Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M S
  EDICARE  UPPLIER 
 
A C
 CQUISITION  OSTS FOR 
 
L0631 B O
  ACK  RTHOSES 
 
   
 
 
Daniel R. Levinson  
Inspector General 
 
December 2012 
OEI-03-11-00600   
   
EXECUTIVE SUMMARY:  MEDICARE SUPPLIER ACQUISTION COSTS FOR 
L0631 BACK ORTHOSES  
OEI-03-11-00600 
 
WHY WE DID THIS STUDY  
 
From 2008 to 2011, Medicare claims for L0631 back orthoses more than doubled, 
increasing Medicare allowances from $36 million to more than $96 million.  Suppliers 
may bill Medicare for a variety of back orthosis products using code L0631, and the 
acquisition cost for each product may vary according to the manufacturer and model 
provided.  However, Medicare does not collect information on the supplier acquisition 
costs or the models of L0631 back orthoses provided to beneficiaries.  This study 
provides information on supplier acquisition costs for L0631 back orthoses that could 
assist the Centers for Medicare & Medicaid Services (CMS) in determining whether the 
Medicare payment amount is appropriate.   
 
HOW WE DID THIS STUDY 
 
From CMSs National Claims History file, we extracted Medicare claims for L0631 back 
orthoses with dates of service between July 1, 2010, and June 30, 2011.  We randomly 
selected a sample of 350 suppliers and then randomly selected 1 claim from each.  We 
requested that suppliers provide the acquisition cost of the L0631 orthoses they purchased 
for the claims, reflective of any discounts, rebates, fees, or charges.  We also requested 
that suppliers describe the services they provided to beneficiaries, including fitting and 
adjustment services and instructions for using the orthoses. 
 
WHAT WE FOUND 
 
Medicare payment amounts were more than four times greater than supplier acquisition 
costs for L0631 back orthoses.  Between July 2010 and June 2011, the average  
Medicare-allowed amount for L0631 back orthoses was $919 and the average supplier 
acquisition cost was $191.  Consequently, Medicare and its beneficiaries paid 
approximately $37 million more for L0631 back orthoses than suppliers paid to acquire 
them.  Beneficiary copayments alone would have almost covered suppliers L0631 
acquisition costs.  The description for the L0631 back orthosis code includes not only the 
orthosis but also fitting and adjustment services.  However, for one-third of claims, 
suppliers did not report providing fitting and adjustment services.  For 93 percent of 
claims, suppliers did not report providing any additional services regarding the L0631 
back orthoses other than general instructions. 
 
WHAT WE RECOMMEND  
 
We recommend that CMS use supplier acquisition cost information to lower the fee 
schedule amount for L0631 back orthoses by including it in the Competitive Bidding 
Program or by using CMSs inherent reasonableness authority.  CMS concurred that 
Medicare payments for L0631 back orthoses should be adjusted to more closely reflect 
supplier acquisition costs and the level of service provided when furnishing the devices.   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................3 
Findings........................................................................................................7 
Medicare payment amounts were more than four times greater  
than the supplier acquisition costs for L0631 back orthoses ...........7 
Suppliers did not report providing fitting and adjustment services 
for one-third of claims .....................................................................8 
Conclusion and Recommendation .............................................................10 
             Agency Comments and Office of Inspector General Response .... 11 
Appendixes ................................................................................................12 
A:  Point Estimates and Confidence Intervals for L0631 Back          
Orthoses Findings ..........................................................................12 
B:   L0631 Back Orthosis Models Provided to Beneficiaries ........15 
C:   Agency Comments ..................................................................18 
Acknowledgments......................................................................................20 
 
 
  
     
   
OBJECTIVES 
1.  To compare the Medicare payment amount for L0631 back orthoses to 
supplier acquisition cost. 
2.  To determine the extent to which suppliers provided services to 
Medicare beneficiaries who received L0631 back orthoses.   
BACKGROUND  
The number of Medicare claims and total allowances for L0631 back 
orthoses rose sharply from 2008 to 2011.  During that time, Medicare 
allowances for L0631 back orthoses more than doubled, increasing from         
$36 million in 2008 to more than $96 million in 2011.1  Although 
Medicare pays for 13 different lower-back orthoses codes, in 2011 it paid 
more for orthoses coded as L0631 than the other 12 lower-back orthoses 
codes combined.2   
Medicare Coverage of Back Orthoses  
Back orthoses provide back support, reduce back pain, and facilitate 
healing of the spine.  Medicare covers back orthoses prescribed for one of 
the following indications:  
  to reduce pain by restricting mobility of the trunk, 
  to facilitate healing following an injury to the spine or related soft 
tissue, 
  to facilitate healing following a surgical procedure on the spine or 
related soft tissue, or  
  to otherwise support weak spinal muscles and/or a deformed spine.3  
To bill Medicare, a supplier must have a written order from a physician 
indicating that the back orthosis is reasonable and necessary for the 
beneficiary.  Beneficiaries obtain back orthoses from suppliers, which 
purchase them from manufacturers and wholesalers. 
 
