Medicare: CMS's Program Safeguards Did Not Deter Growth in	 
Spending for Power Wheelchairs (17-NOV-04, GAO-05-43).		 
                                                                 
Medicare spending for power wheelchairs--one of the program's	 
most expensive items of durable medical equipment (DME)--rose	 
more than fourfold 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 some of the payments may
have been improper. In May 2003, the Department of Justice	 
indicted several power wheelchair suppliers in Texas alleged to  
have fraudulently billed Medicare. GAO was asked to examine the  
early and more recent steps taken by CMS and its contractors to  
respond to improper payments for power wheelchairs.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-43						        
    ACCNO:   A13517						        
  TITLE:     Medicare: CMS's Program Safeguards Did Not Deter Growth  
in Spending for Power Wheelchairs				 
     DATE:   11/17/2004 
  SUBJECT:   Claims processing					 
	     Contractors					 
	     Erroneous payments 				 
	     Fraud						 
	     Health care cost control				 
	     Health care programs				 
	     Health insurance					 
	     Health insurance cost control			 
	     Internal controls					 
	     Medical equipment					 
	     Medical expense claims				 
	     Questionable payments				 
	     Medicare Program					 

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GAO-05-43

     

     * Results in Brief
     * Background
     * Steps Taken by CMS and Its Contractors Did Not Deter Improper Payments
       f\or Power Wheelchairs
          * CMS Did Not Act on Contractors' Ear對ly Warnings ab
          * Funding for Claims Review Declined as Power Wheelchair Spending
            Rose
          * Palmetto Conducted Fraud Investigations in Texas to Address
            Improper Pay\ments
          * Fraud Investigations and Supplier Inspections Highlighted
            Weaknesses in \Verifying the Legitimacy of Suppliers
     * Recent Actions May Help Control Improper Power Wheelchair Payments
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments
     * Appendix I: Scope and Methodology
     * Appendix II: DME Regional Carriers'對 Jurisdiction
     * Appendix III: Internet Advertisement for Power Wheelchairs
     * Appendix IV: Comments from the Centers for Medicare & Medicaid
       Services
          * 
               * Order by Mail or Phone

                 United States Government Accountability Office

Report to the Chairman, Committee on

GAO

                              Finance, U.S. Senate

November 2004

MEDICARE

CMS's Program Safeguards Did Not Deter Growth in Spending for Power Wheelchairs

GAO-05-43

Highlights of GAO-05-43, a report to the
Chairman, Committee on Finance, U.S.
Senate

Medicare spending for power wheelchairs-one of the program's most
expensive items of durable medical equipment (DME)-rose more than fourfold
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
some of the payments may have been improper. In May 2003, the Department
of Justice indicted several power wheelchair suppliers in Texas alleged to
have fraudulently billed Medicare. GAO was asked to examine the early and
more recent steps taken by CMS and its contractors to respond to improper
payments for power wheelchairs.

GAO recommends that CMS develop a process to analyze trends in Medicare
spending and develop and implement strategies to address possible improper
DME payments, implement revisions to provide clearer information for power
wheelchair claims adjudication, strengthen the standards that suppliers
must meet to obtain or retain their Medicare billing privileges, and
direct its contractor to routinely conduct site visits to suppliers that
are not predictable in their timing. CMS agreed with the recommendations
and noted that it has undertaken several efforts to curb the abuse of the
power wheelchair benefit in the last year.

November 2004

MEDICARE

CMS's Program Safeguards Did Not Deter Growth in Spending for Power
Wheelchairs

Starting in 1997 and over the next 6 years, CMS's contractors repeatedly
communicated with CMS officials about escalating spending for power
wheelchairs, and the contractors took steps to respond to improper
payments for this Medicare benefit. In 1997, one contractor warned the
agency about rapid increases in power wheelchair spending. In 1998 and in
2000, medical directors at the four contractors that pay DME claims
suggested steps that could be taken and sought CMS's help in curbing power
wheelchair spending growth. However, while contractors continued to
conduct in-depth medical reviews of claims for power wheelchairs and to
investigate cases of suspected fraud, CMS did not begin to assume an
active role in addressing the identified problems until September 2003.
Problems included Medicare supplier standards that did not provide
adequate guidance on appropriate marketing practices and the
predictability of visits to screen suppliers, which made it relatively
easy for illegitimate suppliers to prepare for, and pass, site
inspections.

Since September 2003, CMS has taken steps to prevent fraudulent suppliers
from entering the Medicare program, clarify coverage policy, ensure
appropriate pricing for power wheelchairs, provide education on coverage
rules, conduct detailed claims reviews where power wheelchair fraud was
prevalent, and coordinate with law enforcement agencies. Although CMS has
made progress, it has not implemented a revised form to collect better
information for power wheelchair claims review, clarified guidance for
suppliers on appropriate marketing, or required its contractor to
routinely conduct less predictably timed site visits. Further, CMS's
response to power wheelchair spending highlighted the lack of a process
within the agency to rapidly address indications of potentially improper
DME payments.

National Medicare Power Wheelchair Spending Dollars in millions 1,200
1,000 800 600 400 200

www.gao.gov/cgi-bin/ getrpt?GAO-05-43. 0 1997 1998 1999 2000 2001 2002
2003 To view the full product, including the scope Years and methodology,
click on the link above. Source: CMS. For more information, contact Leslie
G.

Aronovitz at (312) 220-7600. Note: Medicare spending includes federal
payments and beneficiary cost sharing.

Contents

  Letter 1

Results in Brief 2 Background 4 Steps Taken by CMS and Its Contractors Did
Not Deter Improper Payments for Power Wheelchairs 7 Recent Actions May
Help Control Improper Power Wheelchair Payments 18 Conclusions 21
Recommendations for Executive Action 22 Agency Comments 23

Appendix I Scope and Methodology

Appendix II DME Regional Carriers' Jurisdiction

Appendix III Internet Advertisement for Power Wheelchairs

Appendix IV Comments from the Centers for Medicare & Medicaid Services

  Tables

Table 1: Contractors' Key Safeguard Activities for DME Payments 5 Table 2:
Clinical Information Questions on the CMN, Power Wheelchair Coverage
Criteria, and CMN Limitations 10 Table 3: CMS's Actions to Address
Improper Payments for Power Wheelchairs and Other DME Items 19

  Figures

Figure 1: National Medicare Power Wheelchair Spending 6 Figure 2: Medical
Review Funding for Each $100 in Submitted Claims for Palmetto and the
Other Three DME Regional Carriers 13 Figure 3: Regional Medicare Power
Wheelchair Spending 14

    Page i GAO-05-43 Medicare Power Wheelchairs

Abbreviations

CMN             certificate of medical necessity                           
CMS             Centers for Medicare & Medicaid Services                   
DME             durable medical equipment                                  
HHS             Department of Health and Human Services                    
MMA             Medicare Prescription Drug, Improvement, and               
                   Modernization Act of 2003                                  
NSC             National Supplier Clearinghouse                            
OIG             Office of Inspector General                                
SADMERC         statistical analysis durable medical equipment regional    
                   carrier                                                    

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separately.

