Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare Allowed Charges for 
Orthotic Body Jackets 
JUNE GIBBS BROWN 
Inspector General 
MARCH 2000 
OEI-04-97-00391  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), mandated by Public Law 95-452, and 
amended by Public Law 100-504, is to protect the integrity of the Department of Health and 
Human Services programs as well as the health and welfare of beneficiaries served by them.  This 
statutory mission is carried out through a nationwide program of audits, investigations, 
inspections, sanctions, and fraud alerts.  The Inspector General informs the Secretary of program 
and management problems and recommends legislative, regulatory, and operational approaches to 
correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 
Regional Inspector General, and Christopher H. Koehler, Deputy Regional Inspector General. 
Principal OEI staff included: 
REGION  HEADQUARTERS 
Greg Jones, Project Leader  Stuart Wright, Program Specialist 
Betty Apt, Team Leader  Winnie Walker, Program Specialist 
Peggy Daniel, Program Analyst  Barbara Tedesco, Statistician 
To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7723. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  T A B L E  O F  C O N T E N T S  
PAGE

EXECUTIVE SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

FINDINGS

Medicare Pays More Than Medicaid  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Medicare Often Pays More Than Tricare  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Medicare Reimbursement Rates Exceeded Suppliers Cost  . . . . . . . . . . . . . . . . . . . . . . . 9

RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

AGENCY COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

APPENDICES

A: Potential Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

B: Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
 E X E C U T I V E  S U M M A R Y  
PURPOSE 
To analyze the reasonableness of Medicare allowed charges for orthotic body jackets coded 
L0430. 
BACKGROUND 
Medicare covers spinal orthoses only when ordered by a physician.  Payments for orthotics 
are based on a fee schedule.  Payments are either the fee schedule rate or the actual charge 
billed by the supplier, whichever is lower. 
In 1999, the OIG reported that although all orthotic devices claimed as code L0430 in 
1996 were eligible for some level of Medicare reimbursement, suppliers had upcoded 42 
percent of the claims.  This study is a follow-on to the 1999 report. 
FINDINGS 
Medicare Pays More for L0430 Orthotic Body Jackets than Medicaid 
On average, in the eight States we reviewed, Medicare rates exceeded the Medicaid rate by 
21 percent. 
Medicare Often Pays More for L0430 Orthotic Body Jackets than Tricare 
For half of the eight States we reviewed, the Medicare reimbursement rate exceeded 
Tricare (formerly CHAMPUS) rates by an average of 7.4 percent. 
Medicare Reimbursement Rates Greatly Exceeded the Prices Suppliers Paid for 
Orthotic Body Jackets 
The Medicare allowed charge, compared to suppliers costs for code L0430 devices, 
resulted in a mark-up in cost ranging from 54 percent to 829 percent.  Therefore, 
Medicares allowed charges for orthotic body jackets sold under Medicare code L0430 
may be allowing excessive profits for some suppliers. 
We defined mark-up as the difference between the supplier invoice cost and the Medicare 
allowed charge. 
Medicare Payments for Orthotic Body Jackets  1  OEI-04-97-00391  RECOMMENDATION 
The Balanced Budget Act of 1997 gave HCFA greater flexibility in determining 
appropriate reimbursement rates when rates are found to be grossly excessive, deficient, or 
not inherently reasonable.  That inherent reasonableness authority was limited by a 
provision of the Balanced Budget Refinement Act of 1999.  However, we continue to 
support the need for more reasonable Medicare prices for orthotic body jackets. 
Medicare allowed charge resulted in mark-ups which ranged from 54 percent to 832 
percent.  Such Medicare rates could allow excessively high profits in some instances.  Both 
State Medicaid agencies and Tricare have shown that suppliers will make L0430 orthotic 
body jackets available to government beneficiaries at lower prices than what Medicare 
pays. 
Therefore, we recommend that HCFA: 
determine the appropriateness of Medicare allowed charges for orthotic 
body jackets and adjust Medicare reimbursement accordingly. 
Depending on what HCFA determines to be a reasonable mark-up, Medicare and its 
beneficiaries could have saved $14,212 if the mark-up had been limited to 500 percent for 
the 45 orthotic devices in our sample.  If the mark-up had been limited to 100 percent, the 
savings would have been $48,174.  Projected to the Medicare universe the potential 
savings would be between $227,380 and $770,780. 
AGENCY COMMENTS 
The Administrator, Health Care Financing Administration commented on our draft report. 
She noted that the Balanced Budget Refinement Act of 1999 precludes HCFA from using 
its inherent reasonableness authority to change Medicare allowed charges for orthotic body 
jackets.  Appendix B contains the full text of HCFAs comments. 
We modified our recommendation to reflect the limitations in HCFAs authority.  We are 
pleased that HCFA agreed to review the appropriateness of allowed charges for orthotic 
body jackets once they issue their new final rule on its inherent reasonableness authority. 
Medicare Payments for Orthotic Body Jackets  2  OEI-04-97-00391  I N T R O D U C T I O N  
PURPOSE 
To analyze the reasonableness of Medicare allowed charges for orthotic body jackets coded 
L0430. 
BACKGROUND 
Medicare Coverage of Orthotic Body Jackets 
Medicare covers spinal orthoses only when specific conditions are met.  They must be 
ordered by a physician to reduce pain by restricting mobility of the trunk, to facilitate 
healing following an injury or surgical procedure on the spine, or to support weak spinal 
muscles or a deformed spine. 
Medicare payments for durable medical equipment, orthotics, and prosthetics are based on 
a fee schedule.  Payments are either the fee schedule rate or the actual charge billed by the 
supplier, whichever is lower.  The fee schedule methodology uses historical data to 
determine an appropriate reimbursement rate.  Fee schedules are updated year to year, 
based on the consumer price index or as directed by legislation. 
Previous Office of Inspector General Studies on Orthoses 
In 1994, the Office of Inspector General (OIG) reported that 95 percent of claims 
submitted in 1991 for orthotic body jackets coded L0430 were non-legitimate and should 
