Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
EDICARE  PART  B ALLOWANCES  FO 
WOUND  CARE  SUPPLIES 
JUNE  GIBBS  BROWN 
Inspector  General 
JUNE  1998 
031-03-94-00793  OFFICE  OF INSPECTOR  GENERAL 
The mission  of the Office  of Inspector  General (OIG),  as mandated by Public  Law  95-452,  is to 
protect  the integrity  of the Department  of Health  and Human  Services programs  as well  as the 
health and welfare  of beneficiaries  served by them.  This statutory  mission  is carried out through 
a nationwide  program  of audits, investigations,  inspections,  sanctions, and fraud alerts.  The 
Inspector  General informs  the Secretary of program  and management problems  and recommends 
legislative,  regulatory,  and operational  approaches to correct them. 
Office  of Evaluation  and Inspections 
The Office  of Evaluation  and Inspections  (OEI)  is one of several components  of the Office  of 
Inspector  General.  It conducts  short-term  management  and program  evaluations  (called 
inspections)  that focus on issues of concern to the Department,  the Congress, and the public.  The 
inspection  reports provide  findings  and recommendations  on the efficiency,  vulnerability,  and 
effectiveness  of departmental  programs. 
OEIs Philadelphia  prepared this report under the direction  of Robert  A. Vito,  Regional  Inspector 
General and Linda  M. Ragone, Deputy  Regional  Inspector  General.  Principal  OEI staff 
included: 
REGION  HEADQUARTERS 
Nancy  J. Molyneaux,  Project  Leader  Lisa A. Foley, Program  Specialist 
Liana  Wu, Intern  Brian  Ritchie,  TSS 
To obtain copies of this report, please call the Philadelphia Regional Office at l-800-53 l-9562. 
Reports  are also available  on the World  Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  EXECUTIVE  SUMMARY 
PURPOSE 
This report identifies trends in Medicare Part B allowances for wound care supplies in 
1996. 
BACKGROUND 
Wound care supplies are protective covers or fillers  for openings on the body causedby 
surgical procedures, wounds, ulcers, or burns.  These supplies are covered under Medicare 
Part B when they are medically necessaryfor the treatment of surgical or debrided wounds. 
Wound care supply claims are processedby the four Durable Medical Equipment Regional 
Carriers (DMERCs). 
Changes in Medicare Part B CoveragePolicy for  Wound Care Supplies 
As of March 30, 1994, Medicare expandedits coverageof wound care supplies to include 
both primary  and secondarydressings. Primary dressingsare coverings applied directly to 
wounds or lesions on the skin or wounds causedby an opening to the skin.  Secondary 
dressings include adhesivetape, roll gauze, and bandages. The 1994 policy also removed 
time limits  on the coverageof wound care supplies and provided coverageregardless of 
type of debridement or what type of health care professional performed the procedure. 
On October 1, 1995, the four DMERCs implemented new policies concerning their 
coverage of theseproducts.  Included in thesepolicies are utilization  parametersfor wound 
care supplies.  In addition, modifiers to the codeswere added to identify the number of 
wound sites treated with wound care supplies. 
More recently, the Balanced Budget Act of 1997 included a provision which bundles 
payment for Part B servicesand supplies provided to beneficiaries covered under a Part A 
stay in a skilled nursing facility  (SNF) into a per diem payment.  Therefore, suppliers can 
