Department  of  Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
ENTERAL  NUTRIENT  PAYMENTS

IN  NURSING  HOMES

JUNE  GIBBS  BROWN 
Inspector  General 
MARCH  1996 
OEI-06-92-00861  OFFICE  OF  INSPECTOR  GENERAL 
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 
inspectionsconductedbythree OIGoperatingcomponents: the OffIceof AuditServices,the 
OffIce of Investigations, and the Office of Evaluation and Inspections. The OIG also informs the 
Secretary of HHS of program and managementproblems and recommendscourses to correct them. 
OFFICE  OF  AUDIT  SERVICES 
The OIGSOffice 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 respectiveresponsibilitiesandare intendedto provideindependentassessmentsof HHS 
programs and operations in order to reduce waste, abuse, and mismanagementand to promote 
economy and et%ciencythroughout the Department. 
OFFICE  OF  INVESTIGATIONS 
The OIGSOfllce of Investigations(01) conductscriminal, civil, and administrativeinvestigations 
of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 
by providers.  The investigativeefforts of 01 lead to criminal convictions, administrative 
sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud control units which 
investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE  OF  EVALUATION  AND  INSPECTIONS 
The OIGSOffIce of Evaluation and Inspections (OEI) conducts short-term management and 
programevaluations(calledinspections)that focuson issuesof concernto the Department,the 
Congress, andthe public.  The findingsandrecommendationscontainedinthese inspectionreports 
generate rapid, accurate, and up-to-date information on the eftlciency, vulnerability, and 
effectivenessof departmentalprograms. 
Dallas Staff  Central OffIce 
Leah Bostick  Jennifer Antico 
Kevin Golladay  Brian Ritchie 
Sarah Taylor  Barbara Tedesco 
Clark Thomas 
For further information  contact:  Kevin GoIladay at 214/767-3310  or l/800-84S-8%0.  Department  of  Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
ENTERAL  NUTRIENT  PAYMENTS 
IN  NURSING  HOMES  EXECUTIVE  SUMMARY

PURPOSE 
To determine whether Medicare Part B is paying too much for enteral nutrition therapy for 
nursing home residents. 
BACKGROUND 
Enteral nutrition therapy provides nourishment directly to the digestive tract of a patient who 
cannot, for a variety of reasons, ingest an appropriate amount of calories to maintain  an 
acceptable nutritional  status. 
For this inspection, we gathered data on the utilization of enteral nutrition in nursing homes 
from 1992 Medicare payment records, surveyed nursing homes about their methods and costs 
of securing enteral nutrients for residents, and randomly surveyed 200 hospitals for nutrient 
purchase costs and quantity purchased annually.  Additionally,  we obtained proprietary  data 
from IMS America concerning purchase patterns of various enteral nutrient products obtained 
from its 1994 fiscal year audit of nursing home pharmacies. 
To assess the extent of enteral nutrition billed to Part B for nursing home residents, a sample 
of nursing homes was drawn and payment history extracted for calendar year 1992.  Our two-
stage stratified sample consists of 150 nursing homes randomly selected from 10 States(15 
nursing homes per State).  Data from the sample were projected to the total nursing home 
population  (residents in Medicare or Medicaid-certified  nursing homes). 
This inspection was conducted as a part of Operation Restore Trust.  The initiative,  focused on 
five States, involves multi-disciplinary  teams of Federal and State personnel seeking to reduce 
fraud, waste, and abuse in nursing homes and home health agencies, and by durable medical 
equipment  suppliers. 
FINDINGS 
Medicare  Part  Bpaymen13  for  enteral  nutrition  are excessive. 
.	 Medicare reimbursement  for nutrients substantially exceeds purchase prices commonly 
available to nursing homes through volume purchasing and other contractual  relationships, 
often by about 42 percent.  For example, while Medicare pays $0.61 per 100 calorie unit 
for the most commonly used enteral product, nursing homes report they can buy the same 
nutrients for an estimated average price as low as $0.43 per unit. 
1
 .	 An estimated $170 million was allowed for enteral nutrients provided to about 5 percent 
of nursing home residents in 1992, Of this, Medicare paid an estimated $136 million. 
The remaining  $34 million was paid by (or on behalf of) beneficiaries. 
.	 Although nursing homes often can buy enteral nutrients at substantially below Medicare 
reimbursement  levels, no incentives exist for them to exert their buying power and pass 
the savings onto  the taxpayer. 
Most  charges  (estimated  75 percent)  are for  Categoy  I nutrients,  the simplest  and most 
readily  available  type. 
	 The most common enteral nutrients used in nursing homes are Ensure, Jevity, and 
Osmolite, which are considered basic food (these three products are readily available in 
the marketplace,  are often purchased for use as a food supplement, and are considered by 
the Food and Drug Administration  to be food). 
RECOMMENDATIONS 
Medicare reimbursement  policies fail to recognize the ability of a nursing home to purchase 
nutrients and supplies at costs less than those incurred by the average beneficiary through bulk 
purchasing  and institutional  buying power.  Nor do these policies provide incentives for the 
nursing home to exert its buying power to save the taxpayer money. 
Further, and possibly more critical, current coverage of enteral nutrients does not recognize 
enteral nutrients as food.  If recognized as food, payment for enteral nutrients would be 
made as apart  of the facility payment, rather than separately billed to Medicare Part B.  Thus, 
the current excessive Part B payments would be eliminated, along with Medicares exposure 
to fraud involving enteral nutrients when they are used as a food supplement  (not covered by 
Medicare) rather than as the primary source of nutrition (covered by Medicare). 
To address excessive payments for enteral nutrients, we offer the following options (each 
requiring  legislation  to implemenz)  and our recommendation  for consideration: 
Options 
1)	 Exclude enteral nutrients from Part B reimbursement  when the patient resides in a 
nursing home. 
2)	 Continue Part B reimbursement,  but lower enteral nutrient reimbursement  levels 
when provided to residents of nursing homes. 
ii  Recommendatwn 
We support either option.  However, we believe Option  1 is preferable for several reasons. 
First, enteral nutrients represent a residents food or meal while in the nursing home. 
Second, this option provides an incentive to nursing homes to exert their buying power to 
get preferred pricing on enteral nutrients.  Third, incentives to overutilize enteral feeding 
will be removed.  Fourth, this option is supportive of the Health Care Financing 
Administrations  efforts to require consolidated billing for services provided in skilled 
nursing facilities.  Finally, most enteral nutrient costs are roughly comparable to general 
nursing home meal costs.l 
AGENCY  COMMENTS 
Both the Health Care Financing Administration  (HCFA) and the Assistant Secretary for 
Planning and Evaluation (ASPE) provided comments on this report.  Both concur that 
Medicare is paying too much for enteral nutrients and support the recommendations  first 
option on the grounds that enteral nutrients are food and, thus, should not be billed 
separately to Medicare Part B.  Rather, the cost of enteral nutrients should be included in a 
facilitys costs and covered as a part of payment to the facility for the nursing home stay. 
The HCFA emphasizes legislation would be required to change current payment rules for 
enteral nutrients to implement this payment option. 
The ASPE does express reservations about the impact of this recommendation  on the 
general nursing home population whose nursing home stay is paid by other payers (e.g., 
Medicaid).  We appreciate ASPES concerns and wish to emphasize that the cost of enteral 
nutrients is comparable to that of a meal.  Since meals are provided by the nursing home 
and paid by whomever is paying for the nursing home stay, we do not believe a change in 
reimbursement  policy for enteral nutrients would pose a financial hardship on the 
beneficiary.  However, to ensure this, exceptions might be made for some categories of 
enteral nutrients where it can be shown that costs substantially exceed general food costs. 
... 
111  TABLE  OF  CONTENTS 
EXECUTIVE  SUMMARY

