Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

M E
EDICAL  QUIPMENT 

S : 

UPPLIERS
C W M
OMPLIANCE  ITH  EDICARE 

E R
NROLLMENT  EQUIREMENTS

Daniel R. Levinson

Inspector General 

March 2007

OEI-04-05-00380
 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 all 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 promote economy and efficiency throughout HHS. 
Office of Evaluation 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.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations.   
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers.  The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, 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 in OIG's internal operations. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.    E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine if selected Medicare durable medical equipment, 
prosthetics, orthotics, and supply (DMEPOS) suppliers physically 
existed at their listed addresses and were open to conduct business. 
BACKGROUND 
According to the Centers for Medicare & Medicaid Services (CMS), 
Medicare expenditures for DMEPOS were approximately $10 billion in 
calendar year (CY) 2005.  DMEPOS includes devices such as power 
wheelchairs, oxygen equipment, diabetic equipment, canes, braces, and 
artificial limbs. 
DMEPOS suppliers provide equipment to Medicare beneficiaries and 
submit claims to the Federal Government for reimbursement.  At the 
time of our review, DMEPOS suppliers were required to meet  
21 Medicare standards in order to obtain a supplier number for these 
billing privileges, pursuant to 42 CFR  424.57(c).  Suppliers must 
obtain a different supplier number for each location at which they will 
furnish equipment.  The National Supplier Clearinghouse (NSC), 
operated by Palmetto Government Benefit Administrators (GBA), 
reviews DMEPOS suppliers through site visits at enrollment, and  
3 years later for reenrollment, to determine if they meet the Medicare 
standards. Generally, no site visits occur outside of the 3-year cycle. 
However, NSC may conduct out-of-cycle site visits if it receives 
notification that a supplier may be in violation of one or more Medicare 
standards. Out-of-cycle site visits have detected suppliers not meeting 
the standards. For example, in April and May of 2005, Palmetto GBAs 
Supplier Audit and Compliance Unit conducted out-of-cycle site visits of 
40 DMEPOS suppliers in Miami, resulting in the revocation of  
27 supplier numbers, 68 percent of the suppliers visited. 
There are planned changes for DMEPOS supplier enrollment in the 
Medicare program. Section 302(a)(1) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 requires the Medicare 
program to develop and implement quality standards for DMEPOS 
suppliers. In August 2006, CMS issued a final rule requiring DMEPOS 
suppliers to go through an accreditation process.  This process will 
utilize approved quality standards that DMEPOS suppliers must meet 
to participate in and bill the Medicare program.  Until these changes 
are fully implemented, NSC will continue with its enrollment 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  i  E X E C U T I V E   S U M M A R Y  
responsibilities, which include conducting site visits and reenrolling 
DMEPOS suppliers. 
In a 2001 report, the Office of Inspector General (OIG) recommended 
that CMS conduct random site visits of DMEPOS suppliers. In 
response to our recommendations, CMS stated that it would increase 
site visits to suppliers who did not pass inspection.  However, CMS did 
not directly address whether it would conduct random site visits of the 
larger DMEPOS supplier population.  In a September 2005 report, the 
Government Accountability Office recommended that CMS establish an 
annual minimum of out-of-cycle site visits of DMEPOS suppliers. CMS 
has agreed to conduct these site visits as resources permit. 
For our evaluation, we conducted out-of-cycle site visits of 169 DMEPOS 
suppliers from October 24 to November 4, 2005, to determine if they met 
the Medicare requirements of maintaining a physical facility and were 
open to conduct business.  We chose these requirements because they 
directly impact the ease of beneficiary access to DMEPOS services. We 
determined compliance with these Medicare requirements through 
physical site observations and attempts to gain access to the facilities.   
FINDINGS 
Of 169 DMEPOS suppliers, 10 did not exist at their business 
address, yet they billed Medicare almost $393,000 in the 
2 months after we had determined that they were absent. Pursuant 
to 42 CFR  424.57(c)(7), DMEPOS suppliers that bill Medicare must 
maintain a physical facility.  At the time of our site visits, 10 suppliers 
did not exist at the business address listed on their enrollment 
application.  We confirmed with NSC that we had conducted our site 
visits at the correct business addresses.  In one instance, there was a 