United States Government Accountability Office Washington, DC 20548

November 17, 2004

The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate

Dear Mr. Chairman:

In 2003, Medicare and its beneficiaries spent more than $1 billion for
power wheelchairs, one of the program's most expensive individual items of
durable medical equipment (DME). 1 According to the Centers for Medicare &
Medicaid Services (CMS), 2 the agency responsible for managing the
Medicare program, spending for power wheelchairs rose more than fourfold
from 1999 through 2003. In contrast, CMS's records show that overall
Medicare spending increased by about 11 percent during the same period.
Concerns have been raised that the millions of dollars in increased
spending for power wheelchairs was fueled by improper payments to
suppliers that submitted fraudulent claims to Medicare. Improper power
wheelchair payments can be due to mistakes on the part of suppliers,
beneficiaries, or beneficiaries' physicians, fraud-intentional
misrepresentation, and abuse. For example, improper payments can occur
when suppliers submit claims on behalf of beneficiaries who do not meet
the Medicare coverage criteria. Such improper payments have been a problem
for other DME items paid by Medicare. 3

Medicare pays about $5,000 for each power wheelchair-not including
accessories-making them an attractive target for those who would defraud
the program and its beneficiaries. In May 2003, the Department of

1

Medicare defines DME as equipment that may be prescribed by a physician
for a patient's use for an extended period. 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. S: 1395x(n) (2000).

2

Until July 1, 2001, CMS was called the Health Care Financing
Administration. We use the name CMS throughout this report.

3

For example, see Janet Rehnquist, Inspector General, Department of Health
and Human Services, Medicare Reimbursement for Medical Equipment and
Supplies, testimony 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.

Justice began indicting some physicians and wheelchair suppliers in Texas
that were alleged to have billed Medicare for power wheelchairs that
beneficiaries never received.

Prompted by concerns about fraud and abuse in Medicare's power wheelchair
benefit, your committee held a hearing on this issue in April 2004. We
testified before your committee on how CMS and its contractors that
administer Medicare DME fee-for-service claims addressed problems with
power wheelchair payments. 4 After the hearing, you requested that we
report in more detail on early and more recent steps taken by CMS and its
contractors to respond to improper payments for power wheelchairs.

In preparing this report, we reviewed DME claims payment data from 1997
through 2003; DME claims payment data analysis reports from CMS's
statistical contractor; written policies and procedures from CMS and its
contractors, including the four DME regional carriers that process power
wheelchair claims; budget and expense data for contractor activities;
Medicare coverage policies, which explain the criteria for covering power
wheelchairs; and CMS's recent actions, including its September 2003 action
plan and its April 2004 initiatives, for responding to payment problems
with Medicare's power wheelchair benefit. We also interviewed CMS and
contractor officials, suppliers, industry representatives, manufacturers,
and representatives from beneficiary advocacy groups. For DME claims
payment data covering 1997 to 2003, we reviewed CMS and contractor
internal control procedures to help determine whether these data were
accurate, timely, and complete. We determined that these data were
sufficiently reliable for addressing the issues in this report. Contractor
budget and expense data are self-reported by CMS or the contractors, and
we did not validate these data. Appendix I includes a more detailed
discussion of our scope and methodology. We conducted our work from
February through November 2004 in accordance with generally accepted
government auditing standards.

Over a 6-year period beginning in 1997, CMS's contractors repeatedly

  Results in Brief

communicated with CMS about escalating spending for power wheelchairs and
conducted program safeguard activities to respond to improper payments for
this benefit, but CMS did not lead a coordinated effort to

4

GAO, Medicare: CMS Did Not Control Rising Power Wheelchair Spending,
GAO-04-716T (Washington, D.C.: Apr. 28, 2004).

Page 2 GAO-05-43 Medicare Power Wheelchairs

address the underlying problems. For example, in 1997, a CMS contractor
tasked with analyzing Medicare data warned the agency about rapid
increases in power wheelchair spending. Further, in 1998, and again in
2000, reacting to the continuing rise in power wheelchair spending,
medical directors at the four DME regional carriers sent joint memorandums
to CMS officials outlining steps that could be taken and sought CMS's
support. For example, the medical directors expressed concerns about the
certificate of medical necessity (CMN)-a document completed by physicians
to provide information with which contractors make payment decisions. They
noted that the CMN for power wheelchairs does not provide sufficient
information for determining if claims for power wheelchairs should be
paid, but CMS did not respond by revising the CMN at that time. During
this period, contractors also took other actions, including conducting
medical reviews of claims and investigating suspected instances of power
wheelchair fraud. However, the amount of funding CMS allotted to them for
medical review declined in relation to the rise in Medicare payments.
Additional problems related to the power wheelchair benefit surfaced
during this period. For example, inspectors had difficulty enforcing two
of the broad standards used to screen suppliers before they obtain or
renew their Medicare billing privileges. Because supplier standards do not
adequately describe what constitutes an acceptable physical location and
sufficient inventory, CMS's contractor had difficulty interpreting and
enforcing these two standards. In addition, Medicare standards for
suppliers do not address certain misleading or abusive marketing practices
that were a factor in increased utilization of power wheelchairs in Texas.
Finally, CMS officials did not address weaknesses in the site visits that
are used to assess suppliers' compliance with Medicare standards. For
example, the predictability of visits made it relatively easy for
illegitimate suppliers to prepare for, and pass, site inspections.

Since September 2003, CMS has led an effort to improve the processes for
responding to improper payments for power wheelchairs. The agency's
actions are in different stages of completion and focus on preventing
fraudulent suppliers from entering the Medicare program; clarifying the
coverage policy; ensuring appropriate pricing for power wheelchairs;
educating physicians and beneficiaries on coverage rules; conducting
detailed claims reviews in Texas, where power wheelchair fraud was
prevalent; and coordinating with law enforcement agencies. Although CMS
has made progress, it has not completed a revision to the CMN, clarified
guidance on appropriate marketing to beneficiaries, or directed its
contractor to conduct less predictably timed site visits to suppliers on a
routine basis. Further, CMS's response to power wheelchair spending

                                   Background

highlighted the lack of a process within the agency to rapidly respond to
indications of potentially improper DME payments.

To help ensure that improper payments are identified and addressed in a
timely manner and that Medicare pays properly for power wheelchairs and
other items of DME, we recommend that the Administrator of CMS take four
actions. We are recommending that CMS (1) establish a process to more
quickly respond to indications of potentially improper DME spending, (2)
finalize revisions to the CMN to make it a more effective tool for claims
adjudication, (3) develop a more prescriptive supplier standard on
appropriate marketing practices, and (4) amend the supplier inspection
process to require that out-of-cycle inspections be routinely conducted.
CMS agreed with our recommendations and stated that it has undertaken
several efforts to curb the abuse of the power wheelchair benefit in the
last year.

Most Medicare beneficiaries purchase part B insurance, which helps pay for
certain physician, outpatient hospital, laboratory, and other services;
medical supplies and DME (such as oxygen, wheelchairs, hospital beds, and
walkers); and certain outpatient drugs. Medicare covers a wide variety of
DME items-including power wheelchairs. Medicare covers power wheelchairs
when they are medically necessary, the beneficiary would be bed- or
chair-confined without one, and the beneficiary can operate a power
wheelchair, but not a manual wheelchair. Medicare part B pays for most
medical equipment and supplies based on a series of state-specific fee
schedules. 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 co-payment.

CMS contracts with four insurance companies, referred to as DME regional
carriers, which review and pay claims submitted by outpatient providers
and suppliers on behalf of beneficiaries residing in specific parts of the
country. 5 (See app. II for the states under each DME regional carrier's
jurisdiction.) For example, Palmetto Government Benefits Administrators is
responsible for processing claims for beneficiaries

5

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). In
this report, "states" refers to the 50 states, the District of Columbia,
U.S. territories, and the Commonwealth of Puerto Rico.

