This is the accessible text file for GAO report number GAO-04-716T
entitled 'Medicare: CMS Did Not Control Rising Power Wheelchair 
Spending' which was released on April 28, 2004.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.


Before the Committee on Finance, U.S. Senate:

United States General Accounting Office:


For Release on Delivery Expected at 10:00 a.m. EDT:

Wednesday, April 28, 2004:


CMS Did Not Control Rising Power Wheelchair Spending:

Statement of Leslie G. Aronovitz:

Director, Health Care--Program Administration and Integrity Issues:


GAO Highlights:

Highlights of GAO-04-716T, a testimony before the Committee on 
Finance, U.S. Senate 

Why GAO Did This Study:

Medicare spending for power wheelchairs, one of the program's most 
expensive items of durable medical equipment (DME), rose 450 percent 
from 1999 through 2003, while overall Medicare spending rose by about 
11 percent for the same period, according to the Centers for Medicare 
& Medicaid Services (CMS). 

This spending growth has raised concerns that Medicare made improper 
payments and has payment rates that are out of line with market 
prices. In May 2003, the Department of Justice indicted power 
wheelchair suppliers in Texas alleged to have fraudulently billed 
Medicare. The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) contains provisions regarding DME, 
such as changing payment setting methods. GAO was asked to examine (1) 
steps taken by CMS and its contractors to identify and respond to 
improper payments for power wheelchairs and (2) how MMA will affect 
CMS's ability to set payment rates for DME. 

To examine these issues, GAO analyzed claims data reports for CMS's 
four DME regions, reviewed applicable legislation, regulations, and 
CMS and contractor documents, and interviewed CMS and contractor 
officials, DME suppliers and manufacturers, DME industry 
representatives, and beneficiary advocacy groups. GAO focused 
attention on region C, which includes Texas. 

What GAO Found:

Although the four contractors that process DME claims identified 
escalating power wheelchair spending as early as 1997, CMS did not 
lead a coordinated response until September 2003. Inadequate 
information to review claims; limited resources, which caused 
contractors to scale back their claims review efforts; and flaws in 
the process to screen suppliers before they could bill Medicare left 
the program vulnerable to millions of dollars in claims paid 
improperly. Medicare spending for power wheelchairs grew fastest in 
region C, but resources to review claims were particularly constrained 
for that region's contractor. CMS has introduced a 10-point plan that 
appears to be a reasonable approach to reduce improper payments. 

Medicare Power Wheelchair Spending, Region C Compared to All Other 

[See PDF for image]

Note: Medicare spending includes federal payments and beneficiary cost 

[End of figure]

The MMA requires CMS to use competitive bidding to set payment rates 
for DME. Competitive bidding shows potential for CMS to set market-
driven payment rates to help keep pace with changes in prices for 
medical equipment. 

GAO discussed these findings with program officials, who provided 
technical comments.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Leslie G. Arnonovitz 
at (312) 220-7600.

[End of section]

Mr. Chairman and Members of the Committee:

I am pleased to be here today as you discuss issues regarding Medicare 
program payments for power wheelchairs. Medicare fee-for-service power 
wheelchair spending is expected to total over $1 billion in 2003. 
Spending for power wheelchairs rose 450 percent from 1999 through 2003, 
according to the Centers for Medicare & Medicaid Services 
(CMS),[Footnote 1] the agency responsible for managing the Medicare 
program. In contrast, overall Medicare spending increased by about 11 
percent during the same period. At about the same time, the number of 
beneficiary claims for this item of durable medical equipment (DME) 
nearly tripled, while the overall Medicare population increased by just 
1 percent.[Footnote 2] Power wheelchairs rank among Medicare's most 
expensive items of DME, and in 2003, Medicare paid about $5,000 for 
each basic power wheelchair with standard options, and even more if 
special accessories were included.

Escalating spending can be fueled by improper payments and payment 
rates that are out of line with market prices. Improper payments can 
result from mistakes on the part of suppliers, beneficiaries, or 
beneficiaries' physicians. For example, improper payments can occur 
when suppliers submit claims on behalf of beneficiaries who do not meet 
Medicare's coverage criteria for power wheelchairs. Improper payments 
can be due to fraud--intentional misrepresentation--and abuse. For 
example, in May 2003, the Department of Justice began indicting some 
physicians and wheelchair suppliers in Texas that were alleged to have 
billed Medicare for power wheelchairs that beneficiaries never 
received. Rising spending can also result when Medicare pays above-
market prices for power wheelchairs. We and the Department of Health 
and Human Services (HHS) Office of Inspector General (OIG) have 
reported that Medicare pays more than other insurers and public 
programs for some items of DME--including power wheelchairs. As[Footnote 
3] we have testified in the past, CMS and its contractors--insurance 
companies that administer Medicare fee-for-service DME claims, called 
DME regional carriers--have had difficulty setting payments for DME that 
reflect current health care market prices. The[Footnote 4] Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
contains provisions to address some of the difficulties regarding DME 
payment setting and requirements that will affect the conditions under 
which power wheelchairs are provided. 

