CMS Additional Appeal Levels

Additional Appeal Levels 

A. Administrative Law Judge (ALJ) 

Hearing  CMS, a Medicare contractor, or a provider dissatisfied with a reconsidered determination is entitled to a hearing before an ALJ.The ALJ has delegated authority from the Secretary of the Department of Health and Human Services (DHHS) to exercise all duties, functions, and powers relating to holding hearings and rendering decisions.  Such an appeal must be filed, in writing, within 60 days from receipt of the reconsideration decision.  

ALJ requests should be sent to:  

Department of Health and Human Services 

Departmental Appeals Board (DAB) Civil Remedies Division, 

Mail Stop 6132 330 

Independence Avenue, 

S.W. Cohen Bldg, 

Room G-644 Washington, 

D.C. 20201 ATTN: CMS Enrollment Appeal 

 (ALJ requests can also be submitted electronically at https://dab.efile.hhs.gov/.)  Failure to timely request an ALJ hearing is deemed a waiver of all rights to further administrative review.  Upon receipt of a request for an ALJ hearing, an ALJ at the Departmental Appeals Board (DAB) will issue a letter by certified mail to the provider, CMS and the Regional Office of General Counsel (OGC) acknowledging receipt of an appeals request and detailing a scheduled pre-hearing conference.  

The OGC will assign an attorney to represent CMS during the appeals process; he/she will also serve as the DAB point of contact. Neither CMS nor the Medicare contractor are required to participate in the prehearing conference but should coordinate among themselves and the OGC attorney prior to the pre-hearing to discuss any issues.  

The Medicare contractor shall work with and provide the OGC attorney with all necessary documentation.  This includes compiling and sending all relevant case material to the OGC attorney upon the latter’s request within 5 calendar days of said request.  Any settlement proposals, as a result of the pre-hearing conference, will be addressed with CMS.  

B.  Departmental Appeals Board (DAB) 

Hearing  CMS, a Medicare contractor, or a provider dissatisfied with the ALJ hearing decision may request a Board review by the DAB.  Such a request must be filed within 60 days after the date of receipt of the ALJ’s decision.  Failure to timely request a DAB review is deemed to be a waiver of all rights to further administrative review.  

The DAB will use the information in the case file established at the reconsideration level and any additional evidence introduced at the ALJ hearing to make its determination.  The DAB may admit additional evidence into the record if the DAB considers it relevant and material to an issue before it.  Before such evidence is admitted, notice is mailed to the parties stating that evidence will be received regarding specified issues.  

The parties are given a reasonable time to comment and to present other evidence pertinent to the specified issues.  If additional information is presented orally to the DAB, a transcript will be prepared and made available to any party upon request.  

C.  Judicial Review  

A provider dissatisfied with a DAB decision may seek judicial review by timely filing a civil action in a United States District Court.  Such a request shall be filed within 60 days from receipt of the notice of the DAB’s decision.  

Special Provisions for HHAs 

HHA Ownership Changes 

A. Background  Effective January 1, 2011, and in accordance with 42 CFR §424.550(b)(1) - if there is a change in majority ownership of an HHA by sale (including asset sales, stock transfers, mergers, and consolidations) within 36 months after the effective date of the HHA’s initial enrollment in Medicare or within 36 months after the HHA’s most recent change in majority ownership, the provider agreement and Medicare billing privileges do not convey to the new owner. 

The prospective provider/owner of the HHA must instead:  

• Enroll in the Medicare program as a new (initial) HHA under the provisions of §424.510, and 

• Obtain a State survey or an accreditation from an approved accreditation organization.  For purposes of §424.550(b)(1), a “change in majority ownership” (as defined in 42 CFR §424.502) occurs when an individual or organization acquires more than a 50 percent direct ownership interest in an HHA during the 36 months following the HHA’s initial enrollment into the Medicare program or the 36 months following the HHA’s most recent change in majority ownership (including asset sales, stock transfers, mergers, or consolidations).  

