Department of Health and Human Services
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
A R C
  EVIEW OF  LAIMS FOR 
 
C   R D
APPED  ENTAL  URABLE 
 
M E  
E  DICAL  QUIPMENT 
 
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
August 2010 
OEI-07-08-00550   
 E X E C U T I V E   S U M M A R Y  
OBJECTIVES
 
1.  To determine the extent to which Medicare erroneously allowed 
claims for routine maintenance and servicing of beneficiary-rented 
and beneficiary-owned capped rental durable medical equipment 
(DME). 
2.  To determine the extent to which Medicare erroneously allowed 
claims for repairs of beneficiary-rented capped rental DME. 
3.  To determine the extent to which Medicare allowed claims for 
repairs of beneficiary-owned capped rental DME that failed to meet 
payment requirements. 
4.  To determine the extent to which Medicare claims for repairs of 
beneficiary-owned capped rental DME were questionable (i.e., were 
missing information or had costly repairs relative to replacement 
costs). 
5.  To describe how certain DME supplier practices adversely affected 
beneficiaries with high-cost repairs. 
BACKGROUND 
DME is medical equipment that can withstand repeated use, serves a 
medical purpose, is not useful in the absence of an illness or injury, and 
is appropriate for home use.  Pursuant to statute, regulation, and CMS 
guidance, DME suppliers may receive payments for maintenance and 
servicing, including repairs, only in certain circumstances.  The Deficit 
Reduction Act of 2005 (DRA) made changes to some of the 
circumstances under which suppliers may receive payments for these 
services.  CMS contracts with Medicare Administrative Contractors 
(MAC) for processing and payment of Medicare claims. 
This study used three separate methodologies to address the five 
objectives:  (1) we reviewed the population of allowed routine 
maintenance and servicing claims and allowed claims for repairs of 
beneficiary-rented capped rental DME for the period 20062008 
(objectives 1 and 2), (2) we reviewed suppliers records for a sample of 
492 allowed claims for repair of beneficiary-owned capped rental DME 
in 2007 (objectives 3 and 4), and (3) we conducted structured interviews 
with beneficiaries and reviewed supplier records for high-cost repairs 
(allowed repair claims in excess of $5,000) in 2007 (objective 5). 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  i   
   
E X E C U T I V E   S U M M A R Y  
FINDINGS 
From 2006 to 2008, Medicare erroneously allowed $2.2 million for 
routine maintenance and servicing of capped rental DME with rental 
periods after implementation of the DRA.  Medicare erroneously 
allowed 31,939 maintenance and servicing claims amounting to 
$2.2 million.  Medicare has never allowed payments for maintenance 
and servicing for beneficiary-rented equipment, and the DRA effectively 
eliminated routine maintenance and servicing for beneficiary-owned 
DME with rental periods that began after January 1, 2006.    
From 2006 to 2008, Medicare erroneously allowed nearly $4.4 million 
for repairs for beneficary-rented capped rental DME.  Medicare 
erroneously allowed 40,452 claims amounting to nearly $4.4 million for 
repairs of beneficiary-rented capped rental DME.  Medicare has never 
allowed payments for repairs of beneficiary-rented capped rental DME; 
the costs of repairs are already included in the monthly rental payments 
to suppliers. 
In 2007, Medicare allowed nearly $27 million for repair claims of 
beneficiary-owned capped rental DME that failed to meet payment 
requirements.  Of the $90 million allowed for capped rental DME repair 
claims in 2007, nearly $27 million was for claims associated with 
payment errors.  Our review of supplier records indicate that 27 percent 
of allowed repair claims for beneficiary-owned capped rental DME in 
2007 lacked medical necessity, service, or delivery documentation or 
represented repairs to DME still under manufacturer or supplier 
warranties.  
In 2007, Medicare allowed nearly $29 million for questionable repair 
claims for capped rental DME.  Of the $90 million allowed for capped 
rental DME repair claims in 2007, nearly $29 million were for claims 
that were questionable because of missing information and high dollar 
allowed amounts for repairs relative to replacement costs.  These claims 
represent 49 percent of all allowed claims for repair of capped rental 
DME in 2007.   
Supplier practices adversely affected some beneficiaries with 
high-cost repairs.  Beneficiaries with high-cost allowed repairs with 
whom we spoke reported that some suppliers failed to properly 
customize power mobility devices (PMD), rendering the PMDs useless to 
them, and that other suppliers did not offer loaner equipment when 
repairing PMDs, leaving some beneficiaries immobile.  Some 
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E X E C U T I V E   S U M M A R Y  
beneficiaries reported difficulties in contacting suppliers, and record 
reviews indicated that suppliers charged some beneficiaries service fees 
for repairs of capped rental DME.  Finally, other beneficiaries reported 
that suppliers failed to provide instructions about the proper use of 
their equipment and information about repair charges. 
RECOMMENDATIONS 
CMS should take action to reduce erroneous payments and ensure 
quality services for beneficiaries.  To accomplish this, we recommend 
that CMS: 
Implement an edit to deny claims for routine maintenance and 
servicing of capped rental DME with rental periods beginning after 
January 1, 2006.   
Implement an edit to deny claims for repair of beneficiary-rented 
capped rental DME.   
Improve enforcement of existing payment requirements for 
beneficiary-owned capped rental DME.   
Consider whether to require MACs to track accumulated repair 
costs of capped rental DME.   
Develop and implement safeguards to ensure that beneficiaries 
have access to the services they require.   
Take appropriate action on erroneously allowed claims for 
maintenance and servicing, repair, and payment errors.   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
In its written comments on the report, CMS agreed that maintaining 
strong and effective controls to ensure accurate payment of capped 
rental DME claims is essential.  CMS responded positively to each of 
our six recommendations and indicated that, in general, it will work to 
improve its comprehensive oversight of capped rental maintenance and 
servicing.   
In response to the first and second recommendations, CMS stated that 
it had implemented claim edits previously to instruct contractors to 
deny claims for maintenance and servicing but will conduct further 
systems analysis and implement additional edits, as required, to ensure 
these claims are denied. 
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E X E C U T I V E   S U M M A R Y  
In response to the third recommendation, CMS concurred and said it 
will communicate the policy of nonpayment of claims for repairs and 
maintenance for items under a manufacturers or suppliers warranty to 
contractors and suppliers.   
In response to the fourth recommendation, CMS agreed to consider the 
feasibility of requiring MACs to obtain serial numbers of repaired 
equipment and track accumulated repair costs.   
In response to the fifth recommendation, CMS stated that it will issue 
guidance to DME suppliers advising them that beneficiaries should not 
be charged service fees above the capped rental fee unless an Advanced 
Beneficiary Notice is signed. 
In response to the sixth recommendation, CMS concurred and said it 
will send information about the erroneously allowed claims to the 
contractors. 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  iv   
 T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
I N T RO DUC T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
F I N D IN G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 
From 2006 to 2008, Medicare erroneously allowed $2.2 million for 
routine maintenance and servicing of capped rental DME with    
rental periods after implementation of the DRA. . . . . . . . . . . . . . 13 
From 2006 to 2008, Medicare erroneously allowed nearly  
$4.4 million for repairs for capped rental DME during  
rental periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
In 2007, Medicare allowed nearly $27 million for repair claims for 
beneficiary-owned capped rental DME that failed to meet 
payment requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
In 2007, Medicare allowed nearly $29 million for questionable  
repair claims for beneficiary-owned capped rental DME . . . . . . . 17 
Supplier practices adversely affected some beneficiaries with  
high-cost repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
   
R E C O MMEN D A T ION S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 
Agency Comments and Office of Inspector General Response . . . 23 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 
  A:  Point Estimates and Confidence Intervals. . . . . . . . . . . . . . . . 25 
B:  Case Examples of Allowed Claims That Failed to Meet  
      Payment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 
C:  Net Payment Errors and Questionable Claims . . . . . . . . . . . . 28 
D:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 
 
