Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medical Equipment Suppliers 
Compliance With Medicare Standards 
AUGUST 2001 
OEI 04-99-00670  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended by Public Law 100-504, is to protect the integrity of the Department of Health and 
Human Services programs as well as the health and welfare of beneficiaries served by them. 
This statutory mission is carried out through a nationwide program of audits, investigations, 
inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary of program 
and management problems and recommends legislative, regulatory, and operational approaches 
to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General. It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public. 
The inspection reports provide findings and recommendations on the efficiency, vulnerability, 
and effectiveness of departmental programs. 
OEI's Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 
Regional Inspector General, and Christopher H. Koehler, Deputy Regional Inspector General. 
Principal OEI staff included: 
Lisa Keating, Lead Analyst

Peggy Daniel, Program Analyst

Robert Gibbons, Program Analyst

Barbara Tedesco, Statistician

Joe Townsel, Team Leader

Stuart Wright, Program Specialist

To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7723. Reports 
are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  EXECUTIVE SUMMARY 
PURPOSE 
To determine whether or not durable medical equipment suppliers who received a 
supplier number in 1999 were in compliance with Medicare standards. 
BACKGROUND 
To receive reimbursement from Medicare, business organizations who supply durable 
medical equipment to Medicare beneficiaries must obtain a unique identifying number. 
That number is referred to as a durable medical equipment supplier number. The Centers 
for Medicare and Medicaid Services contract with the National Supplier Clearinghouse in 
Columbia, South Carolina, to approve applications for durable medical equipment 
supplier numbers. 
To obtain approval for a durable medical equipment supplier number, suppliers must 
demonstrate that they meet 11 Medicare standards. 
Because of concerns that durable medical equipment suppliers were not complying with 
the Medicare standards, CMS initiated a pilot program in 1996 to do site inspections 
before granting a durable medical equipment supplier number. In 1997, the Office of 
Inspector General reported that suppliers were only fully meeting one of the 11 standards. 
The report further showed that in some instances suppliers were not operating legitimate 
businesses. 
Partly in response to its pilot program, and the OIG report, CMS and the National 
Supplier Clearinghouse expanded its pilot program to include physical site inspections of 
suppliers in all States before granting a supplier number. Our present inspection provides 
an assessment on how well suppliers meet the standards after CMS fully expanded its site 
inspection program in 1999. 
FINDINGS 
Less Than One Percent of Suppliers Did Not Have a Physical Presence at Their 
Business Address of Record 
In our 1997 inspection on supplier compliance with Medicare standards, we reported that 
7 percent of suppliers and applicants were not doing business at their address of record. 
Supplier failure to have a presence at their address of record raised serious questions 
about the legitimacy of their business. However, our current inspection showed that only 
one of 165 suppliers (.61 percent) were not located at and doing business at the address 
1 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  they had provided to the National Supplier Clearinghouse. Based on our referral, the 
National Supplier Clearinghouse revoked the supplier number for that supplier. 
All Suppliers Complied With Delivery, Warranty, Repairs, Returns, Complaints 
and Disclosing Ownership Standards 
Some Suppliers Failed to Comply With Inventory, Liability Insurance and 
Licensure Standards 
C  Five percent of suppliers did not have an inventory of durable medical equipment.

C  Eight percent of suppliers did not have appropriate liability insurance. 

C  Thirteen percent of suppliers did not have appropriate licensure.