This includes an individual or organization that acquires majority ownership in an HHA through the cumulative effect of asset sales, stock transfers, consolidations, or mergers during the 36-month period after Medicare billing privileges are conveyed or the 36-month period following the HHA’s most recent change in majority ownership.  

B. Exceptions  

There are several exceptions to §424.550(b)(1).  Specifically, the requirements of §424.550(b)(1) do not apply if:  

• The HHA has submitted 2 consecutive years of full cost reports. (For purposes of this exception, low utilization or no utilization cost reports do not quality as full cost reports.) 

• The HHA’s parent company is undergoing an internal corporate restructuring, 

such as a merger or consolidation.  

• The HHA is changing its existing business structure – such as from a corporation, a partnership (general or limited), or an LLC to a corporation, a partnership (general or limited) or an LLC - and the owners remain the same.  

• An individual owner of the HHA dies.  In addition, §424.550(b)(1) does not apply to “indirect” ownership changes.  C. Effective Date  As indicated earlier, the provisions of 42 CFR §424.550(b)(1) and (2) as enacted in “CMS-6010-F, Medicare Program; Home Health Prospective Payment System Rate Update for Calendar Year 2011; Changes in Certification Requirements for Home Health Agencies and Hospices; Final Rule” – are effective January 1, 2011.  

This means that these provisions impact only those HHA ownership transactions whose effective date is on or after January 1, 2011.  However, the provisions can apply irrespective of when the HHA first enrolled in Medicare.  Consider the following illustrations:  

• Example 1 – Smith HHA initially enrolls in Medicare effective July 1, 2009.  Smith undergoes a change in majority ownership effective September 1, 2011.  The provisions of §424.550(b)(1) apply to Smith because it underwent a change in majority ownership within 36 months of its initial enrollment.  

• Example 2 – Jones HHA initially enrolls in Medicare effective July 1, 2007.  Jones undergoes a change in majority ownership effective February 1, 2011.  Section 424.550(b)(1) does not apply to this transaction because it occurred more than 36 months after Jones’s initial enrollment.  Suppose, however, than Jones undergoes another change in majority ownership effective February 1, 2012. 

Section 424.550(b)(1) would apply to this transaction because it took place within 36 months after Jones’s most recent change in majority ownership (i.e., on February 1, 2011).  

• Example 3- Johnson HHA initially enrolls in Medicare effective July 1, 2006.  It undergoes a change in majority ownership effective October 1, 2010.  This transaction is not affected by §424.550(b)(1) – as enacted in CMS-6010-F – because: (1) its effective date was prior to January 1, 2011, and (2) it occurred more than 36 months after the effective date of Johnson’s initial enrollment.   

Johnson undergoes another change in majority ownership effective October 1, 2012.  This change would be affected by §424.550(b)(1) because it occurred within 36 months of the HHA’s most recent change in majority ownership (i.e., on October 1, 2010).  

• Example 4 – Davis HHA initially enrolls in Medicare effective July 1, 1999.  It undergoes its first change in majority ownership effective February 1, 2011.  This change is not affected by §424.550(b)(1) because it occurred more than 36 months after Davis’s initial enrollment.  

Davis undergoes another change in majority ownership effective July 1, 2014.  This change, too, would be unaffected by§424.550(b)(1), as it occurred more than 36 months after the HHA’s most recent change in majority ownership (i.e., on February 1, 2011).  

