Medicare: Excessive Payments for Medical Supplies Continue Despite
Improvements (Letter Report, 08/08/95, GAO/HEHS-95-171).
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-95-171
TITLE: Medicare: Excessive Payments for Medical Supplies Continue
Despite Improvements
DATE: 08/08/95
SUBJECT: Claims processing
Medical expense claims
Medicare programs
Internal controls
Contractor performance
Medical supplies
Program abuses
Fraud
Overpayments
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Subcommittee on Labor, Health
and Human Services, Education, and Related Agencies, Committee on
Appropriations, United States Senate
August 1995
MEDICARE - EXCESSIVE PAYMENTS FOR
MEDICAL SUPPLIES CONTINUE DESPITE
IMPROVEMENTS
GAO/HEHS-95-171
Excessive Medical Supply Payments
(101310)
Abbreviations
=============================================================== ABBREV
DME - durable medical equipment
DMERC - durable medical equipment regional carrier
HCFA - Health Care Financing Administration
HCPC - HCFA Common Procedure Code
HHS - Department of Health and Human Services
OBRA1993 - Omnibus Budget Reconciliation Act of 1993
OIG - Office of Inspector General
VA - Department of Veterans Affairs
Letter
=============================================================== LETTER
B-258070
August 8, 1995
The Honorable Tom Harkin
Ranking Minority Member
Subcommittee on Labor, Health
and Human Services, Education,
and Related Agencies
Committee on Appropriations
United States Senate
Dear Senator Harkin:
In fiscal year 1994 alone, Medicare was billed over $6.8 billion for
medical supplies. Congressional hearings and government studies have
shown that Medicare has been extremely vulnerable to fraud and abuse
in its payments for medical supplies, especially surgical dressings.
For example, hearings before the Senate Appropriations Subcommittee
on Labor, Health and Human Services, Education, and Related Agencies
last year identified a case in which Medicare paid over $15,000 worth
of claims for a month's supply of surgical dressings for one patient,
apparently without reviewing the reasonableness of the claims before
payment.
Until recently, medical suppliers had considerable freedom in
selecting the Medicare contractors that would process and pay their
claims. Some exploited this freedom by "shopping" for contractors
with the weakest controls and highest payment rates. To address this
problem, Medicare revised its payment rules to preclude suppliers
from contractor shopping and established four regional contractors to
specialize in processing these and similar types of claims.
This report responds to your request that we determine the (1)
circumstances allowing payment for unusually high surgical dressing
claims and (2) adequacy of Medicare's internal controls to prevent
paying such claims.\1 To make these determinations, we obtained
information from Office of Inspector General (OIG) and Health Care
Financing Administration (HCFA) officials at the Department of Health
and Human Services (HHS) and visited three types of contractors that
process and pay Medicare claims. See appendix I for a more detailed
description of our scope and methodology.
--------------------
\1 Surgical dressings may also come under the broader category of
medical supplies. In this report, we use the term medical supplies
when this is the case. When referring solely to surgical dressings,
we use that term.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Although HCFA has made improvements to prevent contractor shopping,
unwarranted expenditures persist for several reasons. First, many
Medicare contractors still lack internal controls that would reliably
identify suspicious medical supply claims before payment. Following
are examples of the lack of controls:
Contractors that pay medical supply claims submitted by nursing
homes, home health agencies, and other institutional providers
do so without knowing specifically what they are being asked to
pay for on behalf of beneficiaries. Submitted claims lack
sufficient detail, for example, to inform contractors whether
they are being asked to pay more than $21,000 for a pacemaker or
$.75 for a gauze pad.
None of the four regional contractors automatically reviewed
high-dollar claims for newly covered surgical dressings. This
explains why a contractor paid $23,000 for surgical dressings
when the appropriate payment was $1,650.
Medicare does not have a systematic way of detecting duplicate
bills submitted to different types of Medicare contractors, and
we found some evidence that duplicate payments occur.
Second, Medicare payment rates for surgical dressings are high
compared with wholesale and many retail prices. For example,
Medicare pays $2.32 for a gauze pad whose wholesale price is $.19 and
that another government agency purchases for $.04.
HCFA and its contractors know about these problems and have tried to
address some of them. Though the problems persist, these efforts
have provided more and better information to define the problem.
This information suggests that inadequate controls are causing
Medicare to lose hundreds of millions of dollars. HCFA could curtail
these losses by establishing procedures to (1) identify what Medicare
is being asked to pay for, (2) prevent duplicate payments, and (3)
identify high-dollar, high-volume claims that should be reviewed
before payment. Further, HCFA needs the legislative authority to set
payments at rates more favorable to large-volume purchasers.
BACKGROUND
------------------------------------------------------------ Letter :2
Medicare provides health insurance coverage for approximately 37
million elderly and disabled people under two parts: part A,
primarily hospital insurance, and part B, supplementary insurance.
HCFA, which administers the Medicare program, contracts with
insurance companies (called "fiscal intermediaries" for part A and
"carriers" for part B) to process, review, and pay claims for covered
services.
Payments for medical supplies are made under either of Medicare's two
parts. Medical supply claims submitted by hospitals or other
institutions, such as nursing homes or home health agencies, are paid
by 43 local fiscal intermediaries. Medical supply claims submitted
by noninstitutional providers, such as physicians or medical supply
companies, are paid by carriers. Thus, the same supply item can be
billed to Medicare for an individual under two completely different
payment systems, one for part A and another for part B. Under part
A, the payment is generally made on the basis of reasonable costs.
Under part B, the payment is made using a fee schedule established by
HCFA.
Historically, part B fraud and abuse have plagued Medicare, and HCFA
has recently reformed its operations. In October 1993, acting under
specific statutory authority,\2 HCFA started transferring carrier
claims processing responsibility for durable medical equipment (DME);
prosthetics; orthotics; and medical supplies, including surgical
dressings, from 32 local carriers to 4 regional carriers. These
carriers are commonly referred to as durable medical equipment
regional carriers (DMERC).
In March 1994, after lobbying by suppliers and manufacturers, among
others, HCFA greatly expanded its surgical dressing benefit,
broadening the types of dressings covered and the conditions under
which they would be covered. For example, the benefit was expanded
to cover payment for various types and sizes of gauze pads that
Medicare previously did not cover. Also, the duration of coverage
was extended from 2 weeks to whatever is considered medically
necessary.
--------------------
\2 42 U.S.C. 1395m(a)(12).
PAYMENT CONTROL WEAKNESSES LED
TO WIDESPREAD ABUSES
------------------------------------------------------------ Letter :3
DME claims have long been abused, in part, because of fundamental
weaknesses in Medicare payment controls. In response to these
weaknesses, HCFA has recently implemented significant changes in the
processing of DME claims to reduce Medicare's vulnerability to this
particular fraud and abuse.
LACK OF SYSTEMWIDE CONTROLS
LED TO LARGE LOSSES
---------------------------------------------------------- Letter :3.1
Before DME claims processing was transferred to the 4 regional
carriers in 1993, each of the 32 carriers paid DME claims, which
represented a small part of the total claims each carrier processed.
Under this process, HCFA did not require its contractors to implement
basic controls before payment that would identify and set aside for
review those claims with unusually high per-patient expenditures or
improbably large quantities of supplies. Without such controls, some
DME suppliers billed for equipment never delivered, higher cost
equipment than delivered, or totally unnecessary equipment or
supplies. Further, suppliers frequently engaged in contractor
shopping. Although, they might deliver equipment or supplies to
beneficiaries in one state, they would bill a contractor in another
state because that contractor paid more for the items delivered or
had relatively weak payment controls for the equipment or supply
items.
These weaknesses explain why Medicare contractors processed, without
questioning, claims that later proved to be fraudulent or abusive.
For example, as reported by the OIG, Medicare paid
an estimated $20 million in claims for unneeded nutritional
supplements and feeding kits;
approximately $5.2 million in claims for oxygen concentrators,
nebulizers, medications, and tests either not needed or not
delivered;
approximately $500,000 in claims for unneeded transcutaneous
electrical nerve stimulators; and
$7 million in claims for orthotic body jackets that should not have
been paid.
