discovery during ALJ hearings.88 Discovery is permitted only when
CMS participates in the hearing as a party. An ALJ can permit discovery of matters that are
relevant to a specific subject matter relevant to the appeal as long as the matter is not privileged
or in some other way protected from disclosure.89 Discovery requests must not be unreasonable,
unduly burdensome or expensive, or otherwise inappropriate.90

        Discovery before an ALJ is limited to depositions and production of documents. A party
can request from other parties the reasonable production of documents for inspection and
copying.91 A party also can depose other parties if the proposed deponent agrees to the deposition
or the ALJ finds that the proposed deposition is necessary and appropriate in order to secure the
deponent’s testimony for an ALJ hearing.92

        42 C.F.R. § 405.966.
        See generally 42 C.F.R. § 405.1037.
        42 C.F.R. § 405.1037(a)(2).
        42 C.F.R. § 405.1037(a)(2).
        42 C.F.R. § 405.1037(b)(1).
        42 C.F.R. § 405.1037(b)(2).

         In addition to discovery, subpoenas may be issued, though under very limited
circumstances, by an ALJ or the Medicare Appeals Council. Parties may request that the ALJ or
Medicare Appeals Council issue a subpoena for the appearance and testimony of witnesses or for
the production of documents. An ALJ or the Medicare Appeals Council can also issue subpoenas
on their own initiative. In any case, they can only do so “when it is reasonably necessary for the
full presentation of a case.”93

         There are additional limitations. ALJs and the Medicare Appeals Council may only issue
subpoenas in cases in which CMS is a party and the requesting party has sought discovery, has
filed a motion to compel, has had that motion granted by the ALJ or the Medicare Appeals
Council, and still has not received the requested discovery.94 Because subpoenas are issued only
under these relatively rare circumstances, appellants should not rely on an adjudicator’s authority
to issue subpoenas in any given appeal.

     M. RAC-Initiated Audits

         Medicare providers and suppliers nationwide may soon see increased Medicare auditing
activity, much of which will be initiated by Recovery Audit Contractors (“RACs”). Section 306
of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”)
directed the Department of Health and Human Services (“DHHS”) to conduct a three-year
demonstration program using RACs to detect and correct improper payments (both overpayments
to Medicare providers and suppliers and underpayments). The RAC demonstration program was
designed to determine whether the use of RACs would be a cost-effective method to ensure that
improper payments to Medicare providers are detected and corrected and to help protect the
Medicare Trust Funds. Section 302 of the Tax Relief and Health Care Act of 2006 mandated
HHS to make the RAC program permanent and expand nationwide by no later than January 1,

        The demonstration program began in March 2005, and was limited to the three states
with the highest Medicare expenditures (California, Florida and New York). The RACs were
compensated on a contingency fee basis; that is, the RACs received payment based upon the
amount of the improper payments they identified and corrected for both overpayments and
underpayments. CMS initially considered information regarding the contingency fee
“proprietary” and “non-disclosable,”95 however according to The Medicare Recovery Audit
Contractor Program: An Evaluation of the 3-Year Demonstration (“June 2008 Evaluation

         42 C.F.R. §§ 405.1036(f), 405.1122(d). Though the regulations seems to limit the ALJ’s and
Medicare Appeals Council’s ability to issue subpoenas for the production of documents or records to
“parties” to an appeal, other regulations allow parties or non-parties to seek review of an ALJ’s or the
Medicare Appeals Council’s subpoena ruling and provide that an ALJ or the Medicare Appeals Council
may seek enforcement of a subpoena against parties and non-parties. See 42 C.F.R. §§ 405.1036(f)(5)(iii),
405. 1036(f)(6)(i), 405.1122(e)(2)(i), 405.1122(f). As a result, it is unclear whether the regulations preclude
an ALJ or the Medicare Appeals Council from issuing a subpoena to a non-party for the production of
records. In practice, however, ALJs and the Medicare Appeals Council do sometimes issue subpoenas to
individuals who are not “parties” to the appeal.
   42 C.F.R. §§ 405.1036(f)(4), 405.1122(d)(4).
            CMS RAC Status Document FY 2007, available at

Document”), CMS doled out $187.2 million in contingency fees over the course of the RAC
demonstration. 96

