Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JANUARY 2001 

OEI-07-99-00510 

Balance Billing for Medical Equipment and 

Supplies 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), mandated by Public Law 95-452, as 

amended by Public Law 100-504, is to protect the integrity of the Department of Health and 

Human Services programs as well as the health and welfare of beneficiaries served by them. This 

statutory mission is carried out through a nationwide program of audits, investigations, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary of program 

and management problems and recommends legislative, regulatory, and operational approaches to 

correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Kansas City office prepared this report under the direction of Brian T. Pattison, Deputy 

Regional Inspector General. Principal OEI staff included: 

REGION 

Tricia Fields, Project Leader

Michael Craig, Program Analyst

Zula Crutchfield, Program Analyst

Joe Penkrot, Team Leader

Elander Phillips, Program Inspections Assistant

Marco Villagrana, Program Analyst

Deborah Walden, Team Leader

HEADQUARTERS 

Stuart Wright, Director, Medicare and 

Medicaid Branch

Barbara Tedesco, Mathematical Statistician

Scott Horning, Program Analyst

To obtain copies of this report, please call the Kansas City Regional Office at (816) 426-3697. 

Reports are also available on the World Wide Web at our home page address: 

http://www.hhs.gov/oig/oei/ 
EXECUTIVE SUMMARY 

PURPOSE 

To determine the effects and level of Medicare beneficiary awareness of balance billing for 

durable medical equipment and supplies. 

BACKGROUND 

Part B of the Medicare program covers outpatient services and items, including durable 

medical equipment, prosthetics, orthotics, and supplies (DMEPOS). Under Medicare Part 

B, physicians and suppliers submit both assigned and non-assigned claims for these 

services and items. For assigned claims, physicians and suppliers agree to accept the 

amount allowed by Medicare as full payment. Medicare pays 80 percent of this amount 

directly to the physician or supplier and the beneficiary pays 20 percent (plus any 

outstanding deductible). In non-assigned claims, the physician or supplier bills the 

beneficiary for the total charge for the service or item provided, which can exceed the 

amount allowed by Medicare. Medicare pays the beneficiary 80 percent of the allowed 

amount; the beneficiary pays all remaining charges. We define balance billing as the 

portion of the charge in excess of the Medicare allowed amount. 

Participating physicians and suppliers may voluntarily enter into an agreement to submit 

assigned claims for all services and items provided to Medicare beneficiaries. 

Non-participating physicians and suppliers may submit assigned or non-assigned claims on 

a case-by-case basis. Physicians may not balance bill in excess of 115 percent of the 

allowed physician fee schedule amount. However, no such limitations exist on balance 

billing by suppliers. 

We reviewed a random sample of non-participating suppliers and non-assigned claims. 

We conducted telephone surveys with beneficiaries and mail surveys with suppliers. We 

asked beneficiaries questions about selecting their supplier, awareness of the difference 

between assigned and non-assigned claims and participating and non-participating 

suppliers, and if they compared prices and services among suppliers. Questions we asked 

suppliers include reasons they choose not to be a participating Medicare supplier and 

factors that determine whether to accept assignment. 

FINDINGS 

Beneficiaries Paid $41 Million Above the Medicare Allowed Amounts for Medical 

Equipment and Supplies 

As stated above, there is no limitation on balance billing by suppliers as there is for 

physicians. Medicare beneficiaries faced balance billing liabilities of approximately 

Balance Billing for DMEPOS i OEI-07-99-00510 
$41 million, $30 million of which was above 115 percent of the Medicare allowed 

amounts (the limit that applies to physicians), from nearly 3 million non-assigned 

DMEPOS claims submitted in 1999. These claims comprise 5 percent of the number and 

3 percent of the dollar amount of medical equipment and supply claims overall. Medicare 

beneficiaries with recurring (as opposed to one-time) needs were responsible for roughly 

twice the costs on non-assigned claims than those with assigned claims. For these 

beneficiaries, medical equipment and supplies are recurring expenses which may be 

incurred for the remainder of their lives. For non-assigned claims, suppliers usually 

require Medicare beneficiaries to pay upon delivery. One-third of surveyed beneficiaries 

do not have supplemental insurance that might pay for some portion of out-of-pocket 

expenses for these items. 