no longer bill  separately for wound care supplies provided to beneficiaries in SNFs whose 
stays are covered under Part A.  Further, the Act requires servicesprovided to beneficiaries 
in nursing facilities not covered under a Part A stay to be billed directly by the nursing 
home rather than the supplier.  These provisions are to take effect July 1, 1998. 
FINDINGS 
Medicare Part B allowances for  wound care supplies have decreasedby nearly 50 percent. 
Allowances for wound care supplies decreasedby nearly 50 percent from $143 million  in 
1995 to $74 million  in 1996. 
i  The DMERCs have several measures in place to ident@ and prevent allowances for 
claims that exceedtheir guidelines for  wound care supplies. 
The DMERCs have utilized new policies, edit screens,supplier review and education, and 
post-payment audits to identify and prevent allowances for excessiveclaims for wound care 
supplies. 
Medicare Part B allowances for  wound care supplies exceeding DMERC guidelines in 
1996 also decreasedsignificantly. 
Allowances for wound care supplies exceeding DMERC parametersdropped from $65 
million  in 1995 to $7 million  in 1996, a decreaseof nearly 90 percent. 
CONCLUSION 
The allowances for wound care supplies have decreaseddramatically. The Health Care 
Financing Administration  (HCFA)  and the DMERCs have taken stepsto identify and 
prevent inappropriate payments.  Concerted efforts by HCFA,  DMERCs, and the Office of 
Inspector General (OIG) in the form of policy changes,utilization  review, and reports have 
contributed to the declines in Medicare allowances documented in this report.  The new 
policy provided utilization  parametersfor many products.  The reports made DMERCs and 
others concerned with claims processing aware of questionablebilling  practices.  As a 
result, $58 million  in excessiveallowances was savedbetween 1995 and 1996.  If these 
allowances continue to be held in check, 5 year savings of nearly $300 million  could be 
achieved. 
Some claims still exceededDMERC guidelines in 1996.  These claims may have been 
justified  through additional documentation from the supplier which we did not examine.  In 
addition, once implemented, the changesenactedin the Balanced Budget Act of 1997 may 
further reduce allowances for wound care supplies that exceedDMERC guidelines.  Part of 
the Act changesthe method for reimbursing SNFs.  Instead of paying for Part B services 
and supplies separately, thesecosts will  be bundled into a per diem payment at each facility 
for as long as the beneficiarys stay is covered under Part A.  Since a large portion of 
allowances (56 percent) for claims exceeding DMERC guidelines were made for 
beneficiaries in SNFs, this change in reimbursement methodology could have a significant 
impact on future billing  for wound care supplies.  However, to ensurethat appropriate per 
diem rates are established, excessiveallowances identified in 1995 must be taken into 
account.  Another changethat could affect future billing  is that claims for medical services 
and supplies, including wound care supplies, will  be billed by the nursing facilities 
themselvesrather than individual  suppliers. 
ii  AGENCY  COMMENTS 
The HCFA  reviewed the draft report and concurred with both our conclusion and the 
savings identified.  The full  text of their comments is in Appendix B. 
. . . 
111  TABLE  OF  CONTENTS 