         According to CMS, the RAC demonstration program proved highly cost-effective for the
Medicare program. According to CMS’s most recently-published analysis, The Medicare
Recovery Audit Contractor Program: Update to the Evaluation of the 3-Year Demonstration
document published in January 2009 (“January 2009 Evaluation Document”), RACs identified
and corrected $1.03 billion in Medicare improper payments over the course of the demonstration
program. Approximately 96 percent of these improper payments were overpayments collected
from Medicare providers and suppliers, and the remaining 4 percent were underpayments repaid
to providers and suppliers. According to the January 2009 Evaluation Document, only 7.6
percent of RAC determinations have been overturned on appeal.97 However, it is important to
recognize that many claims are still in the appeals process, and thus this statistic may prove
inaccurate as these claims continue to move through the appeals process. Many of the appealed
claims have just recently reached the Administrative Law Judge stage of appeal. The June 2008
Evaluation Document states that the RAC demonstration program cost only 20 cents for each
dollar returned to the Trust Funds, which accounted for the RACs’ contingency fees, Medicare
claims processing contractor costs, and RAC evaluation, validation and oversight fees.98

        The RAC demonstration program ended in March 2008. Notably, however, as noted
above, Section 302 of the Tax Relief and Health Care Act of 2006 mandated HHS to make the
RAC program permanent and nationwide by no later than January 1, 2010. CMS began its
expansion of the RAC program while the demonstration program was still ongoing, and the
RACs began operating in Massachusetts and South Carolina, in addition to the three states
covered by the demonstration program. According to CMS’s most recently published expansion
schedule, Medicare providers and suppliers in 23 states can expect RAC initiated audits in March
2009. RAC-initiated audits will begin in the remaining states in August 2009 or later.99

        Medicare providers and suppliers that experienced RAC-initiated audits during the
demonstration program were highly critical of some aspects of the program. For example,
Medicare providers and suppliers were troubled by the age of the claims pulled for review, and
they were troubled by contingency-fee compensation arrangement between the RACs and CMS.
Many of these concerns have been addressed by CMS in the Statement of Work for the
permanent RAC program.100 The permanent RAC program will have some important differences
from the RAC demonstration program. For example:

  The Medicare Recovery Audit Contractor Program: An Evaluation of the 3-Year Demonstration, June
2008, available at http://www.cms.hhs.gov/RAC/Downloads/RAC%20Evaluation%20Report.pdf.
  The Medicare Recovery Audit Contractor Program: Update to the Evaluation of the 3-Year
Demonstration, January 2009, available at
  The Medicare Recovery Audit Contractor Program: An Evaluation of the 3-Year Demonstration, June
2008, available at http://www.cms.hhs.gov/RAC/Downloads/RAC%20Evaluation%20Report.pdf.
  RAC Phase-In Schedule, available at
         Statement of Work, available at http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-CMS-2007-

            o   In the demonstration CMS did not have a maximum look back date. In
                the permanent program the RACs will not be able to look for any
                improper payments on claims paid before October 1, 2007.

            o   In the demonstration RACs were not allowed to review claims during the
                current fiscal year, but they will be allowed to review claims during the
                current fiscal year in the permanent program.

            o   Certified coders were not mandatory in the demonstration.         In the
                permanent program, each RAC must have certified coders.

            o   There was an optional medical record limit set by the individual RAC in
                the demonstration. The permanent program will have mandatory limits
                set by CMS.

            o   During the demonstration, discussion with the Medical Director
                regarding claim denials if requested by providers was optional. In the
                permanent program it is mandatory.

            o   The demonstration called for limited reporting by the RACs on the
                problem areas they had identified. Frequent problem-area reporting is
                mandatory in the permanent program.

            o   During the demonstration, the RACs only had to pay back the
                contingency fee if they lost at the first level of appeal. This has been
                changed to all levels of appeal for the permanent program.

            o   The RACs did not offer a web-based application that allows providers to
                customize addresses and contact information or see the status of cases
                during the demonstration. In the permanent program each RAC must
                have this web-based application by January 1, 2010.

            o   During the demonstration an external validation process was optional
                and it varied by state. The external validation process is mandatory for
                the permanent program and it is a uniform process.101

          Notably, in the Statement of Work for the permanent RAC program, CMS has mandated
that, “If a provider chooses to appeal an overpayment determined by the RAC, the RAC shall
assist CMS with support of the overpayment determination throughout all levels of appeal.”102
Section 42 C.F.R. § 405.906 (a) (1) states that, “payment by a third party payer does not entitle
that entity to party status.” Thus, the fact that RACs are contracted to review and correct
Medicare claims payments does not mean that the RAC is a party to an initial determination or
any appeals decision rendered thereafter. Therefore, despite the CMS mandate that the RACs
assist CMS to support the overpayment determination, the RAC must follow the requirements of
42 C.F.R. §§ 405.1010 and 405.1012, which govern the procedures that must be followed if CMS

         CMS RAC Status Document FY 2007, available at
         Statement of Work, Amendment 1, available at http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-
CMS-2007-0022/Attachments.html, at p. 38.

or its contractors wish to participate in an Administrative Law Judge hearing as a party. Failure
to follow these regulations may raise issues with governmental intervention in the appeal.