1 Summary analysis of the Centers for Medicare & Medicaid Services (CMS) Services 
Tracking, Analysis, & Reporting System National Database.   
2
 Ibid. 
3 Local Coverage Determination (LCD) for Spinal Orthoses:  TLSO and LSO (L11470), 
January 1, 2010.  This is the LCD for one of the four claims processors for durable medical 
equipment, prosthetics, orthotics, and supplies (DMEPOS).  The other three claims processors 
have identical LCDs.  LCD L11470 was accessed at 
http://www.medicarenhic.com/dme/medical_review/mr_lcds/mr_lcd_current/L11470_2010-
01-01_PA_2010-07.pdf on October 5, 2011. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  1   
   
Medicare Payment for Back Orthoses 
To obtain payment for covered equipment, suppliers submit claims using 
procedure codes.  The Healthcare Common Procedure Coding System 
(HCPCS) provides a standardized coding system for describing specific 
items and services provided.  In the case of back orthoses, each HCPCS 
code defines a type of orthosis but does not specify the individual models 
covered under each code.  Therefore, a single HCPCS code can be used to 
bill for a number of different manufacturers products as long as they meet 
the requirements outlined in the definition of the code. 
There are 13 HCPCS codes (L0628 through L0640) for lumbar-sacral 
(lower-back) orthoses. 4  Medicare allowed $166 million for all lumbar-
sacral orthoses codes.  Medicare allowed    $96 million for code L0631 
alone58 percent of the total 2011 payments for all lumbar-sacral 
orthoses.5  Medicare-allowed amounts include the 80 percent that 
Medicare pays and the 20 percent the beneficiary pays as a copayment.    
The L0631 code is one of seven lumbar-sacral codes for prefabricated 
back orthoses.  The remaining six lumbar-sacral codes are for         
custom-fabricated back orthoses.  According to local coverage policy 
articles for back orthoses, prefabricated back orthoses are manufactured 
in quantity without a specific patient in mind and custom-fabricated 
orthoses are individually made for a specific patient.6  
Medicare payment amounts for durable medical equipment, prosthetics, 
orthotics, and supplies (DMEPOS) are based on fee schedules.  Medicare 
pays the lower of the supplier charge for the item or the fee schedule 
amount.  Medicare uses a separate fee schedule for each State to account 
for geographic differences in prices.  For prosthetics and orthotics, 
Medicare uses regional fee schedule amounts, which are the weighted 
averages of the statewide fee schedule amounts in each CMS region.   
 
4
 According to the LCD in note 3 above, L0631 is defined as lumbar-sacral orthosis, sagittal 
control, with rigid anterior and posterior panels, posterior extends from sacrococcygeal 
junction to T-9 vertebra, produces intracavity pressure to reduce load on the intervertebral 
discs, includes straps, closures, may include padding, shoulder straps, pendulous abdomen 
design, prefabricated, includes fitting and adjustment. 
5 Summary analysis of CMS Services Tracking, Analysis, & Reporting System National 
Database.   
6 Local Coverage Article for Spinal Orthoses:  TLSO and LSO (A23663), July 1, 2010.  This 
is the Policy Article for one of the four DMEPOS claims processors.  The other three claims 
processors have identical Policy Articles.  Policy Article A23663 was accessed at 
http://www.medicarenhic.com/dme/medical_review/mr_lcds/mr_lcd_current/L11470_2010-
01-01_PA_2010-07.pdf on October 5, 2011. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  2   
   
The 2011 fee schedule amounts for L0631 ranged from $906.34 to 
$940.65.7 
The payment amount for L0631 includes fitting and adjustment services.  
The local coverage determinations for back orthoses do not define fitting 
and adjustment.  They also do not specify that certain types of personnel, 
such as certified orthotists, should perform fitting and adjustment services.  
Suppliers are not required to provide any additional services to 
beneficiaries receiving L0631 back orthoses. 
Competitive Bidding for DMEPOS 
For some DMEPOS, payment amounts are set through competitive 
bidding in certain jurisdictions.  Under the DMEPOS Competitive Bidding 
Program, suppliers compete to become Medicare contract suppliers by 
submitting bids to furnish certain items in a geographical area.  CMS 
awards contracts to suppliers that offer lower prices and meet the 
programs quality and financial standards.8  However, back orthoses are 
not among the DMEPOS items included in competitive bidding. 
Inherent Reasonableness Authority 
CMS has the authority to adjust Medicare payment amounts that are not 
inherently reasonable.9  The Act requires that payments made under 
Medicare Part B be reasonable.10  The Act provides that CMS may 
establish a special reasonable payment limit for a category of service if, 
after consultation with representatives of affected parties (such as 
suppliers), it determines that payment amounts are grossly deficient or 
excessive.  CMS staff reported that, since the implementation of fee 
schedules in 1989, the agency has used its inherent reasonableness 
authority successfully once, in 1995, to lower the payment amounts for 
standard home blood glucose monitors.11    
METHODOLOGY 
Data Sources and Collection 
Sample Selection.  From CMSs National Claims History (NCH) file, we 
extracted all claims for L0631 back orthoses that (1) had dates of service 
between July 1, 2010, and June 30, 2011; (2) had an allowed charge 
greater than $0.00; (3) were from suppliers within the 50 States and the 
 