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 
   
   
 I N T R O D U C T I O N  
OBJECTIVES 
1.  To determine the extent to which Medicare erroneously allowed 
claims for routine maintenance and servicing of beneficiary-rented 
and beneficiary-owned capped rental durable medical equipment 
(DME). 
2.  To determine the extent to which Medicare erroneously allowed 
claims for repairs of beneficiary-rented capped rental DME. 
3.  To determine the extent to which Medicare allowed claims for 
repairs of beneficiary-owned capped rental DME that failed to meet 
payment requirements. 
4.  To determine the extent to which Medicare claims for repairs of 
beneficiary-owned capped rental DME were questionable (i.e., were 
missing information or had costly repairs relative to replacement 
costs). 
5.  To describe how certain DME supplier practices adversely affected 
beneficiaries with high-cost repairs. 
BACKGROUND 
DME is medical equipment that can withstand repeated use, is used 
primarily and customarily to serve a medical purpose, generally is not 
useful to a person in the absence of an illness or injury, and is 
appropriate for use in the home.1, 2  Medicare coverage of DME is 
subject to the requirement that the equipment be necessary and 
reasonable for treatment of an illness or injury or to improve the 
functioning of a malformed body member.3  Medicare guidance states 
that the reasonable useful lifetime of DME should be at least 5 years,4 
after which a beneficiary may elect to obtain a replacement.5   
 
1 42 CFR  414.202; Centers for Medicare & Medicaid Services (CMS), Medicare Benefit 
Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15,  110.1.  Accessed online at 
http://www.cms.gov on January 22, 2010. 
2 42 CFR  414.210(b); there are six categories of DME:  (1) capped rental DME, (2) DME 
requiring frequent or substantial servicing, (3) prosthetics and orthotics supplies,  
(4) inexpensive or routinely used DME not exceeding $150, (5) customized equipment, and  
(6) oxygen and oxygen equipment. 
3 Social Security Act (the Act)  1862(a). 
4 42 CFR  414.210(f)(1). 
5 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.C.  Accessed online at http://www.cms.gov on January 22, 2010. 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  1   
   
I N T R O D U C T I O N  
Capped rental DME is a category of DME for which Medicare 
contractors pay DME suppliers a fee schedule amount that is capped 
after a certain number of continuous months of rental to a Medicare 
beneficiary.6  Examples include power mobility devices (PMD),7 hospital 
beds, continuous positive airway pressure devices, commodes, and 
walkers.  The Medicare statute governing capped rental items 
specifically provides for payments for the maintenance and servicing of 
capped rental equipment.  Repairs are included within the category of 
maintenance and servicing.8  During the beneficiaries use of capped 
rental DME, Medicare will pay for maintenance and servicing, including 
repairs, depending on when the capped rental DME was first rented, 
who owns the DME, and what types of repairs need to be made.   
The Deficit Reduction Act of 2005 and Maintenance and Servicing 
The implementation of the Deficit Reduction Act of 2005 (DRA) altered 
Medicare coverage of routine maintenance and servicing (generally 
every 6 months) of capped rental equipment. 
Coverage of maintenance and servicing during the rental period.  Both 
before and after the implementation of the DRA, Medicare did not cover 
maintenance and servicing during the rental period, since [suppliers] of 
equipment recover from the rental charge the expenses they incur in 
maintaining in working order the equipment they rent out .... 9   
Coverage of maintenance and servicing of beneficiary-owned equipment.  
Both before and after the implementation of the DRA, Medicare covered 
nonroutine maintenance and servicing costs of capped rental DME after 
the beneficiary had obtained the title to the equipment.10  CMS has 
determined that under the maintenance and servicing provisions of the 
DRA applicable to beneficiary-owned equipment, repairs necessary to 
 
6 CMS, Medicare Claims Processing Manual  (Internet Only Manual), Pub. 100-04,  
ch. 20,  30.5.  Accessed online at http://www.cms.gov on January 22, 2010. 
7 PMDs include power wheelchairs and scooters.   
8 The Act  1834(a)(7)(A)(iv).  CMS, Medicare Benefit Policy Manual (Internet Only 
Manual), Pub. 100-02, ch. 15,  110.2.A and B; CMS, Medicare Claims Processing Manual 
(Internet Only Manual), Pub. 100-04, ch. 20,  10.2.  Accessed online at http://www.cms.gov 
on January 22, 2010. 
9 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
10 The Act  1834(a) (pre- and post-DRA); 42 CFR  414.229(e) and (f); and CMS, 
Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15,  110.2.  
Accessed online at http://www.cms.gov on January 22, 2010. 
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I N T R O D U C T I O N  
make the equipment serviceable are covered.11  Further, extensive 
maintenance which ... is to be performed by authorized technicians is 
covered as a repair.  However, routine periodic servicing, such as 
testing, cleaning, regulating, and checking ... is not covered.12  The 
Medicare statute has never provided for routine maintenance and 
servicing of beneficiary-owned equipment, yet prior to implementation 
of the DRA, it did allow for routine maintenance and servicing of 
supplier-owned equipment (an option that the DRA eliminated for 
capped rental DME). 
Coverage of maintenance and servicing of supplier-owned equipment.  
Prior to the implementation of the DRA on January 1, 2006, 
beneficiaries had to choose at the 10th month of rental to either 
(1) assume ownership after 13 months of continuous rental or (2) permit 
the DME supplier to retain ownership.  If the supplier retained 
ownership after 15 months of continuous rental, the supplier was 
required to continue providing the item to the beneficiary free of charge 
for the period of medical necessity.13  In the case of power-driven 
wheelchairs, beneficiaries also had the option to purchase the DME on a 
lump-sum basis in lieu of rental.14  The Medicare statute provided for 
payments every 6 months to suppliers for the cost of routine 
maintenance and servicing of supplier-owned equipment after the rental 
period.15  These routine maintenance and servicing claims, designated 
with the MS modifier,16 began 6 months after the end of the final rental  
 
11 42 CFR  414.229(e)(3) (containing the pre-DRA rule).  See also CMSs implementation 
of the pre-DRA rule in its Medicare Benefit Policy Manual (Internet Only Manual),  
Pub. 100-02, ch. 15,  110.2.A.  Accessed online at http://www.cms.gov on January 22, 2010. 
12 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
13 The Act  1834(a)(7)(A) (pre-DRA); 42 CFR  414.229(d) (containing the pre-DRA rule).  
See also CMSs implementation of the pre-DRA rule in its Medicare Claims Processing 
Manual (Internet Only Manual), Pub. 100-04, ch. 20,  30.5.  Accessed online at 
http://www.cms.gov on January 22, 2010. 
14 Ibid. 
15 The Act  1834(a)(7)(A) (pre-DRA), 42 CFR  414.229(e) (containing the pre-DRA rule), 
and CMS, Medicare Benefits Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15,  
110.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
16 Modifiers are used when the information provided by a Healthcare Common Procedure 
Coding System (HCPCS) code needs to be supplemented to identify specific circumstances 
that may apply to an item or a service. 
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month or after the end of the period the item was no longer covered  
under the supplier or manufacturer warranty, whichever was later.17     
The Office of Inspector General (OIG) released the report Medicare 
Maintenance Payments for Capped Rental Equipment 
(OEI-03-00-00410) in June 2002.  In that report, OIG reviewed 
Medicare claims from 2000 and found that DME suppliers provided 
actual service for only 9 percent of claims for maintenance and 
servicing.  Medicare would have saved $98 million of the $102 million 
allowed for maintenance and servicing during 2000 if it instead had 
allowed only for repairs as needed.   
Subsequently, section 5101(a) of the DRA revised the payment rules for 
capped rental DME to reduce Medicare expenditures and beneficiary 
coinsurance.18  The DRA eliminated the option for suppliers to keep the 
title to capped rental DME after 15 months of continuous rental.  The 
DRA also eliminated a suppliers ability to bill every 6 months for 
routine maintenance and servicing of supplier-owned equipment with 
new rental periods beginning January 1, 2006.19  Consequently, the 
only maintenance and servicing payments with the MS modifier allowed 
after January 1, 2006, should be for supplier- owned capped rental DME 
with rental periods beginning prior to that date.20   
Repair of Beneficiary-Owned Capped Rental DME  
When ownership of the capped rental item is transferred to the 
beneficiary, Medicare allows for repair when necessary to make the 
 
