.. .. .. \ ,  :""'.  .?.:.
Servces
Department of Health and Human 

OFFICE OF

:INSPECTOR  GENERAL

. rl 
l! SERVIC'l'n 
Richard P. Kusserow 
INSPECfOR GENERA 
-'if"d  NOVEMBER 1991  . .- 
. . . .
: .
.; .;j:,-.? ' )';  ...: . '.: /.: ' :.  ';,  :', . . ..  . ..:- : .:'" ' .
GENERA 
OFFICE OF INSPECfOR 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
' (RRS) 
amended, is to protect the integrty of the Department of Health and Human Servce
This' 
rognims as well as the health and welfare of beneficiaries served by those programs. 
statutory mision is carried out through a natiOliwidenetwork of audits, investigations, and 
offiCrOFAUDIT SERVICE 
"i;(;;)"  General, Offce of' Evaluation"and' InsJ?ettions:and Natalie Coen; DeputyRegional InspeCtor 
;General, Offce ofEvaluatioo: and Inspections, Region V. Participating in this project were 
' the following people: 
Headquaers
ChcaI!O, 
W. Mark Krushat 
John M. Traczyk (Project Leader) 
Wayne A Powell 
Thomas F. Komaniecki (Lead Analyst) 
Kate McFadden  Department .of Health and Human Services

OFFICE OF

INSPECTOR GENERAL

CARRIER SHOPPING

A MANAGEMENT ADVISORY REPORT 
l! st;RVIC'l'S. 
Richard P. Kusserow 
INSPECTOR GENERAL 
003 
-'if"dIG  OEI-05-91- EXECUTIVE  SUMMARY

PUROSE 
To determine if point of sale encourages Medicare bilers to shop for the best paying 
carner. 
BACKGROUN 
Through repeated contacts with the Medicare carriers, suppliers learn which carriers 
pay the most for a medical supply item. They also learn just how much of a particular 
medical supply each carrier wil allow before stopping or cutting back on payments. 
Armed with information collected from carrier shopping, suppliers use point of sale to 
turn that information into profits at the expense of the Medicare program. 
Point of sale policies hold that the site where the medical supplier met with the 
s call determines which carrier will have 
beneficiary or received the beneficiary 
jurisdiction and process the claim. This enables suppliers to elude Medicare payments 
and safeguards by establishing multiple business locations in multiple carrier 
jurisdictions. 
This study looked at Medicare payment for medical supply items. We did not 
examine the extent of this problem in the areas of durable medical equipment 
prosthetics or orthotics. 
FININGS 
In  1989  carner shopping ma have reslted in at least  $22  million in excess payents. 
Point of sale compromises carner program safegurds. 
Point of sale increases the rik of fraud abuse and waste. 
RECOMMNDATION 
The Health Care Financing Administration (HCF A) should have all bils for 
medical supplies submitted to the carrier having jurisdiction over the 
beneficiary s home rather than point of sale. 
This change in policy would have avoided the nearly $22 millon Medicare lost in 1989 
due to point of sale  have been avoided if the 
policies. Additional losses could also 
same policy were applied to all durable medical equipment, prosthetics, orthotics and 
supplies.  AGENCY COMMNT 
The HCFA and the Assistant Secretary for Planning and Evaluation (ASPE) were 
asked to comment on the draft of this report. Both ASPE and HCF A concur with our 
recommendation. We are pleased that we have reached agreement on this important 
policy and that HCF A is planning to modify its regulations. The full text of ASPE' 
and HCF A's comments are contained in Appendix A.  ..........................................................................................  
. . . . . . . . . . . . . . . . .. 
. . . ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   ...   .....    .....    .....    .....    .....    .....    .... .   .... .   ....   ... .  ... .  ...  ...  ...  ...  ...  ...  ...  ...  ...  ... . . .. .. . .. 
TABLE OF CONTENTS

