Department  of  Health  and  Human  Services 
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MEDICARE  SERVICES  PROVIDED  TO

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0EI-06-92-O0863  OFFICE  OF  INSPECTOR  GENERAL 
The mission of the Office of Inspector  General  (OIG), as mandated  by Public Law 95-
452,  as amended,  is to protect  the integrity  of the Department  of Health  and Human 
Services  (HHS) programs  as well as the health and welfare of beneficiaries  served by 
those programs.  This statutory mission is carried  out through  a nationwide  network  of 
audits,  investigations,  and inspections conducted by three OIG operating  components:  the 
Office of Audit Services,  the Office of Investigations,  and the Office of Evaluation  and 
Inspections.  The OIG also informs the Secretary  of HHS of program  and management 
problems  and recommends  courses to correct  them. 
OFFICE  OF  AUDIT  SERVICES 
The OIGS Office of Audit Services  (OAS) provides  all auditing services  for HHS,  either 
by conducting  audits with its own audit resources  or by overseeing  audit work done by 
others.  Audits examine  the performance  of HHS programs  and/or  its grantees  and 
contractors  in carrying  out their respective  responsibilities  and are intended to provide 
independent  assessments  of HHS programs  and operations  in order  to reduce  waste,  abuse, 
and mismanagement  and to promote  economy  and efficiency  throughout  the Department. 
OFFICE  OF  INVESTIGATIONS 
The OIGS Office of Investigations  (01) conducts criminal,  civil,  and administrative 
investigations  of allegations  of wrongdoing  in HHS programs  or to HHS beneficiaries  and 
of unjust enrichment  by providers.  The investigative  efforts of 01 lead to criminal 
convictions,  administrative  sanctions,  or civil money pemlties,  The 01 also oversees 
State Medicaid  fraud control units which investigate  and prosecute  fraud and patient  abuse 
in the Medicaid  program. 
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 findings and recommendations  contained 
in these inspection  reports  generate  rapid,  accurate,  and up-to-date  information  on the 
efficiency,  vulnerability,  and effectiveness  of departmental  programs.  This report  was 
prepared  under  the direction  of Ralph Tunnell,  Regional  Inspector  General  (Dallas)  and 
Chester  Slaughter,  Deputy Regional  Inspector  General  (Dallas).  Assisting  Dallas  staff 
with this report  were staff from OEI Central  Office. 
Dallas Staff  OEI Central Office 
Leah Bostick  Cathaleen Ahem 
Kevin Golladay  Brian Ritchie 
Pamela Smith  Jennifer Antico 
For further information  contact:  Ralph Tunnell at 214/767-3310  or 1/800-848-8960.  Department  of  Health  and  Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
MEDICARE  SERVICES  PROVIDED  TO 
RESIDENTS  OF  SKILLED  NURSING 
FACILITIES 
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OCTOBER  1994
0EI-06-92-O0863  EXECUTIVE  SUMMARY 
PURPOSE 
Thepurpose  ofthis  study was l)todescribe  the Medicare  Supplemental  Medical 
Insurance  (SMI) services provided  to residents  in Skilled Nursing  Facilities  (SNFS) and 
2) to identifi  and discuss known or potential  program  Vulnerabilities,  as well as issues 
involving  SNF residents  requiring  further review. 
BACKGROUND 
Medicare  provides  extended  care to qualified beneficiaries  in a Medicare-participating 
SNF.  The extended  care benefit was designed to reduce the length of stay in acute care 
hospitals  and is covered  by the Hospital Insurance  (HI) program.  In addition to receiving 
services  through  the HI extended care benefit,  residents may receive  services  covered 
through  the SMI program,  such as physician  care and outpatient  services. 
Data presented  in this report  were obtained from a one-percent  sample of all Medicare 
beneficiaries  receiving  Medicare  extended care benefits during  1991 or 1992.  Discussions 
of program  vulnerabilities  are drawn from our review  of applicable  law and regulations 
and analysis  of the services  depicted  in our sample.  Additionally,  we reviewed  findings 
from prior  Office of Inspector  General  (OIG) reviews  and fraud alerts for evidence 
illustrating  program  vulnerabilities, 
DESCRIPTION  OF  EXTENDED  CARE  BENEFITS  AND  SMI  SERVICES 
Charges in excess of $413  million  in 1991 and $517 million  in 1992 were made for  SiWI 
services provided  to Medicare  bene$lciamesreceiving  extended  care benejiks in !WFS. 
	 These charges  represented  seven percent  of the total charge  for medical  care  for 
beneficiaries  receiving  extended  care services  in a SNF (total charges  for extended 
care  (including  SMI) were  $5.9 billion  in 1991 and $7.6 billion  in 1992). 
	 Total  charges  for extended care  (including SMI) were nearly  equally divided 
between  accommodations  (room and board) and ancillary/SMI  charges. 
	 Of the ancillary/SMI  charges,  rehabilitation  was the largest  cost,  with SMI 
providing  only a very small part (three percent)  of the total charges. 
Facilities  with less than 50 Medicare  cerhfied  SNF beds accounted for  the majority  of 
covered  admissions  and covered days of care. 
i  Most SNF stays (82 percent)  resulted in the use of SW  services; yet, few  categories  of 
services  were predominant. 
	 Evaluation  services  was the only category  of SMI service received  by a majority 
(68 percent  in 1991 and 69 percent  in 1992) of SNF residents  during  their covered 
stay. 
c	 Although  evaluation  services were present  in more residents  stays, the category  of 
medical  equipment,  supplies,  prosthetics,  and orthotics  accounted  for the most 
charges  ($98 million  in 1991 and $112 million in 1992). 
	 Approximately  24 percent  of beneficiaries  received  outpatient  services  during  their 
SNF Shy. 
As expected,  residents  with longer stays were more likely to use more SMI-covered 
services. 
States utilimon  of SMI vanedconsiderably.  This vmidion  existed in the percentage 
of SNF stays having SLW services,  the average  bed &y  cost, and the types of services 
and providers. 
PROGRAM  VULNERABILITIES 
Services  covered  under the HI extended care benejit  may be shifted to the SMI program, 
creating  added beneficiary  liabili~. 
The SNFS which shift services  from the HI program  to the SMI program  may avoid 
Medicare  limits on SNF payment  and,  if the shifted services are covered  by SMI,  increase 
the costs to residents  and, ultimately,  the tax payer.  Cost shifting may occur  for two 
distinct  types of services:  1) routine  services  (which include the nursing care,  bed and 
board,  and certain  other labor and supply costs) and 2) certain  ancillary  services. 
Examples  include: 
	 As much as $44 million  in 1991 and $55 million  in 1992 were charged  to SMI for 
rehabilitation  therapy.  Rather than the SNF providing  the ancillary  services  and 
charging  them to the HI program,  third party providers  billed the therapy  through 
the SMI program. 
c	 Over $98 million  in 1991 and over $112 million  in 1992 were charged  to SMI for 
supplies and equipment,  which is included as either routine  or ancillary  costs in the 
HI program  when billed by the SNF.  Enteral  and parenteral  nutrition  represent  the 
bulk of shifted costs,  at over half of the total ($60 million  in both  1991 and  1992). 
One reason  SNFS are able to shift some types of ancillary  costs to the SMI program  is 
because  section  1861(h) of the Social Security Act permits  each facility to determine 
whether  certain  services  are provided  as extended care services.  Consequently,  the 
ii  extended  care facility  is able to determine  for itself whether those services  are covered  by 
either the HI program  or the SMI program. 
The different financial  costs of an item,  depending  on whether the item is paid  as a 
cost to the SNF or as a SMI service paid  using a fee  schedule,  result in higher costs 
to Medicare  if the service is not provided  under the least expensive method. 
The difference  between  what it costs the SNF to purchase  goods or services,  which 
becomes  the Medicare  cost paid to the SNF,  and what is paid by Medicare  according  to 
SMI fee schedules may be radically  different.  Does cost reimbursement  to the SNF 
produce  the lowest cost?  (The Medicare  SNF payment  is based upon actual costs of 
service,  irrespective  of whether the SNF service is covered by HI or SMI.)  Or is the 
fee-based  service of the supplier lower?  (For example,  the SNF cost for purchasing 
tape to secure  surgical  dressings  or dietary  nutrients  may be less than the fee allowed 
suppliers  who provide  surgical  dressings or nutrients). 
SNFS acting as suppliers  of drugs,  biological,  appliances,  or equipment  may 
contibute to SMI billing motivated  by profit. 
Medicares  present  rules and practices  permit  the SNF to be both a cost-based  provider 
of HI and SMI services  and a charge-based  supplier of SMI services.  This flexibility 
allows the SNF to assess the financial  impact of cost versus charge  payments,  and to 
choose using whichever  avenue is most advantageous.  Additionally,  a SNF acting as a 
supplier  of SMI to its residents  can be a lucrative profit-generating  business,  with 
questions  as to conflicting  interests  (nursing homes profit  versus the cost benefit  to 
residents  and tax payers). 
Some suppliers provide  excessive  volumes of supplies to nursing homes or 
misrepresent  the supply to obtiunreimbursement for  a noncovered  item or maximize 
reimbumement. 
A review  conducted  by Arkansas Blue Cross and Blue Shield found that some suppliers 
were representing  the combination  of certain  supplies (skin barrier,  lubricant,  gauze 
pads,  etc.)  as oral care kits or ostomy care kits.  However,  when the supplies were 
later delivered  to the nursing home,  they were not kits designated  for any specific 
beneficiary;  rather,  the supplies were provided  in bulk quantities.  Some nursing  homes 
stated they are turning  away suppliers because  their supply rooms are already 
overstocked  with unused  supplies from previous  shipments. 
Considerable  State-to-State  variation in average  SMI costs raises questions  about the 
impact  of State Medicaid practices  on SMI costs and inequities  in beneficiary  out-of-
pocket  costs for  care. 
The  1992 bed day cost for the SMI ranged  from as little as $3 in one State to as high 
as $35 in another.  While we cannot explain this variation  with certainty,  it is suspected 
the variances  stem,  in part,  from Medicaid  payment  policies  related  to how the 
... 
111  Medicaid  nursing  facility rate is set.  Another factor may be the extent to which the 
State Medicaid  policy  forcefully  encourages  nursing facilities to bill Medicare  whenever 
possible. 
An inequity exists in States (or nursing homes) which shift services  to the SMI 
program.  Ttisinequi@  istramlated  into added beneficia~  out-of-pocket  costs due to 
coinsurance  and deductibles  which might not be required  in States (or nursing homes) 
providing  a service under the extended care benefit. 
The apparent  lack of physician  involvement  during many beneficiaries  stays raises 
questions  about the adequacy  or quality of ptient  care. 
Nearly  one-third  (32percentin  1991 and31  percent  in1992)  ofresidents  had no 
allowed charges  for a primary  physician encounter  (physician visit,  evaluation,  or 
consultation)  during  their stay in the SNF.  The primary  care physician  is critical  to the 
overall management  of the residents  health and plays a pivotal role as gatekeeper, 
determining  and/or  providing  necessary  medical care,  equipment,  and supplies. 
Frmlextended  care residents  are paticularly  susceptible  to abusive  or unscrupulous 
providers. 
The physical  and cognitive  limits of some extended care residents provide  a unique 
opportunity  for fraud,  abuse,  and waste.  Unless protected  by concerned  family or 
friends,  or by the policy  and practices  of the SNF, the extended  care resident  may be 
subjected  to some of the most egregious  practices  found in health care,  with decisions 
on care governed  by greed,  rather than medical  need. 
CONCLUSION 
Significant  payments  are being made for extended  care resident  services  through  the HI 
and SMI programs.  Consequently,  monitoring  services provided  under  these benefits 
and addressing  vulnerabilities  raised in this report  are important,  given Medicares 
potential  exposure  to abusive practices. 
This review  of SNF utilization  of SMI services  suggests further  work is needed  in at 
least the following  areas: 
1.	 The apparent  wide State-to-State  variation  in extended  care bed day costs 
for particular  SMI services. 
2.	 The appropriateness  of SMI payment  for the millions  of dollars  paid each 
year  for services  normally  included in the extended  care benefit,  and the 
resulting  inequities  in resident  cost liability. 
3.	 The adequacy  of a residents  knowledge  about the cost and frequency  of 
services  billed outside of the nursing facilitys bill. 
iv  4.	 The policies  and practices  of various  State Medicaid  programs,  as they 
contribute  to program  vulnerabilities  in the Medicare  extended  care 
benefit. 
5.	 The monitoring  of extended  care utilization  over time,  and review  of 
services  experiencing  rapid growth without any known reason  (e.g., 
coverage  change). 
6.  The lack of physician  involvement  in some SNF stays. 
COMMENTS 
The HCFA  commented  on this report.  They agreed with our conclusions  and 
suggested  a statutory  rebundling  provision  for SNFS (similar to that for hospitals)  is 
needed.  We agree that this is the direction  to take.  To assess the impact of 
rebundling,  our office is presently  conducting  a more exhaustive  analysis of services 
included  in the extended  care benefit and also covered  by the Supplemental  Medical 
Insurance  program. 
We thank HCFA  for their comments  and look forward  to working closely to improve 
services  firnished  under  the extended  care benefit.  The full text of their comments  is 
provided  in Appendix  E. 
v  TABLE  OF  CONTENTS 
EXECUTIVE  SUMMARY

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

DESCRII?IION  OF  EXTENDED  CARE  BENEFITS  AND  SMI  SERVICES  . . .  , .  8

PROGRAM  VULNERABILITIES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 18 
CONCLUSIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 .  25 
ENDNOTES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 .  27 
APPENDICES

A:  Procedure  Code Classification.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 A-1 
B:  1992 SMIServices  by Category.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 . B-1 
c: State Bed Day Costs and Utilization  . . . . . . . . . . . . . . . . . . . . . . . . . . .
 .C-l 
D:  Provider  Specialties by State...  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 D-1 
E:  HCFA Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 .E-l 
GLOSSARY  . . . . . . . . . . . . . . . . . .  1 
. . . .  . . . .  . . . . . . . . . . . .  . ..(%SSLW- INTRODUCTION 
PURPOSE 
Thepurpose  ofthis  study was l)todescribe  the Medicare  Supplemental  Medical 
Insurance  (SMI) services provided  to residents  in Skilled Nursing  Facilities  (SNFS) and 
2)toidenti@  mddiscuss  hownorpotential  program  wlnerabilities,  as well as issues 
involving  SNF residents  requiring  further  review. 
BACKGROUND 
Medicare  Program 
Medicare  is a Federal  health insurance  program,  authorized  by Title XVIII of the 
Social Security  Act,  that covers most people 65 years or older,  people with end-stage 
reml  disease,  and some disabled people.  The program  consists of two distinct 
insurance  programs.  Hospital  Insurance  (HI) Benefits for the Aged and Disabled 
(Part A) covers  services  furnished  by hospitals,  home health agencies  (HHA),  hospices, 
and skilled nursing  facilities.  Supplementary  Medical Insurance  for the Aged and 
Disabled  (Part B) covers  a wide range of medical  services  and supplies,  including 
physician  services,  outpatient  hospital  services,  and home health services  (not covered 
under  Part A), as well as diagnostic  laboratory  tests,  X-rays,  ambulance  services,  and 
the purchase  and rental of durable  medical  equipment  (DME). 
In 1992, Medicare  provided  basic health insurance  coverage  for more than 34 million 
people  at a cost of approximately  $129 billion.  The SMI payments  have recently  been 
growing  faster  than HI payments  and accounted for about $49 billion  of the Medicare 
expenditures  for  1992.1 
The Health  Care  Financing  Administration  (HCFA),  within the Department  of Health 
and Human  Services  (DHHS),  administers  Medicare  and contracts  with private 
insurance  companies  (e.g.,  Blue Cross or Blue Shield plans) to process  and pay HI 
and/or  SMI claims.  Contractors,  called intermediaries,  process  claims from institutions 
such as hospitals  and nursing homes;  other contractors,  called carriers,  process  claims 
from noninstitutional  providers,  such as physicians  and suppliers.  The HCFA  provides 
direction  to contractors  on payment  matters  and is, ultimately,  responsible  for assuring 
a contractors  adherence  to applicable  program  policies  and procedures. 
Extended  Care Benefit 
While  Medicare  does not cover expenditures  for traditional  long-term  nursing home 
care,  benefits  are provided  for extended  care to qualified beneficiaries  in a Medicare-
participating  SNF.  The extended  care benefit was designed  to reduce  the length  of stay 
in acute care hospitals,  and transition  beneficiaries  to their homes or to custodial  care 
facilities.  In comparison  to Medicaid  nursing home expenditures,  Medicare  accounts 
1  for only a small percentage  of the total nursing home care provided,  For example,

Medicare  services  accounted  for 4.7 percent  ($2. 5 billion)  of all 1990 nursing home

expenditures  ($53. 1 billion).  Medicaid,  in contrast,  accounted  for over 45percent

($24.2 billion).2

The HI program  does not pay for a SNF stay ii the beneficiary  needs skilled nursing  or

rehabilitation  services  only occasionally,  such as once or twice a week,  or if the patient

does not need to be in a SNF to get the skilled services.3  Additionally,  Medicare  HI

does not pay for the stay if the beneficiary  is in a SNF for only custodial  care.  Table  1

describes  the conditions  which must be met before  HI of Medicare  will pay for

extended  care provided  a beneficiary  in a Medicare-participating  SNF.

