Mr. Chairman, Mr. Matsui, and Members of the Subcommittee:

Thank you for inviting me to discuss the process by which attorneys may request that the Social Security Administration (SSA) approves and pays attorney fees. We recognize the importance of timely payment to attorneys who successfully represent their clients. Representatives are entitled to world class service, as are all of SSA's customers, and in 1999, SSA made 2000,000 fee payments to attorneys totaling almost more $450 million. Today, I will discuss with you the history of the attorney fee process, SSA's current process, implementation of the new law, and some planned improvements in this area. In addition, I will present SSA's views on H.R. 4633, which would make further changes to the attorney fee process.

History of Attorney Representation and Fee Approval

The Social Security Act has recognized a role for attorneys as claimants' representatives since 1939, with the enactment of the Social Security Amendments of 1939. Pursuant to statutory authority, the Social Security Board's Administrator promulgated rules and regulations governing representatives of claimants and set the maximum fee attorneys could charge.

At first, the maximum an attorney could charge was $10 unless a petition was filed and a higher amount was authorized. In 1960, the amount an attorney could charge without approval was increased to $20 for representation before the Bureau of Federal Old-Age Benefits with amounts up to $50 for representation before the Bureau and a hearing examiner and/or the Appeals Council. Disability cash benefits had begun in 1956 and more and more appeals were on disability claims.

The Social Security Amendments of 1965 provided for withholding up to 25 percent of past-due benefits for direct payment to an attorney in court cases to ensure that claimants had access to effective legal representation at a fair rate of compensation. The Social Security Amendments of 1967 required the Secretary to approve "reasonable" attorney fees, not to exceed 25 percent of the past-due benefits, for services rendered in administrative proceedings, and authorized the Secretary to certify payment directly to an attorney from a claimant's past-due benefits.

When the Ways and Means Committee designed the Supplemental Security Income (SSI) program in 1972, it decided not to authorize any similar withholding from a claimant's past-due benefits. The Committee concluded that such a withholding would be "contrary to the purpose of the program." This conclusion still makes sense. To paraphrase Justice Brennan in the Supreme Court's decision in Bowen v. Galbreath in 1988, given the extreme financial need of SSI beneficiaries, one can conclude that withholding past-due benefits under the SSI program will cause greater hardship than withholding past due benefits from insured individuals under the Old-Age, Survivors and Disability Insurance programs.

The Omnibus Budget Reconciliation Act of 1990 created the fee agreement process to streamline payment of attorney fees by permitting SSA to routinely approve fees that were within certain limits (the lesser of $4,000 or 25 percent of past-due benefits) if the representative and client both agreed in writing to the fee. Payment of the fee could not be certified pending a 15-day administrative review period after receipt of the award notice. The 1990 legislation also continued the exclusion of SSI claims from the direct payment of attorney fees from a claimant's past-due benefits.

The Ticket to Work and Work Incentives Improvement Act of 1999 eliminated the 15-day waiting period for certification of an attorney fee and allowed SSA to charge an assessment, not to exceed 6.3 percent of the fee, to recover the costs for determining and certifying fees to attorneys. In other words, the current 6.3 percent assessment is the cost of providing the attorney with the service of calculating, withholding, and paying the fee. SSA began charging the assessment on cases on which the decision was made on or after February 1, 2000.

Process in General

Section 206 of the Social Security Act provides that a representative may not charge or collect, directly or indirectly, a fee in any amount not approved by SSA or a Federal court. SSA, under either the fee petition or fee agreement process, approves the fee that may be charged to represent a claimant for Social Security and SSI benefits in administrative proceedings. At each level of the determination process, applicants may be represented by an attorney or other individual in pursuing their claim. Over the last 20 years, the proportion of applicants with representation at the hearing level has increased dramatically; and in fiscal year 1999, about 57 percent of all cases decided at the Administrative Law Judge (ALJ) hearing level involved attorneys[SSA1].

Obtaining payment from clients is often difficult for attorneys, who sometimes have to expend considerable resources to get paid. In virtually all successful Social Security claims, SSA ensures that the attorney receives payment. By paying attorneys from withheld past-due benefits, SSA is providing a valuable service to attorneys, guaranteeing payment of all or a portion of any fees due. In SSI cases, the attorney must look to the claimant for payment.