Fifty Percent of Suppliers Did Not Comply With Standard to Provide Consumer 
Information 
Medicare standards required DME suppliers to provide a list of the 11 Medicare 
standards to beneficiaries. Fifty percent of DME suppliers did not meet the standard. 
RECOMMENDATIONS 
The physical site inspections of suppliers before granting a DME supplier number has 
improved compliance with Medicare standards.  If CMS desires a higher compliance 
rate, we offer the following suggestions. 
C	 CMS and the NSC could implement efforts to educate suppliers about the 
requirement to provide beneficiaries a list of supplier standards. This could be 
done in their letter transmitting a number to an approved supplier. The NSC 
could emphasize compliance with Medicare supplier standards, which are 
included in the package accompanying the letter. Such education would help 
assure that beneficiaries know their rights and supplier obligations to them. 
C	 CMS could revise its standards to require suppliers to transmit a copy of the 
Medicare supplier standards to each beneficiary at the time of each sale or rental. 
C	 CMS and the NSC could institute random, unannounced site inspections of 
supplier operations. Such inspections should be made at times other than the time 
of initial enrollment or reenrollment. 
Enforcing full compliance with each standard is difficult and could be cost prohibitive. 
In our 1997 report, we recommended that CMS charge suppliers an application fee. We 
did not assess the benefits of such a fee in our present inspection. However, we continue 
2 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  to believe such fees would help assure that only legitimate DME suppliers are approved 
for a Medicare number. Further, the fees would help offset CMS cost of doing site 
inspections to assure that suppliers comply with all Medicare standards. 
Agency Comments 
The CMS concurred with our findings. CMS outlined several initiatives that we believe 
respond to our recommendations. First, CMS plans to increase site visits on suppliers 
that do not comply with standards, and to reward those that pass. Additionally, CMS 
plans to assess the impact of the new supplier standards. Finally, during their site 
inspections, CMS compliance inspectors are also charged with educating suppliers on 
requirements to provide beneficiaries with a copy of the Medicare DME supplier 
standards. The full text of CMS comments are presented in Appendix E. 
3 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  TABLE OF CONTENTS 
EXECUTIVE S  UMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

FINDINGS

Less Than One Percent of Suppliers Had No Physical Presence at Business Address of

Record  ................................................................ 9

All Suppliers Complied With Delivery, Warranty, Repairs, Returns, Complaints and

Disclosing Ownership Standards  .......................................... 10

Some Suppliers Failed to Comply With Inventory, Liability Insurance and Licensure

Standards  ............................................................. 12

Fifty Percent of Suppliers Failed the Standard  to Provide Consumer Information ..... 13

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

APPENDICES

A: Supplier Standards at Time of our Fieldwork ............................... 16

B: New Supplier Standards  ............................................... 17

C: Locations of Site Inspections  ........................................... 18

D: Point Estimates and Confidence Intervals  ................................. 20

E: Agency Comments  ................................................... 21

4

Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  INTRODUCTION 
PURPOSE 
To determine whether or not durable medical equipment suppliers who received a 
supplier number in 1999 were in compliance with Medicare standards. 
BACKGROUND 
Approving DME Suppliers for Medicare 
To receive reimbursement from Medicare, business organizations who supply durable 
medical equipment (DME) to Medicare beneficiaries must obtain a unique identifying 
number. That number is referred to as a DME supplier number. The Centers for Medicare 
and Medicaid Services (CMS)1 contracts with the National Supplier Clearinghouse 
(NSC) in Columbia, South Carolina, to approve applications for DME supplier numbers. 
CMS defines durable medical equipment as that which can withstand repeated use, is 
primarily used to serve a medical purpose, is generally not useful to a person in the 
absence of illness or injury, and is appropriate for use in the home. For coverage under 
Medicare Part B, DME must be furnished for use in a beneficiarys home. For the 
purpose of this report, when we refer to DME suppliers, we include suppliers of 
prosthetics, orthotics, and other medical supplies. 
DME Supplier Standards 
To obtain NSC approval for a DME supplier number, suppliers must demonstrate that

they meet 11 Medicare standards required by Section 1834 of the Social Security Act.

The standards require that suppliers 

C  fill orders from their own inventory or under a contractual arrangement,

C  oversee delivery of equipment,

C  answer questions and complaints from beneficiaries,

C  maintain and repair rental equipment,

C  maintain a physical address at the business site,

C  comply with State and Federal licensure requirements,

C  honor warranties on equipment,

C  accept the return of substandard equipment,

C  disclose consumer information (a list of standards) to beneficiaries,

C  comply with ownership disclosure provisions of the Social Security Act, and

C  have appropriate liability insurance.

1Formerly the Health Care Financing Administration 
5 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  The supplier standards are front-end measures. They provide minimal assurance that 
suppliers physically exist and are operating a legitimate business. A detailed statement of 
each standard is shown in Appendix A. 
DME suppliers must reenroll every 3 years for participation in Medicare. The 
reenrollment process is similar to the new application process, in that the NSC must 
assure that both existing and new suppliers meet the standards for Medicare participation. 
Additional Supplier Standards 
In an effort to better assure that Medicare suppliers for DME are operating legitimate

business, the CMS proposed nine additional supplier standards in January 1998. CMS

required suppliers to achieve compliance with the new standards by December 2000. 

