Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

A REVIEW OF CLAIMS FOR 

CAPPED RENTAL DURABLE 

MEDICAL EQUIPMENT 

 

Daniel R. Levinson 

Inspector General 

August 2010 

OEI-07-08-00550 
 EXECUTIVE SUMMARY 

OBJECTIVES

1. To determine the extent to which Medicare erroneously allowed 

claims for routine maintenance and servicing of beneficiary-rented 

and beneficiary-owned capped rental durable medical equipment 

(DME). 

2. To determine the extent to which Medicare erroneously allowed 

claims for repairs of beneficiary-rented capped rental DME. 

3. To determine the extent to which Medicare allowed claims for 

repairs of beneficiary-owned capped rental DME that failed to meet 

payment requirements. 

4. To determine the extent to which Medicare claims for repairs of 

beneficiary-owned capped rental DME were questionable (i.e., were 

missing information or had costly repairs relative to replacement 

costs). 

5. To describe how certain DME supplier practices adversely affected 

beneficiaries with high-cost repairs. 

BACKGROUND 

DME is medical equipment that can withstand repeated use, serves a 

medical purpose, is not useful in the absence of an illness or injury, and 

is appropriate for home use. Pursuant to statute, regulation, and CMS 

guidance, DME suppliers may receive payments for maintenance and 

servicing, including repairs, only in certain circumstances. The Deficit 

Reduction Act of 2005 (DRA) made changes to some of the 

circumstances under which suppliers may receive payments for these 

services. CMS contracts with Medicare Administrative Contractors 

(MAC) for processing and payment of Medicare claims. 

This study used three separate methodologies to address the five 

objectives: (1) we reviewed the population of allowed routine 

maintenance and servicing claims and allowed claims for repairs of 

beneficiary-rented capped rental DME for the period 2006–2008 

(objectives 1 and 2), (2) we reviewed suppliers’ records for a sample of 

492 allowed claims for repair of beneficiary-owned capped rental DME 

in 2007 (objectives 3 and 4), and (3) we conducted structured interviews 

with beneficiaries and reviewed supplier records for high-cost repairs 

(allowed repair claims in excess of $5,000) in 2007 (objective 5). 

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EXECUTIVE SUMMARY 

FINDINGS 

From 2006 to 2008, Medicare erroneously allowed $2.2 million for 

routine maintenance and servicing of capped rental DME with rental 

periods after implementation of the DRA. Medicare erroneously 

allowed 31,939 maintenance and servicing claims amounting to 

$2.2 million. Medicare has never allowed payments for maintenance 

and servicing for beneficiary-rented equipment, and the DRA effectively 

eliminated routine maintenance and servicing for beneficiary-owned 

DME with rental periods that began after January 1, 2006. 

From 2006 to 2008, Medicare erroneously allowed nearly $4.4 million 

for repairs for beneficary-rented capped rental DME. Medicare 

erroneously allowed 40,452 claims amounting to nearly $4.4 million for 

repairs of beneficiary-rented capped rental DME. Medicare has never 

allowed payments for repairs of beneficiary-rented capped rental DME; 

the costs of repairs are already included in the monthly rental payments 

to suppliers. 

In 2007, Medicare allowed nearly $27 million for repair claims of 

beneficiary-owned capped rental DME that failed to meet payment 

requirements. Of the $90 million allowed for capped rental DME repair 

claims in 2007, nearly $27 million was for claims associated with 

payment errors. Our review of supplier records indicate that 27 percent 

of allowed repair claims for beneficiary-owned capped rental DME in 

2007 lacked medical necessity, service, or delivery documentation or 

represented repairs to DME still under manufacturer or supplier 

warranties. 

In 2007, Medicare allowed nearly $29 million for questionable repair 

claims for capped rental DME. Of the $90 million allowed for capped 

rental DME repair claims in 2007, nearly $29 million were for claims 

that were questionable because of missing information and high dollar 

allowed amounts for repairs relative to replacement costs. These claims 

represent 49 percent of all allowed claims for repair of capped rental 

DME in 2007. 