Conditions for Medicare  Extended  Care (SNF) Eligibility 
Pa.hents  The patients condition requires daily skilled nursing or 
Condition  skilled rehabilitation services that, as a practical 
matter, can only be provided in a SNF. 
Hospital Stay	 The beneficiary was in a hospital at least 3 consecutive 
days before being admitted to a participating SNF. 
SA?FAdmission  The beneficiary was admitted to a SNF within 30 days 
Deadline  after leaving the hospital. 
Care Related to  The care in the SNF is for a condition that was treated 
Hospitol Stay	 in the hospital or for a condition that arose while the 
beneficiary was receiving care in the SNF for a 
condition that was treated in the hospital. 
CoveredDays	 Medicare allows a maximum of 100 days per episode4 
of illness and pays for all covered SNF expenses for 
the first 20 days.  After the 20th day, patients pay part 
of the SNF care (daily co-insurance).5 
Medical  A medical professioml certifies that the beneficiary 
Professional  needs skilled nursing or skilled rehabilitation services 
Certi?cahon  on a daily basis. 
Intermediary  The Medicare intermediary does not disapprove the 
Approval  SNF stay. 
Table 1 
A certified  SNF is a facility with the staff and equipment  to provide  skilled nursing  care, 
skilled rehabilitation  services,  and other related  services,  and that meets the conditions  of 
Medicare  participation  specified by regulations.G  Skilled nursing  care  is that care  which 
can only be performed  by or under the supervision  of licensed nursing  personnel.  Skilled 
rehabilitation  services  include physical  therapy,  occupational  therapy,  and speech 
pathology  services  performed  by or under the supervision  of a qualified  professional. 
The extended  care benefit  is defined  in section  1861(h) of the Social Security  Act.  In 
addition  to describing  services  provided  by the extended  care benefit,  this section  indicates 
2
 thesource  of the services.  Table 2summarizes  the law. 
Extended Care Covered Services 
(AsDescribed  in Section  1861(h)) 
Section  1861 (h)  Source 
Nursing Care  (l) Nursing care provided by or under the supervision of a  SNF 
registered professional nurse. 
Room and Board  (2) Bed and board in connection with the furnishing of  SNF 
nursing care.  
Rehabilit&on  (3) Physical, occupational, or speech therapy furnished by  SNF or 
Therapy  the SNF or by others under arrangements with them made  Others 
by the facility. 
Medical Social  (4)  Medical social services  SNF 
Services 
Drugs and  (5) Such drugs, biological,  supplies, appliances, and 
supplies  equipment, furnished for use in the SNF,  as are ordinarily  SNF or 
furnished by such facility for the care and treatment of  Others 
inpatients.  (emphasis added) 
Medical services  (6)  Medical services of interns and residents-in-trainingof  As 
of interns  a hospital with which the facility has in effect a transfer  Specified 
agreement...and other diagnostic or therapeutic services  In 
provided by the hospital.  Agreement 
Other Medical  (7) Such other services necessary to the health of the 
Services  patients as are generally provided by SNF; excluding, 
however, any item or service if it would not be included...  SNF 
if furnished to an inpatient of a hospital. 
m...  w- * 
The SNF services  are divided between routine  and ancillary  services.  Routine  services 
include room,  dietary,  nursing  services,  medical  social services,  items which are reusable 
and expected  to be available  in a SNF (e.g.,  wheelchairs),  and items which are furnished 
routinely  to all patients.  In contrast,  ancillary  services  include laboratory,  radiology, 
drugs,  therapy,  and other items and services  for which charges  are customarily  made  in 
addition to a routine per diem charge. 
Medicare-participating  SNFS are paid their costs and receive  interim  amounts to pay 
estimated  costs.  Actual costs are settled later,  with adjustments  made if interim  payments 
were too high or too low.  Any costs determined  to be in excess of those necessary  for the 
efficient  delivery  of needed health  services are excluded. 
SMI-Covered  Services 
The SMI program  provides  coverage  for physicians  and certain  other practitioners 
services  and a variety  of medical and other health  services  (as defined  in section 
3  1861(s)).  Physician  services  are those provided  by doctors of medicine  and osteopathy, 
doctors  of dental medicine  and surgery,  doctors  of optometry,  doctors  of podiatric 
medicine,  and chiropractors  licensed under State law.  The SMI also covers certain 
services  and supplies provided  by suppliers  (e.g.,  ambulances,  laboratories,  medical 
suppliers,  portable  X-ray suppliers billing independently,  voluntary  health and charitable 
organizations,  and pharmacies).  In addition,  SMI covers  services received  from certain 
practitioners  who are not physicians,  such as certified  registered  nurse anesthetists, 
physician  assistants,  nurse midwives,  and clinical psychologists. 
Physician  and supplier  services covered  by SMI include diagnosis;  surgery;  therapy; 
consultation;  home,  office,  and institutional  visits;  diagnostic  X-ray tests; rental  or 
purchase  of durable  medical  equipment;  surgical dressings,  splints,  casts,  and other 
devices used for reduction  of fractures  and dislocations;  and prosthetic  devices. 
HI and SMI Coverage  Overlap 
A SMI service  is typically  provided  and billed by practitioners  or suppliers.  However,  the 
SNF may provide  SMI services  or supplies.  Thus,  the service  in question may be covered 
as either  an inpatient  HI service or as a SMI service.  If covered  as a HI service,  the 
beneficiary  is directly  benefited.  This is because HI, unlike SMI, does not create  an 
additional  dollar  liability  due to coinsurance  and deductibles.  As an illustration  of 
program  coverage,  physical  therapy provided  to the Medicare  SNF inpatient  is covered  as 
a HI benefit,  if the individual beneficiary  is covered under  HI.  If the therapy  is not 
covered  under  HI (beneficiary  does not qualify for HI or has exhausted  the  100 days of 
SNF coverage),  it is covered  and paid as a SNF SMI service.  Although  simplified, 
figure  1 emphasizes  the overlap between the services covered  under the extended  care 
benefit and those covered  under the SMI program. 
Coverage  OverlapExists  Betweenthe  HI and  SMI  Programs 
Which  Program  Pays  Depends  on  Answers  to  Several  Questions 
HI (Part A) Coverage  SMI (Part B) Coverage 
. speech  Thererw  j outpatient  services 
Ordinarily Furnished by SNF? 
Es  Under Arrangement With SNF?  NO 
Is Beneficiary Covered by HI? 
Figure  1 
4  Program  Vulnerabilities 
Medicare  is the nations largest payer of health care services and,  with  1992 costs of $128 
billion,  represents  the foutilargest  catego~of  Federal  ex~ndimres.  Despite attempts  to 
constrain  costs,  Medicare  spending and beneficiary  out-of-pocket  costs have risen at 
troubling  rates according  to the Government  Accounting  Office (GAO).8  The growth  of 
these payments  increases  Medicares  vulnerability  to erroneous  and excessive  payments 
for claims resulting  from program  weaknesses and provider  fraud and abuse. 
Program  vulnerabilities  are circumstances  which may lead to excessive  costs to the 
Medicare  program,  the Medicare  beneficiary,  and, ultimately,  the tax payer.  Both fraud 
and abuse are included  in our definition  of program  vulnerabilities. 
METHODOLOGY 
Sources and Limitations  of Data 
Data presented  in this report  (unless otherwise  noted) were obtained from  a one percent 
sample of all Medicare  beneficiaries  receiving  Medicare  extended  care benefits  during 
1991 or  1992.  After selecting the sample of beneficiaries,  all SMI services  and HI 
payments  extended  during  the covered  nursing home stay were extracted  from the HCFA 
Common  Working  File (CWF) database. 9  The SMI services processed  by both the 
carrier  and the intermediary  were identified. 
Data from the sample were projected  to the total SNF population. 
Camer-processed SMZ data reflect the allowed charges.  Allowed charges  represent  what 
Medicare  considers  reasomble  for these services.  The program  pays 80 percent  of the 
allowed charges,  with beneficiaries  responsible  for coinsurance  and deductibles. 
Intermediary-processed  SMZ data reflect  interim  charges by providers.  This  is because 
reimbursement  is based on the application  of reasonable  costs,  subject to certain  limits 
which are reported  through  cost reports.  Thus,  these charges may not represent  the final, 
settled cost to the Medicare  program. 
Intermediary-processed  extended  care services  (SNF) data are based on unpublished  draft 
data provided  by HCFAS Bureau of Data Management  and Strategy who extracted  the 
data from the CWF.  These data reflect charges  (unless otherwise  noted). 
Important  Note:  In reviewing  the data in this report,  the reader  should recognize  that two 
types of data are combined.  The data combined  are for claims processed  by carriers  and 
for claims processed  by intermediaries.  The data from carriers  refers to those charges 
which Medicare  considers  reasomble  (allowed charges)  and to which coinsurance  and 
deductibles  are applied.  In contrast,  the data for intermediary  claims  (SNF and outpatient) 
refers  to total charges.  Total charges  (include both covered  and noncovered  charges)  refer 
5  to all services  for a billing period before reduction  for the deductible  and coinsurance 
amounts  and before  any adjustments  for the cost of services provided. 
Total charges  for intermediary  processed  outpatient  and extended  care (SNF) claims  were 
used for two reasons.  First,  total charges  were readily  available  and could be broken  out 
in sufficient  detail (e.g.,  at least at the revenue  center  level,  and often at the procedure 
code level) allowing analysis of discrete  types of services  (supply,  lab,  etc.).  Second, 
there  was little difference  between total and covered charges  for SNF claims.  (In 1991 
and 1992, the percent  difference  between total charges  and covered  charges  was less than 
three percent). 
The 1991 to 1992  percent  change calculations  made in this report  reflect  an inflation 
adjustment  factor  (7.4 percent),  which is used to reflect more accurately  the true percent 
change due to charge  variation  rather than to medical care inflation.  Although  we were 
aware of other adjustment  (inflation) factors  such as HCFAS Medicare  Economic  Index 
(MEI),  the Medical  component  of the Consumer  Price Index for all urban consumers,  the 
U.S.  city average  (CPI-U) appeared  adequate for our use in this report  in light of MEIs 
limitations.  While MEI is specific to certain  Medicare  categories  of services  (such as 
physician  services,  lab tests,  etc.),  it does not account for all categories  of Medicare 
services. 
The reader  should recognize  that the CPI is not always a true representation  of the 
medical  care cost changes  in Medicare  and should be viewed with care.  This is because 
of various constraints  specific to Medicare  (e.g.,  fee schedules,  congressionally  mandated 
reductions  or controls  on the pricing  of certain  types of services,  etc. ) which do not exist 
in the general  medical  community  from which the CPI is derived. 
Data Presentation  BY Categories 
To facilitate  the presentation  of the types of SMI and HI services provided,  we classified 
HCFA  Common  Procedure  Coding System (HCPCS) procedure  codes and facility  revenue 
center  codes  into one of either two HI categories  or 20 SMI categories.  No procedure  or 
revenue  center  code is included  in more than one category.  We were limited  in the 
degree  of classification  available  for HI services because the HCFA  data was pre-grouped 
into the following  categories:  accommodations,  pharmacy,  lab,  radiology,  supply, 
inhalation  therapy,  rehabilitation,  and other.  Where possible,  we tried to classify 
categories  in terms  of the laws reference  to coverage  of the category.  Additionally,  we 
modeled  much of the major categorization  after a developmental  categorization  system of 
HCPCS  procedure  codes prepared  by HCFAS Office of Research  and Development  in 
coordination  with the Urban Institute. 
Appendix  A summarizes  how HI and SMI services  were grouped  for purposes  of this 
review. 
6  Discussions  of program  vulnerabilities  are drawn from our review of applicable  law and 
regulations  and analysis of the services depicted  in our sample.  Additionally,  we 
reviewed  findings from prior  OIG reviews and fraud alerts for evidence  illustrating 
program  vulnerabilities.  Finally,  we conducted  a survey of carriers  to determine  what 
types of abuses are occurring  with regard to equipment  and miscellaneous  supplies. 
Our review  was conducted  in accordance  with the Quali~  Standardsfor Inspections issued 
by the Presidents  Council on Integrity  and Efficiency. 
PREFACE 
This report  is intended to give the reader  a sense of the utilization  of the SNF extended 
care benefit  with special focus  on SMZ services.  Also,  we hope to point out areas of 
vulnerability  and to set a framework  for potential  future work by this office,  and to 
present  a baseline  from which to monitor utilization  in subsequent years. 
Our discussion  begins  with a section describing  1991 and 1992 extended  care and SMI 
utilization  statistics,  and concludes  with a general  discussion  of the known or potential 
vulnerabilities  suggested by the data. 
A glossary of terms has been included in the back 
for reference reviewing this and@ture  reports. 
7  DESCRIPTION  OF  EXTENDED  CARE 
BENEFITS  AND  SMI  SERVICES 
Charges in excess of $413 million  in 1991 and $517 million  in 1992 were made for  SiWI 
services provided  to Medicare  beneficianes receiving  extended  care benefits  in SNFS. 
The SMI program  provides  a considerable 
financial  supplement  to the services provided 
under the extended  care benefit in the SNF. 
~ 
Although  SMI charges  represented  only seven 
Billions 
percent  of the total (HI and SMI) cost of care for 
8- $7.6 
SNF residents,  the costs reflect  the important  part 
7 
SMI plays in contributing  to resident care.  (See 
6-
Figure  2.) 
5. 
4-
SMIS contribution  when compared  only with HI  3  I 
SW is 
ancillary  charges  (total extended care cost less  2- A-7% percent 
charges  for room and board)  represents  13 percent  *1.   of total 
of the charges.  I  ,991 
1992 
u HI Charges
Overall,  SMI and HI charges  for SNF residents 
I  SMI Charges 
increased  approximately  19 percent  from  1991 to 
Figure  2 
1992 (after adjusting  for medical  inflation using 
the overall  medical  care  inflation factor from the 
Consumer  Price  Indexl).  Individually,  SMI and HI charges  increased  16 and  19 
percent,  respectively,  from  1991 to 1992. 
The SNF bed dhy cost,  rather than total charges,  more accurately  reflects  the cost of 
extended  care. 
While  it is clear  that program  charges  for residents  of nursing homes  increased 
significantly  from  1991 to 1992, a more accurate  representation  of the cost of care 
received  by individual  SNF residents  involves calculating  the average  Medicare  program
.-
charges  per day in the SNF.  We call this the bed day c&t.  The bid  day cost calculations 
take into account  increases  in covered  days from one year to another. 
On average,  it cost $267 per bed day in 1991 and $302 in 1992 for care received  while a 
SNF resident.  This represents  a per bed day cost increase  from  1991 to 1992 in constant 
dollars  of approximately  five percent.  The SMI programs  part of this daily cost is $20. 
Additionally,  utilization  of SMI services was highly variable,  with many residents  having 
no SMI charges,  while others had high charges.  In both  1991 and  1992,  18 percent  of 
SNF stays had no SMI services,  At the other extreme,  the highest daily average  charge 
was $832 per day for a resident  in 1991 and over !$1,767 per day for a resident  in 1992. 
8
 These high daily costs were primarily  the result of extensive use of ambulance  services 
and rehabilitation  therapy. 
Facilities  with less than 50 Medicare  certified  SNF beds accounted for  the majority  of 
covered  admissions  and covered days of care. 
As indicated  by figure  3, facilities  of less than 50 Medicare  certified  SNF beds accounted 
for 62.3 percent  of all facilities  with Medicare  certified  SNF beds in 1992.  Those 
facilities  with 50-99 beds and 100 or more  SNF beds represented  21.9 percent  and 15.8 
percent,  respectively. 11 
Most  1992  SNF  Admissions  Were 
to  Facilities  With  Less  Than 
50  Medicare  Certified  Beds 
n 
*covered  days  in  th ousamis 
Source: HCFAunpublisheddata 
.  .
Figures 
Most SNFS (87 percent)  were not hospital-based.  Although hospital-based  SNFS 
represented  only  13 percent  of the total number  of SNFS, they represented  26 percent  of 
the total covered  admissions  (222,818)  during  1992. 
There  were  864,991  total covered  SNF admissions,  with facilities  having  less than 50 SNF 
beds accounting  for 65.3 percent.  These facilities  also accounted  for the majority  of 
covered  days of care  (60.7 percent). 
On average,  resident  stays in facilities  with a small number  of SNF certified  beds were  for 
shorter  durations  than stays in facilities  with more SNF beds.  Stays in facilities  with 200 
plus SNF beds were substantially  longer than stays in facilities  with few SNF beds. 
9
 Total charges forextended  care and SMIwere  nearly equally divided  between 
accommodations  (room and board) and ancillary  charges  (including  SLWI). 
At $3.9 billion,  SNF ancillary  charges combiwwl with SMI charges  accounted  for slightly 
over half of the medical  care for SNF residents receiving  extended  care benefits  in 1992. 
The remaining  component  of medical care was for room and board  ($3.7 billion).  (See 
Figure  4.)  - -
1992 Total  HI and  SMI Charges  for  SNF  Care  Were  Split  Evenly 
Between  Accommodations and  Ancillary  Services 
,.. . 
....... 
,.. ,, ...... 
... ... ... 
(lb
lid
70%  -s  (fi4%) 
Accommodations  HI SNF ANCILLARY 
SNF  49%  .  CHARGES (87%)  Pharmacy/Drugs 
ROOM and  and  50%  (lR9%)
BOARD  SMI CHARGES (13%)  1
($3.7  bllllon)  ($3.9  billion) 
30%
..  Rehabilitation  Therapy
.... 
....  20%  (4&3%)
.  .... 
TOTAL  H1/SMl  CHARGES  .......  w% 
FOR  EXTENDED  CARE  ....... 0 
I 
Figure 4 
In bed day cost terms,  1992 room and board charges averaged  approximately  $149 per 
day.  Ancillary  and SMI charges  accounted for the remaining  $153 of the total medical 
care average  bed day charge  of $302. 
10
 Rehabilit~on  services  was the largest extended  care ancillary  cost with SW  providing 
only a very small part  of the total charges. 
As shown in the previous  figure and in the figure below,  rehabilitation  was the largest 
single ancillary  cost,  representing  46 percent  of ancillary  charges.  However,  the SMI,  in 
comparison  to HI, played  a relatively  small role in financing  rehabilitation  services.  The 
SMI charges  were only $44 million  in 1991 and $55 million  in 1992 compared  to HI 
charges  of $1.18 billion in 1991 and $1.75 billion in 1992.  In bed day cost terms, 
rehabilitation  charges  were  approximately  $72 per day on average  in 1992.  The 
HI-covered  rehabilitation  accounted  for most of this daily average,  with SMI comprising 
only $2.16  of this total. 
Pharmacy  and supply were the next largest components  of the total bed day cost at $29 
and $18, respectively.  The SMI did contribute  significantly  to the service categories  of 
supplies,  lab,  and radiology  and also the sole source of funding for evaluation,  ambulance 
service,  and medical  procedures  as defined for this report.  (See Figure  5 for an overview 
of SMI and HI charges.) 
1992  Total  HI and  SMI Charges 
(excluding SNF Room  and Board) 
Charges 
In Mllllona 
~~  ~ 
950. 
9oo- . .  .. 
850. 
800- --- ....$737 ........................................................................... 
750-
7oo- --- --   -------------
650- U  Hi 
6oo---- --- -------------
550- 1  SMI 
5oo- - _  ...........Di.ii.. 
$445 
450 
4oo- --- --- ---  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
350 
3oo- --- ----- . .  .  . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . 
250.  $240 
2oo- ---- ..-.  . .  .    . . ..$190 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
150.  ~o  $116 
100- . . . . .  .  .  .  . . . ..$40  . . . . . . . . . . 
50  $36 
0  9 
*<&* c   .$$0J*    **Q\+ Q  &#. .4   $* $&#+  $  Q~!o*g Q    if,0&   &.$* $  ,0&  \#   ,**o0  
*2 W3  4  *  ?!$?  +++ 
~$  4~Q *$ 
*0  Q 
Q
~~ 
HI  and  SMI  Services  SMI  Only  Services 
-. 
lugure  5 
11
 Most SNF stays resulted  in the use of SMI services; yet, few  categories  of services  were 
predominant. 
As indicated  in figure 6, the percentage  of resident  stays in a SNF involving  SMI services 
remained  unchanged  between  1991 and 1992.  During this two year period,  82 percent  of 
the SNF stays had some SMI services.  However,  within specific categories  of services, 
only evaluation  services  were used in a majority  of SNF stays. 
Residents  Typically Receive  SMI Service&  However,  Only 
a Few  SMI Categories  Are  Common 
MAJOR SMI CLASSIFICATION 
CATEGORY 
68%  :  : 
Evmatksr 
I  :6S% ;  ; 
- :~::;;;;\: 
~  Mmr+whlrknnl ml  [
gll~+g%gg  -
1  I  I I  1 I  I 100% 
O  10  20 30  40  50  60  70  80 90
Pod!#t@?4?lot  Cirre 
Percent  of  SNF  Stays  With  SMI  Charges 
~  -&Y 
&~ 
vhAnr#nd~Sm@la 
-. 
Figure  6 
See Appendix  B for a complete  listing of the  1992 charges,  average  bed day cost,  and the 
percentage  of SNF stays with various  SMI services by categorical  grouping  (as defined  in 
the methodology  and projected  from our one-percent  sample). 
During  1991 and 1992, carriers  processed  approximately  two-thirds  (62.9 percent)  of the 
charges  for SMI services  to SNF residents.  Conversely,  intermediaries  processed 
outpatient  claims  for the remaining  one third of charges.  While  80 percent  of 
beneficiaries  had SMI processed  by a carrier,  only 24 percent  had outpatient  SMI charges 
processed  by the intermediary. 
12  Many @pes of SW  services were provided  to the SNF population  during 1992. 
In 1992, the category  of medical equipment,  supplies,  prosthetics,  and orthotics  accounted 
for the most charges  ($1 12 million) of any categorical  grouping.  The top three categories 
of service  (adding evaluation  and lab services) accounted  for over 50 percent  of the total 
SMI charges provided  to extended care residents.  (See Figure  7.) 
1992 SMI Charges  by Category  of Service 
MAJOR SMI CLASSIFICATION 
CATEGORY 
Msdcal E-t  m,  ::::;:::  :::: 
Pro$thatic$ and ()~~ 
,,,  ..,,  ,..  ,$~ 
$i7 
~  andOUIarTests 
m; 
R*matica  ThWSpy 
$5s 
Ey~+ 
1 I 1 ,  4 r ,  1  -
(l 10 20 30  40 50 60 70 80 90 100 11m20 
SMI CHARGES  IN MILLIONS 
Figure 7 
Although  not included  in our definition  of a SMI SNF service,  ambulance  transport  of a 
beneficiary  to a SNF on the day of admission  was used by 36 percent  of beneficiaries. 
Allowed  charges  for this service exceeded  $45 million  in 1991 and $59 million  in 1992. 
13
 As expected,  restients  with longer stays were more likely tousemore  SMI-covered 
services. 
While  82percent  ofresidents  had SMI charges,  thepercentage  of stays with SMI services 
differed  depending  onthelength  of the SNF stay.  Astable3  shows,  short stays (l-8 
days) were  less l~elyto  involve SMIsewices  than stiysof  a longer duration,  regardless 
of the category  of service  received. 
=1
NT OF 
NG 1992 
81-100
Ma ior andMinorMedicalProcedures  .3%  7.6%  15.070  24.3%  28.9% 
Ambulance  Services
 .o%  4.9%  8.89!0  13.8%  16.1% 
Local  Codes
 .  70  2.8%  5.67 0  5.97 0  9.17 0 
Miscellaneous  Out Qatient Se rvices
 0.87 0  .  70  4.7%  7.6%  8.9% 
Mental  Health  Services
 0.6%  1.3%  .  70  6.7%  5.2 % 
Drum  and Biolog icals  0.7%  1.4% 
. .  .
Rehabd@mo n The ranv  1.07 0  .o% 
Other  I 0.8qo  ! 1.1% 
Endoscom  .  qo  1.07 0 
.
Anesthesia .  YO  0.87 0 
Onto 1ow  I 0.57 0 I  1.370 
Serv ices  .  %  1.1% 
Remiratorv  TheraDv  0.07 0  0.1% 
OVERALL  (my  service)  58.9%  84.4% 
Table 3 
In 1992, 45 percent  of all SNF clients residing  for eight or less days had an evaluation. 
Utilization  of an evaluation  service continued  to increase until most clients  (93.6  percent) 
residing  for periods  of 81-100 days had an evaluation.  The relationship  of days of care to 
the potential  for a SMI evaluation  service was relatively  constant between  1991 and  1992. 
Compared  to 1991, residents  in 1992 with SNF stays beyond 40 days had an increased 
likelihood  for mental  health services.  In 1991, clients had only a .2 percent  chance  of 
receiving  mental  health  services  during SNF stays of less than eight days.  However,  this 
increased  to a four percent  likelihood  of such services  during  stays of more than 81 days. 
Interestingly,  mental  health services,  in contrast  to evaluation  services, 
14  increased  disproportionately  between 
ResidentsWithLongerStays Were More Likeiy