This was about 4 months after we had completed our data collection for this report. 

Therefore, we do not address compliance with the nine additional standards in this report. 

The standards require that suppliers

C  comply with Medicare law,

C  make no material misrepresentations on their application,

C  provide documentation of compliance with standards to CMS upon request,

C  notify beneficiaries that they may rent or purchase certain items,

C  ensure application is signed by someone whose signature binds the supplier,

C  agree not to transfer or reassign a supplier number,

C  have a business phone at the facility, and a listing in the phone directory,

C  agree not to telemarket to beneficiaries, except in limited circumstances, and

C  receive payment in their own name for drugs used with DME.

A detailed statement of each standard is shown in Appendix B. 

DME Supplier Compliance With Medicare Standards 
Because of concerns that DME suppliers were not complying with the Medicare 
standards, and in some instances were not operating legitimate businesses, CMS initiated 
efforts in 1996 to improve the process for granting DME supplier numbers. Through the 
NSC, CMS began a pilot program to physically inspect suppliers in one State before 
approving them for a DME supplier number. 
In 1997, the OIG completed an inspection documenting the extent that suppliers who 
obtained a DME supplier number operated bona fide businesses.2  That report showed 
that many existing suppliers and new supplier applicants were not in compliance with 
Medicare supplier standards. For example, 41 percent of suppliers and 40 percent of new 
applicants failed to meet at least one of the standards. 
2Medical Equipment Suppliers: Assuring Legitimacy (OEI-04-96-00240) 
6 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  Partly in response to the OIG recommendations and the results of its pilot test, CMS and 
NSC expanded the physical site inspections through a contract with ChoicePoint, Inc.3 
The expansion of site visits was phased in over the next 4 years. By 1999, the NSC was 
using site inspections of DME suppliers in all 50 States as part of the process for assuring 
compliance with Medicare standards before granting a DME supplier number. 
METHODOLOGY 
In 1999, about 12,682 DME suppliers nationwide obtained a Medicare supplier number. 
For our inspection, we reduced that universe to 4,927 independent suppliers. We 
included free standing suppliers, independent drug stores, and small drug store chains 
(those with under 25 business locations). 
We excluded large chain stores such as K-Mart, Wal-Mart, and Kroger who frequently 
provide DME as part of their business. Many chain stores such as those have a pharmacy 
as part of their business and the DME would be included in that part of the operation. 
Likewise, we excluded large chain drug stores such as Eckerd, CVS Pharmacy, and 
Walgreens. Finally, we excluded physician practices that also supply DME as part of 
their business. We excluded such DME suppliers because our preinspection showed that 
such suppliers were more likely to comply with the Medicare standards -- particularly the 
requirement to have an appropriate physical address. 
Data Collection 
From the reduced universe of 4,927 DME suppliers, we randomly selected 16 clusters of 
suppliers nationwide. We used a cluster sampling strategy to control the travel costs of 
our inspection and still assure geographic coverage. We initially included each supplier 
in the 16 clusters for our inspection -- a total of 208 suppliers. 
We then reduced our sample size by excluding any suppliers that were a part of a large 
chain operation and had inadvertently been included. We further excluded suppliers who 
were under investigation by CMS or OIG, and suppliers who no longer had an active 
DME supplier number. Our final sample size was 165 suppliers, encompassing 16 States. 
Appendix C shows the geographic coverage of our sample. 
For each member of our sample, we conducted an unannounced site inspection at the 
business location shown in the NSC records. At each site, we determined whether or not 
suppliers were meeting the 11 Medicare standards. We did so by physical observation of 
supplier operations, interviews with owners and staff, and record reviews. 
We relied on supplier self-reports to determine compliance with some standards. For 
example, we asked suppliers whether they had received any complaints from 
beneficiaries. Likewise, we asked suppliers whether they had repaired equipment under a 
3A national company that contracts to provide prevention and risk management to the insurance industry, as well as 
other industries 
7 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  warranty. If they said no, we relied on their self-reported answer. If they said yes, we 
asked to see and reviewed documentation on the complaints and warranty repairs. 
In some instances, we were unable to determine whether a supplier met a specific 
standard. For example, if the business was closed or a spokesperson for the supplier was 
not available, we were only able to assess whether the supplier had an appropriate 
physical location. Since we were unable to test compliance with all standards at each 
location, our projections of compliance rates are based on the number of suppliers 
complying with each standard individually. 
To understand supplier application policies, processes, and outcomes, we also 
interviewed staff at CMS, NSC, and ChoicePoint, Inc. 
Our cluster sampling method allowed us to project the extent that our universe of 4,927 
suppliers complied with the 11 Medicare standards. However, our selection method did 
not enable us to directly compare our results to the results of our 1997 report. Our 1997 
inspection was not based on random sampling methods. For that study, we 
judgementally selected suppliers located in large urban areas across the United States. 
We also focused on urban areas that were traditionally associated with high incidence of 
Medicare fraud. 
Data Analysis 
We aggregated our on-site inspection results to determine how many suppliers in our 
sample met and did not meet each standard. 
Based on our sample results, we estimated the national proportion of suppliers that were 
not complying with each standard. 
Appendix C provides confidence intervals for estimates of noncompliance. 
_____  ____  ____  _____ 
We conducted our inspection between November 1999 and February 2001. We 
conducted this inspection in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
8 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  FINDINGS 
Fifty-six percent of suppliers were in compliance with all 11 Medicare standards. Only 8 
percent of suppliers failed to comply with more than one Medicare standard. However, 
44 percent of suppliers were out of compliance with at least one Medicare standard. 
One standard requires suppliers make a list of all 11 supplier standards available to 
beneficiaries. For this standard, the noncompliance rate was 50 percent. For another 4 
standards, the noncompliance rate was 13 percent or less. The suppliers fully met the 
remaining 6 of 11 standards in effect at the time of our review. 
Noncompliance Rates for Supplier Standards 
Physical Address 
Inventory 
 
