Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Balance Billing for Medical Equipment and 
Supplies 
JANUARY 2001 
OEI-07-99-00510  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), 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 Kansas City office prepared this report under the direction of Brian T. Pattison, Deputy 
Regional Inspector General.  Principal OEI staff included: 
REGION  HEADQUARTERS 
Tricia Fields, Project Leader
 Stuart Wright, Director, Medicare and 

Michael Craig, Program Analyst
 Medicaid Branch

Zula Crutchfield, Program Analyst
 Barbara Tedesco, Mathematical Statistician

Joe Penkrot, Team Leader
 Scott Horning, Program Analyst

Elander Phillips, Program Inspections Assistant

Marco Villagrana, Program Analyst

Deborah Walden, Team Leader

To obtain copies of this report, please call the Kansas City Regional Office at (816) 426-3697. 
Reports are also available on the World Wide Web at our home page address: 
http://www.hhs.gov/oig/oei/  E X E C U T I V E   S U M M A R Y  
PURPOSE 
To determine the effects and level of Medicare beneficiary awareness of balance billing for 
durable medical equipment and supplies. 
BACKGROUND 
Part B of the Medicare program covers outpatient services and items, including durable 
medical equipment, prosthetics, orthotics, and supplies (DMEPOS).  Under Medicare Part 
B, physicians and suppliers submit both assigned and non-assigned claims for these 
services and items.  For assigned claims, physicians and suppliers agree to accept the 
amount allowed by Medicare as full payment.  Medicare pays 80 percent of this amount 
directly to the physician or supplier and the beneficiary pays 20 percent (plus any 
outstanding deductible).  In non-assigned claims, the physician or supplier bills the 
beneficiary for the total charge for the service or item provided, which can exceed the 
amount allowed by Medicare.  Medicare pays the beneficiary 80 percent of the allowed 
amount; the beneficiary pays all remaining charges.  We define balance billing as the 
portion of the charge in excess of the Medicare allowed amount. 
Participating physicians and suppliers may voluntarily enter into an agreement to submit 
assigned claims for all services and items provided to Medicare beneficiaries. 
Non-participating physicians and suppliers may submit assigned or non-assigned claims on 
a case-by-case basis.  Physicians may not balance bill in excess of 115 percent of the 
allowed physician fee schedule amount.  However, no such limitations exist on balance 
billing by suppliers. 
We reviewed a random sample of non-participating suppliers and non-assigned claims. 
We conducted telephone surveys with beneficiaries and mail surveys with suppliers. We 
asked beneficiaries questions about selecting their supplier, awareness of the difference 
between assigned and non-assigned claims and participating and non-participating 
suppliers, and if they compared prices and services among suppliers.  Questions we asked 
suppliers include reasons they choose not to be a participating Medicare supplier and 
factors that determine whether to accept assignment. 
FINDINGS 
Beneficiaries Paid $41 Million Above the Medicare Allowed Amounts for Medical 
Equipment and Supplies 
As stated above, there is no limitation on balance billing by suppliers as there is for 
physicians.  Medicare beneficiaries faced balance billing liabilities of approximately 
i 
Balance Billing for DMEPOS  OEI-07-99-00510  $41 million, $30 million of which was above 115 percent of the Medicare allowed 
amounts (the limit that applies to physicians), from nearly 3 million non-assigned 
DMEPOS claims submitted in 1999.  These claims comprise 5 percent of the number and 
3 percent of the dollar amount of medical equipment and supply claims overall.  Medicare 
beneficiaries with recurring (as opposed to one-time) needs were responsible for roughly 
twice the costs on non-assigned claims than those with assigned claims.  For these 
beneficiaries, medical equipment and supplies are recurring expenses which may be 
incurred for the remainder of their lives.  For non-assigned claims, suppliers usually 
require Medicare beneficiaries to pay upon delivery.  One-third of surveyed beneficiaries 
do not have supplemental insurance that might pay for some portion of out-of-pocket 
expenses for these items. 
Most Surveyed Beneficiaries Are Unaware of Differences in Assigned and 
Non-assigned Claims and Participating and Non-participating Suppliers 
Only two out of every five beneficiaries know that if they choose a participating supplier 
or a supplier that accepts assignment on a particular item, they pay only the outstanding 
deductible and 20 percent co-insurance.  Few beneficiaries select their DMEPOS supplier 
based on cost considerations. 
Sixty-two Percent of Suppliers Are Not Participating Medicare Suppliers 
More than half of the suppliers surveyed state that low reimbursement is a reason they 
choose not to be a participating Medicare supplier.  Furthermore, 42 of these 
100 suppliers also state that reimbursement levels are below cost on certain supplies. 
Ostomy supplies were specifically identified by surveyed suppliers as a category of items 
with low or below cost reimbursement.  Based on a review of 1999 claims data, we found 
that ostomy supplies have a higher non-assigned rate than supplies overall. 
RECOMMENDATIONS 
In order to increase beneficiary access to participating suppliers and reduce financial liability for 
DMEPOS, we make the following recommendations to HCFA. 
Educate Beneficiaries on Ways to Reduce Financial Liability 
We recommend that HCFA educate beneficiaries on the options and consequences of 
assigned and non-assigned claims and purchasing medical equipment and supplies from 
participating and non-participating suppliers.  We suggest, for example, that HCFA direct 
the durable medical equipment regional carriers (DMERCs) to send an annual notice to 
Medicare beneficiaries for whom a non-assigned claim was submitted containing an 
explanation of assigned and non-assigned claims, participating and non-participating 
suppliers, and the availability of the Medicare Participating Suppliers Directory.  Another 
suggestion is that HCFA direct the DMERCs to add a notation to the Medicare Summary 
Notice on non-assigned claims that the beneficiary may be able to reduce their financial 
ii 
Balance Billing for DMEPOS  OEI-07-99-00510  liability for medical equipment and suppliers by purchasing from a supplier that accepts 
assignment on the item. 
Re-evaluate Medicare Fee Schedules for Ostomy Supplies 
We recommend that HCFA re-evaluate the Medicare fee schedules for ostomy supplies. 
After receiving survey responses from 15 suppliers stating that reimbursement is very low 
or below cost for ostomy supplies, we conducted an analysis of 1999 claims data for these 
supplies.  We found that ostomy supplies have a higher rate of non-assignment than 
DMEPOS overall, and also have a high percentage of claims submitted in excess of 
115 percent of the allowed amount. 
Other Considerations 
We offer to HCFA other suggestions that could help decrease beneficiary financial liability 
for medical equipment and supplies.  However, these would require additional study and 
analysis.  They include exploring ways of increasing the participation rate of suppliers, 
increasing beneficiary access to suppliers, and developing legislation to limit balance billing 
on medical equipment and supplies. 
AGENCY COMMENTS 
HCFA concurred with our recommendations.  HCFA stated that they have undertaken a 
number of efforts to increase beneficiary education and awareness about the consequences 
of assigned and non-assigned claims.  HCFA also stated that the Participating Physician 
Directory is available online, and that directory will be expanded in 2001 to include 
supplier information. 
HCFA stated that it will continue to explore options to increase beneficiary awareness. 
We suggest that HCFA consider, as one of these options, a more direct approach to reach 
Medicare beneficiaries who purchase medical equipment and supplies from 
non-participating suppliers that submit non-assigned claims, such as an annual notice 
and/or a notation on the Medicare Summary Notice for a non-assigned claim. 
HCFA stated that it is committed to examining the payment for ostomy supplies once it 
has published a final rule concerning its inherent reasonableness authority.  We note that 
HCFA could evaluate the appropriateness of the fee schedules while waiting for the 
issuance of the final rule. 
iii 
Balance Billing for DMEPOS  OEI-07-99-00510  T A B L E   O F   C O N T E N T S  
PAGE