INTRODUCTION  . . . . . . . . . . . . . .  . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . .  1 
FINDINGS  . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . . 4 
Enteral nutrient payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . . . . . . . . . . . . . . . . . .  4 
Categories ofcharges  . . . . . . . . . .. . .. . . . . .. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . ...4

Excessivenutrientpayments.  . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . ...5

Useofoutside  suppliers.  . . . . . .. . .. .. . . .. .. . .. . . . . . . . . . . . .. . . . . . . . . . . . . . ...6

No incentives for facilitiestopay  less  . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . ...6

Preferredpricing  arrangements.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...7

Variations innutrientusage.  . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...10

ENDNOTES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...13

APPENDIX  A: HCFA  Classification  ofNutrients  . . . . . . . . . . . . . . . . . . . . . . .  A-1

APPENDIX  B:TextofHCFAad  ASPEComments  . . . . . . . . . . . . . . . . . . . . .  B-1
 INTRODUCTION

PURPOSE 
To determine whether Medicare Part B is paying too much for enteral nutrition therapy for 
nursing home residents. 
BACKGROUND 
Enteral nutrition therapy provides nourishment directly to the digestive tract of a patient who 
cannot, for a variety of reasons, ingest an appropriate amount of calories to maintain an 
acceptable nutritional  status.  Enteral nutrition consists of a liquid nutrient formula which is 
administered  by tubing inserted through  1) the nose, 2) an incision to the small intestine, or 3) 
an incision leading to the stomach. 
Enteral nutrients are covered as a routine cost during a Part A covered skilled nursing facility 
(SNF) stay, or are included in the daily rate when provided to a Medicaid-eligible  nursing 
home resident.  Section 1861h of the Social Security Act specifies covered extended care 
services to an individual in a skilled nursing facility stay.  These services include bed and 
board in connection with the furnishing of nursing care and are considered routine services. 
Routine services (e.g., dietary) are expected to be provided by the nursing home. 
Medicare Part A and Medicaid coverage includes enteral nutrition products when they are 
used to satis~  dietary needs ~  are provided by a nursing home.  In such a case, these 
products are considered food.  However, enteral nutrients provided by an outside supplier are 
currently not considered as a cost to the nursing home.  Instead, they are covered under the 
Part B prosthetic device benefit, 
Medicare guidelines classifj  enteral nutrition under the prosthetic device benefit because 
coverage under Part B is only for therapy required due to an absent or malfunctioning  body 
part which normally permits food to reach the digestive tiact.  Nutrients are classified by the 
Health Care Financing Administration  (HCFA) into six categories, based on the composition 
and/or product.  (See Table 1.) 
1
 TAR117  1 
s -x.  A 
HCPCS  Medicare 
Category  Category  Reimbursement  Content  Description  Examples  of Products 
per unit ** 
(1993-1995) 
1  134150  $0.61  Semi-syntheticintact  Ensure,Osmolite,

