Testimony of:  
Daniel R. Levinson 
Inspector General 
U.S. Department of Health & Human Services  
______________________________________________________________________________ 
 
Good morning, Chairmen Waxman and Pallone, Ranking Members Barton and Shimkus, and 
distinguished Members of the Subcommittee.  I am Daniel Levinson, Inspector General of the 
U.S. Department of Health & Human Services.  I thank you for the opportunity to appear before 
you today to discuss the Office of Inspector Generals (OIG) efforts to combat health care fraud, 
waste, and abuse, specifically as it relates to medical equipment and supplies. 
 
My testimony today will focus on OIGs body of work and recommendations related to durable 
medical equipment, prosthetics, orthotics, and supplies (DMEPOS).  Over the past three decades, 
OIG has identified significant levels of fraud and abuse related to this important Medicare 
benefit.  I will describe OIGs strategy for strengthening the integrity of the health care system in 
the context of the five principles OIG has identified as essential to combating health care fraud.  I 
also will discuss recent improvements to ensure the integrity of the DMEPOS benefit.  Finally, I 
will discuss additional corrective action needed to ensure that necessary DMEPOS are provided 
to beneficiaries appropriately, efficiently, and without fraud. 
 
OIGs five-principle strategy combats health care fraud, waste, and abuse 
 
Fraud, waste, and abuse in the Medicare and Medicaid programs cost taxpayers billions of 
dollars each year and put beneficiaries health and welfare at risk.  The impact of these losses 
and risks is exacerbated by the growing number of people served by these programs and the 
increased strain on Federal and State budgets.  Therefore, it remains critical that oversight of 
these essential health care programs be strengthened.  To combat health care fraud, a 
comprehensive strategy of prevention, detection, and enforcement is required.  To that end, OIG 
has identified five principles of an effective health care integrity strategy: 
 
1.  Enrollment:  Scrutinize individuals and entities that want to participate as providers and 
suppliers prior to their enrollment or reenrollment in the health care programs. 
2.  Payment:  Establish payment methodologies that are reasonable and responsive to 
changes in the marketplace and medical practice. 
3.  Compliance:  Assist health care providers and suppliers in adopting practices that 
promote compliance with program requirements. 
4.  Oversight:  Vigilantly monitor the programs for evidence of fraud, waste, and abuse. 
5.  Response:  Respond swiftly to detected fraud, impose sufficient punishment to deter 
others, and promptly remedy program vulnerabilities. 
 
No Medicare benefit area underscores the importance of these principles more than durable 
medical equipment and supplies.  With respect to the first principle, enrollment, we have found 
that low barriers to entry and weak oversight and enforcement of enrollment standards make 
DMEPOS a compelling target for fraudulent suppliers.  It is easy to become a DMEPOS 
supplier, relative to other types of providers, such as physician practices and hospitals, which 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  require extensive licensure and credentialing.  In many geographic areas, DMEPOS suppliers are 
abundant.  Regarding the second principle, payment, OIG reviews have consistently revealed 
that Medicare reimbursement rates for certain DMEPOS are significantly misaligned with 
market prices.  This makes DMEPOS fraud particularly lucrative, further attracting bad actors to 
the system.  These problems must be addressed to safeguard the Medicare Trust Fund from fraud 
and abuse.   
 
These vulnerabilities can be offset through efforts to implement the final three principles: 
compliance, oversight, and response.  For OIGs part, we strive to educate and provide assistance 
to the many legitimate suppliers that seek to comply with Medicare laws and regulations.  We 
conduct oversight reviews of the DMEPOS benefit to identify fraud, waste, and abuse and 
recommend actions to the Centers for Medicare & Medicaid Services (CMS) to better safeguard 
the integrity of the program.  Finally, in partnership with the Department of Justice (DOJ), we 
work to ensure that once detected, fraud schemes are shut down and perpetrators are prosecuted. 
 
Medicare provides DMEPOS to more than 11 million beneficiaries, at a cost of more than 
$10 billion per year 
 
To provide context, I will first offer some background about the Medicare DMEPOS benefit.   
 
