Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare Reimbursement for 
Hospital Beds in the Home 
Payment Methodology 
JUNE GIBBS BROWN 
Inspector General 
NOVEMBER 1998 
OEI-07-96-00222  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 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 Regional Office prepared this report under the direction of James H. Wolf, 
Regional Inspector General.  Principal OEI staff included: 
REGION  HEADQUARTERS 
Perry A. Seaton, Team/Project Leader  Lisa A. Foley, Program Specialist 
Tim Dold, Team Leader  Stuart Wright, Associate Director 
Barbara Tedesco, Mathematical Statistician 
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.dhhs.gov/progorg/oei  E X E C U T I V E  S U M M A R Y

PURPOSE 
To compare Medicare's rental reimbursement methodology and utilization patterns for hospital 
beds used in the home to policies utilized by other Federal, State, private insurance companies, 
and managed care organizations. 
BACKGROUND 
The Medicare Supplemental Medical Insurance program pays for the rental or purchase of 
medically necessary Durable Medical Equipment (DME) used in a beneficiarys home when 
determined by a physician to be medically required.  Suppliers receive monthly reimbursement 
from the Medicare Durable Medical Equipment Regional Carriers based upon a fee schedule. 
This schedule is limited by the Health Care Financing Administrations (HCFA) established 
national payment ceilings, and is adjusted annually for inflation based upon the Consumer Price 
Index.  Certain categories of DME, including hospital beds, are reimbursed as capped rental 
items.  The fee schedules reimburse a supplier: 
C  10 percent of the allowed purchase price for new equipment for each of the first 3 
months of rental; and 
C  7.5 percent of the allowed purchase price for new equipment for each of the 
remaining months for which Medicare will make payment. 
We surveyed sampled entities from Medicare risk managed care organizations, Medicaid State 
Agencies, the top 50 health insurance companies as ranked by policies in force, and a listing of 
companies providing national and local coverage in the Federal Employees Health Benefits 
program.  Overall, we achieved an 82 percent response rate. 
This is one of two reports examining Medicares policies and reimbursement for hospital bed 
equipment.  A companion report, Medicare Reimbursement for Hospital Beds in the Home: 
Prices OEI-07-96-00221, compares the reasonableness of Medicares reimbursement rates for 
this equipment to those of other medical insurance payers. 
FINDINGS 
Only Medicare Provides Suppliers Enhanced Reimbursement for Initial Rental Months 
Of the respondents surveyed, Medicare was the only insurer that allows a higher rate of 
reimbursement for rental periods lasting less than 4 months (10 percent of the allowed charge for 
purchase as compared to 7.5 percent of the allowed charge for purchase for rentals lasting from 
4 to 15 months duration). 
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i  Almost Half of Medicare Beneficiaries Only Rent Beds During Enhanced Payment Months. 
Claims information from January 1995 - December 1996 established that 47 percent of the 
Medicare beneficiaries rented beds for 3 months or less, two-thirds rented for 7 months or less, 
and only 12 percent completed 15 months of rental.  The relative short rental periods for 
Medicare patients means that the enhanced rate, which the program pays for the first 3 months, is 
an important reason Medicare pays more for hospital bed rental than other payers. 
Medicare and Most Other Payers Cap the Duration of the Rental Period and the Amount 
Paid 
Medicare caps rental reimbursement at 15 rental months.  This policy is comparable to industry 
practices that limit both the duration and amount of rental reimbursement for hospital beds. 
Of the 74 respondents, 72 (97 percent) pay for the rental of hospital beds used in the home, with 
56 (75.7 percent) capping the duration of rental. 
RECOMMENDATION 
Eliminate Enhanced Rates for the First 3 Rental Months 
The HCFA should seek legislation to eliminate the 2.5 percent enhanced rate for the first 
3 months of rental.  We estimate Medicare would annually save approximately $15 million. 
Projected over 5 years, Medicare would save over $74 million. 
We realize that legislative action could take some time.  Therefore, in the interim, we recommend 
that HCFA use the authority under the Balanced Budget Act of 1997 to reduce rates overall. 
This action would make Medicares method of payment comparable to methods used by other 
payers.  This is further explained in the companion report.  Overall, we believe that a combination 
of both approaches would be best.  However, the savings would not be additive. 
The savings estimates are based on CY 1996 payments and are not indexed for inflation. 
AGENCY COMMENTS 
The HCFA concurs with the intent of our recommendation.  However, it is deferring a decision 
on this matter pending receipt of information on hospital bed pricing.  At that time, HCFA will 
assess whether the approach presented in our report is appropriate or whether an alternative 
pricing method is preferable.  Appendix D contains the complete text of these comments.  We 
remain available to provide technical assistance to HCFA on this issue. 
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ii  T A B L E  O F  C O N T E N T S