protein isolates*  Isosource,Jevity

I  B4151  $1.43  Natural intact  Compleat-B

protein/proteinisolates*  Vitaneed

II  B4152  $0.51  Intact protein/protein  Comply,EnsurePlus,

isolates*  Nutren,

Sustacal,SustacalHN

III  B4153  $1.75  Hydrolyzedprotein/protein  Criticare HN

isolates  PrecisionHN

TravasorbHN

IV  B4154  Varieswith  Definedformulafor  Citrotein, Fulfill, Promote,

product  specificmetabolicneed  VivonexPlus

v 
B4155  Varieswith  Modularcomponents  Advera, Sumacal, Isosource

w-ml 
product 
VI 
B4156  Varieswith  Standardizednutrients  PrevisionL~ 
product  TravasorbSTD, 
VivonexSTD 
-- . ..  . . . 
require eJJecuvedigestive and absorptive processes for utilization (suitable onlyfor patients  with sufficimt 
gastrointestinal function).  (See Appendix A for further  information on product classifkation.) 
** 1 unit=  100 calories 
The HCFASdecision to consider enteral nutrients as a prosthetic benefit was in direct 
response to 1980 Congressional  deliberations  in which the House Ways and Means 
Committee  expressed its concern that Medicare did not cover enteral therapy for non-
institutionalized  patients; although, in the view of the Committee,  such coverage was 
warranted.  The Committee  directed the Secretary to filly  explore the possibility  of 
Medicare coverage for enteral products.  However, it is unclear whether committee  members 
intended that institutionalized  patients be provided enteral nutrition by anyone other than the 
institution providing the care. 
In July 1981, HCFA issued instructions providing coverage under the Part B prosthetic  device 
benefit, in addition to the parenteral coverage under this benefit,  The coverage of enteral 
nutrients under this provision, rather than as a home health benefit, is based upon several 
reasons.  First, the beneficiary  does not have to be homebound,  as required to receive home 
health benefits.  Second, there is no authority to pay for drugs and biological  and food under 
home health.  Finally, it is these items that represent the most costly component  of enteral 
and parenteral therapy. 
2
 METHODOLOGY 
For this inspection, we gathered data on the utilization of enteral nutrition in nursing homes 
from Medicare payment records for 1992, surveyed nursing homes about their methods and 
costs of securing enteral nutrients for residents, and randomly surveyed 200 hospitals for 
nutrient purchase costs and quantity purchased annually. 
Additionally,  we obtained proprietary data from IMS America.  IMS is a private corporation 
that conducts marketing research in such areas as the medical community.  Specifically,  IMS 
routinely surveys different sectors of the business community  concerning purchase patterns of 
various products.  One audit regularly conducted by IMS obtains data for oral supplements 
purchased through nursing home pharmacies, or purchased by pharmacies that conduct a 
majority of business with nursing homes.  Results from the 1994 fiscal year audit were 
obtained. 
To assess the extent of enteral nutrition billed to Part B for nursing home residents,  a sample 
of nursing homes was drawn and payment history extracted for calendar year 1992.  Our two-
stage stratified sample consists of 150 nursing homes randomly selected from 10 States (15 
nursing homes per State).  Those States were California, Delaware, Florida, Indiana, Kansas, 
Louisiana, Maine, Michigan, Montan~  and Wyoming.  Stratification  was based on facility 
size (large, medium, and small). 
Each sample nursing home provided us with a list of all Medicare eligible beneficiaries 
residing in that nursing home during 1992, along with each residents corresponding  dates of 
stay.  After verification  of the beneficiarys health insurance claim number (HICN) with the 
Medicare enrollment  database, all Medicare services provided during the nursing home stay 
were extracted ftom the Medicare National Claims History File for calendar year 1992.  The 
Part B services, processed by both the carrier and the intermediary,  were identified.  Data from 
the sample were projected to the total nursing home population  (residents in Medicare or 
Medicaid-certified  nursing homes). 
This inspection  was conducted  as a part of the Presidential  initiative,  Operation  Restore 
Trust (ORT).  The initiative  involves multi-disciplinary  teams of Federal  and State 
personnel  seeking to reduce fraud,  waste, and abuse in nursing homes,  home health 
agencies,  and involving durable medical equipment  supplies. 
Our review was conducted in accordance with the Quality  Standards  for  Inspections  issued by 
the Presidents Council on Integrity and Efficiency. 
**  Unless  stated  otherwise,  jlgures  in thik report  are natwnal  estimates  ** 
projectedfrom  a random  sample 
3
 FINDINGS

Medicare  allowed  an estimated$170  million for  enteral  nutrients. 
At the 95 percent confidence level, we estimate that during 1992, between $130 and $210 
million was allowed for enteral nutrients to approximately  112,830 nursing home residents in 
more than 15,000 nursing homes.  This represents an estimated average bed day cost of $7.20 
per day for enteral nutrition.  The overall average daily charge, spread across all nursing home 
residents, is small at $0.36 per day.  This is because only an estimated 4.7 percent of nursing 
home residents receive enteral nutrition which is reimbursed by Part B. 
An average daily caloric intake of 1,800 multiplied by the cost of the lowest Part B 
reimbursement  for enteral formulae ($0.51 per 100 calories) yields an expected daily charge 
for enteral nutrients of $9.18 per day.  However, our estimated daily cost was only $7.20. 
This disparity can be explained if 1) the enteral nutrients were not provided for the entire 
duration of the nursing home stay, 2) the person received a portion of nutrient intake tlom 
other sources, or 3) the person was simply receiving supplemental feeding with enteral (which 
is not  covered by Medicare).  Also, it is possible that enteral nutrition was paid partially by 
other sources (e.g., Medicaid, private insurance).  Further investigation  is needed to establish 
the extent to which these or other factors account for the disparity noted. 
Most  charges  (75percent)  are for  Catego~  I nutrienti,  the simplest  and most  readily 
available  @pe. 
The majority of enteral nutrient charges are 
Most  Allowed  Charges  are  for  Category  I Nutrients 
for Category I ($140 million).  Over 90 
percent of the Category I charges ($128 
million) are for products that fall under the 
B4 150 product code and are termed semi-
CategoryII 
synthetic nutrients.  These include  Category1
CategoryIll 
recognizable  liquid food brand names such  (semi-synthetic  $128 
as Ensure, Jevity, Osmolyte, and Isocal.  The  CategoryI  and natural  $12)
$140  mt[[{on 
remaining  charges are distributed among 
four additional categories, as shown in 
Figure 1. 
Source:  1992  nursing  home  sample 
Surveyed nursing homes and hospitals most 
Figure  1 
often purchase one of three products for 
enteral nutrition therapy.  These products are 
Ensure, Jevity, and Osmolite.  Each is manufactured  by ROSS labs.  Other products used for 
enteral nutrition therapy are manufactured  by SANDOZ,  MEAD JOHNSON, and CLINTEC.  SANDOZ markets Fibersource, Isosource, Meritene, and Resource.  MEAD markets Isocal, 
Sustacal, and Ultracal.  Finally, CLINTEC markets Nutren and Replete. 
According to IMS data (see methodology), most purchases through pharmacies  for enteral 
nutrients are about equally divided between Ensure, Fibersource, Isosource, and Ultracal.  The 
difference between what nursing homes and hospitals reported and the IMS data maybe 
explained by the likelihood that most  common (off-the-shelf) enteral products (Ensure, 
Jevity, and Osmolite) are purchased through the nursing homes dietary center (often directly 
from ROSS Labs or a supplier) rather than through the nursing homes pharmacy  or other 
pharmaceutical  supplier.  The IMS data focvsed on food supplements purchased through 
pharmacies. 
Medicare  payments  for  enteral  nutrients  for  nursing  home  residents  are excessive  because 
reimbursement  rates  are set too high. 
Data from several sources confii  that nursing homes can purchase enteral nutrients at 
significantly  lower prices than current Medicare reimbursement  levels.  To illustrate, 
Medicare reimbursement  for Category

