Department  of Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
Medicare  Payments  For  Enteral 
Nutrition  Therapy  Equipment  and 
Supplies  in  Nursing  Homes 
JUNE  GIBBS  BROWN 
Inspector  General 
MAY  1997 
OEI-06-92-00866  OFFICE  OF INSPECTOR  GENERAL 
The mission  of the 3ffice  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,  evaluations,  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 OIGs Office of Evaluation  and Inspections  (OEI) 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. 
OEIs Dallas Regional  Office prepared  this report  under  the direction  of Chester  Slaughter,  Regional 
Inspector  General.  Principal  OEI staff included: 
Dallas  Retion  Headauarters 
Leah Bostick  Jennifer  Antic0 
Kevin Golladay  Stuart Wright 
Clark Thomas  Barbara Tedesco 
For further  information  on this report  or to obtain a copy,  call Kevin Golladay,  Dallas Regional 
Office at (214) 767-3310.  EXECUTIVE  SUMMARY 
PURPOSE 
To  describe  the  extent  of  Medicare  Part  B payments  and  potential  vulnerabilities  related  to 
enteral  nutrition  therapy  equipment  and  supplies  for  nursing  facility  patients  and  to  discuss 
possible  alternative  Medicare  payment  policies. 
BACKGROUND 
Enteral  nutrition  therapy  provides  nourishment  directly  to the  digestive  tract  of  a patient 

who  cannot,  for  a variety  of  reasons,  ingest  an appropriate  amount  of  calories  to  maintain 

an acceptable  nutritional  status.  Medicare  covers  enteral  nutrition  therapy  under  the 

prosthetic  device  benefit,  because  the  therapy  is required  due  to an absent  or 

malfunctioning  body  part  (which  would  normally  permit  food  to  reach  the  digestive  tract). 

Enteral  nutrition  therapy  supplies  typically  include  tubing,  bags  to  hold  nutrient  formulas, 

and  syringes.  Equipment  involves  infusion  pumps  and  intravenous  (I-V)  poles.  Enteral 

nutrient  formulas  (e.g.,  ENSURE,  JEVITY)  were  separately  covered  in our  report,  Enteral 

Nutrient  Payments  in Nursing  Homes  (OEI-06-92-00861). 

For  this  inspection,  we  reviewed  Medicare  payment  policy  and  gathered  data  on  the 

utilization  of  enteral  nutrition  therapy  equipment  and  supplies  in Medicare- or  Medicaid-

certified  nursing  facilities  from  a 1 percent  sample  taken  from  the  Medicare  National 

Claims  history  file  for  calendar  years  1992-95. 

This  inspection  was  conducted  as a part  of the  Presidential  initiative,  Operation  Restore 

Trust  (ORT).  The  initiative  involves  multi-disciplinary  teams  of  Federal  and  State 

personnel  seeking  to reduce  fraud,  waste,  and  abuse  in musing  facilities  and  home  health 

agencies,  as well  as by  durable  medical  equipment  (DME)  suppliers. 

FINDINGS 
The  costs  for  equipment  and  supplies  associated  with  enteral  nutrition  therapy  are 
substantial,  totaling  approximately  $260  million  in  1995.  This  includes  such  items  as 
intravenous  (I-V)  poles,  infusion  pumps,  feeding  kits,  and  tubing. 
Equipment  used  for  enteral  nutrition  therapy  meets  the  definition  of  durable  medical 
equipment  (DME),  which  is not  covered  during  a typical  nursing  facility  stay. 
Although  Medicare  pays  for  durable  medical  equipment  like  beds,  wheelchairs,  canes, 
crutches,  oxygen  concentrators,  and  intravenous  I-V  poles  when  used  in patients  homes,  it 
does  not  make  separate  payments  for  them  in nursing  facilties.  These  items  are  considered 
standard  equipment  for  nursing  facility  operations  and  are  covered  as part  of the  daily  rate 
that  Medicare  or  Medicaid  pay  for  the  stay.  However,  Medicare  does  pay  for  equipment 
used  in connection  with  enteral  feeding  in nursing  facilities,  even  if the  same  equipment 
would  not  otherwise  be  covered.  An  example  is the  simple  I-V  pole.  Recently  (1994), 
Medicare  began  paying  for  such  poles  when  used  for  enteral  feeding,  but  not  for  other 
i  purposes.  As  a result,  Medicare  paid  $3.4  million  that  year,  and  $3.5  million  in  1995,  for 
I-V  poles  used  in nursing  facilities. 
Equipment  used  for  enteral  nutrition  therapy  costs  more  than  identical  equipment 
billed  under  the  DME  fee  schedule.  Not  only  does  Medicare  pay  for  enteral  feeding 
equipment  in nursing  homes,  but  it pays  more  than  if payment  was  based  on  the  DME  fee 
schedule.  Again,  the  I-V  pole  is a good  example.  If  it is used  for  enteral  nutrition,  it is 
reimbursed  at the  monthly  rental  rate  of  approximately  $24.  In  contrast,  the  same  I-V  pole 
used  to  hang  cancer  fighting  intravenous  solutions  in a residents  home  is reimbursed  using 
the  DME  fee  schedule  at a monthly  rental  rate  of  approximately  $17.  This  represents  a 29 
percent  reimbursement  difference. 
Current  Medicare  payment  policy  for  enteral  nutrition  therapy  equipment  and 
supplies  fails  to capitalize  on  market  forces  and  efficiencies  available  to nursing 
facilities,  which  could  substantially  reduce  costs.  Payment  rates  for  feeding  supply  kits 
and  equipment  exceed  market  costs.  As  an example,  we  estimate  that  Medicare  could  be 
paying  nearly  three  times  the  cost  of the  necessary  components  billed  as a supply  kit.  In 
1995,  the  excessive  payments  could  have  exceeded  $140  million  (65 percent  of  $216 
million).  Additionally,  the  potential  exists  for  overutilization  of  expensive  delivery  systems 
utilizing  infusion  pumps.  In  1995,  most  patients  (85  percent)  utilized  the  more  costly 
pump  delivery  method.  Discussion  with  program  integrity  staff  at the  DMERCs  confirms 
that  cases  of  medically  unnecessary  billing  for  pumps  has  occurred.  In  some  of these 
cases,  it  is suspected  that  the  pump,  rather  than  gravity  feeding,  is used  more  for  the 
convenience  of  the  nursing  facility  staff  than  based  on  a patients  need  for  the  more  costly 
controlled  delivery  system. 
RECOMMENDATIONS 
This  report  is not  intended  to  suggest  that  suppliers  or nursing  facilities  are  submitting  false 
claims  for  equipment  and  supplies  associated  with  nutrition  therapy.  Rather,  the  purpose  is 
to  illustrate  an  area  of  Medicare  payment  which  is vulnerable  to  excess  and  conflicts  with 
other  related  payment  policies.  Approaches  to  solve  vulnerabilities  and  wasteful  spending 
associated  with  enteral  nutrition  therapy  payment  policy  range  from  resolving  specific  areas 
of  identified  excess  to restructuring  the  global  payment  mechanism  for  Medicare  services 
provided  to  nursing  facility  patients.  The  following  discussion  describes  these  two 
approaches. 
APPROACH  I:  Addressing  Specific  Payment  Areas 
I-V  Poles 
The  Health  Care  Financing  Administration  (HCFA)  should  take  appropriate  action  to 
prevent  excessive  payments  for  the  rental  and  purchase  of  I-V  poles  used  in nursing 
facilities.  We  recommend  that  total  rental  payments  be  limited  to the  purchase  cost  of the 
pole  and  that  the  following  two  options  be considered: 
ii  Option  1: 	 Utilize  the  lower  of the  enteral  nutrition  payment  and  the  DME  fee  schedule 
payment.  Annual  savings  could  be $1.3  million  ($0.4  million  due  to  limitations 
on  total  rental  payments  and  $0.9  million  (29 percent  of  the  remaining  $3.1 
million)  based  on  limiting  payment  to the  lower  of the  fee  schedule  or the 
reasonable  and  customary  charge). 
Option  2: 	 Evaluate  the  inherent  reasonableness  of  payment  rates  under  reasonable  charge. 
Payment  levels  for  residents  of nursing  facilities  should  be based  on  a typical 
facilitys  ability  to purchase  I-V  poles  economically.  Annual  savings  could 
exceed  $0.9  million  assuming  HCFAs  inherent  reasonableness  study  finds  the 
typical  monthly  rental  rates  are  $17  or less,  instead  of the  current  $24. 
Feeding  Supply  Kits 
The  HCFA  should  take  appropriate  action  to prevent  excessive  payments  for  supplies 
related  to  enteral  nutrition  therapy.  We recommend  three  options  be  considered: 
Option  1: 	 Review  the  inherent  reasonableness  of payment  rates.  Annual  savings  could  be 
as much  as $140  million  (assuming  the  payment  rate  is set  at a price  65 percent 
below  1995  allowed  charges  of  $216  million). 
Option  2: 	 Place  these  supplies  on  a fee  schedule  (seek  legislation  if necessary).  If  fee 
schedule  rates  are  set conservatively  at 75 percent  of  current  rates,  annual 
savings  could  exceed  $54  million. 
Option  3:  Discontinue  payment  for  the  kit and  establish  codes  specific  to  each  necessary 
component  of the  kit.  One  code  might  be established  for  the  bag  (with  tubing) 
and  the  other  code  would  be for  the  syringe.  Assuming  the  payment  rate  for 
each  new  code  is set  at the  lowest  price  we  identified  (see  body  of  report)  and 
assuming  no  other  items  are  deemed  to  be necessary,  annual  savings  could  be  as 
much  as $140  million. 
Enteral  Infwion  Pumps 
We  did  not  separately  examine  the  reasonableness  of  Medicare  payments  for  pumps; 
however,  based  on  our  finding  that  Medicare  Part  B payments  for  I-V  poles,  supply  kits, 
and  nutrient  formulas  (discussed  in a prior  report)  appear  to  be excessive,  HCFA  should 
consider  beginning  a review  of the  appropriateness  of payment  rates  for  pumps.  Assuming 
HCFAs  review  yields  a disparity  between  nursing  facility  costs  and  Medicare  payment 
rates  similar  to those  found  for  I-V  poles  (29 percent  difference),  the  annual  savings  could 
exceed  $10.3  million. 
APPROACH  II:  Global  Payment  Restructuring 
Structural  changes  in the  way  Medicare  pays  for  services  provided  to  nursing  facility 
patients  may  address  some  or all of  our  concerns  with  enteral  nutrition  therapy  payments. 
. . . 
111  Structural  changes  include  1) folding  payment  into  the  nursing  facility  per  diem  (daily 