17 42 CFR  414.229(e)(2) (containing the pre-DRA rule); see also CMSs implementation 
of the pre-DRA rule in its Medicare Benefits Policy Manual (Internet Only Manual), 
Pub. 100-02, ch. 15,  110.2.B.  Accessed online at http://www.cms.gov on January 22, 2010. 
18 CMS, Fact Sheet:  Changes to Medicare Payment for Oxygen Equipment, Oxygen 
Contents, and Capped Rental Durable Medical Equipment.  November 1, 2006.  Accessed  
online at http://www.cms.gov on January 22, 2010. 
19 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 
change request 5461 (February 2, 2007).  Accessed online at http://www.cms.gov on 
January 22, 2010. 
20 CMS, Medicare Claims Processing (Internet Only Manual), Pub 100-04, Change 
Request 5461.  Accessed online at http://www.cms.gov on January 22, 2010. 
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equipment serviceable.21, 22  In 2007, Medicare allowed 679,000 claims 
amounting to $90.1 million for repairs of capped rental DME.23   
Payment requirements.  Medicare pays for repairs of capped rental DME 
that beneficiaries own when those repairs are necessary to make it 
serviceable.24  Medicare covers repairs up to the cost of replacement for 
medically necessary equipment owned by the beneficiary.25  Medicare 
does not allow for routine, periodic maintenance of beneficiary-owned 
equipment, such as testing, cleaning, and regulating of equipment.26  
Medicare also does not pay for parts and labor covered by a supplier or 
manufacturer warranty.27  If the expense for repairs exceeds the 
estimated expense of purchasing or renting another item for the 
remaining period of medical need, no payment can be made for the 
amount of excess.28    
Repair claims can cover the following: 
  replacement of the DME; 
  replacement parts for the DME (e.g., a new motor for a PMD); 
and/or 
  labor costs associated with repairing the DME, replacing the DME, 
or repairing parts of the DME.29   
 
21 The Act  1834(a)(7)(A)(iv); 42 CFR  414.210(e)(5) and 414.229(f)(3). 
22 CMS, Medicare Benefits Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.A.  Accessed online at http://www.cms.gov on January 22, 2010. 
23 Capped rental DME during rental periods were identified by one of three modifiers:  
KH (first rental month), KI (second rental month), and KJ (rental months 3 to 13). 
24 42 CFR  414.210(e)(1) and 414.229(f)(3); Medicare Benefits Policy Manual,  
Pub. 100-02, ch. 15,  110.2.A; and CMS, Medicare Claims Processing Manual (Internet 
Only Manual), Pub. 100-04, ch. 20,  10.2.  Accessed online at http://www.cms.gov on 
January 22, 2010. 
25 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.C.  Accessed online at http://www.cms.gov on January 22, 2010. 
26 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.B.  Accessed online at http://www.cms.gov on January 22, 2010. 
27 42 CFR  414.210(e)(1) and 414.229(f)(3). 
28 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02,  
ch. 15,  110.2.A.  Accessed online at http://www.cms.gov on January 22, 2010. 
29 CMS, Provider Inquiry Assistance Changes in Payment for Oxygen Equipment as a 
Result of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 and 
Additional Instructions Regarding Payment for Durable Medical Equipment Prosthetics 
Orthotics & Supplies (DMEPOS), Pub. 100-20, Change Request 6297, December 23, 2008.  
Accessed online at http://www.cms.gov on January 22, 2010. 
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I N T R O D U C T I O N  
In 2007, repair claims for replacement parts should have used the 
HCPCS modifier RP (repair) in conjunction with the HCPCS code for 
the replacement part.30  Repair claims for labor costs should use 
HCPCS code E1340.  Payment allowances for the HCPCS code E1340 
are based on a fee schedule (one unit of service for 15 minutes of labor) 
and are adjusted to reflect local wages.31 
When suppliers (including DME suppliers) accept Medicare assignment, 
they accept Medicare reimbursement as payment in full and should not 
collect more than the deductible and coinsurance from beneficiaries.32  
They should not bill beneficiaries for service fees to repair capped rental 
DME.33  Suppliers receive additional reimbursement when they loan 
DME to beneficiaries while their original DME is being repaired.34   
Documentation requirements.  DME suppliers are required to keep 
physician prescriptions on file and must have orders from treating 
physicians before dispensing DME.35  A new order is required when 
there is a change in the order for the accessory, when an item is 
renewed, when an item is replaced, and when there is a change in the 
supplier.36  This documentation provides evidence of medical necessity 
of the capped rental DME.  When claims for repair are submitted, the 
supporting documentation should include the HCPCS code of the capped 
rental DME being repaired and must indicate that the capped rental 
DME is beneficiary owned.37   
 
30 CMS, Medicare Claims Processing Manual, Pub. 100-04, Change Request 5461, 
February 2, 2007.  During the period of our review, the RP modifier was used for repairs or 
replacement while the MS modifier was used for routine maintenance and servicing.  
Subsequent to the period of our claims, CMS instituted separate modifiers for replacement 
and repair, RA and RB, respectively.  CMS, Changes in Payment for Oxygen Equipment as 
a Result of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 and 
Additional Instructions Regarding Payment for DMEPOS, Pub. 100-20, Change Request 
6297, December 23, 2008.  Accessed online at http://www.cms.gov on January 22, 2010. 
31 American Medical Association, Medicares National Level II Codes, 2007. 
32 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04,  
ch. 1,  30.3.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
33 42 CFR  424.57(c)(14). 
34 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04,  
ch. 20,  40.1.  Accessed online at http://www.cms.gov on January 22, 2010. 
35 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08,  
ch. 5,  5.2.1.  Accessed online at http://www.cms.gov on January 22, 2010. 
36 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08,  
ch. 5,  5.2.4.  Accessed online at http://www.cms.gov on January 22, 2010. 
37 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 
ch. 20,  10.2.B.  Accessed online at http://www.cms.gov on January 22, 2010. 
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When suppliers deliver DME to beneficiaries, Medicare requires 
documentation of delivery and recommends that the documentation 
include:  (1) beneficiarys name, (2) quantity delivered, (3) detailed 
description of the replacement parts or repaired DME being delivered, 
(4) brand name, and (5) serial number.38  The beneficiarys (or 
designees) signature should be included on the delivery slip or proof of 
delivery.39  Suppliers must also provide beneficiaries with necessary 
information and instructions (e.g., owners manual and warranty 
information) on how to use their capped rental DME safely and 
effectively.40  
Additional matters considered.  Medicare provides guidance to Medicare 
Administrative Contractors (MAC)41 for consideration when 
reimbursing for repairs.  For example, MACs may consider whether 
accumulated repair costs for capped rental DME exceed 60 percent of 
the cost for a replacement item when they determine whether to replace 
equipment that does not function during the reasonable useful 
lifetime.42   
In addition, if MACs determine that the capped rental DME will not 
last its reasonable useful lifetime, they may hold suppliers responsible 
for furnishing replacement capped rental DME at no cost to 
beneficiaries or the Medicare program.43   
 