Representatives may request payment for services through either a fee petition or a fee agreement process.

Fee Petition Process

After completing his or her services for the claimant, the representative (attorney or non-attorney) must request the Commissioner's approval of fees. Each fee petition requires an individual evaluation by an ALJ or other authorized personnel of the worth of the services. Adjudicators, in authorizing a fee, consider factors such as the extent and nature of the services performed, the complexity of the case, and the amount of time the representative spent on the case. Fees over $5,000 require additional review.

After SSA authorizes a fee, we notify the claimant and their representative of the authorized fee and their right to administrative review. Because of the highly involved nature of this process, fee petition claims are very rarely paid within 30 days.

While we do not routinely track data on the use of fee agreements and fee petitions, we have just completed a special systems run on a sample of attorney fee cases. That data show that the percentage of fee payments that were withheld and paid using the fee petition process has steadily declined from 1995 through 1999, from 30 percent in 1995 to just 13 percent in 1999. In addition, that decline appears to be continuing in 2000. From January 2000 through the end of May 2000, the percentage of fee petitions fell to just under 12 percent.

What this tells us is that more attorneys are electing to receive their fees through the fee agreement process, which I will discuss next, even though fees received through that process are capped at a specified amount. The decline in the number of fee petition requests filed suggests that, contrary to some reports, attorneys are not seeking to have their fees paid through the fee petition process because they can get a higher fee than what they could receive under the alternate process. In fact, in addition to the decline in the number of attorneys requesting payment through fee petition, 91 percent of fee petition payments approved are for less than $4,000 (generally, the amount which a fee under an approved agreement may not exceed).

Fee Agreement Process

The fee agreement process was developed to be a simpler alternative to the fee petition process. Under the fee agreement process, if the representative and claimant sign and submit a written agreement as to the amount of the fee, SSA will generally approve the agreement if the specified fee does not exceed the lesser of 25 percent of the claimant's past-due benefits or $4,000. SSA does not withhold past-due benefits for non-attorney representatives or in SSI cases, but still must approve the fee. The Commissioner then notifies the respective parties of the maximum fee and right to request administrative review. This is usually the quicker and more common method to set the fee.

Based on the sample run just completed, the number of fee agreement cases accounted for almost 87 percent of fee payments processed in 1999. The sample for 1995 showed 70 percent were fee agreement cases. The percentage for this year through the end of May rose to 88 percent. Obviously, more and more attorneys prefer to use the more streamlined process, which suggests that attorneys are not concerned about the $4,000 limitation. The $4,000 limit was put in place

based on a recommendation that SSA adopt a rebuttable presumption that a fee equaling 25 percent of the claimant's past-due benefits, up to $4,000, is reasonable. In 1999, the average payment under the fee agreement process was $2,555.

Implementation of the New Law

With the heightened awareness of the attorney fee process generated by enactment of the 6.3 percent assessment has come an increase in the number of complaints from attorneys about the fee process. We recognize the importance of timely payment to attorneys who successfully represent their clients. With elimination of the 15-day waiting period, some cases are being paid more quickly. Other cases, however, are only being helped marginally.

To address this issue, we have taken several measures to clear the backlog of outstanding fee claims. Among these measures are providing 111 work years to technical staffs, diverting resources from other work loads to process the attorney fee claims, and giving priority to these outstanding fee claims to see if they can be paid immediately.

These measures have worked. By March 21, 2000, SSA had reviewed approximately 79,700 (or 93 percent) of the 85,991 claims that were outstanding as of February 2, 2000. Based on these reviews, we immediately paid fully developed claims. When additional development was needed, we requested it on a priority basis.

Furthermore, as of May 15, 2000, SSA had paid 167 (or approximately 84 percent) of the 197 fee claims that were brought to our attention by this subcommittee. We plan to resolve the outstanding claims soon. Although we have resolved many of these cases, we realize that there continue to be concerns about delays in paying attorney fees.

The legislation introducing the attorney assessments is being implemented in phases, beginning with an all manual process, with plans to automate steps of the process as time and resources were to permit. This is not unlike implementation of many SSA legislative initiatives. The process of paying the attorney in Title II cases is not completely manual, although it does require a manual review and input to begin the Treasury payment process.