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

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2

FINDINGS

Beneficiaries Paid $41 Million in Balance Billing  . . . . . . . . . . . . . . . . . . . . . . . .  6

Beneficiaries Unaware of the Differences  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

Majority of Suppliers Are Not Participating  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

APPENDICES

A:  Confidence Intervals for Key Estimates  . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

B:  Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

1 
Balance Billing for DMEPOS  OEI-07-99-00510  I N T R O D U C T I O N  
PURPOSE 
To determine the effects and level of Medicare beneficiary awareness of balance billing for 
durable medical equipment and supplies. 
BACKGROUND 
Part B of the Medicare program covers outpatient services and items, including durable 
medical equipment, prosthetics, orthotics, and supplies (DMEPOS).  DMEPOS include 
medical equipment and supplies such as wheelchairs, hospital beds, catheters, ostomy and 
wound care supplies, and enteral and parenteral nutrition.  In 1999, Medicare Part B paid 
an estimated $6.2 billion for medical equipment and supplies. 
Suppliers 
Medicare only pays for DMEPOS that are prescribed or ordered by a physician.  The 
Medicare beneficiary then selects a supplier from which to rent or purchase the item. 
Types of suppliers include:  discount retail chains such as Wal-Mart, home medical 
equipment businesses and pharmacies, and mail order companies.  Suppliers can be large 
corporations or small proprietorships.  Some suppliers sell only medical equipment and 
supplies, while others sell a wide variety of merchandise of which DMEPOS comprise a 
small percentage of total sales for the retailer. 
Assigned and Non-assigned Claims 
Under Medicare Part B, suppliers submit both assigned and non-assigned claims.  For 
assigned claims, suppliers agree to accept the amount allowed by Medicare as full 
payment.  Medicare pays 80 percent of this amount directly to the supplier and the 
beneficiary pays 20 percent plus any outstanding deductible.  In non-assigned claims, the 
supplier bills the beneficiary for the total charge for the service or item provided, which 
can exceed the amount allowed by Medicare.  In 1999, 5 percent of DMEPOS claims 
were submitted non-assigned, equating to approximately 3 million claims and allowed 
charges of $160 million.  For these claims, Medicare pays the beneficiary 80 percent of the 
allowed amount, less any deductible not yet met.  The beneficiary must pay the supplier 
directly the amount billed irrespective of the allowed amount.  We define balance billing as 
the portion of the charge in excess of the Medicare allowed amount. 
Durable Medical Equipment Regional Carriers 
In October 1993, the Health Care Financing Administration (HCFA) began processing 
Part B claims for medical equipment and supplies through four durable medical equipment 
regional carriers (DMERCs).  Each DMERC processes durable medical 
2 
Balance Billing for DMEPOS  OEI-07-99-00510  equipment claims for a specific geographic region and ensures that all coverage 
requirements for medical equipment and supplies are met before approving payment.  Any 
HCFA directives to change payment processing for DMEPOS claims are implemented 
through the DMERCs. 
Medicare Participation Program 
The Deficit Reduction Act of 1984 established a participating physician and supplier 
program for Medicare Part B, under which a physician or supplier may choose whether or 
not to become a participating Medicare physician or supplier on an annual basis. 
Participating physicians and suppliers voluntarily enter into an agreement to accept 
assignment for all services and items they provide to Medicare beneficiaries. 
Non-participating physicians and suppliers may submit assigned or non-assigned claims on 
a case-by-case basis, but must accept assignment whenever a Medicare beneficiary also 
has Medicaid coverage. 
Each DMERC publishes a Medicare Participating Suppliers Directory (MEDPARD) 
which lists the name, business address, and telephone number for each participating 
supplier in its region. 
Limiting Charges and Balance Billing 
Currently, physicians who are non-participating Medicare physicians receive only 
95 percent of the Medicare allowed amount; however, they may bill up to 115 percent of 
this amount.  This limit protects Medicare beneficiaries from excessive balance billing on 
non-assigned claims.  As of January 1999, 85 percent of physicians billing Medicare were 
participating physicians. 
Suppliers are not subject to limits on balance billing for medical equipment and supplies. 
There are no limits on the amount suppliers can charge beneficiaries, nor is there a 
reduction in payments to non-participating suppliers. 
Payment for Upgraded Equipment 
While Medicare will pay for items that are adequate and effective to meet the medical 
needs of the beneficiary, it will not pay extra for convenience or luxury features.  For 
example, Medicare will pay for eyeglass frames, wheelchairs, and hospital beds which 
meet the medical needs of the beneficiary.  However, Medicare will not pay for upgraded 
versions that cost in excess of Medicare allowed amounts for items such as premium 
eyeglass frames and total electric hospital beds. 
Currently, a participating Medicare supplier or a supplier that accepts assignment on the 
item must accept the allowed amount as full payment for the upgraded item.  If a supplier 
wishes to charge and collect a greater price for upgraded DMEPOS, they must be a 
non-participating supplier and submit a non-assigned claim.  Medicare then pays the 
beneficiary 80 percent of the allowed amount, less any outstanding deductible.  The 
3 
Balance Billing for DMEPOS  OEI-07-99-00510  beneficiary is then responsible to the supplier for the full payment price of the upgraded

item.

On April 27, 2000, HCFA issued a proposed rule for comment regarding the payment

procedure for upgraded equipment.  The proposed rule would amend the Medicare

regulations to permit suppliers to furnish upgrades while still submitting an assigned claim. 