Medicare Part B provides for coverage of DMEPOS if the equipment is necessary and reasonable 
for treatment of an illness or injury or to improve the functioning of a malformed body member.  
Durable medical equipment (DME) is defined as equipment that serves a medical purpose, can 
withstand repeated use, is generally not useful in the absence of an illness or injury, and is 
appropriate for use in the home.  DME includes items such as oxygen equipment, wheelchairs, 
nebulizers, walkers, and other equipment that physicians prescribe for home use.  Prosthetic 
devices are devices needed to replace a body part or function, such as artificial limbs and cardiac 
pacemakers.  Orthotic devices include leg, arm, back, and neck braces that provide rigid or 
semirigid support to weak or deformed body parts or restrict or eliminate motion in a diseased or 
injured part of the body.  Medicare-reimbursed supplies are items that are used in conjunction 
with DME, such as drugs used for inhalation therapy, or are items that need to be replaced on a 
frequent (usually daily) basis, such as surgical dressings.   
 
Medicare pays for DMEPOS through fee schedules.  These fee schedules are based on the 
average amount that suppliers charged on Medicare claims in 1986 for individual DMEPOS 
items and are adjusted for inflation.  Medicare pays 80 percent of the cost of a DMEPOS item up 
to the fee schedule amount, while the beneficiary is responsible for paying the remaining 20 
percent.   
 
Medicare pays for DMEPOS claims on behalf of more than 11 million beneficiaries.  In 2009, 
Medicare payments for DMEPOS exceeded $10 billion and represented approximately 2 percent 
of all Medicare expenditures for that year.1  In 2009, nearly 100,000 DMEPOS suppliers were 
enrolled in Medicare.   
                                                 
1 See Improper Medicare FFS Payments Report November 2009, available at 
http://www.cms.gov/CERT/Downloads/CERT_Report.pdf .  
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  To be eligible for Medicare reimbursement, all DMEPOS suppliers must enroll in the program 
and must comply with 26 supplier standards.  These standards are designed to ensure that 
suppliers are legitimate.  Standards include but are not limited to the following: 
 
  The supplier must maintain a physical facility. 
  The facility must be accessible during business hours.  
  The facility must have a visible sign. 
  The suppliers hours of operation must be posted.  
  The supplier must maintain a primary business telephone listed under the name of the 
business. 
 
The National Supplier Clearinghouse (NSC), under contract with CMS, is responsible for 
verifying initial and ongoing compliance with the 26 supplier standards and issuing Medicare 
billing numbers to DMEPOS suppliers.  Also, DMEPOS suppliers must be accredited prior to 
submitting applications and must renew their applications every 3 years.  For most suppliers, 
NSC conducts an unannounced site visit before approving applicants and granting Medicare 
billing privileges.  NSC may also conduct an unannounced reenrollment site visit every 3 years.  
Site visits may take place at any other time as deemed necessary, but generally site visits are 
made only when suppliers enroll and reenroll in the Medicare program. 
 
To participate in the Medicare DMEPOS Competitive Bidding Program, DMEPOS suppliers 
must continue to meet the 26 supplier enrollment standards, which also include being accredited 
by a CMS-approved accreditation organization, fulfilling all licensing requirements, and 
obtaining a surety bond. 
 
Enrollment:  It has been too easy for fraudulent DMEPOS suppliers to obtain Medicare 
billing privileges 
 
The enrollment standards that I have described are intended to ensure that only legitimate and 
qualified businesses are enrolled as Medicare suppliers.  Unfortunately, we have found that all 
too often, unscrupulous suppliers are able to gain entry to the system and defraud Medicare.  For 
example, in southern California, an individual defrauded the Medicare program by establishing 
various fraudulent DMEPOS companies, primarily by using street gang members to pose as 
nominee owners of his sham companies.  He paid each gang member $5,000 to establish bank 
accounts and to fill out the Medicare paperwork.  The nominee owners submitted claims for 
reimbursement to Medicare for power wheelchairs and orthotic devices that were not medically 
necessary or legitimately prescribed by a physician.  To date, nine of the gang members and 
associates have been indicted for charges including health care fraud and providing false 
statements to Government agencies.  The gang members involved in this fraud had previously 
been convicted of charges ranging from assault on a peace officer to numerous narcotics 
violations.  Thus far in fiscal year 2010, OIG investigations of DMEPOS fraud have resulted in 
more than 80 convictions with ordered recoveries of more than $90 million. 
 