rate),  2) consolidated  billing,  3) competitive  bidding  strategies,  and  4) capitation  payments. 

Each  of these  strategies  attempts  to take  advantage  of the  ability  of  nursing  facilities  to 

more  economically  provide  services  and  supplies  to their  patients  with  the  cost  savings 

passed  on  to  Medicare.  Additionally,  these  payment  mechanisms  recognize  the  importance 

of the  nursing  facility  in achieving  a more  cost  effective  program.  Since  nursing  facilities 

are  significantly  involved  in the  planning  and  provision  of  patient  care,  they,  arguably,  are 

the  most  appropriate  entity  to  scrutinize  providers  and  determine  the  most  cost  effective 

methods  of  obtaining  and  utilizing  the  services  and  supplies  needed  to  meet  the  medical 

needs  of their  patients. 

The  following  summarizes  some  of the  options  HCFA  is or  should  be  considering. 

A.  Folding  Payment  into  the  Per  Diem 

Institutions  are  expected  to provide  certain  routine  equipment  and  supplies  in addition  to 

the  cost  of room  and  board.  Generally,  nursing  facilities  are reimbursed  for  these  services 

based  on  a daily  per  diem  payment.  By  including  enteral  nutrition  therapy  as a part  of the 

per  diem  payment,  Medicare  could  reduce  the  overall  cost  of providing  care.  Savings  to 

Medicare  Part  B would  total  approximately  $260  million  based  on  1995  data.  However, 

some  or all  of the  savings  could  be passed  on  as costs  to  States  (for  dually  eligible 

patients),  Part  A (for  Medicare  skilled  nursing  facility  (SNF)  patients),  and  to  beneficiaries 

(in  the  case  of private  pay  patients).  The  extent  of  savings  depends  on  the  routine  charge 

limits  Medicare  and  Medicaid  impose,  exceptions  to these  limits,  and  the  extent  to which 

nursing  homes  act  as prudent  purchasers. 

B.  Consolidated  Billing 

Consolidated  billing  involves  a policy  that  restricts  anyone  but  the  nursing  facility  from 

billing  for  Part  B services  the  nursing  facility  is authorized  to  furnish.  Currently,  HCFA  is 

considering  a consolidated  billing  proposal  for  routine  nursing  facility  services  provided  to 

Medicare  SNF  patients.  We  support  HCFAs  efforts  in this  area.  By  making  the  nursing 

facility  the  focal  point  of  services  to  its patients,  the  nursing  facility  is far  more 

accountable  for  patient  care.  Further,  such  an approach  lessens  opportunities  for  fraud  and 

abuse  by  outside  suppliers  and  makes  Government  monitoring  efforts  less  complicated. 

While  we  are  unable  to  determine  the  savings  that  could  result  from  such  a policy  change, 

if payment  rates  are  modified  to  reflect  the  impact  of  a nursing  facilitys  buying  power, 

substantial  savings  could  be  realized.  Assuming  enteral  nutrition  therapy  payment  rates  are 

reduced  by  25 percent  (a conservative  estimate  given  estimates  of  excessive  payment  levels 

noted  in the  report),  savings  of  $65  million  could  be realized  based  on  1995  data. 

iv  C.  Competitive  Bidding 
As  another  cost  saving  option,  the  Government  could  establish  competitive  bidding 

contracts  to provide  nursing  facilities  with  access  to  services  and  supplies  at lower  costs 

than  currently  available.  Additionally,  such  contracts  could  provide  enhanced  access  to 

patient  care  services  and  supplies.  We  support  HCFAs  efforts  in this  area.  Currently, 

HCFA  is evaluating  the  potential  for  competitive  bidding.  Any  competitive  bidding 

strategy  should  include  enteral  equipment  and  supplies.  Assuming  competitive  bidding 

results  in pricing  at or below  the  costs  noted  in this  report,  savings  could  total  $152  million 

($140  million  for  supply  kits,  $1.3  million  for  I-V  poles,  and  $10.3  million  for  purnp~).~ 

D.  Capitation 

Another  option  would  be to  switch  payment  for  Part  B services  in nursing  facilities  from  a 

fee-for-service  mode  to  a flat  rate  per  beneficiary.  Capitation  would  provide  incentives  to 

the  nursing  facility  to provide  services  in the  most  economical  fashion.  This  is because 

Medicare  will  not  pay  more  if the  nursing  facility  utilizes  a more  costly  approach  (e.g., 

provides  a more  costly  service  although  less  expensive  equally  effective  alternatives  exist 

or the  nursing  facility  is not  purchasing  services  and  supplies  as a prudent  purchaser).  By 

setting  the  capitation  payment  at 75 percent  of the  1995  average  allowed  charge  for 

equipment  and  supplies,  the  savings  would  be  $65  million. 

Although  we  support  all of the  options  raised  in this  report,  we  believe  restructuring 

Medicares  payment  mechanism  for  Part  B services  to patients  of  nursing  facilities 

(Approach  II)  is most  responsive  to our  overall  concerns.  Enteral  nutrition  therapy  is but 

one  example  of the  possible  benefits  from  changes  to current  policy  which  will  ensure 

Medicare  is paying  the  most  reasonable  cost.  Payment  mechanisms  that  utilize  a nursing 

facilitys  capability  to purchase  medical  supplies  more  cost  effectively  than  the  average 

beneficiary  offer  the  greatest  potential.  We  recognize  that  further  study  would  be needed 

to  assess  the  relative  costs  and  benefits  of the  global  options  and  the  extent  of  cost  shifting 

to  other  programs,  States,  and  beneficiaries.  Finally,  we  recognize  that  any  efforts  to 

modify  the  enteral  nutrition  therapy  benefit  and  global  restructuring  strategies  will  require 

legislation  and  must  be  accompanied  by  adequate  protections  for  nursing  facility  patients. 

AGENCY  COMMENTS 
We  received  comments  from  the  Health  Care  Financing  Administration  (HCFA).  (See 
Appendix  B for  the  full  text.)  The  HCFA  concurred  with  the  recommendations  made  in 
this  report.  To  resolve  identified  problems  noted  in this  report,  HCFA  is pursuing  a 
number  of  actions  such  as evaluating  the  reasonableness  of  payment  for  pumps  and  I-V 
poles,  applying  DME  reimbursement  criteria  to  I-V  pole  coverage,  and  pursuing  research  of 
broader  payment  restructuring  through  capitation,  competitive  bidding,  and  bundling  of 
enteral  nutrition  services. 
V  TABLE  OF  CONTE-NTS
PAGE 
EXECUTIVE  SUMMARY 

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . .  . . . . .  . . ..a 

FINDINGS  . .  . . . .  . . . . . . . . . . . . . . . . .  . . . .  . .  . . . . . . . . . .  . . .  . . .  . 

Costs  Are  Substantial  . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . .  . .  . . .  . . 
Conflict  of  Definitions  . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . .  . . .  . . . 
Enteral  Equipment  Costs  More  than  DME  . . . . . . . . . .  . . . . . . .  . . . .  . . .  . . 
Market  Forces  and  Efficiencies  Lost  . . . . .  . . . . .  . . . . . . . . .  . . . . .  . . .  . . . 
RECOMMENDATIONS  . . . . .  . . . . . . . . . . . . . . . . . . .  . . . .  . . . . .  . .  . . 