law office at the DMEPOS business address.  One of the attorneys 
informed us that he had been there for about 1 year, and that he was 
unaware of a DMEPOS supplier at that location.  The 10 absent 
suppliers should have been located in 6 of the 27 counties where we 
conducted our site visits, and represented 13 percent (1 of 8) to 40 
percent (2 of 5) of the total number of suppliers that we visited in each 
of those counties.  Because these suppliers were not randomly selected, 
our results are not representative of the entire six counties where the 
absent suppliers should have been located. 
The 10 absent DMEPOS suppliers collectively billed Medicare $392,720 
for services rendered from the day of our site visits through the end of 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  ii  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
CY 2005. Of the $392,720 in submitted claims, the suppliers had 
received a total of $196,842 in reimbursements as of December 31, 2005. 
From our site visits, we cannot determine whether the absent suppliers 
were submitting claims that should not have been paid by Medicare, or 
were submitting legitimate claims from another location. However, 
suppliers are required to have a different billing number for each of 
their locations, and the 10 suppliers were not at the locations associated 
with the Medicare billing numbers used to receive reimbursement in the 
2 months after our site visits. 
Of 169 DMEPOS suppliers, 6 were closed during posted business 
hours at the time of our site visits.  Pursuant to 
42 CFR  424.57(c)(8), DMEPOS suppliers that bill Medicare must be 
accessible to beneficiaries and to CMS. Six DMEPOS suppliers existed 
at the business address on their enrollment application, but were closed 
during their posted hours of operation at the time of our single site visit. 
For example, the proprietor of a business adjacent to one DMEPOS 
establishment informed us that the DMEPOS staff were absent for 
months at a time. One of the six closed suppliers was in one of the same 
counties where we could not locate the suppliers previously described. 
The six closed suppliers collectively submitted $101,833 in Medicare 
claims, and had been reimbursed $51,948 of this amount as of 
December 31, 2005. These claims were for services rendered from the 
day of our site visits through the end of CY 2005. 
CONCLUSION 
We conducted primarily observational, out-of-cycle site visits of 
DMEPOS suppliers to determine if they were in compliance with 
selected Medicare requirements. We found that as many as 40 percent 
(2 of 5) of the establishments visited in one county did not physically 
exist at their business address, yet they continued to receive Medicare 
reimbursements. These results are not representative of the entire 
county because the suppliers that we visited were not randomly 
selected. 
While this study did not uncover supplier noncompliance with Medicare 
requirements in all areas visited, our findings suggest that out-of-cycle 
site visits of targeted DMEPOS suppliers may be warranted in other 
areas of the country. By helping to ensure the legitimacy of DMEPOS 
suppliers, out-of-cycle site visits may help to prevent fraud, waste, and 
abuse in the Medicare program. CMS may want to consider the 
OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  iii  E X E C U T I V E   S U M M A R Y  
findings of our study as they determine how and to what extent out-of
cycle site visits of DMEPOS suppliers will occur. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with the basic findings of this report.  CMS agreed that 
out-of-cycle site visits can identify suppliers who are no longer in 
business or do not meet basic supplier standards.  CMS also noted that 
there can be added value from using an abbreviated protocol.  However, 
CMS is concerned that using an abbreviated site visit protocol would not 
be adequate to appropriately revoke supplier numbers and ensure 
revocation decisions are upheld upon appeal.  CMS also stated that it is 
in the process of taking several aggressive actions, such as requiring 
DMEPOS suppliers to go through an accreditation process. 
OIG is encouraged that CMS is in the process of taking additional steps 
to ensure that suppliers meet the required Medicare standards.  
Regarding CMSs concern that abbreviated site visits could hamper the 
process to appropriately revoke supplier numbers, this study was 
designed to determine if suppliers were meeting selected enrollment 
standards. We continue to believe that the findings of this review 
provide an accurate picture of how DMEPOS suppliers were doing 
business on the days we visited them.  CMS may want to consider our 
findings as they determine how and to what extent out-of-cycle site 
visits of DMEPOS suppliers will occur. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  iv    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

