Medicare greatly underestimated DME fraud, oversight agency says

Washington -- Fraud in the Medicare durable medical equipment arena appears to be a much bigger problem than program officials have said, according to a new oversight report.

The Centers for Medicare & Medicaid Services hires a contractor to review selected Medicare claims for signs of improper payments through the Comprehensive Error Rate Testing program, or CERT. The Dept. of Health and Human Services Office of Inspector General instructed an independent review firm to audit the work that this contractor did on durable medical equipment claims for fiscal year 2006. The OIG released the results Aug. 25.

Most of the payments that the CERT contractor flagged as improper were confirmed by the independent audit, according to the report. But a closer look at the medical records and other supporting documents that equipment suppliers and physicians are required to provide when they come under review found that the first investigation missed many cases in which Medicare should not have paid for the equipment ordered. The CERT's review determined that the error rate was 7.5% in fiscal 2006, but the OIG review found that this figure was nearly 29%.

The oversight agency said CMS officials hamstrung the first review because the contractor was not told to dig deep enough into physician records in the hunt for improper payments.

"CMS orally instructed the CERT contractor to deviate from written policies by making determinations based primarily on the limited medical records available from suppliers, applying clinical inference when reviewing supplier medical records to reasonably infer that the DME provided was medically necessary, and not counting lack of proof of [DME] delivery as an error if that was the only issue with a claim," the report states.

The difference between the two reviews is significant when considering the money involved. The 7.5% error rate published by CMS translated into an estimated $700 million in improper payments for the fiscal year. A 29% error rate, if accurate, could mean that billions of additional Medicare dollars were lost to fraud and other improper payments in one year than the Bush administration had said.

Lawmakers take note

Sen. Charles Grassley (R, Iowa) reacted furiously to the finding that the DME payment error rate was nearly four times as high as the one that Medicare officials originally said. He suggested that CMS may have deliberately instructed its contractor not to conduct a full review of physician supporting information in order to make the error rate appear smaller than it actually was.

"This is unconscionable and an affront to every American taxpayer who is footing the bill, especially because we are not talking about millions of dollars," Grassley said. "Instead, we are talking billions of dollars lost to fraud, waste and/or abuse in 2006."

Grassley demanded that CMS account for its conduct and called into question the accuracy of other CERT reviews released by the administration. Several other lawmakers promised hearings on this issue when Congress returned to Washington this month.

In his response to a draft copy of the report, CMS Acting Administrator Kerry Weems said CMS policy in 2006 did not require the CERT contractor to request medical records and additional physician information in determining the amount of improper DME payments that occurred. The OIG recommendation that the firm review all documentation as well as contact beneficiaries in cases of suspicious payments would significantly expand the scope of the CERT program, Weems said.

The size of the discrepancy between the two reviews is not necessarily as significant as lawmakers are making it out to be, a CMS spokesman said. Because the claims re-reviewed by the OIG were not selected randomly, one cannot simply extrapolate a 29% error rate to mean that CMS missed more than $2 billion worth of improper payments that year, he said.

Not all of the improper payments involved outright fraud, and in some cases they occurred because physicians had not supplied enough information to prove that the equipment was medically necessary.

But the OIG identified at least 11 claims out of nearly 400 that were suspicious enough to warrant further investigation. Most of these claims were for expensive equipment items such as power mobility devices and collagen dressings. The report did not say whether the physicians on the claims were aware that suppliers were committing fraud using their data.

Suppliers on the defense

In recent years, CMS has begun what officials call an aggressive campaign to curb rampant fraud in the durable medical equipment arena.

Congress, however, recently delayed a DME competitive bidding program the administration said would have provided them with a powerful anti-fraud tool. By limiting Medicare coverage of certain DME items in certain areas to a select group of suppliers that won bids to offer equipment, CMS had hoped to ensure that all approved suppliers were legitimate.

But the suppliers who successfully lobbied to delay the bidding program said it had little to do with fraud and more to do with slashing Medicare payments to the industry.

"Fraud prevention mechanisms are different than the price-setting program delayed by Congress," said Tyler J. Wilson, president and CEO of American Assn. for Homecare, which represents suppliers. "If the federal government wants to get serious about preventing fraud and preventing theft of taxpayer dollars, it should use tools like accreditation more aggressively and use its ample, existing authority much more effectively."

Grassley was one of the lawmakers who opposed the move to delay the bidding program. He did not say whether the latest revelation about the apparent level of DME fraud would prompt an attempt to reinstate the initiative.