ENDNOTES 

APPENDIX 

A:  Confidence  Intervals  ..........................................  A-l 
B:  Agency  Comments  ...........................................  B-l  INTRODUCTION 
PURPOSE 
To  describe  the  extent  of  Medicare  Part  B payments  and  potential  vulnerabilities  related  to 
enteral  nutrition  therapy  equipment  and  supplies  for  nursing  facility  patients  and  to  discuss 
possible  alternative  Medicare  payment  policies. 
BACKGROUND 
Enteral  Nutrition  Therapy 
Enteral  nutrition  therapy  provides  nourishment  directly  to the  digestive  tract  of  a patient 
who  cannot,  for  a variety  of reasons,  ingest  an appropriate  amount  of  calories  to  maintain 
an acceptable  nutritional  status.  Enteral  nutrition  consists  of  a liquid  nutrient  formula 
which  is administered  by  tubing  inserted  through  1) the  nose,  2) an  incision  to the  small 
intestine,  or  3) an  incision  leading  to the  stomach. 
Enteral  nutrition  may  be  administered  by  syringe,  gravity,  or pump.  Some  enteral  patients 
may  experience  complications  associated  with  the  syringe  or gravity  method  of 
administration.  In  such  cases,  an enteral  infusion  pump  can  be used.  The  pump  allows 
controlled  delivery  of the  nutrients  to the  digestive  tract.  If a pump  is ordered,  there  must 
be  documentation  accompanying  the  certificate  of  medical  necessity  (CMN)  to justify  its 
use  (e.g.,  gravity  feeding  is not  satisfactory  due  to  reflux  and/or  aspiration,  severe  diarrhea, 
dumping  syndrome,  administration  rate  less  than  100 ml/hr,  blood  glucose  fluctuations, 
circulatory  overload). 
Medicare  Coverage  Guidelines 
Although  Medicare  pays  for  durable  medical  equipment  like  beds,  wheelchairs,  canes, 

crutches,  oxygen  concentrators,  and  intravenous  (I-V)  poles  when  used  in patients  homes, 

it does  not  make  separate  payments  for  them  in nursing  homes.  These  items  are 

considered  standard  equipment  for  nursing  home  operations  and  are  covered  as part  of  the 

daily  rate  that  Medicare  or Medicaid  pay  for  a nursing  home  stay.  However,  Medicare 

does  pay  for  equipment  used  in connection  with  enteral  feeding  in nursing  homes,  even  if 

the  same  equipment  would  not  otherwise  be covered. 

Medicare  guidelines  classify  enteral  nutrition  therapy  under  the  prosthetic  device  benefit, 

because  the  therapy  is required  due  to  an absent  or malfunctioning  body  part  which  would 

normally  permit  food  to reach  the  digestive  tract.  The  Health  Care  Financing 

Administrations  (HCFA)  decision  to  consider  enteral  nutrition  equipment  and  supplies  as a 

prosthetic  benefit  was  a direct  response  to  1980  Congressional  deliberations  during  which 

the  House  Ways  and  Means  Committee  expressed  its concern  that  Medicare  did  not  cover 

enteral  therapy  for  non-institutionalized  patients  (although,  in the  view  of  the  Committee, 

such  coverage  was  warranted).  The  Committee  directed  the  Secretary  to  fully  explore 

1  the  possibility  of  Medicare  coverage  for  enteral  products.  However,  it is unclear  whether 
Committee  members  intended  that  institutionalized  patients  be  provided  enteral  nutrition  by 
anyone  other  than  the  institution  providing  the  care  (i.e.,  outside  suppliers). 
Issued  in  198 1, HCFA  instructions  for  the  Part  B prosthetic  device  benefit  state  that  if 
coverage  requirements  are  met,  medically  necessary  nutrients,  administration  supplies,  and 
equipment  are  covered.  Covered  items  are to  be billed  to the  Durable  Medical  Equipment 
Regional  Carrier  (DMERC)  unless  provided  by the  nursing  facility  during  a Part  A covered 
stay.  If provided  by  the  nursing  facility  during  a Part  A covered  stay,  costs  are  covered  as 
ancillary  costs  rather  than  included  in the  routine  per  diem  payment.  Additionally,  dually 
entitled  patients,  in a nursing  facility  stay  not  paid  for  by  Part  A,  will  qualify  for  Part  B 
coverage  even  though  States  routinely  cover  enteral  nutrition  therapy  in their  daily  payment 
rate  to  nursing  facilities. 
Enteral  nutrition  therapy  supplies  typically  include  tubing,  bags  to hold  the  nutrients,  and 
syringes.  Equipment  involves  enteral  infusion  pumps  and  intravenous  (I-V)  poles. 
Nutrient  formulas  refer  to products  such  as Ensure,  Jevity,  and  Osmolite. 
Previous  Work  in this Area 
This  report  is an extension  of  work  previously  discussed  in our  reports,  Enteral  Nutrient 
Payments  in Nursing  Homes  (OEI-06-92-00861),  Durable  Medical  Payments  in Nursing 
Homes  (OEI-06-92-00862),  and  Payment  for  Durable  Medical  Equipment  Billed  During 
Skilled  Nursing  Facility  Stays  (OEI-06-92-00860).  In the  report  on  enteral  nutrients,  we 
described  how  only  about  five  percent  of  nursing  facility  patients  receive  enteral  nutrition 
therapy;  however,  the  costs  of  enteral  nutrient  formulas  alone  exceeded  $170  million  in 
1992  (the  period  of  review).  We  also  discussed  how  Medicare  payments  for  nutrients  are 
considerably  higher  (often  by over  40 percent)  than  the  cost  to nursing  facilities  which  buy 
nutrients  through  volume  (bulk)  purchasing  or other  contractual  relationships.  Further,  and 
possibly  more  critical,  current  payment  of  enteral  nutrients  does  not  recognize  enteral 
nutrients  as  food.  If recognized  as food,  payment  for  enteral  nutrients  would  be  made  as 
part  of  the  facility  payment,  rather  than  paid  by  Medicare  Part  B under  the  prosthetic 
benefit. 
In  the  other  reports,  we  discuss  the  extent  of  billing  during  1992  for  DME  such  as 
wheelchairs,  oxygen  concentrators,  nebulizers,  hospital  beds,  I-V  poles,  and  crutches. 
Since  DME  is not  covered  unless  provided  for  use  in a beneficiarys  home,  most  of the 
money  allowed  by  Medicare  ($35  million)  was  inappropriate.  This  conclusion  is based  on 
a recognition  that  most  nursing  facilities  are not  considered  a beneficiarys  home.  When  a 
facility  is determined  to  be primarily  engaged  in providing  skilled  care,  Medicare  law 
specifically  precludes  the  facility  from  being  considered  a beneficiarys  home.  Thus, 
patients  in such  facilities  are  denied  Part  B DME  payment,  as it is expected  that  the  facility 
(not  outside  suppliers)  will  provide  DME  when  needed  by  any  patient.  METHODOLOGY 
For  this  inspection,  we  reviewed  Medicare  payment  policy  and  gathered  data  on  the 
utilization  of  enteral  nutrition  therapy  equipment  and  supplies  in aursing  facilities  from  a 
1 percent  sample  taken  from  the  Medicare  National  Claims  history  file  for  calendar  years 
1992-95.  Payments  for  enteral  nutrition  therapy  were  extracted  whenever  the  place  of 
service  was  coded  as a nursing  facility  (place  of service  3 1 or 327,  which  we 
determined  was  an accurate  indicator  of  nursing  facility  services  based  on  our  review  of  a 
1992  nationally  projectable  two-stage  random  sample  of  1.50 nursing  facilities.3  (This 
review  showed  that  98 percent  of the  enteral  nutrition  therapy  services  provided  to  nursing 
facility  patients  were  accurately  coded  as provided  in a nursing  facility.) 
This  inspection  was  conducted  as a part  of the  Presidential  initiative,  Operation  Restore 
Trust  (ORT).  The  initiative  involves  multi-disciplinary  teams  of  Federal  and  State 
personnel  seeking  to  reduce  fraud,  waste,  and  abuse  in nursing  facilities  and  home  health 
agencies,  as well  as by  DME  suppliers. 
Our  review  was  conducted  in accordance  with  the  Quality  Standards  for  Inspections  issued 
by  the  Presidents  Council  on  Integrity  and  Efficiency. 
3 
 F I N D J N Gj_i _-_-_-----
The  Costs for  Equipment  and  Supplies  Associated  With Enter&  iaiutrition Therapy  are 
Substantial,  Totaling  Approximately  $260  Million  in  I995 
During  1995,  we  project  (at the  95 percent  confidence  level)  that  KIedicare  allowed 
between  $257  and  $264  million  for  the  equipment,  supply  kits,  and tubing  used  for  enteral 
nutrition  therapy.4  (See  Figure  1.)  When  added  to the  cost  of  the  nutrient  formula  ($221 
to  $228  million),  these  costs  bring  the  total  Part  B cost  of  enteral  nutrition  therapy  in 
nursing  facilities  to  nearly  one-half  billion  dollars  ($480  to  $490  million).  This  represents 
one  of  the  most  expensive  components  that  Medicare  Part  B paid  for  nursing  facility 
patient  supplies.  This  is especially  striking  when  one  considers  that  only  a small 
percentage  (five  percent)  of nursing  facility  patients  receive  enteral  nutrition  therapy 
services. 
Part  B Allowed  Charges  for  Enteral  Infusion  Therapy 
Equipment  and  Supplies 
(in millions) 
1992  1993  1994  1995 
EQUIPMENT 
Infusion  Pumps  $46.2  $38.6  $34.2  $35.2 
I-V  Poles  <$O.Ol  <$O.Ol  $3.4  $3.5 
SUPPLIES 
Supply  Kits  $200.7  $193.7 $202.5  $216.2 
Tubing  $6.3  $4.7  $5.3  $5.3 
TOTAL  $253.2  $237.0 $245.4  $260.2 
ource: 	 Projections from an Office of Inspector General (OIGI 1 Percent Sample 
See Aooendix A for Confidence Inter/ah 
FIGURE  1 
One  contributing  factor  to the  high  cost  of enteral  nutrition  therapy  is that  most  enteral 
nutrients  are  delivered  by  infusion  pumps,  the  most  costly  method  available.  For  those 
patients  receiving  enteral  nutrition  therapy  during  1995,  approximately  85 percent  (83  to  87 
percent  at the  95 percent  confidence  level)  utilized  pumps  to  deliver  the  nutrient  formulas; 
the  remaining  15 percent  used  gravity  or  syringe  delivery.  The  percentage  of  patients 
utilizing  pumps  has  remained  relatively  constant  over  the  four  year  period  of  this  review, 
marked  only  by  a slight  decrease  in  1995  from  the  88 percent  level  of  prior  years. 
4  While  the  percentage  of pump  use  has  remained  relatively  constant,  the  overall  cost 
dropped  noticeably  between  1992 and  1993 and  has  remained  somewhat  constant  in 
subsequent  years.  We  were  unable  to  determine  the  factors  contributing  to the  1993 
decline. 
Equipment  used for  enteral  nutrition  therapy  meets  the  definition  of durable  medical 
equipment  (DME),  which  is not  covered  during  a typical  nursing  facility  stay. 
DME  is equipment  which  can  withstand  repeated  use,  is primarily  used  to  serve  a medical 
purpose,  and  is generally  not  useful  to  a person  in the  absence  of  illness  or injury.  Typical 
DME  includes  such  items  as wheelchairs,  hospital  beds,  canes,  crutches,  oxygen 
concentrators,  and  nebulizers. 
This  definition  clearly  includes  enteral  infusion  pumps  and  I-V  poles.  In  fact,  I-V  poles 
and  infusion  pumps  are  considered  DME  when  used  for  purposes  other  than  nutrition 
therapy  (e.g.,  I-V  pole  used  to  hang  intravenous  solutions,  infusion  pump  used  for  pain 
management  or chemotherapy).  If used  for  these  other  purposes,  the  equipment  would  not 
be payable  in a skilled  nursing  facility. 
Such  a policy  of providing  payment  for  equipment  in some  cases  (under  the  prosthetic 
device  benefit)  and  not  others  (under  the  DME  benefit)  appears  inconsistent.  If both 
services  are  medically  necessary,  the  payment  policies  in the  nursing  facility  setting, 
arguably,  should  be the  same. 
. 	 Payment  policies  have  fluctuated  over  the  years  with  regard  to I-V  poles. 
Between  1987  and  1994,  I-V  poles  were  considered  DME  and  not  covered  in 
nursing  homes.  In  1994,  this  policy  was  reversed  (I-V  poles  were  covered 
under  the  prosthetic  device  benefit),  resulting  in  an  escalation  of I-V  pole 
payments. 
Over  the  years,  payment  policy  for  I-V  poles  has  fluctuated.  Prior  to  1987,  an  I-V  pole 
was  covered  in  a skilled  nursing  facility  under  the  prosthetic  device  benefit.  In  1987, 
carriers  responsible  for  processing  enteral  and  parenteral  nutrition  therapy  claims  reversed 
this  policy,  declaring  I-V  poles  were  no  longer  covered  in a nursing  facility;  payment  was 
limited  to  a patients  home.  An  I-V  pole  was  considered  DME  and  limited  to  DME 
payment  policies. 
This  policy  remained  in effect  until  1994  when  the  DMERCs  began  processing  enteral 
claims  and  reversed  the  long-standing  policy  of not  paying  for  I-V  poles  in a nursing 
facility.  We  were  unable  to  determine  the  reasons  for  this  policy  change  or whether  HCFA 
requested  the  change. 
5 
 The  1994  change  in policy,  providing  for  the  payment  of  1-V pok  in nursing  facilities, 

