Problems with Medicare’s Settlement Methods

One option for dealing with the backlog of Medicare claims waiting for a hearing is to settle them. That’s up to the Centers for Medicare and Medicaid Services, not the Office of Medicare Hearings and Appeals that actually oversees the process, so it’s not an administrative fix that the Office of Medicare Hearings and Appeals could actually implement alone. But it is worth considering, and the CMS has shown an openness to it by going along with the proposal for facilitated settlement and by offering to settle a big chunk of pending inpatient hospital admission disputes for 68 cents on the dollar. (See Nick Bagley’s post at the incidental economist.)

These settlement efforts have received some high-level scrutiny, however. Last month Representative Brady, Chair of the House Ways and Means Committee, Subcommittee on Health, sent the HHS a strongly-worded letter after the inpatient hospital settlement was announced, arguing that the settlement may exceed CMS’s statutory authority, among other problems. (See the letter linked here (“I question whether HHS has statutory authority for this settlement process.”)

I tend to share Congressman Brady’s skepticism. 

Unless I am missing something—and I’ve reviewed the official pronouncements I know of about the Medicare settlement (see here and slides here)—Medicare’s choice which claims to settle, and at what price, is wholly discretionary, without any governing process or opportunity for review.

So the settlement offer seems to be in tension with Medicare payment rules.  The Medicare statute and regulations ensure transparency, regularity, and accountability in the administration of the Medicare trust fund–values that are important both to the taxpayers and to disappointed claimants–by dictating that decisions about Medicare coverage and reimbursement be made pursuant to an elaborate process.  Claimants submit claims to contractors whose decisions can be appealed formally through various administrative tiers, including an ALJ hearing, all the way to federal court.  But Medicare’s new approach to settling claims circumvents all that by leaving the decision whether to pay certain claims, and by how much, up to the unconstrained discretion of Medicare officials.

I am certain that the bureaucrats overseeing Medicare’s settlement efforts are acting in good faith, so I don’t mean to suggest that there is anything fishy about Medicare’s settlement policy. But government action does not need to be capricious to be arbitrary, and I’m worried that the current approach to settlement borders on the latter because it does not feature any public legitimizing process to give Medicare officials an opportunity and obligation to explain their reasons.  And I think that on the basis of that narrative, a judge would be sympathetic to a statutory or constitutional challenge, perhaps by claimants to whom Medicare is not offering a settlement.  (As best I can tell, a statutory challenge–assuming standing–would ultimately hinge on whether a provider’s appeal from a denial of payment that resulted from a RAC-instituted reopening is, in fact, a proceeding by CMS to recover an “overpayment” as used in 31 U.S.C. 3711 & 42 C.F.R. 405.376.  I’ll have to save my full views on that interpretive question for another post.)

I do think there is room for settlement in Medicare’s administrative process, but it ought to be part of the administrative process, not an exception to it.  So I think that before making settlement offers, Medicare ought to put a public structure in place to cabin its discretion and explain its reasoning in deciding which claims to settle and which claims not to settle.  It could then use that structure to respond to challenges by those like Congressman Brady who question its settlement decisions.  Even a CMS Ruling announcing not only the settlement but the agency’s reasoning–rather than a mere website posting–would be a substantial improvement on the current approach.  “[T]he administrative process will best be vindicated by clarity in its exercise.”  Phelps Dodge Corporation v. Labor Board, 313 U.S. 177, 197 (1941).

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