I semi-synthetic  enteral nutrients

The  Majority  of  Nursing  Homes  Can 
(B41 50) is $0.61 per 100 calorie unit.
 Purchase  Category  I Nutrients  At  or  Below 
40  Cents  Per  Unit 
The average cost at which nursing

homes can buy this category of
 Percent  of Sample 
Nursing Homes 
nutrient product (according to nursing

50%T  ............................................................. 
homes in our sample) was estimated

to be $0.43 per unit for their most
 52% km 
40----t-h-a~-n ---4-0- --c-e-n-ts.--------------------------
frequently used product (thus

-..<...............34?4.?....................... 
Medicare  ispaying  on average  42

percent  more).  Proprietary data
 30----
.,  e 
gathered by IMS validates this
 ............23%................................................ 
finding, showing an identical average
 *O-.18%,  .  --------
estimated purchase cost of $0.43 for
 17% 
. . 
Category I nutrients.

jo -
While the average cost is $0.43 per

100 calories, the majority of nursing
 0 
~o.30  $0.31-$0.40  $0.51-s0.60 
SO.61 
homes pay less than the average and
 or less  .$0.41-s0.50  or more 
83 percent pay less than the Medicare
 Category  I Nutrient  Purchase  Price  Per  Unit 
allowable amount.  (See Figure 2.)

Source:  1992  nuralng home  sample 
Of the 17 percent of  nursing homes
 Figure  2 
reporting enteral costs in excess of