         For more detail on RACs, see Attachment E.

      N. Special Defenses; Untimely Reopening; Provider/Supplier Without Fault; Waiver of

            1. Untimely Reopening

         According to federal regulations governing the Medicare appeals process, once an initial
determination to pay a claim has been made, the claim can only be reopened for review within a
certain time period. Specifically, pursuant to 42 C.F.R. § 405.980 (b), a contractor may reopen
and revise its initial determination:

                 (1) Within 1 year from the date of the initial determination for any

                 (2) Within 4 years of the date of the initial determination for good cause
                 as defined in Sec. 405.986.

                 (3) At any time if there exists reliable evidence as defined in Sec. 405.902 that
                 the initial determination was procured.

         Pursuant to 42 C.F.R. § 405.986, “good cause” may be established when:

                 (a) There is new and material evidence that—

                        i.    Was not available or known at the time of the determination
                              or decision; and

                       ii.    May result in a different conclusion; or

                 (b) The evidence that was considered in making the determination or
                     decision clearly shows on its face that an obvious error was made at
                     the time of the determination or decision.

         Some Medicare providers and suppliers have been successful challenging a Medicare
audit or claim denials based upon the above-cited regulations, where the claims chosen for review
and reopening were over one year old, and the RAC, Carrier or Intermediary failed to articulate
“good cause” for reopening the claims.

         Notably, with respect to Medicare audits and claim denials initiated by RACs, presently,
some of the medical directors or employees of the RACs have been attending Administrative Law
Judge hearings for the specific purpose of arguing the RACs’ “good cause” to reopen the claims
at issue, even though “good cause” was not established at the time the claims were reopened.103

         The Statement of Work for the permanent RAC program specifically requires that “If a provider
chooses to appeal an overpayment determined by the RAC, the RAC shall assist CMS with support of the
overpayment determination throughout all levels of the appeal.” Statement of Work, available at
http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-CMS-2007-0022/Attachments.html, at p. 38.

              2. Provider/Supplier Without Fault

        The Provider Without Fault provisions of the Social Security Act are found at Section
1870,104 and state the following (in pertinent part):

        (a)       Any payment under this title to any provider of services or other
                  person with respect to any items or services furnished to an
                  individual shall be regarded as payment to such individual.

        (b)       Where -

                  (1) more than the correct amount is paid under this title to a provider of
                  services… and the Secretary determines… that such provider of services…
                  was without fault with respect to the payment of such excess over the
                  correct amount…

                  (2) proper adjustments shall be made…

                  [S]uch provider of services… shall, in the absence of evidence to the
                  contrary, be deemed to be without fault if the Secretary’s determination that
                  more than such correct amount was paid was made subsequent to the third
                  year following the year in which notice was sent to such individual that
                  such amount had been paid; except that the Secretary may reduce such
                  three-year period to not less than one year if he finds such reduction is
                  consistent with the objectives of this title.

        (c)       there shall be no adjustment provided in subsection (b) (nor shall there be
                  recovery) in any case where the incorrect payments have been made . . .
                  with respect to an individual who is without fault …

         Based on the presumption that a provider is without fault if the determination is made
after three years, the regulations set forth the following provision at 42 C.F.R. § 405.355(b):
        Adjust or recovery of an incorrect payment against an individual who is without
        fault shall be deemed to be against equity and good conscience if the
        determination that such payment was incorrect was made subsequent to the third
        year following the year in which notice of such payment was sent to such

         Notably, with respect to Medicare audits and claim denials initiated by RACs, the
Statement of Work for the permanent RAC program, as amended, specifically states that the
RACs “shall not attempt to identify any overpayment or underpayment more than 3 years past the
date of the initial determination made on the claim.”105

        In addition to the three-year limitation, as a general rule, a provider will be considered
without fault if he exercised reasonable care in billing for and accepting payment. Specifically, a

        42 U.S.C. § 1395gg.
        Statement of Work, available at http://www.fbo.gov/spg/HHS/HCFA/AGG/RFP-CMS-2007-
0022/Attachments.html, at p. 7.