s Liability Insurance 
d
r
a Licensure 
d
n
a Supplier St andards 
t
S
Delivering Equipment 
 
r
e
li Warrant ies 
p
p
u Maintenance and Repair 
S
Ret urns 
Quest ions and Complaint s 
Disclosing Owners 
0  10  20  30  40  50  60  70  80  90  100 
Percent of Suppliers out of Compliance 
Less Than One Percent of Suppliers Did Not Have a Physical
Presence at Their Business Address of Record 
One Medicare standard requires a supplier to have an appropriate physical address to 
conduct business. One of the 165 suppliers in our sample (.61 percent) did not have a 
physical presence at their business address of record. The building at the listed address 
was unoccupied. We observed no evidence that the supplier was ever there. 
We can logically assume the supplier was previously doing business at the listed address. 
ChoicePoint inspectors verified the existence of a supplier business before the NSC 
approved the suppliers application for a DME supplier number. However, neighboring 
9 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  business operators were unaware that any supplier business had ever existed at the listed 
address. 
The supplier had not notified the NSC of any recent change of address, and continued to 
bill the Medicare program through the date of our fieldwork, in September 2000. 
Because their business operation could not be observed at their address of record, we 
could not determine that they were a legitimate business. Accordingly, we referred the 
supplier to the NSC for review. The NSC did a follow-up review to determine their 
current status. After confirming our observations, the NSC revoked the supplier number 
for this supplier. 
Projected to the population of suppliers from which our sample was drawn, the .61 
percent would equal about 30 suppliers. 
In our 1997 inspection on supplier compliance with Medicare standards, we reported that 
7 percent of suppliers and applicants were not doing business at their address of record. 
Supplier failure to have a presence at their address of record raised serious questions 
about the legitimacy of their business. We cannot directly compare those results to our 
current study results due to differences in methodology. 
All Suppliers Complied With Delivery, Warranty, Repairs,
Returns, Complaints and Disclosing Ownership Standards 
We discuss each of the Medicare standards below to show common practices by suppliers 
to meet them. In many instances, we relied on self-reported compliance with the 
standards. The Medicare standards did not require suppliers to maintain documentation 
of their compliance with the standards. However, we reviewed documentation and 
observed supplier operations to corroborate self-reported compliance where records were 
available and actual business operations were underway. 
Suppliers had a System for Delivering Equipment 
This standard requires suppliers to deliver DME items to beneficiaries and to oversee 
delivery of items ordered from other suppliers on behalf of a beneficiary. All suppliers 
had a system for delivering equipment as required by the standard. 
We based our conclusion that suppliers were complying with this standard on discussions 
with 138 of the 165 suppliers in our sample. We also corroborated our interviews by 
observing over the counter business transactions, delivery staff, and delivery trucks on 
the premises. 
To further verify that suppliers were meeting the delivery standard, we also tested the 
delivery standard by reviewing signed invoices or delivery tickets for one to three 
Medicare beneficiary claims during Calender Year 1999. We did this test at 65 suppliers 
-about 40 percent of the suppliers we interviewed. Although Medicare standards did not 
require it, our test showed that 86 percent could document delivery. The remaining 14 
10 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  percent could not document delivering DME for all claims we tested, but they could 
document deliveries for one or two of them. 
Suppliers Honored Warranty Agreements 
The standard required suppliers to honor warranty agreements on DME equipment under 
applicable State law. Most suppliers said no beneficiaries had returned items under 
warranty. We tested for compliance with this standard at 123 of 165 suppliers. All 
suppliers told us their policy was to make or arrange for warranty repairs or replacements 
as needed. Only 5 suppliers could provide documentation of having made warranty 
repairs or replacements. However, the Medicare standards did not require 
documentation. 
Suppliers Repaired Rented Durable Medical Equipment 
The standard required suppliers to repair DME that they rented to beneficiaries. They 
may repair the items themselves or contract for needed repairs. We tested compliance 
with this standard at 130 of 165 suppliers. Only 29 percent (38 of 130) of them rented 