Davis undergoes another majority ownership change on July 1, 2016.  This change would be impacted by §424.550(b)(1), since it occurred within 36 months of the HHA’s most recent change in majority ownership (i.e., on July 1, 2014).  D.   Section 424.550(b)(1)’s Applicability  If the contractor receives a Form CMS-855A application reporting an HHA ownership change (and unless a CMS instruction or directive states otherwise), it shall undertake the following steps:  

1. Step 1 – Change in Majority Ownership  The contractor shall determine whether a change in direct majority ownership has occurred.  Through its review of the transfer agreement, sales agreement, bill of sale, etc., the contractor shall verify whether:  

• The ownership change was a direct ownership change and not a mere indirect ownership change, and  

• The change involves a party assuming a greater than 50 percent ownership interest in the HHA.  Assumption of a greater than 50 percent direct ownership interest can generally occur in one of three ways.  First, an outside party that is currently not an owner can purchase more than 50 percent of the business in a single transaction.  Second, an existing owner can purchase an additional interest that brings its total ownership stake in the business to greater than 50 percent.  

For instance, if a 40 percent owner purchased an additional 15 percent share of the HHA, this would constitute a change in majority ownership.  This is consistent with the verbiage in the aforementioned definition of “change in majority ownership” regarding the “cumulative effect” of asset sales, transfers, etc. 

Another example of a change in majority ownership would be if a 50 percent owner obtains any additional amount of ownership (regardless of the percentage) and hence becomes a majority owner; thus, for instance, if a 50 percent owner were to acquire an additional .001 percent ownership stake, he or she becomes a majority owner and the transaction involves a change in majority ownership.  

If the transfer does not qualify as a change in majority ownership, the contractor can process the application normally.  If it does qualify, the contractor shall proceed to Step 2:  2. Step 2 – 36-Month Period  The contractor shall determine whether the effective date of the transfer is within 36 months after the effective date of the HHA’s: 

(1) initial enrollment in Medicare, or 

(2) most recent change in majority ownership.  

The contractor shall verify the effective date of the reported transfer by reviewing a copy of the transfer agreement, sales agreement, bill of sale, etc., rather than relying upon the date of the sale as listed on the application. It shall also review its records – and, if necessary, request additional information from the HHA – regarding the effective date of the HHA’s most recent change in majority ownership, if applicable.  

If the effective date of the transfer does not fall within either of the aforementioned 36month periods, the contractor may process the application normally.  If the transfer’s effective date falls within one of these timeframes, the contractor shall proceed to Step 3.  

3. Step 3 – Applicability of Exceptions  If the contractor determines that a change in majority ownership has occurred within either of the above-mentioned 36-month periods, the contractor shall also determine whether any of the exceptions in §424.550(b)(2) apply.  As alluded to earlier, the exceptions are as follows:  

a. The HHA has submitted 2 consecutive years of full cost reports.  

• For purposes of this exception, low utilization or no utilization cost reports do not qualify as full cost reports.  As stated in CMS Pub. 15-2, Provider Reimbursement Manual, Part 2, section 3204, please refer to 42 CFR §413.24(h) for a definition of low Medicare utilization. 

 • The cost reports must have been: (1) consecutive, meaning that they were submitted in each of the 2 years preceding the effective date of the transfer, and (2) accepted by the contractor.  

b. The HHA’s parent company is undergoing an internal corporate restructuring, such as a merger or consolidation.  

c. The HHA is changing its existing business structure – such as from a corporation, a partnership (general or limited), or an LLC to a corporation, a partnership (general or limited) or an LLC - and the owners remain the same.  

• If the HHA is undergoing a change in business structure other than those which are specifically mentioned in this exemption (e.g., corporation to an LLC), the contractor shall contact its Provider Enrollment & Oversight Group Business Function Lead (PEOG BFL) for guidance.  

• For the exemption to apply, the owners must remain the same.  

d. An individual owner of the HHA dies – regardless of the percentage of ownership the person had in the HHA.  

E.  Determination  If the contractor concludes that one of the aforementioned exceptions applies (and unless a CMS instruction or directive states otherwise), it may process the application normally.  

If no exception applies, the contractor shall refer the case to its PEOG BFL for review.  Under no circumstances shall the contractor take action against the HHA without the prior approval of PEOG.  