not have been paid.1  The devices supplied were usually nothing more than a seat cushion 
for a wheel chair patient.  A companion report2 described suppliers marketing practices for 
orthotic body jackets. 
In 1997, the OIG reported that at least 19 percent of orthotics claimed for Medicare 
reimbursement were medically unnecessary.3 
1 
Medicare Payments for Orthotic Body Jackets (OEI-04-92-01080)
2 
Marketing of Orthotic Body Jackets (OEI-04-92-01081)
3 
Medicare Payments for Orthotics (OEI-02-95-00380)
Medicare Payments for Orthotic Body Jackets  3  OEI-04-97-00391  In 1999, the OIG reported that although all orthotic devices claimed as code L0430 in 
1996 were eligible for some level of Medicare reimbursement, suppliers had upcoded 42 
percent of the claims.4 
As part of our 1999 study we obtained supplier invoices.  The invoices disclosed the 
amount that suppliers paid for orthotic body jackets.  The suppliers costs raised questions 
as to the appropriateness of Medicare allowed charges.  To obtain some insight into the 
reasonableness of Medicare allowed charges we examined suppliers mark-up.  We did so 
by comparing suppliers costs to the Medicare allowed charge. We also looked at 
reimbursement rates of other government payers. 
METHODOLOGY 
We compared Medicare 1998 L0430 reimbursement rates to 1998 rates for Medicaid and 
Tricare (formerly CHAMPUS).  For our comparison, we chose five States that account for 
approximately 40 percent of Medicare expenditures and beneficiaries: California, Texas, 
New York, Florida, and Illinois.  To add variation to our analysis, we also included three 
smaller States: Georgia, Connecticut, and Massachusetts.  We selected Medicaid and 
Tricare for comparison because, like Medicare, they are public payers.  We obtained 
reimbursement rates and rate setting methodology from pricing representatives of State 
Medicaid and Tricare organizations.  We then compared those rates to Medicare allowed 
charges. 
To get additional insight into the reasonableness of Medicare reimbursement for code 
L0430 orthotic body jackets we determined suppliers mark-up by comparing invoice costs 
to the Medicare allowed charge. 
To do this we reviewed a 5 percent sample of claims for code L0430 contained in HCFAs 
1996 National Claims History File.  This sample consisted of 302 L0430 claims which had 
been filed in 1996.  We dropped 3 of the 302 claims because we could not locate the 
address for the supplier.  This left us with a sample of 299 paid claims which represented 
126 suppliers and 289 beneficiaries.  Ten beneficiaries in our sample received two body 
jackets each.  We surveyed the 126 suppliers by mail questionnaire. 
Of 85 suppliers who responded to our survey, 44 (51.8 percent) provided requested 
invoices showing how much suppliers paid manufacturers for the devices they supplied to 
Medicare beneficiaries.  The invoices enabled us to determine the amount that Medicare 
allowed charges exceeded suppliers costs for orthotic devices (i.e., percent mark-up).  The 
invoices represented 122 claims or devices. 
Because our 1999 inspection, Medicare Payments for Orthotic Body Jackets (OEI-04-97-
00390, showed that 42 of the 122 devices had been up-coded by suppliers, we removed 
4 
Medicare Payments for Orthotic Body Jackets (OEI-04-97-00390)
Medicare Payments for Orthotic Body Jackets  4  OEI-04-97-00391 them from our review.  Therefore, our final analysis consisted of  80 orthotic body jacket 
claims from 24 suppliers. 
Finally, we interviewed HCFA officials who are responsible for the reimbursement and 
payment for orthotics and prosthetics, pricing representatives from the Region C Durable 
Medical Equipment Regional Carrier (DMERC), the coding staff from the Statistical 
Analysis Durable Medical Equipment Regional Carrier (SADMERC), officials from the 
American Orthotic and Prosthetic Association (AOPA)--the trade organization which 
represents the industry, and numerous licensed orthotists. 
_  _  _  _  _  _  _  _  _  _  _  _  _ 
We did our inspection between September 1997 and June 1999.  We conducted the 
inspection in accordance with the Quality Standards for Inspections issued by the 
President's Council on Integrity and Efficiency. 
Medicare Payments for Orthotic Body Jackets  5  OEI-04-97-00391  F I N D I N G S  
Medicare pays more for L0430 orthotic body jackets than 
Medicaid 
Medicare payments exceeded Medicaid payments by 21 percent 
Medicaid is a jointly funded cooperative venture between the Federal and State 
governments to assist States in the provision of adequate medical care to eligible needy 
persons.  All of the States in our analysis reimbursed for an L0430 orthotic body jacket. 
On average, in the eight States we reviewed, the Medicare rates exceeded the Medicaid 
rate by 21 percent.  The Medicaid rates ranged from a high of $1,073 in Texas to a low of 
$399 in Florida which respectively is 5.7 percent and 61.7 percent lower than the Medicare 
rates in those same States. 
Table 1 