CLAIMS PROCESSING SYSTEM
REFORMED TO LIMIT LOSSES
---------------------------------------------------------- Letter :3.2
Establishing four regional carriers to process and oversee DME
claims, including surgical dressings, eliminated some of the
weaknesses that allowed prior abuses to flourish. The regional
carriers are better able to prevent Medicare payments for unusually
high medical supply claims for two key reasons.
First, the ability of suppliers to shop for contractors with the
highest payments and weakest controls has been eliminated. With only
four regional carriers, HCFA has better standardized the amount that
Medicare pays for medical supplies and the controls used to detect
and prevent payment of problem claims. Claims must be submitted to
the regional carrier responsible for payments in the state where the
beneficiary resides rather than the carrier allowing the highest
payment.
Second, medical supply and surgical dressing claims can receive more
attention from regional carriers than local carriers because these
claims are a larger portion of the regional carriers' workloads. As
a result, the regional carriers should be better able to detect and
prevent inappropriate payments for abnormally expensive surgical
dressing claims.
SIGNIFICANT VULNERABILITIES
CONTINUE DESPITE IMPROVEMENTS
------------------------------------------------------------ Letter :4
HCFA's recent efforts to prevent abuses in medical supply claims
apply only to part B claims submitted to regional carriers, which
represent half of Medicare's total medical supply payments. Claims
processed by fiscal intermediaries are still subject to some of the
same fraud and abuse problems that have historically plagued medical
supply claims. Further, despite the improvements, medical supply
claims submitted to the regional carriers are still subject to
significant abuse.
FISCAL INTERMEDIARIES DO NOT
KNOW WHAT SUPPLIES THEY PAY
FOR
---------------------------------------------------------- Letter :4.1
Fiscal intermediaries pay medical supply claims without knowing
specifically what they are being asked to pay for on behalf of
beneficiaries. The claims submitted by providers have no detailed
information that would allow fiscal intermediaries to assess the
claims' reasonableness. This lack of detail exists because HCFA
guidance allows providers to bill all medical supplies under 10 broad
codes; billed items are not listed by type or amount.
A code frequently used to record medical supplies is code 270
(medical/surgical supplies and devices- general classification),
which we found included many different items, such as a $21,437
pacemaker, a $.75 sterile sponge, and even daily rental charges of
$59 for an aqua pad. Consequently, unless fiscal intermediaries
identify these claims for review and request additional documentation
before payment, they will pay for the claims without knowing what the
specific purchase was or whether it was covered or medically
necessary. For example, a fiscal intermediary processed a code 270
claim for more than $21,000 without any review. At our request, the
fiscal intermediary asked the provider to submit medical records and
a list of items billed under this claim. After the fiscal
intermediary reviewed the documentation to support this claim, it
denied more than $13,000 in charges because the medical records
contained no doctor's orders for the billed items.
In total, we requested the fiscal intermediary to obtain the medical
records and an itemized list of supplies supporting 85 high-dollar
medical supply claims submitted by 38 providers during a 1-month
period. All of these claims had been processed without any review.
The results of the fiscal intermediary's subsequent review are as
follows:
Eighty-nine percent of the claims for which documentation was
received and reviewed (42 of 47) should have been totally or
partially denied.
Almost 61 percent of the dollars billed for medical supplies
($193,147 of $316,824) should have been denied for various
reasons, including, among others, items not medically necessary,
items not covered by Medicare or covered as part of routine or
administrative costs, no documentation of supplies used, no
doctor's orders, and no itemized list of supplies. (See app.
II for detailed information.)\3
Forty-five percent of the claims for which documentation was not
returned (38 of 85), totaling $487,412, was subsequently denied.
One claim was determined to be potentially fraudulent because the
beneficiary's condition required none of the $2,404 in medical
supplies billed. A further review, by the fiscal intermediary's
fraud and abuse unit, of the same provider's claims for this
beneficiary for the previous 5 months resulted in the
identification of an additional $20,393 in potentially
fraudulent medical supply charges.
Fiscal intermediaries obtain similar or better results when they
conduct their own prepayment reviews of medical supply claims. For
example, a fiscal intermediary used a computerized payment control to
identify all medical supply claims (code 270) in excess of $500
submitted between October and December 1993. After reviewing
documentation supporting the claims, the fiscal intermediary denied
69 percent of the dollars billed ($59,542 of $86,046).
--------------------
\3 In addition to the medical supplies that should have been denied
on these claims, the fiscal intermediary reviewers also identified
another $174,489 for items other than medical supplies that should
have been denied. Consequently, total denials for these claims
should have been $367,636 or an average of $7,822 for each claim
reviewed. (See app. III for detailed information on the denial of
nonmedical supplies.)
LEGISLATION PARTIALLY
ADDRESSES PROBLEM
---------------------------------------------------------- Letter :4.2
The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) partially
addressed the problem of providers not submitting documentation that
would allow fiscal intermediaries to adequately assess medical supply
claims.\4 OBRA 1993 provided essentially for certain supplies,
including surgical dressings, to be paid on the basis of the fee
schedule that regional carriers use for the part B program. As a
result, providers must submit to fiscal intermediaries claims that
itemize the specific supplies and quantities being billed. Because
the provision does not apply to all medical supplies, many other
types of medical supplies are still billed using broad codes that do
not adequately describe the type and amount of such supplies.
The provision does not at all apply to surgical dressings supplied by
a home health agency. As a result, home health agencies, which
billed Medicare for almost half a billion dollars of medical supplies
in fiscal year 1994, can continue to submit claims for surgical
dressings without the detailed itemization required of other types of
providers billing for these items.
--------------------
\4 Public Law 103-66, sec. 13544, 107 Stat. 312, 589.
REGIONAL CARRIERS STILL LACK
SIGNIFICANT CONTROLS
---------------------------------------------------------- Letter :4.3
For Medicare part B claims, the regional carriers have not adopted
important fraud and abuse controls for many surgical dressing items.
Specifically, the 29 surgical dressings covered by the expanded
Medicare surgical dressing benefit have no formal medical policies
specifying the conditions under which payment is to be made.\5
Without these policies, regional carriers cannot implement systematic
controls to identify questionable claims for review. As a result,
they pay many high-dollar, high-volume claims without review.
We found that the utilization level--the number of dressings billed
per beneficiary--was, on average, nearly three times higher for the
newly covered dressings--that is, those for which no formal medical
policies apply. Moreover, on average, the dressings that have no
medical policies exceeded the expected utilization level, as
determined by recommended industry and draft regional carrier
standards. In some cases, the average number of dressings billed per
beneficiary was four times greater than expected.
Formal medical policies for the newly covered dressings cannot be
adopted until the surgical dressing industry and others have been
allowed to comment on them. HCFA expanded surgical dressing coverage
and instructed regional carriers to pay for newly covered surgical
dressings before the carriers had a chance to develop new medical
policies. As a result, most claims for surgical dressings for which
no medical policies apply are being paid and will continue to be paid
without a routine review to determine whether the amount of dressings
billed is reasonable or medically necessary. HHS estimates that this
process will be completed and medical policies will be effective
October 1, 1995.
We asked officials at one regional carrier to identify high-dollar
claims it paid. While the claims the carrier identified for us were
subject to some review before payment, the review only applied to
those dressings that had a formal medical policy. As a result,
thousands of dollars were paid for surgical dressings that were not
needed and the claims for which were not subject to review because
they did not have formal medical policies.
For example, in the case of one beneficiary, the carrier--over 3
months and on the basis of a formal medical policy--had denied over
$8,500 worth of claims for dressings and sterile saline before paying
$23,000. However, in performing the review we requested, the carrier
determined that only $1,650 of the $23,000 for dressings should have
been paid because the beneficiary's condition did not appear to
justify the use of large quantities of dressings. The $23,000 had
been paid without review for medical necessity because no formal
medical policies applied to most of the surgical dressings.
Therefore, no internal policies were in place to trigger a review of
these dressings.