Medicare would pay the supplier the allowed amount for the standard item less

20 percent co-insurance and any outstanding deductible, and the beneficiary would pay the

difference between the suppliers charge for the upgraded item and 80 percent of the

allowed amount for the standard item.

METHODOLOGY 
To determine the effects and level of Medicare beneficiary awareness of balance billing, 
we reviewed non-participating suppliers and non-assigned claims.  We selected a stratified 
random sample of 150 (plus 150 spares) non-assigned DMEPOS claims from a 1 percent 
sample of the Medicare Part B National Claims History file for the period September 1 -
November 30, 1999.  This gave us a sample of beneficiaries along with the suppliers that 
provided medical equipment or supplies to these beneficiaries. 
We contacted beneficiaries or their caregivers associated with 150 claims.1  As shown in 
the table on the following page, we chose 50 of the claims with the submitted amount 
between 101 and 115 percent of the allowed amount.  The remaining 100 claims had the 
submitted amount in excess of 115 percent of the allowed amount.  The 115 percent 
threshold was chosen because it is the limit in effect for physician services.  We chose a 
larger sample size for claims submitted in excess of 115 percent of the allowed amount 
because these items were of greater interest in our study. 
1 We used 23 spares in stratum 1 and 60 spares in stratum 2 to replace beneficiaries that did not respond 
after multiple attempts to contact them. We also replaced seven claims that were identified as assigned 
claims during the survey process. 
4 
Balance Billing for DMEPOS  OEI-07-99-00510  Universe of  Number of  Supplier- Sample 
Strata  Non- claims in 1  Claim  Size 
assigned  percent file  Combinations 
claims 
1. Claims for procedure codes for  601,090  1,198  100  50 
which the submitted amount is 
between 101% and 115% of the 
Medicare allowed amount 
2. Claims for procedure codes for  1,117,839  2,213  200  100 
which the submitted amount is in 
excess of 115% of the Medicare 
allowed amount 
Some beneficiaries had more than one claim in the sample.  Therefore, we surveyed 
138 different beneficiaries or caregivers, representing 150 claims.  We asked the 
beneficiaries and caregivers questions regarding the reasons they selected their supplier, 
their awareness of the difference between assigned and non-assigned claims and 
participating and non-participating suppliers, and whether they compared prices and 
services among suppliers.  We also asked about the method of payment for their supply or 
equipment, how often they purchased it, and whether it was a recurring expense for the 
beneficiary. 
Out of 300 supplier-claim combinations, 27 claims were dropped for administrative 
reasons; for example, some claims were submitted by beneficiaries that received their 
DMEPOS from suppliers that do not possess a Medicare provider identification number 
(some beneficiaries choose to purchase from suppliers that do not have the capacity to bill 
Medicare directly).  We surveyed the remaining sample of 273 supplier-claim 
combinations by mail and received 216 responses (79 percent) representing 176 unique 
suppliers.  We asked questions on the type of equipment and supplies provided, the 
reasons the supplier chose not to be a participating Medicare supplier, and factors that 
determined whether to accept assignment on a particular claim.  We also asked the 
suppliers to estimate the percentage of claims they bill non-assigned and requested copies 
of supplier billing and payment information for the sample of beneficiary claims to 
determine the amount balance billed to the beneficiary and the amount collected by the 
supplier. 
We systematically analyzed the survey responses from Medicare beneficiaries and medical 
equipment suppliers.  We calculated confidence intervals for seven key estimates in the 
report.  The point estimate and 95 percent confidence interval for each estimate are listed 
in Appendix A of this report. 
We conducted this inspection in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
5 
Balance Billing for DMEPOS  OEI-07-99-00510  F I N D I N G S  
Beneficiaries paid $41 million above the Medicare allowed 
amounts for medical equipment and supplies 
Medicare beneficiaries experience greater financial liability on non-assigned claims than 
assigned claims because suppliers can bill more than the Medicare allowed amount on non-
assigned claims.  There is no limitation on balance billing by suppliers as there is for 
physicians.  Projected from claims in the 1999 1 percent file, Medicare beneficiaries faced 
balance billing liabilities of approximately $41 million, $30 million of which was above 115 
percent of the Medicare allowed amounts (the limit that applies to physicians), from nearly 
3 million non-assigned DMEPOS claims.  These claims comprise 5 percent of the number 
and 3 percent of the dollar amount of medical equipment and supply claims overall. 
High volume, low cost items predominate 
We arrayed the non-assigned claims in the 1 percent file from highest to lowest frequency. 
The table below identifies the items comprising the top 50 percent of claims in terms of 
frequency along with the total and average amount suppliers balance billed for these items. 
Projected to the universe of non-assigned claims, the five items account for 22 percent of 
the total amount balance billed in 1999. 
Top 50 Percent of Claims Frequency 
Projected from the 1999 1 Percent File2 
Item  HCFA  Number  Total Balance Billing  Average Balance 
Billing  of Claims  Billing per Claim 
Code 
Glucose testing strips  A4253  887,000  $3,152,708  $3.55 
Bifocal lenses  V2203  154,400  $1,952,556  $12.65 
Lancets  A4259  148,900  $178,270  $1.20 
Ostomy wafers  A5123  134,500  $735,852  $5.47 
(protective skin 
barrier) 
Eyeglass frames  V2020  114,400  $3,137,511  $27.43 
2 The frequency and dollar projections are based on the billing codes submitted for the claims. Multiple 
HCFA billing codes exist for items similar to the above (e.g., additional billing codes exist for bifocal 
lenses). 
6 
Balance Billing for DMEPOS  OEI-07-99-00510  Few claims have high balance billing 
We also arrayed the non-assigned DMEPOS claims based on highest average balance 
billing per claim.  Projected to the universe of non-assigned claims, these 6,100 claims 
account for $4,919,524 in balance billing, or 12 percent of the total dollars balance billed 
for claims submitted in 1999.  The table below identifies the items balance billed in excess 
of $500 in terms of frequency along with the total and average amount suppliers balance 
billed for these items. 
Claims Balance Billed in Excess of $500 
Projected from the 1999 1 Percent File 
Item  HCFA Billing  Number of  Total Balance  Average Balance 
Code  Claims  Billing  Billing per 
Claim 
Desferal injection,  J0895  500  $995,120  $1,990.24 
(deferoxamine 
mesylate) 
Flolan injection,  J1325  1,000  $172,440  $1,724.40 
(epoprostenol) 
Oxygen  E1404  600  $694,270  $1,157.12 
concentrator 
Above knee  L5320  100  $109,093  $1,090.93 
prosthetic 
Power operated  E1230  1,800  $1,575,922  $875.51 
vehicle 
Prosthetic eye  V2623  1,000  $804,621  $804.62 
Infusion pump for  K0455  100  $67,253  $672.53 
epoprostenol 
Motorized  K0011  1,000  $500,805  $500.81 
wheelchair with 
programmable 
controls 
Note: This table, like the previous one, is based on a simple projection of the 1 percent file. Some 
estimates are based on a very small number of claims. 
Sampled claims reflect the universe 
Our sample is reflective of the universe of DMEPOS claims with balance billing.  Over 
one-half of our claims have balance billing amounts under $10.  The table on the next page 
shows the amount of balance billing per claim for the 150 claims in our sample. 
7 
Balance Billing for DMEPOS  OEI-07-99-00510  Amount of Balance Billing per Claim  Number of Claims in  Distribution of Claims 
Sample 
less than $5  60  40% 
between $5 and $10  25  17% 
between $10 and $20  34  23% 
between $20 and $50  20  13% 
between $50 and $100  6  4% 
between $100 and $200  4  3% 
greater than $300  1  less than 1% 
Total  150  100% 
Most non-assigned claims are for recurring needs 
In our survey, we asked beneficiaries to identify the claim(s) as either a one-time or