Medicare reimbursement,  it is not clear whether the nursing home actually loses or would lose 
money if nutrients were purchased by the nursing home. 
5
 In the sample nursing homes reporting purchase costs above $0.61, contact with the nursing 
home revealed that outside suppliers were billing Medicare, or that a contractual relationship 
exists with the supplier causing the nursing home to pay more.  Thus, the nursing facility 
incurred no losses directly related to Medicare reimbursement.  In only one case did the 
supplier ask the nursing home to pay additional costs beyond the Medicare allowed amount. 
This nursing home experienced high enteral nutrient costs because the nursing home had 
entered into a contractual relationship with a supplier to exclusively purchase supplies.  The 
pricing was artificially high because of the contractual terms whereby the supplier was able to 
demand high payments from the nursing home in order to repay loans made by the supplier 
when the nursing home was constructed. 
Medicare  costs  are also higher  because  most  nursing  homes  (75percen@  do not directly 
purchase  enteral  nutrients  for  residents,  but instead,  allow  outside  suppliers  to provide 
them  and bill Medicare. 
Although a majority of nursing homes report being able to purchase nutrients below Medicare 
reimbursement  levels, most nursing homes (an estimated 75 percent) prefer having an outside 
supplier provide, and bill Medicare for, the nutrients used by Medicare residents.  These 
suppliers, in turn, bill Medicare at or above the established maximum reimbursement  levels. 
Even when a nursing home provides the nutrients (25 percent), it typically acts as a supplier, 
billing Medicare Part Bat  current reimbursement  levels rather than at or slightly above its 
actual procurement  costs. 
Survey results indicate many suppliers (30 percent) are directly affiliated with the nursing 
home.  This afilliation  could be contractual (29 percent) or through common ownership (49 
percent).  The remaining 22 percent were unspecified by the nursing home respondents. 
Additionally,  many suppliers (at least one-third) provide supplies to the nursing home on a 
consignment basis, with billing supposedly done after items are used.  This practice 
exemplifies the lucrative nature of the nursing home supply business.  In few other businesses 
are products provided first and billed for later.  Nor is it common for businesses to store 
merchandise  at the nursing home until used.  Medical products are more commonly bought in 
advance for a specific resident. 
With no incentive  to purchase  nutrients  below  Medicare  reimbursement  levek,  it k  not 
surprising  that some  nursing  homes  report purchase  prices  at or above  Medicare 
reimbursement  levelk. 
While the average cost for enteral products in each reimbursement  category is far below what 
Medicare allows, the range within categories is more extreme.  Some nursing homes pay fm 
more than the Medicare rate for nutrients, while others pay substantially  less than the average 
prices reported above.  In category B4150, for example, prices ranged from $0.11 to $0.88. 
Interestingly,  in two reimbursement  categories(B415  1 and B4154), no nursing home reported 
6
 paying more than Medicare reimbursement.  (See Table 2.)  Additionally,  no significant cost 
differences were identified between States. 
Table  2 
Nutrient  CategoryI  CategoryI  CategoryII  CategoryIll  CategoryIV 
Category  Semi-synthetic  Natural  Intact Protein  Iiydrolized  Defined 
B4150  B4151  B4152  Protein  Formula 
B4153  B4154 
Medicare Pays  $0.61  $1.43  $0.51  $1.74  $1.14 
Most Paid by a 
Nursing Home  $0.88  $1.15  $0.88  $2.08  $0.95 
LeastPaid  $0.11  $0.47  $0.13  $1.05  $0.40 
Hospitals,  on the other  hand,  and many  nursing  homes  obtain preferred  pricing  on enteral 
nutrients  through  buying  groups  or by arranging  other  contractual  relationships  with 
vendors. 
Based on a random survey of 200 hospitals, Category I semi-synthetic  nutrients are purchased 
at an average of only $0.35 per 100 calorie unit.  Unlike nursing homes, hospitals do have an 
incentive to keep their costs down.  This is because Medicare pays a fixed amount for each 
type of hospital admission no matter what costs that hospital incurs.  This average represents a 
good proxy for the best overall average price available in the community.  Hospitals report 
negotiated pricing or membership in buying groups as their primary methods for securing low 
costs for products such as enteral nutrients. 
Exhibiting  a similar ability to negotiate preferred pricing, sampled Veterans Administration 
hospitals reported routinely purchasing Catego~  I nutrients at a comparably low rate.  Some 
Veterans Administration  hospitals reported costs as low as $0.12 per 100 calories. 
Although most buying groups representing hospitals and nursing homes were reluctant to 
provide contract pricing to us, a few did provide such information.  One of these buying 
groups offered Category I semi-synthetic  nutrients to member hospitals and affiliated nursing 
homes for as little as $0.16 per unit (100 calories).  Another buying group offered a slightly 
higher price of only $0.25 per unit. 
7
 Use of enteral  nutrition  varies  between  States  and, especially,  between  nursing  homes. 
In our ten-State nursing home sample, estimated use of enteral nutrition therapy ranged from a 
high of eight percent of resident stays in Louisiana to a low of one percent in Maine and 
Wyoming.  (See Figure 3.) 
Louisiana  Showed  the  Highest  Rate 
of  Enteral  Use 
Percent  of  Stays 
With  Enteral 
10% 
1 
m=
8- -  -----------
~  .,,  .6.0% ,. 
4- -- -
....................... 
2- -..  ..- .-.. 
(1 
SAMPLE  STATES 
Source:  1992  nursing  home  sample 
Figure  3 
We cannot explain Louisianas higher overall Medicare covered enteral nutrition use without 
fiuther work.  However, we can speculate that either a higher percentage  of nursing home 
residents in Louisiana need tube feedings or Louisianas uncommon Medicaid policy of not 
including enteral nutrients under its nursing home daily rate increases billing to Medicare 
Part B. 
Some nursing homes showed heavy use of enteral nutrients relative to the majority of nursing 
homes.  In many cases, this heavy use was not explained by the certification  status of the 
facility or the level of SNF residents in the facility.  For example, 20 percent of facilities 
certified as Medicaid-only  provided enteral nutrients to more than 10 percent of their resident 
populations.  In contrast, none of the Medicare-only  SNF facilities exceeded five percent and 
only 10 percent of the dually-certified  facilities exceeded this amount.  Such high levels of 
8
 enteral nutrient use raise quality of care, as well as excessive cost, concerns.  If residents are 
being tube fed as a convenience to the facility, rather than as a necessity to the well being of 
the resident, abuse is occurring.  Further study is needed to validate the prevalence  of 
inappropriate  enteral tube feedings. 
9
 RECOMMENDATIONS