Without such policies, suppliers have exploited Medicare with little
risk of ever having to repay the program. Following are examples of
this exploitation:
One supplier regularly billed Medicare for 60 or more transparent
films per beneficiary per month. For some beneficiaries the
supplier billed for 120 or more films a month. Recommended
industry standards suggest the need for no more than 24 films
per beneficiary per month.\6
Another supplier billed Medicare an average of 268 units of tape
per beneficiary during a 15-month period.\7 The average for all
suppliers was 60 units during the 15-month period. Some
beneficiaries received between 180 to 720 units of tape in 1
month. Using a 10-yard roll of tape, a common industry length,
these beneficiaries would have been wrapped in 60 to 240 yards
of tape per day.
Supplier abuse is not limited to surgical dressings; other medical
supply items for which no formal policies or systematic controls
apply have also been exploited:
At least four suppliers regularly billed Medicare for 30 or more
drainage bottles a month for each beneficiary. This is 90 times
more than the proposed standard of one bottle every 3 months.\8
The number of drainage bottles billed by these suppliers was 79
percent of all bottles billed to the regional carrier.
One supplier billed Medicare an average of nine urinary leg bags
per beneficiary a month. For some beneficiaries, the supplier
billed for one leg bag a day or 15 times more than the proposed
standard of two leg bags a month.\9 In total, this supplier
billed Medicare for 50,834 leg bags or 21 percent of all leg
bags billed to the regional carrier over 15 months.
--------------------
\5 See appendix IV for a description of all Medicare-covered surgical
dressings, including the 29 newly covered dressings for which no
medical policies apply.
\6 According to the Wound Ostomy and Continence Nurses Society's and
the Health Industry Distributors Association's draft recommendations
on utilization levels for surgical dressings, up to two transparent
films can be used per dressing change. In addition, these types of
dressings should be changed no more than two to three times per week.
\7 According to the Health Industry Distributors Association, normal
usage of tape is no more than two rolls per dressing change.
\8 According to the regional carriers' draft payment and coverage
policy, drainage bottles are usually changed once every 3 months.
\9 According to the regional carriers' draft payment and coverage
policy, leg bags are usually replaced twice a month.
MEDICARE SYSTEM VULNERABLE
TO DUPLICATE PAYMENTS
---------------------------------------------------------- Letter :4.4
Medicare can pay for the same item twice because it does not have
effective tests to determine whether both regional carriers and
fiscal intermediaries are paying for the same surgical dressings,
medical supplies, and other items. Surgical dressings and many
medical supplies can be billed to either fiscal intermediaries or
regional carriers. If suppliers submit claims for the same items to
both types of contractors, only one should pay the claim. For
example, if a fiscal intermediary pays a nursing home for surgical
dressings, a regional carrier should not pay the supplier for the
same dressings. Conversely, if a regional carrier pays a supplier
for surgical dressings, the fiscal intermediary should not pay the
nursing home that used the dressings.
Medicare does not have an effective control to prevent both types of
contractors from paying for the same medical supplies or surgical
dressings. As part of Medicare's claims processing system, all
claims received by contractors are compared with historical
beneficiary data to verify eligibility for payment and benefits.
HCFA uses this system to conduct many types of computerized controls
to determine if payment for the claims should be approved or
rejected. The system does not check, however, to see if items paid
by regional carriers have already been paid by fiscal intermediaries
or whether items paid by fiscal intermediaries have already been paid
by regional carriers. We identified a case in which a computerized
control for duplicate items would have prevented Medicare from paying
twice for the same item.\10 In this case, the fiscal intermediary
paid a nursing home for two bedside drainage bags used by a patient
during a 1-month stay. A regional carrier also paid a supplier for
30 drainage bags allegedly provided to the same patient while in the
nursing home. If a duplicate payment control had existed, the
regional carrier would not have made the duplicate payment.
--------------------
\10 We randomly selected 25 of the 85 high-volume, high-dollar claims
that the fiscal intermediary reviewed at our request to determine the
appropriateness of the payments made. On the basis of dates of
service, we determined that 6 of these 25 claims were potential
duplicate payments. Of these six claims, we found one duplication
and another that appeared to be a duplicate payment. In the latter
case, we could not be sure of the duplicate payment because the
supplier did not provide the fiscal intermediary with requested
documentation supporting the claim.
MEDICARE SURGICAL DRESSING
PAYMENTS GENERALLY EXCESSIVE
------------------------------------------------------------ Letter :5
Medicare's fee schedule payments for surgical dressings are generally
excessive when compared with wholesale prices, prices paid by the
Department of Veterans Affairs (VA), and even retail prices.
Overall, we estimate that HCFA could save substantial amounts if its
fee schedule was calculated on the basis of lower available prices.
For example, as shown in table 1, if HCFA paid wholesale prices for
44 surgical dressings, total savings would be almost $20 million or
almost 35 percent of what it now pays. Potential savings for just
nine dressings would be more than $9 million if HCFA paid at the
lowest rate, that which VA paid for dressings. We even identified
potential savings of more than $2 million for nine surgical dressings
if HCFA paid at the lowest retail rates found at four Los
Angeles-area drug stores.
Table 1
Potential Medicare Savings on Surgical
Dressings
Type Number
of of
price dressing Percent
compar s Fee Compared of fee
ed compared schedule price Dollars schedule
------ -------- -------- -------- ---------- --------
Wholes 44 $57,113, $37,388, $19,725,19 34.54
ale 852 654 7
Lowest 44 48,089,9 25,762,1 22,327,741 46.42
retail 36 98
Actual 9 17,984,2 15,967,8 2,016,337 11.21
retail 35 98
VA 9 17,055,0 7,871,64 9,183,401 53.85
44 3
----------------------------------------------------------
Note: See appendix V for detailed tables for each type of price
compared.
HCFA's method of calculating the fee schedule for surgical dressings
caused these high payments. OBRA 1993 required HCFA to establish a
fee schedule for surgical dressings by computing the average
historical charges for the dressings. Because of the expansion of
the surgical dressing benefit, however, HCFA did not have data on
historical charges. Instead, HCFA used a gap-filling process to
establish the fee schedule: HCFA used retail surgical dressing
supply catalogs to create a price list for each type of covered
surgical dressing. The price of the median-priced dressing for each
type became the fee schedule price. For example, HCFA identified 13
different alginate dressings 16 square inches or less (HCFA Common
Procedure Code K0196). The retail prices of the dressings ranged
from $3.14 to $19.07. The fee schedule price was set at $6.62, the
median-priced or sixth dressing on HCFA's list. The lowest wholesale
price for this type of dressing is $1.88.
If HCFA makes a mistake in calculating the fee schedule, it can
correct the mistake (for example, by using wholesale prices instead
of retail prices). However, HCFA may not change the methodology for
determining the fee schedule nor may it adjust the fee schedule if
dressing prices decrease. Therefore, if, as one HCFA official told
us, the prices of surgical dressings fall as more manufacturers
produce the many types of surgical dressings that HCFA now pays for,
HCFA cannot lower the fee schedule to reflect the change in market
condition. Instead, Medicare will pay a price that is even higher,
relative to the market prices, than it pays today.
For certain DME items--but not for surgical dressings and other
medical supplies--the Secretary of HHS may adjust prices that are
inherently unreasonable.\11 In these cases, the authority is very
limited and involves a complex set of procedures that can take a long
time to complete. For example, it took HCFA nearly 3 years to reduce
the price it was paying for home blood glucose monitors from a
nationwide range of $144 to $211 to $58.71, even though they were
widely available for about $50 and, in some cases, provided free as a
means of obtaining customers for the disposable items associated with
this test equipment. Because of the time and resources involved,
HCFA only uses this process for one item at a time.
Before 1987, individual Medicare carriers had the authority to
increase or decrease prices to reflect local market conditions.\12
The process for doing so, which included notifying area suppliers and
publishing the new prices, could be completed in less than 90 days.
If HCFA or the carriers had the authority to adjust excessive prices
in a timely manner, they could save millions in program dollars. A
HCFA official told us, however, that it devotes no resources to
routine monitoring of medical equipment and supply prices. As a
result, discrepancies in price between what Medicare pays and what
other large-volume buyers pay go undetected.
--------------------
\11 42 U.S.C. 1395m(a)(10)(B).