recurring expense.  We found that 84 percent of non-assigned claims are for recurring

needs.  Beneficiaries for 35 percent of these recurring non-assigned claims report ordering

the item monthly or more frequently.  Examples of these items include ostomy supplies

and diabetic testing supplies.  For these beneficiaries, these supplies are  recurring

expenses which may be incurred for the remainder of their lives.

Medicare beneficiaries with recurring needs are responsible for roughly twice the costs on

non-assigned DMEPOS claims than the beneficiaries with assigned claims.  The average

financial liability per claim for non-assigned recurring claims is $16.73.  If these claims had

been assigned, the beneficiaries would have had an average of $8.50 financial liability.  At

a minimum, this amounts to $98.73 more per year financial liability per claim for these

beneficiaries.  Each beneficiary, on average, had responsibility for 

39 percent of the allowed amount per claim, as opposed to 20 percent liability (plus any

outstanding deductible) on the allowed amount for an assigned claim.

Examples of items for the remaining 16 percent of non-assigned claims that beneficiaries

identified as a one-time expense include eyeglass frames and lenses, breast prostheses, and

walkers.  While we did not ask the beneficiaries whether or not they considered these

items to be upgraded, eyeglass frames and lenses and ambulatory aids such as walkers

have the potential to include convenience or luxury features.