1991 and  1992.  As indicated  in figure  In 1992 To Receive Mental Health Services Than In 1991

8,  1992 residents  residing  for 1-8 days 
% of Stays  With 
had less than a one percent  opportunity  Mental  Haalth 
Services 
of having  such services.  However, 
10% 
clients residing  for longer than 81 days 
- 1991 
8 
had a ten percent  chance of receiving 
  1992 
mental health  services.  8  El 
4 
Our office has already  begun an 
2 
evaluation  of mental health  services 
01-8 6-20	 21-40  41-60  61-60  81-100 
which will help to explain this rise in 
Length  of Stay 
utilization  from  1991 to 1992. 
Figure 8 
States  utdition  of SMI varied 
considerably. 
	 There  was variation  from State-to-State  in the percentage  of SNF stays involving 
SMI services. 
As shown in figure 9, among the 15 largest  States (as defined by the number  of SNF 
covered  days),  the percentage  of stays with SMI varied from a high of 94 percent  in 
Connecticut  to a low of 71 percent  in Minnesota.  Little variation  existed from  1991 to 
1992 except for Wisconsin,  which decreased  considerably. 
SMI Utilization  Varies  By  State 
StaysWith  SMI  rf!lhowoan? Stites  wth more than 50@  Covered days) 
100%1 
-. 
qgure  Y 
15  While we are unable to explain the utilization  differences  between  States,  it seems likely 
that Medicaid  practices  within the State may help explain these differences.  However, 
further  study is needed to validate  any causal conclusions. 
  Average  SMI bed day costs varied significantly  between States. 
In 1992, bed day costs for the 15 largest States varied substantially  from a low of $10 per 
bed day in Minnesota  to a high of $33 in Pennsylvania.  (See Figure  10 and Appendix  C). 
.. 
SMI Bed  Day  Costs  Vary  By  State 
(Shownare States with more  than 5000  Covered days) 
Average 
Bed Day Cost 
$50 
,-.
1 
/""""""""""""""""""""`""""
4~  ................................................  ,s-: .  *B.  - ...  .
4 ,  o 
$33
b 
30  - -----
$26 
20  ... 
10 .  ~~~ 
...  .
STATES 
Figure  10 
Again,  we are unable to explain  the variance  between  States.  It is likely that Medicaid 
practices  within the State will explain  some of these utilization  differences;  however, 
fhrther  study is needed to validate this conclusion. 
16    State-to-State  variation  in the types of SMI service providers  was even greater. 
Asshown  in figure  11, most  1992 SMIcharges  were from outpatient  departments, 
physicians,  and suppliers.  The same overall  ratios existed in 1991.  However,  based on 
the specialty  coded on the claim form,  our data suggest wide variations  in the types of 
--
SMI providers  between  States. 
I  In 1992,  Most Charges  Were  For  Services  Provided  BY 
Outpatient  Depa~tments,  Physicians,  and  Suppliers  -
OUTPATIENT 
SERVICES  (37%) 
X*Y  (28%)
6F& r&~ (w%) 
OTHER {14%)  m--&W 
SUPPLIER 
(20%)  w (ix)
mwEuKws  @x) 
ENDENT LAB (6%) 
PHYSICliN  AMBULANCE (7%) 
(16%) 
Figure 11 
Charges  often differ markedly  from the overall  ratio depicted  in figure  11.  For example, 
the percentage  of 1992 SNF charges  for services provided  by suppliers  was over 45 
percent  in Kentucky  and Arkansas,  while the percentage  was less than five percent  in 
Colorado  and Mississippi.  There  were similar wide State variations  for all provider  types 
including  outpatient  services.  For example,  the percentage  of charges  provided  by 
ambulance  companies  ranged  from over  15 percent  in Connecticut  and South Carolina  to 
less than 5 percent  in Michigan  and Mississippi.  (Appendix  D provides  a listing of State 
variations  in provider  types.) 
By far,  the most extreme  variation  in charges  occurred  in outpatient  services.  In 
Mississippi,  over 70 percent  of the charges  were from outpatient  claims,  while  in Maine 
there  were no outpatient  charges  represented  in our sample. 
As discussed  previously,  we cannot explain these variations  with certainty  without  further 
review,  but we suspect Medicaid  practices  and other factors  (income,  availability  of health 
services,  practice  patterns,  etc. ) influence nursing home use of SMI by residents. 
17  PROGRAM  VULNERABILITIES 
Services  covered  under the HI extended  care .ene@may be shifted to the SMI program, 
creatzngadded  beneficiary  liability. 
The SNFS which shift services  from the HI program  to the SMI program  may avoid 
Medicare  limits on SNF payment  and,  if the shifted services  are covered  by SMI,  increase 
the costs to residents  and, ultimately,  the tax payer.  Cost shifting may occur  for two 
distinct  types of services:  1) routine  services  (which include the nursing care,  bed and 
board,  and certain  other labor and supply costs) and 2) certain  ancillary  services. 
Each year  HCFA  publishes  regulations  which limit the Medicare  payment  for routine 
services.  (For example,  the Medicare  daily limit for a free standing SNFS care  of a 
beneficiary  in Dallas is $96.97 per day for the cost reporting  year beginning  January 
1993.)  The SNF incurs a loss for costs over the limit,  as neither  the Medicare  program 
nor the Medicare  beneficiary  pay for the excess amounts.  Thus,  SNFS will directly 
benefit,  dollar  for dollar,  to the extent amounts over the limit are reduced  by shifting 
these costs for routine  services  elsewhere. 
By shifting costs above the routine cost limit,  SNFS increase  their profitability,  while the 
tax payer  and SNF resident  assume the cost of the amount Medicare  allowed  for the SMI 
services  billed. 
Theram  Services 
As much  as $44 million  in 1991 and $55 million in 1992 were charged  to SMI for 
rehabilitation  therapy.  Rather  than the SNF providing  the ancillary  services  and charging 
them to the HI program,  third party providers  billed the therapy  as SMI services. 
Sw.mlies and Euuir)ment 
Over $98  million  in 1991 and over $112 million  in 1992 were allowed by SMI for 
supplies and equipment  (this represents  the SMI category  we defiied  as medical 
equipment,  supplies,  prosthetics,  and orthotics),  which is included  as either  routine  or 
ancillary  costs in the HI program  when billed by the SNF. 
Enteral  and parenteral  nutrition,  which totaled  $60 million  in both  1991 and 1992, 
represented  over half the shifted costs.  Other components  of the cost shified items (in 
millions)  were: 
1991  1992 
Durable  medical  equipment  $8  $11 
Braces,  trusses,  and artificial  limbs  $7  $12 
Casts,  splints,  and fracture  reduction  devices  $2  $3 
Surgical  dressings  $7  $6 
Miscellaneous  prosthetics  and supplies  $14  $20 
18  Vulnerability  in the definition  of extended care services 
One reason  SNFS are able to shift costs to the SMI program  is because  section  1861(h) of 
the Social Security Act permits  each facilitv to determine  whether certain  services  are 
provided  as extended  care services.  Consequently,  the extended  care facility  is able to 
determine  for itself whether  those services  are covered  by either the HI program  or the 
SMI program.  The law states that a facility must provide: 
(5) such drugs,  biological,  supplies,  appliances,  and equipment,  furnished  for 
use in the skilled nursing facility,  as are ordinarily furnished  by such 
facility...   (emphasisadded) 
An example  of the impact of this citation  is that each SNF,  as often as it wishes,  is 
allowed to decide to provide  catheters  as a SNF service one day and on the next to 
provide  catheters  through  outside suppliers,  who then bill Medicare  and the resident  for 
the services. 
Beneficiary  Liabilitv 
Charges  to Medicare  for the routine  and ancillary  services  noted above (therapy,  nutrition, 
and medical  supplies and equipment)  illustrate  the impact of services  provided  outside of 
the SNF payment.  Since beneficiaries  are liable for coinsurance  and deductibles  for SMI 
services,  the cost to the beneficiary  during  1991 and 1992 was between  $62 million  and 
$99 million  (the upper bound would be if all residents  incurred  the $100 deductible  for 
these services). 12 Had each SNF provided  these services  (itself or under  arrangement), 
none of the residents  would have been liable for coinsurance  or deductibles. 
l%e different financiul  costs of an item,  depending  on whether the item is paid  as a cost 
to the SNF or as a SMI service paid  using a fee  schedule,  result in higher costs to 
Medicare  if the service is not provided  under the least expensive method. 
The difference  between  what it costs the SNF to purchase  goods or services,  which 
becomes  the Medicare  cost paid to the SNF,  and what is paid by Medicare  according  to 
SMI fee schedules  may be radically  different.  Does cost reimbursement  to the SNF 
produce  the lowest cost?  (The Medicare  SNF payment  is based upon actual costs of 
service,  irrespective  of whether  the SNF service  is covered  by HI or SMI.)  Or is the fee-
based  service  of the supplier  lower?  (For example,  the SNF cost for purchasing  tape to 
secure  surgical  dressings  or dietary  nutrients  may be less than the fee allowed  suppliers 
who provide  surgical  dressings  or nutrients.) 
SNFS acting  as suppliers  of drugs,  biolo~cals, appliances,  or equipment  may contnbute 
to SMI billing  motivated  by profit. 
Medicares  present  rules  and practices  permit  the SNF to be both a cost-based  provider  of 
HI and SMI services  and a charge-based  supplier  of SMI services.  This flexibility  allows 
the SNF to assess the financial  impact of cost versus charge  payments  and to choose 
19  whichever  avenue  is most advantageous.  Additionally,  a SNF acting  as a supplier  of SMI 
to its residents  can be a lucrative  profit-generating  business,  raising  questions  about 
potential  conflicts  of interest  (nursing  homes profit  versus the cost benefit  to residents  and 
tax payers). 
Considerable State-to-Statevariationin average SMI charges raises questions about the 
impact of State Medicaid practices on SMI costs and inequities in beneficiary out-of-
pocket costsfor  care. 
The  1992 bed day cost for the SMI ranges 
Average  Bed  Day  Cost  for  1992  SMI 
from  as little  as $3 in one State to as high  Varies  Considerably  From  State  to  State. 
as $35 in another.  (See Appendix  C). 
Average 
Bed Day Cost 
Figure  12 emphasizes  the wide variation 
of State bed day costs for SMI,  with about 
$30, 
--J4  [Averege:J 
a third  of the States averaging  a bed day 
cost above  $20 and the rest below. 
$20-29  14 
While  we cannot  explain  this variation 
with certainty,  we suspect the variances  $10-19  24 
stem,  in part,  from  Medicaid  payment 
policies  related  to how the Medicaid 
$0-9  10 
nursing  facility  rate  is set.  Another  factor 
may be the extent  to which  the State 
1 
Medicaid  policy  forcefully  encourages  0  5  10  15  20  25 
nursing  facilities  to bill Medicare  NUMBER  OF  STATES 
whenever  possible.  Figure  12 
The bed day cost variance  could  also come from the different  medical  care  needs  of the 
States population,  limitations  on our data because  of small  sample  sizes in some States, 
20  and other  factors  (e.g.,  personal  income,  the supply of health  care resources,  and the 
concentration  of hospital  services  in urban  areas). 
An inequity  exists  in States (or nursing  homes)  which  shift services  to the SMI program. 
This  inequity  is translated  into added beneficiary  costs due to coinsurance  and deductibles 
which  might  not be required  in States (or nursing  homes) providing  the services  under  the 
extended  care benefit. 
Some suppliers mayprovide excessive volumes of supplies to nursing homes. 
Another  area of potential  abuse involves  excessive  volumes  of supplies.  An example 
found  in the nursing  home  population  is the oversupply  of convenience/hygiene  supplies. 
A review  conducted  by Arkansas  Blue Cross and Blue Shield found that some suppliers 
were representing  the combination  of certain  supplies  (skin barrier,  lubricant,  gauze pads, 
etc.)  as oral  care kits or ostomy  care kits.  However,  when the supplies  were later 
delivered  to the nursing  home,  they  were not kits designated  for any specific  beneficiary; 
rather,  the supplies  were provided  in bulk quantities.  Some nursing  homes  stated they  are 
turning  away  suppliers  because  their  supply rooms  are already  overstocked  with unused 
supplies  from  previous  shipments.  Although  the prevalence  of the oversupply  of routine 
medical  supplies  by suppliers  has not yet been studied,  this anecdotal  example  and the 
following  statistics  suggest the need to do so. 
The cost of routine  medical  supplies charged  to the SMI program  for SNF residents 
exceeded  $10 million  in  1991 and $15 million  in 1992.  This represents  a significant 
increase  (over 42 percent  after adjusting  for medical  cost inflation)  from  1991 to  1992. 
Some suppliers misrepresent supplies in order to gain reimbursement from  Medicare. 
Two areas  where  suppliers  have been inappropriately  reimbursed  involve 
misrepresentation  of a noncovered  item as a covered  item and misrepresentation  of the 
place  where  the service  is provided. 
0  Misrepresenting  items of supply. 
Claims  for orthotic  body jackets  represent  one example  of suppliers  misrepresenting  an 
item to gain  Medicare  reimbursement  for noncovered  items.  Specifically,  approximately 
95 percent  of the claims  for orthotic  body jackets  in  1991 were for non-legitimate  devices 
and were  inappropriately  allowed. 
This  finding  resulted  from  our study of HCPCS code LO430 and is presented  in a report 
entitled  Medicare  Payments  for Orthotic  Body Jackets. l3  Code LO430 represents  an 
orthotic  device  (called  a body jacket)  commonly  used to treat  injuries  to the spine  (e.g., 
vertebra  fractures  and compressions)  and to facilitate  healing  following  a surgical 
procedure  on the spine or related  tissue.  The study was initiated  in response  to an 
allegation  received  by the OIG from  a company  which provides  Medicare  billing  services 
to nursing  homes.  The allegation  stated that DME  suppliers  were billing  Medicare 
21  approximately  $1,200  per device for devices consisting  of nothing more than a $50 piece 
of foam rubber.  
After reviewing  a sample of claims for body jackets,  it was determined  that 95 percent  of 
the devices  claimed  under code L0430 did not meet either the construction  requirements 
or the medical purpose  of a Medicare-covered  body jacket.  In many cases,  the devices 
billed  were provided  primarily  for the purpose  of keeping patients  upright  in a wheelchair. 
The significance  of the finding  suggests that more than $7 million in  1991 and,  perhaps, 
as much as $13.7  million in 1992 were inappropriately  paid for non-legitimate  devices 
billed as L0430. 
Although  the study did not focus solely on body jackets  received  by SNF residents,  the 
findings are equally  pertinent  to the SNF population.  The billing of L0430  for SNF 
residents  amounted  to $129,668  in 1991 and $384,795  in  1992.  Assuming  95 percent 
were  for non-legitimate  devices,  approximately  half a million dollars  were  incorrectly  paid 
for SNF residents  ($123,185  irr 1991 and $365,555  in  1992).  Significantly,  claims for the 
non-legitimate  devices  are increasing  dramatically  by triple digit rates  (190 percent  from 
1991 to 1992 after adjusting  for medical  cost inflation). 
  Misrepresenting  the place of service. 
Durable  medical  equipment  (DME)  is a noncovered  item for beneficiaries,  unless the 
DME  is provided  in the beneficiarys  residence.  A SNF,  like a hospital,  is not considered 
a residence.  Based on data from this database  and presented  in a separate  report, 
Payment  for Durable  Medical  Equipment  Billed During  Skilled Nursing  Facility  Stays,  
the combined  Medicare  and resident  cost for DME  was approximately  $10 million in 1992 
and over $8 million in  1991.14 Significantly,  99 percent  of the  1991 DME  claims 
incorrectly  showed (intentionally  or unintentionally)  the residents  location  when the item 
was provided.  Suppliers  stated the place of service was the home or  other;  however, 
at the  time  of the service,  the beneficiary  was actually  residing  in a WWF. Had the 
supplier  indicated  that the beneficiary  resided  in a SNF,  the carrier  would have known to 
disallow  the claim. 
22
 In a 1993 survey,  we asked carriers  to list their concerns  about possible abuses  in 
utilization and payment  for durable  medical equipment  and supplies in nursing  homes. 
Some of these concerns  reflect  SUSpeCted  m  knc)wm  almse  in  areas  discussed  previously  in 
this report.  Others reflect  concerns  about false billing,  improper  handling  of certificates 
of medical necessity,  and financial  arrangements. 
We note that some of the problems  listed are being,  or have been addressed  by the new 
Durable  Medical  Equipment  Regional  Carriers  (DMERCS)15. Carriers  were not asked to 
provide  details on the source or extent of their reports  of possible  fraud and abuse or 
whether  they had referred  any cases to the Office of Inspector  General. 
. 
23

s:
 The apparent  lack of physician  involvement  during many beneficiaries  stays raises 
questions  about the adequacy  or quality of patient  care. 
Nearly  one-third  (32percentin  1991 and31percent  in1992)  ofresidents  had no allowed 
charges  for a primary  physician  encounter  (physician visit, evaluation,  or consultation) 
during  their stay in the SNF.  The primary  care physician  is critical  to the overall 
management  of the residents  health and plays a pivotal role as gatekeeper,  determining 
and/or  providing  necessary  medical care,  equipment  and supplies.  The absence  of these 
physician  services  for many beneficiaries  raises quality of care concerns.  Additionally, 
the absence of physician  involvement  may expose the resident  to unscrupulous  schemes 
providing  non-covered  and unneeded  services.  An example  of this exposure  is illustrated 
by a recent  investigation  where electrocardiogram  (EKG) readings  were performed 
directly  by the SNFS staff with the results transmitted  over phone lines for an 
interpretation.  However,  there was no evidence  of a physician  examination  of the resident 
to initiate the testing  and no indication of cardiac  problems  requiring  testing. 
Frail extended  care residents  are paticularly  susceptible  to abusive or unscrupulous 
providers. 
The physical  and cognitive  limits of some extended  care residents  provide  a unique 
opportunity  for fraud,  abuse,  and waste.  Unless protected  by concerned  family or friends, 
or by the policy  and practices  of the SNF, the extended  care resident  may be subjected  to 
some of the most egregious  practices  found in health care,  with decisions  on care 
governed  by greed,  rather  than medical  need. 
24
 CONCLUSIONS 
Significant  payments  are being made for extended  care resident  services  through  the HI

and SMI programs.  Consequently,  monitoring  services provided  under these benefits  and

addressing  vulnerabilities  are important,  given Medicares  potential  exposure  to abusive

practices.

This report  and a companion  report  on durable  medical equipment  billed  for SNF

residents  receiving  Medicare  extended care benefits are the first in a series of reports

addressing  nursing  facility resident  issues.  Each report  will focus on a known or potential

vulnerability  related  to either prudent use of tax dollars  for resident  care or quality of care

issues.  The methodology  used to gather  information  on each issue will vary;  however,  as

with this report,  we plan to use statistical  sampling of nursing facility  residents  to develop

the facts necessary  to address each issue.  The scope of our reviews  will include

information  concerning  Medicare  residents  in all Medicare  or Medicaid  approved  nursing

facilities.  Additionally,  Medicaid  data will be evaluated  as it relates  to the issues under

review.