Comparison of Medicare and Medicaid Reimbursement Rates 

for Orthotic Body Jackets

Medicare  Medicaid  % Difference 
Allowed Charge  Allowed Charge  from Medicare 
TX  $1,138  $1, 073  - 5.71 
IL  $1,136  $976  - 14.1 
CA  $1,122  $690  - 38.5 
GA  $1, 042  $938  - 10.0 
FL  $1, 042  $399  - 61.7 
NY  $1,036  $900  - 13.1 
MA  $981  $864  - 11.9 
CT  $981  $883  - 10.0 
State Medicaid rates are partially based on Medicare rates 
Each State has a distinct history and methodology for the way in which reimbursement for 
orthotics and prosthetics is determined.  Most States noted that orthotic body jackets are 
not products they deal with a lot.  In fact, California Medicaid paid for only 11 in 1998. 
However, most of the Medicaid pricing representatives noted that the Medicare rate played 
some role in the determination of their L0430 reimbursement rate. 
Medicare Payments for Orthotic Body Jackets  6  OEI-04-97-00391  For example, Georgia and Connecticut use the Medicare allowed charges for all durable 
medical equipment and reduce that amount by 10 percent. 
Massachusetts, Illinois, and Texas also use the Medicare rate in their reimbursement 
methodology.  Massachusetts Medicaid staff said their goal is to not be any higher than the 
Medicare rate, and in most cases they are a little lower.  They also noted that a 11.9 
percent rate below Medicares was probably a little lower than usual.  They expressed their 
plans to increase their rate by 1.4 percent in the near future. 
Illinois reimbursement rate is 14.1 percent less than Medicare.  However, they said they 
plan to bring it up to the Medicare level of $1,136.  On a slightly different note from other 
States, the Illinois representative said their goal is to keep the rates at the Medicare level. 
They believe this was needed so they will not lose providers and therefore be unable to 
meet the needs of Medicaid beneficiaries. 
Texas had the highest Medicaid allowed charge which was 5.7 percent less than their 
respective Medicare rate.  In addition to the Medicare rate, Texas uses historical trend data 
and the reimbursement rate for another health program in the State to determine their 
reimbursement rate. 
Florida and California have the lowest reimbursement among the eight States we reviewed. 
To date both Florida and California have not received any formal complaints from suppliers 
about their rates. 
Floridas unusually low rate of $399 can in some part be explained by the fact that they 
established their rates in 1990 based on 80 percent of the Medicare allowed charge. Then in 
1995, the Florida legislature mandated a 3 percent across the board rate reduction for all 
durable medical equipment including orthotics and prosthetics. 
A California Medicaid representative noted that their low L0430 reimbursement rate was 
an anomaly.  They explained Californias other durable medical equipment Medicaid 
reimbursement rates are usually in the upper sixty percentile of the Medicare rates. 
New York was the only State where the Medicare rate did not have an influence on their 
reimbursement rate.  Pricing representatives noted the $900 rate was set in 1982 and was 
very inflated for that time period. 
Medicare often pays more for L0430 orthotic body jackets 
than Tricare 
Tricare (formerly CHAMPUS) is the health care program for active duty and retired 
members of the uniformed services, their families, and survivors.  In four of the eight States 
we reviewed, the Medicare reimbursement rate for L0430 orthotic body jackets exceeded 
the Tricare rates by an average of 7.4 percent.  Only one State we reviewed, New York, 
paid more than Medicare.  Connecticut, Illinois, and Massachusetts did not have any claims 
Medicare Payments for Orthotic Body Jackets  7  OEI-04-97-00391  billed in 1998.  However, their general practice is to reimburse code L0430 invoices as 
billed by suppliers. 
Table 2

