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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Potential Relief on the Horizon? Court Rules Against HHS in AHA Lawsuit Over Excessively Delayed Medicare Appeals

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October 4, 2016

Medicare Recovery Audit Program (RAC Program) critics have reason to be hopeful that some relief may come to providers mired in the backlogged Medicare appeals process. The United States District Court for the District of Columbia (D.D.C.) recently concluded that the Department of Health and Human Services' (HHS) proposed fixes to the Medicare appeals process are simply not enough and are allowing litigation against HHS to proceed. This litigation could finally provide reforms to the RAC Program and Medicare appeals process.

More than two years ago, the American Hospital Association (AHA) and several hospitals requested D.D.C. to compel HHS to process its giant backlog of Medicare reimbursement appeals within the timeframes mandated by statute.1 At the time, D.D.C. declined to intervene, hoping the process could be sorted out politically. However, on February 9, 2016, the United States Court of Appeals for the District of Columbia (D.C. Circuit) remanded the case to D.D.C. for further consideration of the issue that the Court described as "worse, not better," despite political efforts involving multiple congressional hearings and proposed legislation.2 The D.C. Circuit noted that while the RAC Program has recovered billions of dollars of improperly paid funds, it is also largely responsible for the massive backlog of appeals preventing timely processing of Medicare appeals. According to the D.C. Circuit, forcing HHS to comply with statutory appeal deadlines would likely require "drastically limiting the scope" of the RAC Program.3 On September 19, 2016, D.D.C. found HHS' proposed remedial measures to reduce the appeals backlog inadequate to address the scope of the problem.

History of the RAC Program

In 2010, HHS implemented the RAC Program and contracted with Recovery Audit Contractors (RACs) to identify and recoup Medicare overpayments in exchange for compensation on a contingent basis based on collections. The RACs have been widely criticized for their aggressive payment denials, which have caused great uncertainty in providers' financial planning resulting in decreased services and significantly increased administrative appeals. At oral argument, HHS acknowledged that 46% of appeals pending at the Office of Medicare Hearings and Appeals (OMHA) originated from the RAC Program.4 According to a survey conducted by AHA of its hospital members, hospitals reported appealing 52% of RAC denials and were successful on 66% of these appeals, indicating that RACs may have overplayed their hand.5 Between FY 2010 and FY 2014, the number of appeals filed to the ALJ level increased by 936% with 767,422 appeals pending at the end of 2014. The current processing time for an appeal at the ALJ level is 935 days.6 Noting the imbalance between the large number of appeal requests OMHA receives per year compared to the appeals OMHA can process to completion annually, the D.C. Circuit noted that some pending claims could take at least a decade to resolve.

HHS' Proposed Remedial Measures for the Medicare Appeals Process

In recent years, HHS has attempted to reduce the ever-growing backlog of appeals through various reforms, including doubling ALJ efficiency and obtaining funding for additional ALJs and staff. In July 2016, HHS proposed administrative and legislative fixes to minimize the problem. On the administrative side, HHS proposed:

  • Efforts to promote settlements, including the recent settlement of 260,000 inpatient-hospital claims, and facilitate settlement conferences
  • Changes to the administrative-appeals process, including the ability to waive the right to an oral hearing in exchange for a decision on the record by an OMHA senior attorney subsequently reviewed by an ALJ and re-employment of retired ALJs on a temporary basis
  • Requiring providers to obtain pre-authorization from a Medicare Administrative Contractor (MAC) before providing certain items or services
  • Modifications to the RAC Program requiring RACs to offer providers the chance to discuss the basis for their claim and submit additional information, limiting RACs to a certain number of reviews under a given topic unless approved by CMS for additional reviews, and paying RACs only after their decisions are upheld by a Qualified Independent Contractors (QIC) or the appeal timeframe for level two appeals expires7

HHS also hopes legislative action through the President's FY 2017 budget and the Audit & Appeal Fairness, Integrity, and Reforms in Medicare Act of 2015 (AFIRM Act) will create greater efficiencies in the appeals process through additional resources.

Recent D.D.C. Ruling

The D.D.C. determined that the proposed changes were insufficient. The September 19, 2016, ruling from the D.D.C. began with advice to HHS: "The best medicine can sometimes be hard to swallow."8 In declining HHS' request for a stay of proceedings until September 30, 2017, D.D.C. noted the worsening backlog and delays since AHA first sought intervention. After reviewing HHS' proposed solutions, the Court determined they were unlikely to make a meaningful difference. Although HHS has set forth "impressive-sounding action items" to fix the problem, the Court noted, "As is often the case, the devil is in the details."9 Even if the proposals are implemented perfectly, the appeals backlog is still projected to grow every year up to 1,003,444 appeals in FY 2020. The Court explained that such proposals are not significant progress towards a solution and will only make "things get worse more slowly."10

The Court paid particular attention to the fact that HHS proposals related to the RAC Program will only reduce the current RAC-related backlogged appeals by 7%, describing HHS' lack of a robust response to the high volumes of appeals caused by the RAC Program as "concerning." In examining factors in favor of the plaintiffs, the Court highlighted HHS' substantial discretion with regards to the RAC Program "including to curtail it as necessary to meet the statutory deadlines."11 Given the current political climate, Congress' refusal to hold hearings on the President's FY 2017 budget, and its failure to authorize the requested funds for OMHA in FY 2016, the Court met HHS' legislative proposals with healthy skepticism. Although the Court has not yet determined whether to issue a writ of mandamus directing HHS to process their backlog of appeals with statutory timeframes, it concluded that AHA and the plaintiff hospitals presented equitable grounds for it to do so. In the absence of a "magic wand" to eliminate the appeals backlog, the Court ordered the parties to appear for a status conference on October 3, 2016, to discuss how to proceed.

In view of the analysis of the issue by D.D.C. and the D.C. Circuit, the fate of the RAC Program may hang in the balance. Concerned providers will no doubt be following this case, which may toll the death knell for the RAC Program, at least in its current form, or lead to significant reform of the current Medicare claims appeal process.


1Qualified Independent Contractors (QICs) must complete second level reconsideration determinations within 60 days of receipt and Administrative Law Judges (ALJs) must conduct a hearing and make decisions at the third level of appeal within 90 days of receipt of a request for hearing. 42 U.S.C. § 1395ff(c)(3)(C)(i); 42 C.F.R. § 423.2016.
2 AFIRM Act, S. 2368, 114th Cong. (2015).
3 Am. Hosp. Ass'n v. Burwell, 812 F.3d 183, 192 (D.C. Cir. 2016).
4 Id. at 187.
5 Id. at 188.
6 Am. Hosp. Ass’n v. Burwell, 2016 BL 307248 (D.D.C. 2016).
7 Am. Hosp. Ass’n v. Burwell, 2016 BL 307248 (D.D.C. 2016).
8 See id. at 1.
9 See id. at 12.
10 Id.
11 See id. at 9.


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