Medicare reimbursement  policies fail to recognize the ability of a nursing home to purchase 
nutrients and supplies at costs less than those incurred by the average beneficiary through bulk 
purchasing and institutional  buying power.  Nor do these policies provide incentives for the 
nursing home to exert its buying power to save the taxpayer money. 
Further, and possibly more critical, current coverage of enteral nutrients does not recognize 
enteral nutrients as food.  If recognized as food, payment for enteral nutrients would be 
made as a part of the facility payment, rather than separately billed to Medicare Part B.  Thus, 
the current excessive Part B payments would be eliminated,  along with Medicares  exposure 
to fraud involving enteral nutrients when they are used as a food supplement (not covered by 
Medicare) rather than as the primary source of nutrition (covered by Medicare).  Additionally, 
Medicares exposure to duplicate payments would be eliminated. 
To address excessive payments for enteral nutrients, we offer the following options (each 
requiring  legislation  to implemen~  and our recommendation  for consideration: 
PAYMENT  OPTIONS 
OPTION  1	 Exclude  enteral  nutrients  from  Part  B reimbursement  when  the patient 
resides  in a nursing  home. 
Option  1A:	 Exclude enteral nutrient payments for anyone in a nursing home, 
regardless of payment status (Part A Medicare extended care benefit, 
Medicaid covered stay, or private pay resident). 
Option  lB:	 Exclude enteral nutrient payments for anyone in a nursing home whose 
stay is paid by Medicare or Medicaid.  Thus, Medicare Part B would 
continue to pay part B for private pay residents only. 
OPTION  2	 Continue  Part  B reimbursement,  but lower  enteral  nutrient  reimbursement 
levels  when provided  to residents  of nursing  homes. 
Option  2A:	 Move enteral nutrient reimbursement  to a fee schedule, with a reduction 
to the fee schedule, if a nursing home is involved.  Base fee schedules 
on average retail pricing.  Implement a modifier which causes a 
reduction to the fee schedule if a nursing home resident is involved. 
Option  2B:	 Continue the current reimbursement  system and apply inherent 
reasonableness  to the charges for nursing home residents. 
10
 Cost Savings:  The exact amount of savings that could be obtained by the Federal government, 
in implementing  this recommendation,  depends on a number of factors, including the specific 
option selected, and programmatic  controls implemented to expressly allow or expressly 
prevent cost shifting to other parts of the program, the Medicaid program, or beneficiaries. 
For example, by simply not paying for enteral nutrition products under Medicare Part B, the 
Medicare program could save $136 million per year.  However, if some of these costs were 
shifted to other sources, including Medicare Part A, savings could be reduced or even 
eliminated.  If Medicare Part B continued to pay for enteral products, but reimbursed nursing 
homes at a lower fee schedule amount, reflecting the reduced prices they could obtain for 
these products, savings of $41 million to the Medicare program would result, as well as $10 
million to beneficiaries  or their representatives  in reduced coinsurance. 
RECOMMENDATION 
We support either option.  However, we believe Option 1 (either A or B) is preferable  for the 
following reasons: 
	 It is Food  - the Food and Drug Administration  categorizes enteral nutrient products as 
food.  Medicare does not typically reimburse for dietary expenses unless provided in 
an institutional  setting and then only to the institution. 
	 Incentives  to nursing  homes  - this option provides an incentive to a nursing home to 
exert its buying power to get preferred pricing on nutrients, given Medicares 
expectation  and enforcement  of prudent buying practices.  Also, since nursing homes 
would make little or no profit from nutrients, no incentives would exist to over-utilize 
enteral feeding. 
	 Consistent  with Rebundling  -it  is consistent with HCFAS effort to consolidate 
billing for services provided in skilled nursing facilities. 
	 Covered  in the Medicaid  Daify Rate  - virtually all Medicaid agencies consider enteral 
nutrients a supply covered under the daily rate. 
	 Part  B Payment  Policy  is Inconsistent  - Medicare will not pay for a wheelchair  in a 
nursing home (DME is noncovered unless provided in the beneficiarys  home); 
however, Part B pays for enteral nutrients.  If a nursing home is expected to provide a 
wheelchair  at no addhional  cost to the beneficiary, why is a beneficiarys  meal 
(enteral) an additional cost to Part B and the beneficiary? 
	 Enteral  Costs  and  Typical  Meal  Cos& are Roughly  Comparable  - it can be argued 
that, at a minimum,  Category I and 11nutrient costs ($6-$8 per day), are about 
equivalent to the daily cost of meals provided in a nursing home (cost of food plus 
preparation  - $7).1 Consequently,  beneficiaries  should receive enteral feeding nutrients 
as a facility reimbursed cost, just as a meal would be. 
11
 These conclusions  and recommendations  will be shared  with appropriate  Federal  and State 
entities  involved  in Operation  Restore  Trnst. 
COMMENTS 
Both the Health Care Financing Administration  (HCFA) and the Assistant Secretary for 
Planning and Evaluation (ASPE) provided comments on this report.  Both concur that 
Medicare is paying too much for enteral nutrients and support the recommendations  first 
option on the grounds that enteral nutrients are food and, thus, should not be billed 
separately to Medicare Part B.  Rather, the cost of enteral nutrients should be included in a 
facilitys costs and covered as a part of payment to the facility for the nursing home stay.  The 
HCFA emphasizes legislation would be required to change current payment rules for enteral 
nutrients to implement this payment option. 
The ASPE does express reservations about the impact of this recommendation  on the general 
nursing home population whose nursing home stay is paid by other payers (e.g., Medicaid). 
We appreciate ASPES concerns and wish to emphasize that the cost of enteral nutrients is 
comparable to that of a meal.  Since meals are provided by the nursing home and paid by 
whomever is paying for the nursing home stay, we do not believe a change in reimbursement 
policy for enteral nutrients would pose a financial hardship on the beneficiary.  However, to 
ensure this, exceptions might be made for some categories of enteral nutrients where it can be 
shown that costs substantially exceed general food costs. 
12
 ENDNOTES

1.	 The following  are dietary costs provided  from Texas nursing homes in the 1993 
Medicaid  cost report.  Expressed  asaverage  perdiem  expemes,  tiey  representa 
good approximation  of the cost of food for nursing home residents. 
Food (fresh,  frozen,  canned,  etc.)
 $3.30 
Food staff
 $2.88 
Supplies (dishes, utensils,  etc.)
 $0.32 
Miscellaneous
 $0.42 
Total Average Daily Cost
 $6.92 
13  APPENDIX  A 
CATEGORIZATION  OF PRODUCTS  INTO  PROCEDUW  CODES 
CATEGORY  1- B4150 
Attain 
Isosource HN 
Attain LS 
Jevity 
Attain KDS

Lonalac 
Ensure

Meritene 
Ensure HN

Newtrition (Flavors) 
Ensure Powder

Newtrition HN 
Ensure with Fiber (Enrich)

Newtrition Isofiber 
Entera

Newtrition Isotonic 
Entera Isotonic

Nitrokm 
Entera Isotonic Fiber

Nutrapak

Entralife FIN

Nutren 1.0

Entralife HN Fiber

Nutren 1.0 with Fiber

Entralife HN-2

Nutrilan

Entrition HN

Osmolite

Fiberlan

Osmolite FIN

Fibersource

Pediasure

Fibersource HN

Pediaswe  with Fiber

Fortison

Portagen

Hearty Balance

Pre-Attain

Introlite

Profiber

Isocal

Replete

Isocal HN

Resource

Isocal 11

Susta II

Isofiber

Sustacal

Isokm

Sustacal Fiber

Isomil

Ultracal

ISOsource

CATEGORY  1- B4151 
Compleat-B 
Vitaneed

Compleat-B  Modified 
A-1  CATEGORY  II - B4152 
Comply
 Nutren  1.5

Ensure Plus
 Nutren 2.0

Ensure Plus HN
 Nutrivent before 5/93

Entrition  1 ?4
 Resource Plus

Isocal HCN (Deliver 2.0)
 Respalor

Isotera Isotonic
 Sustacal HC

Lipisorb
 Sustacal Plus

Maganacal
 Twocal HN

Newtrition  1 X
 Ultralan

CATEGORY  III -B4153 
Accupepha  Reabilan

Criticare HN  Travasorb HN

Lsotein  Vital HN

Precision HN  Vivonex HN

Precision Isotera 
CATEGORY  IV -B4154 
Alitraq  Promote

Citrotein  Promote with Fiber

Fulfil  SLD  Vivonex Plus

Peptomin VHP 
~CAT  (XX-temporary Codes developed by DMERCS)