Suppliers expect immediate payment from Medicare beneficiaries 
Beneficiaries experience a lag time in reimbursement from Medicare and supplemental 
insurance companies for non-assigned claims.  However, for non-assigned claims, 
suppliers commonly require Medicare beneficiaries to pay for DMEPOS upon delivery. 
The beneficiary then awaits reimbursement from Medicare and any supplemental 
8 
Balance Billing for DMEPOS  OEI-07-99-00510  insurance companies.  One-third of surveyed beneficiaries report that they do not have 
supplemental insurance that might pay some portion of out-of-pocket expenses 
(e.g., co-insurance and deductible) for DMEPOS. 
Most surveyed beneficiaries are unaware of differences in 
assigned and non-assigned claims and participating and 
non-participating suppliers 
Because Medicare beneficiaries are unaware of the differences in assigned and 
non-assigned claims and participating and non-participating suppliers, they may not 
understand the financial consequences of their decisions.  Only 44 percent of beneficiaries 
we surveyed know there are differences in financial liability between assigned and non-
assigned claims.  Only 41 percent know that if they choose a participating supplier or a 
supplier that accepts assignment on a particular item, they pay only 20 percent co
insurance, plus any outstanding deductible.  At the conclusion of our telephone surveys, 
some beneficiaries remarked that they had never thought about the potential to save 
money by purchasing from a participating supplier or one that accepts assignment on the 
item. 
Few beneficiaries select their DMEPOS supplier based on cost considerations 
Medicare beneficiaries may be able to limit their financial liability by comparing prices

among suppliers.  Less than one-third of the surveyed beneficiaries compare prices and

services among suppliers before purchasing supplies or equipment.  Forty-four percent of

the beneficiaries (61 of 138) state that the close proximity of the supplier to their residence

was a factor in their decision to select a supplier.  Forty-one percent 

(57 of 138) conducted business with the supplier in the past and chose to select that

supplier again for the sampled claim.  Also, 14 percent (20 of 138) of the surveyed

beneficiaries state that they chose their supplier because it was the only supplier in their

area which provided the particular item.  Some beneficiaries also said they chose their

supplier based on a recommendation of medical personnel.

Sixty-two percent of suppliers are not participating Medicare 
suppliers 
According to the Statistical Analysis Durable Medical Equipment Regional Carrier, which

compiles and analyzes national claims history data for equipment and supplies, 

62 percent of suppliers were not participating Medicare suppliers for claims submitted

with dates of service in 1999.  These non-participating suppliers submitted 66 percent of

DMEPOS claims, although only 5 percent of all claims were non-assigned.  The rate of

non-participation has increased each year since 1996 when 55 percent of suppliers did not