Most Surveyed Beneficiaries Are Unaware of Differences in Assigned and 

Non-assigned Claims and Participating and Non-participating Suppliers 

Only two out of every five beneficiaries know that if they choose a participating supplier 

or a supplier that accepts assignment on a particular item, they pay only the outstanding 

deductible and 20 percent co-insurance. Few beneficiaries select their DMEPOS supplier 

based on cost considerations. 

Sixty-two Percent of Suppliers Are Not Participating Medicare Suppliers 

More than half of the suppliers surveyed state that low reimbursement is a reason they 

choose not to be a participating Medicare supplier. Furthermore, 42 of these 

100 suppliers also state that reimbursement levels are below cost on certain supplies. 

Ostomy supplies were specifically identified by surveyed suppliers as a category of items 

with low or below cost reimbursement. Based on a review of 1999 claims data, we found 

that ostomy supplies have a higher non-assigned rate than supplies overall. 

RECOMMENDATIONS 

In order to increase beneficiary access to participating suppliers and reduce financial liability for 

DMEPOS, we make the following recommendations to HCFA. 

Educate Beneficiaries on Ways to Reduce Financial Liability 

We recommend that HCFA educate beneficiaries on the options and consequences of 

assigned and non-assigned claims and purchasing medical equipment and supplies from 

participating and non-participating suppliers. We suggest, for example, that HCFA direct 

the durable medical equipment regional carriers (DMERCs) to send an annual notice to 

Medicare beneficiaries for whom a non-assigned claim was submitted containing an 

explanation of assigned and non-assigned claims, participating and non-participating 

suppliers, and the availability of the Medicare Participating Suppliers Directory. Another 

suggestion is that HCFA direct the DMERCs to add a notation to the Medicare Summary 

Notice on non-assigned claims that the beneficiary may be able to reduce their financial 

Balance Billing for DMEPOS ii OEI-07-99-00510 
liability for medical equipment and suppliers by purchasing from a supplier that accepts 

assignment on the item. 

Re-evaluate Medicare Fee Schedules for Ostomy Supplies 

We recommend that HCFA re-evaluate the Medicare fee schedules for ostomy supplies. 

After receiving survey responses from 15 suppliers stating that reimbursement is very low 

or below cost for ostomy supplies, we conducted an analysis of 1999 claims data for these 

supplies. We found that ostomy supplies have a higher rate of non-assignment than 

DMEPOS overall, and also have a high percentage of claims submitted in excess of 

115 percent of the allowed amount. 

Other Considerations 

We offer to HCFA other suggestions that could help decrease beneficiary financial liability 

for medical equipment and supplies. However, these would require additional study and 

analysis. They include exploring ways of increasing the participation rate of suppliers, 

increasing beneficiary access to suppliers, and developing legislation to limit balance billing 

on medical equipment and supplies. 

AGENCY COMMENTS 

HCFA concurred with our recommendations. HCFA stated that they have undertaken a 

number of efforts to increase beneficiary education and awareness about the consequences 

of assigned and non-assigned claims. HCFA also stated that the Participating Physician 

Directory is available online, and that directory will be expanded in 2001 to include 

supplier information. 

HCFA stated that it will continue to explore options to increase beneficiary awareness. 

We suggest that HCFA consider, as one of these options, a more direct approach to reach 

Medicare beneficiaries who purchase medical equipment and supplies from 

non-participating suppliers that submit non-assigned claims, such as an annual notice 

and/or a notation on the Medicare Summary Notice for a non-assigned claim. 

HCFA stated that it is committed to examining the payment for ostomy supplies once it 

has published a final rule concerning its inherent reasonableness authority. We note that 

HCFA could evaluate the appropriateness of the fee schedules while waiting for the 

issuance of the final rule. 

Balance Billing for DMEPOS iii OEI-07-99-00510 
TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY .............................................. i

INTRODUCTION ................................................ 2

FINDINGS

Beneficiaries Paid $41 Million in Balance Billing ........................ 6

Beneficiaries Unaware of the Differences .............................. 9

Majority of Suppliers Are Not Participating ............................ 9

RECOMMENDATIONS .......................................... 12

APPENDICES

A: Confidence Intervals for Key Estimates ........................... 15

B: Agency Comments ........................................... 16

Balance Billing for DMEPOS 1 OEI-07-99-00510 
INTRODUCTION 

PURPOSE 

To determine the effects and level of Medicare beneficiary awareness of balance billing for 

durable medical equipment and supplies. 