DME equipment. All of them had provisions for repairing rented DME. Most of them 
repaired rented DME themselves. Only 4 suppliers said they had a contract to repair 
rented equipment. 
Suppliers Accepted Returned Durable Medical Equipment and Supplies 
The standard required suppliers to accept returns of substandard or unsuitable items from 
beneficiaries. We were able to interview 116 of the 165 suppliers in our sample on this 
standard. Ninety-one of them said no beneficiary had attempted to return an item to them. 
The remaining 25 suppliers said they accepted returns of unsuitable items. While CMS 
did not require documentation on compliance with the Medicare standards, 7 of the 25 
had done so. 
Suppliers Responded to Beneficiary Questions and Complaints 
The standard required suppliers to answer beneficiary questions and complaints about 
DME equipment. We tested for compliance with this standard at 127 of 165 suppliers. 
Suppliers seemed to be complying with this standard based on their comments to us. 
Most, however, said they only verbally responded to questions and complaints by 
beneficiaries about their DME and supplies. Some suppliers told us they actually 
documented complaints, and a few also documented questions. 
Suppliers Disclosed Ownership 
This standard requires that suppliers disclose any persons or company with at least 5 
percent ownership interest in their business. We were able to test this standard at 137 of 
the 165 suppliers in our sample. All seemed to be complying with the standard. 
To test compliance with the standard, we asked for the identity of the principal business 
owners. We limited our onsite test to principal owners because on-site managers and 
11 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  employees could not logically be expected to know all ownership parties in a business. 
We did not require on-site persons we interviewed to refer to business records. 
We then compared the principal owners we identified through on-site interviews to those 
listed on the business application for a supplier number. In all instances, the principal 
owners we identified on-site agreed with those identified in the application. 
Some Suppliers Failed to Comply With Inventory, Liability
Insurance and Licensure Standards 
Five Percent of Suppliers did not have an Inventory 
This standard requires that suppliers have an inventory of DME and supplies onsite, or 
that they have a contract with another entity to provide them. Seven of 132 suppliers we 
inspected for this standard had no inventory or contract for supplying DME and supplies. 
However, suppliers out of compliance with this standard could still meet beneficiary 
demand for DME by ordering from a third party, on an as needed basis. In many cases, 
such suppliers directed that DME and supplies they ordered from a third party be shipped 
directly to the Medicare beneficiary. This is referred to as just-in-time ordering or drop 
shipping. For example, one supplier of wheelchairs in Illinois ordered products from a 
company in Florida, and the Florida company shipped directly to the beneficiary. 
For just-in-time and drop shipping arrangements, there was no formal contract. Thus, 
we considered suppliers with such arrangements out of compliance. However, we 
verified that such suppliers actually did furnish DME to beneficiaries. Where suppliers 
billed Medicare in 1999, we reviewed shipping records and similar documentation, 
showing equipment and supplies had been shipped to beneficiaries. 
We estimated 5 percent of the 4,927 suppliers nationwide were operating without having 
an inventory of equipment or supplies on site, and without a contract for inventory. This 
projects to 261 of the suppliers in our universe. 
Eight Percent of Suppliers did not have Current Liability Insurance 
This standard requires suppliers to carry appropriate liability insurance. Appropriate 
insurance was not defined in the Medicare standard. 
In our sample, 8 percent (10 out of 125) of suppliers we inspected on this standard could 
not document they had current liability insurance. The NSC verifies liability insurance 
with the issuing insurance company as part of the application process. In the case of 
suppliers out of compliance with this standard, suppliers had liability insurance when 
they applied for a supplier number, but they had allowed it to lapse after obtaining their 
DME supplier number. For example, the expiration date on the insurance policy of a 
supplier in Oklahoma was April, 2000, about 6 months after the NSC had granted a DME 
supplier number. 
12 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  We estimated that 8 percent of suppliers were operating with no liability insurance, 
which amounts to 394 suppliers nationwide. 
