Medicare Payments for Durable Medical Equipment Are Higher Than Necessary

HRD-82-61: Published: Jul 23, 1982. Publicly Released: Jul 23, 1982.

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GAO reported on the probable fiscal impact of the failure of the Department of Health and Human Services (HHS) to implement a law aimed at reducing the cost to the Medicare program and its beneficiaries for the prolonged rentals of durable medical equipment.

HHS has yet to fully carry out the intent of legislation to reduce the cost of renting durable medical equipment under Medicare. The Medicare payments for durable medical equipment for calendar year 1979 were estimated at $125 million. At the time of the GAO review, HHS instructions required Medicare carriers to determine, for items with a purchase allowance of more than $60, whether purchase would cost less or be more practical than rental and, if so, to reimburse on a purchase basis. Items with a purchase allowance of $60 or less were always to be purchased. GAO can see no justification for not applying the regulation, except where equipment is purchased on a lease-purchase arrangement rather than with a lump-sum payment. Based on statistical samples at six carriers, GAO estimated that about $2 million in excess rental payments occurred during 1979. The excess rental payments averaged about 21 percent of total payments for durable medical equipment by these carriers. An estimated $275,000 would have been saved if all items costing $60 or less had been purchased on a lump-sum basis, and an estimated $463,000 would have been saved if items costing $60 or more were purchased when an analysis of the medical necessity forms showed that the expected length of need for the items exceeded their break-even points. GAO believes that it is doubtful that there will be any circumstances in which a lease-purchase arrangement will be more economical than a lump-sum purchase.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GAO issued a follow-on report on July 30, 1985, HRD-85-35. The recommendations in the follow-on report are applicable to HHS.

    Recommendation: The Secretary of HHS should modify the regulations to recognize that lease-purchase arrangements will generally be more costly than lump-sum purchase and, thus, would have limited applicability to certain high-cost items where the expected period of need is uncertain or where beneficiaries cannot afford the co-insurance associated with lump-sum purchases.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to require carriers to improve their monitoring and retention of the medical necessity forms. Carriers must have the forms completely filled out by physicians in order to make effective rent or purchase decisions.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to increase the $60 limit used for requiring purchase to $100 and periodically adjust the limit for inflation.

    Agency Affected: Department of Health and Human Services

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HHS should direct the Administrator of the Health Care Financing Administration (HCFA) to immediately notify the Medicare carriers to: (1) stop reimbursements for new rentals of items costing $60 or less; and (2) make analyses where possible of medical necessity forms to determine whether reimbursement on a rental or lump-sum purchase basis would be more economical and pay benefits on the most economical basis.

    Agency Affected: Department of Health and Human Services

  5. Status: Closed - Not Implemented

    Comments: GAO issued a follow-on report on July 30, 1985, HRD-85-35. The recommendations in the follow-on report are applicable to HHS.

    Recommendation: The Secretary of HHS should direct the Administrator of HCFA to provide beneficiaries with written material explaining the regulations on lease-purchase arrangements.

    Agency Affected: Department of Health and Human Services

 

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