38 42 CFR  424.57(c)(12); CMS, Medicare Program Integrity Manual (Internet Only 
Manual), Pub. 100-08, ch. 4,  4.26.1.  Accessed online at http://www.cms.gov on 
January 22, 2010. 
39 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08,  
ch. 4,  4.26.1.  Accessed online at http://www.cms.gov on January 22, 2010. 
40 42 CFR  424.57(c)(12). 
41 MACs serve as the primary points of contact for provider enrollment, Medicare 
coverage and billing requirements, and processing and payment of Medicare fee-for-service 
claims. 
42 71 Fed. Reg., No. 217 (Nov. 9, 2006), p. 65921.  This was originally proposed by CMS 
as a requirement, but included in the Final Rule as a matter for the MACs consideration.  
CMS does not pay repair costs for prosthetics that exceed 60 percent of the cost for a 
replacement item. 
43 42 CFR  414.210(e)(5). 
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METHODOLOGY 
This study used three separate methodologies to address our five study 
objectives.   
Objectives 1 and 2   
To determine the extent to which Medicare erroneously allowed 
(1) claims for routine maintenance and servicing of beneficiary-rented 
and beneficiary-owned capped rental DME and (2) claims for repairs of 
beneficiary-rented capped rental DME. 
Population identification.  Using the 2005, 2006, 2007, and 2008 DME 
Standard Analytical Files from the National Claims History file, we 
identified claims for capped rental DME with rental periods beginning 
on or after implementation of the DRA on January 1, 2006.   
Identification of maintenance and servicing claims.  We analyzed capped 
rental DME claims for rental periods beginning on or after 
implementation of the DRA to identify erroneously allowed routine 
maintenance and servicing claims for the period 2006 through 2008.  We 
identified maintenance and servicing claims with the MS modifier for 
those capped rental months. 
To identify beneficiary-rented capped rental DME, we identified claims 
with a KH, KI, or KJ modifier designating a specific rental month.44  We 
determined whether routine maintenance and servicing claims for 
capped rental DME were allowed during rental periods.  To identify 
beneficiary-owned capped rental DME, we identified claims with a BP 
modifier (i.e., beneficiary purchased).  For rentals beginning after 
implementation of the DRA, we identified capped rental DME as 
transitioning from beneficiary-rented to beneficiary-owned when the 
rental month modifiers were no longer attached to the claim.  Separate 
payments for routine maintenance and servicing for capped rental DME 
during the rental period or after ownership has transitioned to the 
beneficiary have never been allowed.   
Identification of repair claims for beneficiary-rented capped rental DME.  
Although the DRA did not change how Medicare should pay repair 
claims for capped rental DME, we sought to determine whether repair 
claims volume and/or payment amounts increased after implementation 
 
44 Capped rental DME during rental periods were identified by one of three modifiers:  
KH (first rental month), KI (second rental month), and KJ (rental months 3 to 13). 
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of the DRA to potentially offset the loss of the routine maintenance and 
servicing payments.  We analyzed repair claims for beneficiary-rented 
capped rental DME for rental periods beginning on or after January 1, 
2006, to identify erroneously allowed repair claims from 2006 to 2008. 
We defined the rental period as the period beginning with the first use 
of the KH modifier and terminating up to 12 months thereafter, 
depending on the presence of KI or KJ modifiers; thus, we did not 
include any rental periods that may have begun prior to the DRA.   
For the claims during the rental period that we identified above, we 
determined whether an RP modifier was present, indicating a repair 
claim.  Separately itemized charges for repair of capped rental DME 
equipment are not allowed during the rental period.   
Objectives 3 and 4   
To determine the extent to which Medicare (3) allowed claims for repairs 
of beneficiary-owned capped rental DME that failed to meet payment 
requirements and (4) allowed claims for repairs of beneficiary-owned 
capped rental DME that were questionable. 
Population and sample identification.  We reviewed 2007 Medicare-allowed 
capped rental DME repair claims to determine whether claims were 
correctly allowed based on payment and documentation requirements 
and whether claims were questionable.  These objectives were limited to 
2007 data only because of the type of methodology used (record review), 
whereas the two previous objectives relied on a review of claims data 
alone.  We did not include claims for oxygen equipment and related 
supplies because those DME are capped after 36 months of continuous 
rental.   
Using the 2007 DME Standard Analytical File from the National 
Claims History file, we identified allowed repair claims for 
beneficiary-owned capped rental DME.  We excluded 9,957 claims under 
$1 from this population as these claims represented 1 percent of the 
expenditures and 2 percent of capped rental DME claims for 2007 billed 
with the RP modifier.  Many of these claims represented replacement 
batteries for glucose monitors.   
We selected a stratified random sample of 499 allowed repair claims45 
with HCPCS codes with the RP modifier or HCPCS code E1340 from 
 
45 Typically, a repair claim will have individual line items for the replacement part(s) 
and the associated labor costs. 
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four strata as shown in Table 1.  For each sampled claim, we requested 
repair records from suppliers to determine whether the capped rental 
DME repair claims met payment and documentation requirements.   
Table 1:  Sample Stratification of Allowed Capped Rental DME Repair Claims 
Sample  Adjusted 
Stratum  Definition  Population  Responses 
Size  Sample Size 
Allowed claims from 
1  440,661  95  93  91 
$1.00 to $100.00 
Allowed claims from 
2  191,658  191  187  184 
$100.01 to $500.00 
Allowed claims from 
3  36,779  159  159  155 
$500.01 to $5,000.00 
Allowed claims over 
4  54  54  53  52 
$5,000.00  
   Total     669,152  499  492  482 
 Source:  OIG analysis of claims data, 2010. 
We removed three sampled claims because they involved open OIG 
investigations and four sampled claims because they did not match the 
study criteria upon review of the documentation, creating an adjusted 
sample size of 492 repair claims.  The four claims not matching the 
study criteria appeared as repairs for capped rental DME according to 
claims data, but upon review of the record, we determined that each 
claim was not a repair for capped rental DME.  We received responses 
from suppliers for 482 of our sampled claims for a response rate of 
98 percent.  Of the 10 sampled claims we were unable to review, 7 were 
from suppliers that were out of business and 3 were from suppliers that 
we were unable to locate and that we could not confirm remained in 
business. 
Since the RP modifier used at the time of our review indicated both 
repair and replacement, we could not differentiate between claims for 
repair or replacement without reviewing the records.  Based on a review 
of the records associated with the 482 claims, we determined that 
335 were for repair of capped rental DME.46  We used these claims to 
determine the extent to which repair claims met Medicare payment 
requirements.  The remaining 147 claims were generally for 
 
46 Eighty-seven percent of the sampled claims were for PMDs. 
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replacement of capped rental DME when it was determined that the 
original DME no longer met the beneficiaries needs.   
Interviews with DME suppliers.  Prior to our record review, we interviewed 
DME suppliers to ascertain their practices and better develop our data 
collection instruments.  We asked suppliers questions about volume of 
repairs, nature and location of repairs, followup with beneficiaries, 
methods for accessing policy guidance, documentation used to support 
claims, warranty coverage, and accumulated repair costs.  
Review of repair records.  We reviewed repair records provided by 
suppliers for sampled claims to determine whether each repair met 
Medicare requirements or whether supplier practices created 
vulnerabilities in claims payment.  Specifically, we reviewed the extent 
to which records for repairs to capped rental DME indicated that: 
Requirements: 
  a prescription existed documenting DME medical necessity, 47, 48  
 
  service was documented,49 
  delivery was documented,50  
  the DME was under warranty, 51 and  
  service fees were charged to beneficiaries.52  
Additional matters considered: 
  a valid serial number was provided, and 
  repair costs exceeded 60 percent of the new purchase price. 
Objective 5   
To describe how certain DME supplier practices adversely affected 
beneficiaries. 
 
47 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04,  
ch. 20,  10.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
48 CMS, Program Integrity Manual (Internet Only Manual), Pub. 100-08, ch. 5,  5.2.1.  
Accessed online at http://www.cms.gov on January 22, 2010. 
49 The Act  1833(e).   
50 42 CFR  424.57(c)(12). 
51 42 CFR  414.229(f)(3) and 414. 210(e)(1). 
52 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04,  
ch. 1,  30.3.2.  Accessed online at http://www.cms.gov on January 22, 2010. 
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I N T R O D U C T I O N  
Beneficiary interviews.  In addition to conducting a record review, we 
conducted structured interviews with beneficiaries who received repairs 
for their capped rental DME in excess of $5,000 in 2007.   
We conducted structured interviews with beneficiaries representing 
34 of the 53 sampled claims in stratum four.  At the time of our review, 
eight beneficiaries were deceased.  Eleven beneficiaries were 
unreachable by U.S. Postal Service mail or telephone.  We requested 
that beneficiaries confirm whether repairs billed for capped rental DME 
were actually rendered.  We also asked the beneficiaries to describe the 
services they received and any problems they encountered with 
suppliers that may have adversely affected their ability to use the 
capped rental DME.  
Overall limitations.  During our review period, we were unable to 
determine from claims data alone the difference between a repair and a 
replacement of DME using the RP modifier.  We were able to make 
definitive determinations based upon review of the records.  This 
reduced the number of sampled units we could review for payment 
errors.     
Standards.  This study was conducted in accordance with the Quality 
Standards for Inspections approved by the Council of the Inspectors 
General on Integrity and Efficiency.
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 F I N D I N G S  
For the period 2006 to 2008, 
From 2006 to 2008, Medicare erroneously allowed 
Medicare erroneously allowed 
$2.2 million for routine maintenance and servicing of 
31,939 routine maintenance 
capped rental DME with rental periods after 
and servicing claims totaling 
implementation of the DRA  $2,211,106 for capped rental 
DME with rental periods that 
began after implementation of the DRA.53  
Medicare has never allowed claims for maintenance and servicing 
during the rental period; therefore, MACs should not have had to make 
changes to their payment systems to prevent these payments after 
implementation of the DRA.  Additionally, MACs should not have 
allowed maintenance and servicing after 13 months of continuous rental 
for beneficiary-owned capped rental DME (see Table 2). 
Table 2:  Erroneous Maintenance and Servicing Claims 
 