PAGE 
EXECUTIVE SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Only Medicare Provides Enhanced Reimbursement for Initial Rental Months  . . . . . . . . .  5

Almost Half of Beneficiaries Only Rent Beds During Enhanced Payment Months . . . . . .  5

Medicare and Most Other Insurers Cap the Duration and Amount of Rental  . . . . . . . . .  5

RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7

COMMENTS ON THE DRAFT REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

APPENDICES 
A: Entities Included In the Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

B: Sample Response Rate  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1

C: Calculation of Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  C-1

D: Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
 I N T R O D U C T I O N

PURPOSE 
To compare Medicare's rental reimbursement methodology and utilization patterns for hospital 
beds used in the home to policies utilized by other Federal, State, private insurance companies, 
and managed care organizations. 
BACKGROUND 
The Medicare Supplemental Medical Insurance program pays for the rental or purchase of 
medically necessary Durable Medical Equipment (DME) used in a beneficiarys home when 
determined by a physician to be medically required.  Certain categories of DME, including 
hospital beds, are reimbursed as capped rental items. 
Medicare Reimbursement Methodology for DME 
Medicare Part B pays for the rental or purchase of durable medical equipment (DME), used in the 
patient's home when determined by a physician to be medically required.  There are six payment 
categories: 
C  Inexpensive or other routinely purchased equipment;

C  Items requiring frequent and substantial servicing;

C  Customized items;

C  Other prosthetic and orthotic devices;

C  Oxygen and oxygen equipment; and

C  Capped rental items.

Medicare's Policies for Capped Rental DME 
Capped rental items include hospital beds, wheelchairs, support surfaces and other pieces of 
DME.  Suppliers receive monthly reimbursement from the Medicare Durable Medical Equipment 
Regional Carriers (DMERC) based upon a fee schedule.  This schedule is limited by the Health 
Care Financing Administrations (HCFA) established national payment ceilings, and is adjusted 
annually for inflation based upon the Consumer Price Index.  The fee schedules reimburse a 
supplier: 
C  10 percent of the allowed purchase price for new equipment for each of the first 3 
months of rental; and 
C  7.5 percent of the allowed purchase price for new equipment for each of the 
remaining months for which Medicare will make payment. 
Under Medicare capped rental DME rules, a hospital bed is initially furnished to a beneficiary as a 
rental item.  The beneficiary is offered the option of purchasing a new or used bed at the 
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1  10th rental month, which is effective with the 14th month.  If the beneficiary uses a purchased bed 
for its entire useful life, the item can be replaced and Medicare will reimburse the supplier for the 
replacement equipment.  Medicare currently recognizes a 5 year useful life for hospital beds. 
If the beneficiary elects to continue to rent the bed, Medicare payments will end upon completion 
of the 15th month.  After rental payments end, Medicare will pay for necessary servicing and 
maintenance of capped rental equipment once every 6 months (which cannot exceed the charge 
for a 1 month rental).  When the hospital bed is no longer needed by the beneficiary (due to death 
or medical improvement) the supplier is free to reclaim the used item for rental or sale to other 
clients. 
Medicare's Payment for Capped Rental DME 
Medicare allowed charges for all capped rental items totaled $886 million in 1995.  There are 
16 codes for hospital beds and Medicare's allowed charges for these codes totaled more than $287 
million in 1995. 
Table 1 is a summary of the Medicare fee schedule.  Medicare allows 105 percent for a purchased 
item or 120 percent if rented through the 15th month. 
Table 1 
Medicare Reimbursement Schedule for Capped Rental Items 
Rental Month  Percent of Fee Schedule  Cumulative Percent 
1 10.0%  10.0% 
2 10.0%  20.0% 
3 10.0%  30.0% 
4 7.5%  37.5% 
5 7.5%  45.0% 
6 7.5%  52.5% 
7 7.5%  60.0% 
8 7.5%  67.5% 
9 7.5%  75.0% 
10 7.5%  82.5% 
11 7.5%  90.0% 
12 7.5%  97.5% 
  13 1  7.5%  105.0% 
14 7.5%  112.5% 
  15 2  7.5%  120.0% 
1  If elected, the purchase option is effective with the 14th rental month. 
2  Rental payments terminate upon completion of the 15th rental month. 
In 1996 the DMERC allowed charges of over $272 million for the four categories of hospital beds 
included in this study.  Semi-electric beds (code E0260) comprised 86 percent of this total while 
total electric beds accounted for less than one-half of one percent (refer to Table 2). 
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2  Table 2