Comparison of Medicare and Tricare Reimbursement 

Rates for Orthotic Body Jackets 

Medicare  Tricare  % Difference 
Allowed Charge  Allowed Charge  from Medicare 
TX  $1,138  $1,036  -8.9 
IL  $1,136  tt  tt 
CA  $1,122  $1,036  -7.7 
GA  $1, 042  $975  -6.4 
FL  $1, 042  $975  -6.4 
NY  $1,036  $1,347  +30.0 
MA  $981  tt  tt 
CT  $981  tt  tt 
tt = no claims billed in 1998 
The Tricare Policy Manual states that the maximum allowable amount for a customized 
item of durable medical equipment (which includes orthotics and prosthetics) may be 
determined by a Tricare contractor using documented evidence of retail prices for 
customization in the State of purchase.  If a contractor cannot derive precise data on the 
frequency of services from its records, it may use any information it has about the volume 
of business done by various suppliers in its area in order to develop the maximum allowable 
charge. 
Medicare Payments for Orthotic Body Jackets  8  OEI-04-97-00391  Medicare reimbursement rates greatly exceeded the prices 
suppliers paid for orthotic body jackets 
We compared 24 suppliers costs to the Medicare allowed charge for 80 orthotic body 
jacket devices.  Our comparison showed that the Medicare allowed charge resulted in a 
mark-up in cost ranging from 54 percent to 832 percent (See Table 3). 
Table 3 shows the wide variation in mark-up.  We observed that 3 of the 24 suppliers 
received a mark-up between 200 and 300 percent.  This represented 33 percent of the 80 
claims. Of the 24 total suppliers, 8 received a mark-up in excess of 700 percent.  The 40 
claims submitted by these 8 suppliers represented 50 percent of the 80 claims in our 
sample. 
Table 3

Mark-up for Code L0430 in 1996

%  # of  # of  % of 
Mark-Up  Suppliers  Claims  Claims 
54-100  1  1  1 
101-200  7  8  10 
201-300  3  26  32.5 
301-400  1  1  1.3 
401-500  4  4  5 
501-600  0  0  0 
601-700  0  0  0 
701-800  4  17  21.3 
800-832  4  23  28.8 
Total  24  80  100 
The mark-up is the difference between the supplier invoice cost and the Medicare allowed 
charge.  It includes supplier expenses such as overhead and professional services to fit 
orthotic devices.  It also includes supplier profit. 
We did not determine what is or is not an appropriate mark-up for orthotic body jackets. 
Further, HCFA headquarters officials told us they do not know what would be a reasonable 
and appropriate mark-up.  HCFA did observe that an extremely wide variation in what 
suppliers pay to manufacturers for L0430 orthotic body jackets could indicate differences 
in quality of the devices.  They were not sure that this was the case with our sample, and 
we did not examine differences in quality.  According to a review by the SADMERC, 
however, all of the devices in our sample met Medicares standards to qualify as an L0430 
orthotic body jacket. 
Medicare Payments for Orthotic Body Jackets  9  OEI-04-97-00391  Some of the generous mark-ups may be explained by supplier effectiveness at obtaining 
discounts from manufacturers for devices sold to Medicare beneficiaries.  Another possible 
explanation could be geographic variations.  However, it seems unlikely that such 
variations would explain mark-up differences ranging from 54 to 832 percent.  Therefore, 
Medicares allowed charges for orthotic body jackets sold under code L0430 may be 
allowing excessive, unreasonable profits for some suppliers. 
Table 4 shows potential Medicare costs for the 80 devices in our sample based on various 
levels of mark-up.  The table also shows the difference between those potential Medicare 
costs and the actual Medicare costs for the 80 devices. 
Table 4