PAGE

EXJC1 
INODUCfION 
Purpose

Background

Methodology  . . . . . . . . . . . . . . . 2

FINrnGS 
...................................................... 4

In 1989, carrier shopping may have

resulted in at least $22 milion

in excess payments. ............................................. 4

Point of sale compromises carrier

program safeguards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Point of sale increases the risk of

fraud, abuse and waste. .......................................... 6

A110N 
RECO  ............................................ 8

APPE 
Draft Report Comments and OIG Response.  INTRODUCTION

PUROSE 
To determine if point of sale encourages Medicare bilers to shop for the best paying 
carrIer. 
BACKGROUN 
Supplementary Medical Insurance, commonly referred to as Part B of the Medicare 
program, assists patients in paying for medical servces and supplies. Part B helps 
patients pay for physician servces and other medical servces including medical 
supplies. 
The term medical supplies, as used in this report, is limited to supplies biled to 
Medicare under procedure codes A4000 through A4999. Medicare payments for these 
supplies have increased by 75 percent during the period 1987 through 1989. In 1987 
Medicare paid $232 millon for medical supplies. In 1989, program spending had risen 
to $407 milion. 
Medical supplies represents a small portion of the $3 bilion annual market which is 
composed of durable medical equipment, prosthetics, orthotics and supplies 
(DMEPOS). While this study focuses on medical supplies, the policies and procedures 
and the problems which accompany them are representative of problems encountered 
by Medicare in other areas of DMEPOS. 
The Health Care Financing Administration (HCF A) manages the Part B program and 
Each carrer is 
administers benefits with the assistance of contractors called carrers. 
responsible for the adjudication of claims submitted to them by suppliers located 
within the carrier s geographic servce area. 
To clear up jurisdictional problems which occur on some medical supply claims 
HCF A developed a claims processing policy known as point of sale jurisdiction. Point 
of sale requires suppliers to submit their claims to the carrier servicing the geographic 
area where the beneficiary s order for medical supplies is received. It has been 
hypothesized that point of sale permits large suppliers to shop around and locate their 
business operations in areas servced by a carrier that pays more and/or has more 
liberal coverage policies.  The HCF A and carriers determine which medical supplies wil be covered and under 
what circumstances payment wil be made. The carriers, with guidance from HCF A, 
also: 
decide how much will be paid for each medical supply item; and 
establish the volume and number of each medical supply the Medicare program 
will buy for each beneficiary in a given period of time. 
Different approaches to pricing have resulted in considerable payment variance for 
medical supplies among the carriers. The policies and procedures of one carrier do 
not necessarily mirror another s practice. Each carrier has established their own 
system for assigning provider numbers used by bilers. Each maintains their own 
computer system for adjudicating claims. 
METHODOWGY 
To gather 
Both qualitative and quantitative data were used to prepare this report. 
qualitative information, discussions were held with 11 carriers concerning their 
experiences in adjudicating medical supply claims. Selection of the carriers was not 
random. Carriers in 8 of HCF A's 10 regions were selected to participate in this study 
because they process a large volume of claims. Three others were selected due to 
their proximity to the HCF A regional office. 
was obtained from HCF A's Part B 
Quantitative data pertaining to medical supplies 
Medicare Annual Data (BMA) file for 1989. Only national procedure codes ranging 
from A4000 - A4999 were reviewed in our data analysis. In 1989, 149 different 
procedure codes in this range were biled to Medicare. These 149 codes were selected 
for indepth analysis for this study. No other procedure codes were used. 
Resident carrier, as used in this report, refers to the carrier having jurisdiction for 
processing claims in the geographic area in which the beneficiary resides. Outside 
carrier refers to carriers outside the geographic area of the beneficiary s residence. 
The BMA file was used to identify beneficiaries who had medical supply items 
(A4000 - A4999) submitted on their behalf to outside carriers. A total of 81 159 line 
items were analyzed. Using zip code information, we determined that 20 344 of the 
159 line items were paid by an outside carrier. The number and dollar value of 
medical supplies paid by outside carriers was determined (See Table 1). The average 
amount payable for each medical supply by the resident carrier was also determined. 
The difference between what was paid by outside carriers and what would have been 
paid for the medical supply items by the resident carrier is reported in this study. In 
some cases, the BMAD file contained no information on resident carrier pricing. 
When this occurred, the original amount allowed was used in our calculations. 
Claims submitted on behalf of railroad retirees were not included in our analysis. We 
also eliminated 87 line items from our analysis because we could not identify the  Table 1