SSA's systems are set up to contain information on the primary numberholder and any auxiliary beneficiaries only. Information about third party payments, such as attorney fee payments, is not captured on SSA's Master Beneficiary Record (MBR) system.

If the Agency decides to automate attorney payments, the effort would be extremely significant, involving major redesign of the Title II data structures and client files. One requirement for paying non-beneficiaries would be to develop and record some discrete identifier for each payment and payee to maintain a good audit trail. This might be the attorney's SSN or a firm's Tax ID number or Employer ID number. Up to now, the attorneys and their advocacy groups have been adamant that they not be required to supply this or similar identifying information to SSA.

Proposal to Change the Attorney Fee Process

H.R.4633, recently introduced by you and other members of the Subcommittee, would not allow SSA to impose the attorney fee assessment if payment is not made to the attorney within 30 days after the initial certification of payments to the beneficiary.

The current fee determination process, whether fee agreement or fee petition, requires manual actions and considerable coordination between hearing office functions and processing center functions. Because this is a complex process, as I will describe, involving many steps, manual actions, and even mailing time, the new legislation would require that SSA forfeit the amount we assess the attorney in two-thirds of the attorney fee cases.

While some fee agreement cases may require only limited development, and SSA may even pay the attorney and the claimant at the same time, that is not always the case. Many fee agreement cases require additional development (for instance, if a workers' compensation computation is needed to calculate the proper amount of past-due benefits or if we need to develop applications for the children or spouse of the claimant), and the claimant is awarded ongoing benefits pending determination of past-due benefits. In those cases the attorney is not paid until past-due benefits are awarded.

In fee petition cases, direct payment to the attorney must await both the calculation of the past-due benefits and authorization of the fee. Once past-due benefits have been calculated and the fee has been approved, direct payment is made to the attorney.

Fee authorizations for larger amounts can also take longer to process because they often occur in difficult, complicated cases involving a lengthy appeals process. This results in SSA having to consider a long, detailed record of all the services that were performed in order to determine a "reasonable fee." In addition, fee authorizations for more than $5,000 involve an additional step, i.e., our policy requires a review and an approval by the Attorney Fee Officer in the Office of Hearings and Appeals, a Regional Chief ALJ, or the Deputy Chief Administrative ALJ.

As you know, SSA does not have a tracking system in place from the start to the finish of the process to measure the time it takes us to pay attorney fees; however, attorney fees in fee agreement cases have generally been paid within 90 days of the award notice. As a result of changes that we have already made, including the elimination of the 15-day pre-payment holding period for fee agreement cases, payment of attorney fees can now generally be made within 60 days of the award notice.

As I mentioned, H.R.4633 would not allow SSA to impose the attorney fee assessment if payment is not made to the attorney within 30 days after the initial certification of payments to the beneficiary. There are cases in which we are not able to pay the attorney until completion of the additional development I have described. Any time limitation that would restrict SSA from imposing the user fee assessment should exclude both fee petition cases and fee agreement cases for which there is outstanding development.

While we agree that, in general, attorneys should receive their fees timely, there are cases in which the extra time needed to process the attorney fee payment is not within SSA's control. These cases include not only fee agreement cases with outstanding development, but virtually all fee petition cases, since the attorney is not required to file a request for payment until 60 days from the date of the decision, and may even request an extension beyond the 60 days. In addition, some cases take significantly longer to pay because of the need to develop additional evidence, such as proof of workers' compensation payments.

The estimated $123 million in proceeds from the 6.3 percent assessment over the first 5 years would be directed to the title II trust funds. Thus, any restriction on SSA's ability to impose the assessment would result in a loss to the trust funds. For instance, in the case of a 30-day time limit, the Actuaries estimate that about two-thirds of the payments would be lost[SSA2].

Extending Attorney Fee Withholding to the SSI Program

SSI is a means-tested program providing cash assistance to aged, blind, and disabled individuals whose incomes and resources are below minimal levels set by law. Currently, individuals with countable income above $512 a month and countable resources above $2,000 are not eligible for SSI. As you can see, SSI beneficiaries are among the most vulnerable Americans in that they have little in the way of other income or personal savings.

Arguably, SSI applicants are even worse off in that they often have very small amounts of monthly income and are even poorer than SSI beneficiaries. Any income or resources that they do have is needed for food, clothing and shelter. It is likely that they may go into debt while they are waiting for their SSI applications to be processed.