Page 4 GAO-05-43 Medicare Power Wheelchairs

permanently residing in region C, which encompasses 14 states, Puerto
Rico, and the Virgin Islands. In 2002, Palmetto made about two-thirds of
Medicare's payments for power wheelchairs. In addition, the DME regional
carriers and other CMS contractors conduct program safeguard activities to
identify and respond to improper payments for DME claims (see table 1).
CMS oversees contractors' activities through various means, such as
performing yearly on-site evaluations, reviewing planned activities,
monitoring data and periodic reports, and conducting regular conference
calls with the contractors.

        Table 1: Contractors' Key Safeguard Activities for DME Payments

                 Responsibility Contractor Safeguard activities

Analyze billing and report Statistical analysis DME The SADMERC conducts
ongoing data analysis and reporting for the DME

trends regional carrier (SADMERC) regional carriers and CMS. Its reports
are used to identify trends in payment and potential fraud by item,
geographic region, supplier, and physician.

TriCenturion, LLCa and DME TriCenturion and the DME regional carriers for
regions B, C, and D regional carriers for regions B, analyze claims
payment data to identify improper payments and to C, and D investigate and
develop fraud cases.

Review claims     TriCenturion and DME  These contractors are responsible  
against coverage  regional carriers for for conducting medical reviews of  
criteria          regions B, C, and D   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 the Medicare       
                                           coverage criteria. 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 billing.               
Investigate       TriCenturion and DME  These contractors investigate      
potential fraud   regional carriers for cases of suspected fraud, which    
                     regions B, C, and D   can involve conducting a more      
                                           detailed analysis of claims and    
                                           other investigative steps. Once a  
                                           case has been developed, it is     
                                           referred to the Department of      
                                           Health and Human Services' (HHS)   
                                           Office of Inspector General (OIG)  
                                           or to law enforcement for          
                                           prosecution.                       
Enroll suppliers  National Supplier     CMS contracts with NSC to screen   
                     Clearinghouse (NSC)   and enroll suppliers and assign    
                                           Medicare supplier numbers. NSC is  
                                           responsible for verifying          
                                           information on supplier            
                                           applications to ensure that        
                                           suppliers meet 21 supplier         
                                           standards and that only valid      
                                           suppliers bill Medicare. NSC also  
                                           maintains a central database of    
                                           information on DME suppliers,      
                                           reenrolls active suppliers every 3 
                                           years, and assists with fraud and  
                                           abuse investigations.              

Source: GAO.

a

TriCenturion, LLC is a specialized program safeguard contractor
responsible for reviewing claims and investigating and developing fraud
cases for claims processed by region A.

These key safeguard activities help ensure that the more than 10 million
claims the DME regional carriers process each year for power wheelchairs
and other items are properly paid. For example, medical reviews can alert
the DME regional carriers to potential cases of fraudulent billing, which
they may refer to their respective fraud investigation units. The DME
regional carriers use both automated medical reviews and complex medical
reviews to make decisions to pay or deny claims based on coverage
criteria. Automated medical reviews are computerized checks of claims
using available electronic information. Complex medical reviews are
conducted by clinical staff, such as a nurse or doctor, who examine
additional documentation provided by the supplier or the beneficiary's
physician.

A key responsibility of CMS and its contractors is constraining improper
program spending, while ensuring that beneficiaries who qualify for items
and services have access to them. In the case of power wheelchairs,
spending for claims processed by the DME regional carriers rose markedly
from 1997 through 2003, as shown in figure 1. A number of factors other
than improper payments may have contributed to it, including increased
demand due to technological improvements or a growing number of
beneficiaries who may meet the Medicare coverage criteria.

    Figure 1: National Medicare Power Wheelchair Spending

Dollars in millions

0

1997 1998 1999 2000 2001 2002 2003 Year

Source: CMS. Note: Medicare spending includes federal payments and
beneficiary cost sharing.

  Steps Taken by CMS and Its Contractors Did Not Deter Improper Payments for
  Power Wheelchairs

Beginning in 1997 and continuing over the next 6 years, CMS's contractors
repeatedly communicated their concerns to the agency about rapid increases
in Medicare spending for power wheelchairs. One area of concern focused on
the CMN, which did not provide sufficient information to adjudicate
claims, according to medical directors. During this period, the
contractors, however, took a variety of steps, including conducting
medical reviews of claims and investigating suspected instances of power
wheelchair fraud. Other issues related to improper payments for power
wheelchairs surfaced concerning the process for verifying the legitimacy
of Medicare suppliers. However, CMS did not begin to lead efforts to
address the underlying problems contributing to potentially improper
payments for power wheelchairs until September 2003.

    CMS Did Not Act on Contractors' Early Warnings about Escalating Power
    Wheelchair Payments

In 1997, CMS's SADMERC-its data analysis contractor-alerted CMS and the
DME regional carriers about rapid increases in the spending for, and
utilization of, power wheelchairs in the Medicare program. As part of its
data monitoring efforts, the SADMERC noted that Medicare spending for
power wheelchairs had grown from almost $8 million in October 1995 to
about $24 million in March 1997. For the next several years, the SADMERC's
quarterly reports continued to highlight rapid growth in power wheelchair
spending and utilization, identifying the states and the suppliers for
which claims volume was particularly high. Although the SADMERC's reports
were sent to agency officials responsible for ensuring that program funds
are safeguarded, CMS staff told us that they did not take action because
the DME regional carriers have primary responsibility for responding to
data indicating rapid increases in utilization. CMS officials acknowledged
that the agency was not proactively identifying trends in data related to
Medicare spending, developing strategies to address concerns about
possible improper payments tied to spending increases, and implementing
actions to address these concerns.

After reviewing the SADMERC data in 1997, the four DME regional carriers'
medical directors found cause for concern 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 officials, the medical directors requested CMS's assistance in
addressing power wheelchair spending growth and proposed implementing
changes in the coverage policy for power wheelchairs. However, because of
competing demands, the DME regional carrier medical directors never
completed the policy revision, nor did CMS direct them to do so.

Power wheelchair fraud had already surfaced as a serious problem in
Florida and in other southeastern states. In 1996, Palmetto began a major
investigation of power wheelchair suppliers, during which it uncovered
fraudulent activities such as billing for services not provided or not
medically necessary, or delivering a less expensive power-operated
vehicle-commonly called a "scooter," 6 while charging Medicare for a more
expensive power wheelchair. Palmetto developed a fraud alert for other
contractors and investigative agencies, which explained the schemes that
suppliers were using to obtain inappropriate payments for power
wheelchairs. CMS issued the fraud alert in June 1998. 7 Fraud alerts are
intended to increase external awareness of potential vulnerabilities and
help the agency direct its efforts to address potential fraud. However,
the June 1998 fraud alert did not prompt CMS to require the DME regional
carriers to specifically scrutinize power wheelchair claims or to
undertake any other efforts to identify fraudulent billing for this item.

In June 2000, the DME regional carriers' medical directors sent a second
jointly signed memorandum to CMS officials. The medical directors
identified several problems tied to the provision of power wheelchairs and
again asked for CMS's assistance in addressing them. Despite this second
warning from the medical directors, CMS officials did not begin to lead a
coordinated effort to address escalating spending for power wheelchairs
until September 2003.