resulted  in a sharp  rise  in payments.  With  I-V  poles  not  payable  except  in a beneficiarys 

home,  virtually  no  payments  were  allowed  between  1987  and  1994.  However,  the  payment 

policy  change  ir  1994 resulted  in an immediate  escalation  of payments  for  I-V  poles  to 

over  $3.4  million  in  1994  and  $3.5  million  in  1995.  (See  Figure  I.) 

More  recent  data  from  the  Statistical  Analysis  Durable  Medical  Equipment  Regional 

Carrier  (SADMERC)  suggests  that  I-V  pole  costs  are escalating  at an  ever  higher  rate. 

From  the  last  quarter  of  1995  to the  first  quarter  of  1996,  payments  for  I-V  poles  in the 

home  and  nursing  facility  increased  by  over  285  percent.  It may  be that  only  recently  have 

some  nursing  facilities  and  suppliers  recognized  the  new  policy  covering  I-V  poles. 

Equipment  Used for  Enteral  Nutrition  Therapy  Costs  More  Than  Identical  Equipment 
Billed  Under  the  DME  Fee  Schedule. 
. 	 Enteral  nutrition  therapy  reimbursement  policies  result  in  higher  costs  than  if 
payments  were  based  on  the  DME  fee  schedule. 
Although  the  SNF  Coverage  Manual  (260.4)  states  reimbursement  rules  relating  to  DME 
will  continue  to  apply  to  equipment  used  for  enteral  nutrition  therapy,  the  reimbursement 
methodologies  continue  to remain  different  (DME  is paid  based  on  a fee  schedule,  while 
enteral  nutrition  therapy  equipment  is paid  based  on  r:asonable  charge).  This  results  in a 
different  payment  amount  for  the same piece  of equipment.  To  illustrate,  an  I-V  pole 
used  for  enteral  nutrition  is reimbursed  at the  monthly  rental  rate  of  $24.  In  contrast,  the 
same  I-V  pole  used  to  hang  cancer  fighting  intravenous  solutions  in a residents  home  is 
reimbursed  using  the  DME  fee  schedule  at a monthly  rental  rate  of  approximately  $17. 
This  represents  a 29 percent  reimbursement  difference. 
.  By  allowing  unlimited  rental,  Medicare  pays  considerably  more  than  the 
purchase  cost  for  I-V  poles. 
Review  of  payment  claims  shows  that  current  payment  policy  allows  unlimited  rental 
payments  for  I-V  poles  used  for  enteral  nutrition  therapy.  We  noted  cases  where  rental 
payments  for  a single  I-V  pole  exceeded  the  purchase  cost.  At  the  95 percent  confidence 
level,  we  project  this  occurred  for  26 to  34 percent  of the  cases.  Five  percent  of  such 
payments  exceeded  $400  which  is four  times  the  current  Medicare  reimbursement  amount 
for  the  purchase  of  a pole  on the  DME  fee  schedule  ($80-94  depending  on  the  State). 
An  unlimited  rental  payment  policy  conflicts  sharply  with  current  DME  reimbursement 
rules  which  do  not  allow  rental  payments  to  exceed  the  purchase  cost.6  This  is especially 
troubling  given  that  enteral  infusion  pumps  are  subject  to the  rules  for  DME  capped  rental 
(i.e.,  15 month  rental);  however,  I-V  poles  are not  subject  to the  payment  rules  for 
inexpensive,  frequently  purchased  DME.  If payments  were  subject  to these  limitations, 
rental  payments  for  I-V  poles  would  not  exceed  purchase  costs. 
6 
 Current  Medicare  Payment  Policy for  Enteral  Nutrition  Therapy  Equipment  and 
Supplies  Fails  to  Capitalize  on Market  Forces  and  Efficiencies  4vailable  to Nursing 
Facilities,  Which  Could  Substantially  Reduce  Costs. 
.  Payment  rates  for  feeding  supply  kits  exceed  market  costs  for  kit  components. 
The  components  of  a feeding  supply  kit  are  not  well  defined.  According  to  a discussion 

with  one  DMERC  medical  director,  the  components  of  a kit  are  anything  the  nursing 

facility  needs  to  facilitate  use  of the  pump.  In our  review,  we  found  only  two  items  are 

usually  needed  in association  with  pump  or gravity  administration.  These  items  are  a bag 

(typically  comes  with  tubing)  to hold  the  nutrient  formula  and  a syringe  to  irrigate  and 

deliver  fluids  to  the  patient.  These  items,  when  purchased  in bulk  by nursing  facilities,  can 

cost  nursing  facilities  considerably  less  than  current  reimbursement  rates.  As  an example, 

it is possible  for  a nursing  facility  to purchase  nutrient  bags  for  as little  as $2.88  from  a 

national  supplier  and  syringes  for  as little  as $0.81.  At  a total  cost  of  $3.69,  this  is 

considerably  less  (by  65 percent)  than  Medicares  average  allowed  payment  of  $10.46 

(based  on  1995  data).  Thus,  Medicare  could  be paying  nearly  three  times  the  cost  of  the 

components  for  a supply  kit.  Were  Medicare  to have  paid  this  lower  cost,  savings  of  $140 

million  could  have  been  realized  (65  percent  of  $216  million). 