When they finally receive their SSI benefits, those benefits often are used to pay bills or repay loans that they incurred during the months that their SSI applications were pending. We are concerned that withholding 25 percent of accumulated benefits might take away funds needed for basic needs. It would also eliminate the option that SSI beneficiaries and their attorneys could work out agreements to pay the fee out over time.

In addition, there are other implications with regard to direct withholding from SSI payments apart from the financial impact on SSI beneficiaries. There are also serious workload implications for SSA regarding extending the service we offer attorneys representing Social Security claimants to SSI claimants. For instance, it would require major systems changes to existing SSA programs, and would require our field office employees to take direct actions to pay the attorney fees, which they do not currently do, as well as responding to requests for information regarding payments to SSI attorneys and explaining notices. At this time, we do not have an estimate for the number of workyears we will need to implement direct withholding of attorney fees in SSI cases.

Review Process

Our procedures to pay attorneys, particularly in fee petition cases involving large amounts, are admittedly complex. That is why the Commissioner has requested a review of the attorney fee process that is currently underway. Part of the Commissioner's review will be to study ways in which we can better measure our performance in attorney fee processing. This review will allow us to identify those areas in which we may be able to improve that performance. You can be assured that we will share the results of that review. It is expected to be completed by the end of this year.

Until our review is completed, however, I urge you not to make changes in the current process. We need time to evaluate the current assessment process, which has been in place for a very short time. Until we have the results of our review, we would view any further changes to the program with extreme hesitation.

Our review of the process will cover a number of issues, including:

We hope to use the results of this review to significantly improve the process. I will keep you informed of our progress. I would also point out that the legislation allows SSA to lower the 6.3 percent assessment if the cost of administering the attorney fee process is less than the revenue raised by the assessment. As part of our overall review, we are beginning a study to see whether our original estimates of the costs of providing the attorney fee payment process and the 6.3 percent assessment are still roughly equal. If they are not, we will lower the assessment.

Prompt Payment Act

You asked me to comment on the applicability of the Prompt Payment Act to the attorney fee process. The Prompt Payment Act, enacted in 1982 and amended in 1988, ensures that companies providing goods or services to the government are paid in a timely manner. Under Section 3901 of title 31 of the U.S. Code, a business can collect an interest penalty on late payments from the government. According to regulations, the Prompt Payment Act applies in the areas of procurement contracts, vendor payments, utility payments, and Commodity Credit Corporation payments.

According to the plain language of the statute and its regulations, SSA's direct payment of attorney fees on behalf of Social Security claimants is not subject to the Prompt Payment Act. Through the direct payment system, SSA merely serves as an intermediary to facilitate and ensure payment of attorney fees owed by the client, the Social Security claimant. In fact, SSA does not use its own funds to make direct payment of attorney fees, but simply issues the payment on the claimant's behalf through the Treasury Department. Consequently, Section 3901 does not apply to SSA's unique relationship with claimants' attorneys, and SSA is not required by that law to add interest to the attorney fees it directly pays.

Conclusion

In conclusion, Mr. Chairman, the Social Security Administration needs sufficient resources in order to process its work effectively. Lack of adequate resources affects our ability to timely process not only attorney fees but all Agency workloads. The Commissioner has presented SSA's FY 2001 budget to the House Appropriations Subcommittee on Labor, Health and Human Services and Education. That subcommittee has, however, recommended a reduction of $156 million below the President's request. This reduction is even greater when compared to the Commissioner's budget request. The Commissioner is on record saying that funding at this level would seriously undermine stable staffing and performance for the agency.

As to attorney fee processing, we are committed to providing the best service possible to the attorneys who represent our claimants, but we face serious challenges as we work to improve our performance in this area.

Until our review of the attorney fee process is complete, we do not know what our level of performance will be. As I have pointed out, however, the 30-day time restriction imposed by the bill could result in a loss to the Social Security trust funds in excess of $80 million over five years.

We look forward to working with you and the other members of the Subcommittee to find ways to meet our resource needs. I will be happy to answer any questions you may have. [SSA1]In 1970, 20 percent of hearings were represented; in 1980 that figure was 41 percent.
[SSA2]Estimate from OAct.