BACKGROUND 

Part B of the Medicare program covers outpatient services and items, including durable 

medical equipment, prosthetics, orthotics, and supplies (DMEPOS). DMEPOS include 

medical equipment and supplies such as wheelchairs, hospital beds, catheters, ostomy and 

wound care supplies, and enteral and parenteral nutrition. In 1999, Medicare Part B paid 

an estimated $6.2 billion for medical equipment and supplies. 

Suppliers 

Medicare only pays for DMEPOS that are prescribed or ordered by a physician. The 

Medicare beneficiary then selects a supplier from which to rent or purchase the item. 

Types of suppliers include: discount retail chains such as Wal-Mart, home medical 

equipment businesses and pharmacies, and mail order companies. Suppliers can be large 

corporations or small proprietorships. Some suppliers sell only medical equipment and 

supplies, while others sell a wide variety of merchandise of which DMEPOS comprise a 

small percentage of total sales for the retailer. 

Assigned and Non-assigned Claims 

Under Medicare Part B, suppliers submit both assigned and non-assigned claims. For 

assigned claims, suppliers agree to accept the amount allowed by Medicare as full 

payment. Medicare pays 80 percent of this amount directly to the supplier and the 

beneficiary pays 20 percent plus any outstanding deductible. In non-assigned claims, the 

supplier bills the beneficiary for the total charge for the service or item provided, which 

can exceed the amount allowed by Medicare. In 1999, 5 percent of DMEPOS claims 

were submitted non-assigned, equating to approximately 3 million claims and allowed 

charges of $160 million. For these claims, Medicare pays the beneficiary 80 percent of the 

allowed amount, less any deductible not yet met. The beneficiary must pay the supplier 

directly the amount billed irrespective of the allowed amount. We define balance billing as 

the portion of the charge in excess of the Medicare allowed amount. 

Durable Medical Equipment Regional Carriers 

In October 1993, the Health Care Financing Administration (HCFA) began processing 

Part B claims for medical equipment and supplies through four durable medical equipment 

regional carriers (DMERCs). Each DMERC processes durable medical 

Balance Billing for DMEPOS 2 OEI-07-99-00510 
equipment claims for a specific geographic region and ensures that all coverage 

requirements for medical equipment and supplies are met before approving payment. Any 

HCFA directives to change payment processing for DMEPOS claims are implemented 

through the DMERCs. 

Medicare Participation Program 

The Deficit Reduction Act of 1984 established a participating physician and supplier 

program for Medicare Part B, under which a physician or supplier may choose whether or 

not to become a “participating” Medicare physician or supplier on an annual basis. 

Participating physicians and suppliers voluntarily enter into an agreement to accept 

assignment for all services and items they provide to Medicare beneficiaries. 

Non-participating physicians and suppliers may submit assigned or non-assigned claims on 

a case-by-case basis, but must accept assignment whenever a Medicare beneficiary also 

has Medicaid coverage. 

Each DMERC publishes a Medicare Participating Suppliers Directory (MEDPARD) 

which lists the name, business address, and telephone number for each participating 

supplier in its region. 

Limiting Charges and Balance Billing 

Currently, physicians who are non-participating Medicare physicians receive only 

95 percent of the Medicare allowed amount; however, they may bill up to 115 percent of 

this amount. This limit protects Medicare beneficiaries from excessive balance billing on 

non-assigned claims. As of January 1999, 85 percent of physicians billing Medicare were 

participating physicians. 

Suppliers are not subject to limits on balance billing for medical equipment and supplies. 

There are no limits on the amount suppliers can charge beneficiaries, nor is there a 

reduction in payments to non-participating suppliers. 

Payment for Upgraded Equipment 

While Medicare will pay for items that are adequate and effective to meet the medical 

needs of the beneficiary, it will not pay extra for convenience or luxury features. For 

example, Medicare will pay for eyeglass frames, wheelchairs, and hospital beds which 

meet the medical needs of the beneficiary. However, Medicare will not pay for upgraded 

versions that cost in excess of Medicare allowed amounts for items such as premium 

eyeglass frames and total electric hospital beds. 

Currently, a participating Medicare supplier or a supplier that accepts assignment on the 

item must accept the allowed amount as full payment for the upgraded item. If a supplier 

wishes to charge and collect a greater price for upgraded DMEPOS, they must be a 

non-participating supplier and submit a non-assigned claim. Medicare then pays the 

beneficiary 80 percent of the allowed amount, less any outstanding deductible. The 

Balance Billing for DMEPOS 3 OEI-07-99-00510 
beneficiary is then responsible to the supplier for the full payment price of the upgraded

item.