During Rental  During Rental 
  Beneficiary-Owned  Beneficiary-Owned 
Year  Period   Period 
(Allowed Claims)  (Allowed Amount) 
  (Allowed Claims)   (Allowed Amount) 
20 06*  1,303    $88,643  119  $19,928 
2007  10,508  $731,702   6,471  $519,463 
 
2008  10,488  $575,768  3,050  $275,602 
    Total  22,299  $1,396,113  9,640  $814,993 
*Beneficiary-owned results from 2006 are not comparable to those for other years because  
se ction 5101(a) of the DRA became effective January 1, 2006.  Aside from beneficiary-purchased DME, 
title to capped rental DME that was under a rental agreement did not begin to be transferred to 
be neficiaries until February 1, 2007 (13 months after implementation). 
Source:  OIG analysis of claims data, 2010. 
 
Erroneous routine maintenance and servicing claims occurred for 
several categories of capped rental DME.  The erroneous claims most 
commonly included nebulizers (14,420), continuous positive airway 
pressure devices (5,378), hospital beds (3,540), standard wheelchairs 
(2,111), and elevating leg rests for wheelchairs (1,377).  These five 
categories represented 84 percent of erroneous claims. 
 
 
53 Medicare allowed 6,344,684 claims for routine maintenance and servicing of all capped 
rental DME, totaling $456,328,500.  Most of these allowed claims were for maintenance and 
servicing of capped rental DME with rental periods beginning prior to implementation of 
the DRA. 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  13   
   
F I N D I N G S  
Medicare erroneously allowed 
From 2006 to 2008, Medicare erroneously 
40,452 claims totaling nearly 
allowed nearly $4.4 million for repairs for 
$4.4 million for repairs of 
capped rental DME during rental periods 
beneficiary-rented capped rental 
DME.  These payments have 
never been permitted, before or after the DRA.  These repair claims 
were erroneous because costs for repair of rented capped rental DME 
are included in the monthly rental payment to suppliers.  Over the 
3-year period after implementation of the DRA, erroneously allowed 
claims almost doubled and erroneously allowed payments increased by 
nearly $1.8 million (see Table 3). 
Table 3:  Erroneous Rental Repair Claims  
Year  Allowed Claims  Allowed Amount 
2006  7,478  $493,178 
2007  13,507  $1,631,757 
2008  19,467  $2,257,190 
   Total  40,452  $4,382,125  
Source:  OIG analysis of claims data, 2010. 
 
Erroneous repair claims occurred for several different categories of 
capped rental DME.  The erroneous claims most commonly included 
continuous positive airway pressure devices (12,215), nebulizers 
(11,489), infusion pumps (5,531), standard wheelchairs (3,770), and 
hospital beds (2,573).  These five categories represented 88 percent of 
erroneous claims. 
 
Of the $90 million allowed for 
In 2007, Medicare allowed nearly $27 million for 
capped rental DME repair 
repair claims for beneficiary-owned capped 
claims in 2007, nearly 
rental DME that failed to meet payment 
$27 million was for claims 
requirements
associated with payment errors.  
These claims represent 27 percent of all allowed claims for repair of 
capped rental DME meeting the parameters of the methodology, which 
involved reviewing documentation for allowed claims.  See Appendix A 
for point estimates and confidence intervals.  See Appendix B for case 
examples of additional allowed claims failing to meet payment 
requirements. 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  14   
   
F  I N D I N G S  
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ppaayymmeenntt  eerrrroorrss))  aarree  ssuummmmaarriizzeedd  iinn  TTaabbllee  44..      
MMeeddiiccaarree--aalllloowweedd  ccllaaiimmss  tthhaatt  ddiidd  nnoott  mmeeeett  ppaayymmeenntt  rreeqquuiirreemmeennttss  
PPaayymmeenntt  eerrrroorrss  iinncclluuddeedd  ((11))  llaacckk  ooff  ddooccuummeennttaattiioonn  ooff  mmeeddiiccaall  nneecceessssiittyy,,  
((22))  llaacckk  ooff  ddooccuummeennttaattiioonn  ooff  sseerrvviiccee,,  ((33))  llaacckk  ooff  ddooccuummeennttaattiioonn  ooff  
ddeelliivveerryy,,  aanndd  ((44))  rreeppaaiirrss  ffoorr  ccaappppeedd  rreennttaall  wwhhiillee  uunnddeerr  wwaarrrraannttyy..    
AAddddiittiioonnaallllyy,,  wwee  iiddeennttiiffiieedd  ssuupppplliieerrss  tthhaatt  vviioollaatteedd  MMeeddiiccaarree  aassssiiggnnmmeenntt  
ppoolliiccyy  bbyy  cchhaarrggiinngg  sseerrvviiccee  ffeeeess  ttoo  bbeenneeffiicciiaarriieess..  
TTaabbllee  44::    PPaayymmeenntt  EErrrroorrss  
Sample  Claims in Error 
Type of Error  Payments in Error 
Size  (Percentage) 
Repair or replacement   
Lack of documentation of 
482  20.4  $20,772,891 
medical necessity 
Lack of documentation of 
482  4.8  $4,624,264 
service 
Lack of documentation of 
482  1.8  $1,234,534 
delivery 
   Total repair or replacement  
482  27.1*  $26,631,689 
   errors 
Repair only   
Repairs while under warranty  335  2.6  $1,912,669 
   Total errors (gross)  482  29.4*  $28,738,808* 
(Overlapping errors)  482  (2.3)  ($1,943,653) 
   Total errors (net)  482  27.1  $26,795,154 
*Totals may not sum exactly because of rounding and the effect of having denominators of 
335 and 482 for different statistics.  Overlapping errors are subtracted from gross errors to 
derive the net errors. 
Source:  OIG analysis of claims data, 2010. 
 
Lack of documentation of medical necessity.  Twenty percent of claims were 
associated with supplier-provided records that did not include 
prescriptions to document medical necessity of the capped rental 
DME.54  Without such documentation, determination factors were 
unknown, such as the anticipated timeframe that the capped rental 
DME would be needed, expected therapeutic benefit, the physicians 
 