[Footnote 5] My remarks today will focus on (1) steps taken by CMS and 
its contractors to identify and respond to improper payments for power 
wheelchairs and (2) how MMA will affect CMS's ability to set payment 
rates for DME. Because about two-thirds of power wheelchair payments 
were made by Palmetto Government Benefits Administrators in 
2002--including those in Texas--I will be focusing some of my remarks 
specifically on that DME regional carrier.

To evaluate the steps CMS and its contractors took in identifying and 
responding to improper payments, we reviewed DME claims payment data 
analysis reports on DME claims payment from CMS's statistical 
contractor; written policies and procedures from CMS and its 
contractors; budget and expense data for contractor activities; 
Medicare coverage policies, which explain the criteria for determining 
whether and under what conditions items are covered; and CMS's plan for 
responding to payment problems with Medicare's power wheelchair 
benefit. We also interviewed CMS and contractor officials, suppliers, 
industry representatives, manufacturers, and beneficiary advocacy 
groups. For DME claims payment data covering 1997 to 2002, we reviewed 
CMS and contractor internal control procedures to help ensure that 
these data were accurate, timely, and complete, and, where appropriate, 
we tested data for internal consistency. We determined that these data 
were adequate for addressing the issues in this testimony. Contractor 
budget and expense data are self-reported by CMS or the contractors, 
and we did not validate these data. To understand CMS's experience with 
setting payments for DME that are in line with market prices, we 
reviewed CMS regulations and other documents, and interviewed CMS 
staff. We also reviewed our previous reports and reports issued by the 
HHS OIG and CMS to identify alternative approaches to setting prices 
for DME. We conducted our work from February through April 2004 in 
accordance with generally accepted government auditing standards.

In summary, starting as early as 1997, contractors identified problems 
with power wheelchair payments, but it was not until September 2003 
that CMS began to lead a full-scale, coordinated effort to address 
improper payments. Further, the agency did not address program 
safeguard shortcomings that contributed to the growth in spending for 
this benefit. These included inadequate information to properly review 
and adjudicate claims; limited resources, which caused contractors to 
scale back their claims review efforts; and flaws in the process to 
screen suppliers before they could bill Medicare. CMS's recent 
coordinated effort to reduce improper payments for power wheelchairs 
through a 10-point plan appears reasonable, and the agency has at least 
started, and in some cases has implemented, all of its elements. The MMA 
requires CMS to use a new approach to setting DME payments by using 
competitive bidding among suppliers to help determine payment 
rates.[Footnote 6] The agency's use of Medicare's prior authority to 
adjust DME payment rates has not enabled Medicare to keep pace with 
changes in prices for medical equipment. As a result, Medicare often 
pays more for a DME item than other public payers. In contrast, 
competitive bidding shows promise as a way for CMS to use market forces 
to set more reasonable payment rates.


Most Medicare beneficiaries purchase part B insurance, which helps pay 
for certain physician, outpatient hospital, laboratory, and other 
services; medical supplies and DME; and certain outpatient drugs. A 
wide variety of DME items--including power wheelchairs--are covered if 
they are medically necessary for the beneficiary's use in the home and 
prescribed by a physician. Medicare part B pays for most DME using 
state-specific fee schedules based on statewide average supplier 
charges on Medicare claims paid during 1986 and 1987. Since then, fee 
schedules have been updated for inflation in some years. Medicare pays 
80 percent and the beneficiary pays the balance of either the actual 
charge submitted by the supplier or the fee schedule amount, whichever 
is less. If a beneficiary has supplemental insurance, the insurance may 
cover the 20 percent copayment.

Four DME regional carriers are each responsible for reviewing and 
paying claims submitted by outpatient providers and suppliers on behalf 
of beneficiaries living in specific parts of the country.[Footnote 7] 
For example, Palmetto is responsible for processing claims for 
beneficiaries permanently residing in region C, which encompasses 14 
states--including Texas and Florida--and Puerto Rico and the Virgin 

The DME regional carriers and other contractors conduct program 
safeguard activities to identify and respond to improper payments for 
DME claims (see table 1). In addition to the DME regional carriers, 
three other contractors play important roles:

* The Statistical Analysis Durable Medical Equipment Regional Carrier 
(SADMERC) analyzes claims data and identifies and reports trends in 
billing by item, geographic region, supplier, and physician to DME 
regional carriers and CMS staff.

* TriCenturion, LLC is a specialized program safeguard contractor 
responsible for reviewing claims and investigating and developing fraud 
cases for claims processed by region A. The other three DME regional 
contractors conduct these activities themselves for the claims they 

* The National Supplier Clearinghouse (NSC) enrolls and authorizes 
suppliers to bill Medicare by evaluating supplier applications and 
performing on-site visits to suppliers' places of business.

CMS oversees these contractors' activities through various means, such 
as performing yearly site visit evaluations, reviewing planned 
activities, monitoring data and periodic reports, and conducting 
regular conference calls and other monitoring activities.

Table 1: Contractors' Activities to Identify and Respond to Improper 

Responsibility: Analyze billing; 
Contractor: SADMERC; 
Activities: The SADMERC conducts ongoing data analysis and reporting 
for the DME regional carriers and CMS. Its reports are used to 
identify trends in payment and potential fraud.