This  finding  is consistent  with  prior  inspection  results  showing  that  Medicare  is paying  too 

much  for  enteral  nutrient  formulas.  Our  prior  inspection  report,  Enteral  Payments  in 

Nursing  Facilities,  showed  that  Medicare  reimbursement  rates  for  enteral  nutrients 

averaged  42 percent  higher  than  costs  for  the  typical  nursing  facility.  Assuming  similar 

price  differences  between  the  cost  of  feeding  supply  kits  and  nursing  facility  prices,  the 

excessive  cost  to the  taxpayer  was  nearly  $91  million  in  1995  (42  percent  of  $216  million). 

.  Also,  payment  rates  for  enteral  equipment  appear  excessive. 
The  I-V  pole  represents  an example  of  an  item  of  equipment  whose  reimbursement  rate 
may  be  excessive.  If purchased  in bulk  rather  than  individually,  I-V  poles  can  cost  as little 
as $33  (4 wheel,  2 hook  model).  This  estimate  is based  on  contact  with  several  local 
equipment  suppliers  in the  Dallas  area.  While  the  pricing  varied  considerably  and  could 
differ  in other  parts  of the  country,  it is clear  that  I-V  poles  can  be purchased  at prices 
considerably  lower  than  Medicares  current  reimbursement  amount  of  between  $110  and 
$130.  Thus,  prudent  purchasing  by  nursing  facilities  and  competitive  bidding  strategies 
could  yield  Medicare  savings  by  reducing  the  purchase  cost  of  a new  I-V  pole  to  only  27 
percent  of the  current  reimbursement.  This  finding  reaffirms  that  nursing  facilities  can 
obtain  medical  equipment  and  supplies  at considerably  lower  prices  when  purchased  in 
bulk,  through  competitive  bidding  strategies,  or  from  suppliers  offering  such  prices  to 
attract  the  nursing  facilitys  overall  business. 
7 
 In  addition  to  the  purchase  cost  difference,  rental  rates  are excesske.  As  discussed  earlier, 
reimbursement  is considerably  higher  than  the  reimbursement  rate  on  the  DME  fee 
schedule  ($17  versus  $24  per  month).  With  prudent  purchasing  utilizing  cost  saving 
strategies,  nursing  facilities  might  achieve  even  lower  rental  rates.  We  found  a local 
supplier  whose  rental  rate  was  only  $15. 
. 	 In  addition  to the  excessive  cost  of equipment  and  supplies,  the  potential  exists 
for  overutilization  of expensive  delivery  systems. 
Currently,  nursing  facilities  have  little  incentive  to limit  excessive  use  of  infusion  pumps  to 
deliver  the  nutrient  formula  to the  patient.  This  is due  to  current  payment  mechanisms 
which  do  not  encourage  nursing  facilities  and  physicians  to use  less  costly  enteral  nutrition 
delivery  systems  when  medically  appropriate.  One  incentive  for  the  nursing  facility  is to 
utilize  delivery  systems  requiring  less  nursing  facility  staff  involvement  with  the  patient. 
Infusion  pump  delivery  is often  less  labor  intensive  and  can  result  in less  nursing  staff 
involvement  than  is needed  to  administer  and  monitor  non-pump  delivery  systems. 
Discussion  with  program  integrity  staff  at the  DMERCs  confirms  that  cases  of  medically 
unnecessary  billing  for  pumps  has  occurred.  In  some  of these  cases,  it is suspected  that  a 
pump  rather  than  gravity  feeding  is used  more  for  the  convenience  of the  nursing  facility 
staff  than  based  on  a patients  need  for  the  more  costly  controlled  delivery  system. 
8  RECOMMENDATION-S.- --.---...wL.w--.~
This  report  is not  intended  to  suggest  that  suppliers  or nursing  f&z,ilities are  submitting  false 
claims  for  equipment  and  supplies  associated  with  nutrition  therapy.  Rather,  the  purpose  is 
to  illustrate  an  area  of  Medicare  payment  which  is subject  tc  excess  and  conflicts  with 
other  related  payment  policies. 
Approaches  to  solve  vulnerabilities  and  wasteful  spending  associated  with  enteral  nutrition 
payment  policy  range  from  resolving  specific  areas  of  identified  excess  to restructuring  the 
global  payment  mechanism  for  Medicare  services  provided  to nursing  facility  patients.  The 
following  discussion  describes  these  two  approaches  in detail. 
APPROACH  I:  ADDRESSING  SPECIFIC  PAYMENT  AREAS 
I-V Poles 
The  Health  Care  Financing  Administration  (HCFA)  should  take  appropriate  action  to 
prevent  excessive  payments  for  the  rental  and  purchase  of I-V  poles  used  in nursing 
facilities.  We  recommend  that  total  rental  payments  be  limited  to the  purchase  cost  of the 
pole  and  that  the  following  two  options  be considered: 
Option  1: 	 Utilize  the  lower  of the  enteral  nutrition  payment  and  the  DME  fee  schedule 
payment.  Annual  savings  could  be $1.3  million  ($0.4  million  due  to 
limitations  on  total  rental  payments  and  $0.9  million  (29  percent  of  the 
remaining  $3.1  million)  based  on  limiting  payment  to the  lower  of the  fee 
schedule  or the  reasonable  and  customary  charge). 
Option  2: 	 Evaluate  the  inherent  reasonableness  of payment  rates  under  reasonable 
charge,  Payment  levels  for  residents  of nursing  facilities  should  be  based  on 
a typical  facilitys  ability  to purchase  I-V  poles  economically.  Annual 
savings  could  exceed  $0.9  million  assuming  HCFAs  inherent  reasonableness 
study  finds  the  typical  monthly  rental  rates  are  $17  or  less,  instead  of  the 
current  $24. 
We  support  either  of these  options.  However,  we  believe  Option  #l  is preferable  for  the 
following  reasons: 
. 	 Payments  should  be the  same  for  the  same  item.  Whether  an  I-V  pole  is 
covered  as DME  (covered  under  the  DME  benefit)  or used  in conjunction  with 
enteral  nutrition  therapy  (covered  under  the  prosthetic  benefit),  it seems  inconsistent 
to pay  different  amounts. 
Recognizes  HCFAs  efforts  to evaluate  the  appropriate  costs  for  DME.  HCFA 
is currently  conducting  studies  to  determine  the  appropriate  reimbursement  for 
9  several  items  of  DME  (including  I-V  poles).  If DME  rates  are  adjusted 

accordingly,  the  payments  will  reflect  the  most  reasonable  amounts,  thereby 

obviating  the  need  to conduct  an  inherent  reasonableness  study.8 

Recognizes  and  encourages  economies  available  to nursing  facilities  when 

purchasing  supplies.  Nursing  facilities  present  a unique  environment.  Options 

such  as bulk  purchasing  and  competitive  bidding  can  yield  significant  price 

reductions  to  the  nursing  facility.  The  proposed  reduction  in payment  levels  for 

nursing  facility  patients  recognizes  this  fact.  Without  a reduction,  Medicare  will  not 

realize  the  potential  savings,  since  payment  rates  currently  reflect  the  cost  to the 

average  beneficiary  and  not  a nursing  facility. 

