Department of Health and Human Services
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
COMP ARISON OF PRICES FOR 
 
N P W
EGATIVE  RESSURE  OUND 
 
 
T P  
HERAPY  UMPS
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
March 2009 
OEI-02-07-00660   
 
 
Office of Inspector General 
  http://oig.hhs.gov 
   
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
 
amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well  as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
 
investigations, and inspections conducted by the following operating components: 
 
Office of Audit Services 
 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance  of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and pro mote economy and efficiency throughout HHS. 
Office of Evaluatio n and Inspections 
 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the  public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present prac tical recommendations for improving program operations.  
Office of Investiga tions 
 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
 
convictions, administrative sanctions, and/or civil monetary penalties. 
 
Office of Counsel to the Inspector General 
 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs in ternal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and moni tors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.  
   
  
 
 
 E X E C U T I V E   S U M M A R Y  
OBJECTIVES   
(1) To compare the prices that suppliers paid for new negative pressure 
wound therapy pump models to Medicares purchase price for the 
pumps. 
(2) To describe how suppliers acquired these new pumps. 
(3) To describe the extent to which suppliers reported providing 
required services to Medicare beneficiaries who rented these pumps. 
BACKGROUND   
Negative pressure wound therapy pumps (the pumps) are portable or 
stationary devices used for the treatment of ulcers or wounds that have 
not responded to traditional wound treatment methods.  Medicare pays 
for the pumps under Part B coverage of durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) as a capped rental item.  
Between 2001 and 2007, Medicare payments for these pumps increased 
583 percent, from $24 million to $164 million. 
When Medicare first started covering pumps in 2001, it covered only one 
model, which was both manufactured and supplied by Kinetic Concepts, 
Inc. (KCI).  Medicare reimbursed KCI for this pump based on the 
purchase price as identified by KCI.  Beginning in 2005, Medicare 
expanded its coverage to include several new pump models that are 
manufactured by other companies.  Medicare reimburses suppliers for 
these new pumps based on the purchase price of the KCI pump.   
This study compares the prices that suppliers paid for new pump 
models to Medicares purchase price.  Although the new pump models 
currently account for a small percentage of the pump market, their 
market share may grow rapidly if there is a large difference between the 
amount that suppliers pay for these pumps and the amount that they 
are reimbursed by Medicare.  Wide profit margins may also make 
pumps vulnerable to fraud, waste, and abuse.
 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  i   
  
 
 
E X E C U T I V E   S U M M A R Y  
 
FINDINGS 
Suppliers paid an average of $3,604 for the new pump models, 
compared to Medicares purchase price of $17,165.  Suppliers 
purchased 171 of the 223 new pump models that were provided to 
beneficiaries in the first half of 2007.  Suppliers paid an average of 
$3,604 for these pumps.  Medicare reimbursed suppliers for these 
pumps based on a purchase price of $17,165, which is more than four 
times the average price paid by suppliers.  On a monthly basis, 
Medicare reimbursed suppliers $1,716 for these pumps for the first 3 
months.  At this rate, suppliers recouped the average cost of a new 
pump model in about 2 months.  Further, beneficiaries coinsurance 
payments for pumps cover a substantial portion of the average cost of a 
new pump model.  After just 4 months of rental, a beneficiarys 
coinsurance of $1,286 covers over one-third (36 percent) of the average 
cost of a new pump model.    
Suppliers acquired one-quarter of the new pump models by 
leasing, renting, or exchanging them.  Suppliers acquired nearly  
one-quarter (52 of 223) of the new pump models provided to 
beneficiaries in the first half of 2007 through methods other than 
purchasing them.  They acquired these pumps through lease-to-own 
agreements, daily rentals, hourly rentals, or exchanges of old pumps for 
new ones. 
Suppliers reported not always communicating with beneficiaries 
clinicians, as required; however, they appeared to meet other 
standards.  Suppliers are required to communicate with the 
beneficiarys treating clinician to assess wound healing progress and to 
determine whether the beneficiary continues to qualify for Medicare 
coverage of the pump.  In addition, suppliers must meet certain 
standards that include providing delivery and instruction on equipment 
usage (either from the supplier or another qualified party), maintaining 
and repairing the equipment as needed, and responding to beneficiaries 
questions and complaints about the equipment.  Suppliers reported not 
having contact with clinicians for almost one-quarter of the 
beneficiaries.  Suppliers reported delivering the pumps and educating 
almost all of the beneficiaries, as well as providing maintenance and 
repairs when needed.
 
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E X E C U T I V E   S U M M A R Y  
RECOMMENDATIONS 
Based on the findings in this report, we recommend that CMS: 
Reduce Medicares reimbursement amount for pumps.  CMS should 
consider two methods to reduce its reimbursement amount for pumps.  
CMS should: 
  Use its inherent reasonableness authority to reduce the reimbursement 
amount for pumps.  CMS should consider using its inherent 
reasonableness authority to reduce the amount that it reimburses 
suppliers for pumps.   
  Include pumps in the second round of the the Competitive Bidding 
Acquisition Program.  CMS should include pumps in the second round 
of the Competitive Bidding Acquisition Program.  This could better 
align Medicares reimbursement amount for pumps with the amount 
that suppliers pay for the new pump models.   
In addition, CMS should:  
Monitor the growth of the new pump market.  CMS should continue to 
monitor the growth of the new pump market by tracking trends in market 
share among different suppliers.   
Educate suppliers of new pump models on the importance of 
communication with beneficiaries treating clinicians.  CMS should 
educate suppliers of new pump models that the continued need for a 
pump can be determined only through clinician input and that it is 
inappropriate for suppliers to submit claims for continued pump use 
without this input.   
Follow up on the pump claims that may be inappropriate.  CMS 
should follow up on the claims in which suppliers:  (1) reported having no 
contact with the beneficiaries treating clinicians, (2) could not be 
located, or (3) did not submit any documentation.  To help CMS address 
this recommendation, we will forward information about these claims in 
a separate memorandum.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with four of our recommendations and will consider the 
remaining recommendation.  It noted that it has worked on a number of 
regulatory and administrative initiatives related to the prescription, 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  iii   
  