Responsibility: Analyze billing; 
Contractor: TriCenturion and DME regional carriers for regions B, C, 
and D; 
Activities: TriCenturion and the DME regional carriers for regions B, 
C, and D analyze claims payment data to uncover improper payments or 
to investigate and develop fraud cases.

Responsibility: Review claims against coverage criteria; 
Contractor: TriCenturion and DME regional carriers for regions B, C, 
and D; 
Activities: These contractors are responsible for conducting medical 
reviews of submitted claims either before or after payment to 
determine if the claims should be, or should have been, paid. Claims 
are reviewed to see if the beneficiaries' conditions meet Medicare 
coverage criteria. Medical review can be conducted through automated 
decisions to pay or deny claims based on coverage criteria or may 
require complex medical reviews. Complex medical reviews are conducted 
by clinical staff, such as a nurse or doctor, who examines additional 
documentation provided by the supplier or the beneficiary's physician, 
such as copies of the beneficiary's medical records or an evaluation 
by a physical or occupational therapist of the beneficiary's ability 
to walk. If medical review identifies claims that should not have been 
paid, the DME regional carrier that paid the claim is responsible for 
collecting overpayments and educating the supplier about appropriate 

Responsibility: Investigate potential fraud; 
Contractor: TriCenturion and DME regional carriers for regions B, C, 
and D; 
Activities: These contractors investigate cases of suspected fraud, 
which can involve conducting a more detailed analysis of claims and 
other investigative steps. Once a case has been developed, it is 
referred to the HHS OIG or to law enforcement for prosecution.

Responsibility: Enroll suppliers; 
Contractor: NSC; 
Activities: NSC is responsible for verifying information on supplier 
applications to ensure that suppliers meet 21 standards and that only 
valid suppliers can bill Medicare. NSC also issues suppliers' billing 
numbers, maintains a central database of information on DME suppliers, 
reenrolls active suppliers, and assists with fraud and abuse 

[End of table]

Source: GAO.

CMS Slow to Respond to Escalating Power Wheelchair Payments, but Recent 
Plan Appears Reasonable:

Although there were multiple warning signs over a 6-year period that 
growth in claims and payments for power wheelchairs may have been 
excessive, CMS did not lead a full-scale, coordinated effort to address 
the issue until September 2003. CMS has recently taken actions to 
reduce improper payments for power wheelchairs through a 10-point 
action plan. In addition, Congress recently took steps intended to 
bolster efforts to tackle fraud and abuse in the power wheelchair 

Despite Recurrent Warnings, CMS Did Not Lead Effort to Reduce 
Escalating Power Wheelchair Payments Until 2003:

In 1997, CMS's data analysis contractor--the SADMERC--issued an alert 
about rapid increases in the utilization of power wheelchairs. As part 
of its data monitoring efforts, the SADMERC noted that payments for 
power wheelchairs had tripled from October 1995 to March 1997, growing 
from almost $8 million to about $24 million. For the next few years, 
the SADMERC's reports continued to regularly highlight the abnormally 
rapid growth in power wheelchair payments, identifying the states and 
the suppliers for which claims volume was particularly high. Although 
these reports went to agency officials responsible for ensuring that 
program funds are safeguarded, CMS staff told us that their 
contractors--the DME regional carriers--have primary responsibility 
for using and responding to data indicating rapid increases in 

After reviewing SADMERC data in 1997, all four DME regional carriers' 
medical directors became concerned and identified possible approaches 
to address what they described as “tremendous growth" in Medicare power 
wheelchair spending. In a joint April 1998 memorandum sent to CMS, the 
medical directors notified the agency of these concerns and requested 
assistance to address power wheelchair payment growth. The 1998 
memorandum cited a 472 percent increase in power wheelchair spending 
from the first quarter of 1995 compared to the fourth quarter of 1997, 
and proposed implementing changes in the coverage policy for power 
wheelchairs. However, because of competing priorities, the DME regional 
carrier medical directors never completed the policy revision, nor did 
CMS direct them to do so. Figure 1 illustrates national Medicare power 
wheelchair spending between 1997 and 2002.

Figure 1: National Medicare Power Wheelchair Spending:

[See PDF for image]

Note: Medicare spending includes federal payments and beneficiary cost 

[End of figure]