On April 27, 2000, HCFA issued a proposed rule for comment regarding the payment

procedure for upgraded equipment. The proposed rule would amend the Medicare

regulations to permit suppliers to furnish upgrades while still submitting an assigned claim. 

Medicare would pay the supplier the allowed amount for the standard item less

20 percent co-insurance and any outstanding deductible, and the beneficiary would pay the

difference between the supplier’s charge for the upgraded item and 80 percent of the

allowed amount for the standard item.

METHODOLOGY 

To determine the effects and level of Medicare beneficiary awareness of balance billing, 

we reviewed non-participating suppliers and non-assigned claims. We selected a stratified 

random sample of 150 (plus 150 spares) non-assigned DMEPOS claims from a 1 percent 

sample of the Medicare Part B National Claims History file for the period September 1 -

November 30, 1999. This gave us a sample of beneficiaries along with the suppliers that 

provided medical equipment or supplies to these beneficiaries. 

We contacted beneficiaries or their caregivers associated with 150 claims.1 As shown in 

the table on the following page, we chose 50 of the claims with the submitted amount 

between 101 and 115 percent of the allowed amount. The remaining 100 claims had the 

submitted amount in excess of 115 percent of the allowed amount. The 115 percent 

threshold was chosen because it is the limit in effect for physician services. We chose a 

larger sample size for claims submitted in excess of 115 percent of the allowed amount 

because these items were of greater interest in our study. 

1 We used 23 spares in stratum 1 and 60 spares in stratum 2 to replace beneficiaries that did not respond 

after multiple attempts to contact them. We also replaced seven claims that were identified as assigned 

claims during the survey process. 

Balance Billing for DMEPOS 4 OEI-07-99-00510 
Strata NonUniverse of 

assigned 

claims 

claims in 1 

Number of 

percent file 

Claim 

SupplierCombinations 

Size 

Sample 

1. Claims for procedure codes for 

which the submitted amount is 

between 101% and 115% of the 

Medicare allowed amount 

601,090 1,198 100 50 

2. Claims for procedure codes for 

which the submitted amount is in 

excess of 115% of the Medicare 

allowed amount 

1,117,839 2,213 200 100 

Some beneficiaries had more than one claim in the sample. Therefore, we surveyed 

138 different beneficiaries or caregivers, representing 150 claims. We asked the 

beneficiaries and caregivers questions regarding the reasons they selected their supplier, 

their awareness of the difference between assigned and non-assigned claims and 

participating and non-participating suppliers, and whether they compared prices and 

services among suppliers. We also asked about the method of payment for their supply or 

equipment, how often they purchased it, and whether it was a recurring expense for the 

beneficiary. 

Out of 300 supplier-claim combinations, 27 claims were dropped for administrative 

reasons; for example, some claims were submitted by beneficiaries that received their 

DMEPOS from suppliers that do not possess a Medicare provider identification number 

(some beneficiaries choose to purchase from suppliers that do not have the capacity to bill 

Medicare directly). We surveyed the remaining sample of 273 supplier-claim 

combinations by mail and received 216 responses (79 percent) representing 176 unique 

suppliers. We asked questions on the type of equipment and supplies provided, the 

reasons the supplier chose not to be a participating Medicare supplier, and factors that 

determined whether to accept assignment on a particular claim. We also asked the 

suppliers to estimate the percentage of claims they bill non-assigned and requested copies 

of supplier billing and payment information for the sample of beneficiary claims to 

determine the amount balance billed to the beneficiary and the amount collected by the 

supplier. 

We systematically analyzed the survey responses from Medicare beneficiaries and medical 

equipment suppliers. We calculated confidence intervals for seven key estimates in the 

report. The point estimate and 95 percent confidence interval for each estimate are listed 

in Appendix A of this report. 

We conducted this inspection in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

Balance Billing for DMEPOS 5 OEI-07-99-00510 
FINDINGS 

Beneficiaries paid $41 million above the Medicare allowed 

amounts for medical equipment and supplies 

Medicare beneficiaries experience greater financial liability on non-assigned claims than 

assigned claims because suppliers can bill more than the Medicare allowed amount on nonassigned claims. There is no limitation on balance billing by suppliers as there is for 

physicians. Projected from claims in the 1999 1 percent file, Medicare beneficiaries faced 

balance billing liabilities of approximately $41 million, $30 million of which was above 115 

percent of the Medicare allowed amounts (the limit that applies to physicians), from nearly 

3 million non-assigned DMEPOS claims. These claims comprise 5 percent of the number 

and 3 percent of the dollar amount of medical equipment and supply claims overall. 

