Beneficiaries typically  obtain DMEPOS items from suppliers, who submit claims to Medicare on  the beneficiaries’ behalf. DMEPOS suppliers are required by CMS to meet certain standards before  they are authorized to bill Medicare. To prevent and minimize improper payments for DMEPOS, PSCs rely on  automated prepayment controls—called edits. First, DMERCs and the Region A PSC generally did  not have medical review edits in place to identify claims associated with  atypical billing patterns. Such claims represent items  unlikely to be prescribed, or unlikely to be prescribed in the quantity  billed, for a beneficiary as part of routine quality care. In conjunction with  the SADMERC, we identified three instances where medically improbable  claims were routinely being paid by Medicare for more than a year. Finally, CMS does not require its contractors to share information on their  edits with contractors in other regions or adopt edits that have been  effective in other contractors’ regions. For example, in 2005, the DMERC in Region C had an  edit in place to restrict payment for the same or similar types of home-use  hospital beds to one item per month per beneficiary, by automatically  denying any additional claims submitted for these items. CMS has developed three evaluation tools to assess each  PSC’s (1) general performance, (2) performance in conducting medical  review, and (3) performance in conducting benefit integrity activities. CMS officials said that the agency will use the results to decide whether to  renew a PSC’s contract. The officials also said that CMS will use these  results to determine whether a PSC may earn award fees—a monetary  performance reward for good performance—in addition to the regular  payments it receives under its contract. The agency and its contractors conduct a number of  program integrity activities designed to prevent and minimize improper  payments for DMEPOS. However, we found that CMS’s contractors did not  have sufficient automated prepayment controls to flag claims that are part  of unexplained increases in billing, or that were medically improbable. CMS’s recent  initiative to add automated prepayment controls that would deny certain  medically improbable claims is a positive step towards reducing improper  DMEPOS payments. Require the DME MACs, DMERC, and PSCs to exchange information on  their automated prepayment controls, and have each of these contractors  consider whether the automated prepayment controls developed by the  others could reduce their incidence of improper payments. Appendix II: Scope and Methodology

To discuss the program integrity activities of the Centers for Medicare &  Medicaid Services (CMS) and its contractors to prevent and minimize  improper payments made for durable medical equipment, prosthetics,  orthotics, and supplies (DMEPOS), we reviewed aspects of the  contractors’ medical review and benefit integrity responsibilities. As part of our work, we reviewed related GAO  reports and CMS’s Medicare Program Integrity Manual (PIM), which  establishes CMS’s guidelines for contractors’ program integrity activities. We also conducted interviews with CMS officials responsible for  safeguarding Medicare, as well as contractor officials responsible for  program integrity activities in three of the four DMEPOS regions—  Regions A, C, and D. These contractor officials included staff at the  outgoing Durable Medical Equipment Regional Carriers (DMERC) for  Regions C and D, and the incoming Program Safeguard Contractors (PSC)  for Regions A, C, and D. We interviewed staff at the incoming Durable  Medical Equipment Medicare Administrative Contractor (DME MAC) for  Region A, which had the only DME MAC contract within our selected  regions that had been implemented at the time of our interviews. In  addition, we interviewed PSC contractors about CMS’s oversight of its  PSCs. Medicare: CMS Did Not Control Rising Power Wheelchair Spending.
Why GAO Did This Study

The Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--estimated that the program made about $700 million in improper payments for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) from April 1, 2005, through March 31, 2006. To protect Medicare from improper DMEPOS payments, CMS relies on three Program Safeguard Contractors (PSC), and four contractors that process Medicare claims, to conduct critical program integrity activities. GAO was requested to examine CMS's and CMS's contractors' activities to prevent and minimize improper payments for DMEPOS, and describe CMS's oversight of PSC program integrity activities. To do this, GAO analyzed DMEPOS claims data by supplier and item to identify atypical, or large, increases in billing; reviewed CMS documents; and conducted interviews with CMS and contractor officials. GAO focused its work on contractors' automated prepayment controls and described related claims analysis functions.

What GAO Found

To prevent and minimize improper DMEPOS payments, CMS's contractors conduct program integrity activities, which include performing medical reviews of certain claims before they are paid to determine whether the items meet criteria for Medicare coverage. As part of their efforts, CMS's contractors responsible for medical review use automated prepayment controls to deny claims that should not be paid or identify claims that should be reviewed. However, GAO found three shortfalls in these automated prepayment controls that make the Medicare program vulnerable to improper payments. (1) Contractors responsible for medical review did not have automated prepayment controls in place to identify questionable claims that are part of an atypically rapid increase in billing. (2) In some instances, these contractors did not have automated prepayment controls in place to identify claims for items unlikely to be prescribed in the course of routine quality medical care. CMS has recently begun an initiative to add controls of this kind for some DMEPOS items. (3) CMS does not require these contractors to share information on the most effective automated prepayment controls of the other contractors or consider adopting them. For example, Medicare might have saved almost $71 million in less than 2 years if one effective automated prepayment control designed to prevent Medicare from paying for more than one home-use hospital bed per month for a beneficiary, which was used by one of these contractors, had been used by the others. CMS oversees the PSCs' program integrity activities by providing written manuals and contracts to guide their work. As part of its oversight, CMS is implementing an annual contractor performance evaluation process, based on three evaluation tools, to assess each PSC's performance. CMS officials said that the agency will use the results of these evaluations to determine two things: whether to renew a PSC's contract, and whether a PSC may earn award fees--a monetary reward for good performance--in addition to the regular payments it receives under its contract.