 
 
E X E C U T I V E   S U M M A R Y  
 
coding, and coverage of pumps in response to the significant growth in 
expenditures for these items.   
In response to our recommendations, CMS concurred that it has the 
authority to adjust payment rates using Medicares inherent 
reasonableness authority.  It stated that it will consider whether it 
would be able to gather valid and reliable data, as the statute 
requires, to make a determination that the payment amount for 
pumps is grossly deficient or excessive and to establish, if needed, a 
new amount that is realistic and equitable.  CMS also stated that it 
will consider including pumps when designing the second round of the 
Competitive Bidding Acquisition Program.  Further, CMS stated that 
it will monitor and track trends in utilization of pumps and track the 
market share among different pump suppliers.  CMS also concurred 
with our recommendation to educate pump suppliers on the 
importance of communication with beneficiaries treating clinicians.  
Lastly, CMS concurred with our recommendation to follow up on 
pump claims that may be inappropriate and stated that it is working 
with its contractors to strengthen its oversight in this area.     
We support CMSs efforts to address these issues and encourage it to 
continue to make progress in these areas. 
 
 
 
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 T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
 
 
I N T R  O DUC T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
 
F I N D  IN G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 
Sup pliers paid an average of $3,604 for new pump models . . . . . . . . . .   9 
Sup pliers acquired one-quarter of these pumps by leasing, renting, or  
exchanging them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 
 
Suppliers reported not always communicating with clinicians . . . . . . . 12 
 
   
 
 
R E C O MMEN D A T ION S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
Age ncy Comments and Office of Inspector General Response. . . . . . . . 15 
 
 
   
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 
 
  A:  DMEPOS Competitive Bidding Winning Amounts . . . . . . . . . 17 
 
  B:  Local Coverage Determination for Pumps . . . . . . . . . . . . . . . . 18 
  C:  Medicare DMEPOS Supplier Standards. . . . . . . . . . . . . . . . . . 19 
  D:  Centers for Medicare & Medicaid Services Comments.. . . . . . 20 
   
 
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 
     
  
   
 I N T R O D U C T I O N  
OBJECTIVES 
(1) To compare the prices that suppliers paid for new negative pressure 
wound therapy pump models to Medicares purchase price for 
pumps. 
(2) To describe how suppliers acquired these new pumps. 
(3) To describe the extent to which suppliers reported providing 
required services to Medicare beneficiaries who rented these pumps. 
BACKGROUND   
Negative pressure wound therapy pumps (the pumps) are portable or 
stationary devices used for the treatment of ulcers or wounds that have 
not responded to traditional wound treatment methods.  Medicare pays 
for pumps under Part B coverage of durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) as a capped rental  
item.1  Between 2001 and 2007, Medicare payments for these pumps 
increased 583 percent, from $24 million to $164 million. 
When Medicare first started covering pumps in 2001, it covered only one 
model, which was both manufactured and supplied by Kinetic Concepts, 
Inc. (KCI).  Medicare reimbursed KCI for this pump based on the 
purchase price as identified by KCI.  Beginning in 2005, Medicare 
expanded its coverage to include several new pump models that are 
manufactured by other companies.2  Medicare reimburses suppliers for 
these new pumps based on the purchase price of the KCI pump.   
There are indications that Medicares purchase price for pumps may be 
high compared to what suppliers pay for the new pump models.  In fact, 
an executive from one of the manufacturers that produces new pump 
models publicly stated that Medicares current reimbursement is too 
high for this type of equipment.3  This manufacturer further noted that 
 
1 42 CFR  414.210(b)(2); 42 CFR  414.229. 
2 We refer to all non-KCI pump models as the new pump models to distinguish them 
from the KCI pumps. 
3 Market Wire, Bluesky Medical Requests a Decrease in the Reimbursement for 
Negative Pressure Wound Therapy Market, June 2002.  Available online at 
http://www.findarticles.com/p/articles/mi_pwwi/is_200206/ai_mark09043751.  Accessed on 
May 4, 2007. 
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I N T R O D U C T I O N  
 
it could provide its pumps for a significantly lower reimbursement 
4
amount.  
In addition, although the new pump models currently account for a 
small percentage of the pump market, their market share may grow 
rapidly if there is a large difference between the amount that suppliers 
pay for these pumps and the amount that they are reimbursed by 
Medicare.5  Wide profit margins may also make pumps vulnerable to 
fraud, waste, and abuse.   
Negative Pressure Wound Therapy Pumps  
A pump is a wound therapy option for individuals with specific types of 
wounds and ulcers.  The devices apply controlled negative or 
subatmospheric pressure to the affected site and assist in removing 
fluid, increasing blood flow to the site, and stimulating the growth of 
granulation tissue.6  The Food and Drug Administration (FDA), under its 
510(k) approval process,  considers pumps to be medical devices that are 
substantially equivalent to previously approved powered suction pumps.7   
Presently, KCI is the principal manufacturer and supplier of pumps for 
Medicare beneficiaries.  Unlike other companies, KCI manufactures its 
own pump and rents it directly to beneficiaries.   In contrast, the new pump 
models are manufactured by a number of companies, including Smith & 
Nephew;8 Superior Healthcare Concepts, Inc.; Boehringer Wound Systems, 
LLC; Medela; Innovative Therapies, Inc.; and Prospera.  These companies 
sell their pumps to suppliers, which then rent them to Medicare 
 