\12 The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203,
sec. 4062(b), 101 Stat. 1330, 1330-100) effectively eliminated the
carriers' inherent reasonableness authority regarding DME,
prosthetics, and orthotics paid for through the fee schedule and
prohibited HCFA from using such authority until 1991. The Medicare
Catastrophic Coverage Act of 1988 (P.L. 100-360, sec.
411(g)(1)(B)(xiii), 102 Stat. 683, 782) provided that HCFA's
authority could be exercised only through a burdensome regulatory
process that previously had been applied only to physician services
and includes publication in the Federal Register.
HCFA INITIATIVES SHOW PROMISE
------------------------------------------------------------ Letter :6
HCFA recently created a framework that eventually will allow it to
identify and begin addressing fraud and abuse associated with medical
supply claims. For the first time, HCFA will have data to begin
assessing the size and scope of fraud and abuse and its contractors'
performance in addressing them. In addition, these data will allow
HCFA to assess options for addressing program weaknesses.
HCFA's consolidation of DME and medical supply claims processing at
four regional carriers provides comprehensive national data--that
were not available previously--on utilization and payments. These
data will allow HCFA to identify, on a nationwide basis, DME and
medical supplies that may be subject to overutilization and
inappropriate billing. In 1993, HCFA also developed a programwide
emphasis on data analysis. Calling its approach focused medical
review, HCFA required contractors to begin identifying general
spending patterns and trends that would allow them to identify
potential problems.
Fiscal intermediaries have started implementing this approach and
have recently begun compiling and analyzing claims payment and
utilization data. So far, some intermediaries have identified the
different types and number of claims that Medicare may be
inappropriately paying. For example, one type of review conducted by
an intermediary we visited resulted in 85 percent of the claims
reviewed during a 1-month period being denied--a total of $5.8
million in program savings. Moreover, some intermediaries have
estimated the dollars that Medicare can potentially save by
tightening prepayment review controls. The intermediary we visited
identified eight other problem areas, in addition to those that it
was already reviewing, that should be reviewed because of such things
as precipitous increases in utilization rates. This intermediary
estimated potential savings of $57 million by implementing the
additional reviews, but it did not have the resources to do so.
Armed with its new information from DMERCs and focused medical review
program reports, HCFA is now much better positioned than in past
years to provide HHS, the Office of Management and Budget, and the
Congress with concrete information on contractor activities that save
program dollars. This information could include, for example,
explicit documentation on the savings achievable from efforts to stop
paying unwarranted or overpriced claims.
CONCLUSIONS
------------------------------------------------------------ Letter :7
HCFA has taken some initial steps to address Medicare medical supply
and surgical dressing payment abuses. Transferring the processing to
regional carriers--and the accompanying greater standardization of
payment policies and better information to detect problem claims--are
important steps in combatting fraud and abuse.
Medicare's vulnerability to overpaying for surgical dressing claims
will persist, however, for several reasons:
Many claims for surgical dressings lack sufficient detail for
Medicare fiscal intermediaries to assess what they are being
asked to pay for.
Medicare contractors have not yet developed the administrative
capabilities to detect questionable claims for many surgical
dressings.
Though the same patient may receive surgical dressings paid by
either a part A intermediary or part B carrier, HCFA has no
controls to detect duplicate bills.
Medicare's payment rates for dressings are high compared with
wholesale and many retail prices.
RECOMMENDATIONS TO THE
SECRETARY OF HHS
------------------------------------------------------------ Letter :8
The Secretary should direct the Administrator of HCFA to
require that bills submitted to fiscal intermediaries itemize
supplies;
develop and implement prepayment review policies as part of the
process of implementing any new or expanded Medicare coverage;
and
establish procedures to prevent duplicate payments by fiscal
intermediaries and carriers.
MATTER FOR CONGRESSIONAL
CONSIDERATION
------------------------------------------------------------ Letter :9
The fee schedule approach to setting prices provides a good starting
point for setting appropriate Medicare prices. HCFA, however, needs
greater authority and flexibility to quickly adjust fee schedule
prices when market conditions warrant such changes. To allow
Medicare to take advantage of competitive prices, the Congress should
consider authorizing HCFA or its carriers to promptly modify prices
for DME and other medical supplies. For this to work effectively,
however, HCFA or the carriers must devote adequate resources to
routine price monitoring.
HHS COMMENTS AND OUR EVALUATION
----------------------------------------------------------- Letter :10
HHS commented on a draft of our report in a letter dated July 18,
1995 (see app. VI). In an overall comment, HHS stated that several
ongoing Medicare initiatives involving the four regional carriers are
already addressing the problems highlighted in this report.
Specifically mentioned were the use of information from processed
claims to identify for prepayment review suspicious suppliers and
high-dollar, high-volume claims; prepayment screens to detect
egregious utilization of a supply item; and comprehensive medical
reviews of suppliers whose billing patterns indicate possible
overutilization.
As we have stated in this report, a number of HCFA initiatives show
promise. We specifically mentioned that transferring the claims
processing for DME and supplies to four regional carriers gives HCFA
the ability to identify overutilization and inappropriate billing.
We also mentioned that the programwide emphasis on data analysis
through focused medical review identifies potential problem areas.
While such initiatives are promising, we do not believe that they or
the other promising activities of the four regional carriers address
all the problems identified in this report.
For example, HHS disagreed with our first recommendation that bills
submitted to fiscal intermediaries itemize supplies. HHS stated that
it had assessed the benefit of requiring providers to itemize home
health supply bills and found that the additional contractor and
provider cost and burden outweighed the value of the itemization. As
an alternative, HHS stated that it is assessing the benefit of
requiring fiscal intermediaries to suspend for prepayment review
those bills with excessive charges. Also, HHS believed that it was
important to note that HCFA does not pay billed charges for this type
of claim.
Without itemized bills, fiscal intermediaries cannot determine what
type or amount of supplies they pay for. While it is true that HCFA
does not pay the billed charges for this type of claim, to conclude
that the cost settlement process will somehow account for all
overpayments is inaccurate. Overpayments will still be made for
unnecessary or excessive supplies or those not covered by Medicare.
HHS concurred with our second recommendation and said that it had
acted to implement it. The action described, however, appears to be
in response to the past expansion of surgical dressing benefits
rather than plans for new or expanded Medicare coverage. For
example, although agreeing that prepayment edits should be used to
prevent inappropriate payment when coverage policy changes, HHS
stated that a revised regional medical review policy for the recently
expanded surgical benefits will be effective October 1, 1995. HHS
also stated that it is important to ensure that the regional carriers
have the flexibility to establish their own edits based on
aberrancies found in their region.
While the policies on the expanded surgical dressing benefit need to
be implemented as soon as possible to protect benefit dollars, our
recommendation would require that medical policies be developed and
approved before any further changes in benefit coverage are made.
Without medical policies, carriers cannot establish prepayment edits
for items newly covered because of changes in Medicare benefits. As
we discussed, regional carriers have been paying claims for 29 newly
covered dressings for nearly a year and a half without medical policy
or prepayment edits--that is, without a review of the claims'
reasonableness or medical necessity.
Concerning our recommendation that procedures be established to
prevent duplicate payments by carriers and intermediaries, HHS stated
that identifying duplicate claims is difficult when they are sent to
different part A and part B contractors because the claims are
submitted with different codes and supplier numbers and then
processed using different payment schedules and processing systems.
In what it described as an effective alternative, HHS stated that
HCFA currently uses "conflict edits" through the Common Working File
system to alert contractors to conflicting payment situations. For
example, if part B is being billed for outpatient supplies for a
specific date and part A receives an inpatient claim for the same
patient covering the same period, the system generates an alert.
Questionable claims are then manually reviewed before payment,
according to HHS. In the future, with Medicare's new claims
processing system, the Medicare Transaction System, HHS stated that
it will be simpler to identify duplicate claims because the same
system will process part A and part B claims in the same format.
As a result of OBRA 1993, surgical dressings can be identified with
the same codes regardless of which contractor, part A or part B,
processes and pays a claim. Combining a common identification code
with the Common Working File's ability to identify claims for which
part A and part B contractors both receive a claim for the same
beneficiary covering the same time period allows contractors to
easily identify a potential duplicate payment. This ability applies
to all medical supplies that use the same identification code. For
example, we identified one case in which Medicare paid twice for a
supply item using the same code for both the part A and part B
contractor.