Thirteen Percent of Suppliers did not have Appropriate License 
The licensure standard requires that suppliers operate in compliance with all State and 
Federal licensure and regulatory requirements. The standard does not specifically require 
a local license, however, one is required on the application for a supplier number. 
Eighty-seven percent of suppliers had the appropriate business license. 
However, we estimated that 13 percent (18 of 137) of the supplier population was 
operating without a current license at the time of our inspection. Projected to the supplier 
population included in our sample, this equals about 640 DME suppliers. 
In several instances, a supplier had a current State business license, but the local license 
was expired. For example, one supplier in North Carolina had a current local license, 
however, the state license had expired about 15 months after the supplier was approved 
for a DME supplier number. The NSC verifies licensure at application and reenrollment, 
but has no system to assure that suppliers remain licensed during the three-year interim 
period between initial enrollment and reenrollment. 
Fifty Percent of Suppliers Failed the Standard to Provide
Consumer Information 
One Medicare standard requires that suppliers make a list of all 11 Medicare supplier 
standards available to each beneficiary. The list of standards lets beneficiaries know the 
responsibilities of suppliers. The list also functions, in part, as a statement of beneficiary 
rights. For example, a beneficiary with a rented wheelchair could reference the list of 
standards and know that the supplier is responsible for repairs. Similarly, beneficiaries 
could look at the list and see that suppliers must accept the return of items which are 
substandard or unsuitable. 
Fifty-six of 112 suppliers we inspected for this standard, or 50 percent of suppliers 
nationwide, did not disclose the supplier standards to beneficiaries. Projected to our 
sample of 4,927 suppliers, this equals about 2,463 suppliers. 
Many suppliers told us they were not even familiar with the requirement. In one case, a 
supplier with a poster-size copy of the standards on the wall behind his desk claimed 
never to have heard of Medicare supplier standards. Of note, in our 1997 inspection, we 
also reported that suppliers most often failed to comply with the standard. 
13 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  RECOMMENDATIONS 
CC 
We believe that DME supplier compliance with Medicare standards has improved 
substantially since our 1997 inspection. Because we used different methodologies, we 
cannot directly compare the results of this inspection to the results of our 1997 
inspection. However, the 1997 inspection showed varying levels of non-compliance with 
all standards except one. Our current inspection shows that the supplier noncompliance 
rate was relatively low or non-existent for all Medicare standards except one. Only one 
standard had a non-compliance rate greater than 13 percent. 
We believe that much of the improvement can be attributed to physical site inspections 
by an NSC contractor, ChoicePoint, Inc. If a supplier does not meet standards as 
documented by the ChoicePoint site inspection, the National Supplier Clearinghouse 
does not grant a Medicare supplier number. In many instances, noncompliance occurred 
after a supplier number was issued. In recognition of the value of onsite inspections, the 
NSC recently began performing site inspections on its own in one State. 
If CMS desires to further improve the compliance rate, however, we offer the following 
options for consideration. 
C	 CMS and the NSC could implement efforts to educate suppliers about the 
requirement to provide beneficiaries a list of supplier standards. This could be 
done in their letter transmitting a number to an approved supplier. The NSC 
could emphasize compliance with Medicare supplier standards, which are 
included in the package accompanying the letter. Such education would help 
assure that beneficiaries know their rights and supplier obligations to them. 
C	 CMS could revise its standards to require suppliers to transmit a copy of the 
Medicare supplier standards to each beneficiary at the time of each sale or rental. 
This would enable beneficiaries to question suppliers and help enforce 
compliance. 
C	 CMS and the NSC could institute random, unannounced site inspections of 
supplier operations. Such inspections should be made at times other than the time 
of initial enrollment or reenrollment. 
Enforcing full compliance with each standard is difficult and could be cost prohibitive. 
In our 1997 report, we recommended that CMS charge suppliers an application fee. We 
did not assess the benefits of such a fee in our present inspection. However, we continue 