4 Travis E. Poling, KCI Hit by Stunning Court Loss, San Antonio Express-News, 
August 4, 2006, at 01D. 
5 The new pump models accounted for about 1 percent of the pump market in the first 
half of 2007. 
6 Granulation tissue is a specialized tissue that is rich in tiny blood vessels and is 
created by the body as a response to injury. 
7 Section 510(k) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.  360(k)) 
requires device manufacturers to notify FDA, at least 90 days in advance, of their intent 
to market a medical device.  A device must be substantially equivalent to a device on 
the market prior to May 28, 1976 (a predicate device), in terms of design, material, 
chemical composition, energy source, manufacturing process, or intended use.  Before 
marketing a device, each submitter must receive an order, in the form of a letter from 
FDA, that finds the device to be substantially equivalent and states that the device may 
be marketed in the United States.  This order clears the device for commercial 
distribution.  See 21 CFR  878.4780 for product identification and classification 
information for the powered suction pump.  
8 In May 2007, Smith & Nephew acquired Bluesky Medical Group, Inc.  
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beneficiaries.   They use the same Healthcare Common Procedure Coding 
System (HCPCS) code as the KCI pump to bill Medicare for the new pump 
models.   
Medicare Pricing for Pumps 
Medicare covers pumps under a capped rental arrangement.9  Under 
this arrangement, Medicare pays suppliers a monthly fee schedule 
amount for each month that they rent the pumps to beneficiaries.  
Medicare uses the purchase price for the KCI pump to calculate the 
monthly fee schedule amounts.  Similar to other capped rental items, for 
the first 3 months of rental, the monthly fee schedule amount equals  
10 percent of the purchase price.10  For months 4 through 13, the 
monthly fee schedule amount equals 7.5 percent of the purchase price.11  
After the 13th continuous month of rental, the supplier must transfer 
title of the equipment to the beneficiary.12   
The fee schedule amount for pumps is the same in all 50 States and the 
District of Columbia.  In 2007, Medicares purchase price for pumps was 
$17,165.  The monthly fee schedule amount was $1,716 for the first 3 
months and $1,287 for months 4 through 13.  Medicare reimburses 
suppliers 80 percent of the monthly fee schedule amount.  Beneficiaries 
coinsurance payments are typically 20 percent, which amounted to $343 
for the first 3 months and $257 for months 4 through 13 in 2007.13   
The Competitive Bidding Acquisition Program 
As required by the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003, CMS started to implement a competitive 
bidding acquisition program for certain DMEPOS in 2007.14  The goal of 
the program was to reduce beneficiary out-of-pocket costs and improve  
 
 
9 42 CFR  414.229. 
10 42 U.S.C.  1395m(a)(7)(A)(i); 42 CFR  414.229(b)(2). 
11 Ibid. 
12 42 U.S.C.  1395m(a)(7)(A)(ii); 42 CFR  414.229(f)(2). 
13 42 U.S.C.  1395cc(a)(2)(A)(ii); 42 CFR  489.30(b)(5). 
14 Medicare Prescription Drug, Improvement, and Modernization Act of 2003,  
P.L. No. 108-173,  302(b) (codified as amended at 42 U.S.C. 1395w-3). 
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I N T R O D U C T I O N  
 
the accuracy of Medicare payments.15  The pump was 1 of 10 DMEPOS 
in the program.  The program included the 10 largest Metropolitan 
Statistical Areas (MSAs) in the first round and was expected to include 
80 MSAs in the second round.16  
In the spring of 2008, CMS announced the winning suppliers for the 
first round, known as contract suppliers, and the monthly fee schedule 
amounts based on the winning purchase prices.  KCI did not participate 
in the first round; therefore, these amounts were based on bids from 
suppliers that provided the new pump models.  All of the amounts were 
lower than Medicares current reimbursement amount and averaged 
about $1,446 per month.17  See Appendix A for a list of the monthly fee 
schedule amounts for the first round of competitive bidding.   
In July 2008, Congress enacted the Medicare Improvements for Patients 
and Providers Act of 2008, which delayed the first round of the 
Competitive Bidding Acquisition Program until 2011.  The law also 
excluded pumps from the first round of the program and, instead, 
required the Department of Health and Human Services to evaluate the 
HCPCS code for pumps to ensure accurate reporting and billing and to 
consider whether coding changes are needed.18  According to CMS staff, 
CMS plans to conduct this evaluation but, as of November 2008, has not 
initiated the study.    
CMS Authority for Price Revisions 
CMS or a Medicare carrier may establish limits on payment amounts in 
special circumstances through regulations that govern criteria for 
determining reasonable charges for Part B services.19  Specifically, CMS 
 