7 The range excludes the fee schedule amounts for Puerto Rico, Virgin Islands, and other U.S. 
territories. 
8 Social Security Act (the Act),  1847(b)(2)(A). 
9 The Act,  1834(a)(10)(B) and 1842(b)(8) and (9). 
10 Coverage for L0631 back orthoses is provided under Medicare Part B. 
11
 60 Fed. Reg. 3405 (Jan. 17, 1995). 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  3   
   
District of Columbia; and (4) had a specific National Provider Identifier 
(NPI) for the supplier.  As Table 1 shows, the Medicare allowed amount 
for all claims in the universe totaled $83 million. 
From this universe of claims we selected a two-stage cluster sample.  For 
the first stage, we randomly selected 350 of the total 3,131 suppliers.  
These sampled suppliers had between 1 and 3,537 allowed claims.  For the 
second stage, we randomly selected 1 claim from each of the                 
350 suppliers.  We removed two claims filed by two suppliers that were 
under investigation by the Office of Inspector Generals (OIG) Office of 
Investigations.   
Supplier Survey.  We used the NPI from each claim to obtain contact 
information for each supplier from CMSs National Plan & Provider 
Enumeration System.  We sent letters to the suppliers asking them to 
complete an online survey regarding their L0631 claims and to provide 
relevant documentation, such as invoices and physician orders.  We made 
a minimum of three written attempts to obtain information from the 
sampled suppliers.  If we received no information after three attempts, we 
attempted to contact the supplier by telephone and/or email. 
For the specific product provided by the supplier, we requested (1) the 
manufacturer name; (2) the model name; (3) the model number,              
(4) a description of the item; (5) the acquisition cost (reflective of any 
discounts, rebates, fees, or charges); and (6) the physician order for the 
item.  
We also requested that each supplier describe the services it provided the 
beneficiary.  We asked suppliers about their fitting and adjustment 
services, any instructions regarding the use of the orthoses, and a 
description of any other services provided. 
Table 1 shows the number of claims, suppliers, and Medicare-allowed 
amounts for the population, sample, and survey respondents.  We removed 
six claims for six suppliers that reported they erroneously billed for L0631 
back orthoses.  In each of those cases, the supplier billed Medicare for an 
L0631 orthosis but actually provided the beneficiary with some other type.       
Twenty-one suppliers did not complete the survey.  Of those, four did not 
complete the survey because their businesses had closed.  Four could not 
be reached because their addresses were incorrect and their letters were 
returned as undeliverable.  Another 13 suppliers never responded after 
receiving our survey request letters and followup calls.12 
 
12 OIG referred the 21 suppliers that did not respond to the survey to CMS. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  4   
   
Table 1:  Population and Sample Size 
  Population   Sample   Respondents 
Suppliers  3,131  350  321 
Claims  90,181  350  321 
Allowed Amount   $82,819,632    $319,592  $293,901 
  Source:  OIG analysis of claims extracted from NCH file. 
We reviewed 321 claims from the 321 suppliers that responded to the 
survey.  One respondent provided documentation but did not complete the 
survey.  However, on the basis of its documentation, we included that 
supplier in our analysis. 
Data Analysis 
For the 321 suppliers who responded to our survey, we compared 
Medicares allowed amount to supplier acquisition costs for L0631 back 
orthoses and determined the extent to which suppliers provided services 
associated with them.    
Supplier Acquisition Cost.  To calculate the supplier acquisition cost for 
each orthosis, we asked suppliers to provide the invoice purchase prices as 
well as any discounts or fees associated with the purchases.  To calculate 
acquisition cost, we subtracted any discounts from the invoice purchase 
price and added any fees.  When suppliers provided prices, discounts, or 
fees that were not supported in their documents, we used the information 
in the documentation for our calculations.  The calculation of acquisition 
cost does not include a suppliers indirect costs, such as the cost of 
performing services or other supplier business expenses. 
Discounts received by suppliers included rebates, prompt-pay discounts, 
volume discounts, and other discounts.  Fees paid by suppliers included 
delivery charges, fuel charges, and sales taxes.  When suppliers received 
orthoses as part of a delivery with other items, we prorated the delivery 
charge on the basis of the number of items on the shipment documentation 
provided by the suppliers.  In five cases, suppliers did not have 
documentation indicating the number of other items that were included 
with shipment of the orthoses.  We used the full delivery charges they 
reported for our calculations.   
Differences Between Allowed Amount and Supplier Acquisition Cost.  For 
each claim in the sample, we calculated the difference between the 
Medicare-allowed amount and the supplier acquisition cost.  We then 
calculated the average dollar amount difference across all claims.  We 
projected this difference to determine the total dollar amount difference 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  5   
   