Supplier practices adversely affected some beneficiaries with 

high-cost repairs. Beneficiaries with high-cost allowed repairs with 

whom we spoke reported that some suppliers failed to properly 

customize power mobility devices (PMD), rendering the PMDs useless to 

them, and that other suppliers did not offer loaner equipment when 

repairing PMDs, leaving some beneficiaries immobile. Some 

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EXECUTIVE SUMMARY 

beneficiaries reported difficulties in contacting suppliers, and record 

reviews indicated that suppliers charged some beneficiaries service fees 

for repairs of capped rental DME. Finally, other beneficiaries reported 

that suppliers failed to provide instructions about the proper use of 

their equipment and information about repair charges. 

RECOMMENDATIONS 

CMS should take action to reduce erroneous payments and ensure 

quality services for beneficiaries. To accomplish this, we recommend 

that CMS: 

Implement an edit to deny claims for routine maintenance and 

servicing of capped rental DME with rental periods beginning after 

January 1, 2006. 

Implement an edit to deny claims for repair of beneficiary-rented 

capped rental DME. 

Improve enforcement of existing payment requirements for 

beneficiary-owned capped rental DME. 

Consider whether to require MACs to track accumulated repair 

costs of capped rental DME. 

Develop and implement safeguards to ensure that beneficiaries 

have access to the services they require. 

Take appropriate action on erroneously allowed claims for 

maintenance and servicing, repair, and payment errors. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its written comments on the report, CMS agreed that maintaining 

strong and effective controls to ensure accurate payment of capped 

rental DME claims is essential. CMS responded positively to each of 

our six recommendations and indicated that, in general, it will work to 

improve its comprehensive oversight of capped rental maintenance and 

servicing. 

In response to the first and second recommendations, CMS stated that 

it had implemented claim edits previously to instruct contractors to 

deny claims for maintenance and servicing but will conduct further 

systems analysis and implement additional edits, as required, to ensure 

these claims are denied. 

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EXECUTIVE SUMMARY 

In response to the third recommendation, CMS concurred and said it 

will communicate the policy of nonpayment of claims for repairs and 

maintenance for items under a manufacturer’s or supplier’s warranty to 

contractors and suppliers. 

In response to the fourth recommendation, CMS agreed to consider the 

feasibility of requiring MACs to obtain serial numbers of repaired 

equipment and track accumulated repair costs. 

In response to the fifth recommendation, CMS stated that it will issue 

guidance to DME suppliers advising them that beneficiaries should not 

be charged service fees above the capped rental fee unless an Advanced 

Beneficiary Notice is signed. 

In response to the sixth recommendation, CMS concurred and said it 

will send information about the erroneously allowed claims to the 

contractors. 
 TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

From 2006 to 2008, Medicare erroneously allowed $2.2 million for 

routine maintenance and servicing of capped rental DME with 

rental periods after implementation of the DRA . . . . . . . . . . . . . . 13 

From 2006 to 2008, Medicare erroneously allowed nearly 

$4.4 million for repairs for capped rental DME during 

rental periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

In 2007, Medicare allowed nearly $27 million for repair claims for 

beneficiary-owned capped rental DME that failed to meet 

payment requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

In 2007, Medicare allowed nearly $29 million for questionable 

repair claims for beneficiary-owned capped rental DME . . . . . . . 17 

Supplier practices adversely affected some beneficiaries with 

high-cost repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 

Agency Comments and Office of Inspector General Response . . . 23 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 

 A: Point Estimates and Confidence Intervals . . . . . . . . . . . . . . . . 25 

B: Case Examples of Allowed Claims That Failed to Meet 

 Payment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 

C: Net Payment Errors and Questionable Claims . . . . . . . . . . . . 28 

D: Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
 

 INTRODUCTION 

OBJECTIVES 

1. To determine the extent to which Medicare erroneously allowed 

claims for routine maintenance and servicing of beneficiary-rented 

and beneficiary-owned capped rental durable medical equipment 

(DME). 

2. To determine the extent to which Medicare erroneously allowed 

claims for repairs of beneficiary-rented capped rental DME. 

3. To determine the extent to which Medicare allowed claims for 

repairs of beneficiary-owned capped rental DME that failed to meet 

payment requirements. 