One problem cited in the June 2000 memorandum concerned the CMN, a
document that the physician is required to complete and sign to order a
power wheelchair for a beneficiary. DME regional carriers do not routinely
obtain beneficiaries' medical records when deciding whether to pay
wheelchair claims. Instead, DME regional carriers rely on information
contained on the CMN. However, the medical directors of the four DME
regional carriers noted that the CMN for power wheelchairs does not ask
about the beneficiary's functional abilities and limitations in sufficient
detail for them to be able to determine if the Medicare coverage criteria
are met. These criteria provide guidance on whether and under what

6

Scooters are used by patients who are unable to walk and are unable to
operate a manual wheelchair. A scooter has three or four wheels, is
powered by an electric motor, steered by means of a tiller, and
appropriate for indoor use. Scooters are more expensive than manual
wheelchairs, but less expensive than power wheelchairs.

7

Centers for Medicare & Medicaid Services, Unrestricted National Medicare
Fraud Alert, UMFA 9802 (Baltimore, Md.: June 9, 1998, revised Oct. 6,
1998).

Page 8 GAO-05-43 Medicare Power Wheelchairs

conditions Medicare will cover-and help pay for-a power wheelchair for a
beneficiary. 8

Our comparison of the CMN and the Medicare coverage criteria highlighted
limitations in this document. (See table 2, which provides information on
the clinical questions on the power wheelchair CMN, the Medicare coverage
criteria, and limitations of the CMN.) For example, the CMN does not
include a question about the beneficiary's capability to safely operate
the controls of a power wheelchair, although having that capability is
required by the Medicare coverage criteria. CMS did not change its CMN in
response to the medical directors' 2000 memorandum that outlined their
concerns with the CMN. In written comments on a draft of this report, CMS
stated that it has a revised CMN under development, which it anticipates
having in use in 2005. 9

8

Items or services that are not reasonable and necessary for diagnosis,
treatment, or improvement of a bodily function, or are otherwise excluded
by statute, are not covered by Medicare. 42 U.S.C. S: 1395y(a) (2000).

9

A CMS official told us that the revised CMN would incorporate information
collected previously on three separate CMNs for manual wheelchairs,
scooters, and power wheelchairs. He stated that the revised CMN would be
structured to encourage the physician to consider the least costly,
medically acceptable wheelchair or scooter for the beneficiary.

 Table 2: Clinical Information Questions on the CMN, Power Wheelchair Coverage
                         Criteria, and CMN Limitations

Information solicited by the CMN The Medicare coverage criteria for
concerning medical necessity power wheelchairsa Limitations of the CMN

What is the estimated length of need for a The patient's condition is such
that a The CMN asks for the patient's diagnosis, power wheelchair?
wheelchair is medically necessary. but it does not ask for information on
the What is the diagnosis code for patient's extent or severity of the
patient's clinical condition? condition, to indicate that a power
wheelchair is medically necessary.

Does the patient require and use a The patient's condition is such that
The CMN is more open to interpretation as wheelchair to move around in his
or her without the use of a wheelchair, the to when a patient would
require a power residence? patient would otherwise be bed- or
chair-wheelchair than the coverage criteria.

confined.

The CMN does not solicit information about a The patient is capable of
safely operating The CMN does not ask if the patient is patient's
capability to safely operate the the controls for the power wheelchair.
capable of safely operating the controls for controls of a power
wheelchair. the power wheelchair.

Is the patient unable to operate any type of The patient is unable to
operate a manual There are no limitations because the CMN manual
wheelchair? wheelchair. elicits information that can be used to

Does the patient have severe weakness of determine that the Medicare
coverage the upper extremities due to a neurologic, criteria concerning
the patient's ability to muscular, or cardiopulmonary operate a power
wheelchair are met.

disease/condition?

Source: GAO analysis.

Note: Information from Coverage Issues Manual, rev. 36, Section 60-9,
www.cms.gov/manuals/06_cim/ci60.asp, accessed Ju ly 29, 2004; DME regional
carrier coverage guidance; and Department of Health and Human Services,
Centers for Medicare & Medicaid Services, Certificate of Medical
Necessity, Motorized Wheelchairs, DMERC Form 02.03A.

a

A power wheelchair is covered when all the Medicare coverage criteria are
met.

The HHS OIG recently testified that the CMN for power wheelchairs, which
does not list coverage guidelines and is not completely consistent with
coverage policy, is one of the reasons that DME regional carriers have
paid claims for power wheelchairs for beneficiaries who did not qualify
for them under Medicare coverage rules. 10 In a related report, the OIG
discussed the findings of an independent medical review contractor, which
the OIG retained to review 230 medical records for beneficiaries for

10

Department of Health and Human Services, Office of Inspector General,
Medicare: Reimbursement for Power Wheelchairs and Scooters, Testimony of
Dara Corrigan, Acting Principal Deputy Inspector General, before the U.S.
Senate Committee on Finance, April 28, 2004.

Page 10 GAO-05-43 Medicare Power Wheelchairs

    Funding for Claims Review Declined as Power Wheelchair Spending Rose

whom Medicare claims for power wheelchairs were submitted in 2001. 11 The
independent reviewer found that only 13 percent of the claims met the
Medicare coverage criteria for a power wheelchair. The reviewer also found
that 31 percent of the claims did not meet the Medicare coverage criteria
for any type of power wheelchair or scooter, while an additional 45
percent did not meet the criteria for a power wheelchair, but may have met
the criteria for another type of wheelchair or scooter. 12 The HHS OIG
recommended that CMS educate physicians and beneficiaries about the
Medicare coverage criteria for power wheelchairs and develop coverage
policy to include specific information about the medical conditions for
which Medicare will cover different types of power mobility equipment.

Because annual funding for the DME regional carriers to conduct medical
reviews declined, while power wheelchair spending rose, the DME regional
carriers' capacity to conduct medical review was affected. CMS decreased
the total funding for the medical review of claims submitted to the four
DME regional carriers by about 22 percent, comparing fiscal year 1999 and
fiscal year 2003. 13 Consistent with the decrease in funding, the number
of claims for all items undergoing complex medical review in regions B, C,
and D fell by about 39 percent from fiscal year 2001 through fiscal year
2003. 14 These funding decreases can weaken program safeguard efforts. For
example, three of the four DME regional carriers told us that conducting
medical review on a larger number of claims would allow them to better
address improper Medicare billing. Furthermore, Palmetto officials said
that the funding they received for medical review did not equip them to
handle the level and type of fraudulent power wheelchair billing that was
discovered in Texas in 2002. In addition, they told us that

11

Department of Health and Human Services, Office of Inspector General,
Medicare Payments for Power Wheelchairs, OEI-03-02-00600 (Washington,
D.C.: April 2004).

12

For 11 percent of the claims, due to insufficient documentation, the
reviewer could not determine whether the beneficiaries' conditions met
coverage criteria.

13

Our data include funding for medical review activities performed by the
four DME regional carriers and, starting in fiscal year 2001, the program
safeguard contractor for region A. From fiscal year 1999 through fiscal
year 2001, total funding for the medical review of claims submitted to
these carriers increased from $10,806,376 to $12,388,461. However, total
funding for the medical review of claims decreased from $9,472,076 in
fiscal year 2002 to $8,432,894 in fiscal year 2003.

14

Regions B, C, and D conducted complex medical reviews on about 297,600
claims for all items in fiscal year 2001 and on about 180,600 claims in
fiscal year 2003. This information was not available for region A.

they were also addressing fraudulent billing related to other items for
which they had made payments.