between what Medicare and its beneficiaries paid and what suppliers paid 
for the orthoses.  We also calculated the average percentage difference 
between the Medicare-allowed amount and the supplier acquisition cost.   
We also analyzed beneficiary copayments for L0631 back orthosis claims.  
From the copayment information included on each claim, we calculated 
the average beneficiary copayment across all claims.  In addition, we 
totaled beneficiary copayment amounts across all L0631 back orthosis 
claims.   
Models of Common L0631 Orthoses Provided by Suppliers.  For each 
claim, we requested that the supplier report the manufacturer and model of 
the orthosis provided.  We aggregated suppliers responses to determine 
which models were most commonly provided.   
Services Provided by Supplier. We calculated the percentage of claims that 
involved fitting and adjustment services provided by suppliers.  We also 
calculated the percentage of claims in which suppliers provided fitting and 
adjustment services at the beneficiaries homes, on the suppliers premises, 
or at other locations.  We calculated the percentage of fitting and 
adjustment services provided by physicians; certified orthotists; office 
personnel; or others, such as manufacturer representatives. 
We also calculated the percentage of claims in which suppliers provided 
instructions to beneficiaries and the percentage of claims in which 
suppliers provided any other services. 
Type of Delivery.  We determined how suppliers delivered L0631 back 
orthoses.  Each supplier indicated whether the orthosis was provided on 
the suppliers premises, by personal delivery from the supplier to the 
beneficiary, through a third-party parcel service, by direct delivery from 
the manufacturer of the orthosis, or by some other means.  We calculated 
the percentage of claims for which suppliers used each method.  
Point Estimates and Confidence Intervals.  We developed point estimates 
and confidence intervals at the 95-percent confidence level for all statistics 
presented in the findings of this report.  This information is provided in 
Appendix A.  While the response rate for suppliers surveyed was             
92 percent (321 of 350), the claims associated with these 321 suppliers 
represented 56 percent of the claims associated with all 350 sampled 
suppliers.  Therefore, the results of our analysis are representative only of 
56 percent of the entire population of L0631 claims. 
 
 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  6   
   
FINDINGS 
Medicare payment amounts were more than four times 
greater than the supplier acquisition costs for L0631 
back orthoses  
Between July 1, 2010, and June 30, 2011, the average Medicare-allowed 
amount was 380 percent higher than the average supplier acquisition cost.  
During that period, the average Medicare-allowed amount for L0631 back 
orthoses was $919, which was more than four times greater than the 
average acquisition cost of $191.  The average difference between the 
Medicare-allowed amount and supplier acquisition costs was $728.  
Medicare allowed between $400 and $942 for L0631 back orthoses, while 
suppliers paid as little as $0 and as much as $995 for them.13  
For almost all claims (99.6 percent), the Medicare-allowed amounts 
exceeded the suppliers acquisition costs.  Suppliers purchased 75 percent 
of orthoses for $234 or less, half for $168 or less, and 25 percent for $152 
or less.   
Medicare and its beneficiaries paid $37 million more for L0631 
back orthoses than suppliers paid to purchase them   
Medicare allowed a total of $83 million for L0631 claims between       
July 1, 2010, and June 30, 2011.14  Medicare and its beneficiaries paid    
$37 million more for L0631 back orthoses than suppliers paid to acquire 
them.15   
Beneficiary copayments alone would have almost covered suppliers 
L0631 acquisition costs.  Beneficiaries are responsible for paying 20 
percent of the Medicare-allowed amount for back orthoses.  The average 
beneficiary copayment for L0631 orthoses was $184, while the average 
supplier acquisition cost was $191.  Collectively, beneficiaries paid      
$9.3 million for L0631 back orthoses that cost suppliers $9.7 million. 
 
 
 
13 One supplier reported paying nothing for its L0631 orthosis because the vendor provided it 
as a sample, free of charge.  OIG referred this supplier to CMS. 
14 Total allowances are for the claims that met the parameters outlined in the Methodology 
section of this report. 
15
 As described in the Methodology section, the results of our analysis represent 56 percent, 
or $47 million, of the entire population of L0631 claims.  The $37 million is calculated on the 
basis of this $47 million. 
     