4. To determine the extent to which Medicare claims for repairs of 

beneficiary-owned capped rental DME were questionable (i.e., were 

missing information or had costly repairs relative to replacement 

costs). 

5. To describe how certain DME supplier practices adversely affected 

beneficiaries with high-cost repairs. 

BACKGROUND 

DME is medical equipment that can withstand repeated use, is used 

primarily and customarily to serve a medical purpose, generally is not 

useful to a person in the absence of an illness or injury, and is 

appropriate for use in the home.1, 2 Medicare coverage of DME is 

subject to the requirement that the equipment be necessary and 

reasonable for treatment of an illness or injury or to improve the 

functioning of a malformed body member.3 Medicare guidance states 

that the reasonable useful lifetime of DME should be at least 5 years,4

after which a beneficiary may elect to obtain a replacement.5 

1 42 CFR § 414.202; Centers for Medicare & Medicaid Services (CMS), Medicare Benefit 

Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15, § 110.1. Accessed online at 

http://www.cms.gov on January 22, 2010. 

2 42 CFR § 414.210(b); there are six categories of DME: (1) capped rental DME, (2) DME 

requiring frequent or substantial servicing, (3) prosthetics and orthotics supplies, 

(4) inexpensive or routinely used DME not exceeding $150, (5) customized equipment, and 

(6) oxygen and oxygen equipment. 

3 Social Security Act (the Act) § 1862(a). 

4 42 CFR § 414.210(f)(1). 

5 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2.C. Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

Capped rental DME is a category of DME for which Medicare 

contractors pay DME suppliers a fee schedule amount that is “capped” 

after a certain number of continuous months of rental to a Medicare 

beneficiary.6 Examples include power mobility devices (PMD),7 hospital 

beds, continuous positive airway pressure devices, commodes, and 

walkers. The Medicare statute governing capped rental items 

specifically provides for payments for the maintenance and servicing of 

capped rental equipment. Repairs are included within the category of 

maintenance and servicing.8 During the beneficiaries’ use of capped 

rental DME, Medicare will pay for maintenance and servicing, including 

repairs, depending on when the capped rental DME was first rented, 

who owns the DME, and what types of repairs need to be made. 

The Deficit Reduction Act of 2005 and Maintenance and Servicing 

The implementation of the Deficit Reduction Act of 2005 (DRA) altered 

Medicare coverage of routine maintenance and servicing (generally 

every 6 months) of capped rental equipment. 

Coverage of maintenance and servicing during the rental period. Both 

before and after the implementation of the DRA, Medicare did not cover 

maintenance and servicing during the rental period, “since [suppliers] of 

equipment recover from the rental charge the expenses they incur in 

maintaining in working order the equipment they rent out ....” 9 

Coverage of maintenance and servicing of beneficiary-owned equipment. 

Both before and after the implementation of the DRA, Medicare covered 

nonroutine maintenance and servicing costs of capped rental DME after 

the beneficiary had obtained the title to the equipment.10 CMS has 

determined that under the maintenance and servicing provisions of the 

DRA applicable to beneficiary-owned equipment, repairs necessary to 

6 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 20, § 30.5. Accessed online at http://www.cms.gov on January 22, 2010. 

7 PMDs include power wheelchairs and scooters. 

8 The Act § 1834(a)(7)(A)(iv). CMS, Medicare Benefit Policy Manual (Internet Only 

Manual), Pub. 100-02, ch. 15, §§ 110.2.A and B; CMS, Medicare Claims Processing Manual

(Internet Only Manual), Pub. 100-04, ch. 20, § 10.2. Accessed online at http://www.cms.gov

on January 22, 2010. 

9 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2. Accessed online at http://www.cms.gov on January 22, 2010. 

10 The Act § 1834(a) (pre- and post-DRA); 42 CFR §§ 414.229(e) and (f); and CMS, 

Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15, § 110.2. 

Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

make the equipment serviceable are covered.11 Further, “extensive 

maintenance which ... is to be performed by authorized technicians” is 

covered as a repair. However, “routine periodic servicing, such as 

testing, cleaning, regulating, and checking ... is not covered.”12 The 

Medicare statute has never provided for routine maintenance and 

servicing of beneficiary-owned equipment, yet prior to implementation 

of the DRA, it did allow for routine maintenance and servicing of 

supplier-owned equipment (an option that the DRA eliminated for 

capped rental DME). 