High volume, low cost items predominate 

We arrayed the non-assigned claims in the 1 percent file from highest to lowest frequency. 

The table below identifies the items comprising the top 50 percent of claims in terms of 

frequency along with the total and average amount suppliers balance billed for these items. 

Projected to the universe of non-assigned claims, the five items account for 22 percent of 

the total amount balance billed in 1999. 

Top 50 Percent of Claims Frequency 

Projected from the 1999 1 Percent File2 

Item HCFA 

Billing 

Code 

Number 

of Claims 

Total Balance Billing Average Balance 

Billing per Claim 

Glucose testing strips A4253 887,000 $3,152,708 $3.55 

Bifocal lenses V2203 154,400 $1,952,556 $12.65 

Lancets A4259 148,900 $178,270 $1.20 

Ostomy wafers 

(protective skin 

barrier) 

A5123 134,500 $735,852 $5.47 

Eyeglass frames V2020 114,400 $3,137,511 $27.43 

2 The frequency and dollar projections are based on the billing codes submitted for the claims. Multiple 

HCFA billing codes exist for items similar to the above (e.g., additional billing codes exist for bifocal 

lenses). 

Balance Billing for DMEPOS 6 OEI-07-99-00510 
Few claims have high balance billing 

We also arrayed the non-assigned DMEPOS claims based on highest average balance 

billing per claim. Projected to the universe of non-assigned claims, these 6,100 claims 

account for $4,919,524 in balance billing, or 12 percent of the total dollars balance billed 

for claims submitted in 1999. The table below identifies the items balance billed in excess 

of $500 in terms of frequency along with the total and average amount suppliers balance 

billed for these items. 

Claims Balance Billed in Excess of $500 

Projected from the 1999 1 Percent File 

Item HCFA Billing 

Code 

Number of 

Claims 

Total Balance 

Billing 

Average Balance 

Billing per 

Claim 

Desferal injection, 

(deferoxamine 

mesylate) 

J0895 500 $995,120 $1,990.24 

Flolan injection, 

(epoprostenol) 

J1325 1,000 $172,440 $1,724.40 

Oxygen 

concentrator 

E1404 600 $694,270 $1,157.12 

Above knee 

prosthetic 

L5320 100 $109,093 $1,090.93 

Power operated 

vehicle 

E1230 1,800 $1,575,922 $875.51 

Prosthetic eye V2623 1,000 $804,621 $804.62 

Infusion pump for 

epoprostenol 

K0455 100 $67,253 $672.53 

Motorized 

wheelchair with 

programmable 

controls 

K0011 1,000 $500,805 $500.81 

Note: This table, like the previous one, is based on a simple projection of the 1 percent file. Some 

estimates are based on a very small number of claims. 

Sampled claims reflect the universe 

Our sample is reflective of the universe of DMEPOS claims with balance billing. Over 

one-half of our claims have balance billing amounts under $10. The table on the next page 

shows the amount of balance billing per claim for the 150 claims in our sample. 

Balance Billing for DMEPOS 7 OEI-07-99-00510 
Amount of Balance Billing per Claim Number of Claims in 

Sample 

Distribution of Claims 

less than $5 60 40% 

between $5 and $10 25 17% 

between $10 and $20 34 23% 

between $20 and $50 20 13% 

between $50 and $100 6 4% 

between $100 and $200 4 3% 

greater than $300 1 less than 1% 

Total 150 100% 

Most non-assigned claims are for recurring needs 

In our survey, we asked beneficiaries to identify the claim(s) as either a one-time or

recurring expense. We found that 84 percent of non-assigned claims are for recurring

needs. Beneficiaries for 35 percent of these recurring non-assigned claims report ordering

the item monthly or more frequently. Examples of these items include ostomy supplies

and diabetic testing supplies. For these beneficiaries, these supplies are recurring

expenses which may be incurred for the remainder of their lives.

Medicare beneficiaries with recurring needs are responsible for roughly twice the costs on

non-assigned DMEPOS claims than the beneficiaries with assigned claims. The average

financial liability per claim for non-assigned recurring claims is $16.73. If these claims had

been assigned, the beneficiaries would have had an average of $8.50 financial liability. At

a minimum, this amounts to $98.73 more per year financial liability per claim for these

beneficiaries. Each beneficiary, on average, had responsibility for 

39 percent of the allowed amount per claim, as opposed to 20 percent liability (plus any

outstanding deductible) on the allowed amount for an assigned claim.