15 CMS Medicare Fact Sheet, Expansion of Competitive Bidding Program for Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies, issued January 8, 2008.  
Available online at http://www.cms.hhs.gov/apps/media/press/factsheet.asp? 
Counter=2812&intNumPerPage=10&checkDate.  Accessed on August 6, 2008. 
16 MSAs are areas designated by the Office of Management and Budget that include 
major cities and the suburban areas surrounding them. 
17 These amounts reflect the first 3 months of rental.  From months 4 through 13, the 
fee schedule amounts are equivalent to 7.5 percent of the winning purchase prices. 
18 Medicare Improvements for Patients and Providers Act of 2008, P.L. No. 110-275,  
 154(c)(3) (to be codified at 42 U.S.C.  1395m note). 
19 42 CFR  405.502(g).  Note that Medicare carriers are under contract with CMS to 
process Medicare Part B claims.  There are four carriers, known as Durable Medical 
Equipment (DME) Medicare Administrative Contractors, that specifically process DME 
claims.    
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I N T R O D U C T I O N  
 
may use its inherent reasonableness authority to deviate from standard 
payment methodologies if the application of these methodologies results 
in a payment amount that is determined to be grossly excessive or 
deficient.  In these cases, CMS or its carriers may establish special 
payment limits that are realistic and equitable.  
Medicare DMEPOS Supplier Requirements 
The Local Coverage Determination (LCD) for pumps specifies the 
clinical circumstances under which pumps are considered to be 
reasonable and necessary.20  The LCD states that suppliers must 
communicate with the beneficiarys treating clinician to determine 
whether the beneficiary continues to qualify for Medicare coverage of 
the pump.  The supplier may contact the clinician by verbal or written 
communication to ascertain that wound healing is occurring from month 
to month.  Appendix B provides information regarding the relevant LCD 
requirement.   
In addition, to obtain Medicare billing privileges, suppliers must meet 
certain quality standards.  Among other things, suppliers are required 
to deliver the DMEPOS, provide instruction on equipment use (either 
through the supplier or another qualified party), maintain and repair 
the equipment as needed, and respond to questions and complaints 
about the equipment.21  Appendix C provides a list of the applicable 
supplier standards.    
Related Work 
In 2007, the Office of Inspector General (OIG) released a report that 
found that almost one-quarter of pump claims in 2004, which were all 
from KCI, did not meet Medicare coverage criteria, resulting in 
approximately $21 million in improper payments.22  Specifically,  
15 percent of all pump claims were insufficiently documented, another  
 
20 LCDs provide guidance to the public and the medical community within their 
jurisdictions.  CMS requires that LCDs be the same for each jurisdiction to ensure 
uniformity for DMEPOS suppliers that operate nationally.  The four LCDs are entitled 
LCD for Negative Pressure Wound Therapy Pumps.  The four relevant LCD policy 
numbers are L5008, L11489, L27025, and L11500.  We used the version of the LCDs that 
was effective during our sample timeframe.  Because all four LCDs are the same, we refer 
to them as the LCD for the purposes of this report. 
21 42 CFR  424.57(c). 
22 OIG, Medicare Payments for Negative Pressure Wound Therapy Pumps in 2004, 
OEI-02-05-00370, June 2007. 
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I N T R O D U C T I O N  
 
6 percent were undocumented, and an additional 3 percent were not 
medically necessary.  Virtually all pump claims met supplier 
documentation requirements.  OIG recommended that CMS educate 
suppliers and wound care providers about the appropriate use of pumps.  
In response, the carriers issued an article reiterating the documentation 
requirements stated in the LCD.23   
METHODOLOGY 
This study compares the prices that suppliers paid for the new pump 
models provided to beneficiaries in the first half of 2007 to Medicares 
purchase price for the pumps.  In addition, this study provides 
information about how suppliers acquired these new pumps and about 
the services that suppliers reported providing to Medicare beneficiaries 
who rented the pumps.    
We based this study on two sources of data:  (1) a review of suppliers 
purchase invoices, contracts, and other financial documents for the new 
pump models provided to Medicare beneficiaries in the first half of 2007; 
and (2) a survey completed by suppliers about the services that they 
provided to the Medicare beneficiaries who rented these pumps.   
Identification of Claims for New Pump Models 
We used the 2007 National Claims History File to identify all of the 
paid claims for the new pump models that:  (1) had a service date 
between January 1 and June 30, 2007; and (2) were received by 
September 30, 2007.  We used the supplier contact information from the 
National Supplier Clearinghouse to identify the suppliers associated 
with these claims.   
We identified a total of 327 paid claims for the new pump models in the 
first half of 2007, representing 38 suppliers and 237 beneficiaries.  
These claims represented all of the paid claims for the new pump 
models that were provided to beneficiaries in the first half of 2007.  Of 
the 38 suppliers associated with these claims, 34 responded to the 
 