Ten DMEPOS businesses werenotphysically present. . . . . . . . . .  5

Six DMEPOS businesses were closed during posted hours. . . . . . .  6

CONC LUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7

Agency Comments andOffice of Inspector General Response  . . . .  7

E N D NO T ES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

A:  Medicare Standards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

B:  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
   I N T R O D U C T I O N  

OBJECTIVE 
To determine if selected Medicare durable medical equipment, 
prosthetics, orthotics, and supply (DMEPOS) suppliers physically 
existed at their listed addresses and were open to conduct business. 
BACKGROUND 
Durable Medical Equipment, Prosthetics, and Orthotics Supplies  
According to the Centers for Medicare & Medicaid Services (CMS), 
Medicare expenditures for DMEPOS were approximately $10 billion in 
calendar year (CY) 2005.1  DMEPOS includes devices such as power 
wheelchairs, oxygen equipment, diabetic equipment, canes, braces, and 
artificial limbs.2 
DMEPOS Supplier Enrollment 
DMEPOS suppliers provide equipment to Medicare beneficiaries and 
submit claims to the Federal Government for reimbursement.  To obtain 
these billing privileges, suppliers must enroll in the Medicare program 
and apply for a supplier number from CMS.  At the time our review was 
conducted, Medicare DMEPOS suppliers were required to meet  
21 standards in order to obtain a supplier number, pursuant to  
42 CFR  424.57(c). (See Appendix A for the Medicare standards.)3 
Suppliers must obtain a different number for each location where they 
will furnish equipment. 
To verify that Medicare DMEPOS applicants meet the required 
standards, CMS contracts with the National Supplier Clearinghouse 
(NSC), operated by Palmetto Government Benefit Administrators 
(GBA), to review applications and to conduct site visits for supplier 
enrollment.  
Every 3 years, DMEPOS suppliers must reenroll with NSC to maintain 
their Medicare billing privileges. During the reenrollment process, NSC 
conducts and oversees site visits of DMEPOS suppliers to confirm their 
continued compliance with the Medicare standards.  Generally, no site 
visits occur outside of the 3-year cycle.  However, NSC may initiate  
out-of-cycle site visits if it receives notification from sources such as 
beneficiaries or Palmetto GBAs Benefit Integrity Unit that a supplier 
may be in violation of one or more Medicare standards.  NSC may also 
conduct out-of-cycle site visits when notified by Palmetto GBAs 
Supplier Audit and Compliance Unit (SACU) about unusual supplier 
billing activity.  Out-of-cycle site visits have detected suppliers not 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  1  I N T R O D U C T I O N  
meeting the Medicare standards.  For example, in April and May 2005 
Palmetto GBA's SACU conducted unannounced, out-of-cycle site visits 
of 40 DMEPOS suppliers in Miami. These site visits resulted in the 
revocation of 27 supplier numbers, 68 percent of the suppliers visited.4 
CMS Activities Relating to Medicare DMEPOS Supplier Standards 
There are planned changes for DMEPOS supplier enrollment in the 
Medicare program. Section 302(a)(1) of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 requires the Medicare 
program to develop and implement quality standards for DMEPOS 
suppliers.5  Pursuant to a final rule published by CMS, all suppliers are 
required to meet quality standards included as part of the accreditation 
process to participate in and bill the Medicare program.6 According to 
the final rule, CMS will phase in the accreditation process of DMEPOS 
suppliers.7  Until these changes are fully implemented, NSC will 
continue with its enrollment responsibilities, which include conducting 
site visits and reenrolling DME providers. 
Related Work 
The Office of Inspector General (OIG) has issued two reports on 
DMEPOS supplier compliance with Medicare standards.  First, a 
1997 report included recommendations for CMS to conduct site visits at 
the physical locations of DMEPOS supplier applicants.8  Subsequently, 
site visits became part of the DMEPOS supplier enrollment process. 
Second, a 2001 report recommended that CMS and NSC institute 
random, unannounced site visits of DMEPOS businesses at times other 
than initial enrollment and reenrollment.9  In response to our 
recommendations, CMS stated that it would increase site visits to 
suppliers who did not pass inspection.  However, CMS did not directly 
address whether it would conduct random, unannounced site visits of 
the larger DMEPOS supplier population. 
In a September 2005 study, the Government Accountability Office 
(GAO) determined that CMS should improve the DMEPOS supplier 
enrollment process and its oversight of NSC in verifying DMEPOS 
supplier compliance with the Medicare standards.10 In addition, GAO 
recommended that CMS establish an annual minimum of out-of-cycle 
site visits of DMEPOS suppliers.  CMS has agreed to conduct these site 
visits as resources permit. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  2  I N T R O D U C T I O N