Examples of items for the remaining 16 percent of non-assigned claims that beneficiaries

identified as a one-time expense include eyeglass frames and lenses, breast prostheses, and

walkers. While we did not ask the beneficiaries whether or not they considered these

items to be “upgraded,” eyeglass frames and lenses and ambulatory aids such as walkers

have the potential to include convenience or luxury features.

Suppliers expect immediate payment from Medicare beneficiaries 

Beneficiaries experience a lag time in reimbursement from Medicare and supplemental 

insurance companies for non-assigned claims. However, for non-assigned claims, 

suppliers commonly require Medicare beneficiaries to pay for DMEPOS upon delivery. 

The beneficiary then awaits reimbursement from Medicare and any supplemental 

Balance Billing for DMEPOS 8 OEI-07-99-00510 
insurance companies. One-third of surveyed beneficiaries report that they do not have 

supplemental insurance that might pay some portion of out-of-pocket expenses 

(e.g., co-insurance and deductible) for DMEPOS. 

Most surveyed beneficiaries are unaware of differences in 

assigned and non-assigned claims and participating and 

non-participating suppliers 

Because Medicare beneficiaries are unaware of the differences in assigned and 

non-assigned claims and participating and non-participating suppliers, they may not 

understand the financial consequences of their decisions. Only 44 percent of beneficiaries 

we surveyed know there are differences in financial liability between assigned and nonassigned claims. Only 41 percent know that if they choose a participating supplier or a 

supplier that accepts assignment on a particular item, they pay only 20 percent coinsurance, plus any outstanding deductible. At the conclusion of our telephone surveys, 

some beneficiaries remarked that they had never thought about the potential to save 

money by purchasing from a participating supplier or one that accepts assignment on the 

item. 

Few beneficiaries select their DMEPOS supplier based on cost considerations 

Medicare beneficiaries may be able to limit their financial liability by comparing prices

among suppliers. Less than one-third of the surveyed beneficiaries compare prices and

services among suppliers before purchasing supplies or equipment. Forty-four percent of

the beneficiaries (61 of 138) state that the close proximity of the supplier to their residence

was a factor in their decision to select a supplier. Forty-one percent 

(57 of 138) conducted business with the supplier in the past and chose to select that

supplier again for the sampled claim. Also, 14 percent (20 of 138) of the surveyed

beneficiaries state that they chose their supplier because it was the only supplier in their

area which provided the particular item. Some beneficiaries also said they chose their

supplier based on a recommendation of medical personnel.

Sixty-two percent of suppliers are not participating Medicare 

suppliers 

According to the Statistical Analysis Durable Medical Equipment Regional Carrier, which

compiles and analyzes national claims history data for equipment and supplies, 

62 percent of suppliers were not participating Medicare suppliers for claims submitted

with dates of service in 1999. These non-participating suppliers submitted 66 percent of

DMEPOS claims, although only 5 percent of all claims were non-assigned. The rate of

non-participation has increased each year since 1996 when 55 percent of suppliers did not

Balance Billing for DMEPOS 9 OEI-07-99-00510 
participate. We found no particular concentration of non-participating Medicare suppliers 

in a geographic area. 

Surveyed suppliers cite low reimbursement as a reason for non-participation 

Fifty-seven percent (100 of 176) of the suppliers surveyed (i.e., suppliers that submitted at 

least one non-assigned claim during the sample period) state that low reimbursement is a 

reason they choose not to be a participating Medicare supplier. Of these 100 suppliers 42 

also state that reimbursement levels are below cost on certain supplies (we did not 

independently verify suppliers’ responses and, therefore, cannot attest to whether 

reimbursement is indeed below cost). When projected to the universe of non-assigned 

claims, 56 percent of non-assigned claims are linked to suppliers who report that low 

reimbursement is a reason to not become a Medicare participating supplier. Other reasons 

cited by suppliers include difficult bookkeeping or inadequate staffing for collections from 

beneficiaries and time lags in receiving reimbursement from Medicare and supplemental 

insurance companies. Some suppliers also state that beneficiaries desire additional 

quantities or premium products not approved by Medicare. 

As stated previously, we reviewed non-participating suppliers and non-assigned claims. 