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  7   
   
Discounts and fees did not substantially affect suppliers 
acquisition costs for L0631 orthoses 
Suppliers received discounts on 22 percent of the orthoses they purchased.  
The average discount was $11 (this includes volume discounts, prompt-
pay discounts, rebates, and other discounts).  Suppliers paid delivery fees 
or other fees, such as sales tax, on 62 percent of the orthoses they 
purchased.  The average fee was $7.  We factored discounts and fees into 
the suppliers acquisition costs.   
The majority of claims were for orthoses that suppliers 
acquired directly from manufacturers 
For 67 percent of claims, suppliers purchased L0631 back orthoses 
directly from manufacturers.  Another 31 percent of orthoses were 
purchased from wholesalers and 2 percent from other sources, such as 
distributors or retailers.  Back orthoses purchased from manufacturers 
were slightly less expensive than those purchased from wholesalers.  On 
average, suppliers purchasing from manufacturers paid $180 while those 
purchasing from wholesalers paid $212.  The few suppliers who acquired 
orthoses from other sources paid an average of $256.  
Three orthosis models accounted for almost half (48 percent) 
of all L0631 claims   
The Prolign model, manufactured by DeRoyal Industries, Inc., accounted 
for 28 percent of L0631 claims.  The DDS-500 model, manufactured by 
Disc Disease Solutions, Inc., and the Summit model, manufactured by 
Aspen Medical Products, Inc., each accounted for 10 percent.  Appendix B 
lists all of the manufacturers and models reported by suppliers and 
provides point estimates for the percentage of claims associated with each.        
Suppliers did not report providing fitting and 
adjustment services for one-third of claims  
Fitting and Adjustment Services.  Fitting and adjustment services are 
included in the payment amount for L0631 back orthoses.  For one-third 
of claims, suppliers did not report providing fitting and adjustment 
services to beneficiaries.  Among the remaining two-thirds of claims, the 
extent of the reported fitting and adjustment services varied.  Some 
suppliers documentation indicated that the services entailed taking 
measurements, such as the beneficiarys hip and waist size.  Other 
suppliers documentation indicated that they made physical adjustments to 
back orthoses to fit beneficiaries properly.   
For 42 percent of claims involving fitting and adjustment services, 
suppliers reported that the services were provided not by specialized staff, 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  8   
   
but by office personnel.  A certified orthotist provided fitting and 
adjustment services for 9 percent of claims.  Another 48 percent of claims 
involved services performed by physicians or other professionals, such as 
registered nurses, chiropractors, physical therapists, or DMEPOS fitters.  
For the remaining 1 percent of claims, fitting and adjustment services were 
provided by others, such as manufacturing representatives.  
The majority of fitting and adjustment services were not provided in 
beneficiaries homes.  Suppliers reported providing 58 percent of fitting 
and adjustment services on the suppliers premises.  About a quarter             
(27 percent) of fitting and adjustment services were provided in 
beneficiaries homes.  Another 15 percent were provided in other 
locations, such as a doctors office. 
Additional Services.  Although most suppliers (91 percent) provided 
general instructions on the use of the back orthosis, for the vast majority of 
claims (93 percent), suppliers did not report providing any other types of 
services regarding L0631 back orthoses.16  Additional services that were 
reported included making followup phone calls and providing information 
regarding patient rights and responsibilities. 
Delivery Services.  For many claims, suppliers did not provide personal 
delivery to beneficiaries.  Forty-three percent of claims were from 
suppliers that provided orthoses to beneficiaries on the suppliers 
premises.  For 19 percent of claims, suppliers used third parties (e.g., UPS, 
FedEx) to ship the orthoses to beneficiaries.  For 38 percent, suppliers 
delivered the orthoses to beneficiaries.  
   
 
16 General instructions include information such as the proper way to put on and remove the 
back orthosis as well as its cleaning and care. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  9   
   
CONCLUSION AND RECOMMENDATION 
Medicare payment amounts were substantially more than suppliers 
acquisition costs for L0631 back orthoses.  Consequently, Medicare and its 
beneficiaries paid approximately $37 million more for these orthoses than 
suppliers paid to purchase them.  For one-third of claims, suppliers did not 
provide the fitting and adjustment services included in the payment 
amounts.  For the vast majority of claims (93 percent), suppliers did not 
provide any additional services related to L0631 back orthoses other than 
general instructions.   
The significant difference between the Medicare allowed-amount and 
supplier acquisition cost, especially in light of the noncustomized nature 
of the L0631 back orthosis and the limited services provided to 
beneficiaries, warrants an examination by CMS of its current payment 
amount. 
We recommend that CMS:  
Lower the Fee Schedule Amount for the L0631 Back Orthosis 
CMS could take one of the following actions:  
  Include the L0631 back orthosis in the DMEPOS Competitive 
Bidding Program.  CMS could award contracts to suppliers that 
offer more appropriate prices while also meeting the programs 
quality and financial standards.  
  Use its inherent reasonableness authority.  The Medicare-allowed 
amount for L0631 back orthoses exceeded the supplier acquisition 
cost by an average of $728.  The program and its beneficiaries 
could have paid millions of dollars less if the Medicare 
reimbursement amount for L0631 back orthoses more closely 
resembled the cost to suppliers.  
   
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  10   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred that Medicare payments for L0631 back orthoses should 
be adjusted to more closely reflect the suppliers acquisition costs for the 
devices and the level of service provided when furnishing them.   CMS 
stated that it has invited comments on a list of HCPCS codes, including 
code L0631, that were preliminarily classified as meeting the definition of 
off-the shelf (OTS) orthotics.  OTS orthotics, which require minimal self-
adjustment and do not require individual customization, are subject to the 
DMEPOS Competitive Bidding Program.  CMS stated that it is carefully 
considering comments and consulting with experts in the orthotics field as 
it works toward finalizing Medicares classification of OTS orthotic codes.  
It believes that implementing competitive bidding for OTS orthotics 
would result in new payment amounts for these items in competitive 
bidding areas.  CMS reported that, at this time, it does not want to use its 
inherent reasonableness authority to adjust the payment amounts as it is 
unlikely to undertake the required analysis prior to completing the 
classification of OTS orthotic codes.  
The full text of CMS's comments is provided in Appendix C. 
 