METHODOLOGY 
The Medicare standards set forth in 42 CFR  424.57(c) often contain 
multiple requirements within each standard.  For our evaluation, we 
selected two requirements from two Medicare standards.11  We 
conducted out-of-cycle site visits of a purposive sample of DMEPOS 
suppliers to determine if they met these two requirements. We first 
determined if suppliers physically existed at the business address on 
their enrollment application.  We next determined if they were open to 
conduct business.  We conducted our site visits from October 24 to 
November 4, 2005, using DMEPOS business addresses on file with 
NSC. We confirmed that these addresses were current as of the date of 
our site visits.  We visited DMEPOS suppliers only once, unless we 
arrived outside of their posted hours of operation.  We did not return to 
sites that were closed during posted business hours.  We determined if 
the DMEPOS suppliers were in compliance with the selected Medicare 
requirements by observing the external appearance of, and attempts to 
gain access to, the facilities. 
Site Selection 
To select DMEPOS suppliers for our site visits, we started from a list of 
116,740 suppliers eligible to receive Medicare reimbursement on file 
with NSC as of August 2006.  From this list, we excluded suppliers 
associated with large chains (25 stores or more, such as Rite-Aid or 
CVS), self-reported physicians and dentists offices, hospitals, 
pharmacies, nursing homes, and skilled nursing facilities.  We further 
excluded suppliers under OIG investigation at the time we conducted 
our study. From the remaining suppliers, we chose sites that had 
undergone an NSC site visit 16 to 20 months prior to August 15, 2005.  
This timeframe was selected so that our site visits would be out of cycle 
with the 3-year NSC schedule.  This process left us with 7,747 suppliers. 
Next, we used the data mining software Clementine to further analyze 
the 7,747 suppliers remaining from our initial exclusions.  We chose 
sites associated with supplier numbers used to bill Medicare at least 
once in CY 2004, and performed cluster analysis on the suppliers based 
upon CY 2004 county-level supplier billing and enrollment data.  In 
addition, we also used CY 2004 supplier-level billing and enrollment 
data. The suppliers were selected based on high billing amounts and, in 
some cases, unusual billing patterns (e.g., billing in only one quarter).  
Clementine also identified suppliers with an unusually rapid increase 
in the number of beneficiaries served.  This process identified 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  3  I N T R O D U C T I O N  
2,312 suppliers in 80 counties. Based on CMS data, all of the suppliers 
in these areas had claims activity in the month of September 2005.  We 
checked our selected suppliers against OIGs exclusion list to confirm 
that none had been excluded from the Medicare program. 
From the listing of 2,312 suppliers, we chose some of the leading 
suppliers based on high billing amounts and unusual billing patterns.  
We were unable to select suppliers at the top of this list because they 
were located in Florida and the area was recovering from a hurricane at 
the time we conducted this study. Our final selection consisted of  
169 DMEPOS suppliers in 27 counties in 10 States.  Because these 
169 suppliers were not randomly selected, the results of our site visits 
are not representative of all DMEPOS suppliers, or of the 27 counties 
that we visited. 
DMEPOS Claims Data 
To determine the extent to which DMEPOS suppliers that did not meet 
the Medicare requirements billed for services rendered on or after our 
site visits, we requested CY 2005 claims data from the Statistical 
Analysis Durable Medical Equipment Regional Carrier.  For each 
supplier, we grouped the services rendered from the day of our site visit 
through December 31, 2005.  We then calculated the total amount of the 
submitted charges, and the total amount of the corresponding Medicare 
reimbursements for these services as of December 31, 2005.  
Standards 
This study 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. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  4    F I N D I N G S