The Common Working File duplicate payment alert, or conflict edit,
does not entirely prevent Medicare from paying for the same item
twice. The system generates an alert only when an institutional
provider, such as a nursing home or home health agency, has billed
the intermediary before the supplier has billed the regional carrier.
More importantly, officials at the four DMERCs told us that they do
not investigate or review claims identified by the duplicate payment
alert. Instead, they pay the claims without reviewing for
duplication.
Concerning the matter for congressional consideration, HHS has stated
that on several occasions since 1987, it has submitted legislative
proposals to the Congress to simplify the process it may use to
adjust or limit fee schedule amounts.
HHS also made a number of technical and other comments that we
considered in finalizing this report.
--------------------------------------------------------- Letter :10.1
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after its issue date. At that time, we will send
copies to the Secretary of Health and Human Services and other
interested parties.
Please call me on (202) 512-7119 if you or your staff have any
questions about this report. Major contributors are listed in
appendix VII.
Sincerely yours,
Sarah F. Jaggar
Director, Health Financing
and Policy Issues
SCOPE AND METHODOLOGY
=========================================================== Appendix I
To identify the circumstances allowing the payment of unusually high
surgical dressing claims, we interviewed OIG officials from HHS and
reviewed past OIG and GAO reports on Medicare fraud and abuse
problems. We also visited Transamerica, one of the many carriers
that processed medical supply claims before the creation of the four
regional carriers. This carrier was judgmentally selected.
To determine the adequacy of Medicare's internal controls, we visited
Blue Cross of California, a fiscal intermediary that processes claims
submitted by institutional providers; and CIGNA, one of the four
regional carriers responsible for processing durable medical
equipment (DME) and medical supply claims submitted by suppliers.
These contractors were judgmentally selected. To supplement work
performed at these locations and broaden our areas of analysis, we
obtained information on medical supply and surgical dressing claims
and payment safeguards from the remaining 42 fiscal intermediaries
and three regional carriers. We also discussed the adequacy of
contractors' internal controls and obtained information about these
controls from HCFA officials at HHS.
In addition, we requested the two contractors that we visited, Blue
Cross of California and CIGNA, to review medical records and other
documentation for selected high-dollar medical supply claims to
determine whether the records supported the need for services or
items billed to Medicare. Further, we obtained recommended
utilization standards from a trade association for medical supply
distributors and a national association of specialty nurses for
wound, ostomy, and continence care and compared the standards with
actual utilization levels found on claims submitted by suppliers.
We compared the fee schedule that Medicare uses to pay suppliers of
surgical dressings with prices obtained from a wholesale surgical
dressing supplier, four retail drugstores, the Department of Veterans
Affairs, and a HCFA-generated surgical dressing price list. We also
reviewed HCFA procedures to determine if any would prevent regional
carriers and fiscal intermediaries from paying duplicate claims for
medical supplies and surgical dressings.
We performed our work between May 1994 and June 1995 in accordance
with generally accepted government auditing standards.
MEDICAL SUPPLY CHARGES DENIED
========================================================== Appendix II
Percen
Submit t of
ted Denied charge
charge charge s
Claim number s s denied
---------------------------------------------- ------ ------ ------
1 $5,737 $5,737 100
2 157 25 16
3 2,404 2,404 100
4 373 373 100
5 752 349 46
6 13,254 262 2
7 1,545 1,545 100
8 400 0 0
9 10,161 8,738 86
10 6,216 680 11
11 7,921 7,194 91
12 21,071 13,154 62
13 6,196 3,206 52
14 1,743 34 2
15 5,965 0 0
16 676 215 32
17 8,218 224 3
18 18,479 8,106 44
19 3,432 3,432 100
20 366 366 100
21 190 0 0
22 2,957 24 1
23 3,607 78 2
24 1,108 1,019 92
25 2,313 2,281 99
26 3,860 2,889 75
27 2,041 1,573 77
28 33,363 33,363 100
29 2,145 2,145 100
30 633 383 61
31 2,871 490 17
32 2,121 344 16
33 7,968 80 1
34 53,869 44,517 83
35 11,331 11,331 100
36 642 0 0
37 11,192 149 1
38 6,707 6,707 100
39 18,101 18,101 100
40 481 481 100
41 5,926 5,926 100
42 518 296 57
43 3,876 442 11
44 12,465 176 1
45 6,124 0 0
46 1,059 18 2
47 4,290 4,290 100
Total $316,8 $193,1 61
24 47
----------------------------------------------------------------------
NONMEDICAL SUPPLY CHARGES DENIED
========================================================= Appendix III
Submit
ted Denied Percen
charge charge t
Claim number s s denied
---------------------------------------------- ------ ------ ------
1 $9,328 $7,836 84
2 1,600 0 0
3 5,113 5,113 100
4 2,644 969 37
5 2,665 16 1
6 10,218 7,025 69
7 188 0 0
8 3,315 0 0
9 4,319 0 0
10 3,498 0 0
11 9,612 208 2
12 45,649 5,103 11
13 42,246 0 0
14 9,889 4,940 50
15 620 0 0
16 9,449 945 10
17 6,972 0 0
18 2,556 2,556 100
19 1,335 0 0
20 7,743 0 0
21 2,995 0 0
22 4,850 0 0
23 75,259 75,259 100
24 5,700 0 0
25 2,924 0 0
26 5,494 46 1
27 9,612 45 0
28 3,882 30 1
29 101,71 29,460 29
0
30 3,272 3,272 100
31 1,340 0 0
32 5,919 22 0
33 2,815 2,815 100
34 19,636 19,636 100
35 519 519 100
36 3,830 0 0
37 6,303 82 1
38 4,634 1,277 28
39 10,412 1,059 10
40 514 0 0
41 6,256 6,256 100
Total $456,8 $174,4 38
35 89
----------------------------------------------------------------------
SURGICAL DRESSINGS COVERED BY
MEDICARE IN 1995
========================================================== Appendix IV
Newly covered by
HCFA Common surgical
Procedure Description and unit of dressing
Code purchase expansion
------------ -------------------------- ----------------
A4460 Elastic bandage, per roll X
(e.g., compression
bandage)
A4649 Surgical supplies,
miscellaneous
K0154 Wound pouch, each
K0196 Alginate dressing, wound
cover, pad size 16 square
inches or less, each
dressing
K0197 Alginate dressing, wound
cover, pad size more than
16 but less than or equal
to 48 square inches, each
dressing
K0198 Alginate dressing, wound
cover, pad size more than
48 square inches, each
dressing
K0199 Alginate dressing, wound
filler, per 6 inches
K0203 Composite dressing, pad X
size 16 square inches or
less, with any size
adhesive border, each
dressing
K0204 Composite dressing, pad X
size more than 16 but
less than or equal to 48
square inches, with any
size adhesive border,
each dressing
K0205 Composite dressing, pad X
size more than 48 square
inches, with any size
adhesive border, each
dressing
K0206 Contact layer, less than X
16 square inches, each
dressing
K0207 Contact layer, more than X
16 but less than or equal
to 48 square inches, each
dressing
K0208 Contact layer, more than X
48 square inches, each
dressing
K0209 Foam dressing, wound
cover, pad size 16 square
inches or less, without
adhesive border, each
dressing
K0210 Foam dressing, wound
cover, pad size more than
16 square inches but less
than or equal to 48
square inches, without
adhesive border, each
dressing
K0211 Foam dressing, wound
cover, pad size more than
48 square inches, without
adhesive border, each
dressing
K0212 Foam dressing, wound
cover, pad size 16 square
inches or less, with any