Between 1998 and 2000, DME regional carriers again tried to address 
significant increases in power wheelchair payments by using the tools 
that they already had to address improper payments. The DME regional 
carriers examined power wheelchair claims through medical review--either 
before or after claims payment--and investigated potential fraud cases. 
However, CMS decreased the funding it provided to DME regional carriers 
to conduct medical review activities about 22 percent, comparing fiscal 
year 1999 and fiscal year 2003. Funding for medical review covers 
activities such as computerized claims review and complex medical 
review. For example, in fiscal year 2003, Palmetto received $3.1 
million for medical review activities, about 15 percent less than it 
received in 1999. The decline in funding for claims review is even more 
dramatic when weighed against the increase in Medicare claims payment 
by DME regional contractors. Overall, the amount of medical review 
funding per $100 in submitted claims dropped over 50 percent from 
fiscal year 1999 through 2003 for claims processed by the DME regional 
carriers. Moreover, compared to the three other regions, Palmetto 
received less medical review funding per $100 in submitted claims each 
year from fiscal year 1999 through 2003. As figure 2 shows, Palmetto 
had the highest volume of power wheelchair claims payment and its 
payment growth was outstripping that of other regions. Although 
Palmetto had more than tripled the number of submitted power wheelchair 
claims on which it conducted complex medical review from fiscal year 
2000 to 2002, it still only reviewed about 3 percent of its power 
wheelchair claims in 2002. The number of claims that received complex 
medical review in regions B, C, and D fell 39 percent from fiscal years 
2001 through 2003. [Footnote 8]Medical review is one of the activities 
that CMS has noted as saving Medicare about $17 for every dollar 
spent.[Footnote 9]

Figure 2: Regional Medicare Power Wheelchair Spending:

[See PDF for image]

Note: Medicare spending includes federal payment and beneficiary cost 

[End of figure]

In the late 1990s, power wheelchair fraud had also surfaced as a 
serious problem. Palmetto launched a major fraud investigation of power 
wheelchair suppliers in Florida and other southeastern states in 1996. 
This investigation uncovered fraudulent supplier activities, including 
billing for services not rendered or not medically necessary and 
delivering a less expensive power-operated vehicle when billing for a 
more expensive power wheelchair. As a result of this investigation, 
Palmetto prepared a fraud alert about power wheelchairs for other 
contractors and investigative agencies, which CMS issued in June 1998. 
While fraud alerts increase external awareness of potential 
vulnerabilities, they also help the agency direct its efforts to 
address potential fraud. In this case, however, CMS did not require DME 
regional carriers to specifically scrutinize power wheelchair claims or 
undertake any other efforts to identify fraudulent billing for this 

In June 2000, the DME regional carriers' medical directors sent a 
second jointly signed memorandum to CMS officials. They noted that, 
despite their efforts over a 2-year period to review power wheelchair 
claims, payments for power wheelchairs continued to increase 
significantly. The 2000 memorandum noted that Medicare spending for 
power wheelchairs had grown by 869 percent from the first quarter of 
1995 compared to the first quarter of 2000, and identified several 
problems that the carriers could not address alone. Despite this second 
warning from the contractors, CMS officials still did not attempt to 
aggressively address escalating power wheelchair spending--for example, 
it did not require a coordinated and consistent medical review or fraud 
investigation strategy by DME regional carriers.

One problem cited in the 2000 memorandum was the disconnect between 
documentation the physician is required to sign to order a wheelchair 
and the program's coverage criteria. To be reimbursed for power 
wheelchairs, suppliers must provide the carrier with a claim form and a 
supporting document called a Certificate of Medical Necessity (CMN). 
The physician or other clinician fills out a section of the CMN that 
answers questions about the beneficiary's physical condition. However, 
the CMN does not ask about the beneficiary's condition in enough detail 
for the DME regional carrier to determine whether Medicare's coverage 
criteria are met. For example, the CMN for power wheelchairs questions 
whether the beneficiary requires a wheelchair to move about the home. 
In contrast, Medicare's coverage policy for power wheelchairs is more 
specific, stating that the item is covered "if the patient's condition 
is such that without the use of a wheelchair, he would otherwise be 
bed-or chair-confined."[Footnote 10] Further, Medicare's coverage 
criteria state that the patient must be capable of safely operating the 
controls of a power wheelchair--a question not asked in the CMN.

Despite the lack of a coordinated effort by CMS to curb rising costs, 
we found that the DME regional carriers tried to address the problem on 
their own. For example, several had shifted resources to medical 
reviews of power wheelchair claims. Around March 2002, Palmetto began 
to suspect another fraudulent wheelchair scheme was occurring in a 
different state. Specifically, Palmetto began to suspect that 
fraudulent power wheelchair claims had been submitted by suppliers in 
Harris County, Texas, and other parts of the state. A Palmetto fraud 
analyst had identified highly aberrant billing behavior for one 
supplier, which he began to monitor. Palmetto analysts also discovered 
that some suppliers were billing for a power wheelchair or for power 
wheelchair accessories multiple times on behalf of the same 
beneficiaries. By January 2003, Palmetto had referred many cases of 
suspected fraud concerning suppliers of power wheelchairs to the Dallas 
office of the HHS OIG for potential prosecution. Palmetto conducted 
additional investigations and made referrals throughout 2003, and 
investigations continue today. While Palmetto kept CMS informed about 
its investigations, its efforts to develop suspected fraud cases in 
2002 still did not convince CMS officials that it was time to take 
decisive action.