Of 169 DMEPOS suppliers, 10 did not exist at  Pursuant to 42 CFR  424.57(c)(7), 
their business address, yet they billed Medicare  DMEPOS suppliers that bill 
Medicare must maintain a physical 
almost $393,000 in the 2 months after we had 
facility. At the time of our site 
determined that they were absent 
visits, 10 suppliers did not exist at 
the business address listed on their enrollment application.  In one 
instance, there was a law office at the DMEPOS business address.  One 
of the attorneys informed us that he had been there for about 1 year, 
and that he was never aware of a DMEPOS business at that location.   
The 10 absent suppliers should have been located in 6 of the 27 counties 
where we conducted our site visits.  In one county, for example, we could 
not locate one of eight (13 percent) DMEPOS suppliers.  In another 
county that we visited, two of five (40 percent) DMEPOS suppliers did 
not exist at their listed business address.  We confirmed with NSC that 
we had conducted our site visits at the correct business addresses, and 
that none of the 10 absent suppliers had informed NSC that they had 
moved to a different location in the months preceding our visits.  
Because these suppliers were not randomly selected, our results are not 
representative of the entire six counties where the absent suppliers 
should have been located. 
Collectively, all 10 absent DMEPOS suppliers billed Medicare $392,720 
for services rendered from the day of our site visits (October 24  
November 4) through the end of CY 2005.  Of the $392,720 in submitted 
claims, the businesses had received a total of $196,842 in 
reimbursements as of December 31, 2005.   
From our site visits, we cannot determine whether the absent suppliers 
were submitting claims that should not have been paid by Medicare, or 
were submitting legitimate claims from another location.  However, as 
required in 42 CFR  424.57(b)(2), DMEPOS suppliers must have a 
billing number for each location where they furnish supplies.  Our site 
visits demonstrated that 10 suppliers were not at the locations 
associated with the Medicare billing numbers used to receive 
reimbursement in the 2 months after our site visits. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  5  F I N D I N G S  

Of 169 DMEPOS suppliers, 6 were closed during  Pursuant to 42 CFR     
 424.57(c)(8), DMEPOS 
posted business hours at the time of our site visits 
suppliers that bill Medicare 
must be accessible to 
beneficiaries and to CMS. 
Six DMEPOS suppliers existed at the business address on their 
enrollment application, but were closed during their posted hours of 
operation at the time of our single site visit.  One of these businesses 
was in the same location as another business; the front of the room was 
dedicated to cell phone sales, while the DMEPOS supplier was located 
in the back of the room. The DMEPOS supplier was not staffed when 
we were onsite, and the cell phone vendor stated that the supplier 
comes and goes.  In another example, the proprietor of a business 
adjacent to the DMEPOS establishment informed us that the DMEPOS 
staff were absent for months at a time.  None of the six businesses were 
closed due to relocation, as confirmed by NSC. One of the six closed 
suppliers was in one of the same counties where we could not locate the 
suppliers previously described. 
The six suppliers that were closed during their posted hours of 
operation collectively submitted $101,833 in Medicare claims, and had 
been reimbursed $51,948 of this amount as of December 31, 2005.  
These claims were for services rendered from the day of our site visits  
(October 24  November 4) through the end of CY 2005.   
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  6    C O N C L U S I O N  