Coverage of maintenance and servicing of supplier-owned equipment. 

Prior to the implementation of the DRA on January 1, 2006, 

beneficiaries had to choose at the 10th month of rental to either 

(1) assume ownership after 13 months of continuous rental or (2) permit 

the DME supplier to retain ownership. If the supplier retained 

ownership after 15 months of continuous rental, the supplier was 

required to continue providing the item to the beneficiary free of charge 

for the period of medical necessity.13 In the case of power-driven 

wheelchairs, beneficiaries also had the option to purchase the DME on a 

lump-sum basis in lieu of rental.14 The Medicare statute provided for 

payments every 6 months to suppliers for the cost of routine 

maintenance and servicing of supplier-owned equipment after the rental 

period.15 These routine maintenance and servicing claims, designated 

with the MS modifier,16 began 6 months after the end of the final rental 

11 42 CFR § 414.229(e)(3) (containing the pre-DRA rule). See also CMS’s implementation 

of the pre-DRA rule in its Medicare Benefit Policy Manual (Internet Only Manual), 

Pub. 100-02, ch. 15, § 110.2.A. Accessed online at http://www.cms.gov on January 22, 2010. 

12 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2. Accessed online at http://www.cms.gov on January 22, 2010. 

13 The Act § 1834(a)(7)(A) (pre-DRA); 42 CFR § 414.229(d) (containing the pre-DRA rule). 

See also CMS’s implementation of the pre-DRA rule in its Medicare Claims Processing 

Manual (Internet Only Manual), Pub. 100-04, ch. 20, § 30.5. Accessed online at 

http://www.cms.gov on January 22, 2010. 

14 Ibid. 

15 The Act § 1834(a)(7)(A) (pre-DRA), 42 CFR § 414.229(e) (containing the pre-DRA rule), 

and CMS, Medicare Benefits Policy Manual (Internet Only Manual), Pub. 100-02, ch. 15, § 

110.2. Accessed online at http://www.cms.gov on January 22, 2010. 

16 Modifiers are used when the information provided by a Healthcare Common Procedure 

Coding System (HCPCS) code needs to be supplemented to identify specific circumstances 

that may apply to an item or a service. 

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INTRODUCTION 

month or after the end of the period the item was no longer covered 

under the supplier or manufacturer warranty, whichever was later.17 

The Office of Inspector General (OIG) released the report Medicare 

Maintenance Payments for Capped Rental Equipment

(OEI-03-00-00410) in June 2002. In that report, OIG reviewed 

Medicare claims from 2000 and found that DME suppliers provided 

actual service for only 9 percent of claims for maintenance and 

servicing. Medicare would have saved $98 million of the $102 million 

allowed for maintenance and servicing during 2000 if it instead had 

allowed only for repairs as needed. 

4 

ed 

Subsequently, section 5101(a) of the DRA revised the payment rules for 

capped rental DME to reduce Medicare expenditures and beneficiary 

coinsurance.18 The DRA eliminated the option for suppliers to keep the 

title to capped rental DME after 15 months of continuous rental. The 

DRA also eliminated a supplier’s ability to bill every 6 months for 

routine maintenance and servicing of supplier-owned equipment with 

new rental periods beginning January 1, 2006.19 Consequently, the 

only maintenance and servicing payments with the MS modifier allow

after January 1, 2006, should be for supplier- owned capped rental DME 

with rental periods beginning prior to that date.20 

Repair of Beneficiary-Owned Capped Rental DME 

When ownership of the capped rental item is transferred to the 

beneficiary, Medicare allows for repair when necessary to make the 

17 42 CFR § 414.229(e)(2) (containing the pre-DRA rule); see also CMS’s implementation 

of the pre-DRA rule in its Medicare Benefits Policy Manual (Internet Only Manual), 

Pub. 100-02, ch. 15, § 110.2.B. Accessed online at http://www.cms.gov on January 22, 2010. 