Also in 2002, legitimate power wheelchair suppliers in Harris County, 
Texas, became increasingly suspicious about other suppliers' activities 
in their area. For example, the two suppliers with whom we spoke 
learned that Medicare had paid other suppliers for power wheelchairs 
that beneficiaries had never received. Suppliers told us that they, 
other suppliers, and beneficiaries reported their suspicions to the 
Palmetto fraud unit, the Medicare fraud hotline, the Federal Bureau of 
Investigation, and the HHS OIG. The suppliers' suspicions were 
supported by data indicating that, in 2002, 14 percent of Medicare's 
power wheelchair spending was for beneficiaries in Harris County, 
although only 1 percent of Medicare beneficiaries lived in that area in 

Later in 2002, the CMS contractor responsible for DME supplier 
enrollment--NSC--noted that Texas had an unusually high number of 
suppliers compared to the number of beneficiaries residing there. Upon 
CMS's request, NSC stationed one of its own employees in the Harris 
County area to conduct supplier site visits. During these site visits 
that began in September 2002, NSC's inspector found instances of 
suppliers that did not have an appropriate place of business or had 
moved the business without giving NSC a forwarding address. Based on 
these findings, from August 2003 through January 2004, NSC's inspector 
led an effort to conduct site visits of every active supplier in Harris 
County, Texas, that had not received a site inspection since January 
2003--about 1,300 suppliers.[Footnote 11] These inspections found 
additional problems, including suppliers that lacked appropriate 
inventory or insurance or did not meet other requirements for Medicare 
DME suppliers. As a result, from September 2002 through March 2004, NSC 
revoked 367 Medicare power wheelchair supplier billing numbers for 
suppliers in the Harris County area. Supplier revocations occurred 
because steps taken by NSC to enroll only legitimate suppliers were 
unsuccessful. These steps did not protect Medicare from suppliers that 
failed to meet the supplier standards or committed power wheelchair 
fraud.[Footnote 12]

Three weaknesses in the supplier enrollment process left the Medicare 
program vulnerable to unscrupulous suppliers. First, NSC failed to 
verify submitted documents. NSC officials told us that they had 
traditionally accepted copies of key documents, such as liability 
insurance forms, at face value without verifying them. Failure to 
verify the accuracy of these documents had enabled supplier applicants 
to submit falsified papers and allowed them to become enrolled as 
Medicare suppliers.

Second, the standards NSC uses to evaluate suppliers are not explicit. 
Officials at CMS and NSC told us that some of Medicare's supplier 
standards lack specificity as criteria for NSC to use in determining 
the legitimacy of a supplier and played a role in allowing widespread 
fraud in Harris County, Texas. For example, one standard requires that 
the supplier "fills orders, fabricates, or fits items from its own 
inventory or by contracting with other companies for the purchase of 
items necessary to fill the order. If it does, it must provide, upon 
request, copies of contracts or other documentation showing compliance 
with this standard." This standard does not specify a reasonable amount 
or type of inventory that would be expected, given the items the 
supplier intends to provide to Medicare beneficiaries. Further, NSC 
staff noted that the standard does not preclude a supplier from using 
another supplier as its primary source of inventory--even if neither of 
the two suppliers had enough inventory to be viable businesses. 
According to NSC staff, the broad language used in this standard is 
difficult to interpret and enforce. In their opinion, the broad 
language helped allow the widespread fraud in Harris County.

Third, the predictability of site visits may render them less 
effective. CMS requires NSC to conduct a site visit of a supplier to 
assess compliance with the 21 standards before authorizing a new 
supplier to bill Medicare, and to conduct a site visit every 3 years 
thereafter, which is when suppliers must reenroll.[Footnote 13] 
However, applicants know to expect a site visit prior to receiving a 
supplier number and during a reenrollment period. Therefore, suppliers 
that are intent on committing fraud can present an illusion of 
legitimacy long enough to pass the inspection, knowing an inspector is 
not likely to return for 3 years.

Recent Steps May Help Curb Improper Payments:

CMS officials indicated to us that they first became concerned about 
power wheelchair billing in early 2003. At that time, CMS created a 
task force to address abuses of the wheelchair benefit and developed a 
10-point plan for addressing this potential abuse. CMS issued the plan 
in September 2003. In December 2003, Congress passed the MMA, which 
includes measures that should also help CMS deter improper payments for 
power wheelchairs and other DME items.

CMS's 10-point plan provides a reasonable framework to strengthen the 
processes that CMS and its contractors use to identify and respond to 
improper payments for power wheelchairs. Two points in the plan 
specifically address fraud, abuse, and utilization issues in Harris 
County, Texas. They require CMS staff to review all payments for power 
wheelchairs in the county and conduct mandatory training of all power 
wheelchair suppliers in the county about Medicare coverage rules. CMS's 
review of payments in Harris County is ongoing, and all suppliers in 
Harris County had been trained as of October 2003. Other parts of the 
10-point plan are in different stages, from planning or early 
implementation to completion. Information on each of the 10 points is 
presented in table 2.

Table 2: CMS's 10-Point Plan:

Point: 1; Purpose: Prevent fraudulent suppliers from enrolling in 
Medicare for the sole purpose of receiving inappropriate payments; 
Plans and actions: CMS stated that it would begin to aggressively 
scrutinize all new applications. NSC stopped issuing new supplier 
numbers in Harris County, Texas, in April 2003 and nationally in 
September 2003. NSC began issuing supplier numbers again in November 

Point: 2; Purpose: Identify and prevent inappropriate enrollment of 
suppliers by providing a more detailed screening process, allowing CMS 
the time needed to properly review applications, and providing 
sanctions against suppliers abusing the enrollment process; Plans and 
actions: CMS stated its intent to publish regulations to enhance the 
ability to screen new supplier applications.