size adhesive border,
each dressing
K0213 Foam dressing, wound
cover, pad size more than
16 square inches but less
than or equal to 48
square inches, with any
size adhesive border,
each dressing
K0214 Foam dressing, wound
cover, pad size more than
48 square inches, with
any size adhesive border,
each dressing
K0215 Foam dressing, wound X
filler, per gram
K0216 Gauze, nonimpregnated, pad
size 16 square inches or
less, without adhesive
border, each dressing
K0217 Gauze, nonimpregnated, pad
size more than 16 square
inches but less than or
equal to 48 square
inches, without adhesive
border, each dressing
K0218 Gauze, nonimpregnated, pad
size more than 48 square
inches, without adhesive
border, each dressing
K0219 Gauze, nonimpregnated, pad
size 16 square inches or
less, with any size
adhesive border, each
dressing
K0220 Gauze, nonimpregnated, pad
size more than 16 square
inches but less than or
equal to 48 square
inches, with any size
adhesive border, each
dressing
K0221 Gauze, nonimpregnated, pad
size more than 48 square
inches, with any size
adhesive border, each
dressing
K0222 Gauze, impregnated, other X
than water or normal
saline, pad size 16
square inches or less,
without adhesive border,
each dressing
K0223 Gauze, impregnated, other X
than water or normal
saline, pad size more
than 16 square inches but
less than or equal to 48
square inches, without
adhesive border, each
dressing
K0224 Gauze, impregnated, other X
than water or normal
saline, pad size more
than 48 square inches,
without adhesive border,
each dressing
K0228 Gauze, impregnated, water X
or normal saline, pad
size 16 square inches or
less, without adhesive
border, each dressing
K0229 Gauze, impregnated, water X
or normal saline, pad
size more than 16 square
inches but less than or
equal to 48 square
inches, without adhesive
border, each dressing
K0230 Gauze, impregnated, water X
or normal saline, pad
size more than 48 square
inches, without adhesive
border, each dressing
K0234 Hydrocolloid dressing,
wound cover, pad size 16
square inches or less,
without adhesive border,
each dressing
K0235 Hydrocolloid dressing,
wound cover, pad size
more than 16 square
inches but less than or
equal to 48 square
inches, without adhesive
border, each dressing
K0236 Hydrocolloid dressing,
wound cover, pad size
more than 48 square
inches, without adhesive
border, each dressing
K0237 Hydrocolloid dressing,
wound cover, pad size 16
square inches or less,
with any size adhesive
border, each dressing
K0238 Hydrocolloid dressing,
wound cover, pad size
more than 16 square
inches but less than or
equal to 48 square
inches, with any size
adhesive border, each
dressing
K0239 Hydrocolloid dressing,
wound cover, pad size
more than 48 square
inches, with any size
adhesive border, each
dressing
K0240 Hydrocolloid dressing, X
wound filler, paste, per
fluid ounce
K0241 Hydrocolloid dressing, X
wound filler, dry form,
per pram
K0242 Hydrogel dressing, wound
cover, pad size 16 square
inches or less, without
adhesive border, each
dressing
K0243 Hydrogel dressing, wound
cover, pad size more than
16 square inches but less
than or equal to 48
square inches, without
adhesive border, each
dressing
K0244 Hydrogel dressing, wound
cover, pad size more than
48 square inches, without
adhesive border, each
dressing
K0245 Hydrogel dressing, wound
cover, pad size 16 square
inches or less, with any
size adhesive border,
each dressing
K0246 Hydrogel dressing, wound
cover, pad size more than
16 square inches but less
than or equal to 48
square inches, with any
size adhesive border,
each dressing
K0247 Hydrogel dressing, wound
cover, pad size more than
48 square inches, with
any size adhesive border,
each dressing
K0248 Hydrogel dressing, wound
filler, paste, per fluid
ounce
K0249 Hydrogel dressing, wound X
filler, dry form, per
gram
K0251 Specialty absorptive X
dressing, wound cover,
pad size 16 square inches
or less, without adhesive
border, each dressing
K0252 Specialty absorptive X
dressing, wound cover,
pad size more than 16
square inches but less
than or equal to 48
square inches, without
adhesive border, each
dressing
K0253 Specialty absorptive X
dressing, wound cover,
pad size more than 48
square inches, without
adhesive border, each
dressing
K0254 Specialty absorptive X
dressing, wound cover,
pad size 16 square inches
or less, with any size
adhesive border, each
dressing
K0255 Specialty absorptive X
dressing, wound cover,
pad size more than 16
square inches but less
than or equal to 48
square inches, with any
size adhesive border,
each dressing
K0256 Specialty absorptive X
dressing, wound cover,
pad size more than 48
square inches, with any
size adhesive border,
each dressing
K0257 Transparent film, 16
square inches or less,
each dressing
K0258 Transparent film, more
than 16 but less than or
equal to 48 square
inches, each dressing
K0259 Transparent film, more
than 48 square inches,
each dressing
K0261 Wound filler, not X
elsewhere classified,
gel/paste, per fluid
ounce
K0262 Wound filler, not X
elsewhere classified, dry
form, per gram
K0263 Gauze, elastic, all types, X
per linear yard
K0264 Gauze, nonelastic, per X
linear yard
K0265\a Tape, all types, per 18 X
square inches
K0266 Gauze, impregnated, other X
than water or normal
saline, any width, per
linear yard
----------------------------------------------------------
\a Before 1995, tape was recorded as HCPC A4454 and the unit of
purchase was a roll of tape.
FEE SCHEDULE PRICES COMPARED WITH
OTHER AVAILABLE PRICES
=========================================================== Appendix V
To estimate total 1995 surgical dressings expenditures, we multiplied
the number of surgical dressings purchased by the regional carriers
in 1994 by the 1995 fee schedule prices and the other comparison
prices. For each category of surgical dressing identified by HCFA
Common Procedure Codes (HCPC), we obtained the total units of
surgical dressings purchased by all four regional carriers from the
regional carrier responsible for compiling and analyzing DME claim
data for all four regional carriers. We used this information in
conjunction with surgical dressing pricing data to make several
pricing comparisons. For all comparisons, estimated expenditures
under HCFA's surgical dressing fee schedule were calculated by
multiplying the number of units purchased in 1994 by the 1995 fee
schedule price for that code. These calculations were done for each
HCPC and then totaled to get overall expenditures.
Table V.1 illustrates our comparison of fee schedule prices with
wholesale prices. It ranks the categories of surgical dressings from
the category in which the fee schedule is the furthest above the
wholesale dressing price to the category in which the fee schedule is
the furthest below the wholesale price. We obtained wholesale
pricing information from a national medical supplier's 1994-1995 mail
order catalog. We identified a dressing in 44 of the HCPC surgical
dressing categories. We calculated a per dressing, or unit, price
for each of the 44 categories by taking the best wholesale price and
dividing it by the number of dressings, or units, that would be
provided at that price. The prices for each category were multiplied
by the number of units of dressings purchased in that category in
1994 to get total expenditures in each category. We used these data
to determine what total expenditures would be if HCFA paid wholesale
prices rather than the fee schedule prices. As table V.1 indicates,
HCFA would pay almost $20 million less for surgical dressings in the
44 categories if it paid the lower wholesale prices.