Sixty-one percent of surveyed suppliers estimate that they bill non-assigned on at least half 

of their Medicare claims. Twenty-seven percent bill non-assigned on every Medicare 

claim. When projected to the universe of non-assigned claims, 57 percent of claims are 

submitted by suppliers that bill non-assigned on at least half of their Medicare claims. One 

explanation for the rate of non-assignment being so high for some suppliers may be that 

the nature of business for large discount retail chains is payment at the time of sale rather 

than awaiting future reimbursement. 

Claims for ostomy supplies have a higher non-assigned rate than supplies overall 

As noted earlier, 5 percent of all claims were submitted non-assigned in 1999. In contrast, 

for the ostomy supplies group, 29 percent of Medicare claims were submitted nonassigned. Of the 5 percent of claims submitted as non-assigned, 38 percent have the 

submitted amount in excess of 115 percent of the allowed amount. Ostomy supplies have 

61 percent of claims with the submitted amount in excess of 115 percent of the allowed 

amount, although they account for only approximately 20 percent of non-assigned 

DMEPOS claims. 

In our mail survey, we asked suppliers to list the factors that determine whether to bill a 

particular item assigned or non-assigned. Fifteen suppliers specifically volunteered that 

ostomy supplies reimbursement is either low or below cost. One supplier provided an 

example of low reimbursement on ostomy pouches shown on the following page. 

Balance Billing for DMEPOS 10 OEI-07-99-00510 
HCPCS A5063 

Manufacturer’s Suggested Retail Price $27.40

Medicare allowed amount $21.30 

Less: Cost of supply from distributor $20.18 

Overhead and claim processing $ 5.25 

Loss to supplier - $ 4.13 

In this case, the supplier submitted a non-assigned claim and charged the beneficiary 

$27.40. 

Balance Billing for DMEPOS 11 OEI-07-99-00510 
RECOMMENDATIONS 

Medicare beneficiaries incur financial liability for durable medical equipment and supplies. 

Many beneficiaries also purchase items on a recurring basis that may be used for the 

remainder of their lives. In some cases, the financial liability may be a hindrance to 

beneficiaries receiving medical equipment and supplies they need. The majority of 

surveyed beneficiaries are not aware of the differences between assigned and 

non-assigned claims and participating and non-participating suppliers. Having such an 

understanding may increase beneficiary access to participating Medicare suppliers and 

decrease their financial liability. As such, we make the following recommendations to 

HCFA. 

Educate beneficiaries on ways to reduce financial liability 

Medicare beneficiaries can decrease their financial liability for medical equipment and 

supplies by purchasing from a participating supplier or a supplier that accepts assignment 

on a particular item. We recommend that HCFA educate beneficiaries on the options and 

consequences of assigned and non-assigned claims and purchasing medical equipment and 

supplies from participating and non-participating suppliers. We suggest, for example, that 

HCFA direct the DMERCs to send an annual notice to Medicare beneficiaries for whom a 

non-assigned claim was submitted containing an explanation of assigned and non-assigned 

claims, participating and non-participating suppliers, and the availability of the Medicare 

Participating Suppliers Directory. Another suggestion is that HCFA direct the DMERCs 

to add a notation to the Medicare Summary Notice on 

non-assigned claims that the beneficiary may be able to reduce their financial liability for 

medical equipment and supplies by purchasing from a supplier that accepts assignment on 

the item. 

Re-evaluate Medicare fee schedules for ostomy supplies 

After receiving survey responses from fifteen suppliers stating that reimbursement is very 

low or below cost for ostomy supplies, we conducted an analysis of 1999 claims data for 

these supplies. We found that ostomy supplies have a higher rate of non-assignment than 

DMEPOS overall, and also have a high percentage of claims submitted in excess of 

115 percent of the allowed amount. We understand that HCFA is committed to 

examining the payment for ostomy supplies once it has published a final rule concerning its 

inherent reasonableness authority. We note that HCFA could evaluate the appropriateness 

of the fee schedules while waiting for the issuance of the final rule. 

Balance Billing for DMEPOS 12 OEI-07-99-00510 
Other Considerations 

In addition to the above recommendations, HCFA may want to consider ways to increase 

the participation rate of suppliers, increase beneficiary access to suppliers, and limit 

excessive balance billing to help decrease beneficiary financial liability for medical 

equipment and supplies. We recognize these are complex problems, and may require 

additional study and analysis. 