 
   
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  11   
   
APPENDIX A 
Table A-1:  Point Estimates and Confidence Intervals for L0631 Back 
Orthoses Findings 
Number of 
Estimate Description  Sample  Point Estimate  95% Confidence Interval 
Responses 
Percentage by which the average 
Medicare- allowed amount exceeded the  321  380%  335% to 426% 
average supplier acquisition cost 
Average Medicare-allowed amount   321  $919  $914 to $924 
Average acquisition cost   321  $191  $173 to $210 
Average difference between the   
Medicare-allowed amount and supplier  321  $728  $710 to $745 
acquisition cost 
Percentage of claims for which the 
Medicare-allowed amounts exceeded  321  99.59%  97.57% to 99.93% 
suppliers acquisition costs 
Median acquisition cost   321  $168  $147 to $188  
Supplier acquisition cost 75th percentile  321  $234  $209 to $259 
Supplier acquisition cost 25th percentile  321  $152  $138 to $166 
Percentage of claims for which the supplier  321  22%  9% to 46% 
acquisition costs included discounts 
Average amount of discounts received by  65  $11  $2 to $19 
suppliers  
Percentage of claims for which the supplier  321  62%  44% to 78% 
acquisition costs included fees 
Average amount of fees paid by suppliers   199  $7  $5 to $9 
Percentage of claims for orthoses acquired 
321  67%  52% to 79% 
from manufacturers 
Percentage of claims for orthoses acquired 
321  31%  19% to 45% 
from wholesalers 
continued on next page  
     
 
 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  12   
   
Table A-1:  Point Estimates and Confidence Intervals for L0631 Back 
Orthoses Findings (continued) 
Number of 
Estimate Description  Sample  Point Estimate  95% Confidence Interval 
Responses 
Percentage of claims for orthoses acquired 
321  2%  1% to 5% 
from other sources  
Average price of orthoses acquired from 
170  $180  $156 to $204 
manufacturers 
Average price of orthoses acquired from 
130  $212  $184 to $240 
wholesalers 
Average price of orthoses acquired from 
21  $256  $213 to $299 
other sources   
Percentage of claims for Prolign L0631 
321  28%  13% to 50% 
back orthoses 
Percentage of claims for Summit L0631 
321  10%  5% to 17% 
back orthoses  
Percentage of claims for DDS-500 L0631 
321  10%  3% to 24% 
back orthoses  
Additional amount that Medicare and its 
beneficiaries paid compared to suppliers  321  $36,811,464  $25,098,260 to $48,524,668 
acquisition costs 
Average beneficiary copayment   321  $184  $183 to $186 
Total beneficiary copayments   321  $9,327,080  $6,446,557 to $12,207,602 
Total supplier acquisition cost  321  $9,686,441  $6,830,225 to $12,542,656 
Percentage of suppliers that provided 
321  91%  83% to 96% 
instructions to beneficiaries  
Percentage of suppliers that did not report 
321  33%  18% to 53% 
providing fitting and adjustment services  
Percentage of fitting and adjustment 
266  58%  42% to 72% 
services provided on suppliers premises 
Percentage of fitting and adjustment 
266  27%  15% to 43% 
services provided in beneficiaries homes 
Percentage of fitting and adjustment 
266  15%  7% to 32% 
services provided in other locations 
      continued on next page 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  13   
   
Table A-1:  Point Estimates and Confidence Intervals for L0631 Back 
Orthoses Findings (continued) 
Number of 
Estimate Description  Sample  Point Estimate  95% Confidence Interval 
Responses 
Percentage of fitting and adjustment 
266  42%  27% to 58% 
services provided by office personnel 
Percentage of fitting and adjustment 
266  9%  6% to 14% 
 services involving certified orthotists 
Percentage of fitting and adjustment 
services provided by physicians or other  266  48%  33% to 63% 
professionals  
Percentage of fitting and adjustment 
266  1%  0.37% to 4% 
services provided by other staff 
Percentage of suppliers that reported not 
providing other types of services related to  321  93%  84% to 97% 
orthoses 
Percentage of suppliers that provided 
321  43%  29% to 58% 
orthoses on their premises 
Percentage of suppliers that delivered 
orthoses through third parties, such as  321  19%  6% to 46% 
FedEx 
Percentage of suppliers that provided 
321  38%  25% to 54% 
orthoses by personal delivery 
   
Source:  Office of Inspector General analysis of survey responses, 2012. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  14   
   
APPENDIX B 
Table B-1:  L0631 Back Orthosis Models Provided to Beneficiaries 
The Centers for Medicare & Medicaid Services contracts with a Pricing, Data Analysis, 
and Coding (PDAC) Contractor to develop product classification lists that provide 
information on models of back orthoses that would meet the requirements for the L0631 
code.  Not all of the manufacturers and models provided below were included in the 
L0631 Product Classification list displayed on the PDAC Contractors Web site as of 
September 2012. 
 