Potential Savings to Medicare Based on Various Mark-up Levels

# of  Actual  If Mark-Up  Mark-Up  Actual  Potential  Potential 
Orthotic  Supplier  Levels (%)  Multiplie  Medicare  Medicare  Savings/ 
Body  Cost5  are  r  Cost6  Cost7  Additional 
Jackets  Cost to 
Medicare8 
80  $18,869  100  (2)  $85,592  $37,738  $47,854 
80  $18,869  200  (3)  $85,592  $56,607  $28,985 
80  $18,869  300  (4)  $85,592  $75,476  $10,116 
80  $18,869  400  (5)  $85,592  $94,345  ($8,753) 
80  $18,869  500  (6)  $85,592  $113,214  ($27,622) 
80  $18,869  600  (7)  $85,592  $132,083  ($46,491) 
80  $18,869  700  (8)  $85,592  $150,952  ($65,360) 
80  $18,869  800  (9)  $85,592  $169,821  ($84,229) 
5 
$18,869 is the actual cost that all suppliers in our sample paid for the 80 orthotic claims. 
6 
$85,592 is the actual total amount that Medicare reimbursed for all 80 orthotic claims in our sample. 
7 
Potential Medicare Cost = (Actual Supplier Cost * Mark-Up Multiplier)
8 
Potential Savings = (Actual Medicare Cost - Potential Medicare Cost)
Medicare Payments for Orthotic Body Jackets  10  OEI-04-97-00391  R E C O M M E N D A T I O N S  
The Balanced Budget Act of 1997 gave HCFA greater flexibility in determining 
appropriate reimbursement rates when rates are found to be grossly excessive, deficient, or 
not inherently reasonable.  That inherent reasonableness authority was limited by a 
provision of the Balanced Budget Refinement Act of 1999.  However, we continue to 
support the need for more reasonable Medicare prices for orthotic body jackets. 
Medicare allowed charge resulted in mark-ups which ranged from 54 percent to 832 
percent.  Such Medicare rates could allow excessively high profits in some instances.  Both 
State Medicaid agencies and Tricare have shown that suppliers will make L0430 orthotic 
body jackets available to government beneficiaries at lower prices than what Medicare 
pays. 
Therefore, we recommend that HCFA: 
determine the appropriateness of Medicare allowed charges for orthotic 
body jackets and adjust Medicare reimbursement accordingly. 
The potential savings to Medicare and its beneficiaries will vary depending on what HCFA 
determines to be a reasonable mark-up. For example, the Table below shows the potential 
savings based on various levels of mark-up for the 45 orthotic claims we reviewed. 
Appendix A shows our calculations. 
Mark-up limit  # of claims  Potential Savings  Projected Savings to 
for Sample  theMedicare 
Universe 
100%  45  $48,174  $770,780 
300%  45  $25,201  $403,220 
500%  45  $14,212  $227,380 
Medicare Payments for Orthotic Body Jackets  11  OEI-04-97-00391  A G E N C Y  C O M M E N T S  
The Administrator, Health Care Financing Administration commented on our draft report. 
She noted that the Balanced Budget Refinement Act of 1999 precludes HCFA from using 
its inherent reasonableness authority to change Medicare allowed charges for orthotic body 
jackets.  Appendix B contains the full text of HCFAs comments. 
We modified our recommendation to reflect the limitations in HCFAs authority.  We are 
pleased that HCFA agreed to review the appropriateness of allowed charges for orthotic 
body jackets once they issue their new final rule on its inherent reasonableness authority. 
Medicare Payments for Orthotic Body Jackets  12  OEI-04-97-00391  APPENDIX A
Potential Savings by Limiting Mark-up for Code
L0430 to 300 percent
1 2 3 4 5 6 7 8 9 10 11
Weighted  Invoice Weighted  100% 300% 500%
# of  Medicare Avg Medicare Avg Cost of  Invoice Cost *Potential  Potential  Potential 
Supplier # Claims Allwd Chg Allwd Chg Device of device $ Mark-up % Mark-Up  Savings  Savings  Savings
54 1 $1,081 $1,081 $700 $700 $381 54.4
1 1 $1,004 $1,004 $490 $490 $514 104.9 $24
27 2 $1,004 $2,008 $480 $960 $524 109.2 $88
3 1 $998 $998 $460 $460 $538 117.0 $78
34 1 $1,096 $1,096 $425 $425 $671 157.9 $246
45 1 $900 $900 $329 $329 $571 173.6 $242
43 1 $945 $945 $345 $345 $600 173.9 $255
20 1 $998 $998 $350 $350 $648 185.1 $298
26 24 $1,081 $25,944 $350 $8,400 $731 208.9 $9,144
59 1 $1,094 $1,094 $325 $325 $769 236.6 $444
4 1 $1,004 $1,004 $255 $255 $749 293.7 $494
21.1 1 $1,096 $1,096 $238 $238 $858 360.5 $620 $144
21 1 $1,096 $1,096 $218 $218 $878 402.8 $660 $224
5 1 $990 $990 $176 $176 $814 461.4 $637 $285
6 1 $1,004 $1,004 $176 $176 $828 469.4 $651 $299
33 1 $1,094 $1,094 $183 $183 $911 497.8 $728 $362
31 2 $1,081 $2,162 $129 $259 $952 736.4 $1,645 $1,128 $611
24 1 $1,081 $1,081 $129 $129 $952 736.4 $823 $564 $306
32 4 $1,081 $4,324 $129 $517 $952 736.4 $3,290 $2,256 $1,222
8 10 $1,081 $10,810 $126 $1,260 $955 757.9 $8,290 $5,770 $3,250
53 1 $1,081 $1,081 $116 $116 $965 829.3 $848 $616 $383
36 14 $1,081 $15,134 $116 $1,629 $965 829.3 $11,877 $8,620 $5,362
30 1 $1,081 $1,081 $116 $116 $965 829.3 $848 $616 $383
51 7 $1,081 $7,567 $116 $812 $965 831.9 $5,943 $4,319 $2,695
80 $1,047 $85,592 $270 $18,869 376.3 $48,174 $25,201 $14,212
Weighted #'s: $1,070 $236
Average Allowed Mark-Up: 354%
Total Savings based on 100% cap= $48,174
Total Savings based on 300% cap= $25,201
Total Savings based on 500% cap= $14,212
*Potential Savings= (column 4-(column 6 * 100% Mark-up)
Note: We did not do an analysis to determine the quality between the orthotic body jackets that had an invoice cost of $116 vs $700.  
Medicare Payments for Orthotic Body Jackets 13 OEI-04-97-00391 APPENDIX A 
cont 
Potential Medicare Savings for Code L0430