One  practical  method  of  implementing  either  option  is to  use  an adjustment  (reduction)  in 
the  normal  beneficiary  payment  rate  when  the  service  or  supply  is provided  to  a 
beneficiary  residing  in a skilled  nursing  facility. 
Feeding  Supply  Kits 
The  HCFA  should  take  appropriate  action  to prevent  excessive  payments  for  supplies 
related  to  enteral  nutrition  therapy.  We recommend  that  three  options  be  considered: 
Option  1: 	 Review  the  inherent  reasonableness  of payment  rates.  Annual  savings  could 
be  as much  as $140  million  (65 percent  of  $216  million). 
Option  2: 	 Place  (seek  legislation  if necessary)  these  supplies  on  a fee  schedule.  If  fee 
schedule  rates  are  set conservatively  at 75 percent  of  current  rates,  annual 
savings  could  exceed  $54  million. 
Option  3: 	 Discontinue  payment  for  the  kit and  establish  codes  specific  to  each 
necessary  component  of the  kit.  One  code  might  be  established  for  the  bag 
(with  tubing)  and  the  other  code  would  be  for  the  syringe.  Assuming  the 
payment  rate  for  each  new  code  is set at the  lowest  price  we  identified  (see 
body  of report)  and  assuming  no  other  items  are  deemed  to  be necessary, 
annual  savings  could  be  as much  as $140  million. 
We  support  all of  these  options.  However,  we  believe  Option  1 is preferable  for  the 
following  reasons: 
. 	 Payment  levels  appear  to substantially  exceed  costs.  To  ensure  equity,  payment 
levels  should  be  set after  a thorough  review  of what  components  are  necessary  and 
routinely  used  and  what  is a fair  price,  given  that  nursing  facilities  can  obtain  these 
products  at rates  typically  lower  than  the  average  beneficiary. 
. 	 Recognizes  and  encourages  economies  available  to nursing  facilities  when 
purchasing  supplies.  Nursing  facilities  present  a unique  environment.  Utilization 
of  such  opportunities  as bulk  purchasing  and  competitive  bidding  can  provide 
10 
 significant  price  reductions  to the  nursing  facility.  The  proposed  reduction  in 
payment  levels  for  nursing  facility  patients  recognizes  this  fact.  Without  a 
reduction,  Medicare  will  not  realize  the  potential  savings,  since  payment  rates 
should  reflect  the  cost  to the  average  beneficiary  and  not  a nursing  facility. 
Enteral  Infusion  Pumps 
We  did  not  separately  examine  the  reasonableness  of  Medicare  payments  for  pumps; 
however,  based  on  our  finding  that  Medicare  Part  B payments  for  I-V  poles,  supply  kits, 
and  nutrient  formulas  (discussed  in a prior  report)  appear  to be excessive,  HCFA  should 
consider  beginning  a review  of the  appropriateness  of payment  rates  for  pumps.  Assuming 
HCFAs  review  yields  a disparity  between  nursing  facility  costs  and  Medicare  payment 
rates  similar  to  those  found  for  I-V  poles  (29 percent  difference),  the  annual  savings  could 
exceed  $10.3  million. 
APPROACH  II.  GLOBAL  PAYMENT  RESTRUCTURING 
Structural  changes  in the  way  Medicare  pays  for  services  provided  to nursing  facility 
patients  may  address  some  or all of  our  concerns  with  enteral  nutrition  therapy  payments. 
Structural  changes  attempt  to take  advantage  of the  ability  of  nursing  facilities  to  more 
economically  provide  services  and  supplies  to their  patients  with  the  cost  savings  passed  on 
to  Medicare.  Each  of  these  payment  mechanisms  recognizes  the  importance  of  the  nursing 
facility  in achieving  a more  cost  effective  program.  Since  nursing  facilities  are 
significantly  involved  in the  planning  and  provision  of patient  care,  they  arguably  are  the 
most  appropriate  entity  to  scrutinize  providers  and  determine  the  most  cost  effective 
methods  of  obtaining  and  utilizing  the  medical  services  and  supplies  needed  by  their 
patients. 
The  following  summarizes  some  of the  options  HCFA  is or  should  be  considering. 
A.  Folding  Payment  into  the  Per  Diem 
Institutions  are  expected  to provide  certain  routine  equipment  and  supplies  in addition  to 
the  cost  of  room  and  board.  Generally,  nursing  facilities  are reimbursed  for  these  services 
based  on  a daily  per  diem  payment.  By  including  enteral  nutrition  therapy  as a part  of  the 
per  diem  payment,  Medicare  could  reduce  the  overall  cost  to the  taxpayer  of  providing 
care.  Savings  to  Medicare  Part  B would  total  $260  million  based  on  1995  data.  However, 
some  of  the  savings  could  be passed  on  as costs  to  States  (for  dually  eligible  patients),  Part 
A (for  Medicare  SNF  patients),  and  to beneficiaries  (in  the  case  of  private  pay  patients). 
The  extent  of  savings  depends  on the  routine  charge  limits  Medicare  and  Medicaid  impose, 
exceptions  to  these  limits,  and  the  extent  to which  nursing  homes  act  as prudent  purchasers. 
Under  current  Medicare  Part  B reimbursement  policy,  nursing  facilities  have  little  or  no 
incentive  to  employ  money  saving  techniques  (e.g.,  bulk  purchasing).  In  fact,  most  enteral 
nutrition  equipment  and  supplies  are provided  by  suppliers  rather  than  the  nursing  facility. 
11 
 Not  only  does  the  nursing  facility  exert  little  influence  on  the  cost  paid  for  enteral  nutrition 
therapy,  but  the  nursing  facility  provides  little  oversight  to ensure  the  least  expensive, 
medically  appropriate  alternative  is utilized. 
In  addition  to the  argument  that  savings  can  be achieved  through  folding  enteral  nutrition 
therapy  into  the  per  diem,  the  following  factors  support  such  a policy  decision: 
Enteral  nutrients  are just  food.  Because  enteral  nutrition  is clearly  food,  an 
argument  can  be made  that  nursing  facilities  should  pay  for  enteral  nutrients  in the 
same  manner  as traditional  food  consumed  by the  average  facility  patient. 
Enteral  delivery  systems  are DME.  Delivery  systems  (i.e.,  equipment  and 
supplies)  are  arguably  just  DME  which  is not  separately  reimbursable,  except  as a 
part  of the  per  diem.  The  same  argument  for  not  covering  DME  in a skilled 
nursing  facility  setting  could  be applied  to enteral  nutrition  therapy. 
States  include  enteral  nutrition  therapy  in  their  per  diem.  Including  enteral 
nutrition  therapy  as a part  of the  per  diem  payment  is consistent  with  the  Medicaid 
policies  of  most  states.  Only  a few  states  allow  additional  billing  beyond  the  per 
diem  rate.  States  with  case-mix  systems  provide  for  a daily  rate  which  could  be 
higher  if the  patient  requires  infusion  pump  or gravity  feeding. 
B.  Consolidated  Billing 
Consolidated  billing  would  restrict  anyone  but  the  nursing  facility  from  billing  for  Part  B 
services  the  nursing  facility  is authorized  to  furnish.  We  support  HCFAs  efforts  in this 
area.  Currently,  HCFA  is considering  a consolidated  billing  proposal  for  routine  nursing 
facility  services  provided  to  Medicare  SNF  patients.  By  making  the  nursing  facility  the 
focal  point  of  services  to  its patients,  the  nursing  facility  is far more  accountable  for  patient 
care.  Further,  such  an  approach  lessens  opportunities  for  fraud  and  abuse  by  outside 
suppliers  and  makes  Government  monitoring  efforts  less  complicated. 
While  we  are  unable  to  determine  the  savings  that  could  result  from  such  a policy  change, 
if payment  rates  are  modified  to reflect  the  impact  of  a nursing  facilitys  buying  power, 
savings  could  be realized.  Assuming  enteral  nutrition  therapy  payment  rates  are  reduced 
by  25 percent  (a conservative  estimate),  savings  of  $65  million  could  be realized  based  on 
1995  data. 
C.  Comnetitive  Bidding 
As  another  cost  saving  option,  the  Government  could  establish  competitive  bidding 

contracts  to provide  nursing  facilities  with  access  to  services  and  supplies  at lower  costs 

than  currently  available.  Such  contracts  could  provide  enhanced  access  to  some  services 

and  supplies.  We  support  HCFAs  efforts  in this  area.  Currently,  HCFA  is evaluating  the 

potential  for  competitive  bidding.  Any  competitive  bidding  strategy  should  include  enteral 

equipment  and  supplies.  Assuming  competitive  bidding  results  in pricing  at or below  the 

12 
 costs  noted  in this  report,  savings  could  total  $152  million  ($140  million  for  supply  kits, 

$1.3  million  for  I-V  poles,  and  $10.3  million  for  pumps). 

D.  Capitation 

Another  option  would  be to  switch  payment  for  Part  B services  in nursing  facilities  from  a 

fee-for-service  mode  to a flat  rate  per  beneficiary.  Such  a system  could  base  the  fixed 

payment  on  some  type  of  case-mix  payment  scheme  where  payments  are  based  on  the  level 

of  illness  and  resource  needs  of  the  patient  (e.g.,  a prospective  payment  system  for 

Medicare  SNFs  is currently  being  developed).  Additionally,  payment  could  be based  on  a 

daily  rate  similar  to those  found  in Medicaid  programs  (per  diem  rate)  or a monthly  rate 

similar  to  managed  care  programs  such  as Health  Maintenance  Organizations  (HMOs). 

The  payment  rate  could  also  be a function  of the  type  of  service  or  supply.  For  example,  a 

daily  rate  of  $10  might  be determined  to  be an equitable  payment  for  patients  needing 

enteral  nutrition  therapy.  Capitation  would  incentivize  the  nursing  facility  to provide 

services  in the  most  economical  fashion,  since  Medicare  will  not  pay  more  if the  nursing 

facility  utilizes  a more  costly  approach  (e.g.,  provides  a more  costly  service  although  less 

expensive  equally  effective  alternatives  exist  or the  nursing  facility  is not  purchasing 

services  and  supplies  as a prudent  purchaser). 