If PEOG agrees with the contractor’s determination, the contractor shall send a letter to the HHA notifying it that, as a result of §424.550(b)(1), the HHA must:  

• Enroll as an initial applicant; and  

• Obtain a new state survey or accreditation after it has submitted its initial enrollment application and the contractor has made a recommendation for approval to the State/RO.  

As the new owner must enroll as a new provider, the contractor shall also deactivate the HHA’s billing privileges if the sale has already occurred.  If the sale has not occurred, the contractor shall alert the HHA that it must submit a Form CMS-855A voluntary termination application.   

Providers and/or their representatives (e.g., attorneys, consultants) shall contact their local MAC with any questions concerning (1) the 36-month rule in general and (2) whether the rule and/or its exceptions apply in a particular provider’s case.    

F.  Additional Notes  

The contractor is advised of the following: 

1. If the contractor learns of an HHA ownership change by means other than the submission of a CMS-855A application, it shall notify its PEOG BFL immediately.  

2. If the contractor determines, under Step 3 above, that one of the §424.550(b)(2) exceptions applies, the ownership transfer still qualifies as a change in majority ownership for purposes of the 36-month clock.  

To illustrate, assume that an HHA initially enrolled in Medicare effective July 1, 2010.  It undergoes a change in majority ownership effective February 1, 2012.  The contractor determined that the transaction was exempt from §424.550(b)(1) because the HHA submitted full cost reports in the previous 2 years.  On February 1, 2014, the HHA undergoes another change in majority ownership that did not qualify for an exception.  

The HHA must enroll as a new HHA under §424.550(b)(1) because the transaction occurred within 36 months of the HHA’s most recent change in majority ownership - even though the February 2012 change was exempt from §424.550(b)(1).  

Capitalization 

A. Background  

Effective January 1, 2011, and pursuant to 42 CFR §489.28(a) and §424.510(d)(9), an HHA entering the Medicare program - including a new HHA as a result of a change of ownership if the change of ownership results in a new provider number being issued - must have available sufficient funds, which we term initial reserve operating funds, at (1) the time of application submission, and (2) all times during the enrollment process, to operate the HHA for the three-month period after Medicare billing privileges are conveyed by the Medicare contractor (exclusive of actual or projected accounts receivable from Medicare).  

This means that the HHA must also have available sufficient initial reserve operating funds during the 3-month period following the conveyance of Medicare billing privileges.  

B. Points of Review  

At a minimum, the contractor shall verify that the HHA meets the required amount of capitalization:  

1. Prior to making its recommendation for approval;  

2. After a recommendation for approval is made but before the RO review process is completed;  

3. After the RO review process is completed but before the contractor conveys Medicare billing privileges to the HHA; and   

4. During the 3-month period after the contractor conveys Medicare billing privileges to the HHA.  

The HHA must submit proof of capitalization within 30 calendar days of being requested to do so by the contractor.  Should the HHA fail to furnish said proof and billing privileges have not yet been conveyed, the contractor shall deny the HHA’s application pursuant to §424.530(a)(8)(i) or (ii), as applicable.  

If billing privileges have been conveyed, the contractor shall revoke the HHA’s billing privileges per §424.535(a)(11).  Should the contractor believe it is necessary to verify the HHA’s level of capitalization more than once within a given period, e.g., more than once between the time a recommendation is made and the completion of the RO review process – the contractor shall seek approval from its DPSE liaison.  

C.  Determining Initial Reserve Operating Funds  

Initial reserve operating funds are sufficient to meet the requirement of 42 CFR §489.28(a) if the total amount of such funds is equal to or greater than the product of the actual average cost per visit of 3 or more similarly situated HHAs in their first year of operation (selected by CMS for comparative purposes) multiplied by the number of visits projected by the HHA for its first 3 months of operation--or 22.5 percent (one fourth of 90 percent) of the average number of visits reported by the comparison HHAs-whichever is greater.  