to believe such fees would help assure that only legitimate DME suppliers are approved 
for a Medicare number. Further, the fees would help offset CMS cost of doing site 
inspections to assure that suppliers comply with all Medicare standards. 
14 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  Further, CMS additional supplier standards that became effective in December 2000 
should help enforce compliance with all DME standards. For example, the standards 
require suppliers to keep records on and document compliance with standards for rental 
repairs, warranty work, and notifying beneficiaries of a rental or purchase option. The 
standards also require suppliers to document that they furnish beneficiaries a copy of the 
supplier standards. 
Agency Comments 
The CMS concurred with our findings. CMS outlined several initiatives that we believe 
respond to our recommendations. First, CMS plans to increase site visits on suppliers 
that do not comply with standards, and to reward those that pass. Additionally, CMS 
plans to assess the impact of the new supplier standards. Finally, during their site 
inspections, CMS compliance inspectors are also charged with educating suppliers on 
requirements to provide beneficiaries with a copy of the Medicare DME supplier 
standards. The full text of CMS comments are presented in Appendix E. 
15 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX A 
SUPPLIER STANDARDS IN EFFECT AT THE TIME OF OUR FIELDWORK 
June through September 2000 
1.	 A supplier will fill orders from its own inventory or inventory of other companies with which 
it has contracts to fill such orders; or fabricates or fits such items for sale from supplies it 
buys under contract. 
2. 	A supplier is responsible to oversee delivery of Medicare covered items to Medicare 
beneficiaries. 
3. A supplier honors all warranties, express or implied, under applicable State law. 
4. 	A supplier will answer all questions or complaints a beneficiary has about an item or 
use of an item that is sold or rented to the beneficiary, and refers beneficiaries with Medicare 
questions to the appropriate carrier. 
5. 	A supplier maintains and repairs directly, or through a service contract with another 
company, items it rents to a beneficiary. 
6. 	A supplier accepts returns of substandard (less than full quality for a particular item) 
or unsuitable items (inappropriate for the beneficiary at the time it was fitted and/or sold) 
from the beneficiary. 
7. 	A supplier discloses consumer information to each beneficiary with whom it does business. 
This consists of a copy of these supplier standards to which it must conform. 
8. 	A supplier complies with the disclosure provisions in Title XI of the Social Security 
Act, section 1124(a). 
9. 	A supplier must comply with all State and Federal licensure and regulatory 
requirements. 
10. A supplier must maintain a physical facility on an appropriate site. 
11. A supplier must have proof of appropriate liability insurance. 
16 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX B 
SUPPLIER STANDARDS EFFECTIVE DECEMBER 2000 
1. 	A supplier must operate its business and furnish Medicare covered items in compliance 
with all provisions of Medicare law. 
2. 	A supplier must not make or cause to be made, any false statements or 
misrepresentation of a material fact on an application for a billing number. 
3. 	 A supplier must furnish various documentation to CMS upon request demonstrating 
compliance with supplier standards. 
4. A supplier must notify a beneficiary that they may rent or purchase certain items. 
5. 	 A suppliers application must be signed by an individual whose signature binds a 
supplier. 
6. A supplier cannot convey or reassign a supplier number. 
7. 	A supplier must maintain a primary business telephone at the physical facility. This 
telephone number must be listed under the name of the business in the business portion of the 
local telephone company directory. 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. 
8. 	As required by sections 1834(a)(17)(A) and 1834(h)(3) of the Act, a supplier of 
a Medicare covered item must agree not to contact a beneficiary by telephone regarding the 
furnishing of a Medicare covered item to the individual unless the individual has given 
written permission, the supplier has furnished an item to the individual already, or the 
supplier is contacting the individual regarding a furnished item. 
9. 	Only a supplier that is licensed to dispense the drug may bill for a drug used as a 
Medicare covered supply with durable medical equipment or prosthetic devices. A supplier 
must bill and receive payment for the drug in its own name. 
17 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX C 
LOCATIONS OF SITE INSPECTIONS 
STATE  CITY  STATE  CITY 
AZ  PARKER  FL
 BOCA RATON

