While providers would certainly feel the pinch from the FY 2017 budget request submitted by President Barack Obama, hospitals have some new hope on receiving funds tied up in the Recovery Audit Contractor (RAC) appeals backlog. The $4.1 trillion budget proposal affects the way Medicare reimburses certain providers and seeks to foster competition in Medicare Advantage programs. Overall, $378 billion in lower health costs are proposed. Thanks to a February 9 ruling from the U.S. Court of Appeals for the District of Columbia Circuit, however, there is new hope that the billions of dollars currently tied up in the RAC appeals process may see the light of day.

Prior to the release of the budget, providers lobbied not to cut Medicare reimbursements, but to no avail. The president and CEO of the Federation of American Hospitals stated that the proposal “offer[s] hope for sustaining and expanding coverage gains. And it lifts the Medicare sequestration – but nullifies any benefit by replacing it with warmed over cuts that would threaten patient access to hospital care for low income Americans and seniors.” Under the proposed budget there are also reductions to the annual payment updates received by post-acute care providers.

There is some good news, however. Separately, on Tuesday, February 9, 2016, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit sent the case American Hospital Association et al. v. Burwell back to the lower court, ruling that it has jurisdiction to order the U.S. Department of Health and Human Services to address the enormous backlog of disputed Medicare claims. The American Hospital Association, along with several hospitals, argued that the appeals process for claims deemed improper by RACs is far too slow and leaves significant funds tied up for, in many instances, years. The plaintiffs said that this has a significant impact on the ability of hospitals and providers to serve patients. They have had to cut jobs and delay purchasing new equipment.

The opinion noted that the record demonstrates many of the appeals “have merit. Hospitals responding to a survey conducted in 2014 reported that they had appealed 52% of RAC denials, and that 66% of these appeals that had been completed were successful.” Further, “even government counsel conceded at oral argument that 43% of all Administrative Law Judge (ALJ) appeals (including from RAC and non-RAC denials) succeed.” Although the Court did note the merit of the audit process, pointing out that the government has recovered billions of dollars in improper payments, it said that the current process means hospitals “are often deprived of access to significant funds to which they are entitled. This problem takes a particular toll on hospitals with a large share of patients who rely on Medicare.”

The American Hospital Association expects the lower court to rule in its favor. “The appeals court today affirms that hospitals simply cannot afford to have billions of dollars that are needed for patient care tied up indefinitely in the appeals process. Today’s decision confirms that the agency has a clear duty to comply with the congressionally-mandated deadlines and that the statute gives hospitals a corresponding right to demand compliance. And it refutes attempts by the agency to excuse compliance because of the Recovery Audit Contractor program, noting that congressional mandates trump discretionary decisions.”