OIG has identified systemic enrollment vulnerabilities for more than a decade.  Since 1997, OIG 
has issued several reports that have assessed supplier compliance with standards by conducting 
unannounced site visits.  We have consistently found that Medicare enrollment standards and 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  oversight are not sufficient to prevent noncompliant and sham suppliers from obtaining Medicare 
provider numbers and billing privileges.  Some Medicare-enrolled suppliers fail to maintain even 
the most basic Medicare standards  for example, maintaining a physical facility, or being open 
during reasonable business hours. 
 
In 2006, we conducted unannounced site visits to 1,581 DME suppliers in south Florida after 
learning of allegations of noncompliance with Medicare standards in that geographic area.2  We 
found that 31 percent of these DME suppliers did not maintain physical facilities or were not 
open and staffed during business hours.  Another 14 percent of suppliers were open and staffed 
but did not meet additional requirements we reviewed.  We recommended several steps that 
CMS could take to strength the provider enrollment process. 
 
In 2007, OIG expanded its review of DMEPOS supplier enrollment by conducting unannounced 
site visits to 905 suppliers in Los Angeles County.3  We found that 13 percent of suppliers did 
not maintain a physical facility or were not open when we visited and that an additional 9 percent 
did not meet additional standards we reviewed.  We again recommended that CMS strengthen 
the supplier enrollment process and ensure that suppliers meet Medicare supplier standards.  In 
response to our recommendations, CMS stated that, among other actions, it had increased the 
frequency of unannounced site visits; begun targeted background checks of suppliers in high-
fraud areas; and implemented a mandatory accreditation process, in part, to prepare for the 
Competitive Bidding Program. 
 
Payment:  Medicare pays too much for certain DME items, resulting in waste for legitimate 
claims and making fraudulent billing more lucrative 
 
It is imperative that Medicare payments for items and services be reasonable and consistent with 
market prices.  When reimbursement methodologies do not respond effectively to changes in the 
marketplace, the program and its beneficiaries bear the cost in the form of increased Trust Fund 
expenditures, increased out-of-pocket costs for beneficiaries, and higher Part B premiums.  
Misalignment between payments and market prices and costs can also lead to excessive profits, 
which makes DME in particular a lucrative target for criminals, who can even reinvest some of 
their profits in kickbacks for additional referrals.  If Medicare acted as a more prudent purchaser 
of DME, the Trust Fund and beneficiaries could save billions of dollars lost to waste, fraud, and 
abuse. 
 
OIG reviews over the past two decades have determined that for certain items, the program pays 
too much.  We have identified payment misalignments for a wide variety of DMEPOS items, 
ranging from power wheelchairs and oxygen equipment to wound care supplies and saline 
solution.  For example, we found that in 2007, Medicare allowed, on average, about $4,000 for 
standard power wheelchairs that cost suppliers, on average, about $1,000 to acquire.  Based on 
these findings, OIG recommended that CMS better align payment amounts with acquisition costs 
                                                 
2 South Florida Suppliers Compliance With Medicare Standards:  Results From Unannounced Visits (OEI-03-07-
00150).  March 2007. 
3 Los Angeles County Suppliers Compliance With Medicare Standards:  Results From Unannounced Site Visits 
(OEI-09-07-00550).  February 2008. 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  by (1) using information from the Competitive Bidding Program, (2) seeking legislation to 
ensure that fee schedule amounts are reasonable and responsive to market changes, or (3) using 
its inherent reasonableness authority.   
 