Allowed Charges for Hospital Beds

January 1, 1996 - December 31, 1996 1

Manual Hospital Bed (E0250)
 $7,085,989 
Manual Adjustable Hospital Bed (E0255)
 $30,720,446 
Semi-Electric Hospital Bed (E0260)
 $233,607,390 
Total Electric Hospital Bed (E0265)
 $1,084,068 
Total:  $272,497,893 
1 Source: Statistical Analysis DMERC (Palmetto Government Benefits Administrators) 
Previous Office of Inspector General (OIG) Study 
A May 1993 OIG report, Review of Medicare Part B Reimbursement of Hospital Beds, 
A-06-91-00080, found that Medicare reimbursement rates for capped rental hospital beds were 
excessive because HCFA failed to take into account the useful life of the bed and how many times 
it can be rented.  The OIG estimated Medicare savings of $6.2 to $7.8 million in just one State. 
HCFA did not accept OIG's recommendations to change the way they reimburse for hospital beds 
in part because the study was limited to rentals in only one State. 
METHODOLOGY 
We researched the Federal laws, regulations and HCFA policies that cover the establishment, 
reimbursement, and purchase options for capped rental hospital beds.  We also reviewed various 
private and governmental entities reimbursement methodologies for these items. 
We obtained listings of Medicare risk managed care organizations (MCOs), Medicaid State 
agencies, the top 50 private health insurance companies in the United States as ranked by number 
of policies in force, and a listing of the companies providing national and local coverage in the 
Federal Employees Health Benefits Program.  We selected a sample from each of these groups to 
request completion of a mailed survey questionnaire (for MCOs we included in the universe only 
those with 450 or more members).  For the sampled private insurance companies which have 
multiple components, we surveyed their private, MCO, and government insurance divisions.  In 
total, we contacted 90 entities. 
As a means to obtain direct information and validate it, we selected a sub-sample from each of the 
above organizations for on-site visits.  The criteria for selection was based upon size, location, 
and proximity to other on-site contacts for economy of travel.  In addition, we sent surveys to the 
Department of Veterans Affairs, the Indian Health Service, and the Department of Defense Tri-
Care program , formerly the Office of Civilian Health and Medical Program of the Uniform 
Services (CHAMPUS). 
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3  As part of all surveys, we requested the entities' written procedures and policies for 
reimbursement methods, schedules, and rates for the following types of new and used hospital 
beds: 
C  Manual Hospital Bed  (HCPCS Code E0250) 
C  Manual Adjustable Hospital Bed  (HCPCS Code E0255) 
C  Semi-Electric Hospital Bed  (HCPCS Code E0260) 
C  Total Electric Hospital Bed  (HCPCS Code E0265) 
We inquired if these purchasers of hospital beds maintain on-going data or have conducted studies 
to address supplier costs (i.e., equipment acquisition, delivery, setup, patient education, 
maintenance, tear down, pick up, sanitation, billing, supplier profit and life of the product).  We 
also asked if they are utilizing competitive bidding for either the rental or purchase of these items. 
Any unclear responses were clarified by telephone and follow up contacts were made to non-
responders.  Overall we achieved a 82 percent response rate.  Appendix A breaks out the various 
entities surveyed and identifies responders by sample category.  It should be noted that since all 
responders did not provide answers to each question on the survey instrument, we reported our 
data based on the percentage of responders who answered the question.  Appendix B lists the 
response rates for each of the sample categories. 
We queried the Medicare DMERC to validate particular aspects of claims processing for rented 
hospital beds.  We also requested information on payment methodology for capped as compared 
to non-capped items. 
We utilized a 1 percent sample of HCFA's National Claims History File for January 1994 through 
March 1996 to obtain information on beneficiary rental patterns for the four procedure codes 
listed in Table 2 (E0250, E0255, E0260, and E0265).  The Statistical Analysis Durable Medical 
Equipment Regional Carrier (SADMERC) updated this information for rentals commencing in 
1995. 
This is a companion report to Medicare Reimbursement for Hospital Beds in the Home: 
Prices OEI-07-96-00221, which compares the reasonableness of Medicares reimbursement for 
rental of hospital beds to other Federal, State, private insurance companies and managed care 
organizations. 
We conducted our review in accordance with the Quality Standards for Inspections issued by 
the Presidents Council on Integrity and Efficiency. 
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4  F I N D I N G S