resident carrier; consequently, the $407 milion paid for medical supplies was reduced 
to $406 milion in our final analysis reported in the findings. 
The number of beneficiaries who had medical supply claims submitted to outside 
beneficiaries who reside in counties 
carriers was further refined by identifying 
bordering on the outside carrier. We also considered the migration habits of 
was conducted on a sample of 300 line items. The medical 
beneficiaries. This analysis 
supplies beneficiaries purchased in an adjoining State and the migration habits of 
some beneficiaries were taken into consideration before any projections were made. 
We also analyzed our sample to determine the impact of End Stage Renal Dialysis 
(ESRD) patients on our projections. This analysis indicated that more than half 
(55%) of all items listed by HCFA as ESRD medical supplies were paid by the 
resident carrier. The prevalence of carrier shopping among ESRD patients appears to 
be no different than for non-ESRD patients; consequently, projections reflected in this 
inspection include ESRD patient data.  FINDINGS

Finding #1: In 1989, caer shopping may have resulted in at least $22 mion 
excess payments. 
In 1989, Medicare paid $406 milion for medical supplies biled under procedure codes 
A4000 through A4999. Approximately 43 percent of this $406 milion, or $175 milion 
was paid by outside carriers. Resident carriers 
processed 75 percent of medical supply 
items and accounted for 57 percent of the payments. The remaining 25 percent of 
medical supply items were processed by outside carriers and accounted for 43 percent 
of the payments. 
Our analysis indicates that it 
may be financially
Carrier Selection and 
advantageous for bilers of
Payment Levels 
medical supplies to bil an

outside carrier rather than the 
resident carrier. The 149 
different medical supply items 
'OO'd.  'd.	 biled to Medicare in 1989 and 
described by procedure codes 
43%  A4000 through A4999 are, by 
and large, inexpensive 
Outside Carrier Outside Carrier disposable items, widely 
25%	 available through a number of
Total  Total  diverse sources, including mail
Payments  Services 
order houses. The beneficiary, 
in most cases, would have no 
Reside carers account for  57%  of medical supply paymts and proces  75%  reason to purchase these items 
1M  ilem billed Outside carrers account for  43%  of paymts but only proces  outside their resident Medicare
25% of medical supply ilem. 
carrier s jurisdiction. 
Our analysis of the 1989 BMA fie for procedure codes A4000 - A4999 indicates that 
l were made by the Medicare program in 
excess payments totalling at least $22 milion
The total paid by outside carriers for medical supplies was $175 084 800. To determine how 
much would have been paid if the beneficiary s residence carrier had paid for the medical supplies 
instead of an outside carrier, we used the average allowed for a HCPCS by the beneficiary s residence 
carrier. In cases where the beneficiary s residence carrier did not pay for a specific HCPCS, the original 
amount allowed for that HCPCS was used to determine what would have been paid, Using this 
method, the total amount that would have been paid was $153 256 300, The amount of payment made 
in excess of what would have been paid by the beneficiary s residence carrier was $21 832 600,  1989. These excess payments would not have occurred if the medical supplies were 
paid by the carrier having jurisdiction over the beneficiary s residence. 
caer 
Finding #2: Point of sale compromies  program safeguards. 
All of the carriers we intervewed believe that Medicare 
s point of sale policy 
detrimental to the program. The carriers believe that point of sale: 
results in excessive payments; 
enables suppliers to avoid close carrier scrutiny; 
inhibits their ability to make medical necessity decisions; and 
contributes to duplicate payments for medical supplies. 
Carriers report that they receive requests from suppliers, trade publications and 
consultants concerning their medical supply fee schedules, prevailing charge rates and 
coverage policies. Suppliers then use the information they gain from pollng the 
carriers to decide where to set up business. Establishing an office in a carrier 
jurisdiction can be easy and relatively inexpensive. Telephone answering servces, call 
forwarding and mail drops allow suppliers to ostensibly conduct business in one 
carrier s jurisdiction, while its operations are actually based in another carrier 
jurisdiction. 
Carriers feel that suppliers take advantage of jurisdictional loopholes, created by point 
, to bil carriers that either pay the most or have the most liberal coverage 
of sale
policies. All 11 carriers believe that suppliers use point of sale to get their claims 
the carrier which wil benefit them financially. Many of the carriers believe that point 
of sale has financially harmed the Medicare program. 
Point of sale enables suppliers to establish multiple business locations in multiple

