BB&T Washington Editor

As a percentage of the total Medicare budget, payments for the category of goods that fall under the durable medical equipment, prosthetics, orthotics and supplies (DME) rubric do not take up a lion's share, but it is the focus of the most aggressive fraudulent behavior, largely because of the enormous number of suppliers in business and the well-known difficulty of tracking their billings. By some estimates, DME fraud under Medicare comes to substantially more than $1 billion a year, a hefty sum even if the nation's healthcare tab in total is more than a thousand times greater.

The Centers for Medicare & Medicaid Services (CMS) has not been utterly lax in this area, but the agency's mission in general has expanded in recent years and it has limited resources for such operations. Likewise, the Office of Inspector General at the Department of Health and Human Services has put a few resources into this, but OIG has a number of other operations it keeps track of, including gainsharing agreements between hospitals and doctors, consulting agreements between doctors and makers of drugs and devices, and many others.

The full roll-out of the competitive bidding demonstration program for DME was recently pushed back by 18 months to next January, but this is not the first time a bidding program showed substantial savings and ended up on the ash heap of federal government history. Thanks to the Balanced Budget Act of 1997, a similar program was in place from 1999 to 2002 in San Antonio, Texas, and Polk County, Florida, and like the latest iteration, demonstrated potential savings well in excess of 20%. However, Congress intervened and knocked the feet out from under the program.

Competitive bidding is not a counter-fraud effort per se, but the programs call for certification of suppliers and because bidding tends to whittle down on the number of suppliers, authorities have an easier time of keeping a handle on them.

Over the past couple of years, federal and state prosecutors have chipped in on the effort to suppress DME fraud, but the fact that suppliers pop up like weeds and disappear equally quickly has led former HHS Secretary Michael Leavitt to liken the DME anti-fraud effort to a game of "Whack-a-Mole."

Leavitt said in a press conference in May 2007 that an investigation into fraud in south Florida included visits to roughly 1,500 DME supply companies in the Miami, Florida, area. He said that on approach to the location of one purported supplier located in a strip mall, "you'd look inside and there was no one there, but you could see a chair, a little medical equipment on the wall, and what was established to look like a business.

"When you checked the Medicare records, you'd find that from this essentially vacant business-that sometimes $1 million, $2 million, sometimes $3 million or more would have been billed in a relatively short time from this so-called business," Leavitt said.

Biomedical Business & Technology recently interviewed Doran Edwards, MD, who formerly held the position of medical director of the Statistical Analysis Durable Medical Equipment Regional Carrier (SADMERC), one of four regional carriers contracted by the CMS to deal with reimbursement and other issues for DME. SADMERC lost its contract in August o2008, and Edwards now serves as COO of Advanced Healthcare Consulting (Columbia, South Carolina). Edwards said in a recent press statement that some DME is of poor quality, adding further to the DME problem.

BB&T asked Edwards if he felt faulty equipment was a bigger issue than fraud, and he replied he saw them both as issues "due to lack of standards."

The DME quality issue, he said, hinges to some extent on a lack of scrutiny, but also because of an expansion of DME types that fall more or less loosely into a series of DME coding categories known as the healthcare common procedure coding system (HCPCS). "Many of the codes are very vague and do not have accompanying guidelines" that "define what's an adequate product," he said.

In the case of orthotic devices, Edwards explained: "Many of the codes have no explanation and are defined by trade names that are decades old and may not exist" in their original forms.

Edwards said CMS is working on this deficiency, but that it is a major undertaking. "Initially, all DME was made by licensed professionals and coding was understood to be a reference to just those products," he said. However, the manufacturing for these products migrated from small shops to large manufacturing operations and in some cases, went overseas. "It became too labor intensive to deal with this," Edwards said, although CMS has put together some standards for diabetic test kit inserts and power mobility equipment in the recent past.

The HCPCS coding backlog, however, is enormous, Edwards said. "It's going to be a several-year project to get through all that." He said that CMS is "chronically understaffed," and the entity that replaced his former employer "is not given the mandate to carry on what SADMERC was doing" to put in place a more exhaustive set of codes.

Edwards stated that SADMERC "had already done preliminary work on prosthetic energy-storing feet and had done research on diabetic shoes." He said at the time that it lost the CMS contract, SADMERC also was working on further testing for pressure relieving cushions, mattresses and overlays that are provided to reduce the incidence of pressure wounds. SADMERC also was looking at a more refined set of HCPCS code definitions for wheelchair accessories and had started similar work on electrical stimulation devices.

Edwards said the majority of DME products are covered by a miscellaneous code, and crafting a code for each item is not a matter of simply clicking a button on a computer program. "It's a labor-intensive, manual review, and with the limited staffing they have, this is a difficult task," he said. However, getting everything coded would also aid in efforts to detect fraud because the more specific data would reveal more about whether demand for specific products was jumping conspicuously, which is not possible at present for many items because of the use of catch-all miscellaneous codes.

However, Edwards said that people are not the only resource at CMS and its carriers that is overwhelmed. Evidently CMS's information technology base is no match for the job, either. "They have a [legacy] system that is overwhelmed just because of the volume of information and the volume of claims, and it's difficult to make changes quickly. The system logic is outdated compared to today's software," Edwards said. He also acknowledged that "it would be an extensive project" to overhaul the software base in use by CMS, and the fraud perpetrated during the transition might overwhelm the benefit of such a transition in the short run.