This review  of SNF utilization  of SMI services  suggests the need for further  work in at

least the following  areas:

1.	 The apparent  wide State-to-State  variation  in extended  care bed day costs for 
particular  SMI services. 
2.	 The appropriateness  of SMI payment  for the millions of dollars  paid each year 
for services  normally  included  in the extended care benefit,  and the resulting 
inequities  in resident  cost liability. 
3.	 The adequacy  of a residents  knowledge  about the cost and frequency  of services 
billed  outside of the nursing facilitys bill. 
4.	 The policies  and practices  of various  State Medicaid  programs,  as they 
contribute  to program  vulnerabilities  in the Medicare  extended  care benefit. 
5.	 The monitoring  of extended  care utilization  over time,  and review  of services 
experiencing  rapid growth without any known reason  (e. g.,  coverage  change). 
6.  The lack of physician  involvement  in some SNF stays. 
COMMENTS 
The HCFA  commented  on this report.  They agreed with our conclusions  and suggested  a 
statutory  rebundling  provision  for SNFS (similar to that for hospitals)  is needed.  We 
agree that this is the direction  to take.  To assess the impact of rebundling,  our office is 
25  presently  conducting  a more exhaustive  analysis of services  included  in the extended  care 
benefit  and also covered  by the Supplemental  Medical Insurance  program. 
We thank HCFA  for their comments  and look forward  to working closely to improve 
services  fiu-nished under the extended care benefit.  The full text of their comments  is 
provided  in Appendix  E. 
26  ENDNOTES
1.  Data from the  1993 Green Book, Overview of Entitlement  Programs.  Prepared  for 
the Committee  on Ways and Means,  U.S.  House of Representatives.  Pages  138 
and 140. 
2.  Health  Care  Financing  Review,  Medicare  and Medicaid  Statistical  Supplement, 
1992 Amual  Supplement,  page 97. 
3.  However,  these services can be paid for as a home health benefit. 
4.  An episode of illness (or benefit period) begins on the first day the beneficiary 
received  hospital  services and ends when the patient  has not been a hospital  or 
SNF patient  for 60 consecutive  days. 
5.  The coinsurance  is equal to one-eighth  of the HI deductible.  For example,  during 
1990, daily coinsurance  payments  for the 21st through  100th day were $74 per 
day. 
6.  Section  1819(a) of the Social Security Act defines a SNF as an institution  (or 
distinct  part of an institution)  which is primarily  engaged  in providing  to residents 
1) skilled nursing care and related  services  for residents  who require  medical  or 
nursing  care,  or 2) rehabilitative  services  for the rehabilitation  of injured,  disabled, 
or sick persons.   Also,  a SNF is not providing  care primarily  for the care  and 
treatment  of mental diseases.  This definition  was formerly  found in section 
1861Q)(1) and is often referred  to as the j1 provision. 
7.  Services  not covered  by Medicare  include personal  convenience  items (e.g., 
television),  private  duty nurses,  extra charges  for a private  room  (unless needed  for 
medical  reasons),  the fwst three pints of blood in a benefit period,  and any other 
service,  drug,  or other item which could not be paid for under the hospital 
insurance  program  if furnished  to an inpatient of a hospital. 
8.  General  Accounting  Office report  entitled  Improper  Handling  of Beneficiary 
Complaints  of Provider  Fraud  and Abuse.   GAO/HRD-92-l,  released  October 
1991. 
9.  Every  claim processed  by Medicare  carriers  and intermediaries  is maintained  in the 
Common  Working  File.  The CWF acts as an on-line Medicare  beneficiary 
entitlement  and utilization  database  and screens all claims prior  to payment 
approval.  The CWF  is organized  into nine localized  databases  called  sectors.  The 
country  is divided  into nine processing  sectors where nine separate  databases  are 
maintained.  Generally,  these assignments  are made on a geographic  basis.  Each 
Medicare  beneficiary  is assigned to only one of the nine databases;  therefore,  there 
is one CWF master  record  for each beneficiary.  Each CWF database  is maintained 
27  by a designated  host site.  The Health Insurance  Medicare  Record  (HIMR) 
program  is an access method used typically by carriers  to view the CWF  record 
that shows complete  entitlement,  utilization,  and claims payment  data,  including 
the beneficiarys  name,  sex, birth date,  HIC number,  deductible  status,  claims 
history,  Medicare  Secondary Payer  (MSP) status, and hospice or HMO enrollment 
status. 
The bulk of the statistical data collected  by HCFA  is a by-product  of the CWF and 
is maintained  in the Medicare  Decision Support System (MDSS).  The MDSS 
statistical  files are generated  by combining  information  from SSA on beneficiary 
eligibility  with claims  information  from the CWF. 
10.	 As provided  in the Consumer  Price Index for all urban consumers,  the annual 
average  medical  inflation factor rose 7.4 percent  from  1991 to 1992. 
11.  Although  not SNFS, swing-bed hospitals totaled  1,318 in 1992. 
12.	 Beneficiary  liability  is applied to the total  1991 and 1992 costs of rehabilitation 
therapy  ($45 million  and $55 million,  respectively)  and the SMI category  of 
medical  equipment,  supplies,  prosthetics,  and orthotics  ($98 million and $112 
million,  respectively).  This cost is $310 million.  Beneficiary  liability  is calculated 
by applying the 20 percent  coinsurance  and a deductible.  Taking twenty percent  of 
$310 million  yields a coinsurance  amount of $62 million.  Because our data only 
reflected  allowed amounts,  we were not sure if a deductible  applied for these 
services.  However,  we calculated  an upper  limit,  due to the impact of a 
deductible,  by assuming all stays had the $100 deductible  applied to these services. 
Since approximately  369,100  stays had these services,  the maximum  deductible 
exposure  is $37 million over the 1991 and 1992 period  (1991 and  1992 deductible 
was $100).  Adding coinsurance  ($62) to the maximum  deductible  liability  yields a 
beneficiary  financial exposure  for these services  of somewhere  between  $62 million 
and $99 million. 
13.	 OIG report  entitled  Medicare  Payments  for Orthotic  Body Jackets.   0EI-04-92-
01080. 
14.	 Payment  For Durable  Medical  Equipment  Billed During  Skilled Nursing  Facility 
Stays,  0EI-06-92-O0860. 
15.	 The HCFA  has regionalized  the processing  of claims for DME,  prosthetics, 
orthotics,  and supplies into four DMERCS.  The HCFA  has contracted  with four 
carriers  to provided  greater  efficiency,  promote  consistency,  and improve  accuracy 
in Medicare  claims processing  for these suppliers,  as well as to help reduce  fraud, 
waste,  and abuse in the Medicare  program.  The DMERCS began processing 
claims  in 1993. 
28
 APPENDIX  A 
HI CLASSIFICATION  SERVICES 
Major  Classification  (2 catagotias)  Components  of  Major  Catagones 
ROOM AND BOARD 
ANCILLARYSERVICES  Pharmacy

Lub

Radiology

supply

Inhalation Therapy

Rehabilitation

Other

SMI  CLASSIFICATION  OF SERVICES 
Major  Classification  (20 categories)  I  ComDonants  of Major  Cataaon-es 
Hospital Visits

Emergency Room  Visits

Home Visits

Nursing Home Visits

Specialist Evaluation

Consultations

ANESTHESIA

MAJOR AND MINOR MEDICAL PROCEDURES
 Major Procedures

I  Eye Procedures

I  Ambulatory Procedures

Minor Procedures

ONCOLOGY  SERVICES 
ENDOSC(

DIALYSISSERVICES

IMAGING AND ECHOGRAPHY
 Standard Imaging

Advanced Imaging

Echography

.AB AND OTHER TESTS  Lab Tests

Other Tests

Specimen Collection

MEDICAL  EQUIPMENT,  SUPPLIES, PROSTHETICS, AND  Durable Medical Equipment

ORTHOTICS  Braces,  Trusses, and Artificial Limbs

Casts, Splints, Fracture Reduction Devices,  and Related Supply

Surgical Dressings

Prosthetic Dewces  and Related Supphes

AMBULANCE 
,CHIROPRACTIC 
DRUGS 
VISION AND HEARING SERVICES/SUPPLY 
REHABILITATION  THERAPY  Phystcal Therapy

I  Occupational Therapy

SDeech ~eraDv

r  . . 
RESPlRP. 7.n. n.v. . T. u. .F. m.-a,,m v
MENTALL HEALTH  SERVICES 
PODIATIRY SERVICES 
LOCAL C( ARRIER CODES 
MISCELLANEOUS  OUTPATIENT  SMI (intermediary  -processed  claims  not categorized  above)

MISCELLANEOUS  NON-INSTITUTIONAL  SMI (carrier-processed  claims  (Ohvsicians,  supDliers,  etc.)  not  categorized  above)