This pricing disparity also makes wheelchairs an attractive target for fraud.  We have found that 
fraudulent suppliers often supply unneeded and unwanted wheelchairs to beneficiaries because 
the payment from Medicare exceeds their purchase costs by such a large margin that it is 
lucrative to supply unnecessary wheelchairs.   
 
In 2009, we found significantly misaligned prices for negative pressure wound therapy pumps, a 
type of DME used to treat serious wounds.  In 2007, Medicare reimbursed suppliers for these 
pumps based on a purchase price of more than $17,000.  We found that by comparison, suppliers 
paid, on average, approximately $3,600 for new pump models.  The reason for this disparity lies 
in the history of this item and Medicares inability to keep pace with market prices.  When 
Medicare first started covering the pumps in 2001, it covered only one model, which was 
manufactured and supplied by only one company.  In 2005, Medicare expanded its coverage to 
include several new pump models manufactured by other companies.  While new pump models 
were significantly less expensive than the original model, Medicare continued to reimburse 
suppliers for these new pumps based on the original pump's purchase price.  OIG recommended 
that to correct this pricing disparity, CMS use its inherent reasonableness authority to reduce the 
reimbursement amount for the pump and include the pump in the Competitive Bidding Program.   
 
In addition, for over 20 years, OIG has identified and reported on misalignments in payments for 
home oxygen equipment.  In 2006, we reported that Medicare allowed approximately $7,200 in 
rental payments over 36 months for an oxygen concentrator that cost approximately $600 to 
purchase.  Beneficiary coinsurance alone for renting an oxygen concentrator for 36 months 
exceeded $1,400  more than double the purchase price.  The same study found that maintenance 
and servicing requirements for oxygen concentrators are minimal, making the difference between 
Medicare payments for rentals and acquisition cost more troubling.  Since our report was issued, 
CMS has changed its payment methodology for home oxygen equipment to more accurately take 
into account maintenance and servicing costs, although we continue to recommend that the 
statutory rental period be shortened to from 36 to 13 months.   
 
Compliance:  Compliance programs and education can assist legitimate DME suppliers in 
billing appropriately 
 
While much of OIGs work focuses on unscrupulous suppliers, they are the minority.  Most 
DMEPOS suppliers are legitimate suppliers seeking to provide necessary items to beneficiaries.  
A key part of OIGs health care integrity strategy is to educate and assist these well-intentioned 
providers in fully complying with Medicare laws and regulations. 
 
OIG is planning a Provider Compliance Training Initiative to bring together representatives from 
a variety of government agencies to deliver compliance training at no cost to local provider, 
legal, and compliance communities.  The training sessions are scheduled to be held in 2011 in 
several locations across the country.  We aim to educate communities about fraud risk areas 
uncovered by OIGs work and to share compliance best practices so that providers can 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  strengthen their own compliance efforts and more effectively identify and avoid illegal schemes 
that may be targeting their communities.  This initiative will supplement OIGs extensive written 
guidance in these areas that is available on our Web site, including our compliance program 
guidance tailored specifically to the DME sector.  We believe these efforts to educate provider 
communities, including DME suppliers, can help foster a culture of compliance and protect the 
Federal health care programs and beneficiaries.     
 
OIG also incorporates compliance requirements into the resolution of certain civil and 
administrative cases that the Government has settled with DMEPOS suppliers.  Frequently, the 
wrongdoing in these cases involves failure to support the medical necessity of the DMEPOS 
billed to Medicare.  In such cases, OIG may enter into corporate integrity agreements with these 
suppliers.  Under a corporate integrity agreement, the supplier must implement a compliance 
program, train employees, and hire an outside auditor to annually test a sample of its claims.  
This impetus to devote resources to compliance often leads to improved attention to and 
compliance with Medicare laws governing reimbursement and saves the Government money and 
resources in combating fraud.  We are hopeful that the compliance programs mandated by the 
Affordable Care Act (ACA) will similarly improve compliance in the industry.  
 