carrier jurisdictions. These multiple locations enable some suppliers to manipulate 
carrier program safeguards. Carriers report that some suppliers find out a carrier 
tolerances for a medical supply item and then bil up to that tolerance. When one 
carrier s tolerance level is reached, suppliers simply change carriers and 
bil until that 
carrier s tolerance is reached. Suppliers placed on pre or post-payment review by one 
carrier often establish a new base of operations in another, unsuspecting, carrier 
jurisdiction. 
Many carriers attempt to contact their counterparts in other parts of the country to be 
on the alert for problem suppliers who leave their jurisdiction. Their efforts to track 
and control fraudulent and abusive suppliers are hampered by point of sale and the 
ease with which suppliers can conceal their identity by doing business under another 
name.  Point of sale also hinders carrier efforts to ensure that the number of medical supplies 
provided to a beneficiary are reasonable and medically necessary. The accuracy of 
payments made for medical supplies depends, to a great extent, on Medicare carrier 
systems and personnel' s ability to identify suspect services and intervene in their 
payment. Point of sale results in carriers receiving claims from all over the United 
States. The carriers who receive claims on behalf of beneficiaries residing outside 
their jurisdiction have no payment history or other information on which to make 
coverage or use decisions. This makes review of claims for medical necessity very 
complex, costly and time consuming, often relying on coordination of efforts and 
information by more than one carrier. 
Finally, point of sale increases the risk of duplicate payments. Eight of 11 carriers 
have found evidence of duplicate biling. One of these carriers has evidence indicating 
that duplicate payments are being made by carrers for medical supplies provided to 
beneficiaries receiving Medicare skilled nursing benefits. The most common duplicate 
fraudulent suppliers that fragment or unbundle 
biling cited by carriers involves 
medical supplies sold in kits. The kit is biled to one carrier and individual 
components of the kit are biled  that duplicate payments 
to another. Carriers believe 
caused by unbundling would be less likely to go undetected if current 
point of sale 
policies were abandoned by Medicare. 
The Medicare program has paid at least $22 milion in excess payments due to point 
of sale polices which allow large suppliers to shop around and locate their business 
operations in areas serviced by carriers that pay more and/or have more liberal 
coverage policies. Point of sale policies have also made the Medicare program 
vulnerable to duplicate payments and supplier actions which circumvent carrier 
utilization safeguards. Duplicate payments and inability of carriers to control use wil 
add to the amount of money Medicare has lost under the current point of sale policy. 
Finding #3: Point of sale increases the rik of fraud, abuse and waste. 
Differences in carrier reimbursement rates for medical supplies has led to a number of 
schemes designed to financially enrich some suppliers. One such scheme involves the 
purchase of sales receipts from suppliers in lower paying carrier jurisdictions. These 
sales are then submitted for reimbursement to higher paying carriers. 
Another scheme, investigated by the Offce of Investigations (01), involved a supplier 
that made initial contacts with beneficiaries at their homes. The first bil for medical 
supplies was sent to the carrier having jurisdiction for the beneficiary s residence. In 
subsequent months, beneficiaries received calls from company offices in other States. 
Bills were then submitted to the carrier having jurisdiction of the office where the 
phone call was made. By rotating biling through four different carriers, this supplier 
not only was able to bil the best paying carriers, but also avoided detection for 
providing supplies in excess of patient needs. The scheme was uncovered by the  carriers but their efforts were hindered by the number of different aliases and provider 
numbers used by the supplier. 
Other schemes investigated by or involve medical suppliers who not only 
circumvented program safeguards but also blatantly falsified c1aims  One criminal case 
involved $4 million in Medicare payments for incontinence supplies. These 
incontinence supplies turned out to be no more than diapers and 35 to 60 cents worth 
of plastic gloves, towellettes and iodine swabs in a plastic bag. The or found that as 
carriers stopped paying or cut payments because the volume of servces being 
provided to individual patients appeared excessive, the supplier simply moved to 
another State and began billng another carrier with a new provider number. 
The or has also successfully prosecuted suppliers who fraudulently received duplicate 
payments by biling one carrier for medical supply kits and another carrier for the 
individual components in the kits. Other cases involving duplicate payments 
kickbacks, forged certificates of medical necessity and shady business arrangements are 
under investigation.  RECOMMENDATION