Accupep HPF (XX030)
 Peptamen  (XX044)

AmidAid  (XX031)
 Peprative  (XX045)

Entera OPD  (XX032)
 Pregestirnil  (XX046)

Glucerna  (XX033)
 Protain XL  (XX047)

Hepatic Aid  (XX034)
 Provide  (XX048)

Impact  (XX035)
 Puhnocare  (XX049)

Impact with Fiber  (XX036)
 Reabilan HN  (XX050)

ImunAid  (XX037)
 Suplena (Replena)  (XX051)

Lipisorb  (XX038)
 Stresstein  (XX052)

Nepro  (XX039)
 Traumacal  (XX053)

New Replete  (XX040)
 TraumAid HBC  (XX054)

New Replete with Fiber(XX041)  Travasorb Hepatic  (XX055) 
NutriHep  (XX042)  Travasorb Renal  (XX057) 
Nutrivent  after 5/93 ~043)  Vivonex TEN (XX058) 
CAT EGORY  V LOCAL  CODES 
Casec  (XX059)  Polycose  (XX068) 
Conrtolyte  (XX060)  Promod  (XX069) 
A-2
 Elementra  (XX061)  Premix  (XX070) 
Fibrad  (XX062)  Propac  (XX071) 
Lipomul  (XX063)  Sumacal  (XX072) 
MCT Oil  (XX064)  Advera  (XX073) 
Microlipid  (XX065)  Crucial  (XX074) 
Moducal  (XX066)  Diabetasource  (XX075) 
Nutrisource  (XX067)  Isosource VHN  (=076) 
CATEGORY  VI -84156 
Prevision LR Powder  Travasorb STD Powder 
Tolerex  Vivonex STD Powder 
A-3  APPENDIX  B 
ASSISTANT  SECRETARY  FOR  PLANNING  AND  EVALUATION 
COMMENTS 
.
..*...). 
:Jc.,    DEPARTMENT
.  OF HEALTH a HUMAN  SERVICES  otelwdlb~ 
% 
%.,,9,. 
~  DC  -~ 
m  ~laudiaCooley 
IomnltivcSecrowy 
FRO\l.  :Wing Assktant Semetaty for 
Planning aod Evaiustion 
SUDJLXT;  i%rtd  Comments -g  OIG DE@ pe~  @I McrMcascPaytnents fos 
!&vices  Provi&d to Nursing Horrw-! 
IIIour ewlicr mspnse  to &  b  OIG reprts  m ~  pa- fbr ruasing home 
rcsidcms.  WCe~ptcsed  cmccjTI that b  mprxta couki indvwtd  yicadfotheconciusionthst 
MmJiGut Part  B paymco?a  Silutlid not ire Ma(ia  on Mhaifofllmi!lgbme N3idUUaSdtbat w 
\wuldJkmS  t& c~  ~  *  ~  dulit)ga - With(XG StatTonDecadMr 12, 
1995.  .+> a fcsultofttris &CUSSiCMbetwctaASPE  and OIG Mthc  M  fbsmal ASPE 
cotnmcms arc otkui  regdng  the b  OIG mportaesuidad htt  B Scavices in Nusaing 
Ilorw%-4\rtOverviewY Durable Medical EquipmentPayments in Numin8 ~  and 
-liutcrolNatritnts  Payments in Nursing Homee. 
Entcrxd  Xulritnts  Pay- ta Nnrsimg lWIWY 
weitruopposed tob  OIGmoommmbontoeqaodthea=d~==-MBM 
PWmCXIL\mWt of  paSOOainaPartACOVCtSCNdFataYtOdSO_P==O=  rnW?* 
.%cuw.swlstays Attltktimgkjsw~astkm  -lMdWddbo&hded 
----
B-1
 ,n a nursing home payment rate. As a result, which Medieam Part B 
wo  m  tile  to  i~~tifi 
DME  paymcnu arcmadeforroutinenursinghomeservirxs(i.e.,semicesthu shouldbe included 
in a nursing Jlomepaymem rate) and which are not- Further, while weunderstandcurrentlaw 
IimilsPart B DMEto personswhoare residingin [heirhomc~ it is not cksr  when a nursing 
home resident (i.e., in non-PiutAcoveredstay)ispermanentlyresidinginsuchafadity,  and, 
thus, is at home in&  &i]ity,  intendsto 
V~US  a ~i&L  tit  is  ~ving  shofi-@m  me  and 
rmun home. J-Oens~c  tit  ~nefici~i~  ~  not -pria~~y  d~ed  n~~  @v~c,  a 
tdicy  prohibiting  pm  5  Dm  pa~ents  to all n~ng  home reside@  ~~d  haVCto S-C 
hat pan  B J)ME  p~y~ents ~  for ro~ne or core n- h~~  ~i~  md U(  th~  ~  no 
.~ng-tem, permanent nursing home  residents far whomthe nursing home has, in fit,  become 
t!lek  home.  We do noL~fieve  ~at theseuc accurate~~@o~  Fhq  we areeoncemed 
that denying MedicarePart B DiW?pay~n~  to n- home ~iden~  could have a ne@vc 
Ifect  ontheirqualityofcam. Therefore,webeiieve,atleastintheinterisrqtheDepartment 
shouldpresumethat nursinghomeresidentsina non-ht  A eowred SNF stay are residhg in 
their home and permit lart B DM  payme.n~ on Wf  of suoh residents in need of these 
supplies.  We rccomrncnd the O]Ci study this issue and ticotnmend  a eao+piation  of 
equipment routinely covered in lwrsi~  home ~ay~t  ratesd  Ill@  not routinely inchxkd  in 
such rates  A review of State Me&d  nursingfhcilitypayment methods may provideso~ 
insight into this issue. 
Finaliy, werecommend thatfie wnc]~ion  ofthisnwrt  cl~y  indicatethatPartBDME 
paymentsmadewittin aweekofdi~~ge  for~  n~~  home~id~~  (regtiless  ofpayer) 
who is c]igible for Pm B ~  qprop~iate b  f~i[i~  &charge planning. 
I
I 
Part  B Services  in Nursimg Homes 
I 
We understand  that the (XG intends tour&take  ~ study of State Medicaid nursing fdty 
pwuent  rates and methods,  We agxeethat sucha study is needed in O*  to undcmtastd ~m 
duplicatepaymentshavebeenmade(i.c,Me&are andMe&aid bothhavepaid)d  When 
Medieaid cost sharing is inappropriate. 
B-2
 HEALTH  CARE  FINANCING  ADMINISTRATION 
COMMENTS 
*.+, s%, 
$
.  DEPARTMENT  OF HEALTH&  HUMAN  SERVICES  Health Care Fmancmg  Administration 
: 
s 
3
%+ 
.>*.,m	 The Administrator 
Washington,  D.C.  20201 
DATE  OEC 151995 
TO  June Gibbs Brown 
Inspector General 
FROM  Bruce C. Vladeck%  W 
Administrator  v 
SUBJECT	 OffIceofInspectorGeneralDraflReport  Enteral Payments in Nursing 
Homesv  (OEI-06-92-O0861)  -
We reviewed the subject dr+l report which discusses whether Medicare Part B is paying 
too much for enteral nutrition therapy for nursing home residents. 
Our detailed comments are attached for your consideration. 
Thank you for the opporhmity to review and comment on this report.  Please contact us if 
you would like to discuss our comments finther. 
Attachment 
B-3
 Health Care Financing Administration (HCFA) Comments 
on Of&e  of Insoector General (OIG) Drafl ReDofl. 
Enteral Nutrient Payments in Nursing Homes. 
OEI-06-92-00861 
OIG Recommendation 
HCFA shouldconsiderwaystoaddressexcessivepaymentsforenteralnulrients. TWO 
options are offered. 
OPTION 1 
The HCFA should exclude enteral nutrients from Part B reimbursementwhen the 
patient resides in a nursinghome. 
OPTION 2 
The HCFA should continue Part B reirnbursemen~ but lower enteral nutrient 
reimbursement  levels when provided to residents of nursing homes. 
HCFA Resmmse 
We concur with Option  1. We believe this option is consistent with HCFAS efforts to 
control overdhation  byencouragingnursinghomestoexertbuyingpowertoget 
prefmed pricingonnutrientsandbyremovingtheincentivetooverdize  enteral 
f-.  Aa defined by the Food and Drug Administration mosg if not ~  enteral 
nutrientproductsareconsideredfood.  Thus,withchangesinthestatutethatcurrently 
defines enteralnutrientsasaprostheticdevice, theseproductscouldbe included in 
MedicarePartA payments. Thisoptionis alsoconsistentwithHCFAScurrentattempt 
to consolidate billing for semices provided in skilled nursing fmilities. 
Technical/ General Commentq 
1.	 Include in the Executive Summarya condensed version of the methodolq  found 
inthebody  of therepwt 
2.	 State moreclearlythatall figuresareestimatesorprojections.(The reportwas 
based on 5-percent sample data). 
3.  Include data on tbe cost of a mealversusthecost of %nteralf-. 
4.	 State in the Executive Summary(and more forcefidly in the body of the report) 
thatboth optionawould requirelegislation. 
B4
 OPERATION  RESTORE  TRUST 
AND  NURSING  HOMES 
On May 3, 1995, President Clinton announced a new anti-fraud initiative undertaken by the

