Excessive Payments for Medical Supplies Continue Despite Improvements

HEHS-95-171: Published: Aug 8, 1995. Publicly Released: Sep 13, 1995.

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Pursuant to a congressional request, GAO reviewed Medicare payments for medical supplies, focusing on the: (1) circumstances surrounding payments for unusually high surgical dressing claims; and (2) adequacy of Medicare's internal controls to prevent paying such claims.

GAO found that: (1) although the Health Care Financing Administration (HCFA) has eliminated medical suppliers' ability to select contractors with the highest payment rates, unwarranted expenditures still persist; (2) reasons for the unwarranted expenditures include inadequate systematic payment controls and noncompetitive payment rates for surgical dressings; (3) many Medicare contractors lack itemized bills, fail to automatically review high-dollar claims for newly covered surgical dressings, and lack a systematic method for detecting duplicate bills submitted to different types of Medicare carriers; (4) Medicare payment rates for new surgical dressings and other medical supplies are considerably higher than wholesale and retail prices; (5) HCFA could curtail these overpayments by establishing procedures to require itemized claims, preventing duplicate payments to Medicare suppliers, and identifying high-dollar, high-volume claims that should be reviewed before payment; (6) the initiative will provide comprehensive national payment data that will allow HCFA and its contractors to detect inappropriate billing and overutilization; and (7) HCFA needs legislative authority to set competitive payment rates that are favorable for high-volume purchasers.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: The Medicare contractors have used the authority provided by the BBA to propose reductions in Medicare fees for eight HCPCs codes. In addition, HCFA used this authority and published a proposed notice to reduce Medicare fees for six HCPCs codes in the Federal Register. The BBRA of 1999 prohibits the use of IR until HCFA publishes a new final rule on IR. Therefore, the DMERCs and HCFA proposed reductions are on hold pending the new rule.

    Matter: To allow Medicare to take advantage of competitive prices, Congress should consider authorizing HCFA or its carriers to promptly modify prices for durable medical equipment and other medical supplies. For this to work effectively, however, HCFA or the carriers must devote adequate resources to routine price monitoring.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HHS did not concur with the recommendation, citing what it called a significant burden for providers and Medicare contractors. HHS believes that abuse can be more efficiently identified by suspending high-dollar claims for review prior to payment.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to require that bills submitted to fiscal intermediaries itemize supplies.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: HHS comments on the report concurred with this recommendation, noting that HCFA had developed two processes which implemented it. These were the development and implementation of regional medical review policy (RMRP), and the use of prepayment edits. HHS also agreed that prepayment edits should be used to prevent inappropriate payment when coverage policy changes. The HHS OIG revisited this issue in a 1998 report. OIG reported that 1996 expenditures were greatly reduced as compared to 1995 expenditures. Specifically: (1) expenditures decreased by nearly 50 percent from $143 million in 1995 to $74 million in 1996; (2) DMERCs utilized new policies, edit screens, supplier review and education, and postpayment audits to identify and prevent expenditures for excessive claims; and (3) expenditures for wound care supplies exceeding DMERC parameters dropped from $65 million in 1995 to $7 million in 1996, a decrease of nearly 90 percent.

    Recommendation: The Secretary of Health and Human Services should require the Administrator, HCFA, to develop and implement prepayment review policies as part of the process of implementing any new or expanded Medicare coverage.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Not Implemented

    Comments: HCFA does not plan to take any action on this recommendation. Several recent OIG investigations found millions of dollars in duplicate payments made.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to establish procedures to prevent duplicate payments by fiscal intermediaries and carriers.

    Agency Affected: Department of Health and Human Services


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