Oversight:  Vigilant monitoring through data analysis and claims review is critical to 
preventing and detecting fraud, waste, and abuse 
 
In addition, it is critical that the Government vigilantly monitor the Medicare program to swiftly 
detect and respond to fraud, waste, and abuse when it does occur.  Recently, innovative uses of 
information technology and data analysis have dramatically enhanced the Governments ability 
to take a proactive approach to fighting fraud and abuse.  Finally, a thorough review of claims 
and supporting documentation is sometimes necessary to determine whether DMEPOS claims 
were appropriately paid.  Improper payments are a serious issue for DMEPOS in particular.  In 
2009, CMS reported an overall Medicare fee-for-service error rate of 7.8 percent; however, the 
payment error rate for Medicare DMEPOS claims was 51.9 percent. 
 
In 2009, OIG organized the multidisciplinary, multiagency Advanced Data Intelligence and 
Analytics Team (Data Team) to support the work of the Health Care Fraud Prevention and 
Enforcement Action Team (HEAT).  The Data Team is composed of experienced OIG special 
agents, statisticians, programmers, auditors, analysts, and DOJ analysts.  Their work combines 
sophisticated data analysis with criminal intelligence gathered from special agents in the field to 
more quickly identify health care fraud schemes, trends, and geographic hot spots to support 
the efficient and effective deployment of law enforcement resources.    
 
Such advanced data analysis also enables OIG to alert CMS to patterns of potential fraud and 
abuse so that it can take appropriate prevention and oversight measures.  For example, an OIG 
claims analysis revealed that in 2007, Medicare allowed more than $6 million for DME claims 
with invalid referring physician identifiers and $28 million for claims with inactive physician 
identifiers.  Based on this analysis, we recommended that CMS update its claims-processing 
system to ensure that referring physician identifiers are valid and active.  Had this capability 
been in place in 2007, Medicare could have avoided $34 million in improper payments. 
 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  Similarly, in an April 2009 study, OIG reported that south Florida accounted for 17 percent of 
Medicares total spending for inhalation drugs in 2007, although only 2 percent of Medicare 
beneficiaries live in that area.  Medicare Part B covers inhalation drugs when they are used in 
conjunction with DME.  On 62 percent of these south Florida claims, the beneficiaries did not 
have Medicare-billed office visits or other services in the preceding 3 years with the physicians 
who reportedly prescribed the drugs.  Using claims edits to detect these and other suspicious 
patterns in real time could greatly reduce vulnerability to fraud and abuse by preventing and 
allowing swift recovery of improper payments.   
 
OIG has also conducted numerous in-depth reviews of DMEPOS claims and background 
documentation to determine whether items were provided and claims were paid appropriately.  
We have consistently found patterns of overutilization and failure to comply with Medicare 
requirements.  For example, a recent review determined that 60 percent of Medicare claims for 
standard and complex rehabilitation power wheelchairs that beneficiaries received in the first 
half of 2007 did not meet documentation requirements.  These claims accounted for $112 million 
in improper Medicare payments.  Beneficiaries were responsible for paying $22 million of this 
amount.  In another review, OIG examined whether suppliers that had expressly indicated 
(through a claims modifier) that they maintained required documentation on file in fact had that 
documentation.  Most suppliers did not, resulting in estimated $126 million in improper 
payments. 
 
Similarly, in 2009 we reviewed claims for pressure reducing support surfaces, which are used to 
treat and prevent bedsores.  We found that for the first half of 2007, 86 percent of claims for 
certain categories of support surfaces did not meet Medicare coverage criteria.  This amounted to 
an estimated $33 million in inappropriate payments during that time.  Errors included 
undocumented or insufficiently documented claims, medically unnecessary claims, and other 
billing errors. 
   
Response:  OIG-DOJ Strike Forces have responded swiftly and effectively to DME fraud 
schemes; CMS efforts to remedy program vulnerabilities are also essential 
 
OIG and DOJ are working in partnership to accelerate the Government's response to fraud 
schemes by reducing the time needed to detect, investigate, and prosecute fraud.  We have 
deployed Strike Forces in geographic hot spots with high concentrations of Medicare fraud.  
Each Strike Force team includes agents from OIG and the Federal Bureau of Investigation and 
attorneys from DOJ and often State and local law enforcement.  The team uses data analysis, 
combined with field intelligence from our special agents, to identify criminals committing health 
care fraud and to track fraud trends. 
 