54 We counted an initial prescription or a prescription for the repair as documentation of 
medical necessity for the claim. 
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involvement in supervising the use of the prescribed capped rental 
DME, and the detailed description of the beneficiarys clinical and 
functional status.  
Lack of documentation of service or delivery.  Five percent of claims lacked 
sufficient information to indicate the service provided.  An additional 
2 percent of claims had no evidence of delivery or evidence that the 
beneficiary actually received the capped rental DME replacement parts 
or repaired DME as required under supplier standards.  
Repairs while under warranty.  Three percent of repair claims were for 
repairs that should have been covered under warranty.  Separately, we 
also identified an instance in which the documented date of service 
would have been under warranty, but the claim form submitted by the 
supplier indicated a date of service much later than noted in other 
documentation.  This new date was outside of the warranty period, and 
Medicare allowed the claim.   
The percentage of claims that did not comply with this policy might 
have been greater because certain suppliers provided invalid serial 
numbers or did not provide serial numbers.  Without correct serial 
numbers, we were unable to check warranty coverage.  Additionally, we 
found that larger PMD manufacturers have systems that suppliers can 
query to determine warranty coverage.  However, some of the 
manufacturers remove serial numbers from these systems for items that 
were manufactured more than 5 years ago, which prevented 
determination of warranty coverage.   
Service fees charged for repairs.  Suppliers that have accepted Medicare 
assignment of benefits may not charge beneficiaries additional fees for 
Medicare-covered services.  Record reviews indicated that suppliers that 
accepted assignment charged beneficiaries service fees ranging from 
$25 to $100 for 2 percent of claims.55  These fees were in addition to the 
normal copays and deductibles.  For example, one supplier charged a 
$20 travel service fee when it picked up a beneficiarys PMD for repair 
work and a $40 travel service fee when it returned the chair to her 
home.  Another record indicated that a beneficiary paid $5 in cash and 
an additional $20 with a personal check.  Because the suppliers did not 
 
55 Based on a lack of information in claims data, we were unable to determine whether 
sampled repair claims were for rented or purchased capped rental DME.   
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F I N D I N G S  
submit separate line item claims for these service fees, the extent of the 
problem is unknown.   
Of the $90 million allowed for 
In 2007, Medicare allowed nearly $29 million  
capped rental DME repair claims 
for questionable repair claims for  
in 2007, nearly $29 million were 
beneficiary-owned capped rental DME  
questionable (i.e., suppliers did 
not provide serial numbers, suppliers provided invalid serial numbers, 
and repair costs claims on sampled dates of service exceeded 60 percent 
of the purchase price of new capped rental DME).  These claims 
represent 49 percent of all allowed claims for repair of capped rental 
DME.  The net result of either erroneous claims (the prior finding) or 
claims that were questionable was 62 percent, or nearly $39 million.  
Medicare claims that were questionable are summarized in Table 5.  
See Appendix A for point estimates and confidence intervals for claims 
that were questionable.  See Appendix C for statistics on net results of 
payment errors and claims that were questionable. 
Table 5:  Questionable Claims for Beneficiary-Owned Capped Rental DME 
Sample  Claims  Allowed 
Questionable Practice 
Size  (Percentage)  Amounts 
Supplier did not provide serial 
335  24.8  $10,943,415 
number  
Supplier provided invalid serial 
335  23.2  $13,921,304 
number 
Repair costs on the date of 
service exceeded 60 percent of  335  2.9  $6,687,925 
the new purchase price 
   Total (gross)  335  50.9  $31,552,644 
(Overlapping)  335  (1.6)  ($2,697,105) 
   Total (net)  335  49.3  $28,855,539 
Overlapping amounts are subtracted from gross amounts to derive the net amounts. 
Source:  OIG analysis of claims data, 2010. 
Suppliers did not provide serial numbers or provided invalid serial numbers.  
Suppliers did not provide serial numbers for 25 percent of repairs and 
provided invalid serial numbers for 23 percent of repairs, which 
prevented us from determining the models and therefore the purchase 
prices of new capped rental DME.  Overall, 48 percent of claims had 
insufficient information for us to identify the manufacturers, makes, 
and models of capped rental DME.  This prevented us from determining 
the replacement cost of some capped rental DME, as discussed below. 
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F I N D I N G S  
Repairs exceeded 60 percent of replacement cost.  The costs of repairs 
associated with the dates of service for 3 percent of sampled claims 
exceeded 60 percent of the purchase prices for new capped rental DME.  
If total accumulated repair costs exceed 60 percent of the replacement 
cost for capped rental DME and the items have been in use for less than 
5 years, the MAC may choose to hold suppliers responsible for 
replacement.56  Since our analysis included only a single date of service, 
our estimate of the number of items for which repairs exceeded 
60 percent of the replacement cost is an underestimate.  Accumulated 
repair claims would likely have been greater over the lifetime of the 
item.  Because of missing and invalid serial numbers, we could not 
calculate the replacement cost for 48 percent of new capped rental 
DME; thus our estimate of vulnerable payments is conservative.  
Because tracking repair costs is not a CMS requirement, CMS staff 
indicated to us that they have not provided guidance to MACs on how to 
track accumulated repair costs.   
 
 
56 See 71 Fed. Reg., No. 217 (Nov. 9, 2006) p. 65921.   
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F I N D I N G S  
Our interviews with beneficiaires 
Supplier practices adversely affected some 
representing 34 of the 53 high-cost 
beneficiaries with high-cost repairs 
claims revealed that some 
supplier practices adversely affected beneficiaries quality of life and 
activities of daily living.  Certain suppliers failed to properly customize 
PMDs, rendering them useless to beneficiaries.  Even though Medicare 
will pay for loaner DME when capped rental DME is being repaired, 
some suppliers did not offer this service when repairing PMDs, leaving 
some beneficiaries immobile.  Some beneficiaries reported difficulty in 
contacting suppliers.  Finally, beneficiaries reported that some suppliers 
failed to provide information and instruction, as required.   
Some suppliers billing for high-cost repairs failed to properly customize 
Medicare-allowed capped rental DME.  PMDs are medically necessary for 
beneficiaries who cannot effectively perform mobility-related activities 
of daily living using other mobility-assistive equipment, such as a cane, 
walker, or manual wheelchair.57  PMDs for beneficiaries with severe 
mobility limitations can be upgraded with power options and other 
electronic features to accommodate beneficiaries specific mobility needs.  
In some cases, beneficiaries did not receive the proper customization to 
meet their needs.  Below are a few examples: 
  A beneficiary reported multiple repairs to his chair.  He stated that 
nothing on his current PMD is original aside from the frame.  The 
computer system for his chair had been repaired 11 times and still 
did not meet his needs because it did not function properly.  Further, 
the supplier repaired his $16,000 power tilt and recline seating 
system twice, but the repairs did not meet his needs for daily 
activities.  The last attempt to properly fit the seating system 
included an inappropriately sized foam pad placed in the back of the 
chair; this failed to work. 
  A beneficiary reported that he was provided a PMD that he was 
unable to use because he would slide out of the chair.  The supplier 
indicated to him that it would fashion a pole for the chair that would 
keep him from sliding out.  The beneficiary reported that the 
supplier never fashioned the pole; he keeps the PMD in a closet 
because he cannot use it.  
 
57 CMSs Medicare Learning Network, Medicare Coverage of Power Mobility Devices:  
Power Wheelchairs and Power Operated Vehicles.  Accessed at http://www.cms.gov on 
January 22, 2010. 
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  One record for a beneficiary noted that she received an evaluation 
for a new PMD after only 3 months of using her current PMD.  The 
beneficiary was given a new PMD, but she was unable to operate its 
controls because of her paralysis.   
Some suppliers did not provide loaner DME.  Although suppliers are not 
required to loan DME, suppliers receive additional Medicare 
reimbursement when loaning DME to beneficiaries while their original 
items are being repaired.  Claims information indicated that 
beneficiaries received loaner DME for only 22 of our sampled claims.  
Without loaner DME, beneficiaries may not have the ability to maintain 
their daily functioning.  For example: 
  A beneficiary reported that although his supplier is located minutes 
away from the PMD manufacturer, replacement parts took weeks to 
arrive because they had to be mailed.  The supplier provided a 
loaner only when the supplier initially ordered his new chair.  
Although the PMD had been repaired frequently since then, the 
supplier never again provided a loaner PMD.  The beneficiary, who 
has quadriplegia, reported that he was completely immobile until 
his PMD was repaired.   
Some beneficiaries reported difficulty in reaching their suppliers for 
high-cost repairs.  Medicare requires that suppliers answer questions 
and respond to complaints beneficiaries have about Medicare-covered 
items that they have sold or rented.  Four of the beneficiaries 
interviewed reported difficulty in reaching their suppliers.  Specifically: 
  One beneficiary reported that a supplier often would not answer the 
telephone or return calls.  The beneficiary had to call repeatedly to 
finally reach a customer service representative.  Because of such 
poor service by this supplier and problems with the PMD, the 
beneficiary purchased a backup manual wheelchair from eBay for 
$300 and planned to buy a $1,200 PMD from a private owner as a 
backup.     
  Two beneficiaries reported that their PMDs needed repairs and/or 
modifications, but because their suppliers had gone out of business 
without notification, they had to locate new suppliers that were 
willing to repair and/or modify their PMDs.   
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Not all suppliers provided beneficiaries with instructions about the proper 
use of their high-cost capped rental DME, as required.  Suppliers must 
provide beneficiaries with necessary information on how to use the 
equipment safely and effectively.  If beneficiaries are provided with 
information regarding the general maintenance of their capped rental 
DME, unnecessary repairs or replacements to items may be less likely.  
Without this information, beneficiaries may not know how to maintain 
their capped rental DME.  Collectively: 
  Eight beneficiaries reported that the suppliers that provided their 
items did not provide any information about the items warranties, 
common problems, or general maintenance.  
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  21   
   