ONLY MEDICARE PROVIDES SUPPLIERS ENHANCED REIMBURSEMENT FOR 
INITIAL RENTAL MONTHS 
Medicare is the only insurer that allows a higher rate of reimbursement for rental periods lasting 
less than 4 months (10 percent of the allowed charge for purchase as compared to 7.5 percent of 
the allowed charge for purchase for rentals lasting from 4 to 15 months duration).  When we 
compared Medicares rental reimbursement for the first 3 months of rental to the rates paid by 
other insurers.  We found that Medicares rates for months 1 - 3 were from 18 percent to 
38 percent higher 
ALMOST HALF OF MEDICARE BENEFICIARIES ONLY RENT BEDS DURING 
ENHANCED PAYMENT MONTHS. 
We analyzed claims information from 1994 through 1995 and determined that 47 percent of the 
Medicare beneficiaries rent beds for 3 months or less, two-thirds rent beds for 8 months or less, 
and only 16 percent complete 15 months of rental. 1 
The chart on the following page depicts the declining duration of rental for the four hospital beds 
surveyed in this study.  As is noted, the majority of the rentals are semi-electric, with very few 
total-electric beds rented after the second month. 
MEDICARE AND MOST OTHER PAYERS CAP THE DURATION OF THE RENTAL 
PERIOD AND THE AMOUNT PAID 
Three-fourths of the Payers Cap the Duration of the Rental Period 
Medicare caps the duration of rental at 15 rental months.  Total reimbursement is limited to 
120 percent of the purchase price of the bed.  This method of payment is comparable to industry 
practices that limit both the duration and amount of rental reimbursement for hospital beds. 
Of the 74 respondents, 72 (97 percent) pay for the rental of hospital beds used in the home, with 
56 (75.7 percent) capping the duration of rental.  Over half (38 of 74 respondents) limit rental 
payments to 12 months or less.  Sixty percent (44 respondents) limit the aggregate rental 
payments for each rental period to the purchase price of the item. 
1 The SADMERC updated this information for claims with dates of service from January 
1995 through December 1996 and found that the duration of rental remains virtually 
unchanged from the 1994/1995 data with half of the Medicare beneficiaries rented beds 
for 4 months or less, two-thirds rented for 7 months or less, and only 12 percent 
completed 15 months of rental. 
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5  Duration of Monthly Hospital Bed Rental

by Medicare Beneficiaries

(January 1995 - December 1996)