Department  of Health and Human Services.  Led by the OffIce of Inspector General in

partnership with the Health Care Financing Administration  and the Administration  on Aging,

this project utilizes the expertise of many Federal, State, and private sector

personnel.  They will direct their combined energies to crack down on Medicare and Medicaid

fraud, waste, and abuse initially associated with home health agencies, nursing homes,

hospices, and durable medical equipment sllppliers.  They will work closely with the

Department  of Justice and an intergovernmental  team comprised of other Federal and State

personnel.

In addition to identi~ing  and penalizing those who defraud the government, the project is

designed to alert the public and industry to the fraud schemes or vulnerable areas in policy.

To aid in this endeavor, the OffIce of Evaluation and Inspections will work within the Office

of the Inspector General to perform its primary mission of conducting evaluations that provide

timely, usefid, and reliable information and advice to the pertinent decision makers involved

in the demonstration.  To this end, the following reports on nursing homes have been

completed:

Medicare  Services  Provided  to Residents  of Skilled  Nursing  Facilities  (OEI-06-02-00863) 
Medicare  Payments  for  Nonprofessional  Services  in Skilled  Nursing  Facilities  (OEI-06-92-00864) 
Payment for  Durable  Medical  Equipment  Billed  During  Skilled  Nursing  Facili~  Stays  (OEI-06-92-
00860) 
Part  B Services  in Nursing  Homes  -An  Overview  (OEI-06-92-00865) 
Enteral  Nutrient  Payments  in Nursing  Homes  (OEI-06-92-00861) 
Durable  Medical  Equipment  P~ments  in Nursing  Homes  (OEI-06-92-00862) 
Ongoing  evaluations  are being  conducted  related  to Medicare  payments  for residents  of 
nursing  homes  for such  services  as mental  health  therapy,  wound  care, imaging,  hospice, 
ambulance transportation,  and nail debridement.  Also under review are duplicate payments 
between Medicare and Medicaid for nursing home services.