Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare Losses Resulting from Early 
Payments for Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies 
JUNE GIBBS BROWN 
Inspector General 
JUNE 2000 
OEI-03-99-00620  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 Philadelphia Regional Office prepared this report under the direction of Robert A. Vito, 
Regional Inspector General, and Linda M. Ragone, Deputy Regional Inspector General.  Principal 
OEI staff included: 
REGION  HEADQUARTERS 
Tara Schmerling, Project Leader	 Stuart Wright, Program Specialist 
Brian Ritchie, Technical Support Staff 
To obtain copies of this report, please call the Philadelphia Regional Office at 1-800-531-9562. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  June Gibbs Brown

Inspector General

OIG Final Report:  Medicare Losses Resulting from Early Payments for Durable Medical

Equipment, Prosthetics, Orthotics, and Supplies, OEI-03-99-00620

Nancy-Ann Min DeParle

Administrator

Health Care Financing Administration

Summary 
The purpose of this report is to inform the Health Care Financing Administration (HCFA) of 
an improvement that can be made to provider billing requirements for durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS).  We found that the Medicare trust 
fund would have earned significant interest if HCFA had required providers to wait until the 
end of the service period to submit DMEPOS claims.  We estimate this unearned interest to be 
$7.2 million in 1998. 
Background 
Title XVIII of the Social Security Act authorizes coverage of durable medical equipment, 
prosthetics, orthotics, and supplies (DMEPOS) under Medicare Part B.  Medicare allowed 
approximately $6.1 billion for DMEPOS claims in 1998.  Durable medical equipment includes 
items such as hospital beds, wheelchairs, and oxygen equipment.  Prosthetics, orthotics, and 
supplies include such items as artificial arms and legs, neck braces, enteral nutrients, and 
wound dressings.  Depending on the type of DMEPOS, these services can be rented on a 
monthly basis, purchased, or billed over a number of days corresponding to the amount of the 
supply provided. 
According to the Medicare Carriers Manual, Part B expenses for items and services are 
incurred on the date the beneficiary receives the item or service.  For DMEPOS claims, 
expenses are incurred on the date the item is delivered to the beneficiarys home.  This date is 
also known as the date of service and is the earliest date that a provider can submit a claim. 
For rental items, the day of delivery is the initial date of service for the monthly rental period, 
and subsequent rental periods start on that same day of the month. 
The Supplementary Medical Insurance (SMI) trust fund pays for physician and outpatient 
services under Part B of the Medicare Program.  The SMI is financed by monthly premiums 
charged to Medicare beneficiaries and by payments from Federal general revenues.  The money 
in the trust fund is invested in special Treasury securities that are guaranteed by the U.S. 
Government.  Those securities that are available only to the trust fund are called special issues. 
The rate of interest on special issues is determined by a formula and is established at  Page 2- Nancy-Ann Min DeParle 
the end of each month.  This rate of interest applies to new investments in the following month. 
The average interest rate for 1998 was 5.625 percent. 
Methodology 
Claims Data. We gathered all 1998 DMEPOS claims for a 1 percent sample of Medicare 
beneficiaries using HCFAs National Claims History file.  From this file, we used variables 
associated with the service start date, service end date, carrier receipt date (i.e., date carrier 
receives claim from provider), type of service code (e.g., rental or purchased item), and 
allowed amount. 
To determine if a provider billed Medicare for a service before it was completed, we compared 
the carrier receipt date to the service end date.  Almost all (99.9 percent) of the rental claims 
that we reviewed had the same start and end dates of service.  For these claims, we created a 
new end date by adding 30 days to the date of service provided on the claim.  We did this since 
rental services span a monthly period and these dates of service did not accurately reflect the 
service period.  For all the remaining services, we used the actual end date of service.  We then 
identified those services where the carrier receipt date preceded the service end date.  For these 
services, we subtracted the carrier receipt date from the end date of service to calculate the 
number of days in interest that Medicare lost.  Using the average 1998 interest rate on special-
issue investments issued to the SMI trust fund, we calculated a daily interest rate by dividing 
the 1998 interest rate by 365 days.  To calculate the total interest lost for each service, we first 
multiplied the number of days lost in interest by the daily interest rate then multiplied that 
amount by the services allowed amount.  We then aggregated the results for all identified 
services. 
We also analyzed when, during the service period, providers submitted these claims.  To 
determine this, we found the mid-point of each service period by dividing the number of days in 
the service period by two.  We then subtracted the carrier receipt date from the end date of 
service and compared this number to the mid-point of the service period.  If the number was 
greater than or equal to the mid-point, we determined that the service was billed in the first half 
of the service period.  If the number was less than the mid-point, we determined that the 
service was billed in the second half of the service period.  Additionally, if the carrier receipt 
date was before the start date of service, we determined that the service was billed before the 
start of the service period. 