Table V.1
Fee Schedule Compared With the Lowest
Wholesale Prices
Fee
schedu Potent
le ial
relati saving
onship Number s from
HCFA 1995 to of Estimated lowest
Common fee Lowest wholes units fee Estimated wholes
Number of Proced schedu wholes ale purcha schedule wholesale ale
dressings ure le ale prices sed in expenditu expenditu purcha
compared Code prices prices \a 1994 res res ses
---------- ------ ------ ------ ------ ------ --------- --------- ------
1 K0220 $2.32 $0.19 12.21 26,655 $61,840 $5,064 $56,77
5
2 K0240 11.03 2.65 4.16 21,885 241,392 57,995 183,39
6
3 K0248 14.63 3.56 4.11 744,95 10,898,66 2,652,033 8,246,
3 2 630
4 K0209 6.75 1.79 3.77 577,01 3,894,831 1,032,851 2,861,
2 980
5 K0197 14.81 3.97 3.73 47,500 703,475 188,575 514,90
0
6 K0263 0.26 0.07 3.71 2,782, 723,557 194,804 528,75
913 3
7 K0262 0.99 0.27 3.67 118,86 117,671 32,092 85,579
0
8 K0222 1.91 0.54 3.54 170,52 325,707 92,085 233,62
7 2
9 K0196 6.62 1.88 3.52 262,13 1,735,347 492,818 1,242,
7 529
10 K0249 0.78 0.24 3.25 179,11 139,713 42,989 96,724
9
11 K0257 1.38 0.44 3.14 156,35 215,775 68,798 146,97
9 7
12 K0238 20.53 8.03 2.56 7,357 151,039 59,077 91,963
13 K0259 9.85 3.92 2.51 87,202 858,940 341,832 517,10
8
14 K0203 3.77 1.58 2.39 144,54 544,923 228,376 316,54
2 7
15 A4454\ 2.18 1.03 2.12 6,248, 13,622,60 6,436,368 7,186,
b 901 4 236
16 K0212 8.74 4.32 2.02 120,83 1,056,054 521,986 534,06
0 9
17 K0224 3.25 1.64 1.98 23,525 76,456 38,581 37,875
18 K0223 2.17 1.14 1.90 235,85 511,797 268,870 242,92
1 7
19 K0251 1.80 0.95 1.89 197,42 355,358 187,550 167,80
1 8
20 K0237 7.12 3.82 1.86 14,725 104,842 56,250 48,593
21 K0229 3.25 1.84 1.77 769,83 2,501,974 1,416,502 1,085,
8 472
22 K0236 24.54 14.83 1.65 7,754 190,283 114,992 75,291
23 K0211 26.46 18.00 1.47 37,113 982,010 668,034 313,97
6
24 K0243 11.10 7.64 1.45 289,10 3,209,077 2,208,770 1,000,
6 307
25 K0258 3.87 2.72 1.42 502,24 1,943,684 1,366,104 577,58
4 1
26 A4460 1.00 0.73 1.37 84,803 84,803 61,906 22,897
27 K0234 5.89 4.30 1.37 182,24 1,073,435 783,662 289,77
7 3
28 K0245 6.54 4.99 1.31 46,441 303,724 231,741 71,984
29 K0264 0.44 0.34 1.29 5,592, 2,460,710 1,901,458 559,25
523 2
30 K0247 21.42 16.78 1.28 2,373 50,830 39,819 11,011
31 K0204 3.18 2.58 1.23 192,76 612,996 497,336 115,66
6 0
32 K0242 5.47 4.53 1.21 416,09 2,276,062 1,884,928 391,13
9 3
33 K0255 2.73 2.58 1.06 46,859 127,925 120,896 7,029
34 K0199 4.76 4.59 1.04 216,51 1,030,597 993,790 36,807
2
35 K0154 11.98 13.26 0.90 12,161 145,689 161,255 (15,56
6)
36 K0254 1.10 1.58 0.70 18,837 20,721 29,762 (9,042
)
37 K0219 0.86 1.39 0.62 66,828 57,472 92,891 (35,41
9)
38 K0246 8.93 16.95 0.53 25,157 224,652 426,411 (201,7
59)
39 K0214 9.27 22.30 0.42 3,415 31,657 76,155 (44,49
7)
40 K0253 0.81 2.57 0.32 593,34 480,613 1,524,907 (1,044
9 ,294)
41 K0241 2.31 7.52 0.31 4,606 10,640 34,637 (23,99
7)
42 K0216 0.07 0.23 0.30 23,790 1,665,302 5,471,707 (3,806
,031 ,405)
43 K0252 0.49 1.62 0.30 1,103, 540,757 1,787,809 (1,247
586 ,052)
44 K0217 0.39 1.30 0.30 1,918, 748,257 2,494,189 (1,745
607 ,932)
Total 48,091 $57,113,8 $37,388,6 $19,72
,529 52 54 5,197
--------------------------------------------------------------------------------
\a The figures in this column compare the wholesale prices with the
fee schedule prices. If the figure in this column is 1, the lowest
wholesale price and fee schedule price are the same. Figures greater
than 1 indicate the number of times that the fee schedule price is
greater than the lowest wholesale price. For example, the fee
schedule price for K0220 ($2.32) is 12.21 times greater than the
wholesale price ($.19). In contrast, figures less than 1 indicate
that the fee schedule is lower than the lowest wholesale price.
\b Before 1995, tape was recorded as HCPC A4454 and the unit of
purchase was a roll of tape. We used the pricing and utilization
data for HCPC A4454 to estimate 1995 expenditures.
Table V.2 illustrates our comparison of fee schedule prices with the
lowest available retail prices. The table ranks the categories of
surgical dressings from the dressing category in which the fee
schedule is the furthest above the lowest retail dressing price to
the category in which the fee schedule is the furthest below the
lowest retail price. We used the surgical dressing price lists HCFA
developed to establish the surgical dressing fee schedule prices.
HCFA had a price list for 44 surgical dressing categories with prices
stated at the 1992 base year price. We identified the lowest price
dressing in each of the 44 surgical dressing categories and inflated
the prices to 1995 levels using the inflation factors established by
the Congress. We then multiplied the lowest retail prices for each
category by the number of units purchased in those categories in
1994. We totaled the expenditures in all categories and compared
this figure with what HCFA would pay using the 1995 fee schedule. As
table V.2 illustrates, HCFA would pay over $22 million less for
surgical dressings in the 44 categories if it paid the lowest retail
price.
Table V.2
Fee Schedule Compared With Lowest Retail
Prices
Potent
Fee ial
schedule Number saving
Number HCFA 1995 relation of Estimated Estimated s from
of Common fee ship to units fee lowest lowest
dressing Proced schedu Lowest lowest purcha schedule retail retail
s ure le retail retail sed in expenditu expenditu purcha
compared Code prices prices prices\a 1994 res res ses
-------- ------ ------ ------ -------- ------ --------- --------- ------
1 K0245 $6.54 $0.66 9.85 46,441 $303,724 $30,651 $273,0
73
2 K0203 3.77 0.42 8.88 144,54 544,923 60,708 484,21
2 6
3 K0264 0.44 0.10 4.49 5,592, 2,460,710 542,475 1,918,
523 235
4 K0242 5.47 1.30 4.22 416,09 2,276,062 540,929 1,735,
9 133
5 K0216 0.07 0.02 3.22 23,790 1,665,302 475,801 1,189,
,031 502
6 K0254 1.10 0.35 3.16 18,837 20,721 6,593 14,128
7 K0243 11.10 3.66 3.04 289,10 3,209,077 1,058,128 2,150,
6 949
8 K0263 0.26 0.09 2.99 2,782, 723,557 250,462 473,09
913 5
9 K0211 26.46 10.22 2.59 37,113 982,010 379,295 602,71
5
10 K0257 1.38 0.53 2.59 156,35 215,775 82,870 132,90
9 5
11 K0219 0.86 0.36 2.39 66,828 57,472 24,058 33,414
12 K0212 8.74 3.69 2.37 120,83 1,056,054 445,863 610,19
0 2
13 K0262 0.99 0.44 2.27 118,86 117,671 52,298 65,373
0
14 K0259 9.85 4.35 2.26 87,202 858,940 379,329 479,61
1
15 K0238 20.53 9.56 2.15 7,357 151,039 70,333 80,706
16 K0196 6.62 3.13 2.11 262,13 1,735,347 820,489 914,85
7 8
17 K0235 15.16 7.29 2.08 27,368 414,899 199,513 215,38
6
18 K0258 3.87 1.95 1.99 502,24 1,943,684 979,376 964,30
4 8
19 K0248 14.63 7.48 1.96 744,95 10,898,66 5,572,248 5,326,
3 2 414
20 K0222 1.91 0.98 1.95 170,52 325,707 167,116 158,59
7 0
21 K0224 3.25 1.85 1.76 23,525 76,456 43,521 32,935
22 K0209 6.75 3.92 1.72 577,01 3,894,831 2,261,887 1,632,
2 944
23 K0236 24.54 14.32 1.71 7,754 190,283 111,037 79,246
24 K0237 7.12 4.29 1.66 14,725 104,842 63,170 41,672
25 K0223 2.17 1.37 1.58 235,85 511,797 323,116 188,68
1 1
26 K0234 5.89 3.97 1.48 182,24 1,073,435 723,521 349,91
7 4
27 K0220 2.32 1.58 1.47 26,655 61,840 42,115 19,725
28 K0210 17.94 12.48 1.44 98,034 1,758,730 1,223,464 535,26
6
29 K0199 4.76 3.55 1.34 216,51 1,030,597 768,618 261,98
2 0
30 K0253 0.81 0.61 1.33 593,34 480,613 361,943 118,67
9 0
31 K0251 1.80 1.39 1.29 197,42 355,358 274,415 80,943
1
32 K0244 35.38 27.90 1.27 75,058 2,655,552 2,094,118 561,43
4
33 K0229 3.25 2.80 1.16 769,83 2,501,974 2,155,546 346,42
8 7
34 K0204 3.18 2.82 1.13 192,76 612,996 543,600 69,396
6
35 K0240 11.03 9.80 1.13 21,885 241,392 214,473 26,919
36 K0217 0.39 0.35 1.12 1,918, 748,257 671,512 76,744
607
37 K0197 14.81 13.24 1.12 47,500 703,475 628,900 74,575
38 K0249 0.78 0.73 1.07 179,11 139,713 130,757 8,956
9
39 K0246 8.93 8.60 1.04 25,157 224,652 216,350 8,302
40 K0241 2.31 2.26 1.02 4,606 10,640 10,410 230
41 K0247 21.42 21.19 1.01 2,373 50,830 50,284 546
42 K0255 2.73 2.72 1.00 46,859 127,925 127,456 469
43 K0214 9.27 9.27 1.00 3,415 31,657 31,657 0
44 K0252 0.49 0.50 0.98 1,103, 540,757 551,793 (11,03
586 6)
Total 41,946 $48,089,9 $25,762,1 $22,32
,124 36 98 7,741
--------------------------------------------------------------------------------
\a The figures in this column compare the lowest retail prices with
fee schedule prices. If the figure in this column is 1, the lowest
retail price and fee schedule price are the same. Figures greater
than 1 indicate the number of times that the fee schedule price is
greater than the lowest retail price. For example, the fee schedule
price for K0245 ($6.54) is 9.85 times greater than the lowest retail
price ($.66). In contrast, figures less than 1 indicate that the fee
schedule is lower than the lowest retail price.
