Payments for medical supplies are made under either of Medicare’s two parts. 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. First, the ability of suppliers to shop for contractors with the highest payments and weakest controls has been eliminated. These data will allow HCFA to identify, on a nationwide basis, DME and medical supplies that may be subject to overutilization and inappropriate billing. Conclusions

HCFA has taken some initial steps to address Medicare medical supply and surgical dressing payment abuses. 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’s payment rates for dressings are high compared with wholesale and many retail prices. Recommendations to the Secretary of HHS

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. 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.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed Medicare payments for medical supplies, focusing on the: (1) circumstances surrounding payments for unusually high surgical dressing claims; and (2) adequacy of Medicare's internal controls to prevent paying such claims.

What GAO Found

GAO found that: (1) although the Health Care Financing Administration (HCFA) has eliminated medical suppliers' ability to select contractors with the highest payment rates, unwarranted expenditures still persist; (2) reasons for the unwarranted expenditures include inadequate systematic payment controls and noncompetitive payment rates for surgical dressings; (3) many Medicare contractors lack itemized bills, fail to automatically review high-dollar claims for newly covered surgical dressings, and lack a systematic method for detecting duplicate bills submitted to different types of Medicare carriers; (4) Medicare payment rates for new surgical dressings and other medical supplies are considerably higher than wholesale and retail prices; (5) HCFA could curtail these overpayments by establishing procedures to require itemized claims, preventing duplicate payments to Medicare suppliers, and identifying high-dollar, high-volume claims that should be reviewed before payment; (6) the initiative will provide comprehensive national payment data that will allow HCFA and its contractors to detect inappropriate billing and overutilization; and (7) HCFA needs legislative authority to set competitive payment rates that are favorable for high-volume purchasers.