Orthotic Body Jacket with Mark-ups over 100, 300, and 500

percent

1.	 100%: $48,174 (Total Potential Overpayment for Sample) 
300%: $25,201 (Total Potential Overpayment for Sample) 
500%: $14,212 (Total Potential Overpayment for Sample) 
2.  Multiply the overpayment by .80, since Medicare pays 80% of the allowed charge. 
100%: $48,174  x  .80 = $38,359 (Loss to the Medicare program) 
300%: $25,201  x  .80 = $20,161 (Loss to the Medicare program) 
500%: $14,212  x  .80 = $11,370 (Loss to the Medicare program) 
3.	 Multiply the loss to the Medicare program by 20, since these figures are on a 5 
percent sample. 
100%: $38,359  x  20 =  $770,780 
300%: $20,161  x  20 =  $403,220 
500%: $11,369  x  20 =  $227,380 
4.  Projected savings over 5 years. 
100%: $770,780  x  5 = $3,853,900 
300%: $403,220  x  5 = $2,016,100 
500%: $227,380  x  5 = $1,136,900 
Note: Our projection is conservative as it is based on 80 of the 302 claims from a 5 percent 
sample of the National Claims History file.  If we analyzed a larger portion of the 302 
claims our overpayment estimates of $14,212 - $48,174 would probably be much higher. 
Confidence Intervals 
Mark-up  Sample  Potential  +/- Lower 95%  Upper 95% 
Size  Overpayment  Confidence Interval  Confidence Interval 
100%  80  $770,780  $74,328  $696,452  $845,108 
300%  80  $403,220  $81,806  $321,410  $485,022 
500%  80  $227,380  $50,595  $176,785  $277,975 
Medicare Payments for Orthotic Body Jackets  14  OEI-04-97-00391  APPENDIX B 
Medicare Payments for Orthotic Body Jackets  15  OEI-04-97-00391  APPENDIX B 
cont 
Medicare Payments for Orthotic Body Jackets  16  OEI-04-97-00391