9 
Balance Billing for DMEPOS  OEI-07-99-00510  participate.  We found no particular concentration of non-participating Medicare suppliers 
in a geographic area. 
Surveyed suppliers cite low reimbursement as a reason for non-participation 
Fifty-seven percent (100 of 176) of the suppliers surveyed (i.e., suppliers that submitted at 
least one non-assigned claim during the sample period) state that low reimbursement is a 
reason they choose not to be a participating Medicare supplier.  Of these 100 suppliers 42 
also state that reimbursement levels are below cost on certain supplies (we did not 
independently verify suppliers responses and, therefore, cannot attest to whether 
reimbursement is indeed below cost).  When projected to the universe of non-assigned 
claims, 56 percent of non-assigned claims are linked to suppliers who report that low 
reimbursement is a reason to not become a Medicare participating supplier.  Other reasons 
cited by suppliers include difficult bookkeeping or inadequate staffing for collections from 
beneficiaries and time lags in receiving reimbursement from Medicare and supplemental 
insurance companies.  Some suppliers also state that beneficiaries desire additional 
quantities or premium products not approved by Medicare. 
As stated previously, we reviewed non-participating suppliers and non-assigned claims. 
Sixty-one percent of surveyed suppliers estimate that they bill non-assigned on at least half 
of their Medicare claims.  Twenty-seven percent bill non-assigned on every Medicare 
claim.  When projected to the universe of non-assigned claims, 57 percent of claims are 
submitted by suppliers that bill non-assigned on at least half of their Medicare claims.  One 
explanation for the rate of non-assignment being so high for some suppliers may be that 
the nature of business for large discount retail chains is payment at the time of sale rather 
than awaiting future reimbursement. 
Claims for ostomy supplies have a higher non-assigned rate than supplies overall 
As noted earlier, 5 percent of all claims were submitted non-assigned in 1999.  In contrast, 
for the ostomy supplies group, 29 percent of Medicare claims were submitted non-
assigned.  Of the 5 percent of claims submitted as non-assigned, 38 percent have the 
submitted amount in excess of 115 percent of the allowed amount.  Ostomy supplies have 
61 percent of claims with the submitted amount in excess of 115 percent of the allowed 
amount, although they account for only approximately 20 percent of non-assigned 
DMEPOS claims. 
In our mail survey, we asked suppliers to list the factors that determine whether to bill a 
particular item assigned or non-assigned.  Fifteen suppliers specifically volunteered that 
ostomy supplies reimbursement is either low or below cost.  One supplier provided an 
example of low reimbursement on ostomy pouches shown on the following page. 
10 
Balance Billing for DMEPOS  OEI-07-99-00510  HCPCS A5063 
Manufacturers Suggested Retail Price  $27.40
Medicare allowed amount  $21.30 
Less:  Cost of supply from distributor  $20.18 
Overhead and claim processing  $ 5.25 
Loss to supplier  - $ 4.13 
In this case, the supplier submitted a non-assigned claim and charged the beneficiary 
$27.40. 
11 
Balance Billing for DMEPOS  OEI-07-99-00510  R E C O M M E N D A T I O N S  
Medicare beneficiaries incur financial liability for durable medical equipment and supplies. 
Many beneficiaries also purchase items on a recurring basis that may be used for the 
remainder of their lives.  In some cases, the financial liability may be a hindrance to 
beneficiaries receiving medical equipment and supplies they need.  The majority of 
surveyed beneficiaries are not aware of the differences between assigned and 
non-assigned claims and participating and non-participating suppliers.  Having such an 
understanding may increase beneficiary access to participating Medicare suppliers and 
decrease their financial liability.  As such, we make the following recommendations to 
HCFA. 
Educate beneficiaries on ways to reduce financial liability 
Medicare beneficiaries can decrease their financial liability for medical equipment and 
supplies by purchasing from a participating supplier or a supplier that accepts assignment 
on a particular item.  We recommend that HCFA educate beneficiaries on the options and 
consequences of assigned and non-assigned claims and purchasing medical equipment and 
supplies from participating and non-participating suppliers.  We suggest, for example, that 
HCFA direct the DMERCs to send an annual notice to Medicare beneficiaries for whom a 
non-assigned claim was submitted containing an explanation of assigned and non-assigned 
claims, participating and non-participating suppliers, and the availability of the Medicare 
Participating Suppliers Directory.  Another suggestion is that HCFA direct the DMERCs 
to add a notation to the Medicare Summary Notice on 
non-assigned claims that the beneficiary may be able to reduce their financial liability for 
medical equipment and supplies by purchasing from a supplier that accepts assignment on 
the item. 
Re-evaluate Medicare fee schedules for ostomy supplies 