By  setting  the  capitation  payment  conservatively  at 75 percent  of the  1995  average  allowed 

charge  (a 25 percent  reduction)  for  equipment  and  supplies,  the  savings  could  be  $65 

million. 

Capitation  for  Nursing  Facility  Dual  Eligibles 
Dual  eligibles  are patients  of nursing  facilities  for  whom  Medicaid  is paying  for  the 
nursing  facility  stay  and  Medicare  is paying  for  an assortment  of  services  and  supplies 
(e.g.,  physician  care,  physical  therapy,  lab testing,  and  supplies).  The  shared  responsibility 
for  payment  exists  because  Medicaid  is considered  the  payor  of  last  resort.  Since  dual 
eligibles  are  entitled  to  Medicare,  Medicaid  pays  for  only  those  services  and  supplies  not 
covered  by  Medicare  (i.e.,  coinsurance  and  deductible).  This  overlap  in coverage  creates  a 
complicated  system  of  payment  which  is very  difficult  to  audit  and  assess  whether  services 
provided  under  Medicare  overlap  payments  made  by  Medicaid  (i.e.,  the  Medicaid  daily  rate 
paid  the  nursing  facility). 
In  addition  to the  complexity  of monitoring  who  pays  for  what,  such  a system  of 
multiple  payers  and  providers  able  to bill  for  services  creates  an attractive  environment  for 
fraudulent  and  abusive  practices.  Currently,  providers  can  submit  claims  for  services 
directly  to  Medicare  without  the  nursing  facility  or  attending  facility  affirming  whether  the 
services  were  necessary  and  provided  as claimed.  Further,  Medicare  payment  systems 
cannot  determine  whether  a dual  eligible  is in a Medicaid  covered*stay  in  a nursing  facility 
(i.e.,  States  are  not  required  to provide  stay  information  to Medicare).  This  makes  it 
impossible  to  determine  whether  some  types  of  services  are  covered  (e.g.,  DME  is not 
covered  in a nursing  facility). 
13 
 One  solution  to this  dilemma  is to limit  Part  B payments  for  dual  eligibles.  Rather 

than  Medicare  paying  for  the  services,  Medicaid  would  be responsible  for  payment.  To 

compensate  States,  Medicare  could  develop  a capitation  payment  provided  directly  to the 

State.  Such  a ;layment  scheme  could  significantly  reduce  Medicare  costs.  Since  nursing 

facilities  are paid  a per  diem,  nursing  facilities  would  have  an  incentive  to utilize  cost 

constraining  methods  (bulk  purchasing,  competitive  bidding,  limiting  overutilization, 

selection  of the  least  expensive  medically  appropriate  treatment,  etc.). 

Although  we  support  all of the  options  raised  in this  report,  we  believe  restructuring 

Medicares  payment  mechanism  for  Part  B services  to patients  of  skilled  nursing  facilities 

(Approach  II)  is most  responsive  to our  overall  concerns.  Enteral  nutrition  therapy  is but 

one  example  of the  possible  benefits  from  changes  to current  policy  which  will  ensure 

Medicare  is paying  the  most  reasonable  cost.  Payment  mechanisms  that  utilize  a nursing 

facilitys  capability  to purchase  medical  equipment  and  supplies  more  cost  effectively  than 

the  average  beneficiary  offer  the  greatest  potential. 

We  recognize  that  further  study  would  be needed  to assess  the  relative  costs  and  benefits  of 

the  global  options  and  the  extent  of  cost  shifting  to  other  programs,  States,  and 

beneficiaries.  The  projections  of  cost  savings  in this  report  are  used  as illustrations  and  are 

based  on  various  stated  assumptions.  The  savings  refer  to the  Medicare  Part  B program 

and  include  savings  to  both  the  Part  B program  and  the  beneficiary. 

Any  efforts  to  modify  the  enteral  nutrition  therapy  benefit  and  global  restructuring 

strategies  will  require  legislation  and  must  be accompanied  by  adequate  consideration  and 

protections  (liability,  access  and  quality  of  care,  etc.)  for  nursing  facility  patients,  nursing 

homes,  and  States. 

14 
 AGENCY  COMMENTS 
We received  comments  from  the  Health  Care  Financing  Administration  (HCFA).  (See 
Appendix  B for  the  full  text.)  The  HCFA  concurred  with  the  recommendations  made  in 
this  report.  To  resolve  identified  problems  noted  in this  report,  HCFA  is pursuing  a 
number  of  actions  such  as evaluating  the  reasonableness  of payment  for  pumps  and  I-V 
poles,  applying  DME  reimbursement  criteria  to  I-V  pole  coverage,  and  pursuing  research  of 
broader  payment  restructuring  through  capitation,  competitive  bidding,  and  bundling  of 
enteral  nutrition  services. 
15 
 ENDNOTES 

1. 	 In  some  instances,  the  use  of customary  and  prevailing  charge  data  alone  may  lead 
to  a result  that  is not  inherently  reasonable  for  the  purpose  of  reimbursing  items 
and  services  furnished  by  suppliers  of  services.  If  standard  rules  for  calculating 
reasonable  charges  result  in grossly  deficient  or  grossly  excessive  charges,  HCFA 
and  contractors  can  apply  other  factors  to  set reasonable  charge  limits.  Examples 
of  circumstances  which  may  result  in excessive  charges  include:  the  marketplace  is 
not  competitive,  Medicare  is the  primary  source  for  payment,  charges  are  grossly 
in excess  of  acquisition  costs,  etc.  When  inherent  reasonableness  criteria  have 
been  applied,  the  contractor  must  solicit  comments  from  the  affected  group  on  the 
proposed  limitation  and  the  methodology  and  documentation  used.  A minimum  of 
a 30-day  comment  period  is provided. 
2. 	 $140  million  for  supply  kits  (assuming  the  payment  rate  is set  at a price  65 percent 
below  1995  allowed  charges  of  $216  million) 
$1.3  million  for  IV  poles  (Annual  savings  could  be  $1.3  million  ($0.4  million  due 
to  limitations  on  total  rental  payments  and  $0.9  million  (29 percent  of  the 
remaining  $3.1  million)  based  on  limiting  payment  to the  lower  of  the  fee  schedule 
or  the  reasonable  and  customary  charge) 
$10.3  million  for  pumps  (29 percent  of  $35  million). 
3. 	 Data  was  obtained  from  a nationally  projectable  two-stage  random  sample  of  150 
Medicare  or Medicaid  nursing  homes  from  California,  Delaware,  Florida,  Indiana, 
Kansas,  Louisiana,  Maine,  Michigan,  Montana,  and  Wyoming  (15  per  State). 
Stratification  was  based  on  facility  size  (large,  medium,  and  small). 
Each  sample  nursing  home  provided  us with  a list  of  all Medicare-eligible 

beneficiaries  residing  in the  nursing  home  during  1992,  along  with  each  residents 

corresponding  date(s)  of  stay.  After  verification  of the  beneficiaries  health 

insurance  claim  numbers  (HICN)  with  the  Medicare  enrollment  database,  all 

Medicare  services  provided  during  the  nursing  home  stay  were  extracted  from  the 

Medicare  National  Claims  History  File  for  calendar  year  1992.  The  Supplementary 

Medical  Insurance  (SMI)  for  the  Aged  and  Disabled  services  (Part  B Medicare), 

processed  by  both  the  carrier  and  the  intermediary,  were  identified.  Data  from  the 

sample  were  projected  to the  total  nursing  home  population  (patients  in Medicare  or 

Medicaid-certified  nursing  homes). 

4. 	 During  1995,  Medicare  allowed  $260  million  (+/- $3.6  million  at the  95 percent 
confidence  level)  for  the  equipment,  supply  kits,  and  tubing  used  for  enteral 
nutrition  therapy.  When  added  to the  cost  of  the  nutrient  formula  ($225  +/- $3.7 
million  at the  95 percent  confidence  level),  these  costs  bring  the  total  Part  B cost 
of  enteral  nutrition  therapy  in nursing  homes  to nearly  one-half  billion  dollars 
($485  million  +/- $5.3  million  at the  95 percent  confidence  level). 
16  5. 	 Durable  medical  equipment  may  be covered  under  Medicares  Supplemental 
Insurance  Program  (Part  B),  if it is furnished  for  use  in  the  beneficiarys  home. 
Medicare  defines  a beneficiarys  home  as his  or her  dwelling,  an apartment,  a 
relatives  home,  a home  for  the  aged,  or some  other  type  of  institution.  However, 
a nursing  facility  primarily  engaged  in providing  to  inpatients  skilled  nursing  care 
or rehabilitation  may  not  be  considered  a beneficiarys  home  for  purposes  of  DME 
coverage. 
6. 	 An  IV  pole  billed  as DME  is considered  to  be paid  under  the  category  of 
inexpensive  or other  routinely  purchased  DME.  Such  DME  is defined  as equipment 
costing  less  than  $150  or which  is purchased  at least  75 percent  of  the  time. 
7. 	 While  these  two  items  (bag  and  syringe)  are  the  main  components  of  kits.  Contact 
with  some  suppliers  yielded  the  following  list  of  items  that  might  be  included  under 
the  broad  category  of  a kit: 
Tubing  (4 - 5 feet) 