23 The carriers issued the article entitled Negative Pressure Wound Therapy LCD 
Documentation nationally under four different article numbers:  A47170, A45699, 
A45750, and A45722. 
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I N T R O D U C T I O N  
 
request for documentation.24  We received documentation for a total of 
304 of the 327 claims, for a response rate of 93 percent.   
Review of Supplier Documentation 
We requested from the suppliers the purchase invoice related to the 
pump associated with each claim.  Because the same pump could be 
associated with multiple claims and because multiple beneficiaries 
could be associated with the same pump, we compared the serial and 
model numbers of the pumps listed on the invoices to identify the 
unique pumps that were provided to beneficiaries in the first half of 
2007.  In total, we identified 240 unique pumps from the 304 claims that 
we reviewed.  We received usable documentation for 223 of the  
240 identified pumps.  These pumps included four different models:  
Medela Vario, Bluesky Versatile 1, Bluesky V1STA Versatile 1, and 
Boehringer Engenex.  
The purchase invoices included the price that the supplier paid for the 
pumps and any documentation on discounts and shipping charges.  To 
calculate the net purchase price for each pump, we identified the 
purchase price on the invoice and subtracted any discounts that were 
listed.  We did not include shipping charges in our calculations because 
of the inconsistencies in how suppliers reported the information.25   
We calculated the range and the average prices for the different pump 
models.  Because the number of pumps of each model varied, we also 
calculated the weighted average price for all of the new pump models.  
We compared the weighted average price and average prices for the 
different new pump models to Medicares purchase price.   
For the pumps that were not purchased, we reviewed documents related 
to the arrangements that the suppliers had with other companies to 
acquire these pumps.  These documents included leasing contracts, 
rental contracts, rental invoices, and invoices reflecting pump 
exchanges.  We used these documents to describe the different 
arrangements and to determine the number of pumps that were 
acquired under each arrangement. 
 
24 Two suppliers could not be located.  In addition, one supplier did not submit any 
documentation and another submitted documentation after the study timeframe.   
25 Based on the available information, regular ground shipping for one pump cost an 
average of $10.  In limited instances, manufacturers used overnight or other forms of 
expedited shipping, which cost an average of $53 for one pump.   
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Analysis of Supplier Services 
We surveyed by mail all of the suppliers that provided new pump 
models to beneficiaries in the first half of 2007.  Using a standardized 
data collection instrument, we requested that suppliers report all 
services that they provided to beneficiaries for the entire rental period.  
We specifically asked the suppliers about communication with 
beneficiaries clinicians.  We also asked about services in the following 
categories:  delivery, equipment maintenance and repairs, education 
and training, communication with beneficiaries and/or their caregivers, 
and any additional services.  The suppliers provided information for 215 
of the 237 beneficiaries.   
Limitations 
The description of the services that suppliers provided to beneficiaries 
during the rental period is based on self-reported data from the 
suppliers.  We did not independently verify their responses.   
Standards 
This review was conducted in accordance with the Quality Standards 
for Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
 
 
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 F I N D I N G S  
Suppliers purchased 171 of the  
Suppliers paid an average of $3,604 for the  
223 new pump models that were 
new pump models, compared to  
provided to beneficiaries in the first 
Medicares purchase price of $17,165  half of 2007.  Suppliers paid an 
average of $3,604 for these pumps.  
Medicare reimbursed suppliers for these pumps based on a purchase 
price of $17,165, which is more than four times the average price paid 
by suppliers for these new pump models.  On a monthly basis, Medicare 
reimbursed suppliers $1,716 for these pumps for the first 3 months.  At 
this rate, suppliers recouped the average cost of a new pump model in 
approximately 2 months.  Suppliers generally reported that the new 
pump models have an estimated lifespan of 3 to 5 years.  As one 
supplier noted, pumps are commonly rented to one beneficiary, 
sanitized, and then rented to another beneficiary.   
Further, beneficiaries coinsurance payments for the pumps cover a 
substantial portion of the average cost of a new pump model.  After just 
4 months of rental, a beneficiarys coinsurance of $1,286 covers over 
one-third (36 percent) of the average cost of a new pump model.  If a 
beneficiary were to rent the pump for all of the 13 months allowed by 
Medicare, the beneficiarys coinsurance alone ($3,599) would cover 
almost the entire average cost of a new pump model.  
In addition, as shown in Table 1 on the next page, the average prices for 
all three of the pump models that suppliers purchased were 
substantially lower than Medicares purchase price.26  The average price 
that suppliers paid for the three different models ranged from $1,955 to 
$4,970.27  The pump that was most commonly provided to beneficiaries 
in the first half of 2007 had an average price of $2,934.  
 
 
 
 
 
26 Suppliers did not purchase the fourth pump model.  That model was acquired only 
through another arrangement described in the second finding.   
27 Note that the median price for each of the pump models is similar to the average 
price.   
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  9 
   
  
   
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  Table 1:  Prices That Suppliers Paid for the New Pump Models* 
  Difference Between 
Average Price 
Model  Number of Pumps  Range of Prices  Average Price 
and Medicare 
Purchase Price 
 
Model 1  8  $1,085$2,825  $1,995  $15,170 
 
Model 2  60  $3,448$6,173  $4,970  $12,195 
 
Model 3  103  $2,449$3,950  $2,934  $14,231 
 
Weighted average  $3,604  $13,561 
  * The prices include documented discounts but not shipping charges.   
Source:  OIG analysis of supplier documentation, 2008.   
 
The individual prices for all of the pumps that suppliers purchased were 
also substantially lower than Medicares purchase price.  The lowest 
price that suppliers paid for one of the pumps was $1,085, a difference of 
$16,080 from Medicares purchase price.  The highest price that 
suppliers paid for one of the pumps was $6,173, a difference of $10,992.  
The price for the pump that was most commonly provided to 
beneficiaries ranged from $2,449 to $3,950.   
 