After receiving survey responses from fifteen suppliers stating that reimbursement is very 
low or below cost for ostomy supplies, we conducted an analysis of 1999 claims data for 
these supplies.  We found that ostomy supplies have a higher rate of non-assignment than 
DMEPOS overall, and also have a high percentage of claims submitted in excess of 
115 percent of the allowed amount.  We understand that HCFA is committed to 
examining the payment for ostomy supplies once it has published a final rule concerning its 
inherent reasonableness authority.  We note that HCFA could evaluate the appropriateness 
of the fee schedules while waiting for the issuance of the final rule. 
12 
Balance Billing for DMEPOS  OEI-07-99-00510  Other Considerations 
In addition to the above recommendations, HCFA may want to consider ways to increase 
the participation rate of suppliers, increase beneficiary access to suppliers, and limit 
excessive balance billing to help decrease beneficiary financial liability for medical 
equipment and supplies.  We recognize these are complex problems, and may require 
additional study and analysis. 
In 1999, 85 percent of physicians billing Medicare were participating physicians.  This 
percentage has gradually increased since 1996.  In contrast, only 38 percent of suppliers 
participated in 1999, with a trend of decreasing participation since 1996.  As stated earlier, 
non-participating suppliers submitting non-assigned claims commonly require beneficiaries 
to pay for medical equipment and supplies upon delivery.  Beneficiaries then experience a 
lag time in reimbursement from Medicare and supplemental insurance companies. 
Purchasing from a participating supplier alleviates the lag time, because the supplier bills 
the beneficiary only the outstanding deductible and 20 percent co-insurance.  Then the 
supplier awaits reimbursement from Medicare and supplemental insurance companies. 
We note that, currently, non-participating physicians receive 95 percent of the Medicare 
allowed fee schedule amount.  Implementing a 5 percent reduction in payments to 
non-participating suppliers could provide some incentive for suppliers to participate.  This 
would require passage of legislation. 
As previously noted, some surveyed beneficiaries state that they chose their supplier 
because it was the only supplier in their area which provided the particular item.  In order 
to improve beneficiary access to participating suppliers, HCFA could explore ways to 
increase access to other suppliers (e.g., suppliers which accept mail order). 
Another seemingly logical option for decreasing beneficiary financial liability for medical 
equipment and supplies might be to develop legislation to institute limiting charges on 
them.  Since January 1, 1993, charges for physician services have been limited to 
115 percent of the Medicare allowed amount.  This limit protects beneficiaries from 
excessive balance billing on non-assigned claims.  We recognize that while on the surface 
such legislation for medical equipment and supplies could be beneficial, there may be 
potential negative outcomes (e.g., beneficiaries may not be able to purchase upgraded 
items, or suppliers may choose not to offer items on which they lose money). 
13 
Balance Billing for DMEPOS  OEI-07-99-00510  Agency Comments 
HCFA provided written comments to this report, the full text of which are included in 
Appendix B.  HCFA concurred with our recommendations. 
Educate beneficiaries on ways to reduce financial liability--HCFA agreed that 
educating beneficiaries is of utmost importance.  HCFA stated that it has undertaken a 
number of efforts to increase beneficiary education and awareness of assigned and non-
assigned claims, such as: 
<  publishing a pamphlet entitled, Does your doctor or supplier accept assignment?, 
<	 discussing the importance of acceptance of assignment by doctors and suppliers as it 
relates to cost savings in several pages of the booklet entitled Medicare & You 
2001, and 
<	 posting an online Participating Physician Directory containing the names, addresses, 
and specialities of Medicare participating physicians who have agreed to accept 
assignment. 
HCFA stated that the directory will be expanded in 2001 to include supplier information, 
and that they will continue to explore options to increase beneficiary awareness.  We 
suggest that HCFA consider, as one of these options, a more direct approach to reach 
Medicare beneficiaries who purchase medical equipment and supplies from 
non-participating suppliers that submit non-assigned claims, such as an annual notice 
and/or a notation on the Medicare Summary Notice for a non-assigned claim. 
Re-evaluate Medicare fee schedules for ostomy supplies--HCFA stated that it is 
committed to examining the payment for ostomy supplies once it has published a final rule 
concerning its inherent reasonableness authority.  We note that HCFA could evaluate the 
appropriateness of the fee schedules while waiting for the issuance of the final rule. 
14 
Balance Billing for DMEPOS  OEI-07-99-00510  APPENDIX A 
Confidence Intervals for Key Estimates