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6  R E C O M M E N D A T I O N

Eliminate Enhanced Rates for the First 3 Rental Months 
The HCFA should seek legislation to eliminate the 2.5 percent enhanced rate for the first 
3 months of rental. We estimate Medicare would annually save approximately $15 million. 
Projected over 5 years, Medicare would save over $74 million. 2 
We realize that legislative action could take some time.  Therefore, in the interim, we recommend 
that HCFA use the authority under the Balanced Budget Act of 1997 to reduce rates overall. 
This action would make Medicares method of payment comparable to methods used by other 
payers.  This is further explained in the companion report.  Overall, we believe that a combination 
of both approaches would be best.  However, the savings would not be additive. 
Our calculations for these savings are described in detail in Appendix C. 
AGENCY COMMENTS 
The HCFA concurs with the intent of our recommendation.  However, it is deferring a decision 
on this matter pending receipt of information on hospital bed pricing.  At that time, HCFA will 
assess whether the approach presented in our report is appropriate or whether an alternative 
pricing method is preferable.  Appendix D contains the complete text of these comments.  We 
remain available to provide technical assistance to HCFA on this issue. 
2	 These savings estimates are based on calendar year 1996 payments and are not indexed 
for inflation. 
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7  APPENDIX A

ENTITIES INCLUDED IN THE SAMPLE

PRIVATE INDEMNITY COMPANIES

Name  State  Response Received 
Aetna Life and Casualty Co  CT  Y 
Blue Cross & Blue Shield of Florida  FL  Y 
Blue Cross & Blue Shield of Michigan  MI  Y 
Blue Cross & Blue Shield of Texas, Inc.  TX  Y 
Empire Blue Cross Blue Shield  NY  N 
Metropolitan Life Insurance Company  FL  Dropped (sold to United 
Health Care) 
Mutual of Omaha  NE  Y 
New York Life Insurance Company  NE  Y 
Prudential Insurance Company of America  PA  N 
United Health Care (formerly Travelers)  CT  Y 
Total Companies: 10  Total Responders: 7 
MEDICAID STATE AGENCIES 
Name  State  Response Received 
Arizona Health Care Cost Containment System 1  AZ  Y 2 
Department of Human Services 1
 HI  Y 
Department of Human Services
 ID  Y 
Department of Health & Mental Hygiene
 MD  Y 
Division of Medicaid
 MS  Y 
Department of Human Services
 ND  Y 
New Mexico Human Services Department
 NM  Y 
Department of Social Services
 NY  Y 
Department of Human Services 1
 OH  Y 
Department of Human Services
 WI  Y 
Total States: 10
 Total Responders: 10 
1  Medicaid  1115 Waiver State

2  The Arizona Health Care Cost Containment System (the Medicaid State Agency) has seven subcontractors 
who  provide Medicaid Coverage. Ventana Health Systems, provided the only response. This contractor 
furnishes  Medicaid health care to 7 of 15 Arizona Counties. 
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A - 1  FEDERAL EMPLOYEE HEALTH BENEFITS PROGRAM--LOCAL PLANS