In 1999, 85 percent of physicians billing Medicare were participating physicians. This 

percentage has gradually increased since 1996. In contrast, only 38 percent of suppliers 

participated in 1999, with a trend of decreasing participation since 1996. As stated earlier, 

non-participating suppliers submitting non-assigned claims commonly require beneficiaries 

to pay for medical equipment and supplies upon delivery. Beneficiaries then experience a 

lag time in reimbursement from Medicare and supplemental insurance companies. 

Purchasing from a participating supplier alleviates the lag time, because the supplier bills 

the beneficiary only the outstanding deductible and 20 percent co-insurance. Then the 

supplier awaits reimbursement from Medicare and supplemental insurance companies. 

We note that, currently, non-participating physicians receive 95 percent of the Medicare 

allowed fee schedule amount. Implementing a 5 percent reduction in payments to 

non-participating suppliers could provide some incentive for suppliers to participate. This 

would require passage of legislation. 

As previously noted, some surveyed beneficiaries state that they chose their supplier 

because it was the only supplier in their area which provided the particular item. In order 

to improve beneficiary access to participating suppliers, HCFA could explore ways to 

increase access to other suppliers (e.g., suppliers which accept mail order). 

Another seemingly logical option for decreasing beneficiary financial liability for medical 

equipment and supplies might be to develop legislation to institute limiting charges on 

them. Since January 1, 1993, charges for physician services have been limited to 

115 percent of the Medicare allowed amount. This limit protects beneficiaries from 

excessive balance billing on non-assigned claims. We recognize that while on the surface 

such legislation for medical equipment and supplies could be beneficial, there may be 

potential negative outcomes (e.g., beneficiaries may not be able to purchase upgraded 

items, or suppliers may choose not to offer items on which they lose money). 

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Agency Comments 

HCFA provided written comments to this report, the full text of which are included in 

Appendix B. HCFA concurred with our recommendations. 

Educate beneficiaries on ways to reduce financial liability--HCFA agreed that 

educating beneficiaries is of utmost importance. HCFA stated that it has undertaken a 

number of efforts to increase beneficiary education and awareness of assigned and nonassigned claims, such as: 

< publishing a pamphlet entitled, “Does your doctor or supplier accept assignment?”, 

< discussing the importance of acceptance of assignment by doctors and suppliers as it 

relates to cost savings in several pages of the booklet entitled “Medicare & You 

2001”, and 

< posting an online Participating Physician Directory containing the names, addresses, 

and specialities of Medicare participating physicians who have agreed to accept 

assignment. 

HCFA stated that the directory will be expanded in 2001 to include supplier information, 

and that they will continue to explore options to increase beneficiary awareness. We 

suggest that HCFA consider, as one of these options, a more direct approach to reach 

Medicare beneficiaries who purchase medical equipment and supplies from 

non-participating suppliers that submit non-assigned claims, such as an annual notice 

and/or a notation on the Medicare Summary Notice for a non-assigned claim. 

Re-evaluate Medicare fee schedules for ostomy supplies--HCFA stated that it is 

committed to examining the payment for ostomy supplies once it has published a final rule 

concerning its inherent reasonableness authority. We note that HCFA could evaluate the 

appropriateness of the fee schedules while waiting for the issuance of the final rule. 

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APPENDIX A 

Confidence Intervals for Key Estimates

We calculated confidence intervals for seven key estimates. The point estimate and 

95 percent confidence interval are given for each of the following: 

Key Estimate Point Estimate Confidence Interval 

Claims linked to suppliers who report low 

reimbursement is a reason not to become a 

Medicare participating supplier 

56% +/-7% 

Claims submitted by suppliers that bill 

non-assigned on at least half of their Medicare 

claims 

57% +/-7% 

Claims submitted for beneficiaries who state the 

DMEPOS are recurring expenses which will be 

incurred for the remainder of their lives 

84% +/-6% 

Recurring expense claims for which 

beneficiaries report ordering monthly or more 

frequently 

35% +/-8% 

Mean financial liability to beneficiary for claims 

recurring monthly or more frequently 

$16.73 +/-$3.72 

Mean financial liability to beneficiary for claims 

recurring monthly or more frequently, if 

assigned 

$8.50 +/-$2.25 

Yearly per claim financial liability to beneficiary 

for claims recurring monthly or more frequently 

$98.73 +/-$23.11 

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APPENDIX B 

Agency Comments

In this appendix, we present comments from the Health Care Financing Administration. 

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