Updated on: November 29, -0001

DME Suppliers as the Whipping Boy of the Medicare Industry

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Original story posted on: February 8, 2017

Durable medical equipment (DME) suppliers have a target on their backs. It is likely that they are subjected to the most frequent audits of any type of healthcare provider. The CERT (Comprehensive Error Rate Testing) audits seem to be the most frequent.

Although DME represents a small percentage of expenditures on healthcare, in 2015 (the last year for which data is available), the improper payment rate was found to be 39.9 percent. This was much higher than for inpatient hospitals (6.2 percent), physician/lab/ambulance (12.7 percent) and non-inpatient hospital facilities (14.7 percent). The average for all improper payments was 12.1 percent, accounting for $43.3 billion. But the 39.9-percent improper payment amount for DME accounted for only $3.2 billion. 

DMEs Get More Audits than Other Healthcare Suppliers

How many audits are performed on DME suppliers? It is not uncommon for such a supplier to have fully one-third of their claims subjected to a CERT audit. It takes approximately 90 days for an audit to be resolved, and until that time passes, the DME does not get paid. One DME with two facilities receives about one CERT audit per day, and each time it must go through the entire fire drill of submitting documentation to back up its claim. Luckily, unlike for Recovery Audit Contractor (RAC) audits, the CERT audits allow for electronic submission of documentation, and this helps ease the process for the DME supplier. 

Supposedly, there is a way to lessen the number of CERT audits. If a supplier gets a good record, then the number of audits should go down. But the auditors never assess this based on the final outcome of the audit (when the claim denial is reversed), but instead only look at the initial audit. It is a catch-22 situation. 

One of the most common DME targets for audit seems to be oxygen, which is marked by a cluster of different codes such as transtrachael oxygen catheter (A4608), oxygen tubing (A4616), portable liquid oxygen system (E0433), oxygen supplies regulator (E1353), oxygen supplies stand/rack (E1355), oxygen concentrators (E1390, 91, 92), portable gas oxygen system (K0738), liquid or compressed oxygen (E0431, 42, 43, 44) , and oxygen with water vapor (E1405,6).

Another audit target is the CPAP (continuous positive airway pressure) machine. This keeps people from suffocating while they are sick. This includes the CPAP full face mask (A7030), nasal devices, headgear, chinstraps, filters, tubing exhalation ports, water chambers (A7031-47+), and more. According to one source, these two items (oxygen and CPAP) receive audits almost every time they are claimed. 

RAC Audits Make DME Suppliers Continue to Provide Services, Even if Claims are Denied 

The RAC audits are considered to be particularly troublesome. DME suppliers report a common pattern of RACs using local coverage determination (LCD) rules that do not match the time period for the claim. This happens because LCDs frequently are updated, sometimes twice per year. This is a common problem, but in order to get it corrected, a DME must go through the regular process of redetermination, reconsideration, then appeals to the administrative law judge (ALJ) and MAC (Medicare Administrative Contractor). This requires the use of consultants, attorneys, and lots of staff to handle the paperwork.

Of particular note is that during the appeal period (which, as we know, can now extend out years because of the backlog), DMEs are unable to take back their equipment from the patient. Yes, that’s right: the patient gets a hospital bed, the RAC says the claim is denied, but the DME supplier must leave the bed with the patient until the appeals process is completed. This means that years can go by without getting paid. 

RAC Audits Ignore Medical Necessity 

What is amazing about RAC audits is the often completely unreasonable nature of their claim rejections. Just to give one example from a recent appeal, there was an 89-year-old female patient with dementia caused by Alzheimer’s disease with a broken rib, unable to even turn over in bed, and unable to walk. The RAC reportedly denied that the patient needed a hospital bed. There are so many cases like this. Why? 

The RACs make these completely irrational decisions because they do not use medical necessity to determine if a claim will be paid. This may distinguish the DME world from any other part of the healthcare community. Claims often are denied because the RAC claims that documentation is not sufficient. For example, even though the patient has signed a delivery form acknowledging the receipt of the equipment, this is not always considered to be acceptable. Another example: even if all of the paperwork is in order for a wheelchair, the claim may be denied unless someone has visited the patient’s residence and confirmed that the home or apartment is such that a wheelchair can fit through the doors.

There also is the common practice of claiming that the device is not medically necessary because the physician has not conducted seemingly every possible test under the sun. For example, in one case, the physician wrote that the patient was unable to walk around, but that in itself was not enough to merit a wheelchair 

RACs Are Not Always Reasonable

RACs also are not always easy to work with. In one case, a DME supplier was “raided” by a RAC, which then seized a number of records. The RAC claimed that some records were missing. After finding the records, the owner of the DME supplier personally put the boxes of records in his trunk and drove hundreds of miles to deliver the records to the RAC. But when he arrived, they refused to accept them. 

All I can conclude is that the auditing of the DME suppliers is excessive and medically irrational. 

Price Fixing

But medical irrationality is not the only problem. As we shall see, the government (the Centers for Medicare & Medicaid Services, or CMS) operates in a model that allows it to fix the prices in the market.

The MMA, also known by its full name, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, (https://www.congress.gov/bill/108th-congress/house-bill/1) is 26,485 lines long and around 188,000 words. §302, Payment for Durable Medical Equipment; Competitive Acquisition of Certain Items and Services, starts on line 10,081. This calls for competitive bidding for DME in each major area of the country. The way this works is that CMS (actually a for-profit subcontractor) will first determine the demand for a certain type of DME in an area. Then it will ask for bids from DME suppliers. The top three bidders will be selected. For example, Company A will supply 40 percent of the equipment at a price of $100 per unit; Company B will supply 20 percent of the equipment at a price of $105 per unit; and Company C will supply the remaining 20 percent of the market at $110 per unit.

Once these contracts are let out, then all other suppliers of that equipment in the area are locked out of the market for three years (see §1847(b)(3)(B)). In other words, there is no more competition, no open and free market. This appears to contradict §1847(b)(2)(A)(iv), which says that “access of individuals to a choice of multiple suppliers in the area is maintained.” Competitors are locked out, and many go out of business. 

The January 2017 fee schedule is published online here: (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSFeeSched/DMEPOS-Fee-Schedule-Items/DME17-A.html). There are 2,897 different items, and for each of those, there are 114 different pricing lines. The government sets the prices.

Last year, DME suppliers were told out of the blue that their prices would be reduced to only 51 percent of the previous rates. Of course, this should have had the effect of lowering the cost of medical services and supplies, but it has absolutely nothing whatsoever to do with supply and demand or the free competitive markets.

It is not possible to count the number of DME suppliers that have been driven out of business. Although the CMS website has a list of suppliers, sources report that it is out of date and highly inaccurate. As a result, it is not possible to calculate the number of companies that have gone bankrupt. Even if a DME supplier goes out of business, they remain in the database.

Yes, DME suppliers are the whipping boy of the healthcare world.

Edward Roche, PhD, JD

Edward Roche is the director of scientific intelligence for Barraclough NY, LLC. Mr. Roche is also a member of the California Bar. Prior to his career in health law, he served as the chief research officer of the Gartner Group, a leading ICT advisory firm. He was chief scientist of the Concours Group, both leading IT consulting and research organizations. Mr. Roche is a member of the RACmonitor editorial board as an investigative reporter and is a popular panelist on Monitor Mondays.

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