Table V.3 illustrates our comparison of fee schedule prices with the
lowest retail drugstore prices for similar dressings. The table
ranks the categories of surgical dressings from the category in which
the fee schedule is the furthest above the lowest retail drugstore
dressing price to the category in which the fee schedule is the
furthest below the lowest retail drugstore price. We obtained the
actual drugstore prices by visiting and pricing surgical dressings at
four retail drugstores in the Los Angeles area. We identified and
priced dressings in nine of the surgical dressing categories and
determined the lowest per dressing price in each of the nine dressing
categories. These figures were then multiplied by the number of
units purchased in those categories in 1994. We totaled the
expenditures in each category and compared this figure with what HCFA
would pay using the 1995 fee schedule. As the table illustrates,
HCFA would pay over $2 million less for surgical dressings in the
nine categories if it paid the lower drugstore prices.
Table V.3
Fee Schedule Compared With Lowest Retail
Drugstore Prices
Fee
schedu
le
relati
onship Potent
to ial
lowest Number saving
HCFA 1995 retail of Estimated Estimated s from
Common fee Lowest drugst units fee lowest actual
Number of Proced schedu actual ore purcha schedule retail retail
dressings ure le retail prices sed in expenditu expenditu purcha
compared Code prices prices \a 1994 res res ses
---------- ------ ------ ------ ------ ------ --------- --------- ------
1 K0222 $1.91 $0.51 3.74 170,52 $325,707 $86,969 $238,7
7 38
2 K0257 1.38 0.52 2.65 156,35 215,775 81,307 134,46
9 9
3 K0219 0.86 0.55 1.56 66,828 57,472 36,755 20,717
4 A4454\ 2.18 1.47 1.48 6,248, 13,622,60 9,185,884 4,436,
b 901 4 720
5 K0252 0.49 0.47 1.04 1,103, 540,757 518,685 22,072
586
6 K0217 0.39 0.40 0.97 1,918, 748,257 767,443 (19,18
607 6)
7 K0263 0.26 0.33 0.78 2,782, 723,557 918,361 (194,8
913 04)
8 K0216 0.07 0.17 0.41 23,790 1,665,302 4,044,305 (2,379
,031 ,003)
9 A4460 1.00 3.87 0.25 84,803 84,803 328,188 (243,3
85)
Total 36,322 $17,984,2 $15,967,8 $2,016
,555 35 98 ,337
--------------------------------------------------------------------------------
\a The figures in this column compare the lowest drugstore prices
with fee schedule prices. If the figure in this column is 1, the
lowest retail drugstore price and fee schedule price are the same.
Figures greater than 1 indicate the number of times that the fee
schedule price is greater than the lowest retail drugstore price.
For example, the fee schedule price of K0222 ($1.91) is 3.74 times
greater than the lowest retail drugstore price ($.51). In contrast,
figures less than 1 indicate that the fee schedule is lower than the
lowest retail drugstore price.
\b Before 1995, tape was recorded as HCPC A4454 and the unit of
purchase was a roll of tape. However, in 1995 a new HCPC (K0265) and
description of tape were developed. We used the pricing and
utilization data for HCPC A4454 to estimate 1995 expenditures.
Table V.4 illustrates our comparison of fee schedule prices with the
price VA pays for similar dressings. The table ranks the categories
of surgical dressings from the category in which the fee schedule is
the furthest above the VA price to the category in which the fee
schedule is the furthest below the VA price. We obtained surgical
dressing supply and price lists from one of the VA's Medical Centers
in the Los Angeles area. We identified dressings and calculated per
dressing, or unit, prices in nine of the surgical dressing
categories. We multiplied the lowest per dressing price in each
category by the number of units purchased in those categories in
1994. We totaled the expenditures in each category and compared this
figure with what HCFA would pay using the 1995 fee schedule. As
table V.4 illustrates, HCFA would pay over $9 million less for
dressings in the nine categories if it paid VA's lower prices.
Table V.4
Fee Schedule Compared With Department of
Veterans Affairs Lowest Purchase Prices
Potentia
l
Number Fee savings
of 1995 Lowest schedule Number Estimated from
dressi HCFA fee VA relationsh of units fee Estimated lowest
ngs Common schedu purcha ip to purchase schedule VA VA
compar Procedur le se lowest VA d in expenditur expenditur purchase
ed e Code prices prices prices\a 1994 es es s
------ -------- ------ ------ ---------- -------- ---------- ---------- --------
1 K0220 $2.32 $0.04 58.00 26,655 $61,840 $1,066 $60,773
2 K0257 1.38 0.06 23.00 156,359 215,775 9,382 206,394
3 K0219 0.86 0.04 21.50 66,828 57,472 2,673 54,799
4 K0224 3.25 0.48 6.77 23,525 76,456 11,292 65,164
5 K0253 0.81 0.16 5.06 593,349 480,613 94,936 385,677
6 A4460 1.00 0.41 2.44 84,803 84,803 34,769 50,034
7 K0223 2.17 0.92 2.36 235,851 511,797 216,983 294,814
8 A4454\b 2.18 1.05 2.08 6,248,90 13,622,604 6,561,346 7,061,25
1 8
9 K0258 3.87 1.87 2.07 502,244 1,943,684 939,196 1,004,48
8
Total 7,938,51 $17,055,04 $7,871,643 $9,183,4
5 4 01
----------------------------------------------------------------------------------------
\a The figures in this column compare the lowest VA prices with fee
schedule prices. If the figure in this column is 1, the lowest VA
price and fee schedule price are the same. Figures greater than 1
indicate the number of times that the fee schedule price is greater
than the lowest VA price. For example, the fee schedule price of
K0220 ($2.32) is 58 times greater than the lowest VA price ($.04).
\b Before 1995, tape was recorded as HCPC A4454 and the unit of
purchase was a roll of tape. However, in 1995 a new HCPC (K0265) and
description of tape were developed. We used the pricing and
utilization data for HCPC A4454 to estimate 1995 expenditures.
(See figure in printed edition.)APPENDIX VI
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
=========================================================== Appendix V
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII
Edwin P. Stropko, Assistant Director, (202) 512-7118
Donald J. Walthall, Assignment Manager
Sam Mattes, Evaluator-in-Charge
Timothy S. Bushfield, Evaluator
Craig H. Winslow, Senior Attorney