The contractor shall determine the amount of the initial reserve operating funds using reported cost and visit data from submitted cost reports for the first full year of operation from at least 3 HHAs that the contractor serves that are comparable to the HHA that is seeking to enter the Medicare program.  Factors to be used in making this determination shall include:  

• Geographic location and urban/rural status; 

• Number of visits;  

• Provider-based versus free-standing status; and  

• Proprietary versus non-proprietary status. 

The determination of the adequacy of the required initial reserve operating funds is based on the average cost per visit of the comparable HHAs, by dividing the sum of total reported costs of the HHAs in their first year of operation by the sum of the HHAs' total reported visits. The resulting average cost per visit is then multiplied by the projected visits for the first 3 months of operation of the HHA seeking to enter the program, but not less than 90 percent of average visits for a 3-month period for the HHAs used in determining the average cost per visit.  

D.  Proof of Operating Funds  

The HHA must provide CMS with adequate proof of the availability of initial reserve operating funds.  Such proof, at a minimum, must include a copy of the statement(s) of the HHA's savings, checking, or other account(s) that contains the funds, accompanied by an attestation from an officer of the bank or other financial institution that the funds are in the account(s) and that the funds are immediately available to the HHA.  

In some cases, an HHA may have all or part of the initial reserve operating funds in cash equivalents. For the purpose of this section, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that present insignificant risk of changes in value.  

A cash equivalent that is not readily convertible to a known amount of cash as needed during the initial 3-month period for which the initial reserve operating funds are required does not qualify in meeting the initial reserve operating funds requirement.  Examples of cash equivalents for the purpose of this section are Treasury bills, commercial paper, and money market funds.  As with funds in a checking, savings, or other account, the HHA also must be able to document the availability of any cash equivalents. 

CMS may later require the HHA to furnish another attestation from the financial institution that the funds remain available, or, if applicable, documentation from the HHA that any cash equivalents remain available, until a date when the HHA will have been surveyed by the State agency or by an approved accrediting organization. 

The officer of the HHA who will be certifying the accuracy of the information on the HHA's cost report must certify what portion of the required initial reserve operating funds constitutes non-borrowed funds, including funds invested in the business by the owner.  That amount must be at least 50 percent of the required initial reserve operating funds.  

The remainder of the reserve operating funds may be secured through borrowing or line of credit from an unrelated lender.  

E. Borrowed Funds  

If borrowed funds are not in the same account(s) as the HHA's own non-borrowed funds, the HHA also must provide proof that the borrowed funds are available for use in operating the HHA, by providing, at a minimum, a copy of the statement(s) of the HHA's savings, checking, or other account(s) containing the borrowed funds, accompanied by an attestation from an officer of the bank or other financial institution that the funds are in the account(s) and are immediately available to the HHA. 

As with the HHA's own (that is, non-borrowed) funds, CMS later may require the HHA to establish the current availability of such borrowed funds, including furnishing an attestation from a financial institution or other source, as may be appropriate, and to establish that such funds will remain available until a date when the HHA will have been surveyed by the State agency or by an approved accrediting organization. 

F.  Line of Credit  

If the HHA chooses to support the availability of a portion of the initial reserve operating funds with a line of credit, it must provide CMS with a letter of credit from the lender. CMS later may require the HHA to furnish an attestation from the lender that the HHA, upon its certification into the Medicare program, continues to be approved to borrow the amount specified in the letter of credit.  

G.  Documents  

As part of ensuring the prospective HHA’s compliance with the capitalization requirements, the contractor shall obtain the following from the provider:  

• A document outlining the provider’s projected budget – preferably, a full year’s budget broken out by month 

• A document outlining the number of anticipated visits - preferably a full year broken out by month  

• An attestation statement from an officer of the HHA defining the source of funds 

• Copies of bank statements, certificates of deposits, etc., supporting that cash is available (must be current)  

• Letter from officer of the bank attesting that funds are available  

• If available, audited financial statements  The contractor shall also ensure that the capitalization information in section 12,of the CMS-855A is provided.