18 CMS, Fact Sheet: Changes to Medicare Payment for Oxygen Equipment, Oxygen 

Contents, and Capped Rental Durable Medical Equipment. November 1, 2006. Accessed 

online at http://www.cms.gov on January 22, 2010. 

19 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

change request 5461 (February 2, 2007). Accessed online at http://www.cms.gov on 

January 22, 2010. 

20 CMS, Medicare Claims Processing (Internet Only Manual), Pub 100-04, Change 

Request 5461. Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

equipment serviceable.21, 22 In 2007, Medicare allowed 679,000 claims 

amounting to $90.1 million for repairs of capped rental DME.23 

Payment requirements. Medicare pays for repairs of capped rental DME 

that beneficiaries own when those repairs are necessary to make it 

serviceable.24 Medicare covers repairs up to the cost of replacement for 

medically necessary equipment owned by the beneficiary.25 Medicare 

does not allow for routine, periodic maintenance of beneficiary-owned 

equipment, such as testing, cleaning, and regulating of equipment.26 

Medicare also does not pay for parts and labor covered by a supplier or 

manufacturer warranty.27 If the expense for repairs exceeds the 

estimated expense of purchasing or renting another item for the 

remaining period of medical need, no payment can be made for the 

amount of excess.28 

Repair claims can cover the following: 

 replacement of the DME; 

 replacement parts for the DME (e.g., a new motor for a PMD); 

and/or 

 labor costs associated with repairing the DME, replacing the DME, 

or repairing parts of the DME.29 

21 The Act § 1834(a)(7)(A)(iv); 42 CFR §§ 414.210(e)(5) and 414.229(f)(3). 

22 CMS, Medicare Benefits Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2.A. Accessed online at http://www.cms.gov on January 22, 2010. 

23 Capped rental DME during rental periods were identified by one of three modifiers: 

KH (first rental month), KI (second rental month), and KJ (rental months 3 to 13). 

24 42 CFR §§ 414.210(e)(1) and 414.229(f)(3); Medicare Benefits Policy Manual, 

Pub. 100-02, ch. 15, § 110.2.A; and CMS, Medicare Claims Processing Manual (Internet 

Only Manual), Pub. 100-04, ch. 20, § 10.2. Accessed online at http://www.cms.gov on 

January 22, 2010. 

25 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2.C. Accessed online at http://www.cms.gov on January 22, 2010. 

26 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2.B. Accessed online at http://www.cms.gov on January 22, 2010. 

27 42 CFR §§ 414.210(e)(1) and 414.229(f)(3). 

28 CMS, Medicare Benefit Policy Manual (Internet Only Manual), Pub. 100-02, 

ch. 15, § 110.2.A. Accessed online at http://www.cms.gov on January 22, 2010. 

29 CMS, Provider Inquiry Assistance Changes in Payment for Oxygen Equipment as a 

Result of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 and 

Additional Instructions Regarding Payment for Durable Medical Equipment Prosthetics 

Orthotics & Supplies (DMEPOS), Pub. 100-20, Change Request 6297, December 23, 2008. 

Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

6 

) 

ages.31

In 2007, repair claims for replacement parts should have used the 

HCPCS modifier RP (repair) in conjunction with the HCPCS code for 

the replacement part.30 Repair claims for labor costs should use 

HCPCS code E1340. Payment allowances for the HCPCS code E1340

are based on a fee schedule (one unit of service for 15 minutes of labor

and are adjusted to reflect local w

When suppliers (including DME suppliers) accept Medicare assignment, 

they accept Medicare reimbursement as payment in full and should not 

collect more than the deductible and coinsurance from beneficiaries.32 

They should not bill beneficiaries for service fees to repair capped rental 

DME.33 Suppliers receive additional reimbursement when they loan 

DME to beneficiaries while their original DME is being repaired.34 

Documentation requirements. DME suppliers are required to keep 

physician prescriptions on file and must have orders from treating 

physicians before dispensing DME.35 A new order is required when 

there is a change in the order for the accessory, when an item is 

renewed, when an item is replaced, and when there is a change in the 

supplier.36 This documentation provides evidence of medical necessity 

of the capped rental DME. When claims for repair are submitted, the 

supporting documentation should include the HCPCS code of the capped 

rental DME being repaired and must indicate that the capped rental 

DME is beneficiary owned.37 

30 CMS, Medicare Claims Processing Manual, Pub. 100-04, Change Request 5461, 

February 2, 2007. During the period of our review, the RP modifier was used for repairs or 

replacement while the MS modifier was used for routine maintenance and servicing. 