YUMA  CORAL GABLES

DELRAY BEACH

CA	 AUBURN  FT LAUDERDALE

BAKERSFIELD  MIAMI

BORREGO SPRINGS  MIAMI BEACH

BRAWLEY  POMPANO BEACH

CHATSWORTH  SOUTH MIAMI

CHULA VISTA 
EL CENTRO  IA  DAVENPORT

GRASS VALLEY 
HOLLYWOOD  IL  CHICAGO HEIGHTS

HOLTVILLE  GENESEO

INDIO  HARVEY

LANCASTER  KANKAKEE

LOS ANGELES  LYNDON

N HIGHLANDS  MOLINE

NEWHALL  ORLAND PARK

OROVILLE  PEORIA

PALMDALE  POLO

PAUMA VALLEY  ROCK ISLAND

PORTERVILLE  TINLEY PARK

RIO LINDA  WALNUT

ROSEVILLE 
TULARE  IN  DEMOTTE

YUBA CITY  GRIFFITH

HIGHLAND

CT	 BRISTOL  MERRILLVILLE

CROMWELL  MUNSTER

EAST HARTFORD 
EAST WINDSOR  KS  SATANTA

GLASTONBURY 
HARTFORD  MS  ACKERMAN

NEWINGTON  CALHOUN CITY

PLAINVILLE  COLUMBUS

SIMSBURY  GRENADA

KILMICHAEL

LOUISVILLE

SMITHVILLE

STARKVILLE

TUPELO

18 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX C 
continued 
STATE  CITY  STATE  CITY 
NC  BUTNER  OH  ACKRON 
CARY  BEDFORD HTS 
DURHAM  BROADVIEW HTS 
MORRISVILLE  CLEVELAND 
RALEIGH  GARFIELD HTS 
ROXBORO  NORTH ROYALTON 
WAKE FOREST  NORTHFIELD 
PARMA 
NJ  COLUMBUS  VALLEY VIEW 
EAST BRUNSWICK  WALTON HILLS 
EAST WINDSOR 
EDISON  OK  ELK CITY 
FREEHOLD  GRANDFIELD 
HAMILTON  HYDRO 
HAMMONTON  LAWTON 
LAWRENCEVILLE  WEATHERFORD 
LITTLE EGG HARBOR  WOODWARD 
MARLTON 
MATAWAN  SC  CAYCE 
MEDFORD  CHAPIN 
MILLTOWN  COLUMBIA 
MONROE  IRMO 
OLD BRIDGE  LEESVILLE 
PARLIN  PELION 
PEMBERTON  WAGENER 
PERTH AMBOY  WEST COLUMBIA 
PRINCETON 
SOUTH AMBOY  TX  BORGER 
SOUTH BRUNSWICK  CANADIAN 
TRENTON  SEYMOUR 
VERNON 
NV  LAUGHLIN  WHEELER 
19 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX D 
POINT ESTIMATES AND CONFIDENCE INTERVALS 
For those suppliers in our sample that did not meet the standards, we estimated the percentage of 
the supplier population that was out of compliance. Our sample of 165 suppliers allows us to 
predict noncompliance with 95 percent confidence. For example, we report 8 percent of all 
suppliers did not have appropriate liability insurance. We are confident at the 95 percent level 
that the actual population estimate lies between 3 and 13 percent. 
Supplier Standard  Point Estimate  95% Confidence 
Interval 
Physical address  1%  0 - 4% 
Inventory  5%  1 - 9% 
Liability insurance  8%  3 - 13% 
Appropriate licensure  13%  1 - 25% 
Supplier 
standards/Consumer  50%  34 - 66% 
information 
20 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  APPENDIX E 
In this appendix, we present in full the comments from the Centers for Medicare and Medicaid 
Services. 
21

Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670  22 
Medical Equipment Suppliers: Compliance with Medicare Standards  OEI-04-99-00670