Point: 3; Purpose: Address rampant fraud and abuse in the Harris 
County, Texas, area; Plans and actions: CMS stated that, effective 
with the plan's issuance, all payments for power wheelchairs in the 
Harris County, Texas, area would be individually approved by CMS staff 
in the Dallas regional office.

Point: 4; Purpose: Ensure that all wheelchair suppliers in Harris 
County, Texas, know and understand Medicare coverage rules; Plans and 
actions: CMS stated that it would require all wheelchair suppliers in 
Harris County, Texas to attend mandatory training on wheelchair 
coverage and medical review policies.

Point: 5; Purpose: Quickly identify and punish fraudulent suppliers and 
stop the improper "hemorrhaging" of Medicare dollars; Plans and 
actions: CMS, DME regional carriers, and law enforcement agencies will 
collaborate to process civil and criminal prosecutions. CMS also 
pledged to use payment suspensions.

Point: 6; Purpose: Ensure that national policy accurately defines the 
conditions under which Medicare will cover mobility products; Plans 
and actions: CMS stated that it would finalize regulations revising 
coverage policy for power wheelchairs and scooters; the policy will 
require a medical provider to see a patient before prescribing a power 
wheelchair or scooter.

Point: 7; Purpose: Accurately portray the clinical conditions for which 
mobility products are reasonable and necessary and facilitate correct 
billing and payment for mobility devices; Plans and actions: CMS 
stated that DME regional carriers would immediately adopt local medical 
review policies to educate suppliers and beneficiaries on Medicare's 
coverage criteria for wheelchairs.

Point: 8; Purpose: When national billing and utilization trends are 
identified, ensure that only claims that are reasonable and necessary 
are paid and resolve national billing problems in a consistent manner; 
Plans and actions: CMS stated that the DME regional carriers would 
adopt a consistent approach to medical review.

Point: 9; Purpose: Ensure that Medicare is paying appropriately for 
power wheelchairs; Plans and actions: CMS stated that it would develop 
inherent reasonableness guidelines and apply this process first to 
power wheelchairs.

Point: 10; Purpose: Put physicians and beneficiaries back in charge of 
their mobility equipment decisions; Plans and actions: CMS stated that 
it would clarify physicians' responsibilities for prescribing power 
wheelchairs and educate beneficiaries about Medicare's coverage 

Source: GAO analysis of CMS's 10-point plan.

[End of table]

In December 2003, following release of the plan, the DME regional 
carriers issued a bulletin outlining coverage criteria for power 
wheelchairs. The bulletin sparked controversy among suppliers, 
beneficiary advocates, and industry representatives, who argued that it 
reflected a new, overly restrictive coverage policy for power 
wheelchairs. CMS countered that the bulletin clarified long-standing 
national policy, but because of the concerns raised, it rescinded the 
bulletin. CMS is still considering whether change to coverage criteria 
for power wheelchairs is needed.

One area beyond the scope of the 10-point plan is the marketing of 
power wheelchairs to Medicare beneficiaries. Many individuals with whom 
we spoke contended that abusive and misleading marketing have further 
escalated utilization nationwide. A Texas supplier and CMS staff 
reported that companies were soliciting business door-to-door or 
promising free power wheelchairs to beneficiaries. Supplier 
advertisements on the Internet, in print, and on television have used 
the word “free” in connection with beneficiaries' receiving power 
wheelchairs. Appendix II shows an example of an Internet advertisement 
that appears to illegally offer to waive Medicare copayments.[Footnote 
14] A statutory provision prohibits suppliers from calling 
beneficiaries to solicit their business[Footnote 15] and this is 
reflected in the supplier standards. CMS has authority, however, to 
impose additional requirements[Footnote 16] and has not utilized this 
authority to ensure that supplier marketing is not abusive or 

The MMA includes two provisions that are intended to help CMS curb 
improper payments for power wheelchairs. First, it requires CMS to 
develop a new set of quality standards for suppliers[Footnote 17] that 
should complement the 21 standards suppliers must currently meet. The 
MMA also includes a provision that requires a face-to-face examination 
of a beneficiary by a physician, physician assistant, nurse 
practitioner, or clinical nurse specialist to certify the medical need 
for a power wheelchair.[Footnote 18] This provision is more stringent 
than the prior regulation, which did not necessitate a face-to-face 
appointment between a beneficiary and his or her prescribing health 
care professional. CMS is now developing quality standards for oxygen 
services and diabetic shoes, and regulations to implement the provision 
regarding a face-to face examination.