A-1  APPENDIX  B 
1992  SMI  Services  by  Category 
SNF STAYS  MEAN 
(Projected from 1 percent sample]  WITH THIS SERVICE  ALLOWED PER 
ALLOWED  COUNT  PERcENT  SED DAY 
..  EVALUATION  $97,240,391  674,700  69%  $3.82 
  0FF3CEVISITS  ~4  97.61W  =9 
NEW  6,236,946  41,000  0.25 
ESTABLISHED  3,663,628  66,300  0.14 
9  HOSPZTALWSZTS  $13.s49.557  77.500  w 
INITIAL  848,732  9,800  0.03 
SUBSEQUENT  12,527,052  71,300  0.49 
CRITICAL CARE  173,773  1,400  0.01 
  EMERGENCYROOIUVISI!lS  ~9  42.400  mu 
  HOMEl?lSITS  $70.567  Lw  kw 
  SPECLWISTEVALUATION  U!wM!l  38.WUI  Wd4 
PATHOLOGY  1,513,675  14,100  0.06 
OPTHAMOLOGY  1,227,041  20,800  0.05 
OTHER  894,240  4,400  0.04 
  CONSULTAZTONS  $10.131.32~  W.m  ~o 
  NURS3NGHOMEV3SllS  $9.336.112  &LuQf?  m  U4 
ANESTHESIA  $2.465,554  9,600  1%  $0.10 
MAJOR  AND  MINOR MEDICAL PROCEDURES $29.960,523  122,500  12%  $1.18 
  WOR  PROCEDURES  mz&f4$  J3*5@  L%  ~9 
BREAST  134,544  100  o%  0.01 
CHOLECYSTECTOMY  14,684  100  o%  0.00 
TRANSURETHRAL RESECTION (TURP)  82,300  100  o%  0.00 
OTHER  1,971,710  6,100  1%  0.08 
CARDIOVASCULAR  3,826,233  6,300  1%  0.15 
OTHER  3,826,233  6,3W  1%  0.15 
OTHOPEDIC  1,245,974  1,900  o%  0.05 
HIP FRAC7URS REPAIR  216,4S9  300  o%  0.01 
RIP REHAcEmENr  2M,231  E  0.01 
OlllER  745,284  0.03 
~ EYEPROCEDURES  Q&U&M  G  B  u 
CATARACT  REMOVAL/LENS  INSERTION  2,272,851  900  o%  0.09 
TREATMENT  OF RETINAL LESIONS  106,842  200  o%  0.00 
OTHER  478,143  700  o%  0.02 
~ AMBZ.LWORYPROCELWUES  @3a61$.372  iua  23  w 
SKIN  4,762,243  9,800  1%  0.19 
MUSCULOSKEL~AL  650,890  1,700  o%  0.03 
INGUINAL HERNIA REPAIR  129,159  200  o%  0.01 
OTHER  8,076,080  13,700  1%  0.32 
= MINORPROCEDURES  $6.208.870  XbzQQ  ~  $&g 
SKIN  3,712,634  73,700  7%  0.15 
B-1
 SNFSTAYS  MEAN 
WITH THIS SERVICE  ALLOWED PER 
ALLOWED  COUNT  PERCENT  BED DAY 
MUSCULOSKELETAL  638,531  7,700  1 %  0.03 
ONCOLOGY  $20,746,148  12,300  lyo  $0.82 
RADIATION  THERAPY  20,562,892  10,500  1%  0.81 
ENDOSCOPY  $7,364,074  14,100  1%  $0.29 
1 oh 
UPPER GASTROINTESTINAL  (G.1.)  3,005,764  6,600  0.12 
SIGMOIDOSCOPY  136,635  1,600  0%  0.01 
COLONOSCOPY  2,233,372  2,700  o%  0.09 
CYSTOSCOPY  1,272,835  2,300  o%  0.05 
BRONCHOSCOPY  348,085  600  o%  0.01 
LARYNGOSCOPY  139,724  1,000  o%  0.01 
DIALYSIS  SERVICES  $16,156,502  12,500  1%  $0.64 
PROCEDURES  15,659,218  11,900  1 ok  0.62 
IMAGING  AND  ECHOGRAPHY  $45,304,645  312,000  32%  $1.78 
  STWDARD  Zi#XGZNG  $31.823.040  2%. 700  ~  us 
17% 
CHEST  7,578,630  170,500  0.30 
MUSCULOSKELETAL  8,834,755  131,900  13%  0.35 
BREAST  68,959  1,300  o%  0.00 
CONTRAST  GASTROINTESTINAL  (G.1.)  2,574,734  18,300  2%  0.10 
NUCLEAR  MEDICINE  1,725,879  7,600  1 %  0.07 
OTHER  1,975,380  30,100  3%  0.08 
TRANSPORT  AND  SETUP  OF X-RAY  9,064,703  91,500  9%  0.36 
EQUIPMENT 
=  ADVANCED IMAGING  $3bmQQ?  21.81M  ~  =5 
CAT  SCAN  - HEAD  4,359,456  11,400  1%  0.17 
CAT SCAN - OTHER  2,811,082  8,200  1%  0.11 
MRI - BRAIN  879,609  2,100  o%  0.03 
MRI - OTHER  734,856  1,200  o%  0.03 
  ECHOGRAPHY  &wLw  17.600  ~  $(W 
EYE  91,569  1,000  o%  0.00 
ABDOMEN/PELVIS  703,711  5,500  1%  0.03 
HEART  1,432,706  4,300  o%  0.06 
CAROTID  ARTERIES  586,324  2,600  o%  0.02 
PROSTATE,  TRANSRECTAL  16,990  200  o%  0.00 
OTHER  556,523  5,600  1%  0.02 
m IMAGING PROCEDURES  $1.308.779  ~o  &  XL@ 
HEART  (e.g.,  cardiac  catheritization)  278,450  200  o%  0.01 
OTHER  1,030,329  1,800  o%  0.04 
B-2
 SNFSTAYS  MEAN 
WITH  THIS  SERVICE  ALLOVVED  PER 
ALLOWED  COUNT  PERCENT  BED DAY 
LAB AND  OTHER  TESTS  $71,603,409  436,600  44A  $2.81 
B  LAB TESTS  $62.518.808  424,900  ~  =6 
ROUTINE  VENIPUNCTURE  3,760,398  261,900  27%  0.15 
AUTOMATED  GENERAL  PROFILES  11,949,187  253,000  26%  0.47 
URINALYSIS  1,986,947  167,100  17%  0.08 
BLOOD  COUNTS  8,001,061  256,300  26%  0.31 
GLUCOSE  1,627,472  44,300  5%  0.06 
BACTERIAL  CULTURES  6,964,804  166,000  17%  0.27 
OTHER  28,228,939  326,900  33%  1.11 
  OTHER TESTS  ~9  65.900  ~  =5 
ELECTROCARDIOGRAM  1,773,822  38,400  4%  0.07 
CARDIOVASCULAR  STRESS  TEST  42,628  600  o%  0.00 
EKG MONITORING  681,614  3,800  o%  0.03 
OTHER  3,895,545  31,700  3%  0.15 
~ SPECIMEN COLLEC170N  &WW2  208.400  ~  w 
MEDICAL  EOUIPMENT,  SUPPLIES,  $112,190,827  201,500  20%  $4.41 
PROSTHETICS,  AND  ORTHOTICS 
  DURABLE MEDICAL EQU7PMENT  $10.599,100  69,000  ~  $!242 
HOSPITAL  BEDS AND  ACCESSORIES  2,056,934  15,900  2%  0.08 
OXYGEN  EQUIPMENT  AND  SUPPLIES  3,591,583  10,800  1%  0.14 
WHEELCHAIRS  AND  ACCESSORIES  1,861,161  26,500  3%  0.07 
OTHER  DME  1,020,939  13,600  1%  0.04 
WALKERS  904,402  13,500  1%  0.04 
CANES  AND  CRUTCHES  118,657  3,600  o%  0.00 
COMMODES  609,216  8,500  1%  0.02 
SEAT/PATIENT  LIFTS  130,808  1,100  o%  0.01 
TRANCUTANEOUS/N  EURO MUSCULAR  43,991  200  o%  0.00 
ELECTRICAL  NERVE  STIMULATION  (TENS) 
PRESSURE  PADS,  CUSHIONS,  AND  261,409  2,700  o%  0.01 
MATTRESSES 
m  BRACES, TRUSSES,ARlWKX4L  LIMBS  $11.898.957  13.700  =7 
BRACES  AND  TRUSSES  5,678,758  11,500  0.22 
BRACES AND TRUSSES -BODY JACKEKS  1,131,419  1,200  0.04 
ARTIFICIAL  LIMBS  6,220,199  2,500  0.24 
  CASZS, SPLINTS, AND l?UACTUREREDUCTION  ~w  ~o 
DEVICES 
RBCUMBENTANKLE  POSITIONING SPLJNT  2,320,190  3,700  o%  0.09 
(i.e., mdi-padus) 
m  SURGIW  DRESSINGS  $!Las!m  ~w  =5 
SURGICAL  DRESSINGS  (PRIMARY)  331,716  800  0.01 
GAUZE,  BANDAGES,  AND  TAPE  2,825,298  5,900  0.11 
ADHESIVE  AND  REMOVER  3,321,664  4,600  0.13 
  PROSTHE17CDEWCES AND RELATED SUPPLY  $80.622.526  131.800  =7 
ENTERAL  NUTRITION  EQUIPMENT  AND  57,530,045  58,700  2.26 
B-3  SNF STAYS  MEAN 
WITH  THIS  SERVICE  ALLOWED  PER 
ALLOWED  COUNT  PERCENT  BED DAY 
SUPPLY 
FEEDING  SUPPLY W  AND MlSC.  SUPPLY  23,949,537  57,700  6%  0.94 
TUBING  700,335  17,700  270  0.03 
FORMULAE  24,664,781  57,900  6%  0.97 
INFUSION  PUMPS  8,215,392  41,900  490  0.32 
PARENTERAL  NUTRITION  EQUIPMENT  AND  2,599,228  400  o%  0.10 
SUPPLY 
NUWUTION SOLUTIONS  2,227,200  0.09 
INFUSION PUMPS  137.460  0.01 
ADMINISTRATION KITS @er day) AND MISC.  234;568  0.01 
SUPPLY 
MEDICAL  AND  SURGICAL  SUPPLIES  14,303,140  66,800  7$4  O.:; 
SKIN BARRIER
 216,288  2,800  o% 
LUBRICANIS
 833,024  4,800  o~o  0:03 
STERILE  SALINE
 919,116  9,000  I q.  0.04 
OSTOMY  IRRIGATION  K17X
 2,283,084  1,400  o%  0.09 
TRACHEOTOMY  CARE lU13
 814,878  1,300  o%  0.03 
APPLIANCE  CLEANER
 23,652  500  0.00 
DLWOSABLE  UNDERPADS
 238  200  :;  0.00 
SURGICAL  TRAYS
 o%  0.00 
OTHER
 8, 77;79  52,:  5%  0.35 
CATHETERS  AND  RELATED  ITEMS  4,930,637  36,700  4%  0.19 
TRACHEOTOMY  DEVICES  AND  ITEMS  317,387  900  o%  0.01 
OSTOMY  AND  RELATED  ITEMS  524,958  5,200  1%  0.02 
MISCELLANEOUS  DME  RELATED  SUPPLIES  50,512  500  o%  0.00 
OTHER  MEDICAL  DEVICES  AND  SUPPLY  366,619  1,000  o%  0.01 
AMBULANCE  $36,103,575  75,600  8%  $1.42 
BASIC  LIFE SUPPORT  TRANSPORT  20,245,753  65,300  7%  0.80 
ADVANCED  LIFE SUPPORT  9,954,273  33,100  3%  0.39 
NON-EMERGENCY  TRANSPORT  5,300,324  21,200  2%  0.21 
OXYGEN  AND  MED!CAL  SUPPLIES  603,225  19,300  2%  0.02 
CHIROPRACTIC  SERVICES  $11,298
 100  o%  $0.00 
DRUGS  AND  BIOLOGICAL  $2,259,165  19,400  2%  $0.09 
CHEMOTHERAPY  DRUGS  949,169  2,100  o%  0.04 
OTHER  DRUGS/lNJECTIONS  1,309,996  18,700  2%  0.05 
VISION  AND  HEARING  SERVICES  AND  $293,717  1,700  o%  $0.01 
SUPPLY 
VISION  SERVICES  AND  SUPPLY  293,717  1,700  o%  0.01 
REHABILITATION  THERAPY  $55,070,239  30,200  3%  $2.16 
w PHYSICAL THERAPY  $32.086.132  23.100  a  ~6 
8 OCCVPAIYONAL THERAPY  $16.095.257  11.800  ~  w 
8 SPEECH THERAPY  $6.888.850  4.700  B  =7 
RESPIRATORY  THERAPY  $12,235  400  o%  $0.00 
B-4  SNF STAYS  MEAN 
WITH  THIS  SERVICE  AUOWED  PER 