The Strike Force model has proven highly successful, particularly for combating DMEPOS 
fraud, and is a powerful antifraud tool.  This collaborative, data-driven model has significantly 
reduced the time it takes from fraud detection to prosecution.  Strike Forces also have a powerful 
deterrent effect.  For example, according to Medicare data, in the first 12 months of establishing 
our Strike Force in Miami, Medicare billing for DMEPOS in Miami decreased by 63 percent, a 
drop of more than $1.7 billion, compared to billing in the year before.   
 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  Unfortunately, some of CMSs administrative efforts to shut down fraudulent DMEPOS 
suppliers have met challenges.  For example, as a result of the OIG site visits in south Florida, 
CMS revoked the billing numbers of 491 suppliers.  However, OIG found that nearly half of 
these suppliers appealed and received hearings; hearing officers reinstated the billing privileges 
for 91 percent of these suppliers.  Two-thirds of suppliers whose billing privileges were 
reinstated have subsequently had their privileges revoked or inactivated.  Further, the U.S. 
Attorneys Office has indicted 18 individuals connected to 15 of the 222 reinstated suppliers.  To 
date, 16 of these 18 defendants have been convicted and were each ordered to pay between 
$25,000 and $11 million in restitution.  These 16 defendants were also sentenced to jail terms 
ranging from 1 to 4 years.  Improvements are needed to ensure that once identified, fraudulent 
suppliers are not allowed to reenter the program and continue to defraud Medicare. 
 
CMS has taken several positive steps to respond to DMEPOS fraud vulnerabilities by 
implementing program safeguards.  For example, CMSs most significant recent action was to 
require that all DMEPOS suppliers obtain accreditation and purchase surety bonds that protect 
Medicare in the event that a supplier is unable to make restitution for improper payments.  Both 
of these requirements were implemented in preparation for the Competitive Bidding Program, 
although they apply to DMEPOS suppliers more broadly.  CMS also reports that it is enhancing 
its field operations to more closely monitor areas of high vulnerability, including DMEPOS 
fraud.  Lastly, a final rule published at the end of August strengthens enrollment standards in a 
variety of ways, including requiring that DMEPOS suppliers be open at least 30 hours per week 
and requiring that they maintain an appropriate physical facility that is accessible to the public. 
 
The Affordable Care Act establishes new authorities and requirements to strengthen 
enrollment scrutiny, oversight, and response to address fraud vulnerabilities 
 
The ACA provides the Secretary with new authorities and imposes new requirements consistent 
with OIGs health care integrity strategy and recommendations.  These include promoting data 
access and integrity; requiring actions to strengthen provider enrollment standards; promoting 
compliance with program requirements; and enhancing program oversight, including requiring 
greater reporting and transparency.  Among the most significant statutory changes are provisions 
requiring that only Medicare-enrolled providers may order or prescribe DMEPOS for Medicare 
beneficiaries; authorizing enhanced, risk-based screening for Medicare providers and suppliers; 
and permitting CMS to impose temporary enrollment moratoriums on providers and suppliers if 
necessary to prevent and combat fraud.   
 
Specifically, the ACA requires the Secretary to establish procedures for screening providers and 
suppliers participating in Medicare, Medicaid, and the Childrens Health Insurance Program 
(CHIP).  The Secretary is to determine the level of screening according to the risk of fraud, 
waste, and abuse with respect to each category of provider or supplier.  At a minimum, providers 
and suppliers will be subject to licensure checks.  The ACA also authorizes the Secretary to 
impose additional screening measures based on risk, including fingerprinting, criminal 
background checks, multi-State database inquiries, and random or unannounced site visits. 
 