 RRE EC CO OM MM ME EN ND DA AT TI OI ON NS S   
 
 
From 2006 to 2008, Medicare erroneously allowed $2.2 million for 
routine maintenance and servicing of capped rental DME with rental 
periods after implementation of the DRA and $4.4 million for repairs of 
capped rental DME during rental periods.  In 2007, $27 million (27 
percent) of Medicare claims for repairs of beneficiary-owned capped 
rental DME did not meet payment requirements.  In addition, 
49 percent ($29 million) of claims during 2007 were questionable.  A net 
62 percent ($39 million) of claims were either erroneously allowed or 
were questionable.  Further, our beneficiary interviews revealed that 
certain supplier practices adversely affected those beneficiaries.   
CMS should take action to reduce erroneous payments and ensure 
quality services for beneficiaries.  To accomplish this, we recommend 
that CMS:   
Implement an edit to deny claims for routine maintenance and servicing of 
capped rental DME with rental periods beginning after January 1, 2006  
CMS should ensure that routine maintenance and servicing claims are 
denied for capped rental DME with rental periods beginning after 
January 1, 2006. 
Implement an edit to deny claims for repairs of beneficiary-rented capped 
rental DME   
CMS should ensure that claims for repairs during the rental period are 
never allowed.   
Improve enforcement of existing payment requirements for beneficiary-
owned capped rental DME   
CMS should ensure that claims for repairs of capped rental DME 
include documentation of medical necessity (for the initial prescription 
of the item), service, and delivery (if applicable).  CMS should also 
ensure that claims for repairs are not allowed for capped rental DME 
under warranty and enforce Medicare assignment policy (i.e., when 
DME suppliers charge beneficiaries service fees). 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  22   
   
R E C O M M E N D A T I O N S  
 
Consider whether to require MACs to track accumulated repair costs of 
capped rental DME   
CMS should consider requiring MACs to obtain serial numbers of 
repaired equipment and track accumulated repair costs of capped rental 
DME in the same way it tracks repair costs of prosthetics.  This would 
allow MACs to identify and prevent payment for repairs that exceed 
100 percent of the purchase price for replacement capped rental DME, 
which is not allowed.  This same technique could be used to identify 
claims for accumulated repairs that exceed 60 percent of the purchase 
price for replacement capped rental DME. 
Develop and implement safeguards to ensure that beneficiaries have access 
to the services they require   
CMS could update the supplier standards and guidance to increase 
protections for beneficiary-purchased DME with respect to not charging 
extra service fees, such as prohibiting service fees for purchased capped 
rental DME.  CMS could promote access to suppliers through resources 
such as a listing of capped rental DME suppliers that provide 
high-quality services integrated with a listing of suppliers that routinely 
accept assignment. 
Take appropriate action on erroneously allowed claims for maintenance and 
servicing, repair, and payment errors 
We will forward information on erroneously allowed claims identified in 
our review to CMS in a separate memorandum.   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
In its written comments on the report, CMS agreed that maintaining 
strong and effective controls to ensure accurate payment of capped 
rental DME claims is essential.  CMS responded positively to each of 
our six recommendations and indicated that, in general, it will work to 
improve its comprehensive oversight of capped rental maintenance and 
servicing.   
In response to the first and second recommendations, CMS stated that 
it implemented claim edits in Transmittal 1177 (Change Request 5461) 
in February 2007 to instruct contractors to deny claims for maintenance 
and servicing of capped rental items and pay claims only for beneficiary-
owned capped rental items.  In view of our findings, CMS will conduct 
further systems analysis and implement additional edits, as required, to 
ensure these claims are denied. 
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R E C O M M E N D A T I O N S  
 
In response to the third recommendation, CMS concurred and said it 
will communicate the policy of nonpayment for repairs and maintenance 
for items under a manufacturers or suppliers warranty to contractors 
and suppliers.  CMS will also issue a Medicare Learning Network 
article to the provider and supplier community to emphasize that 
documentation requirements will be enforced. 
In response to the fourth recommendation, CMS agreed to consider the 
feasibility of requiring MACs to obtain serial numbers of repaired 
equipment and track accumulated repair costs.   
In response to the fifth recommendation, CMS stated that it will issue 
guidance to DME suppliers advising them that beneficiaries should not 
be charged service fees above the capped rental fee unless an Advanced 
Beneficiary Notice is signed by the beneficiary. 
In response to the sixth recommendation, CMS concurred and said it 
will take the appropriate action and send information about the 
erroneously allowed claims to the contractors. 
The full text of CMSs comments can be found in Appendix D.
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  24   
   
 A P P E N D I X   ~   A  
Table A-1:  Point Estimates and Confidence Intervals 
Sample  Point 
Description  95% Confidence Interval 
Size (n)  Estimate 
Statistics from Table 4  
Percentage of claims that lacked documentation of medical necessity  482  20.4  14.826.0 
Allowed amount of claims that lacked documentation of medical necessity  482  $20,772,891  $16,707,498$24,838,284 
Percentage of claims that lacked documentation of service  482  4.8  1.68.0 
Allowed amount of claims that lacked documentation of service  482  $4,624,264  $2,263,479$6,958,049 
Percentage of claims that lacked documentation of delivery  482  1.8  0.65.5* 
Allowed amount of claims that lacked documentation of delivery  482  $1,234,534  $120,026$2,349,042 
Percentage of claims that lacked documentation of medical necessity, service, or delivery 
(gross)  482  27.1  20.234.0 
Allowed amount of claims that lacked documentation of medical necessity, service, or 
delivery (gross)  482  $26,631,689  $21,805,711$31,457,666 
Percentage of claims for repairs while under warranty  335  2.6  1.06.4* 
Allowed amount of claims for repairs while under warranty  335  $1,912,669  $438,549$3,386,789 
Percentage of claims that lacked documentation of medical necessity, service, or  
delivery or were under warranty (gross)  482  29.4  22.336.5 
Allowed amount of claims that lacked documentation of medical necessity, service, or 
delivery or were under warranty (gross)  482  $28,738,808  $23,573,956$33,903,659 
Percentage of claims that lacked documentation of medical necessity, service, or  
delivery or were under warranty (overlapping)  482  2.3  0.95.7* 
Allowed amount of claims that lacked documentation of medical necessity, service, or 
delivery or were under warranty (overlapping)  482  $1,943,653  $480,217$3,407,090 
Percentage of claims that lacked documentation of medical necessity, service, or  
delivery or were under warranty (net)  482  27.1  20.833.4 
Allowed amount of claims that lacked documentation of medical necessity, service, or 
delivery or were under warranty (net)  482  $26,795,154  $22,202,772$31,387,536 
Statistics from Table 5 
Percentage of repair claims for which the suppliers did not provide the serial numbers  335  24.8  17.931.7 
Allowed amount for repair claims for which the suppliers did not provide the serial numbers 335  $10,943,415  $7,711,195$14,175,636 
Percentage of repair claims with invalid serial numbers  335  23.2  16.529.8 
Allowed amount of repair claims with invalid serial numbers  335  $13,921,304  $10,509,611$17,333,007 
continued on next page 
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A P P E N D I X   ~   A  
Table A-1:  Point Estimates and Confidence Intervals, Continued 
Sample  Point 
Description  95% Confidence Interval 
Size (n)  Estimate 
Percentage of allowed claims for repair costs on the date of service that exceeded  
60 percent of the new purchase price  335  2.9  1.04.8 
Allowed amount of repair costs on the date of service that exceeded 60 percent 
of the new purchase price  335  $6,687,925  $4,095,793$9,280,057 
Percentage of repairs that had invalid serial numbers or no serial numbers provided or 
whose repair costs on the date of service exceeded 60 percent of the new purchase   335  50.9  42.958.9 
price 
Allowed amount of repairs that had invalid serial numbers or no serial numbers  
provided, or whose repair costs on the date of service exceeded 60 percent of the new  335  $31,522,644  $26,271,998$36,833,290 
purchase price 
Percentage of repairs that had invalid serial numbers or no serial numbers provided  
or whose repair costs on the date of service exceeded 60 percent of the new purchase  335  1.6  0.12.6* 
price (overlapping) 
Allowed amount of claims for repairs that had invalid serial numbers or no serial  
numbers provided or whose repair costs on the date of service exceeded 60 percent of  335  $2,697,105  $936,258$4,457,952 
the new purchase price (overlapping) 
Percentage of repairs that had invalid serial numbers or no serial numbers provided  
or whose repair costs on the date of service exceeded 60 percent of the new purchase  335  49.3  41.757.0 
price (net) 
Allowed amount of claims for repairs that had invalid serial numbers or no serial  
numbers provided or whose repair costs on the date of service exceeded 60 percent of  335  $28,855,539  $24,340,724$33,370,354 
the new purchase price (net) 
Other statistics 
Percentage of repair claims without serial numbers and without valid serial numbers  335  48.0  40.355.6 
Statistics from Appendix C not earlier provided 
Percentage of erroneous claims and claims that were questionable (gross)  482  76.7  66.287.1 
Allowed amount of erroneous claims and claims that were questionable (gross)  482  $51,102,079  $43,921,779$58,282,379 
Percentage of erroneous claims and claims that were questionable (overlapping)  482  14.9  9.420.5 
Allowed amount of erroneous claims and claims that were questionable (overlapping)  482  $12,413,575  $8,899,211$15,927,939 
Percentage of erroneous claims and claims that were questionable (net)  482  61.8  54.469.1 
Allowed amount of erroneous claims and claims that were questionable (net)  482  $38,688,504  $33,967,207$43,409,801 
* Confidence intervals were calculated using the logit transformation because of poor coverage properties of the standard approximation method  
when a small number of sample elements possessed the characteristic of interest. 
Source:  Office of Inspector General analysis of claims data, 2010. 
 