ALLOWED  COUNT  PERCENT  BED DAY 
MENTAL  HEALTH  SERVICES  $5,360,954  28,100  3%  $0.21 
PODIATRY  SERVICES  AND  ROUTINE  FOOT  $622,665  23,500  2%  $0.02 
CARE 
MISCELLANEOUS  INSTITUTIONAL  PART  B  $6,112,422  38,000  4%  $0.24 
(OUTPATIENT] 
BLOOD  AND  RELATED  SUPPLY  1,555,118  4,100  o%  0.06 
ACCOMMODATIONS  1,800  100  o%  0.00 
MISCELLANEOUS  UNDEFINED  4,214,976  33,500  3%  0.17 
INSTITUTIONAL  SERVICES 
OTHER  $776,426  16,800  2%  $0.03 
UNDEFINED  CODES  737,710  15,800  2%  0.03 
CARRIER  LOCAL  CODES  $7,772,638  42,800  4%  $0.31 
B-5
 APPENDIX  C 
1992  State  Bed  Day  Costs  and  Utilization 
SNF  COVERED DAYS  ALLOWED  SED DAY  % of STAYS 
BENEFICIARIES  STAYS  TOTAL  PERCENT  ~  WfTH  SMI 
ALABAMA  97  133  3,831  1.5%  $6,755,362  $17.63  86.0% 
ALASKA  3  3  0.0%  $32,738  $7.61  33.0% 
ARIZONA  132  165  3,3:  1.3%  $6,058,188  $18.01  79.0% 
ARKANSAS  97  2,312  0.9%  $4,562,636  $19.73  85.0% 
CALIFORNIA  9:	 1,219  26,520  10.4%  $49,780,921  $18.77  79.0% 
COLORADO  116  145  3,345  1.3%  $4,948,417  $14.79  80.0% 
CONNECTICUT  132  180  6,827  2.7%  $14,490,384  $21.23  94.0% 
DELAWARE  23  29  735  0.3%  $2,375,904  $32.33  93.0% 
DISTRICT  OF COLUMBIA  113  0.0%  $55,343  $4.90  Ioo.o% 
FLORIDA  52;  67?  18,819  7.4%  $47,478,140  $25.23  85.0% 
GEORGIA  95  129  4,405  1.7%  $7,863,700  $17.85  85.0% 
HAWAII  7  7  207  0.1%  $573,305  $27.70  71.0% 
IDAHO  1,000  0.4%  $469,379  $4.69  66.0% 
ILLINOIS  x  5;  12,611  5.0%  $22,578,139  $17.90  82.0% 
INDIANA  274  330  8,965  3.5%  $15,833,670  $17.66  80.0% 
IOWA  162  174  2,532  1.0%  &l#;~  $11.92  76.0% 
KANSAS  118  148  2,343  0.9%  $12.79  82.0% 
KENTUCKY  95  132  4,169  1.6%  $5;584;659  $13.40  73.0% 
LOUISIANA  99  124  1,856  0.7%  $6,459,883  $34.81  85.0% 
MAINE  12  14  0.1%  $114,053  71.0% 
MARYIAND  3,?:  1.2%  $7,760,926  $E:$  89.0% 
MASSACHUSHTS  2;;  ;%  9,827  3.9%  $15,260,372  $15.53  86.0% 
MICHIGAN  295  376  11,135  4.4%  $28,942,464  $25.99  90.0% 
MINNESOTA  244  326  8,131  3.2%  $8,020,712  $9.86  71 .0% 
MISSISSIPPI  1,633  0.6%  $3,192,947  $19.55  85.0% 
MISSOURI  2;;  3:;  7,017  2.8%  $12,132,267  $:.;;  80.0% 
MONTANA  40  66  1,190  0.5%  $333,979  56.0% 
NEBRASKA  1,5%  0.6%  $3,225,369  $20:21  74.0% 
NEVADA  z  :;  0.3%  $1,026,019  $12.99  84.0% 
NEW HAMPSHIRE  16  :%  0.2%  $700,244  $11.29  86.0% 
NEW JERSEY  Ifi  3,617  1.4%  $8,988,924  &  90.0% 
NEW MEXICO  ;;  23  615  0.2%  $1,236,606  65.0% 
NEW YORK  411  494  18,799  7.4%  $44,984,916  $23:93  92.0% 
NORTH CAROLINA  176  204  7,309  2.9%  $16,227,163  $;;.;:  86.0% 
NORTH DAKOTA  1,042  0.4%  $972,147  64.0% 
OHIO  G  5:  13,832  5.4%  $28,281,110  $20:45  87.0% 
OKIAHOMA  81  1,564  0.6%  $2.374,019  $15.18  77.0% 
OREGON  E  2,373  0.9%  $3,864,239  $16.28  73.0% 
PENNSYLVANIA  4;;  645  16,260  6.4%  $53,011,381  $32.60  92.0% 
PUERTO RICO  10  212  0.1%  $448,999  $21.18  75.0% 
RHODE ISLAND  41  ::  1,535  0.6%  $2,435,235  $15.86  94.0% 
SOUTH CAROUNA  65  2,553  1.0%  $8,113,384  $31.78  82.0% 
SOUTH DAKOTA  :;  924  0.4%  $1,704,265  $18.44  89.0% 
TENNESSEE  1;:  4,832  1.9%  $9,815,559  $20.31  87.0% 
TExAs  w  11,731  4.6%  $254##g  $21.69  74.0% 
UTAH  50  63  1,274  0.5%  $6.15  60.0% 
VERMONT  8  129  0.1%  $50;580  $3.92  75.0% 
VIRGINIA  11!  3,833  1.5%  $10,168,266  $26.53  93.0% 
WASHINGTON  1?;  190  3,950  1.6%  $5,559,224  $14.07  80.0% 
WESI VIRGINIA  1,613  0.6%  $2,854,498  $17.70  79.0% 
WISCONSIN  1?:  2:;  6,487  2.6%  $7,247,442  $11.17  75.0% 
WYOMING  17  22  489  0.2%  $232,301  $4.75  73.0% 
7,752  9,833  254,353  $517,427,407 
~ 
Unpiojected Data 
@m 1percmqtk) 
c-1  APPENDIX  D 
1992  Provider  Specialties  By  State 
~-of  SIF cbup  prsvWd  by Uk - w u@pti@t) 
Su Dolier  ~  Outzmtient  Physician  Ambulmce  w 
ALABAMA  36.4%  9.0%  27.0%  7.4%  13.8%  4.7% 
ALASKA  0.0%  12.9%  52.6%  3.6%  0.0%  30.9% 
ARIZONA  17.4%  5.8%  27.7%  25.6%  9.6%  10.1% 
ARKANSAS  45.5%  1.7%  23.3%  10.2%  4.6%  14.1% 
CALIFORNIA  12.8%  3.4%  33.9%  28.3%  5.8%  11.0% 
COLORADO  3.9%  7.5%  41.1%  18.8%  10.6%  15.6% 
CONNECTICUT  15.4%  5.4%  35.0%  16.5%  15.6%  4.2% 
DELAWARE  12.6%  4.8%  36.6%  19.4%  7.7%  8.7% 
DISTRICT  OF COLUMBIA  0.0%  13.0%  0.0%  0.0%  0.0%  40.6% 
FLORIDA  22.6%  5.6%  40.2%  11.4%  3.1%  10.0% 
GEORGIA  15.8%  8.6%  46.2%  8.6%  10.5%  8.1% 
HAWAII  37.1 %  2.3%  34.0%  17.5%  5.5%  3.6% 
IDAHO  0.0%  4.4%  46.4%  26. I %  0.0%  16.6% 
ILLINOIS  20.3%  5.2%  26.9%  23.0%  5.8%  12.7% 
INDIANA  19.5%  4.3%  48.2%  12.8%  4.6%  6.4% 
IOWA  18.0%  1.3%  21.2%  26.6%  2.5%  26.9% 
KANSAS  13.9%  1.8%  14.1%  27.7%  1.2%  36.7% 
KENTUCKY  49.1%  8.3%  12.8%  11.8%  5.7%  10.0% 
LOUISIANA  6.9%  0.5%  32.3 %  41.2%  1.4%  16.8% 
MAINE  7.9%  3.5%  0.0%  36.2%  0.0%  32.0% 
MARYLAND  24.9%  8.0%  30.3%  9.3%  11.5%  5.9% 
MASSACHUSETTS  12.5%  9.0%  30.0%  16.6%  11.3%  3.6% 
MICHIGAN  19.4%  4.5%  43.2%  4.7%  3.0%  7.6% 
MINNESOTA  15.6%  1.6%  50.8%  16.2%  2.2%  10.4% 
MISSISSIPPI  4.2%  3.8%  70.6%  8.6%  0.4%  11.9% 
MISSOURI  13.6%  2.6%  40.1%  23.0%  2.3%  11.7% 
MONTANA  6.6%  1.5%  0.0%  65.1 %  4.8%  21.2% 
NEBRASKA  24.0%  1.1%  45.8%  15.4%  1.8%  11.6% 
NEVADA  11.0%  5.9%  23.9%  26.9%  3.6%  16.4% 
NEW HAMPSHIRE  2.1%  7.0%  45.4%  19.2%  0.0%  5.3% 
NEW JERSEY  28.5%  9.6%  29.5%  12.6%  6.4%  3.8% 
NEW MEXICO  32.8%  1.4%  49.3%  5.6%  3.0%  7.1% 
NEW  YORK  31.6%  6.7%  19.3%  16.6%  8.7%  7.7% 
NORTH  CAROUNA  22.7%  3.5%  56.0%  7.8%  2.7%  4.9% 
NORTH  DAKOTA  25.6%  1.2%  46.6%  12.3%  2.9%  10.5% 
0!+10  17.3%  8.1%  37.5%  12.4%  7.9%  8.4% 
OKIAHOMA  27.7%  2.8%  20.4%  29.7%  1.4%  15.3% 
OREGON  12.9%  3.4%  52.9%  16.7%  3.3%  6.8% 
PENNSYLVANIA  15.1%  3.0%  45.4%  11.1%  12.3%  6.1% 
WERTO  RICO  35.8%  0.0%  0.0%  56.3%  0.0%  7.9% 
RHODE ISLAND  26.2%  10.7%  11.8%  20.8%  9.8%  2.5% 
SOUTH  CAROUNA  24.8%  2.3%  46.5%  6.1%  15.6%  3.0% 
SOUTH  DAKOTA  4.7%  2.5%  66.7%  9.4%  0.0%  14.8% 
TENNESSEE  27.2%  5.8%  40.2%  12.2%  6.7%  6.7% 
17.9%  2.5 %  39.0%  17.2%  9.8%  11.1% 
UTAH  11.0%  8.7%  0.0%  29.4%  9.2%  26.4% 
VERMONT  0.0%  0.0%  36.4%  29.1 %  0.0%  20.5% 
VIRGINIA  26.9%  4.2%  49.2%  7.0%  3.6%  6.8% 
WASHINGTON  13.9%  6.6%  35.4%  15.5%  5.0%  14.4% 
WEST  VIRGINIA  23.5%  1.0%  43.8%  15.1%  3.1%  12.0% 
WISCONSIN  23.5%  3.8%  42.0%  14.2%  4.1%  7.6% 
WYOMING  2.5%  5.8%  3.3%  43.7%  0.0%  44.8% 
D-1
 APPENDIX  E 
HCFA  COMMENTS 
,,...-,*,< 
.. +J f  DEPARTMENT  OF HEALTH  & HUMAN  SERVICES  HFienaalnthc inCga rAe dmm!scratmn
+a    Memorandum 
SE?  2  1994 
Date   
From  Bruce  C.  Vladec 
Administrator  ~* WC  & 
b 
Subject  June Gibbs  Brown 
Inspector  General 
To 
Office  of Inspector  General  (OIG)  Draft Reports:  Medicare Services  Provided  to 
Residents  of Skilled  Nursing Facilities,  AU overview:  (C)EII-06-92-00863) and 
Payment for Durable  Medical  EquipmentBilledDuringSkilled  Nursing  Facility 
sta~  (OEI-06-92-00860) 
We reviewed  the subject reports which examined  Part B services  for skilled 
nursing facility patients  md  prOvi&danoverviewof many of the abusive practices 
and program vulnerabfities  that unbundhg  of sem-ices encourages.  Our 
comments  are attached  for your consideration. 
Thank you for the opportunity  to review and comment  on these  reports.  Please 
advise  us if you would  like to discuss our position  on the reports 
recommendations  at your earliest  convenience. 
Attachment 
NOTE 
These  comments  from  HCFA  pertain  to two  OIG  reports.  Comments 
specific  to this  report  can  be found  on page  4.  Other  comments 
pertain  to our  report  entitled  Payment  for  Durable  Medical 
EquipmenBt illedDuring  Skilled  Nursing  Facility  Stays.   
E-1
 Comments  of the Health Care Financin~ Administration  (HCFA)