Ensuring the integrity of information is also crucial, and the ACA provides new accountability 
measures toward this end.  The ACA authorizes OIG to exclude from the Federal health care 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  programs entities that provide false information on any application to enroll or participate in a 
Federal health care program.  The ACA also provides new civil monetary penalties for making 
false statements on enrollment applications; knowingly failing to repay an overpayment; and 
failing to grant timely access to OIG for investigations, audits, or evaluations. 
 
Changes to align payments for DMEPOS are still needed to address waste, fraud, and 
abuse 
 
Although these new ACA requirements and CMS program integrity efforts represent important 
steps forward in combating fraud in the DMEPOS program, they do not fully address all 
vulnerabilities associated with this important benefit.  Most notably, they do not fix 
misalignments between Medicare payments and market prices.  The program will continue to be 
vulnerable to excessive costs and bad actors will continue to be attracted by the prospect of 
excessive profits so long as the payment misalignments highlighted in OIGs work persist.   
 
OIGs body of work has consistently highlighted the need for Medicare to change payment 
methodologies in order to pay appropriately for DMEPOS.  The ongoing price disparities that 
OIG has found exist largely because payments are based on charge data submitted to the 
program in 1986.  Although CMS has the authority to make certain adjustments to the DMEPOS 
fee schedule, congressional action would be needed to reform the DMEPOS fee schedule to align 
initial payment rates more closely with market prices and enable CMS to adjust payments in 
response to changes in market prices.  Competitive bidding is one mechanism to better align 
payments with market prices; however, the Competitive Bidding Program has not been 
implemented yet and not all DMEPOS items will be subject to competitive bidding. 
 
The Competitive Bidding Program is one potential solution to address payment 
misalignments and further facilitate program integrity oversight 
 
The Competitive Bidding Program has the potential to address vulnerabilities identified by 
OIGs work.  Primarily, it holds the promise to address payment vulnerabilities for the items 
subject to competitive bidding by better aligning reimbursement for these items with market 
prices.  It also includes important enrollment safeguards, such as licensure requirements, and 
provides a mechanism for ensuring that CMS has better information about the suppliers when 
granting billing privileges.  Finally, it may facilitate oversight efforts by limiting the pool of 
providers to only those who have been approved through the competitive bidding process and 
pass rigorous enrollment standards. 
 
It is critical that these and other program vulnerabilities be addressed, be it through competitive 
bidding or otherwise.  Whatever processes are implemented, the end result must be Medicare 
payments that appropriately compensate providers, ensure adequate access for beneficiaries, are 
responsive to market changes, and allow Medicare to use its size to be a prudent purchaser of 
services.  If the Competitive Bidding Program is not implemented as currently planned, other 
solutions to these problems must be found.  Otherwise, the Medicare program and its 
beneficiaries will continue to lose scarce health care dollars to fraud, waste, and abuse.   
 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010                                                                                                  
  Conclusion 
 
I appreciate the opportunity to appear before you today to discuss OIGs substantial body of 
work on fraud, waste, and abuse associated with Medicares DMEPOS benefit.  OIG has a long 
history of analyzing these issues from investigative, audit, evaluation, and compliance 
standpoints.  We have consistently made recommendations to correct the vulnerabilities we have 
identified and, often, CMS or Congress has implemented changes.  Despite this, we continue to 
find significant problems, often to an alarming extent.  We remain committed to any effort that 
will address the issues we have identified.  The Medicare Competitive Bidding Program holds 
promise to address problems associated with supplier enrollment and payment misalignments.  If 
policymakers consider a different course, it remains imperative to take prompt, appropriate 
corrective action to ensure that the DMEPOS benefit is protected from fraud, waste, and abuse.  
If competitive bidding or other action is implemented, my office remains committed to effective 
monitoring to ensure that beneficiaries continue to have access to reasonably priced, medically 
necessary, quality services.  
 
Thank you for your commitment to ensuring the integrity of the Medicare program.  I would be 
happy to answer any questions. 
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House Committee on Energy and Commerce, Subcommittee on Health 
September 15, 2010