New Authority Holds Promise for Improving CMS's Success in Adjusting 
DME Payment Rates:

New authority and requirements for CMS in the MMA show more promise 
than past agency authority for setting market-driven payment rates. In 
the past, CMS generally was not successful in adjusting Medicare 
payments for DME to keep pace with changes in prices for medical 
equipment.[Footnote 19] As a result, Medicare often pays substantially 
more for an item than other public payers. The MMA requires CMS to 
begin using competitive bidding to set payment rates for DME.[Footnote 
20] Competitive bidding has shown promise as a way to use market forces 
to reduce payment rates for selected items.

Agency Attempts to Adjust DME Payment Rates to Reflect Market Prices 
Largely Unsuccessful:

Prior to 1997, CMS could adjust DME payment rates that were inherently 
unreasonable, but the process required was slow, cumbersome, and used 
successfully only once. In the Balanced Budget Act of 1997,[Footnote 
21] Congress responded to concerns about CMS's difficulties in 
adjusting excessive payment rates by authorizing use of a streamlined 
inherent reasonableness process for part B services (excluding 
physician services) and equipment. Under this authority, CMS could 
adjust payments by up to 15 percent per year using the streamlined 
process or could use a process with formal notice and comment to make 
larger adjustments. CMS published an interim final rule with comment 
period in order to allow the DME regional carriers to use the authority 
as soon as possible.[Footnote 22] CMS did not respond to comments 
before its rule became effective.

DME regional carriers collected price data for eight groups of items 
and then took the first steps in applying the inherent reasonableness 
process to change payment rates for those items by publishing a notice 
to suppliers in September 1998. At that point, industry groups and 
suppliers expressed concerns about how the streamlined process had been 
implemented and the appropriateness of how price data were collected. 
Congress directed that we review the implementation of the streamlined 
inherent reasonableness process and in 1999, suspended any use of this 
authority until we issued our report and the agency issued a final rule 
taking into account our findings and public comments.[Footnote 23] Our 
July 5, 2000, report recommended, among other things, that CMS clarify 
criteria for using its inherent reasonableness authority, strengthen 
carrier data collection methodology, and monitor beneficiary access 
after any payment changes.[Footnote 24]

Since issuance of that report, CMS has not used its inherent 
reasonableness process to adjust payment rates. CMS issued an interim 
final regulation to implement its authority on December 13, 2002, which 
responded to comments on its previous regulation and our 
report.[Footnote 25] The agency is still completing more specific 
guidelines for revising payments, including how to collect data that 
are valid and reliable. CMS and a contractor are developing the 
guidelines and the agency intends to issue them by the end of 2004, 
after which it can begin using the inherent reasonableness process. In 
its 10-point plan, CMS has pledged to collect data on power wheelchair 
prices as soon as these guidelines are finalized.

In our report, we recommended that CMS define in its regulation when 
payment rates would be considered what the statute calls “grossly 
excessive” and “grossly deficient.” It is in these situations that CMS 
may use its inherent reasonableness authority. CMS indicated in its 
regulation that it would adjust payment rates only when they were at 
least 15 percent above or below a “realistic and equitable” amount. By 
doing so, CMS limited its authority to adjust payment rates, since the 
agency has statutory authority to adjust fees when the difference is 
less than 15 percent.

New Authority Holds Promise to Help CMS Set Payment Rates Closer to 
Market Prices:

The MMA gave CMS new authority and the requirement to begin using 
competitive bidding to set payment rates for DME. Through competitive 
bidding, suppliers provide information on amounts they would accept to 
gain business from Medicare beneficiaries, and their bids are used as a 
basis for the payment rate. In a demonstration of competitive bidding 
for DME and other part B-covered items in two localities that concluded 
in December 2002, fees set through bids were generally lower than fees 
otherwise paid by Medicare. As a result, Medicare should achieve 
estimated reductions in payments and beneficiary cost sharing that 
should result in gross savings of $8.5 million.[Footnote 26] Products 
chosen for the demonstration were among those with the highest Medicare 
spending and considered by the agency to have the potential for 
savings. The products chosen did not include power wheelchairs. 
Estimated savings from the demonstration were accomplished without 
significant reported effects on beneficiaries' access to competitively 
bid products.

The MMA requires CMS to implement competitive bidding for DME, off-the-
shelf orthotics, and supplies in at least 10 of the largest 
metropolitan areas by 2007, and 80 of these areas by 2009. CMS has the 
authority to choose the items to be bid and the specific localities for 
bidding. CMS has not decided whether power wheelchairs are among the 
items to be included in its initial implementation. Having suppliers 
offer bid prices appears to be a promising approach to achieve closer 
to market prices, compared to the experience CMS has had with the 
inherent reasonableness process. The MMA allows CMS to use information 
from the competitive bidding process to adjust payment rates in other 

We discussed our findings with program officials, who provided us with 
technical comments, which we incorporated as appropriate.

Mr. Chairman, this completes my prepared statement. I will be happy to 
answer questions you or other Members of the Committee may have.

Contact and Acknowledgments:

For further information regarding this testimony, please contact Leslie 
G. Aronovitz at (312) 220-7600. Sheila K. Avruch, Jennie Apter, Emily 
Gamble Gardiner, Sandra Gove, Joy L. Kraybill, Elizabeth T. Morrison, 
Lisa Rogers, and Craig Winslow contributed to this statement.

