Procedures for Avoiding Excessive Rental Payments for Durable Medical Equipment Under Medicare Should Be Modified

HRD-85-35: Published: Jul 30, 1985. Publicly Released: Jul 30, 1985.

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Pursuant to a congressional request, GAO evaluated the probable effects of implementing certain Department of Health and Human Services (HHS) procedures for avoiding excess rental payments on durable medical equipment under Medicare. HHS prepared instructions which stated that Medicare would pay for all low-priced medical equipment on a purchase basis and high-priced equipment on a purchase basis if the expected duration of need showed that purchase was less costly than rental. However, the effects of the instructions were uncertain because of two conflicting studies on the implementation of the procedures.

GAO found that the primary difference between the studies was in the length of time that a beneficiary rented a piece of equipment. Under the current instructions, if all low-cost items were reimbursed on a purchase basis, there would be a reduction of 21 percent in the allowable costs, compared with the 15-percent increase in costs reported in the HHS grantee study. GAO also found that HHS could increase its savings if it allowed beneficiaries 1 month's rent before limiting reimbursement to the purchase price. Although excess rentals were a large portion of the total allowed charges for high-cost equipment, there were insufficient data to reliably predict when purchasing would be less costly than renting. GAO generally agreed with the grantee's conclusion that the probability of savings from implementation of the existing instructions for high-cost items would be uncertain. Because GAO believed that the problem needed more attention, it simulated the potential savings of several alternative solutions that did not require the use of medical necessity forms to reduce the excess charges and found that the best approach would be to put a cap on the amount of equipment rental payments; however, the disadvantage to this approach would be that medical suppliers would have to agree to accept whatever percentage was adopted. Presently, Medicare does not require that suppliers accept Medicare payment rates and, without an amendment to the law, suppliers could charge beneficiaries for any difference between the cap and the total rental charges as long as the equipment was needed.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: A provision similar to the GAO suggestion was enacted in December 1987 as part of P.L. 100-203.

    Matter: The Senate Committee on Finance should consider whether a legislative change is warranted that would limit rental allowances for high-cost durable medical equipment items to a specific percentage in excess of the purchase price. Such a change would provide that Medicare rental payments for high-cost durable medical equipment may be made only on the basis of an assignment where the supplier agrees to accept the Medicare allowances and related limitations.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In its comments on the report, HHS gave the same reasons for disagreeing with this recommendation as it gave in commenting on the draft report. GAO disagrees with the HHS position. HHS stated that it is studying rental/purchase patterns to see if savings can be obtained.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Health Care Financing Administration to modify the December 1984 instructions dealing with the reimbursement of low-cost durable medical equipment items on a purchase basis to provide for a 1-month waiting period and that such modified instructions be implemented.

    Agency Affected: Department of Health and Human Services


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