Name  State  Response Received 
Foundation Health  CA  Y 
CIGNA Healthcare of Colorado  CO  N 
Health New England  CT  N 
Suburban Health Plan, Inc.  CT  Y 
Exclusive Health Care  IA  Y 
BCI HMO, Inc  IL  Y 
Personal Care Blue Shield HMO  IL  Y 
Advantage Care, Inc.  KY  Dropped--No longer 
participating in FEHB 
Plans. 
HMO Maine  ME  Y 
AETNA Health Plans of the Mid-Atlantic States  MD  Y 
Health Alliance  MI  N 
Prudential Health Care HMO  MO  N 
United Health Care Select  MO  Y 
Exclusive Health Care  NE  Y 
FHP New Mexico  NM  Y 
Presbyterian Health Plan  NM  N 
GHI Health Plan  NY  Y 
Healthsource HMO of New York  NY  Y 
Independent Health Association  NY  Y 
Personal Care Plan of North Carolina  NC  Y 
PHP, Inc.  NC  Y 
HMO Health Ohio  OH  Dropped--No longer 
participating in FEHB 
Plans. 
Prudential Northern Ohio  OH  Y 
Pacific Care of Oregon  OR  N 
United Health Plans of New England  RI  Y 
Harris Methodist  TX  Y 
HMO Blue  TX  Y 
Total Companies Contacted: 25 3  Total Responders: 19 
3 Total does not include the two companies that no longer participate in the Federal Employees Health 
Benefits Program. 
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A - 2  FEDERAL EMPLOYEE HEALTH BENEFITS PROGRAM--NATIONAL PLANS

Name  Response Received 
Alliance
 Y 
American Postal Workers Union (APWU)
 Y 
Blue Cross & Blue Shield
 Y 
Government Employees Hospital Association (GEHA)
 Y 
Mail Handlers
 Y 
National Association of Letter Carriers (NALC)
 Y 
Postmasters
 Y 
Association Benefit Plan
 Y 
BACE
 Y 
Foreign Service
 N 
Panama Canal Area
 Y 
Rural Carrier Benefit Plan
 Y 
Special Agents Mutual Benefit Association (SAMBA)
 Y 
Secret Service
 N 
Total Companies: 14  Total Responders: 12 
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A - 3  MEDICARE RISK HEALTH MAINTENANCE ORGANIZATIONS

Name  State  Response Received 
Health Partners of Alabama
 AL  Y 
Blue Cross of Arizona
 AZ  Y 
Blue Cross of California
 CA  N 
FHP, Inc.
 CA  N 
Foundation Health, A California Plan
 CA  Y 
Kaiser Foundation HP, Inc.
 CA  Y 
Kaiser Foundation HP of Colorado
 CO  Y 
Kaiser Foundation HP of NY
 CT  Y 
AV-Med Health Plan, Inc.
 FL  Y 
U.S. Healthcare Delaware
 DL  Y 
Health Alliance Plan of Michigan
 MI  N 
Partners National Health Plans of North Carolina, Inc.  NC  Y 
First Option Health Plan of New Jersey, Inc.
 NJ  Y 
CIGNA Healthcare of New York
 NY  Y 
Independent Health Plan, Inc
 NY  N 
NYLCARE Health Plans, Inc.
 NY  Y 
Family Health Plan, Inc.
 OH  Y 
Community Care HMO, Inc.
 OK  Y 
Kaiser Foundation of the Northwest
 OR  Y 
Geisinger Health Plan
 PA  Y 
Keystone Health Plan Central, Inc.
 PA  Y 
Qualmed Plans for Health, Inc.
 PA  Y 
U.S. Healthcare, Inc. - Delaware 
 PA  Y 
U.S. Healthcare Systems of Pennsylvania
 PA  Y 
IHC Care, Inc.
 UT  Y 
Total Companies: 25  Total Responders: 21 
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A - 4  OTHER FEDERAL GOVERNMENT HEALTH INSURANCE PROGRAMS 
Name  Response Received 
Indian Health Service (Department of Health & Human Services  Y 
Tri-Care (Department of Defense) 4  Y 
Railroad Retirement Board (RRB)  Dropped 5 
Department of Veterans Affairs (VA)  Y 
Total Government Programs in Sample: 6 4  Total Responders: 5 4 
4	 Tri-Care (formerly CHAMPUS) contracts with several insurance companies to administer the rate and 
method of reimbursement for claims filed under their program. Three of these contractors responded 
to our survey. Each was coded as a separate response, since payment rates are State specific. 
Comparisons were performed against Medicares rates for those States. 
5	 We dropped the Railroad Retirement Board (RRB) from the sample. Contact with them confirmed that 
retirees health claims are covered by Medicare and are processed by the DME Regional Carriers 
(DMERC). Therefore, HCFA policies for payment are followed and the reimbursement rates are the 
same as for non RRB Medicare clients. 
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A - 5  A P P E N D I X  B