Flow  clamp  control  regulator 

Interlocking  feeding  set connector 

Additional  connectors  (Y port)  as needed 

Gauze  pads  for  gastrostomy  site  wound  care 

Alcohol  swabs,  antibiotics  as necessary 

Tape 

Gloves 

In  some  cases,  a secondary  bag  and  tubing  combination 

to permit  automatic  hydration 
8. 	 HCFA  is currently  conducting  several  projects  related  to  DME  to  establish  more 
reasonable  reimbursement  rates  and  take  advantage  of  competitive  bidding 
strategies.  These  studies  are: 
Study  1 	 A study  of  variations  in DME  supplier  costs.  This  study  will  collect 
data  on  supplier  costs  of  DME  and  will  determine  the  proportions  of 
such  costs  attributable  to the  services  and  the  proportion  attributable 
to  the  product  components.  The  review  will  analyze  this  by  type  of 
equipment  and  geographic  area. 
Study  2 	 An  evaluation  of the  inherent  reasonableness  of payment  levels  for 
decubitus  care  equipment,  TENS,  and  any  other  items  considered 
appropriate  by  the  Secretary  (IV  poles  are  considered  appropriate). 
The  contractor  will  obtain  cost  data  from  private  payers,  Medicaid, 
and  other  Federal  health  programs.  A cost-benefit  and  actuarial 
analysis  will  also  be undertaken. 
Study  3 	 HCFA  is using  its current  authority  to  undertake  a project  on 
competitive  bidding.  HCFA  has  contracted  with  Palmetto 
17 
 Government  Benefit  Administrators  test  whether  competitively  bid 
prices  can  be used  to purchase  some  types  of  DME. 
9. 	 HCFA  is currently  administering  a six-State  Medicare  skilled  nursing  facility  (SNF) 
prospective  payment  system  (PPS)  demonstration  to:  1) develop  a patient 
classification  system,  2) develop  a payment  rate  based  on  the  patient  classification, 
and  3) evaluate  the  adequacy  of  facility  payments  under  the  demonstration.  Many 
of the  basic  elements  of the  demonstration  will  be  incorporated  into  the  structure  of 
a national  SNF  PPS.  HCFA  believes  that  the  quality  of  care  rendered  to  Medicare 
beneficiaries  is not  hindered.  HCFA  is committed  to  implementing  a SNF  PPS  as 
soon  as it is technically  possible  and  the  Administration  has  offered  a legislative 
proposal  to  Congress. 
10. 	 Most  beneficiaries  (75 percent)  are  covered  under  a Part  A SNF  stay  or  a Medicaid 
stay.  The  remaining  beneficiaries  (25 percent)  pay  for  nursing  home  stays 
themselves  or  with  the  aid  of  alternate  insurance  programs. 
18 
 APPENDIX  A 
MEDICARE  PART  B PAYMENTS 
FOR 
ENTERAL  EQUIPMENT  AND  SUPPLIES 
95 Pert  ,ntteaTtidence 
Point  Estimate  f 
Enteral  Equipment  and  Supplies  - Total 
1992  $253,240,044  +I- $3,2 11,207 
1993  $237,035,25  1  +I- $3,156,623 
1994  $245,704,806  +I- $3,624,939 
1995  $260,156,084  +/- $3,640,33  1 
Enteral  Infusion  Pumps 
1992  $46,191,376  +I- $713,576 
1993  $38,65 1,228  +I- $791,357 
19941  $34,249,692/  +/- $898,646 
19951  $35,244,409]  +/- $802,9481 
/ 
Enteral  Feeding  Supply  Kits 
1992  $200,709,626  +I- $2,197,334 
1993  $193,718,048  +I- $2,170,587 
1994  $202,655,147  +/- $2,685,116 
1995  $216,137,807  +I- $2,772,656 
Intravenous  (I-V)  Poles 
1992  $6,79 1  +I- $7,728  * 
1993  $7,054  +/- $7,739  * 
1994  $3,391,134  +I- $99,702 
1995  $3,502,864  +I- $106,377 
Tubing 
$6,332,25  11  +/- $155,7841 
I 
1993  $4,65 8192 1  +/- $133,517 
1994  $5,408,833  +I- $210,376 
1995  $5,27 1,004  +!- $178,606 
x Ths calculatron resulted because of an extremely low precison caused by so few claims. 
Source:  Based  on  Analysis  of  an  OIG  I  Percent  File  extracted  from  the  National  Claims  History  file. 
A-l  APPENDIX  B 

AGENCYCOMMENTS 
DEPARTMENT  OF HEALTH  8r HUMAN  SERVICES  Health  Care  Financing  Adm!nlstratron 
The AdmlnMrator 
Washington.  DC.  20201 
MAR I 7  1337 
DATE: 
TO: 	 June  Gibbs  Brown 
Inspector  General 
FROM: 	 Bruce  C. Vladeca& 
Administrator   a/ 
SUBJECT: 	 Office  of Inspector  General  (OIG)  Draft Report:  Medicare  Payments  for 
Enteral  Nutrition  Therapy  Equipment  and Supplies  in Nursing  Homes, 
(OEI-06-92-00866) 
b 
We reviewed  the above-referenced  report  that describes  the extent  of Medicare  Part  B 
payments  and potential  vulnerabilities  related  to enteral  nutrition  therapy  equipment  and 
supplies  provided  to residents  of nursing  homes. 
Our detailed  comments  on the report  recommendations  are attached  for your 
consideration.  Thank  you  for the opportunity  to review  and  comment  on this report. 
Attachment 
B-l  Comments  of the  Health  Care  Financing  Administration  (HCFA)  on 
Office  of  Inspector  General  (OIG)  Draft  Renort: 
Medicare  Pavments  for  Enteral  Nutrition  Theranv  Equipment  and 
Supplies  in Nursing  Homes,  (OEI-06-92-008661 
OIG  Recommendation  - Equipment  Payment  Policy 
HCFA  should  take  appropriate  action  to prevent  excessive  payments  for  the  rental  and 
purchase  of  intravenous  (I-V)  poles  used  in nursing  facilities. 
HCFA  Response 
We  concur  with  the  report  finding  that  payments  for  poles  used  in nursing  facilities  are 
excessive.  HCFA  created  a parenteral  and  enteral  nutrition  (PEN)  Workgroup  that  will 
concentrate  on  current  PEN  issues  impacting  on  program  costs  and  abuses.  The  Workgroup 
includes  staff  from  central  office  and  the  regional  offices. 
The  Workgroup  is reviewing  the  appropriate  skilled  nursing  facility  manual  section  and 
plans  to  issue  a clarification  or revision,  as necessary,  that  would  support  a carrier  policy  to 
pay  for  PEN  poles  as inexpensive/routinely  purchased  durable  medical  equipment  (DME). 
The  Workgroup  will  also  review  the  reimbursement  rules  that  apply  to  DME  used  in the 
nursing  facility  when  the  stay  is covered  under  Part  A,  and  will  evaluate  the  inherent 
reasonableness  of  payment  rates  under  the  reasonable  charge  system.  The  projected 
completion  date  for  this  activity  is March  31. 
OIG  Recommendation  - Enteral  Infusion  Pumps 
HCFA  should  consider  beginning  a review  of the  appropriateness  of payment  rates  for 
P-Ps. 
HCFA  Response 
We  concur.  The  PEN  Workgroup  is applying  the  same  review  to  enteral  infusion  pumps  as 
it is to  its review  if I-V  poles  as discussed  in response  to the  first  recommendation. 
OIG  Recommendation  - Global  Payment  Restructuring 
HCFA  should  consider  structural  changes  in the  way  Medicare  pays  for  services  provided 
to  nursing  facility  patients. 
B-2 
 HCFA  Response 

We  concur  and  are  currently  developing  a competitive  bidding  demonstration.  The  use  of 

the  competitive  market  mechanism  would  establish  Medicares  payment  for  enteral 

nutrition. 

The  Workgroup  will  consider  other  payment  mechanisms  that  include  inherent 

reasonableness,  bundling  of  enteral  nutrition  services,  and  capitation.  Staff  from  our  Dallas 

Regional  Office  are  working  closely  with  DME  regional  carriers  to develop  a pricing 

scheme  to  collapse  enteral  nutrient  codes  for  categories  IV  and  V by  weighting  the  1995 

Medicare  allowances  for  each  enteral  code  in these  categories  and  using  the  average  of 

product  specific  allowances  paid  under  codes  from  within  the  respective  categories.  The 

Workgroup  will  design  a model  to  work  with  the  statistical  analysis  DME  regional  carrier 

to  study  the  use  of  inherent  reasonableness  and  bundling  as approaches  to price  PEN.  We 

expect  to  complete  this  project  and  propose  a new  mechanism  for  these  categories  by 

April. 

B-3