provider will be considered without fault if he complied with all pertinent regulations, made full
disclosure of all material facts, and on the basis of the information available, had a reasonable basis
for assuming that the payment was correct.106 “Fault” for purposes of the provider without fault
provision of the Social Security Act is defined by the federal regulations as follows:

        (a)       An incorrect statement made by the individual which he knew or should
                  have known to be incorrect; or

        (b)       Failure to furnish information which he knew or should have known to be
                  material; or

        (c)       With respect to the overpaid individual only, acceptance of a payment,
                  which he knew or could have been expected to know, was incorrect.107

              3. Waiver of Liability

        The statutory authority for application of Waiver of Liability is set forth in Section 1879
of the Social Security Act,108 which states the following, in relevant part:
        (a)       Where--

              a. a determination is made that, by reason of Section 1862(a) (1) or (9) . . .
                 payment may not be made under Part A or Part B of this title for any
                 expenses incurred for items or services furnished an individual by a
                 provider of services or by another person pursuant to an assignment under
                 section 1842 (b) (3) (B) (ii); and

              b. both such individual and such provider of services or such other person, as
                 the case may be, did not know, and could not reasonably have expected to
                 know, that payment would not be made for such items or services under
                 Part A or B,

                  then to the extent permitted by this title, payment shall, notwithstanding
                  such determination, be made for such items or services . . . as though
                  section 1862(a) (1) and section 1862 (a) (9) did not apply . . .

                  (emphasis added).

        Pursuant to statutory and regulatory authority, once waiver of liability applies the
relevant inquiry focuses on whether the Medicare provider or supplier knew or could have
reasonably been expected to know that payment would not have been made for the services.109

              4. Medical Necessity and the “Treating Physician” Rule.

       Medical necessity disputes usually involve a subjective determination about (1) the
adequacy of documentation or (2) the applicable “standard of care.” “Medical necessity”

        Medicare Financial Management Manual (CMS-Pub. 100-06) Section 90.
        20 C.F.R. § 404.507.
        42 U.S.C. § 1395pp.
        Medicare Claims Processing Manual (CMS-Pub. 100-04) Section 20.

decisions on standard of care are made initially by the contractor’s medical director or other
medical consultants, who may or may not be qualified to make such a determination. (For
example, is a medical director who is a retired gynecologist “qualified” to make “medical
necessity” determinations on complicated cardiology cases?)

        Note that several courts have adopted the “treating physician” rule which provides that,
with respect to medical necessity, the judgment of the treating physician (particularly when such
physician derives no economic benefit from prescribing the good or service) should be given
“great weight,” and should not be rejected “except under unusual circumstances.”110
Unfortunately, the “treating physician” presumption does not appear to have filtered down
consistently to the contractor redetermination level.111

        CMS Ruling 93-1 established that, at least with respect to Part A claims, the treating
physician’s opinion “is considered evidence, but not presumptive evidence,” of medical necessity.

         Medical necessity disputes may be resolved by a battle of experts. Make sure your expert
is the best prepared. Often, a supplier will have an advantage on payment issue disputes because
the doctor will have seen the patient and would be in a much better position to explain the
medical necessity.

                                                                                            MARCH 2009

         Hamon v. Weinberger, Civ. No. 72-283-CH (S.D. W.Va. Feb. 20, 1974), Medicare and Medicaid
Guide (CCH) 1974 Transfer Binder ¶ 26,923; Gartmann v. Secretary of United States Department of
Health and Human Services, 633 F. Supp. 671, 680-81 (E.D.N.Y. 1986); Klementowski v. Secretary of
Health and Human Services, 801 F.Supp. 1022, 1025-26 (W.D. N.Y. 1992); State of New York o/b/o
Holland v. Sullivan, 927 F.2d 57, 60 (2d Cir. 1991); e.g., Schisler v. Bowen, 851 F.2d 43, 47 (2d Cir. 1988);
Baxter v. Sullivan, 923 F.2d 1391, 1396 (9th Cir. 1991); Magallanes v. Bowen, 881 F.2d 747 (9th Cir.
         See generally Blanchard, “Medicare Medical Necessity Determinations Revisited: Abuse of
Discretion and Abuse of Process in the War Against Medicare Fraud and Abuse,” 43 St. Louis U.L.J. 91
(1999); Blanchard, “Medical Necessity Denials as a Medicare Part B Cost-Containment Strategy: Two
Wrongs Don’t Make It Right or Rational,” 34 St. Louis U.L.J. 939 (1990).


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