The current system for determining carrier jurisdiction for the payment of medical 
supplies results in a financial loss to the Medicare program. 
The HCF A should have all bils for medical supplies submitted to the carrier 
having jurisdiction over the beneficiary s residence rather than point of sale. 
Additional savings would also accrue to the Medicare program if the same policy were 
applied to all of the items considered DMEPOS. 
AGENCY COMMNT ON lHS REPORT 
The HCFA and the Assistant Secretary for Planning and Evaluation (ASPE) were 
asked to comment on the draft of this report. Both ASPE and HCF A concur with our 
recommendation. We are pleased that we have reached agreement on this important 
policy and that HCF A is planning to modify its regulations. The full text of ASPE' 
and HCF A's comments are contained in Appendix A.  APPENDIX A

Draf Report Comments and OIG Response  . ' .
. ' : -") -:

(1- DEPARTMENT OF HEALTH &. HUMAN SERVICES  OfC8 of the Secetay 
Washington . D. C. 20201 
AUG  1991 
: --,.  Ir 
' 
TO:  Richard P. Kusserow  1 
Inspector General
 .. J 
Assistant Secretary for 
FROM: 
planning and Evaluation

C.. 
SUBJECT:  OIG Draft Report: "Carrier Shopping" 
(OEI-05-91-00043) --CONCUNCE WITH COMMNT 
(OIG) report

I concur with the draft Office of Inspector General 
entitled "Carrier Shopping" which concludes that the current

system for determining carrier jurisdiction for the payment of

medical supplies results in a financial loss to the Medicare

program. 
In order for the r 
2port to be consistent with a HCFA proposed 
(i. e., 
rule on this subj ect  Carrier Jurisdiction for Claims for 
Supplies, 
Durable Medical Equipment, Prosthetics, Orthotics and 
Claims, 
and Clarification of Other Issues Involving Supplier 
point of delivery" 
BPO--102-P), I recommend that references to "
Given 
in the OIG report be changed to "beneficiary residence. 
meaning, this change 
that the two references reflect the same 
simply cuts down" on any confusion that might result by using

different references.

D. smith at 
If you have any questions, please contact Elise 
245-1870. 
rt( i)nA  i?JV
. Gerry
A  . - - : .: _-: ,=,. ,=-... ..".?-",  ' .-_-, --.  .-;--: -;: ",j..  
-..,.",
Heplth Care 
DEPARTMENT OF HEALTH &. HUMAN SERVlq  CEiVEu  ancing Administration 
uir :VL. I.' I;  .. i 1 
Memorandum 
"'nIlIG 
I 6 
3: 2

SEP I 6 1991 
Date

From

D. q 
Gail R. Wilensky, Ph.
Admistrator 
Subject 
Report: "Caer Shopping," OEI-05-91-O43 
OIG Draf Management Adviory 
Inspector General 
Offce of the Secreta 
We have reviewed the subject draf management advory report which 
Cae Financing Admtrtion s (HCFA) current 
descnbes how the Health 
prosthetics, orthotics and supplies ,(DMEPOS) 
durable medical equipment, 
" Under the "point 
" encourages "caer shopping.
biling policy of "point of sale
Medicae caer who has jurdiction 
of sale" policy, DMEPOS suppliers bil the 
over the site where the medical supplier met with the beneficiar or received 
the beneficiar s call. "Carrer shopping" refers to the practice of DMEPOS 
learg 
suppliers  which carrers pay the most for an item, and establihig a 
maxe 
s payments 
billng offce in that caer s jurisdiction to  the supplier 
from the Medicae program. 
DMEPOS 
The report found that the "point of sale" billig policy for 
Inspector Genera (OIG) recommends that 
should be changed. The Offce of 
caer 
havig 
HCFA should have all bill for DMEPOS submitted to the 
" rather than the "point of sae." HCF A 
jurisdiction over the "point of delivery
agrees that the "point of sale" policy must be changed. However, we do not

HCFA

concur with the OIG recommendation as it is curentl worded. 
advocates a policy of ''beneficiary residence " rather than "point of delivery

consideration.