Suppliers acquired nearly  
Suppliers acquired one-quarter of the  
one-quarter (52 of 223) of the new 
new pump models by leasing,  
pump models provided to 
renting, or exchanging them  
beneficiaries in the first half of 2007 
through methods other than 
purchasing them.  Suppliers acquired these pumps through  
lease-to-own agreements, daily rentals, hourly rentals, or exchanges of 
old pumps for new ones.28 
As shown in Table 2 on the next page, suppliers acquired nearly half of 
the new pumps that were not purchased (24 of 52) through lease-to-own 
agreements.  These suppliers commonly obtained financing from leasing 
companies to make bulk purchases of pumps.  The leasing companies 
maintained ownership of the pumps until the suppliers paid for them in 
 
28 Suppliers acquired all four pump models through these methods. 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  10 
   
  
   
F I N D I N G S  
 
full.29  The prices that these leasing companies paid for these pumps 
were similar to the prices that suppliers paid to purchase them.  The 
suppliers that leased the pumps cited the high cost of the pumps and 
general cash flow problems as the reasons why they leased the pumps 
rather than purchasing them. 
  Table 2:  Methods for Acquiring New Pump Models 
 
  Number of Pumps 
 
Lease-to-own  24 
 
Daily rental  16 
 
Hourly rental  8 
 
Exchange of older pumps  4 
 
   Total  52 
 
Source:  OIG analysis of supplier documentation, 2008.   
Suppliers rented slightly more than a quarter of these new pumps  
(16 of 52) on a daily basis.  Under this arrangement, suppliers rented 
pumps from another DMEPOS supplier for the days that beneficiaries 
used them.  Suppliers paid $30 to $45 per day for these pumps.  In 
addition, suppliers rented another eight of the pumps on an hourly 
basis.  These suppliers purchased clinical hours directly from the 
manufacturer at a rate of $1.44 per hour.  They typically bought a block 
of 2,160 hours for each rental. 
Suppliers acquired the remaining pumps (4 of 52) by exchanging older 
pumps with the manufacturer for newer pumps.  These pumps were 
exchanged without cost to the supplier based on a 2:1 ratio (i.e., two old 
pumps for one new pump).   
 
 
 
 
 
 
29 The leasing terms ranged from 24 to 72 months. 
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Suppliers are required to 
Suppliers reported not always 
communicate with the beneficiaries 
communicating with beneficiaries 
treating clinicians to assess wound 
clinicians, as required; however, they 
healing progress and to determine 
appeared to meet other standards 
whether the beneficiary continues to 
qualify for Medicare coverage of the 
pump.30  In addition, to obtain Medicare billing privileges, suppliers 
must meet certain standards that include providing delivery and 
instruction on equipment usage (either from the supplier or another 
qualified party), maintaining and repairing the equipment as needed, 
and responding to beneficiaries questions and complaints about the 
equipment.31   
Suppliers reported not having contact with clinicians for almost one-quarter 
of the beneficiaries  
Suppliers reported having no contact with the treating clinicians for 
almost one-quarter (28 of 123) of the beneficiaries who rented the new 
pump models for multiple months.  In the absence of clinician input, 
suppliers cannot determine whether there is a continued medical need 
for a pump.  Therefore, these claims may be inappropriate.  
In the instances when suppliers reported communicating with 
clinicians, they most frequently had contact with beneficiaries home 
health staff, followed by physicians.  Suppliers noted that they 
discussed the beneficiaries wound progress and supply needs with these 
clinicians.     
Suppliers reported delivering pumps and providing education to almost all 
of the beneficiaries, as well as providing maintenance and repairs when 
needed 
Suppliers reported delivering pumps to 96 percent (206 of 215) of the 
beneficiaries who rented new pump models in the first half of 2007.  A 
small number of beneficiaries picked up their pumps at the suppliers 
store.  For almost all of the remaining beneficiaries, delivery was 
provided by the company from which the supplier rented the pump.32  
Suppliers most commonly reported delivering pumps to the 
 
30 LCD for Negative Pressure Wound Therapy Pumps.   
31 42 CFR  424.57(c). 
32 One supplier did not give a reason why it did not provide delivery. 
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FF II NN DD II NN GG SS   
  
beneficiaries homes, while in other instances they delivered them to the 
hospital shortly before the beneficiaries discharge.  Most suppliers 
reported delivering the pumps themselves, rather than relying on a  
third-party delivery service.  
Suppliers reported that they educated 95 percent (205 of 215) of 
beneficiaries on the use of pumps.  Many reported providing training on 
the day of delivery.  Beneficiaries and/or their caregivers were the most 
common recipients of the training, although in many instances, the 
beneficiaries home health, hospital, or wound care center provider also 
received training.  
Suppliers reported pump malfunctions for 13 percent (28 of 215) of the 
beneficiaries.  In most cases, the suppliers reported replacing the 
pumps; in a few cases, they reported repairing them.  Suppliers noted 
that a few beneficiaries had problems with multiple pumps, 
necessitating a number of replacements. 
Finally, suppliers reported communicating with approximately  
two-thirds (144 of 215) of the beneficiaries or their caregivers during 
their rental period.  Most commonly, suppliers spoke with the 
beneficiaries and their caregivers about supply needs or wound 
progress.  Suppliers reported that, in a few instances, they visited the 
beneficiaries in their homes.   
 