Subsequent to the period of our claims, CMS instituted separate modifiers for replacement 

and repair, RA and RB, respectively. CMS, Changes in Payment for Oxygen Equipment as 

a Result of the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008 and 

Additional Instructions Regarding Payment for DMEPOS, Pub. 100-20, Change Request 

6297, December 23, 2008. Accessed online at http://www.cms.gov on January 22, 2010. 

31 American Medical Association, Medicare’s National Level II Codes, 2007. 

32 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 1, § 30.3.2. Accessed online at http://www.cms.gov on January 22, 2010. 

33 42 CFR § 424.57(c)(14). 

34 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 20, § 40.1. Accessed online at http://www.cms.gov on January 22, 2010. 

35 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08, 

ch. 5, § 5.2.1. Accessed online at http://www.cms.gov on January 22, 2010. 

36 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08, 

ch. 5, § 5.2.4. Accessed online at http://www.cms.gov on January 22, 2010. 

37 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 20, § 10.2.B. Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

When suppliers deliver DME to beneficiaries, Medicare requires 

documentation of delivery and recommends that the documentation 

include: (1) beneficiary’s name, (2) quantity delivered, (3) detailed 

description of the replacement parts or repaired DME being delivered, 

(4) brand name, and (5) serial number.38 The beneficiary’s (or 

designee’s) signature should be included on the delivery slip or proof of 

delivery.39 Suppliers must also provide beneficiaries with necessary 

information and instructions (e.g., owner’s manual and warranty 

information) on how to use their capped rental DME safely and 

effectively.40 

Additional matters considered. Medicare provides guidance to Medicare 

Administrative Contractors (MAC)41 for consideration when 

reimbursing for repairs. For example, MACs may consider whether 

accumulated repair costs for capped rental DME exceed 60 percent of 

the cost for a replacement item when they determine whether to replace 

equipment that does not function during the reasonable useful 

lifetime.42 

In addition, if MACs determine that the capped rental DME will not 

last its reasonable useful lifetime, they may hold suppliers responsible 

for furnishing replacement capped rental DME at no cost to 

beneficiaries or the Medicare program.43 

38 42 CFR § 424.57(c)(12); CMS, Medicare Program Integrity Manual (Internet Only 

Manual), Pub. 100-08, ch. 4, § 4.26.1. Accessed online at http://www.cms.gov on 

January 22, 2010. 

39 CMS, Medicare Program Integrity Manual (Internet Only Manual), Pub. 100-08, 

ch. 4, § 4.26.1. Accessed online at http://www.cms.gov on January 22, 2010. 

40 42 CFR § 424.57(c)(12). 

41 MACs serve as the primary points of contact for provider enrollment, Medicare 

coverage and billing requirements, and processing and payment of Medicare fee-for-service 

claims. 

42 71 Fed. Reg., No. 217 (Nov. 9, 2006), p. 65921. This was originally proposed by CMS 

as a requirement, but included in the Final Rule as a matter for the MACs’ consideration. 

CMS does not pay repair costs for prosthetics that exceed 60 percent of the cost for a 

replacement item. 

43 42 CFR § 414.210(e)(5). 

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INTRODUCTION 

METHODOLOGY 

This study used three separate methodologies to address our five study 

objectives. 

Objectives 1 and 2 

To determine the extent to which Medicare erroneously allowed 

(1) claims for routine maintenance and servicing of beneficiary-rented 

and beneficiary-owned capped rental DME and (2) claims for repairs of 

beneficiary-rented capped rental DME. 

Population identification. Using the 2005, 2006, 2007, and 2008 DME 

Standard Analytical Files from the National Claims History file, we 

identified claims for capped rental DME with rental periods beginning 

on or after implementation of the DRA on January 1, 2006. 