Our specific comments are attached for your 
Than  comment on ths report.

you for the opportunty to review and 
Please adve us if you agree with our position on the report s recommendation

at your earliest convenience. 
HHS/OIG
Attachment	 PDIG  OFFICE OF EVALUATION

- ROV

DIG- AND INc;Pj:T.TI0N 
DIG-EI

SEP 25 1991 
DIG

AIG

OOO/1G

EX SEC
 V'
'iIU,
DATE SENT 
 Comments of the Health Care Financing Admistration 
(HCFA) on the OIG Draft Management Advsory 
91-03 
Report - "Carrer Shopping." OEI-05-
Recommendation 
caer 
The HCF A should have all bils for medical supplies submitted to the 
delivery rather than point of sale. 
having juridiction over the point of 
HCFA Response 
HCF A agrees that the "point of sale" policy should be chaged. OIG's report 
caer 
support the decision that we have made to implement changes in the 
cla 
jurdicton  for durable medica equipment, prosthetics, 
policy for 
orthotics and supplies (DMEPOS). However, we are concerned that OIG is 
termology " " We believe a more accurte 
using the  point of deliveryt.h 
description of the policy evaluated by  report is ''beneficia residence. 
Whe most beneficiares wi have mai and telephone ordered items deliered 
with 
to their homes, or the nuring home  which they reside, some companies 
deliver to saes outlets, and the beneficiares pick-up the ordered items. Under 
the "point of deliery" policy, suppliers could stil manpulate the actual delivery 
site. HCF A would concur with thi recommendation, if the term "point of 
delivery" was changed to ''beneficiar residence. 
General Comments 
The OIG estimates that $26 miion more was paid in 1989, under the "point of 
sale" policy than would have occurred under a "beneficiar residence" policy. 
During HCFA's study on carrer shopping, we estimated that the savigs for 
1 year would be $2-3 mion. We believe that OIG should evaluate the effects 
their savigs estimate accrdingl: 
of the followig points and adjust 
Most of the dierence between HCF A's and OIG's savigs figures 
resulted because OIG used the dierence in the average price paid 
caers 
per unit by the resident and outside  for each code. 
caers 
However, the unts used by diferent  for these codes are 
not necessariy comparable. If the units are not equal, a diference 
caers 
between the average price paid per unit by the diferent 
would not produce meanigfl results. 
A  Page 2