 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  13 
   
  
   
 R E C O M M E N D A T I O N S  
 
 
Medicares purchase price for pumps was established when there was 
only one manufacturer in the market.  Since then, a number of 
manufacturers have introduced new pump models to the market and 
are charging substantially less for them.  Specifically, we found that 
the prices that suppliers paid for the new pump models were 
significantly less than Medicares purchase price.  Suppliers paid an 
average of $3,604 for these pumps, compared to Medicares purchase 
price of $17,165.  This price is more than four times the average price 
paid by suppliers for the new pump models.  Aside from our pricing 
analysis, the winning amounts for the first round of competitive 
bidding also indicate that suppliers could provide the pump at a lower 
reimbursement amount than Medicare currently provides.   
We also found that suppliers acquired one-quarter of the new pump 
models provided to beneficiaries in the first half of 2007 through  
lease-to-own agreements, daily rentals, hourly rentals, or exchanges of 
old pumps for new ones.  Additionally, we found that suppliers reported 
not always communicating with beneficiaries clinicians, as required; 
however, they appeared to meet other standards. 
Based on the findings in this report, we recommend that CMS: 
Reduce Medicares Reimbursement Amount for Pumps  
CMS should consider two methods to reduce its reimbursement amount 
for pumps.  CMS should: 
  Use its inherent reasonableness authority to reduce the reimbursement 
amount for pumps  
CMS should consider using its inherent reasonableness authority 
to reduce the amount that it reimburses suppliers for the pump.   
  Include pumps in the second round of the Competitive Bidding 
Acquisition Program 
CMS should include pumps in the second round of the Competitive 
Bidding Acquisition Program.  This could better align Medicares 
reimbursement amount for pumps with the amount that suppliers 
pay for the new pump models.  In addition, if the pump is included 
in the program, CMS should use the data from this report to assess 
suppliers bids for the pump.   
 
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R E C O M M E N D A T I O N S  
In addition, CMS should:  
Monitor the Growth of the New Pump Market 
CMS should continue to monitor the growth of the new pump market 
by tracking trends in market share among different suppliers.  
Substantial growth in the new pump market may indicate that CMS 
needs to further align reimbursement with the prices that suppliers 
pay for the new pump models.   
Educate Suppliers of New Pump Models on the Importance of 
Communication With Beneficiaries Treating Clinicians  
CMS should educate suppliers of new pump models that the continued 
need for the pump can be determined only through clinician input and 
that it is inappropriate for suppliers to submit claims for continued 
pump use without this input.   
Follow Up on Pump Claims That May Be Inappropriate  
CMS should follow up on the claims in which suppliers:  (1) reported 
having no contact with the beneficiaries treating clinicians, (2) could 
not be located, or (3) did not submit any documentation.  CMS should 
determine whether these claims are inappropriate and should not have 
been paid.  To help CMS address this recommendation, we will forward 
information about these claims in a separate memorandum.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with four of our recommendations and will consider the 
remaining recommendation.  It noted that it has worked on a number of 
regulatory and administrative initiatives related to the prescription, 
coding, and coverage of pumps in response to the significant growth in 
expenditures for these items.   
In response to our first recommendation, CMS concurred that it has the 
authority to adjust payment rates using Medicares inherent 
reasonableness authority.  It stated that it will consider whether it 
would be able to gather valid and reliable data, as the statute requires, 
to make a determination that the payment amount for pumps is grossly 
deficient or excessive and to establish, if needed, a new amount that is 
realistic and equitable.   
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R E C O M M E N D A T I O N S  
 
In response to our second recommendation, CMS stated that when 
designing the second round of the Competitive Bidding Acquisition 
Program, it will consider including pumps. 
In response to our third recommendation, CMS concurred and stated 
that it will monitor and track trends in pump usage and track the 
market share among different pump suppliers. 
In response to our fourth recommendation, CMS concurred that the 
continued need for pumps can be determined only through clinical 
input.  In addition, it agreed that suppliers need continued education on 
local coverage determination requirements for continued coverage of the 
equipment.   
In response to our fifth recommendation, CMS concurred and stated 
that it will strongly encourage its contractors to closely monitor supplier 
compliance with the local coverage determination requirements.  It also 
stated that it will investigate the need for a claim modifier to be used by 
suppliers to attest that the prescribing physician has followed up on the 
beneficiarys care within the last 30 days.  CMS further stated that it is 
working with its contractors to strengthen its oversight in this area.   
We support CMSs efforts to address these issues and encourage it to 
continue to make progress in these areas.  The full text of CMSs 
comments is provided in Appendix D. 
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   A P P E N D I X ~ A  
 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
Competitive Bidding Acquisition Program:  First-Round Monthly Fee 
Schedule Amounts 
In March 2008, the Centers for Medicare & Medicaid Services 
released the monthly fee schedule amounts for the first round of the 
Competitive Bidding Acquisition Program.  The following is a list of 
the monthly amounts for pumps in each of the 10 competitive bidding 
areas.33  As a means of comparison, the monthly fee schedule amount 
in noncompetitive bidding areas is $1,716.34   
 
  Table 1:  Monthly Fee Schedule Amounts for First Round of 
 
DMEPOS35 Competitive Bidding Acquisition Program 
 
  Winning Monthly Fee 
Competitive Bidding Area 
  Schedule Amount 
 
Charlotte, North Carolina-South Carolina  $1,458.99 
 
 
Cincinnati, Ohio-Kentucky-Indiana  $1,373.17 
 
 
Cleveland, Ohio  $1,381.18 
 
 
Dallas, Texas  $1,373.17 
 
  Kansas City, Missouri-Kansas  $1,499.08 
 
  Miami, Florida  $1,373.17 
 
  Orlando, Florida  $1,192.94 
 
  Pittsburgh, Pennsylvania  $1,371.58 
 
  Riverside, California  $1,587.72 
 
  San Juan, Puerto Rico  $1,853.84 
 
        Average monthly fee schedule amount  $1,446.48 
 
Source:  CMS DMEPOS Competitive Bidding Acquisition Program First Round data, 2008. 
 