The decline in funding for medical review is even more dramatic when
weighed against claims submitted to the DME regional carriers. Overall,
the amount of medical review funding from CMS per $100 in total submitted
claims dropped over 50 percent from fiscal year 1999 through 2003 for
total claims submitted to the four DME regional carriers. Palmetto's
funding dropped from about 8 cents per $100 in submitted claims in 1999 to
less than 4 cents per $100 in submitted claims in 2003. 15 Compared to the
other three DME regional carriers, Palmetto was allocated less medical
review funding per $100 in total submitted claims each year from fiscal
year 1999 through 2003, as figure 2 shows.

In fiscal year 2003, Palmetto received $3.1 million for medical review
activities-about 15 percent less than it received in 1999.

Page 12 GAO-05-43 Medicare Power Wheelchairs

Figure 2: Medical Review Funding for Each $100 in Submitted Claims for
Palmetto and the Other Three DME Regional Carriers

In cents

      Fiscal year

                              Palmetto All others

Source: GAO analysis.

Note: Based on CMS data on medical review funding and submitted claims.

Despite the relatively low funding allotted by CMS to Palmetto for medical
review, Palmetto more than tripled the number of power wheelchair claims
on which it conducted complex medical review from fiscal years 2000 to
2002. Nevertheless, Palmetto still reviewed less than 3 percent of its
power wheelchair claims in 2002, 16 while it paid about $550 million to
suppliers for this item.

The reduction in medical review funding for Palmetto is of particular
interest because Palmetto had already found significant power wheelchair
fraud in its region in the late 1990s. Further, from 1997 through 2003,
spending growth for power wheelchairs in Palmetto's region surpassed that
of the three other regions combined, as shown in figure 3.

Palmetto reviewed about 4,400 of the approximately 158,000 claims
submitted for power wheelchairs in 2002.

Page 13 GAO-05-43 Medicare Power Wheelchairs

    Palmetto Conducted Fraud Investigations in Texas to Address Improper
    Payments

Figure 3: Regional Medicare Power Wheelchair Spending Dollars in millions
800 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 Year

Region A (HealthNow New York, Inc.)
Region B (AdminaStar Federal)
Region C (Palmetto Government Benefits Administrators)
Region D (CIGNA HealthCare Medicare Administration)

Source: CMS.
Note: Medicare spending includes federal payments and beneficiary cost
sharing.

In early 2002, Palmetto officials became concerned that some power
wheelchair suppliers in Harris County, Texas, and other parts of the state
had submitted-and Palmetto had paid-fraudulent power wheelchair claims.
Specifically, 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
a single beneficiary.

Also in 2002, legitimate power wheelchair suppliers in Harris County,
Texas, became increasingly suspicious about the activities of some
suppliers in their area. For example, representatives of 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

    Fraud Investigations and Supplier Inspections Highlighted Weaknesses in
    Verifying the Legitimacy of Suppliers

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 2001. During January 2003,
Palmetto referred 22 Harris County area suppliers suspected of fraud in
their billing for power wheelchairs to the Dallas office of the HHS OIG
for potential prosecution. 17 Palmetto officials estimated that at least
200 individuals in region C were involved in fraudulent power wheelchair
schemes and that Medicare had improperly paid at least $20 million in its
region for fraudulent claims from fiscal year 2000 through fiscal year
2003.

NSC, which is the CMS contractor responsible for DME supplier enrollment,
noted in 2002 that Texas had an unusually high number of suppliers
compared to the number of beneficiaries residing in the state. At CMS's
request, NSC stationed one of its inspectors in the Harris County area to
conduct supplier site visits. During these site visits, which began in
September 2002, NSC's inspector found instances where suppliers lacked
appropriate places of business or had moved their businesses without
giving NSC the required forwarding addresses. Based on these findings,
NSC's inspector subsequently led site visits of every active supplier that
had not been inspected since January 2003 in the Harris County, Texas,
area. These out-of-cycle site visits of about 1,300 suppliers were
conducted from August 2003 through January 2004, and identified instances
where suppliers did not meet required Medicare standards, 18 including
lacking appropriate inventory and insurance. Due to problems identified
during regular and out-of-cycle site visits, NSC revoked 367 supplier
billing numbers for power wheelchair suppliers in the Harris County,
Texas, area, from September 2002 through March 2004.

Many suppliers, whose billing numbers were later revoked, gained entry
into the Medicare program because of three weaknesses in the enrollment
process. First, NSC did not always verify submitted documents. NSC
officials told us that they had routinely accepted copies of key
documents, such as liability insurance forms, at face value without
verifying them.

17

Palmetto conducted additional investigations and made referrals throughout
2003, and, as of August 18, 2004, investigations were continuing.

18

Suppliers must meet 21 standards. 42 C.F.R. S: 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.

Page 15 GAO-05-43 Medicare Power Wheelchairs

Failure to verify the accuracy of these documents had enabled supplier
applicants to submit falsified papers and still become enrolled as
Medicare suppliers. NSC officials indicated that they began verifying
suppliers' liability insurance forms in September 2003.

Second, the 21 standards that NSC uses to evaluate suppliers lack the
specificity needed to screen out illegitimate suppliers and do not provide
guidance on appropriate marketing practices. For example, the supplier
standards are not specific about the characteristics of a physical
location or the amount or type of inventory that would be expected, given
the items the supplier intends to provide to Medicare beneficiaries.
According to NSC staff, the broad language used in these standards is
difficult to interpret and enforce. CMS and NSC are in the process of
developing additional guidance concerning supplier standards, including
prescribing how existing standards on physical location and inventory
should be interpreted.

In addition, the 21 standards do not address certain misleading or abusive
marketing practices, including offers to routinely waive beneficiaries'
copayments and certain types of personal solicitations. Individuals with
whom we spoke contended that misleading and abusive marketing practices
have escalated nationwide utilization of power wheelchairs and were a
factor in increased utilization of power wheelchairs in Texas. For
example, CMS officials told us of instances of suppliers promising free
power wheelchairs to beneficiaries in Texas. We also found supplier
advertisements on the Internet, in print, and on television, that used the
words "free" or "no cost to you" in connection with beneficiaries
receiving power wheelchairs. Appendix III shows an example of an Internet
advertisement that appears to illegally offer to waive Medicare
co-payments. 19 CMS officials also reported suppliers canvassed
beneficiaries door-to-door in Texas to solicit their business. By statute,
Medicare suppliers are not permitted to offer free wheelchairs by waiving
beneficiary co-payments routinely or as part of an advertisement or
solicitation. 20 Furthermore, the Medicare statute generally prohibits
suppliers from canvassing beneficiaries by telephone to solicit their

19

The supplier has since withdrawn this advertisement from its Web site.

20

42 U.S.C. S: 1320a-7a(a)(5) and (i)(6)(A) (2000). As a result, suppliers
soliciting Medicare business by advertising that they can provide a
beneficiary with a free wheelchair may be subject to penalties if they
actually provide the beneficiary with a wheelchair at no cost.