[End of section]

Appendix I: States in DME Regional Carriers' Jurisdiction:

[See PDF for image]

Note: AS = American Samoa; GU = Guam; NMI = Northern Mariana Islands; 
PR = Puerto Rico; and VI = Virgin Islands.

[End of section]

Appendix II: Internet Advertisement for Power Wheelchairs:

[See PDF for image]

[End of figure]

[End of section]


[1] Until July 1, 2001, CMS was called the Health Care Financing 
Administration (HCFA). 

[2] Medicare defines DME as equipment that may be prescribed by a 
physician for a patient's use for an extended period of time. This 
equipment serves a medical purpose, can withstand repeated use, is 
generally not useful in the absence of an illness or injury, and is 
appropriate for use in the home. 42 U.S.C. ß 1395x(n) (2000).

[3] Testimony of Janet Rehnquist, Inspector General, Department of 
Health and Human Services, Medicare Reimbursement for Medical Equipment 
and Supplies, before the Senate Committee on Appropriations, 
Subcommittee on Labor, Health and Human Services, and Education, 107th 
Cong., 2nd sess., Washington, D.C.: June 12, 2002; U.S. General 
Accounting Office, Medicare Payments: Use of Revised "Inherent 
Reasonableness" Process Generally Appropriate, GAO/HEHS-00-79 
(Washington, D.C.: July 5, 2000); and U.S. General Accounting Office, 
Medicare: Home Oxygen Program Warrants Continued HCFA Attention, GAO/
HEHS-98-17 (Washington, D.C.: Nov. 7, 1997).

[4] U.S. General Accounting Office, Medicare: Challenges Remain in 
Setting Payments for Medical Equipment and Supplies and Covered Drugs, 
GAO-02-833T (Washington, D.C.: June 12, 2002). 

[5] Pub. L. No. 108-173, § 302, 117 Stat. 2066, 2223.

[6] MMA § 302(b), 117 Stat. 2224.

[7] The four DME regional carriers are HealthNow New York, Inc. (region 
A), AdminaStar Federal (region B), Palmetto Government Benefits 
Administrators (region C), and CIGNA HealthCare Medicare Administration 
(region D). See app. I for the states in each DME regional carrier's 
jurisdiction. In this testimony, "states" refers to the 50 states, the 
District of Columbia, U.S. territories, and the Commonwealth of Puerto 

[8] This information was not available from region A.

[9] U.S. Department of Health and Human Services, Centers for Medicare 
& Medicaid Services, Justification of Estimates for Appropriations 
Committees, Fiscal Year 2004 (Washington, D.C.: n.d.) CMS reported data 
on past savings from fiscal years 2002 through 2004.

[10] Coverage Issues Manual, rev. 36, Section 60-9,

[11] NSC did not visit active suppliers that were large chains, 
physicians, optometrists, and pharmacies.

[12] Suppliers must meet 21 standards. 42 C.F.R § 424.57(c)(1) - (21) 
(2003) (in effect since December 11, 2000). Suppliers must be in 
compliance with these standards in order to obtain and maintain their 
Medicare billing privileges.

[13] CMS does not require NSC to visit every supplier. Suppliers that 
are Medicare-enrolled entities (hospitals, skilled nursing facilities, 
home health agencies, physicians, and ambulatory surgical centers) and 
existing supplier chains with 25 or more locations are excluded from 
site visits.

[14] Medicare prohibits suppliers from waiving copayments routinely or 
when waiver is offered as part of an advertisement or solicitation. 42 
U.S.C. § 1320a-7a(a)(5) and (i)(6)(A) (2000). 

[15] 42 U.S.C. § 1395m(a)(17) 2000.

[16] 42 U.S.C. § 1395m(j)(1)(B)(ii)(IV) (2000).

[17] MMA § 302(a)(1), 117 Stat. 2223.

[18] MMA § 302(a)(2), 117 Stat. 2224.

[19] GAO-02-833T. 

[20] MMA § 302(b), 117 Stat. 2224.

[21] Pub. L. No. 105-33, § 4316, 111 Stat. 251, 390.

[22] 63 Fed. Reg. 687 (Jan. 7, 1998).

[23] Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999, Pub. L. No. 106-113, App. F, § 223, 113 Stat. 1501, 1501A-352 
(signed into law November 29, 1999). 

[24] GAO/HEHS-00-79.

[25] 67 Fed. Reg. 76,684. 

[26] CMS conducted the demonstration in Polk County, Florida, and in 
the San Antonio area in Texas for selected items of DME, orthotics, 
prosthetics, and supplies (DMEPOS). Two evaluations of the 
demonstration have been published. See U.S. Department of Health and 
Human Services, Health Care Financing Administration, Evaluation of 
Medicare's Competitive Bidding Demonstration for DMEPOS: First Year 
Annual Evaluation Report (Baltimore, Md.: September 2000, Revised 
January 2001) and U.S. Department of Health and Human Services, Centers 
for Medicare & Medicaid Services, Evaluation of Medicare's Competitive 
Bidding Demonstration for DMEPOS: Second Year Annual Evaluation Report 
(Baltimore, Md.: April 2002).