PAGE 
EXECUTIVE  SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..I  1 

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4 

Dramatic decreasesin allowances for wound care supplies  . . . . . . . . . . . . . . . . . . 4 

l 
Stepstaken to identify and prevent excessiveallowances ....................  5 

l 
Decreasein claims exceeding DMERC guidelines ........................  6 

l 
CONCLUSION  ................................................  8 

APPENDICES 
A: Confidence Intervals  .........................................  A-l 
B: Agency Comments ...........................................  B-l  INTRODUCTION 
PURPOSE 
This report identifies trends in Medicare Part B allowances for wound care supplies in 
1996. 
BACKGROUND 
Wound care supplies are protective covers or fillers  for openings on the body causedby 
surgical procedures, wounds, ulcers, or burns.  These supplies are covered under Medicare 
Part B when they are medically necessaryfor the treatment of surgical or debrided wounds. 
Wound care supply claims are processedby the four Durable Medical Equipment Regional 
Carriers (DMERCs). 
Changes in Medicare Part B CoveragePolicy for  Wound Care Supplies 
As of March 30, 1994, Medicare expandedits coverageof wound care supplies to include 
both primary and secondarydressings. Primary dressings are coverings applied directly to 
wounds or lesions on the skin or wounds causedby an opening to the skin.  Secondary 
dressings include adhesivetape, roll gauze, and bandages. The 1994 policy also removed 
time limits on the coverageof wound care supplies.  In addition, the policy provided 
coverage regardlessof type of debridement or what type of health care professional 
performed the procedure.  Previously, wound care supplies would only be covered if the 
procedure was a sharp debridement (e.g., scalpel, laser) and was performed by a physician. 
Finally,  the policy removed the requirement for suppliers to submit a certificate of medical 
necessity. 
On October 1, 1995, the four DMERCs implemented new policies concerning their 
coverage of theseproducts.  Included in thesepolicies are utilization  parametersfor wound 
care supplies.  For example, certain types of supplies should not be billed in excessof one 
per day.  The guidelines statethat theseparametersmay be exceededif the supplier includes 
documentation to substantiatethe claim.  The new policy also included modifiers to the 
codes to identify the number of wound sites treated with wound care products. 
More recently, the Balanced Budget Act of 1997 included a provision which bundles 
payment for Part B servicesand supplies provided to beneficiaries covered under a Part A 
stay in a skilled nursing facility  (SNF) into a per diem payment.  Therefore, suppliers can 
no longer bill  separately for wound care supplies provided to beneficiaries in SNFs whose 
stays are covered under Part A.  Further, the Act requires servicesprovided to beneficiaries 
in nursing facilities not covered under a Part A stay to be billed directly by the nursing 
home rather than the supplier.  These provisions are to take effect July 1, 1998. 
1 
 Other  Office  of Inspector  General  Work 
The 1995 report Questionable  Medicare  Payments for  Wound Care Supplies  (OEI-03-94-
00790) found that $65 million  of the $98 million  allowed for wound care supplies between 
June 1994 and February 1995 was for questionableclaims.  This was one of a series of 
reports issued in 1995 concerning Medicare payments for wound care and provided baseline 
information  on questionable billings  which our current inspection will  employ for 
comparison purposes. Marketing  of Wound Care Supplies  (OEI-03-94-00791)  described 
supplier and nursing home practices that can lead to questionable allowances and examined 
issuesconcerning Medicare beneficiaries use of wound care supplies.  Wound Care 
Supplies:  Operation  Restore  Trust Data  (OEI-03-94-00792)  examined questionable billing 
practices and supplier and nursing home practices that can lead to questionablebilling  in the 
five Statestargeted by the anti-fraud initiative known as Operation Restore Trust. 
METHODOLOGY 
To learn what stepshave been taken to identify and prevent allowances for claims that 
exceedDMERC  guidelines for wound care supplies, we asked each DMERC to provide us 
with information  on their policies and proceduresconcerning wound care supplies.  We 
asked the DMERCs to describe both pre- and post-payment procedures to identify excessive 
claims as well as to evaluate the successof those procedures. 
To determine both the total amount allowed for wound care supplies and the number of 
claims exceeding the DMERC guidelines, we obtained a 1 percent sample of Part B claims 
for wound care supplies in 1996.  While our calculations of claims exceeding DMERC 
guidelines were basedon the 89 percent complete 1996 1 percent file,  estimatesof the total 
allowances were basedon the complete 1996 file. 
Based on 1 percent samplesof Part B claims from  1995 and 1996, we compared the total 
allowed for wound care claims in each year.  We applied DMERC guidelines implemented 
in October 1995 to the 1996 claims to identify excessiveallowances.  Specifically, we 
looked for claims that exceededDMERC utilization  parameters. We compared the 1996 
data with the data presentedin our previous report which covered June 1994 through 
February 1995.  Unlike our previous report, we were able to use new modifiers to 
determine the number of wounds being treated in calculating the extent of claims exceeding 
the DMERCs  utilization  parameters. However, we did not examine individual claims to 
determine if additional documentation was provided by the supplier.  As with our previous 
report we did not addressclaims for wound care supplies that should not be billed together. 
Our analysis of tape overutilization  varied considerably from that of our previous work.  In 
our earlier inspection, we determined the extent of tape overutilization basedon a sample of 
beneficiaries with allowances for tape.  We then determined the number of inches of tape 
that should have been allowed for each bandageand whether the claim exceededthat 
amount. 
2 
 For this report, we used the DMERC guidelines on the number of units of tape that could be 
billed with certain bandages. Basedon the number of units allowed for each bandageand 
the allowed amount for eachunit of tape, we determined which claims had allowances for 
tape which exceedthe DMERC parameters. 
This study was conducted in accordancewith the Quality  Standards for  Inspections  issued 
by the Presidents Council on Integrity  and Efficiency. 
3 
 FINDINGS 