As matters stand, CMS faces another dilemma; trying to keep track of all the combinations and permutations of DME. A good example is the effort needed on the part of a hospital when doing drug inventory to account for not just the number of doses, but also the dose levels for an analgesic such as acetaminophen. The effect of this kind of exercise is geometrically scaled up in the case of DME due to the enormous range of products and product use scenarios. CMS's IT infrastructure is "so outdated it can't handle the units of service" for most of the products Medicare beneficiaries use, Edwards stated.

The sheer volume of the task is formidable, and begins to seem almost beyond correction when one looks at the volume of new business coming in on a daily basis. Edwards said "even the smallest [of the four regional DME] carrier is processing 100,000 claims a day." And the number of new applications for DME suppliers is no exercise in incrementalism, either. "There are approximately 800 new applications a month at the National Supplier Clearinghouse," Edwards said. As for established DME suppliers, he said "there are probably between 125,000 and 150,000," a total which thankfully includes the more reliable entities such as national drugstore chains.

The National Supplier Clearinghouse (NSC), operated by Palmetto GBA (Columbia, South Carolina) "has been charged with doing more on-site visits" for new suppliers, Edwards observed, "but the fraudulent suppliers have got very good at covering" their behinds on that first visit. In subsequent visits, the NSC inspector will see a storefront, but as Leavitt hinted at with his whack-a-mole comparison, "you come by a month later, and there's nothing there but a shell."

The process is not adequate to capture all the fraudulent operation, Edwards stated, and while competitive bidding "will probably reduce fraud to some degree," the concentration of business in a smaller number of suppliers might give those bogus operations a larger market to deal with. "So there are some risks involved with competitive bidding," he said.

One industry association, the American Association for Homecare (AAHomecare; Arlington, Virginia), published a 13-point action plan in October 2008 the association says will effectively root out fraud if adopted into legislation and passed by Congress. Among the recommendations are that new DME suppliers get an initial visit plus two random visits during the course of the first year of business. Edwards said this idea is not utterly impractical. "I think that's realistic. The NSC staff has been given greater authority and additional funding for staff," he said, and because of the anti-fraud efforts brought out by federal and state prosecutors, NCS has "access to a greater task force" to help with that kind of inspection schedule.

Anti-fraud efforts are understandably concentrated in the Sunbelt states, which are havens for retirees. However, Edwards acknowledged that seemingly low-risk places, such as the Corn Belt states, shouldn't be utterly left out, although the anti-fraud effort in those states would proceed from a different starting point.

"One of the resources that helps to pinpoint the snake in the weeds in a place that's not normally suspect would be the statistical analysis staff at the carriers," Edwards said. Conspicuous billing levels are a trigger for follow-up, but a provider who's not responding to queries or whose address prompts a bounce-back of mailed materials can be referred to investigators. Still, those anti-fraud efforts have to get up to speed on a bad apple quickly. "Most fraudulent suppliers are so greedy that they won't wait a year" to fold up shop and set up again in another location, he stated.

Some operators are so adroit that they will "throw millions of dollars in claims at the system" within three to six months, Edwards remarked, adding that another problem is that "they go away and they come back as something else with another supplier number" in short order, and NSC has not been able to deny a provider number because of the lack of prosecution. Fraudulent operators whose names are known can get around that problem, too. "They use a cousin's name" to get back in, which means "there's no limit that the number of times" that a fraudulent supplier can come and go. "This is a flaw in the system's logic that we've known about for years," he said, remarking that "there needs to be some system logic built in to detect the hit-and-runs."

Edwards estimated that the total amount of DME fraud is "in the billions, somewhere between $2 billion and 3 billion a year." DME is a relatively small portion of Medicare, but he pointed out that the way DME is reimbursed, providers are "uniquely set up to feed at the Medicare trough, and there haven't been enough public hangings to slow most of them down."

"It's almost like organized crime in some places," Edwards commented, adding that he suspects that organized crime from other nations "probably has a hand in it somewhere in the United States."

Still, the former physician said there is no need for pessimism. "I would say it's probably possible to get DME fraud down to $500 million or less a year without unduly interfering with legitimate suppliers or blocking access for beneficiaries," he stated, hinting that plowing fraud recovery monies back into anti-fraud work would keep an effective crime-fighting ball rolling. "If they were given 1% to 2 % of the budget they save each year, within five years they would have eliminated fraud."

Edwards has a list of requirements to get fraud down to manageable levels. "We need more rapid response, greater oversight and we need to prosecute more quickly. We may need to involve prosecutors at the state level, and there are some states that are more involved in this than others," he said. That expertise can be shared, however, especially given that Medicare and Medicaid fraud often go hand in hand.

Authorities in California, Texas and Florida "are providing a great deal of cooperation in those main fraud areas, not only from law enforcement officials, but also from prosecutors," Edwards said. Recovery audit contractors (RACs) are also part of the puzzle. "RACS are relatively new to the DME world," he commented, adding that he's not sure how effective they'll be early on. "It takes a while to learn the difference between an improperly filed claim . . . and a fraudulent claim," he remarked. "It generally takes a new person two years to get fully up to speed on the nuances of Medicare," unless they already have some background in the program.

"Given that the Medicare trust fund has less room than the Social Security fund, any fraud is critical," he asserted, especially given the impending Baby Boom crunch, "so if we have a problem with fraud now, it won't be long before we have a crisis of fraud. The timeliness of the discussion couldn't be better," Edwards said.

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