Page 16 GAO-05-43 Medicare Power Wheelchairs

business. 21 While the 21 supplier standards reflect the statutory
restriction on telephone solicitations, they do not prohibit door-to-door
solicitation. Furthermore, the standards do not reflect the prohibition on
waiving copayments routinely or as part of an advertisement or
solicitation. CMS has statutory authority to specify additional supplier
requirements, but has not used this authority to modify the 21 standards
to ensure that suppliers' marketing practices are not misleading or
abusive. 22

A third weakness in the enrollment process concerns the predictability of
NSC's initial and subsequent site visits to suppliers. CMS requires NSC to
conduct a site visit to assess compliance with the 21 supplier standards
before authorizing a new supplier to bill Medicare. NSC is also required
to conduct a site visit to assess the supplier's continued compliance with
the standards every 3 years, when suppliers must reenroll in order to
retain their Medicare billing privileges. 23 Because the timing of such
visits is predictable, a supplier that is intent on committing fraud can
anticipate a site visit and present an illusion of legitimacy for the
purpose of passing the initial inspection, fully understanding that an
inspector is not likely to return for 3 years, even if beneficiaries
complain of potential fraud. For example, the person convicted of Medicare
fraud who testified before your committee on April 28, 2004, stated that
although a fraud analyst contacted her after a beneficiary complained
about nondelivery of a power wheelchair billed to Medicare, no inspector
visited the facility. According to this individual, she was able to bill
Medicare $50,000 for power wheelchairs in the next month without any
further scrutiny, though her operation rarely delivered the power
wheelchairs billed. 24

The experience in Harris County, Texas, suggests that conducting
out-of-cycle site visits was valuable to uncover fraud and suppliers that
were not complying with required standards. Nevertheless, CMS does not
require NSC to routinely conduct out-of-cycle site visits, maintain data
on the

21

42 U.S.C. S: 1395m(a)(17) (2000).

22

42 U.S.C. S: 1395m(j)(1)(B)(ii)(IV) (2000).

23

CMS does not require NSC to conduct a site visit to 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.

24

This individual reported that prior to submitting additional power
wheelchair claims, she did mail a refund check to Medicare for the power
wheelchair that the beneficiary complained about not receiving.

  Recent Actions May Help Control Improper Power Wheelchair Payments

number of out-of-cycle visits that NSC may choose to conduct, or report on
the results of such visits. According to an NSC official, NSC may choose
to conduct an out-of-cycle visit to a supplier when a complaint is lodged
or when data analysis of the supplier's claims indicate that there is a
potential problem. In its written comments on a draft of this report, CMS
reported that, in the summer of 2003, NSC had conducted over 600
out-of-cycle site inspections and had found more than 300 suppliers out of
compliance with supplier standards.

CMS has recently taken steps, including issuing an action plan in
September 2003 and announcing additional initiatives in April 2004, that
should strengthen the processes the agency and its contractors use to
identify and respond to improper payments for power wheelchairs and other
DME items. While some of these activities addressed fraud, abuse, and
utilization issues in Harris County, Texas, others focused on clarifying
the Medicare coverage criteria for adjudicating power wheelchair claims.
Still others were in response to requirements in the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA). 25 As shown in
table 3, CMS's and its contractors' actions to respond to rising spending
for power wheelchairs are in different stages of completion and focus on
supplier enrollment; coverage policy; pricing; provider and beneficiary
education; actions to address concerns in Harris County, Texas; and law
enforcement.

25

Pub. L. No. 108-173, S: 302, 117 Stat. 2066, 2223.

 Table 3: CMS's Actions to Address Improper Payments for Power Wheelchairs and
                                Other DME Items

Action                  Explanation                Statusa                 
Supplier enrollment                                
Prevent fraudulent      CMS stated it would begin  Since October 2003, NSC 
suppliers from          to aggressively            had received            
enrolling in Medicare   scrutinize all new         over 5,800 new          
for the purpose of      applications; NSC stopped  applications from       
receiving inappropriate issuing new supplier       potential Medicare      
payments.               numbers in Harris          suppliers and had       
                           County, Texas, in March    approved over 4,000 of  
                           2003 and nationally        these                   
                           in September 2003. NSC     applications. During    
                           began issuing              the same period,        
                           supplier numbers again in  over 8,000 supplier     
                           November 2003.             numbers were            
                                                      inactivated and 4,000   
                                                      were reactivated.       
Identify and prevent    CMS stated its intent to   CMS plans to establish  
inappropriate           publish regulations to     quality and             
enrollment of suppliers enhance its ability to     consumer service        
by providing a          screen new supplier        standards for suppliers 
more detailed screening applications.              by January 2005.        
process, allowing                                  
CMS the time needed to  MMA requires CMS to        
properly review         establish quality and      
applications, and       consumer service standards 
providing sanctions     for suppliers. MMA S:      
against suppliers       302(a)(1), 117 Stat. 2223  
abusing the enrollment  (to be codified at 42      
process.                U.S.C. S: 1395m(a)(20)).   

Clarify existing supplier CMS is currently working   CMS planned to        
enrollment                with NSC on                implement the         
                                                        clarified             
standards.                clarifying the existing 21 21 supplier standards 
                             supplier standards.        by October 2004.      
Implement an              This action is required by The agency has not    
accreditation process to  MMA. MMA S:                developed a           
determine if suppliers    302(a)(1), 117 Stat. 2223  schedule for this     
meet quality              (to be codified at 42      action.               
standards, which MMA      U.S.C. S: 1395m(a)(20)).   
requires CMS to                                      
establish.                                           
Coverage policy for power                            
wheelchairs                                          

Ensure national policy accurately defines the conditions under which
Medicare will cover mobility products.

CMS stated it would promulgate regulations revising coverage policy for
power wheelchairs and scooters. The coverage policy will implement the MMA
provision requiring medical providers to conduct face-to-face examinations
of patients before prescribing wheelchairs. MMA S: 302(a)(2), 117 Stat.
2224 (to be codified at 42 U.S.C. S: 1395m(a)(1)(E)(iv)).

CMS developed a proposed rule that would require medical providers to
conduct face-to-face examinations of patients prior to prescribing
wheelchairs and scooters. In July 2004, the proposed rule was under
review; on August 5, 2004, it was published.

Accurately portray    CMS stated that DME      In December 2003, the DME   
the clinical          regional carriers would  regional carriers published 
conditions for which  immediately adopt local  an educational bulletin to  
mobility products are medical review policies  clarify coverage criteria.  
reasonable and        to educate suppliers and It explained how claims     
necessary, and        beneficiaries on the     would be reviewed and       
facilitate correct    Medicare coverage        should be coded and how the 
billing and payment   criteria for             
for mobility devices. wheelchairs.             
                                                  beneficiary's medical need  
                                                  for the item should be      
                                                  documented. This            
                                                  information                 
                                                  has since been removed from 
                                                  their Web                   
                                                  sites, in response to       
                                                  concerns raised by          
                                                  suppliers, beneficiary      
                                                  representatives, and        
                                                  industry groups. As part of 
                                                  its April 2004 initiatives, 
                                                  CMS convened an             
                                                  interagency work group to   
                                                  develop guidance on power   
                                                  wheelchair coverage policy. 

Action                    Explanation            Statusa                   
Coverage policy for power wheelchairs (cont'd)   
When national billing   CMS stated that the DME  Each DME regional carrier 
and utilization trends  regional carriers        has assured               
are identified, ensure  would adopt a consistent CMS that it is            
that only claims that   approach to medical      consistently using local  
                                                    and                       
are reasonable and      review.                  national policy guidance  
necessary are paid                               when reviewing            
and resolve national                             claims.                   
billing problems                                 
consistently.                                    
Establish an            This group of clinicians CMS will provide for a    
interagency work           will develop guidance public comment            
group,                                           
including clinicians       on implementing power period, and then issue    
from CMS, the                wheelchair coverage guidance by the           
National Institutes of policy.                   end of 2004.              
Health, the                                      
Department of Veterans Affairs, and the          
National Institute on Disability and             
Rehabilitation Research.                         