We calculated confidence intervals for seven key estimates.  The point estimate and 
95 percent confidence interval are given for each of the following: 
Key Estimate  Point Estimate  Confidence Interval 
Claims linked to suppliers who report low  56%  +/-7% 
reimbursement is a reason not to become a 
Medicare participating supplier 
Claims submitted by suppliers that bill  57%  +/-7% 
non-assigned on at least half of their Medicare 
claims 
Claims submitted for beneficiaries who state the  84%  +/-6% 
DMEPOS are recurring expenses which will be 
incurred for the remainder of their lives 
Recurring expense claims for which  35%  +/-8% 
beneficiaries report ordering monthly or more 
frequently 
Mean financial liability to beneficiary for claims  $16.73  +/-$3.72 
recurring monthly or more frequently 
Mean financial liability to beneficiary for claims  $8.50  +/-$2.25 
recurring monthly or more frequently, if 
assigned 
Yearly per claim financial liability to beneficiary  $98.73  +/-$23.11 
for claims recurring monthly or more frequently 
15 
Balance Billing for DMEPOS  OEI-07-99-00510  APPENDIX B 
Agency Comments

In this appendix, we present comments from the Health Care Financing Administration. 
16 
Balance Billing for DMEPOS  OEI-07-99-00510  17 
Balance Billing for DMEPOS  OEI-07-99-00510  18 
Balance Billing for DMEPOS  OEI-07-99-00510