SAMPLE RESPONSE RATE

Number in  Number 
Type of Health Insurer  Sample  Responding  Response Rate 
Private Indemnity Insurance  10  7  70% 
Medicaid State Agencies  10  101  100%1 
Federal Employee Local 
Insurance Plans  25  19  76% 
Federal Employee National 
Insurance Plans  14  12  86% 
Medicare Risk Health 
Maintenance Plans  25  21  84% 
Other Government Health 
Insurers  6  5  83% 
Total:  90  74  82% 
1 The Arizona Health Care Cost Containment System (the Medicaid State Agency) has 
seven subcontractors who provide Medicaid Coverage.  Ventana Health Systems, 
provided the only response.  This contractor furnishes Medicaid health care to 
7 of 15 Arizona Counties. 
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B - 1  A P P E N D I X  C

CALCULATION OF SAVINGS

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C - 1
 Breakout of DMERC 1996 Payments for the Hospital Bed Codes Surveyed 
Total Payments for  Total Payments for  Total Payments for  Total Payments 
DMERC  Rentals of only 1 Month  Rentals of Only 2 Months  Rentals of Only 3 Months  Rentals of 
Procedure Code  Payments 1996  Duration  Duration  Duration  4 - 15 Months Duration 
E0250  $7,085,989  $2,437,580  $836,147  $559,793  $3,252,469 
E0255  $30,720,446  $11,428,006  $3,102,765  $2,150,431  $14,039,244 
E0260  $233,607,390  $80,828,157  $28,266,494  $18,454,984  $106,057,755 
E0265  $1,084,068  $576,724  $106,239  $82,389  $318,716 
Total  $272,497,893  $95,270,467  $32,311,645  $21,247,597  $123,668,184 
Estimated Savings if Rental Reimbursement for Months 1 - 3 were Reduced 
From 10 Percent of Purchase Price to 7.5 Percent of Purchase Price 
Rentals of only  Rentals of only  Rentals of only  Rentals of 
1 Month Duration-- 2 Months Duration-- 3 Months Duration-- 4 - 15 Months Duration 
Procedure Code  Savings 1  Savings 2  Savings 3  Savings 4  Total Savings 5 
E0250  $60,940  $41,807  $41,984  $243,935  $388,666 
E0255  $285,700  $155,138  $161,282  $1,052,943  $1,655,064 
E0260  $2,020,704  $1,413,325  $1,384,124  $7,954,332  $12,772,484 
E0265  $14,418  $5,312  $6,179  $23,904  $49,813 
Total  $2,381,762  $1,615,582  $1,593,569  $9,275,114  $14,866,027 
1 The amount in this column reflect the 2.5 percent savings for beneficiaries who rented these DME items for only 1 month. 
2 The amount in this column reflect the 5 percent savings for beneficiaries who rented these DME items for only 2 months. 
3 The amount in this column reflect the 7.5 percent savings for beneficiaries who rented these DME items for only 3 months. 
4 The amount in this column reflect the 7.5 percent savings for beneficiaries who rented these DME items from 4 - 15 months. 
5 These savings estimates are based on calendar year 1996 payments and are not indexed for inflation. 
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C - 2  A P P E N D I X  D

AGENCY COMMENTS

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D - 1
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D - 2
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D - 3
 D - 4