Through out-of-cycle site visits, we found that 10 of 169 DMEPOS 
suppliers did not physically exist at their current business address on 
file with NSC.  These suppliers collectively received almost $197,000 in 
Medicare reimbursements in the 2 months after we had determined 
that they were absent. We also found that 6 of 169 DMEPOS suppliers 
physically existed at their business address, but were closed during 
their posted hours of operation at the time of our single site visit. 
We conducted our DMEPOS supplier visits primarily through site 
observation, and found as many as 40 percent (2 of 5) of the 
establishments visited in one county did not physically exist at the 
business address on their supplier enrollment application.  These 
results are not representative of the entire county because the suppliers 
we visited were not randomly selected.  While this study did not uncover 
supplier noncompliance with Medicare requirements in all areas visited, 
our findings suggest that out-of-cycle site visits of targeted DMEPOS 
suppliers may be warranted in other areas of the country.  By helping to 
ensure the legitimacy of DMEPOS suppliers, out-of-cycle site visits may 
help to prevent fraud, waste, and abuse in the Medicare program. 
In August 2006, CMS issued a final rule requiring DMEPOS suppliers 
to go through an accreditation process.  This process will utilize 
approved quality standards that DMEPOS suppliers must meet to 
participate in and bill the Medicare program.  Until these changes are 
fully implemented, NSC will continue its enrollment responsibilities, 
which include conducting site visits.  In the interim period before full 
implementation of the quality standards and accreditation, CMS may 
want to consider the findings of our study as they determine how and to 
what extent out-of-cycle site visits of DMEPOS suppliers will occur.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with the basic findings of this report.  CMS agreed that 
out-of-cycle site visits can identify suppliers who are no longer in 
business or do not meet basic supplier standards.  CMS also noted that 
there can be added value from using abbreviated protocols.  However, 
CMS is concerned that using an abbreviated site visit protocol would not 
be adequate to appropriately revoke supplier numbers and ensure 
revocation decisions are upheld upon appeal. 
CMS also stated that it is in the process of taking several aggressive 
actions, such as requiring DMEPOS suppliers to go through an 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  7  C O N C L U S I O N  
accreditation process.  CMS believes this process is another way for 
Medicare to ensure quality health care for beneficiaries while deterring 
potential fraud, waste, and abuse.  In addition, CMS is drafting a 
proposed regulation addressing the posting of surety bonds by suppliers; 
enhancing the number of unannounced NSC site visits of suppliers; and 
developing a proposal to revise deactivation requirements for inactive 
Medicare billing numbers. See Appendix B for the full text of CMSs 
comments. 
OIG is encouraged that CMS is in the process of taking additional steps 
to ensure that suppliers meet the required Medicare standards.  
Regarding CMSs concern that abbreviated site visits could hamper the 
process to appropriately revoke supplier numbers, this study was 
designed to determine if suppliers were meeting selected enrollment 
standards. We continue to believe that the findings of this review 
provide an accurate picture of how DMEPOS suppliers were doing 
business on the days we visited them.  CMS may want to consider our 
findings as they determine how and to what extent out-of-cycle site 
visits of DMEPOS suppliers will occur. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  8    E N D N O T E S  
1 CMS estimate based on the Part B Extract and Statistical System,   
provided February 3, 2006. 
2 Sections 1861(n) and (s) of the Social Security Act. 
3 CMS published a final rule on August 18, 2006, at 71 Federal 
Register 48354, entitled "Medicare Program; Inpatient Rehabilitation 
Facility Prospective Payment System for Federal Fiscal Year 2007; 
Certain Provisions Concerning Competitive Acquisition for Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS); 
Accreditation of DMEPOS Suppliers."  In part, this final rule amends 
the durable medical equipment certification standards regulation at 
42 CFR  424.57(c) by adding four additional standards.  See 
Appendix A for the standards in place at the time of evaluation, as 
well as the text of the new standards. 
4 Intelligence Report: Issue 2, Palmetto GBA SACU, July 18, 2005. 
5 Public Law 108-173, adding section 1834(a)(20) of the Social 
Security Act. 
6 See 42 CFR  424.57(c)(24) (as added by the Medicare program final 
rule at 71 Federal Register 48354 (August 18, 2006)).  CMS has 
posted quality standards for suppliers of DMEPOS on its Web site at 
http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/downloads/CMS_ 