Point  95% Confidence 
Manufacturer  Model 
Estimate  Interval 
DeRoyal Industries, Inc.  Prolign  28%  13% to 50% 
Aspen Medical Products, Inc.  Summit  10%  5% to 17% 
Disc Disease Solutions, Inc.  DDS-500  10%  3% to 24% 
Bell-Horn/Cybertech Medical  Premium Plus  7%  3% to 17% 
Spinal Rehab Solutions, Inc.  SR 500  7%  3% to 18% 
American Medical Products  Freedom LSO  6%  2% to 20% 
Bauerfeind USA, Inc.  Lumbo Plus  4%  0.76% to 20% 
Hope Orthopedic  Ninja LSO  3%  0.71% to 14% 
Swedo-O/United Pacific Industries Pty. 
Thermoskin 87273  3%  0.48% to 17% 
Ltd. 
BSN Medical/FLA Orthopedics, Inc.  Cinch-Loc  3%  2% to 6% 
Ossur Americas, Inc.  Miami  3%  1% to 8% 
M-Brace  M-Spine 584  2%  0.69% to 8% 
XBACK Bracing Services, Inc.  X-Back T105  1%  0.32% to 7% 
Orthomerica Products, Inc.  California Mid Profile  1%  0.61% to 3% 
Advanced Orthotic Designs  Lace-it x640 LSO  1%  0.18% to 7% 
Aspen Medical Products, Inc.  Aspen LSO  0.92%  0.40% to 2% 
Restorative Medical, Inc.  VertebrEase TLSO  0.87%  0.13% to 5% 
Optec USA, Inc.  Evotec  0.71%  0.12% to 4% 
Med Practice Solutions  Flex LSO  0.71%  0.21% to 2% 
ActiveCare Medical/Drive Medical  VerteWrap LSO  0.62%  0.10% to 4% 
Aspen Medical Products, Inc.  Aspen LSO LoPro  0.48%  0.09% to 3% 
XBACK Bracing Services, Inc.  X-Back-II  0.46%  0.07% to 3% 
Breg, Inc.  BOA  0.42%  0.07% to 3% 
DeRoyal Industries, Inc.  Prolign EXT  0.42%  0.09% to 2% 
XBACK Bracing Services, Inc.  X-Back T102  0.42%  0.14% to 1% 
Bledsoe Brace Systems  Volare  0.32%  0.05% to 2% 
Restorative Care of America, Inc.  450 LSO  0.28%  0.09% to 0.85% 
Orthomerica Products, Inc.  California Chairback  0.23%  0.06% to 0.91% 
Hope Orthopedic  Ortholux Lite  0.23%  0.06% to 0.86% 
Swede-O, Inc.  Rigid Lumbar Support  0.21%  0.04% to 1% 
continued on next page 
     
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  15   
   
Table B-1:  L0631 Back Orthosis Models Provided to Beneficiaries 
(continued) 
Point  95% Confidence 
Manufacturer  Model 
Estimate  Interval 
Advanced Orthopaedics  Spinal Web 31  0.21%  0.04% to 1% 
MIH International  ActivDay 501 LSO  0.19%  0.04% to 0.93% 
Medical Specialties, Inc.  Archimed Spinal Brace  0.18%  0.03% to 1% 
California Soft Spinal System LSO 
Orthomerica Products, Inc.  0.16%  0.04% to 0.62% 
with PSR 
Hope Orthopedic  Ortholux LSO  0.14%  0.06% to 0.34% 
Optec USA, Inc.  Stealth  0.14%  0.04% to 0.48% 
BSN Medical/FLA Orthopedics, Inc.  System-Loc  0.14%  0.02% to 0.92% 
DeRoyal Industries, Inc.  Ultralign  0.11%  0.03% to 0.35% 
Hope Orthopedic  Vertalux  0.11%  0.02% to 0.69% 
Orthomerica Products, Inc.  California Low Profile  0.07%  0.02% to 0.23% 
Aspen Medical Products, Inc.  Contour  0.07%  0.01% to 0.46% 
Lumbamed Multi Stage Lumbar 
Medi USA, LP  0.07%  0.01% to 0.46% 
Support 
Hope Orthopedic  Ninja Pro  0.05%  0.01% to 0.35% 
Freeman Manufacturing Co.  C.A.S.H. Orthosis  0.04%  0.01% to 0.23% 
California CPO Chairback Mid 
Orthomerica Products, Inc.  0.04%  0.01% to 0.23% 
Profile 
Surgical Appliance Industries, Inc.  Lumbotek 2 Lumbosacral Support  0.04%  0.01% to 0.23% 
M-Brace  M-Spine 574  0.04%  0.01% to 0.14% 
Cybertech Medical  Original and Chairback  0.04%  0.01% to 0.23% 
Aspen Medical Products, Inc.  Quickdraw  0.04%  0.01% to 0.14% 
Professional Products, Inc.  Rachis  0.04%  0.01% to 0.23% 
Swede-O/United Pacific Industries Pty. 
Thermoskin 85273  0.04%  0.01% to 0.23% 
Ltd. 
XBACK Bracing Services, Inc.  X-Back T108  0.04%  0.01% to 0.23% 
Cropper Medical, Inc./Bio Skin  Black Jack  0.02%  0.003% to 0.12% 
Orthomerica Products, Inc.  California Ventura  0.02%  0.003% to 0.12% 
Restorative Care of America, Inc.  Control Fit TLSO  0.02%  0.003% to 0.12% 
Spinal Technology, Inc.  Custom LSO Lined Single Opening  0.02%  0.003% to 0.12% 
US Orthotics  Fullback XPA-10  0.02%  0.003% to 0.12% 
Surgical Appliance Industries, Inc.  Knight  0.02%  0.003% to 0.12% 
Kydex  Kydex Chairback Brace  0.02%  0.003% to 0.12% 
Hely & Weber   Low Profile Solly  0.02%  0.003% to 0.12% 
Ottobock  Lumbo Tristep  0.02%  0.003% to 0.12% 
Aspen Medical Products, Inc.  Multiple piece system  0.02%  0.003% to 0.12% 
Oasis Orthopedics  Oasis TLSO  0.02%  0.003% to 0.12% 
NeuMed, Inc.   Orthofect LSO Brace  0.02%  0.003% to 0.12% 
Premier Orthopedic Supply, Inc.  Premier LSO  0.02%  0.003% to 0.12% 
continued on next page 
     