tae 
This methodology also does not  into accunt the "cap 
amount that ca be paid for dialysis 
placed on the tota 
Th 
month. 
supplies per patient per  proviion, which 
became effective in 199, must be considered when 
developing a "savigs" estimate. 
o OIG's sample caers for the study were not radomly chosen. To 
caers 
chosen for the study should be 
project national savigs, the 
Alo, the saple size of the 
representative of the entire nation.  clai 
actua paid clai was too sma. Onl 1 percent of paid 
bilg 
for caenda year 1989 were usd, and onl 149 national 
codes out of over 1,500 codes coerig the fu rage of DMEPOS 
estite 
s savigs  is based on a 100 
were examied. HCF A'
saple. 
percent 
o Of the 149 coes examined by OIG, 38 are included in the 
The amounts paid for these 
prosthetic and ortotic fee schedule. 
items are being reduced closer to the national averae amount by 
the litig price proviions in secion 4153 of the Ombus Budget 
caer 
Accrdingly, the new 
Reconcilation Act of 199. 
juriction policy will produce only lited savigs with respect to 
these coes. 
Only 86 coes studied by GIG are for supplies that are neither 
reimburment. 
coered by the fee schedule nor subject to capped 
clai 
In HCF A's study, paying  for these coes under "beneficiar 
residence" rues rather than "point of sae  rues would have 
00 
produced onl $200, in savigs. 
selected by GIG for study was not appropriate
The rage of coes 
beus  conta 
the codes for hemodalysis supplies. 
the range 
bilg 
State  for hemodialysis supplies 
The high incidence of out-of-
is due to the fact that these supplies are not generally avaable 
clai 
We do not believe these  should 
except through mail order. 
have been included in the study because it is impossible to 
bilg 
separate the effects of the appropriate out-of-State  for these 
supplies and any incidence of "caer shopping. 
o A ' " policy would increase payments to many 
'bneficiary residence
equipment and prosthetic companes. 
small companies, priarily 
A  .. 
no " 
OIG Response to ASPE and RCF A comments 
Both ASPE and RCFA concur with our recommendation. We are pleased that we 
have reached agreement on this important policy and that RCF A is planning to 
modify its regulations. 
Both ASPE and RCF A  wordig of our 
suggested changing the  recommendation from 
point of delivery" to ''beneficiary residence.  We agree with this suggestion and have 
changed the wordig of our recommendation. 
At our own intiative, we recalculated our cost estimate using the same methodology 
as used by RCFA in its study. This resulted in a more conservative cost estimate of 
$22 milion versus the $26 milion in our 
original draft report. 
The RCF A had a number of comments regarding our methodology and its resulting 
cost estimate. Primarily, RCFA feels our sample size was inadequate because it did 
not included all DMEPOS procedure codes. The RCF A feels that our sample over 
estimates the extent of the problem. Their Carrer Jurisdiction study estimated that 
savings for one year would be $2-3 milion if the policy were changed from "point of 
sale" to ''beneficiary residence. 
Considerable differences exist between RCF A's study and our study which could have 
a direct bearing on cost estimates.

The RCFA used 1500 DMEPOS RCPCS codes. Many of which are unlikely to 
be bought out of area. Based on our intervews with the carriers, we targeted 
the 179 RCPCS acceptable to the Medicare program in the A4000 - A4999 
procedure code range. We found that 149 of these 179 RCPCS were biled in 
1989. 
Analysis of the RCFA study indicates that 24 of the top 
100 procedure codes 
biled to an outside carrer were included in our study. While these 24 codes 
represent 15.5 percent of dollar volume for the top 100 codes in RCF A's study, 
they represent 40.5 percent of all out of area spending. These numbers also 
suggest that much of the carrier shopping occurs within the procedure codes we 
used in our study.

Approximately 30 percent of data RCF A collected for its study was 
classified as 
outlier data and excluded from RCF A's analysis because extreme variations in 
carrier payments existed. Except for 87 line items where we could not identify 
the carrier for the beneficiary s residence, no data in the range of codes we 
studied was excluded from our analysis. 
The RCFA used 9 months of 1988 claims data. We sampled 12 months of 
BMA 
1989  data. 
A  When HCF A was unable to identify the benefiCiaries residence they considered 
the claim to have been paid as an in area claim. We excluded cases where we 
were unable to identify the carrier for the beneficiary residence. 
The HCFA points out that our selection of carriers was not random. We agree, our 
sample of carriers was not randomly chosen. The 11 carriers were chosen solely for 
the collection of qualitative data. Their considerable experience in processing medical 
supply claims was a valuable source of information for this study. However, we did 
not base our estimate of losses on these 11 carriers. Our estimate is based on 
BMA 
statistically valid  sample. 
The HCF A also believes that ESRD data is over represented in our  Mter 
sample. 
discussing this issue with HCFA personnel, we examined the effect of ESRD patients 
on our dollar projections. We found that 19 of the 34 procedure codes listed as 
ESRD supplies were paid by the resident carrer in 
1989; they were not out of state 
bilings. 
The HCF A admits in the executive summary of their study that: 
A total savings of under $5 milion seems unreasonable since during the 
last year over $2 milion in overpayments have been assessed against a 
few urological companies for not complying with carrier jurisdiction 
rules. 
Our study did not attempt to project potential dollar savings; our estimate reflects 
losses due to the "point of sale" policy in 1989. We cannot attribute differences in 
HCFA' s and our estimates to any single factor. We believe the method we used to 
arrive at our projections is valid and stand by our estimate that the Medicare program 
lost nearly $22 milion in 1989. 
Carrier Jurisdiction Study, September 1990, pg 3. 
A