Power wheelchair                                  
pricing                                           
Ensure that Medicare is CMS stated it would       CMS officials indicated  
paying appropriately    develop guidelines to     that the agency would    
for power wheelchairs.  implement its payment     issue guidelines for     
                           rate adjustment process   implementing an inherent 
                           for most part B services  reasonableness process   
                           (called inherent          soon. Once the           
                           reasonableness) and apply guidelines are issued,   
                           this process first to     CMS can use them to      
                           power wheelchairs.        determine whether        
                                                     payment amounts for      
                                                     power wheelchairs should 
                                                     be adjusted.             

Develop a new set of power wheelchair These codes will provide more
specificity in CMS will consult with other experts and billing codes. The
DME regional carriers differentiating the various power wheelchairs
solicit public comments before finalizing use billing codes to identify
power on the market. its coding changes. When new codes are wheelchairs
and other items billed by a established, CMS will develop payment supplier
on a beneficiary's behalf. ceilings for each new code.

Implement competitive bidding, and include power wheelchairs in this
process.

Provider and beneficiary                              
education                                             
Provide physicians and   CMS stated that it would     The DME regional     
beneficiaries with       work with physicians         carriers provided an 
the necessary            to clarify their prescribing online tutorial to   
information about        responsibilities. It         physicians and       
Medicare                                              suppliers            
coverage policies for    would also educate           to better educate    
power wheelchairs.       physicians, beneficiaries,   them about the power 
                            and suppliers on the         wheelchair benefit.  
                            Medicare coverage            The DME regional     
                            criteria for power           carriers have also   
                            wheelchairs.                 provided one-on-one  
                                                         and group education  
                                                         to suppliers.        

MMA requires CMS to begin a Medicare CMS may consider including power
competitive bidding program for medical wheelchairs in its competitive
bidding equipment and supplies in 2007. Under this effort as early as
2007. program, suppliers will compete by offering bids or amounts they
will accept to supply DME products to beneficiaries, and CMS will use the
bid information to set payments and choose suppliers (MMA S: 302(b), 117
Stat. 2224).

                           Action Explanation Statusa

Focus on Harris County, Texas

Address what CMS called "rampant"    CMS stated,  CMS has continued to     
fraud and abuse in the Harris        effective    have medical             
County, Texas, area.                 with plan's  professionals in its     
                                        issuance,    Dallas regional office   
                                        all payments review all claims for    
                                        for power    power wheelchairs from   
                                        wheelchairs  Harris County, Texas,    
                                        in the       that have been approved  
                                        Harris       for payment, but         
                                        County,      anticipated phasing out  
                                        Texas, area  this review.             
                                        would be     
                                        individually 
                                        approved by  
                                        CMS staff in 
                                        the Dallas   
                                        regional     
                                        office.      
Ensure that all suppliers of manual  CMS stated   Palmetto and the CMS     
wheelchairs, scooters, and power     that it      Dallas regional office   
wheelchairs in Harris County, Texas, would        sponsored mandatory      
know and understand Medicare         require all  training for all         
coverage rules. Law enforcement      wheelchair   Houston-based suppliers  
                                        suppliers in of manual wheelchairs,   
                                        the Harris   scooters, and power      
                                        County,      wheelchairs, which was   
                                        Texas, area  completed in October     
                                        to attend    2003. Employees          
                                        mandatory    representing 328         
                                        training on  suppliers attended the   
                                        wheelchair   training. CMS plans to   
                                        coverage and take administrative      
                                        medical      action against, and has  
                                        review       not paid claims from,    
                                        policies.    any of the 53 suppliers  
                                                     that did not attend.     
Quickly identify and       CMS, DME regional   Since September 2003, 179
punish fraudulent          carriers, and law   fraud cases involving 296
suppliers and work         enforcement         suppliers had been referred
collaboratively with law   agencies will       to law enforcement
enforcement to process     collaborate to      officials. In addition, the
fraud cases.               process criminal    DME regional carriers had
                              prosecutions. CMS   121 active investigations
                              also indicated that under way.
                              it would use        
                              payment suspension  
                              against suppliers   
                              referred to law     
                              enforcement, as     
                              needed, to prevent  
                              loss of Medicare    
                              funds.              

                                  Conclusions

Source: GAO analysis.

Note: Based on CMS's September 2003 action plan, April 2004 initiatives,
and other status information provided by CMS.

aInformation on status as of July 2004, unless otherwise noted.

Fraud, abuse, and misapplication of Medicare rules in the program's power
wheelchair benefit highlight four areas of concern relating to how CMS and
its contractors safeguard Medicare program dollars. First, while
contractors repeatedly communicated concerns about potential problems to
the agency, CMS was slow to react to rising spending. Some of this
spending was on behalf of beneficiaries who met all of the Medicare
coverage criteria, but millions of dollars were spent on power wheelchair
claims submitted by suppliers intent on defrauding the Medicare program.
CMS's failure to take an early leadership role underlines the need for a
more proactive response by the agency in the future when there appears to
be disproportionate and suspicious spending for DME items provided to
Medicare beneficiaries.

A second area of concern centers on the CMN. CMS is in the process of
revising the CMN for power wheelchairs, but has not implemented a version
that provides sufficient information to allow DME regional carriers to
correctly adjudicate power wheelchair claims. Until it does so, its DME
regional carriers will continue to be hampered in their efforts to
properly pay power wheelchair claims.

Third, fraud that occurred among suppliers in Harris County, Texas,
highlights significant weaknesses in the supplier enrollment process-
especially standards covering suppliers' physical locations, required
inventory, and marketing. Other than constraining suppliers'
communications with beneficiaries by telephone, the 21 supplier standards
do not provide guidance on appropriate marketing practices. For example,
they do not include language reflecting the statutory provision that
prohibits suppliers from waiving beneficiaries' co-payments when offered
as part of an advertisement or solicitation. While CMS is working on more
specific guidance relating to a supplier's physical location and
inventory, it has not modified the 21 supplier standards to ensure that
marketing practices are not misleading or abusive. Such marketing
practices include offering to waive beneficiaries' co-payments, using the
words "free" or "no cost to you" in relation to provision of Medicare
items to beneficiaries, and using door-to-door solicitations.

Fourth, site visits, which can help ensure compliance with supplier
standards, are less effective in screening potential suppliers because
they are highly predictable. Despite evidence that out-of-cycle site
visits proved useful in identifying fraudulent suppliers in Harris County,
Texas, CMS does not require its contractor to conduct such site visits on
a routine basis across the country.

To help ensure that improper payments are identified and addressed in a

  Recommendations for

timely manner and that Medicare pays properly for power wheelchairs and
Executive Action other items of DME, we recommend that the Administrator
of CMS take four actions:

     o Develop a process within CMS to focus on trends in Medicare spending
       and disproportionate or suspicious Medicare payments; develop
       strategies to address the trends that may indicate possible improper
       payments for DME; and take timely action, when warranted.
     o Implement a revised CMN that incorporates key elements of power
       wheelchair coverage criteria to help DME regional carriers properly
       adjudicate claims.
     o Strengthen the standards for Medicare DME suppliers to include
       prohibiting certain misleading or abusive marketing practices.
     o In addition to conducting the currently required initial and
       reenrollment site visits, direct NSC to routinely conduct out-of-cycle
       site visits to suppliers that are suspected of billing improperly and
       to maintain data on these visits and their results.