 
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 A P P E N D I X   ~   B  
Case Examples of Allowed Claims That Failed To Meet Payment 
Requirements  
The following are included for illustrative purposes only and are not 
included in our error projections for this finding. 
Billing for more labor time than was provided.  Allowed labor units often did 
not match documentation provided by suppliers.  For the 59 sampled 
E1340 claim line items, 6 line items did not have documentation 
supporting the number of units billed.  In the extreme, a supplier billed 
571 15-minute units (nearly 143 hours) for a single date of service.  The 
supplier identified the overpayment and submitted a voluntary 
statement and refund indicating that only 291 15-minute units were 
provided.  The 291 units were allowed without further scrutiny by the 
DME MAC even though the claim represented nearly 73 hours, or the 
equivalent of 3 days, of labor for a single date of service.  On  
April 1, 2009, MACs implemented standardized labor times allowed for 
common repairs, which may reduce the potential for labor billing abuse.  
Billing for repairs that exceed the purchase price.  Repairs for five claims on 
our sampled date of service exceeded the purchase price of replacement 
capped rental DME.  In total, Medicare allowed $21,206 for these five 
claims, $6,105 of which exceeded the purchase price of replacement 
DME.  Additional repair costs prior to the sampled date of service may 
have also been reimbursed, which would increase the amount Medicare 
paid in excess of the price of replacement DME for these five claims. 
High-dollar claim allowed in error.  One supplier provided a beneficiary a 
replacement electronic wiring harness costing $141.91.  The supplier 
submitted a claim for 100 times that amount, or $14,191.  Medicare 
allowed $9,990 for the claim.  We confirmed with the DME MAC 
responsible for processing the claim that a $9,990 payment was made to 
the supplier for the $141.91 part. 
 
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 A P P E N D I X   ~   C  
Table C-1:  Net Payment Errors and Questionable Claims  
 
Claims of Concern 
Typ e of Concern  Allowed Amount (Total) 
(Percentage) 
 
Payment errors (net)  27.1  $26,795,154 
 
Questionable claims (net)  49.3  $28,855,539 
 
   Gross concerns  76.7*  $51,102,079* 
 
   Overlapping concerns  (14.9)  ($12,413,575) 
   Ne t concerns  61.8  $38,688,504 
*Totals may not sum exactly because of rounding and the effect of having denominators of 335 and 
482 for different statistics. 
Source:  Office of Inspector General analysis of claims data, 2010. 
 
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  28  x 
A  P  PEN  D  D 
Agency Comments 
/f,f.AYIC''-.t.~ 
~-1-
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
Administrator 
Washington, DC 20201 
DATE:  MAY 1 1 2010 
TO: 	 Daniel R. Levinson 

Inspector General  , 

FROM: 	 Marilyn Tavenner 

Acting Administrator and Chief Operating Officer 

SUBJECT: 	 Office ofInspector General (DIG) Draft Report: "Capped Rental DME: A Review 
of Repair Claims" (OEI-07-08-00550) 
Thank you for the opportunity to review and comment on the Office of Inspector General's draft 
report, "Capped Rental DME: A Review of Repair Claims." The Centers for Medicare & 
Medicaid Services (CMS) appreciates the time and resources the DIG has invested to determine 
the extent to which Medicare improperly paid claims for routine maintenance and servicing of 
capped rental durable medical equipment (DME). 
The DME items covered by Medicare are medical equipment that often requires maintenance 
and repairs and Medicare paysDME suppliers for maintenance and repairs in certain 
circumstances. Capped rental DME is a specific category of DME for which Medicare pays a 
fee schedule amount that is capped after 13 continuous months of rental to a beneficiary. The 
Deficit Reduction Act of 2005 (DRA) revised the payment rules for capped rental DME so that 
ownership of the equipment would transfer to the beneficiaries after 13 continuous months of 
rental. 
During this audit, the DIG reviewed approximately 500 claims and conducted 34 beneficiary 
interviews and concluded claims for repairs of beneficiary-owned capped rental DME were 
improperly paid. The OIG's recommendations address strategies to reduce improper payments 
and strengthen program integrity. 
The eMS appreciates the DIG's efforts and insight on this report. As described in our detailed 
responses, CMS agrees that maintaining strong and effective controls to ensure accurate payment 
of capped rental DME claims is essential.  In fact, CMS has already taken action to strengthen 
Medicare claims processing edits to eJ?sure proper payments in this vulnerable area. We agree to 
pursue additional analyses to validate the effectiveness of our claims processing and enforcement 
requirements and, as necessary, implement improvements to ensure all systeins and requirements 
achieve our goal of accurate payments. In general, the CMS will work to improve our 
comprehensive oversight of capped DME rental maintenance and servicing. The CMS looks 
forward to continually working with the OIG on issues related to waste, fraud and abuse in the 
Medicare program. 
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A P P E N D I X   ~   D  
 
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 A C K N O W L E D G M E N T S  
This report was prepared under the direction of Brian T. Pattison, 
Regional Inspector General for Evaluation and Inspections in the 
Kansas City regional office, and Deborah Walden, Deputy Regional 
Inspector General.   
Brian T. Whitley served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the Kansas 
City regional office who contributed to the report include Julie Dusold, 
LCDR Mike Garner, and Rae Hutchison; central office staff who 
contributed include Scott Manley and Megan Ruhnke.  
  OEI-07-08-00550  A REVIEW OF CLAIMS FOR CAPPED RENTAL DURABLE MEDICAL EQUIPMENT  33   
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs internal operations.  OCIG represents OIG in all civil and 
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also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.