 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  16   
   
Table B-1:  L0631 Back Orthosis Models Provided to Beneficiaries 
(continued) 
Point  95% Confidence 
Manufacturer  Model 
Estimate  Interval 
ActiveCare Medical  VerteWrap Low Profile LSO  0.02%  0.003% to 0.12% 
XBACK Bracing Services, Inc.  X-Back T100  0.02%  0.003% to 0.12% 
Total  99%1 
   
 
Source:  Office of Inspector General analysis of survey responses, 2012. 
1 T he table does not include two back orthoses that two suppliers fabricated. 
 
 
 
 
 
 
 
   
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  17  APPENDIXC 
Agency Comments 
/""Vk"~, 
f -'-
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
'~~ 
Administrator 
Washington, DC 20201 
OCT 2 5 2012
DATE: 
TO: 	 Daniel R. Levinson 
Inspector General 
FROM: 	 Mareyn Tavenner 
Acting AdminisN"ator 
SUBJECT: 	 Office o~orGeneral (OIG) Draft Report:  Medicare Supplier Acquisition 
Costs for L0631 Back Orthoses (OEI-03-11-00600) 
Tht: Centers for Medicare & Medicaid Services (CMS) would like to thank you for the 
opportunity to review and comment on the OIG draft report entitled, "Medicare Supplier 
Acquisition Costs for L0631 Back Orthoses." The draft report compares suppliers' acquisition 
costs for back orthoses coded under L0631 with Medicare's 2011 fee schedule amounts. Also 
detailed within the report is the nature and frequency of services performed by suppliers in 
relation to Ul631 back orthoses. 
The OJG draft report provides valuable insight for CMS on suppliers' costs for L0631 back 
orthoses.  Notably, the report reveals that Medicare and beneficiaries paid suppliers an average 
of $728 beyond the supplier's acqUisition cost for an 10631 back orthosis. This was coupled 
with a finding that for one third of the claims, suppliers did not provide any fitting and 
adjustment services. OIG recommendations and CMS's response to those recommendations are 
discussed below. 
OIG Recommendation 
The OIG recommends that CMS lower the Fee Schedule Amount for the L0631 Back Orthosis. 
CMS could take one of the following actions: 
 	 Include the L0631 back orthosis in the Durable Medical Equipment, Prosthetics, 
OrthOtics, and Supplies (DMEPOS) Competitive Bidding Program. CMS could award 
contracts to suppliers who offer more appropriate prices while also meeting the 
program's quality and financial standards. 
 	 Use its inherent reasonableness authority. The Medicare allowed amount for L0631 
back orthoses exceeded the supplier acquisition cost by an average of $728. The 
program and its beneficiaries could have paid millions of dollars less if the Medicare 
reimbursement amount for L0631 back orthoses more closely resembled the cost to 
suppliers. 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  18   
   
 
   
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  19   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector General.   
Tanaz Dutia served as the team leader for this study.  Other Office of 
Evaluation and Inspections staff from the Philadelphia regional office who 
conducted the study include Russell Tisinger and Nancy J. Molyneaux. 
Central office staff who provided support include Meghan Kearns,  
Debra Roush, and Tasha Trusty. 
 
 
 
Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600)  20   
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 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
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.