                                Agency Comments

In its written comments on a draft of this report, CMS agreed with our
recommendations and stated that it had undertaken several efforts to curb
the abuse of the power wheelchair benefit in the Medicare program within
the last year. CMS mentioned its September 2003 power wheelchair
initiative, which focused on aggressive claims review, enforcement, and
supplier training, and its April 2004 initiative, which targeted coverage,
payment, and the quality of suppliers of power wheelchairs.

In response to the draft report's discussion on the decline in annual
funding for the DME regional carriers to conduct medical reviews, CMS
indicated that it agreed that funding had decreased when fiscal year 1999
is compared to fiscal year 2003. However, CMS noted that funding had
increased steadily before it began to decrease. In response to CMS's
comment, we revised the report to provide additional information on
funding changes from fiscal year 1999 to fiscal year 2003. CMS also stated
that it continues to request additional funding for Medicare Integrity
Program efforts and that legislative caps on that funding had affected
medical review spending. CMS was referring to funding for the Medicare
Integrity Program, which was provided by the Health Insurance Portability
and Accountability Act of 1996 (HIPAA). 26 Medicare Integrity Program
activities include medical review of claims, investigation of potential
fraud cases, and provider education and training to combat Medicare fraud,
waste, and abuse. Beginning in fiscal year 1997, HIPAA appropriated an
increasing level of funding through fiscal year 2003 and permanent funding
at the 2003 level thereafter.

26

Pub. L. No. 104-191, sec. 201(b), S: 1817(k)(4), 110 Stat. 1936, 1995.

CMS agreed with our recommendation that it develop a process to focus on
trends in Medicare spending and disproportionate or suspicious Medicare
payments; develop strategies to address the trends that may indicate
possible improper payments for DME; and take timely action, when
warranted. CMS indicated that it is building on its current program
integrity efforts to implement a new data-driven approach to detect
improper payments and potential areas of fraud and abuse in the Medicare
program. In response to our recommendation that CMS implement a revised
CMN for power wheelchairs, CMS stated that it anticipates having a revised
CMN in use in 2005, which it said should provide useful information for
more accurate and timely claims reviews. CMS agreed with our
recommendation on strengthening the standards for DME suppliers by
prohibiting certain misleading or abusive marketing practices. The agency
noted that it is examining whether its current authorities allow it to
address direct-to-consumer marketing beyond telephone solicitations or if
it needs to seek a legislative remedy to amend the supplier standards to
do so. However, CMS indicated that it intended to further delineate
appropriate marketing practices by DME suppliers to beneficiaries.
Finally, CMS agreed with our recommendation to direct NSC to routinely
conduct out-of-cycle site visits to selected suppliers. CMS noted that NSC
had conducted out-of-cycle site inspections in 2003 and 2004, and the
agency said that it has directed NSC to continue these reviews in fiscal
year 2005.

We have reprinted CMS's letter in appendix IV. CMS also provided us with a
technical comment, which we incorporated.

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its date. We are sending copies of this report to the Administrator
of CMS, appropriate congressional committees, and other interested
parties. We will also make copies available to others upon request. This
report is also available at no charge on GAO's Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please call me
at (312) 220-7600 or Sheila K. Avruch at (202) 512-7277. Other key
contributors to this report are Sandra D. Gove, Joy L. Kraybill, Lisa S.
Rogers, and Craig Winslow.

Sincerely yours,

Leslie G. Aronovitz

Director, Health Care-Program Administration and Integrity Issues

                       Appendix I: Scope and Methodology

We assessed the early and more recent steps taken by the Centers for
Medicare & Medicaid Services (CMS) and its contractors to respond to
improper payments for power wheelchairs. First, we obtained reports on
national and regional annual Medicare claims payment data for power
wheelchairs from 1997 through 2003 from the statistical analysis durable
medical equipment regional carrier (SADMERC). These annual reports
included the paid claims data for power wheelchairs with dates of service
during a calendar year. They included all paid claims data received by the
SADMERC during that calendar year through March 31 of the next calendar
year. We reviewed CMS and contractor internal control procedures to help
ensure that these data were accurate, timely, and complete. We determined
that these data were sufficiently reliable for addressing the issues in
this report.

We reviewed actions taken by the SADMERC in identifying claims payment
trends and possible improper payments and informing the other durable
medical equipment (DME) regional carriers and CMS. To do so, we reviewed
SADMERC reports from 1997 to 2003 sent to DME regional carrier and CMS
staff that contained information on power wheelchair billing and
interviewed SADMERC, DME regional carrier, TriCenturion, and CMS staff
about SADMERC activities.

We reviewed actions taken by DME regional carriers in responding to
possible improper payments and informing CMS about potential issues. We
reviewed DME regional carrier and CMS documents, including memorandums, a
fraud alert, reports related to power wheelchair fraud activities, the
certificate of medical necessity for power wheelchairs, the Medicare
coverage criteria, and CMS budget documents for fiscal year 1999 through
fiscal year 2003. From the budget documents provided by CMS and submitted
claims information provided by the SADMERC, we analyzed funding for claims
review activities. Contractor budget and expense data are self-reported by
CMS and the contractors, and we did not validate these data. We also
interviewed DME regional carriers and TriCenturion staff, including their
medical directors, and CMS headquarters and regional staff with
responsibility for overseeing, or budgeting for, DME regional carrier and
TriCenturion activities.

To review steps taken by the National Supplier Clearinghouse (NSC), we
reviewed CMS and NSC documents, such as the 21 supplier standards and
correspondence from NSC highlighting problems with the supplier standards.
We also interviewed CMS and NSC staff about power wheelchair supplier
issues; on-site review activities, particularly in Harris County, Texas;
and potential weaknesses in supplier verification activities.

Appendix I: Scope and Methodology

We assessed the steps taken by CMS to respond to improper payments for
power wheelchairs by reviewing CMS's action plan to combat improper
payments for power wheelchairs; relevant sections of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 and the
Social Security Act; and other documents mentioned above. We interviewed
CMS officials with responsibility for safeguarding DME payments and
overseeing SADMERC, DME regional carrier, TriCenturion, and NSC
activities. We also interviewed SADMERC, DME regional carrier,
TriCenturion, and NSC staff; supplier representatives; beneficiary
advocates; and industry representatives. The beneficiary advocates whom we
interviewed included members of the Independence Through Enhancement of
Medicare and Medicaid Coalition. In addition, we interviewed clinicians
from the University of Pittsburgh. We also interviewed representatives of
manufacturers, suppliers, and a trade association, including
representatives from Hoveround, Invacare, Pride Mobility Products
Corporation, the Power Mobility Coalition, and two suppliers in Harris
County, Texas. We also participated in three "listening sessions" on
February 24, March 31, and June 14, 2004, that were organized by CMS staff
so that they could hear the viewpoints of suppliers, beneficiary
advocates, and industry representatives on the actions taken by CMS and
its contractors to address power wheelchair issues. We performed our work
from February through November 2004 in accordance with generally accepted
government auditing standards.

Appendix II: DME Regional Carriers' Jurisdiction

                                  Source: CMS.

Appendix III: Internet Advertisement for Power Wheelchairs

Source: Internet Web site.

Note: This advertisement was downloaded from a supplier's Web site on
April 24, 2004. The supplier has since withdrawn this advertisement from
its Web site.

Appendix IV: Comments from the Centers for Medicare & Medicaid Services

Appendix IV: Comments from the Centers for Medicare & Medicaid Services

Appendix IV: Comments from the Centers for Medicare & Medicaid Services

Appendix IV: Comments from the Centers for Medicare & Medicaid Services

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