DMEPOS_Quality_ Standards_081406.pdf. 
7 See the preamble to the Medicare program final rule at 71 Federal 
Register at 48392. 
8 Medical Equipment Suppliers: Assuring Legitimacy (OEI-04-96
00240), December 1997.  Available online at 
http://oig.hhs.gov/oei/reports/oei-04-96-00240.pdf.  Accessed March 3, 
2006. 
  OEI-04-05-00380  MEDICAL EQUIPMENT SUPPLIERS:  COMPLIANCE WITH MEDICARE ENROLLMENT REQUIREMENTS  9  9 Medical Equipment Suppliers: Compliance with Medicare 
Standards (OEI-04-99-00670), August 2001.  Available online at 
http://oig.hhs.gov/oei/reports/oei-04-99-00670.pdf.  Accessed March 3, 
2006. 
10 More Effective Screening and Stronger Enrollment Standards 
Needed for Medical Equipment Suppliers (GAO-05-656),   
September 22, 2005.  Available online at 
http://www.gao.gov/new.items/d05656.pdf. Accessed March 3, 2006. 
11 We examined two requirements selected from two Medicare 
standards. Medicare standard seven requires DMEPOS businesses to 
maintain a physical facility [42 CFR  424.57(c)(7)].  Medicare 
standard eight requires DMEPOS businesses to be accessible to 
beneficiaries and CMS [42 CFR  424.57(c)(8)].   
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This appendix contains both the standards in place at the time of our 
review as well as standards recently added by CMS. 
The following 21 Medicare standards, as outlined in 42 CFR 424.57(c), were 
in effect at the time of our review.  Our study focused on two requirements 
selected from standards seven and eight.  The supplier: 
(1) operates its business and furnishes Medicare-covered items in 
compliance with all applicable Federal and State licensure and 
regulatory requirements; 
(2) has not made, or caused to be made, any false statement or 
misrepresentation of a material fact on its application for billing 
privileges.  (The supplier must provide complete and accurate 
information in response to questions on its application for billing 
privileges. The supplier must report to CMS any changes in 
information supplied on the application within 30 days of the change.); 
(3) must have the application for billing privileges signed by an 
individual whose signature binds a supplier; 
(4) fills orders, fabricates, or fits items from its own inventory or by 
contracting with other companies for the purchase of items necessary to 
fill the order.  If it does, it must provide, upon request, copies of 
contracts or other documentation showing compliance with this 
standard. A supplier may not contract with any entity that is currently 
excluded from the Medicare program, any State health care programs, 
or from any other Federal Government Executive Branch procurement 
or nonprocurement program or activity; 
(5) advises beneficiaries that they may either rent or purchase 
inexpensive or routinely purchased durable medical equipment, and of 
the purchase option for capped rental durable medical equipment, as 
defined in section 414.220(a) of this subchapter.  (The supplier must 
provide, upon request, documentation that it has provided beneficiaries 
with this information, in the form of copies of letters, logs, or signed 
notices.); 
(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 
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purchased and rented items, including capped rental items, as described 
in section 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; 
(7) maintains a physical facility on an appropriate site.  The physical 
facility must contain space for storing business records including the 
supplier's delivery, maintenance, and beneficiary communication 
records.  For purposes of this standard, a post office box or commercial 
mailbox is not considered a physical facility.  In the case of a multi-site 
supplier, records may be maintained at a centralized location; 
(8) permits CMS, or its agents to conduct onsite inspections to ascertain 
supplier compliance with the requirements of this section.  The supplier 
location must be accessible during reasonable business hours to 
beneficiaries and to CMS, and must maintain a visible sign and posted 
hours of operation; 
(9) maintains a primary business telephone listed under the name of 
the business locally or toll-free for beneficiaries.  The supplier must 
furnish information to beneficiaries at the time of delivery of items on 
how the beneficiary can contact the supplier by telephone.  The 
exclusive use of a beeper number, answering service, pager, facsimile 
machine, car phone, or an answering machine may not be used as the 
primary business telephone for purposes of this regulation; 
(10) has a comprehensive liability insurance policy in the amount of at 
least $300,000 that covers both the supplier's place of business and all 
customers and employees of the supplier.  In the case of a supplier that 
manufactures its own items, this insurance must also cover product 
liability and completed operations. Failure to maintain required 
insurance at all times will result in revocation of the supplier's billing 