MEDICARE  PART  B ALLOWANCES  FOR WOUND  CARE  SUPPLIES  HAVE 
DECREASED  BY NEARLY  50 PERCENT. 
In 1994, $98 million  was allowed for wound care supplies.  Allowances rose to $143 
million  in 1995.  However, expenditures for wound care supplies have dropped significantly 
to $74 million  in 1996, a decreaseof nearly 50 percent from 1995.  The number of 
beneficiaries receiving wound care supplies has also decreasedfrom 269,700 in 1995 to 
255,100 in 1996.  Average allowances per beneficiary have dropped from $769 in 1994 to 
$531 in 1995, and to $290 in 1996; a drop of 45 percent in 1 year.  Table A below shows 
the extent to which Medicare reimbursement has changedby type of wound care product. 
Table A. Changesin Allowances from  1995 to 1996 
WOUND CARE PRODUCT  TOTAL  ALLOWAN 
Transparent Film  $5.2  $2.6  -49% 
Hydrocolloid  Dressings  $5.6  $7.5  +35% 
Composite Dressings  $3.8  $1.6  -57% 
Contact Layer  $2  $0.0  -100% 
Total  $143.0  $73.8  -48% 
* Percentagesmay be slightly off due to rounding. 
Nearly half of the total allowances were made by DMERC C, the DMERC which processes 
the most claims.  The DMERC  C allowed $36 million  of the $74 million  in total allowances 
in 1996.  DMERCs A and B had the next highest allowances for wound care supplies, with 
$14.5 million  each. The DMERC  D had the lowest allowances with $9 million. 
4 
 The data for  1997 indicates that allowances for wound care supplies are remaining at or 
below 1996 levels.  Current data reveals 1997 allowances of $61 million. 
MEASURES  ARE  IN PLACE  AT  THE  DMERCs  TO IDENTIFY  AND PREVENT 
CLAIMS  EXCEEDING  THEIR  GUIDELINES  FOR WOUND  CARE  SUPPLIES. 
Edit Screens 
All  four DMERCs use edit screensto identify claims exceeding their guidelines for at least 
some of the wound care supply codes. These screenscapture servicesthat exceedthe 
DMERC  parametersfor review.  One DMERC has edit screensin place for all wound care 
codes. The remaining DMERCs have edit screensin place for certain supplies which they 
have determined to be vulnerable to abuse. These three DMERCs target five types of 
wound care supplies: foam dressings, hydrogel dressings, alginate dressings, hydrocolloid 
dressings, and gauze.  One DMERC also has a screento capture excessiveclaims for one 
type of wound filler. 
Flagged Suppliers 
Each of the DMERCs also has a system to suspendall of the claims from certain providers 
for detailed medical review.  According to the DMERCs,  some suppliers claims were 
flagged only for certain supplies.  In other cases,all of a suppliers claims were subject to 
review. 
Supplier Education 
The DMERCs have a variety of approachesfor educating suppliers about their wound care 
policies.  The DMERCs reported distributing newsletters and bulletins to make suppliers 
aware of their policies and guidelines for submitting wound care claims.  In addition, 
DMERCs conduct supplier seminars. Several DMERCs mentioned providing education for 
specific providers, particularly  if the supplier has submitted questionableclaims in the past. 
Post-payment Audits 
Several DMERCs reported conducting post-payment audits to verify that items were 
supplied and were medically necessary. If the audit uncovers questionableclaims, the case 
is turned over to the DMERC fraud unit.  If the DMERCs identify a significant 
overpayment to a particular supplier, the supplier may be required to submit to a post-
payment Comprehensive Medical Review. 
5 
 MEDICARE  PART  B ALLOWANCES  FOR WOUND  CARE  SUPPLIES 
EXCEEDING  DMERC  GUIDELINES  IN  1996 ALSO  DECREASED 
SIGNIFICANTLY. 
Allowances for wound care supplies exceeding DMERC  parameters dropped from $65 
million  in 1995 to $7 million  in 1996, a decreaseof nearly 90 percent.  It should be noted 
that DMERC  guidelines can be exceededif documentation justifying  the claim is provided. 
However, we did not review individual claims for such documentation. 
Table B below shows the decreasein excessiveallowances for wound care supplies.  More 
than half of the $7 million  allowed for claims exceeding DMERC  guidelines in 1996 were 
for three types of wound care supplies.  Hydrogel dressings, foam dressings, and specialty 
absorptive dressingsmade up 58 percent of all allowances for items exceeding the DMERC 
guidelines.  Of the $7 million  in claims exceeding DMERC  guidelines, nearly $4 million 
was for thesethree types of wound care supplies. 
Table B. Allowances for Claims Exceeding DMERC  Guidelines by Type of Supply 
WOUND CARE PRODUCT 
 ALLOWANCES  FOR CLAIMS  EXCEEDING DMERC 
GUIDELINES  (In Millions) 
JUNE 1994- 1996*  PERCENTAGE LESS 
FEBRUARY 1995 
Hydrogel Dressings 
 $24.8  $1.8  -92% 
Tape* 
 $9.8  $0.1  -99% 
Gauze 
 $7.8  $0.6  -92% 
Contact Layer 