on Office  of Inspector General  (OIG)  Draft Re~orts:  Medicare

Services  Provided to Residents  of Skilled Nursing  Facilitiesl

An Ovewiew,  (OEI-06-92-00863)  and

Pavrnents for Durable  Medical  m uipment  (DME)

Billed  Dunn~  Skilled Nursin~ Facility (SNF? stays

[OEI-06-92-00860)

OIG Recommendation 
HCFA  should  improve  the place of service coding system.  HCFA  could: 
a)	 Develop  guidelines  which eliminate  the use of the other code for 
DME  billing, or develop  a specific list of circumstances  under which 
other may be used to bill. 
.b)	 Educate  the Durable  Medical  Equipment  Regional  Carriers 
(DMERCS)  on the accurate use of place of service  codes. 
c)	 Require  the DMERCS  to provide ongoing  education  to the suppliers 
on the accurate  use of place of seMce  codes. 
d)	 Suggest  that the DMERCS  develop  an item for inclusion  in their 
data base,  that is transmitted to the Common  Working File (CWF), 
to provide  a continuing  history of the patients  location. 
m  FA Resuonse 
a)	 We do not concur.  We believe  carriers should  have the option  to 
use the Categoy  other to indicate place-of seMce  (POS).  Further, 
it would  not be possible  to predict every possible  POS that might 
occur.  To remove  this option will impede  the claims  process  and 
unnecessarily  burden the beneficiaries  and suppliers. 
A more  appropriate  action would be to have the DMERCS  with 
data provided  by the  regional  carrier 
statistical  Analysis  DIvE 
(SADMERC),  perform reviews on  suppliers  who consistently 
those 
use the other POS category and take appropriate  action,  such as 
supplier  education,  based on the reviews. 
b)	 We concur.  We believe  that tie  how]edgeable  about 
DMERCS  are 
the use of the POS category because  of the clear requirements 
developed  for its  We believe  it is tiportant  to maintain  this 
use. 
E-2  Page 2 
knowledge,  and plan to follow-up  through routine  monitoring  and 
educational  activities. 
c)	 We concur.  Current]y, the DMERCS  actively educate  suppliers 
regularly through various methods  such ax  educational  seminars, 
newsletters  meetings,  and provider education  telephone  lines and 
bulletin  boards.  Most significantly,  the DMERCS  utilize  the supplier 
manual  as an effective  training tool, a method  not previously  used by 
local carriers. 
Each supplier who bills the DMERC  receives  a manual  and regular 
educational  updates.  The manual includes  billing  instruction 
explanations  of Medicare  rules and regulations  and explanations  of 
the DMERCS  medical  review policies. 
d)	 HCFA  concurs.  We currendy transmit the POS with eve~  claim to 
the CWF and store in the CWF.  This provides  continuing 
information  regarding the patients location.  Short of manually 
reviewing  each and every DIME claim submitted  to determine  the 
beneficiarys  true location,  which is highly i.mpractica~ we believe  a 
combination  of this metiod  and the one described  in a above  is 
appropriate. 
OIG Recommendation 
HCFA  Shcmld improve  the supplier knowledge  of beneficial  location.  HCFA 
could: 
a)	 Ensure  that the DMERCS instruct suppliers  of their responsibility  for 
determining  the location  of a beneficiary,  before  billing  Part B DME. 
b)	 Suggest  to the DMERCS  that suppliers  should be required  to verify 
the patients  location  on every claim submitted  for Part B DME,  to 
determine  if the beneficiary  is currentiy in their home  and using the 
DME. 
c)	 Require  the supplier to review the accuracy of payment  for DME 
made  during a 6-month  period. 
E-3  Page 3 
HCFA Response 
a)	 We concur.  As noted in our response  above,  we will have the 
DMERCS  use  the many educational  methods  at their disposal  (see 
c in response  above)  to remind suppliers  of this responsibility. 
b)	 We do not concur  and believe  this is impractical.  We suggest  that 
the DMERCS  perform sample reviews of claims to verify a suppliers 
record at the National  Supplier Clearinghouse  and share with the 
other  DMERCS  so that all can take appropriate  action  on that 
suppliers  claims. 
c)(cid:1) We do not concur.  By submitting  the information  on the claim,  a 
supplier  is attesting  to his or her belief  in the accuracy of the 
information.  We believe  the methods  of education  and sample 
review discussed  above are the appropriate  methods  of determining 
the acxuracy of payment made. 
f31G Recommendation 
HCFA  should  review the DMERC  processes.  HCFA  could: 
a)	 Assessthe effectiveness  of the new CWF edit of Part B DME  and 
SNF charg+  and evaluate  whether  additional  edits should  be 
developed  to review  all SNF bill% upon submission,  for overlap with 
DME  billing. 
b)	 Require  amual  review  during the first few years following  DMERC 
implementation,  of DME  billed and allowed  during an SNF  stay, to 
examine  the impact  of DMERC  implementation  on this problem. 
~CFA  Response 
a)	 We concur.  It has always been  our intention  to determine  other 
edits  that could  be put into place  to improve  this process.  We  re 
continually  striving to improve CWF editing.  We have been  waititig 
for DMERC  transition  activities  to be completed  before  making 
improvements.  It is important to establish  and stabilize  a system 
before  improving  upon it,  The final States transitioned  in July.  AS 
we finish transition-related  activities,  we will move  forward with 
improving  the edits. 
E-4
 Page 4 
b)	 We do not concur.  While -,e will strongly encourage  the DMERCS 
to examine  this prob]em, we do not believe  we should require such 
reviews.  We believe  it is important to allow the DMERCS  the 
flexibility to use the limited review resources  available  to them on 
immediate  problems they have identified  in their respective  region% 
or major problems which they have learned  of through the 
SADMERC  that may have even greater impact on the process. 
Comments  on Report (OEI-06-92-00863] 
On page  19 of the overview  repo~  a vulnerability in the definition  of extended 
care services is discussed.  The implication  is that a change  in this definition 
would  remove  the vulnerability.  We do not agree.  The cited definition  merely 
deseriies  services  that can be covered under Part A.  It does not mandate  billing 
in any particular manner.  Similar language  appears in section  1861(b)(2)  of the 
SO&l  Security Act with respect to inpatient  hospital sefice~  and does not create 
a wdnerability  there.  To achieve  the result desired  by both OIG  and HCF~  a 
statutory rebundling protilon  for SNFS (similar to that for hospitals)  is needed. 
That would  require  SNFS to bill for all services  furnished  to the residen~  thus 
preventing  beneficiaries  from paying deductibles  and coinsurance  they would not 
otherwise  incur under  Part A.  It would  also help us to develop  an effective  SNF 
prospective  payment  system by preventing  services  from being billed outside  of the 
SNF benefit, 
we  agree widI 010s  conclusions.  ~  addition, we believe  thati  (1) for many 
dually-eligible  Medicare/Medicaid  patients  based on the Medicaid  State plans 
payment  ceiling,  the Medicare  program is reimburskg  the provider fully for the 
aerviees provided  to the dually-eligiile  patien~  (2) some  of the items billed  to the 
e8niers  as DME  may have also been claimed  on the Medicare  cost report as 
eitherroutine  or ancillary medical  equipment  even bough  a supplier provided the 
equipmen~  (  because  SNFs are sowed  to unbundle  anti.lkq  servicq  we have 
not found an excessive  amount  of items and seMces  that could only be billed aa. 
routine,  being billed  in some  other payment meth~,  and (4) the excessive 
payments  for rehabilitation  setices  were made to SNFS providing  therapy servi@s 
undar arrangements  with outside  contractors  and outpatient  physical therapy 
p-m  whkh  are both paid on a coat be  ratier  than independent  therapists 
which are paid on a charge basis.  ,\ 
E-5  GLOSSARY
Artificial Limb - Replacement for a natural limb (prothesis). 
Brace - An orthopedic appliance or apparatus (orthosis), usually made of metal or leather, 
applied to the body, particularly the trunk and lower extremities, to support the weight of the 
body, to correct deformities, to prevent deformities, or to control involuntary movements, 
such as occur in spastic conditions.  In some cases bracing is needed after remedial surgery. 
Back braces are used to treat certain kinds of backache. 
Cardiac Catheterization - The insertion of a catheter into a vein or artery and guiding it into 
the interior of the heart for purposes of measuring cardiac output, determining the oxygen 
content of blood in the heart chambers, and evaluating the structural components of the heart. 
It is indicated whenever it is necessary to establish a precise and definite diagnosis in order to 
determine whether heart surgery is necessary and to plan the surgical approach. 
Carriers - Part B contractors that provide administrative services, for given geographic 
territory,  to all beneficiaries, physicians, and various suppliers of service, e.g., lab, 
ambulance, and durable medical equipment in that area that are ~t  connected with an 
institutional provider; process only claims which are paid from Medicare Part B trust funds. 
Casts - A stiff dressing or casing, usually made of plaster of Paris, used to immobilize body 
parts. 
CAT Scan - A revolutionary radiologic imaging modality that uses computer processing to 
generate an image of the tissue density in a slice about 1 centimeter thick through the 
patients body. 
Catheter - A tubular, flexible instrument passed through body channels for withdrawal of 
fluids from (or introduction of fluids into) a body cavity. 
Cholecvstectomv - Excision of the gallbladder, 
Coinsurance - The percentage of the balance of covered medical expenses that a beneficiary 
must pay after payment of the deductible.  Under Medicare Part B, the beneficiary pays 
coinsurance of 20 percent of allowed charges.  See Copayment, Deductible. 
colonoscoDY - Endoscopic examination of the colon, either transabdorninally through 
Iaparotomy, or transanally by means of a colonoscope. 
~  - A pre-payment claims validation and Medicare Part A/Part B 
benefit coordination system which uses localized data bases maintained by a host contractor; 
the host contractor provides Medicare contractors within a geographic area (referred to as 
sector) with beneficiary entitlement and eligibility data. 
Glossary - ~  Contractor  - Private  health  insurers, State, and public or private organizations which process 
Medicare claims and make payments to providers  of  services  and  to  beneficiaries. 
Co~aYment- The sum of coinsurance and deductibles.  Altermtively,  a fixed dollar amount 
per service that is the responsibility of the beneficiary.  See Coinsurance, Deductible. 
Current Procedural Terminolosw (CPT) - The coding system for physicians services 
developed by the American Medical Association; basis of the HCPCS coding system for 
physicians services.  See Coding, HCFA Common Procedures Coding System. 
Customarv Charge - The amount physicians or suppliers usually bill patients for furnishing 
particular services or supplies. 
Customarv, Prevailing. and Reasonable (CPR] - One method used for reimbursement of 
services which typically limit reimbursements for services to the lowest of the providers 
actual charge, the providers customary charge for comparable services, or the prevailing 
charge in the area. 
Cvstoscotlv - Examination of the bladder by means of a cystoscope, a hollow metal tube that 
is introduced into the urinary meatus and passed through the urethra and into the bladder.  At 
the end of the cystoscope is an electric bulb that illuminates the bladder interior.  By means of 
special lens and mirrors the bladder mucosa is examined for inflammation, calculi, or tumors. 
Deductible - A specified amount of covered medical expenses that a beneficiary must pay 
before receiving benefits.  In 1992, Medicare Part B had an annual deductible of $100. 
Diamosis-Related  Grou~ (DRG] - The prospective payment system established using one price 
for each DRG based on diagnosis and other characteristics.  System used to classifi  patients 
into clinically coherent and homogeneous groups that use similar resources.  Prices are 
established in advance for the coming year, and hospitals are paid these prices regardless of 
the costs they actually incur. 
Discharge - The termination of a period of inpatient SNF or the formal release of the inpatient 
by the hospital. 
Dressing - Any of various  materials  used  for covering  and protecting  a wound.  A pressure 
dressing is used for maintaining constant pressure, as in the control of bleeding.  A protective 
dressing is applied to shield a part from injury or from septic infection. 
Durable Medical Eaui~ment (DME~ - Medicare-covered items such as oxygen equipment, 
wheelchairs, and other medically necessary equipment prescribed by a doctor for a patients 
in-home use. 
Electrocardiomam  - The record produced by Electrocardiography,  a tracing representing the 
hearts electrical action derived by amplification of the minutely small electrical impulses 
normally generated by the heart. 
Glossa~  -2  End  Stage  Renal Disease (ESRD) - Individuals who have chronic kidney disease requiring

renal dialysis or a kidney transplant are considered to have end stage renal disease.  To

quali~  for Medicare coverage, such individuals must be filly  or currently insured under social

security or the railroad retirement system or be the dependent of an insured person.