Survey Data. To determine what other payers billing and payment policies for rental services 
were, we conducted phone surveys with representatives of seven fee-for-service health benefit 
plans offered under the Federal Employees Health Benefits Program.  Page 3- Nancy-Ann Min DeParle 
Findings 
Medicare could have earned an additional $7.2 million in interest on 1998 payments for 
claims that were billed before the end of the service period 
Medicare could have earned an additional $7.2 million ( $40,348) in interest on 1998 
payments for DMEPOS services.  This is due to the current Medicare policy that allows 
providers of DMEPOS to bill for a service before the service period is completed.  Rental 
claims accounted for almost all (98 percent) of the identified claims.  For the majority of 
services, claims were submitted by providers during the first half of the service period. 
Additionally, a small number of services were billed even before the start date of service.  The 
table below shows the percentage of services billed in each segment of the service period along 
with the estimated interest Medicare could have earned. 
Percentage of 1998 Services Billed and Estimated Unearned Interest by 
the Segment of the Service Period 
Segment of Service Period  Percentage of Total  Estimated Unearned 
Billed  Services Billed  Interest 
Before Start Date of 
0.2%  $21,855 
Service 
First Half of Service 
83.6%  $6,703,059 
Period 
Second Half of Service 
16.2%  $434,992 
Period 
Total  100.0%  $7,159,906 
Four of seven insurers surveyed do not pay for services before the service period is 
completed 
We asked seven insurers if we were to rent a wheelchair to a member for the month of January, 
(1) when would we be allowed to submit the claim and (2) when would we be paid.  Two 
insurers said that their systems would reject the claim if it was submitted before the end of the 
service period.  Another two insurers said that if the claim for the wheelchair was submitted 
early they would hold payment of the claim until the end of the service period.  The other three 
insurers surveyed said the claim can be submitted at the beginning of the service period and 
that payment would not be delayed until the end of the service period.  Page 4- Nancy-Ann Min DeParle 
Recommendation 
We believe that HCFA is allowing unnecessary losses to the Medicare trust fund, in the form of 
unearned interest, by paying for DMEPOS claims prior to the end of the service period. 
Therefore, we recommend that HCFA not pay for DMEPOS claims before the service 
period has been completed.  To accomplish this, HCFA should: 
<<  require providers to submit claims at the end of the service period; 
<<  require providers to submit claims with accurate start and end dates of service; 
<<	 require a Common Working File and/or contractor system edit to reject claims 
submitted prior to the end of the service period. 
Agency Comments 
The HCFA did not concur with our recommendation and stated that delaying payment of 
DMEPOS claims until the end of the service period would not be a desirable practice.  In 
addition, HCFA questioned our use of the carrier receipt date in our interest calculation and 
stated that our estimate of $7.2 million would likely be reduced if we had factored the 14-day 
payment floor into our calculation.  The 14-day payment floor requires contractors to hold 
claims for 14 days before being paid.  The full text of HCFAs comments is attached. 
OIG Response 
We recognize that HCFA needs to prioritize the issues it addresses based on impact to the 
program, and we realize that the $7.2 million financial impact of our recommendation may 
need to be balanced against other agency goals.  We suggest that, if it is not practical to take 
action now, HCFA reconsider our recommendation at a later time when making additional or 
broader refinements to Medicares claims processing system. 
We do believe there is evidence that paying for DMEPOS claims at the end of the service 
period is a viable option.  While HCFA believes that such a practice would be inconsistent with 
customary business practices, we found that four of seven insurers contacted paid for these 
types of services at the end of the service period. 
We would also like to clarify a technical issue raised by HCFA with respect to our interest lost 
estimate.  The HCFA questioned our use of carrier receipt date to determine the interest lost 
by early payment of DMEPOS claims, and stated that we did not take into account the 14-day 
payment floor.  Using the premise that DMEPOS claims should not be billed until the end of 
the service period, our methodology determined that a claim covering the month of January 
and received on January 5 would have lost 26 days of interest.  The HCFA states that we  Page 5- Nancy-Ann Min DeParle 
should have added 14 days to the January 5 receipt date to determine an estimated payment 
date of January 19.  If we had used this payment date in our calculation, HCFA believes that 
the interest lost would be reduced to only 12 days in this example.  However, if we had used 
the estimated payment date to calculate interest lost, the program still would have lost 26 days 
of interest.  If we replaced receipt date with payment date in the calculation, we would have 
subtracted the estimated payment date of January 19 from the proposed payment date of 
February 14 (proposed receipt date plus 14 days), not from the proposed receipt date of 
January 31.  When payment date is applied uniformly in the calculation, the number of days of 
interest lost to the Medicare program is 26 days.  Whether receipt date or payment date is used 
to calculate interest lost, the result is the same.  Therefore, we believe our $7.2 million estimate 
is an accurate reflection of the interest lost to the program in 1998. 
Attachment  Attachment  Attachment