Total 
 $64.5  $6.8  -89% 
* 1996 data was basedon the 89 percent complete 1 percent file. 
t  1995 and 1996 allowances were calculated using different methods. 
 Estimates of allowances for claims exceeding DMERC  guidelines were basedon the 
89 percent complete 1 percent file. 
6  Nearly 50 percent of all allowances for claims exceeding the DMERC  guidelines were 
found in five States. These Stateswere Florida, Texas, Illinois,  California,  and Michigan. 
Sixteen percent of the allowances ($1.1 million)  were for claims  for beneficiaries in 
Florida.  Three of the Stateswith the most allowances for items exceeding the DMERC 
guidelines in 1996 were also part of the group of eight statesthat made up nearly two-thirds 
of the questionable billings  found in our previous inspection. 
Most allowances for claims exceeding the DMERC guidelines for wound care supplies 
were for beneficiaries in SNFs or nursing facilities.  Nearly 80 percent of excessive 
allowances were made for beneficiaries residing in SNFs or nursing facilities.  Fifty-six 
percent of the allowances for claims exceeding DMERC guidelines were for beneficiaries in 
SNFs.  Our previous inspection found that 72 percent of such allowances were made for 
beneficiaries in SNFs or nursing facilities. 
7 
 CONCLUSION 
The allowances for wound care supplies have decreaseddramatically.  The Health Care 
Financing Administration  (HCFA) and the DMERCs have taken stepsto identify and 
prevent inappropriate payments.  Although it appearsthat some allowances for wound care 
supplies exceedthe DMERC guidelines, concerted efforts by HCFA,  DMERCs, and the 
Office of Inspector General in the form of policy changes,utilization  review, and reports 
have contributed to the declines in Medicare allowances documented in this report.  The 
new policy provided utilization  parametersfor many products.  The reports made DMERCs 
and others concerned with claims processing aware of questionable billing  practices.  As a 
result, $58 million  in excessiveallowances was savedbetween 1995 and 1996.  If these 
allowances continue to be held in check, 5 year savings of nearly $300 million  could be 
achieved. 
Once implemented, the changesenactedin the Balanced Budget Act of 1997 may further 
reduce allowances for wound care supplies that exceedDMERC guidelines.  Part of the Act 
changesthe method for reimbursing SNFs.  Instead of paying for Part B servicesand 
supplies separately, thesecosts will  be bundled into a per diem payment at each facility  for 
as long as the beneficiarys stay is covered under Part A.  Since a large portion of 
allowances (56 percent) for claims exceeding DMERC  guidelines were made for 
beneficiaries in SNFs, this change in reimbursement methodology could have a significant 
impact on future billing  for wound care supplies.  However, to ensure that appropriate per 
diem rates are establishedexcessiveallowances identified in 1995 must be taken into 
account.  Another changethat could affect future billing  is that claims for medical services 
and supplies, including wound care supplies, will  be billed by the nursing facilities 
themselvesrather than individual suppliers. 
AGENCY  COMMENTS 
The HCFA  reviewed the draft report and concurred with both our conclusion and the 
savings identified.  The full  text of their comments is in Appendix B. 
8 
 APPENDIX  A 
CONFIDENCE  INTERVALS 
We reported our projected totals by multiplying  by 100 the point estimatesin our samples. 
The point estimatesrepresenttotal allowances.  The tables below include columns 
containing the confidence intervals for each of the projected totals.  All  projections were 
made at the 95 percent confidence level. 
Table 1. 
TOTAL  1995 AND 1996 ALLOWANCES 
1995  1996 
Projected  Confidence  Projected Total  Confidence 
Total  Interval  Interval 
$143,248,682  +/- $5,390,705  $74,049,462  +I- $2,634,834 
Table 2. 
A-l  Table 3. 
TOTAL  1996ALLOWANCES BY DMERC 
DMERC  1996 
ProjectedTotal  Confidence 
Interval 
DMERC A  $14,514,813  +I- $1,237,777 
DMERC B  $14,581,662  +/- $1,019,319 
DMERC C  $36,181,879  +/- $1,919,587 
DMERC D  $8,771,112  +/- $750,292 
Table 4. 
EXCESSIVE ALLOWANCES 
JUNE 1994-FEBRUARY 1995  1996 
Projected  Confidence  Projected Total  Confidence 
Total  Interval 
$63,693,411  +/- $1,494,300 
EXCESSIVE ALLOWANCES BY WOUND CARE PRODUCT 
WOUND CARE  NE 1994- FEBRUARY 1995 
PRODUCT 
A-2 
 APPENDIX  B 
AGENCY  COMMENTS 
B-l  DEPARTMENT  OF HEALTH  &  HUMAN  SERVICES  Health  Care  Financing  Administration 
The  Administrator 
Washington,  D.C.  20201 
291998 
DATE:  A?# 
TO:  June Gibbs Brown 
Inspector General 
FROM:  Nancy-AnnMin  DeParle 
Administrator 
SUBJECT:  Office  of Inspector General (OIG)  Draft Report: Medicare  Part B 
Allowances  for Wound  Care Supplies,  (OEI-03-94-00793) 
We reviewed  the above-referenced report which  reflects a concerted effort  on the part of 
the Health  Care Financing  Administration,  Durable Medical  Equipment  Regional 
Carriers, and the Office  of Inspector General.  We are in agreement with  the report 
fmdings  and savings identified  as a result of these activities. 
Thank you for the opportunity  to review  and comment on this report. 
B-2