Claims Do Not Adequately Identify Products Billed to Medicare

HCFA does not know specifically what Medicare is paying for when its contractors process claims for DME. Without more specific product identifiers on Medicare claims, HCFA cannot systematically determine if the fee schedule allowances are appropriate. Without product-specific identifiers on Medicare claims forms, HCFA cannot effectively review the mix of products billed under a HCPCS code to (1) identify the need to regroup similar products under existing or new billing codes, (2) adjust the code descriptions and the guidance to suppliers advising them which HCPCS codes to bill, (3) identify claims billed under inappropriate HCPCS codes, and (4) adjust the fee schedule allowance for a HCPCS code so that it reflects the costs of the products covered by the code. Section 4316 of the BBA amended the Medicare law to permit HCFA to use a streamlined process to adjust fee schedule allowances up or down by as much as 15 percent in one year. This new authority can help HCFA bring the historical, charge-based fees into line with marketplace prices, but some obstacles remain: (1) HCFA and its contractors do not have sufficient current product or pricing data on the thousands of items covered by the DME fee schedule and (2) the fee schedule reimburses large suppliers who buy at volume discounts the same fee schedule allowances as individuals who buy single items at retail prices. Medicare Fees Are Often out of Line With Current Prices

Since the current Medicare fee schedule is based on supplier charges that Medicare allowed in 1986 and 1987, some Medicare fees have little correlation with today’s market prices for medical equipment and supplies. Although the BBA gives HCFA greater flexibility to more quickly adjust Medicare fee schedule allowances, some underlying problems need to be resolved for HCFA to most effectively use its new authority. Current HCPCS Billing Codes

Our report states that HCFA does not know specifically what products Medicare is paying for because the same HCPCS code can be used for a broad range of product types, quality, and market prices. We also reviewed Medicare payments for selected off-the-shelf orthotic devices. We also reviewed the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) and GAO reports on billing practices and payment policies for orthotic devices.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed Medicare's payments for commonly purchased, off-the-shelf durable medical equipment (DME), focusing on the need to: (1) better identify products billed to Medicare; and (2) bring Medicare fees more in line with current marketplace prices.

What GAO Found

GAO noted that: (1) there are two underlying problems with Medicare's DME payment system; (2) the Health Care Financing Administration (HCFA) does not know specifically what products Medicare is paying for when its contractors process claims for DME; (3) the only product identifiers on the claims are the HCFA billing codes that cover a broad range of product types, quality, and market prices; (4) without more specific product identifiers on Medicare claims, HCFA cannot routinely determine what products are being billed under each billing code, which products should be grouped together under the same billing code, or whether the Medicare payment for all the products grouped under a billing code is reasonable; (5) the health care industry is increasingly using bar-coded, product-specific identifiers for medical products, but HCFA does not have any plans to require these identifiers on Medicare claims; (6) the second underlying problem with Medicare's DME payment system is that the fee schedule allowances for DME are often out of line with current market prices; (7) most Medicare fees are based on historical supplier charges updated using the consumer price index; (8) the Balanced Budget Act of 1997 (BBA) gave the Department of Health and Human Services (HHS) the authority to use a streamlined inherent reasonableness review process to adjust Medicare fees by as much as 15 percent in one year; (9) this streamlined authority should help HCFA bring the historical, charge-based fees into line with marketplace prices, but some obstacles remain; (10) HCFA and its contractors do not have sufficient, current product and pricing data for the thousands of DME items covered by Medicare; (11) another obstacle to appropriate reimbursement is that the fee schedule allowances are the same for individuals and for large institutional suppliers, even though large suppliers buy at substantial discounts; and (12) although the BBA gives HHS the authority to more quickly adjust fees, addressing these underlying problems may require additional statutory authority.