Eligibility for Medicare coverage begins the third month after the month in which a course of

renal dialysis begins.  Coverage may begin sooner, if the patient participates in a self-care

dialysis training program provided by an approved facility.  Also, coverage may begin on

admittance to a hospital to receive a kidney transplant or to receive dialysis before the

transplant.

l%homa~hv  - Ultrasonography,  the use of ultrasound  as a diagnostic  aid.  Ultrasound  waves 
are directed  at the tissues  and a record  is made,  as on an oscilloscope,  of the waves  reflected 
back through the tissues, which indicate interfaces of different acoustic densities and thus, 
differentiate between solid and cystic structures. 
Endosco~v - Visual examination of interior structures of the body with an endoscope. 
Enteral  - Within,  by way of,  or pertaining  to the small  intestine. 
Evaluation and Mana~ement Service - A nontechnical service provided by most physicians for 
the purpose of diagnosing and treating diseases and counseling and evaluating patients. 
Fee for Service  - A system  of paying  physicians  for individual  medical  services  rendered,  as 
opposed  to paying  them  salaries  or cavitation  payments.  The CpR  payment  system  and the 
Medicare  Fee  Schedule  are examples  of fee for service  payment  methods.  See Customary, 
Prevailing,  and Reasonable;  Fee Schedules. 
Fee Schedules  - A predetermined  flat maximum  payment  amount  for individual  procedure 
codes  within  a type of service.  States may develop  Medicaid  fee schedules  or adopt  Medicare 
fee schedules. 
Global  Service  - A package  of clinically  related  services  treated  as a unit for purposes  of 
billing,  coding,  or payment. 
HCFA Common Procedure Codhw Svstem  (HCPCS) - A coding system based on CPT, but 
supplemented with additioml  codes; required for coding by Medicare carriers.  See Current 
Procedural Terminology. 
~  - A large, centralized,  and complex  data processing  environment 
where  state-of-the-art  technology  is being used,  including  computer  hardware,  operating 
systems,and data communications  networks;  ma@ains  databases  on the various  contractor 
report  items  and uses that  information  to generate  subsequent  reports  for HCFA  and DHHS 
managers  use. 
Home  Health  A~encv  (HHA]  - A public  or private  agency  that specializes  in giving  skilled 
nursing  services  and other  therapeutic  services,  such as physical  therapy,  in your home; 
Medicare will pay for such services provided certain conditions are met. 
Glossary -3  Home  Health  Services  - Home  health  services  are services  and items  furnished  in patients 
homes  under  the care of physicians.  These  services  are furnished  by home  health  agencies  or 
by others  under  arrangements  made by home  health  agencies.  Services  are furnished  under  a 
plan established  and periodically  reviewed  by a physician.  The services  include  part-time  or 
intermittent  skilled  nursing  care;  physical,  occupational,  or speech  therapy;  medical  social 
services;  medical  supplies  and appliances  (other  than drugs  and biological);  home  health  aid 
services;  and services  of interns  and residents. 
HQSJX-EA womm  operated W a public w=y  or privatew=y~ationwhich  engages 
primarily  in providing  pain relief,  symptom  management,  and supportive  services  for 
terminally  ill people  and their  families. 
ICD-9-CM  - International  Classification  of Diseases,  9th Revision,  Clinical  Modification.  A 
statistical  coding  classification  system used  to measure  the incidence  of disease,  injury,  and 
illness. 
-g  - The production  of diagnostic  images. 
Intermediaries  - Contractors  that perform  Medicare  administrative  services  for institutional 
providers,  i.e.,  hospitals,  SNFS,  HHAs,  and hospices.  See Home  Health  Agency,  Hospice, 
Skilled  Nursing  Facility. 
Larvnzoscorw - The direct visual examination of the larynx with a laryngoscope. 
Limitimr Charze  - The maximum  amount  that a nonparticipating  physician  is permitted  to 
charge  for a service;  a limit  on balance  billing.  Starting  in 1993, the limiting  charge  will be a 
flat percentage  of the Medicare  Fee Schedule  amount  paid to nonparticipating  physicians. 
Maior  Diamostic  Categories  (MDCS) - A classification  system  which  groups  the 467  DRGs 
into 23 categories  based  on body  systems  (e.g.,  nervous  system,  respiratory  system,  etc.)  and 
disease  origin.  See Diagnostic-Related  Group. 
Medicaid  - A health  care program  cooperatively  administered  by Federal  and State 
governments  to provide  medical  assistance  to eligible  needy  individuals. 
Medical  Review  (MR)  - A contractor  activity  performed  as part  of the claims  processing 
function  to determine  the medical  necessity  of services  provided  to beneficiaries. 
Medicare  Economic  Index  {MEI) - An index that tracks  changes  over  time  in physician 
practice  costs  and general  earnings  levels.  From  1975 through  1991,  increases  in prevailing 
charge  screens  were  limited  to increases  in the MEI. 
Medicare  Fee Schedule  - The resource-based  fee schedule  currently  used  by Medicare  to pay 
for physicians  services. 
Occu~ational Therauv - Services designed to restore self-care, work, and leisure skills to 
patients/clients who have specific performance incapacities or deficits that reduce their abilities 
to cope with the tasks of everyday living. 
Glossary -4  OncoloEv - The  sum of knowledge  regarding  tumors;  the study of tumors. 
_  - General  term  for an operation  in which  an artificial  opening  is formed,  as in 
colostomy,  ureterostomy,  etc. 
Other  Practitioners  Services  - Health  care services  of licensed  practitioners  other  than 
physicians  and dentists. 
Ortho~edic - Pertaining to the correction of deformities of the musculoskeletal system; 
pertaining to orthopedics. 
Outpatient  - A person  who comes  to the hospital,  clinic,  or dispensary  for diagnosis  and/or 
treatment  but does  not occupy  a bed. 
Outpatient Hosuital Services - Outpatient hospital services are preventive, diagnostic, 
therapeutic,  rehabilitative,  or palliative services that are furnished to outpatients under the 
direction of a physician or dentist by an institution that is licensed or formally approved as a 
hospital by an officially designated authority for State standard-setting and meets the 
requirements for participation in Medicare as a hospital. 
Paid Amount  - The portion  of a submitted  charge  that is actually  paid by both  third-party 
payers  and the insured,  including  copayments  and balance  bills.  See Submitted  Charge. 
Parenteral  - Not through  the alimentary  canal,  e.g.,  by subcutaneous,  intramuscular, 
intrasternal,  or intravenous  injection. 
Part A of Medicare  - The hospital  insurance  portion  of Medicare;  established  by section  1811 
of title XVIII  of the Social  Security  Act of  1965, as amended;  covers  inpatient  hospital  care, 
skilled  nursing  facility  care,  some home health  agency  services,  and hospice  care. 
Part  B of Medicare  - The supplementary  or  doctors  insurance  portion  of Medicare; 
established  by section  1831 of title XVIII  of the Social  Security  Act of  1965,  as amended; 
covers  services  of physicians/other  suppliers,  outpatient  care,  medical  equipment  and supplies, 
and other  medical  services  not covered  by the hospital  insurance  part  of Medicare. 
Periodic  Interim Pavment (PIP) System - A system used by intermediaries to pay providers,  in 
which estimated Medicare reimbursement for the year is divided into equal, regularly spaced 
payment amounts; enables a provider to manage its cash flow more easily. 
Physical  Theratw  - The examination,  treatment,  and instruction  of persons  in order  to detect, 
assess,  prevent,  correct,  alleviate,  and lid  physical  disability,  bodily  malfimction,  and pain 
from  injury,  disease,  and any other  bodily  and mental  conditions.  The practice  of physical 
therapy  includes  the administration,  interpretation,  and evaluation  of tests  and measurements 
of bodily  functions  and structures  and planning,  administration,  evaluation,  and modification 
of treatment  and instruction,  including  the use of physical  measures,  activities,  and devices  for 
preventive  and therapeutic  purposes. 
Glossary -5  Physician  Services  - Services  furnished  by,  or under  the direction  of a licensed  doctor  of 
medicine  or osteopathy  in the State where  the services  are performed.  Physician  services  may 
be provided  in the physicians  office,  the recipients  home,  a hospital,  or a nursing  facility. 
Podiatry  - The specialized  field dealing  with  the study and care of the foot,  including  its 
anatomy,  pathology,  medical  and surgical  treatment,  etc. 
Premium  - An amount  paid periodically  to purchase  medical  insurance  benefits;  for Medicare 
Part  B services  in  1992, beneficiaries  paid a premiumof$31.80  per month. 
PrinciDal Diagnosis  - The condition  established  after study to be chiefly  responsible  for 
occasioning  the admission  of the patient  to the hospital  for care. 
Professional  Com~onent  - The part of a relative  value or fee that presents  the cost  of a 
physicians  interpretation  of a diagnostic  test or treatment  planning  for a therapeutic 
procedure.  See Technical  Component. 
Oualified  Medicare  Beneficiaries  (0 MBs~ - QMBs  are elderly  or disabled  persons  whose 
incomes  are at or below  specified  percentages  of the Federal  poverty  level. 
Radiation  Therauy  - The treatment  of disease  by ionizing  radiation.  The purpose  of radiation 
therapy  is to deliver  an optimal  dose of either  particulate  or electromagnetic  radiation  to a 
particular  area of the body  with minimal  darnage  to normal  tissues.  The source  of radiation 
may be outside  the body  of the patient  (external  radiation  therapy)  or it may be an isotope  that 
has been  implanted  or instilled  into abnormal  tissue  or a body cavity. 
Reci~ient - An individual who has been determined to be eligible for Medicaid and who has 
used medical services covered under Medicaid. 
Relative Value Scale (RVS) - An index that assigns weights to each medical service; the 
weights represent the relative amount to be paid for each service.  The RVS used in the 
development of the Medicare Fee Schedule consists of three cost components:  Malpractice 
Expense, Medicare Fee Schedule, and Physician Work/Practice  Expense. 
Relative  Work  Value  (RWV)  - An assigned  value that reflects  the average  work  of a physician 
of average  efficiency  relative  to an arbitrary  standard.  See Relative  Value  Scale. 
Retroswxtive  Cost-Based  Reimbursement  - A method  of payment  for hospitals/SNFs  based  on 
the  reasonable  costs  incurred  for providing  covered  services  to beneficiaries  in the preceding 
year(s). 
Satellite  Contractors  - All Medicare  contractors  are  satellites  in the common  work  file 
(CWF)  system;  this term  is used  to describe  a Medicare  contractors  relationship  to the CWF 
Host  as a satellite  sends  and receives  data from  the CWF  database  maintained  by the Host; 
See Common  Working  File. 
Glossary  -6  Sector  - A geographically  defined  area consisting  of one Host contractor  and its satellite 
contractors.  Sector  is based  on historical  geographic  claims  processing  patterns;  there  are 9 
sectors  nationwide.  See Common  Working  File,  Satellite  Contractor. 
Severity  of Illness  Index  - A measure  to reflect  the relative  level of loss of function  and 
mortality  normally  caused  by a particular  illness. 
SiEmoidosco~y  - Direct  examination  of the interior  of the sigmoid  colon. 
Speech  Thera~v  - Therapy  by a professional  trained  to identi~,  assess,  and rehabilitate 
persons  with  speech  or language  disorders  such as articulation,  language,  voice,  or stuttering 
problems. 
&L@  - A rigid  or flexible  appliance  for f~ation  Of displaced  or movable  parts. 
State Buv-In  - This  is the term  given to the process  by which  a State provides  supplementary 
medical  insurance  and/or  hospital  insurance  coverage  for its needy,  eligible  persons  by paying 
their Medicare  premiums  through  an agreement  with the Federal  Government. 
Stress  Test  - A technique  for evaluating  circulatory  response  to physical  stress  produced  by 
exercise.  The procedure  involves  continuous  electrocardiographic  monitoring  during  physical 
exercise,  the objective  being  to increase  the intensity  of physical  exertion  until  a target  heart 
rate is reached  or signs and symptoms  of cardiac  ischemia  appear. 
Submitted  Charge  - The actual  charge  submitted  to the patient  or a payer.  See Paid  Amount. 
Su@ementarv  Medical  Insurance  Promam  (SMI)  - See Part  B (of Medicare). 
&!PQ!@ - A provider  Of health  care services,  other  than a practitioner,  that is permitted  to bill 
under  Medicare  Part  B.  Suppliers  include  independent  laboratories,  durable  medical 
equipment  providers,  ambulance  services,  orthotists,  prosthetists,  and portable  x-ray 
providers. 
Technical  Component  - The part  of a relative  value  or fee for a diagnostic  test or therapeutic 
procedure  that represents  the costs  of performing  the service,  excluding  the physicians 
interpretation  or treatment  planning.  See Professioml  Component. 
Title  XVIII  of Social  Securiw  Act - Passed  by Congress  in  1965, and subsequently  amended; 
provides  statutory  authority  for the Medicare  program.  Both section  1816 (Part  A) and 
section  1842 (Part  B), provide  for the  use of public agencies  or private  organizations  for 
the administration  of benefits  on behalf  of the Secretary. 
Title  XIX - The Medicaid  program. 
Tracheotomy  - Creation  of an opening  into the trachea  through  the neck,  with  insertion  of an 
indwelling  tube to facilitate  passage  of air or evacuation  of secretions. 
Gkmsary - ~  Transcutaneous/Neuromuscular  Electrical  Nerve  Stimulation  (TENS)  - A procedure  in which 
mild  electrical  stimulation  is applied  by electrodes  in contact  with the skin over  a painful  area. 
The stimulation  interferes  with the transmission  of pain  signals  and helps  to suppress  the 
sensation  of pain  in the area.  Current  is supplied  by a hand-held,  battery-operated  pulse 
generator. 
Transurethral  Resection  (TURP)  - Resection  of the prostate  by means  of an instrument  passed 
through  the urethra. 
Truss  - An elastic,  canvas,  or metallic  device  for retaining  a reduced  hernia  within  the 
abdominal  cavity. 
LhM@- TO bill  for a service  that is paid more  than the service  ac~ally  provided. 
Urinalysis  - Analysis  of the urine  as an aid in the diagnosis.  Many  types  of tests  are used  in 
analyzing  the urine  in order  to determine  whether  it contains  abnormal  substances  indicative  of 
disease. 
Gkmsary  -8