privileges retroactive to the date the insurance lapsed;  
(11) must agree not to contact a beneficiary by telephone when 
supplying a Medicare-covered item unless one of the following applies: 
(i) The individual has given written permission to the supplier to 
contact them by telephone concerning the furnishing of a 
Medicare-covered item that is to be rented or purchased. 
(ii) The supplier has furnished a Medicare-covered item to the 
individual and the supplier is contacting the individual to 
coordinate the delivery of the item. 
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(iii) If the contact concerns the furnishing of a Medicare-covered 
item other than a covered item already furnished to the individual, 
the supplier has furnished at least one covered item to the 
individual during the 15-month period preceding the date on 
which the supplier makes such contact. 
(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; 
(15) must accept returns from beneficiaries of substandard (less than 
full quality for the particular item or unsuitable items, inappropriate for 
the beneficiary at the time it was fitted and rented or sold); 
(16) must disclose these supplier standards to each beneficiary to whom 
it supplies a Medicare-covered item; 
(17) must comply with the disclosure provisions in section 420.206 of 
this subchapter; 
(18) must not convey or reassign a supplier number; 
(19) must have a complaint resolution protocol to address beneficiary 
complaints that relate to supplier standards in paragraph (c) of this 
section and keep written complaints, related correspondence and any 
notes of actions taken in response to written and oral complaints.  
Failure to maintain such information may be considered evidence that 
supplier standards have not been met. (This information must be kept 
at its physical facility and made available to CMS, upon request.); 
(20) must maintain the following information on all written and oral 
beneficiary complaints, including telephone complaints, it receives: 
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(i) the name, address, telephone number, and health insurance 
claim number of the beneficiary, 
(ii) a summary of the complaint, the date it was received, the 
name of the person receiving the complaint, and a summary of 
actions taken to resolve the complaint, and 
(iii) if an investigation was not conducted, the name of the person 
making the decision and the reason for the decision. 
(21) provides to CMS, upon request, any information required by the 
Medicare statute and implementing regulations. 
The additional standards recently added by CMS, see endnote 3, are: 
(22) All suppliers of DMEPOS and other items and services must be 
accredited by a CMS-approved accreditation organization in order to 
receive and retain a supplier billing number.  The accreditation must 
indicate the specific products and services, for which the supplier is 
accredited in order for the supplier to receive payment for those specific 
products and services. 
(23) All DMEPOS suppliers must notify their accreditation 
organization when a new DMEPOS location is opened.  The 
accreditation organization may accredit the new supplier location for 
three months after it is operational without requiring a new site visit. 
(24) All DMEPOS supplier locations, whether owned or subcontracted, 
must meet the DMEPOS quality standards and be separately accredited 
in order to bill Medicare. An accredited supplier may be denied 
enrollment or their enrollment may be revoked, if CMS determines that 
they are not in compliance with the DMEPOS quality standards. 
(25) All DMEPOS suppliers must disclose upon enrollment all products 
and services, including the addition of new product lines for which they 
are seeking accreditation.  If a new product line is added after 
enrollment, the DMEPOS supplier will be responsible for notifying the 
accrediting body of the new product so that the DMEPOS supplier can 
be re-surveyed and accredited for these new products. 
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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 Ann OConnor, Regional 
Inspector General for Evaluation and Inspections in the Atlanta 
regional office.  Other principal Office of Evaluation and Inspections 
staff who contributed include: 
Stacey Bloomer, Co-Team Leader 
Mina Zadeh, Co-Team Leader 
Mary-Elizabeth Harmon, Co-Lead Analyst  
Sharon Koehler, Co-Lead Analyst 
Mark Biagioni 
Michelle Canady 
Peggy Daniel 
Tricia Davis  
Kevin Farber  
David Graf 
Trevor Johnson  
Scott Manley  
Gerius Patterson 
Rob Rutland- Brown 
Barbara Tedesco 
 
Additional analysts conducting site visits: 
Rosemary Borck  
Emmanuel Diacosavvas 
Paul Gottlober 
Camille Harper  
Deborah Harvey  
Michael Henry 
Scott Hutchison 
Jennifer Jones 
Nancy Molyneaux 
Linda Moscoe 
Emily Multari 
Kenneth Price 
Mark Stiglitz 
Clark Thomas 
Steven Zerebecki  
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