 
33 These amounts reflect the first 3 months of rental.  For months 4 through 13, the fee 
schedule amounts are equivalent to 7.5 percent of the winning purchase prices. 
34 Before competitive bidding, the monthly fee schedule amount for San Juan,  
Puerto Rico, was approximately $2,060. 
35 Durable Medical Equipment, Prosthetics, Orthotics, and Supplies. 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  17 
   
  
   
   A P P E N D I X ~ B  
 
Local Coverage Determination for Negative Pressure Wound Therapy 
Pumps  
This Appendix contains the documentation requirements that were 
effective between January 1 and June 30, 2007, for negative pressure 
wound therapy pumps, as they appeared in the local coverage 
determination (LCD).  We have included only the section relevant to our 
study.  Full copies of the LCD can be found at 
http://www.cms.hhs.gov/mcd/search.asp. 
      General Information:  Documentation Requirements 
Documentation of wound evaluation and treatment, recorded 
in the patients medical record, must indicate regular 
evaluation and treatment of the patients wounds, as detailed 
in the Coverage and Payment Section.  Documentation of 
quantitative measurements of wound characteristics including 
wound length and width (surface area), and depth, and 
amount of wound exudate (drainage), indicating progress of 
healing must be entered at least monthly.  The supplier of the 
negative pressure wound therapy equipment and supplies 
must obtain from the treating clinician, an assessment of 
wound healing progress, based upon the wound measurement 
as documented in the patients medical record, in order to 
determine whether the equipment and supplies continue to 
qualify for Medicare coverage.  (The supplier need not view the 
medical records in order to bill for continued use of [negative 
pressure wound therapy] NPWT.  Whether the supplier 
ascertains that wound healing is occurring from month to 
month via verbal or written communication is left to the 
discretion of the supplier.  However, the patients medical 
records may be requested by the [durable medical equipment 
regional carrier] DMERC36 in order to corroborate that wound 
healing is/was occurring as represented on the suppliers 
claims for reimbursement.) 
 
 
36 DMERCs have subsequently been replaced by Durable Medical Equipment 
Medicare Administrative Contractors. 
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   A P P E N D I X ~ C  
 
Supplier Standards for Medicare Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies  
This Appendix contains selected Medicare supplier standards.  We have 
included only the sections of the supplier standards that are relevant to 
our study.  The full text of the standards appears in 42 CFR  424.57(c). 
Application certification standards.  The supplier must meet 
and must certify in its application for billing privileges that it 
meets and will continue to meet the following standards.  The 
supplier: 
(6)  Honors all warranties expressed and implied under 
applicable State law.  A supplier must not charge the 
beneficiary or the Medicare program for the repair or 
replacement of Medicare-covered items or for services 
covered under warranty.  This standard applies to all 
purchased and rented items, including capped rental 
items, as described in Sec. 414.229 of this subchapter.  The 
supplier must provide, upon request, documentation that it 
has provided beneficiaries with information about 
Medicare-covered items covered under warranty, in the 
form of copies of letters, logs, or signed notices; 
(12)  Must be responsible for the delivery of Medicare 
covered items to beneficiaries and maintain proof of 
delivery.  (The supplier must document that it or another 
qualified party has at an appropriate time, provided 
beneficiaries with necessary information and instructions 
on how to use Medicare-covered items safely and 
effectively); 
(13)  Must answer questions and respond to complaints a 
beneficiary has about the Medicare-covered item that was 
sold or rented.  A supplier must refer beneficiaries with 
Medicare questions to the appropriate carrier.  A supplier 
must maintain documentation of contacts with 
beneficiaries regarding complaints or questions; 
(14)  Must maintain and replace at no charge or repair 
directly, or through a service contract with another 
company, Medicare-covered items it has rented to 
beneficiaries.  The item must function as required and 
intended after being repaired or replaced. . . . 
 
 
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   A P P E N D I X ~ D  
 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  20 
   
  
   
A P P E N D I X   ~   D  
 
 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  21 
   
  
   
A P P E N D I X   ~   D  
 
 
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 A C K N O W L E D G M E N T S  
 
This report was prepared under the direction of Jodi Nudelman, 
Regional Inspector General for Evaluation and Inspections in the  
New York regional office, and Meridith Seife, Deputy Regional  
Inspector General.   
Judy Kellis served as the team leader for this study.  Other principal 
Office of Evaluation and Inspections staff from the New York regional 
office who contributed to the report include Christine Moundas and  
Iris Lin.  Central office staff who contributed include Kevin Farber and 
Scott Manley.  
 
 
  OEI-02-07-00660  COMPARISON OF PRICES FOR NEGATIVE PRESSURE WOUND THERAPY PUMPS  23