Identification of maintenance and servicing claims. We analyzed capped 

rental DME claims for rental periods beginning on or after 

implementation of the DRA to identify erroneously allowed routine 

maintenance and servicing claims for the period 2006 through 2008. We 

identified maintenance and servicing claims with the MS modifier for 

those capped rental months. 

To identify beneficiary-rented capped rental DME, we identified claims 

with a KH, KI, or KJ modifier designating a specific rental month.44 We 

determined whether routine maintenance and servicing claims for 

capped rental DME were allowed during rental periods. To identify 

beneficiary-owned capped rental DME, we identified claims with a BP 

modifier (i.e., beneficiary purchased). For rentals beginning after 

implementation of the DRA, we identified capped rental DME as 

transitioning from beneficiary-rented to beneficiary-owned when the 

rental month modifiers were no longer attached to the claim. Separate 

payments for routine maintenance and servicing for capped rental DME 

during the rental period or after ownership has transitioned to the 

beneficiary have never been allowed. 

Identification of repair claims for beneficiary-rented capped rental DME. 

Although the DRA did not change how Medicare should pay repair 

claims for capped rental DME, we sought to determine whether repair 

claims volume and/or payment amounts increased after implementation 

44 Capped rental DME during rental periods were identified by one of three modifiers: 

KH (first rental month), KI (second rental month), and KJ (rental months 3 to 13). 

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INTRODUCTION 

of the DRA to potentially offset the loss of the routine maintenance and 

servicing payments. We analyzed repair claims for beneficiary-rented 

capped rental DME for rental periods beginning on or after January 1, 

2006, to identify erroneously allowed repair claims from 2006 to 2008. 

We defined the rental period as the period beginning with the first use 

of the KH modifier and terminating up to 12 months thereafter, 

depending on the presence of KI or KJ modifiers; thus, we did not 

include any rental periods that may have begun prior to the DRA. 

For the claims during the rental period that we identified above, we 

determined whether an RP modifier was present, indicating a repair 

claim. Separately itemized charges for repair of capped rental DME 

equipment are not allowed during the rental period. 

Objectives 3 and 4 

To determine the extent to which Medicare (3) allowed claims for repairs 

of beneficiary-owned capped rental DME that failed to meet payment 

requirements and (4) allowed claims for repairs of beneficiary-owned 

capped rental DME that were questionable. 

Population and sample identification. We reviewed 2007 Medicare-allowed 

capped rental DME repair claims to determine whether claims were 

correctly allowed based on payment and documentation requirements 

and whether claims were questionable. These objectives were limited to 

2007 data only because of the type of methodology used (record review), 

whereas the two previous objectives relied on a review of claims data 

alone. We did not include claims for oxygen equipment and related 

supplies because those DME are capped after 36 months of continuous 

rental. 

Using the 2007 DME Standard Analytical File from the National 

Claims History file, we identified allowed repair claims for 

beneficiary-owned capped rental DME. We excluded 9,957 claims under 

$1 from this population as these claims represented 1 percent of the 

expenditures and 2 percent of capped rental DME claims for 2007 billed 

with the RP modifier. Many of these claims represented replacement 

batteries for glucose monitors. 

We selected a stratified random sample of 499 allowed repair claims45

with HCPCS codes with the RP modifier or HCPCS code E1340 from 

45 Typically, a repair claim will have individual line items for the replacement part(s) 

and the associated labor costs. 

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INTRODUCTION 

four strata as shown in Table 1. For each sampled claim, we requested 

repair records from suppliers to determine whether the capped rental 

DME repair claims met payment and documentation requirements. 

Table 1: Sample Stratification of Allowed Capped Rental DME Repair Claims 

Stratum Definition Population Sample 

Size 

Adjusted 

Sample Size Responses 

1 

Allowed claims from 

$1.00 to $100.00 440,661 95 93 91 

2 

Allowed claims from 

$100.01 to $500.00 191,658 191 187 184 

3 

Allowed claims from 

$500.01 to $5,000.00 36,779 159 159 155 

4 

Allowed claims over 

$5,000.00 54 54 53 52 

 Total 669,152 499 492 482 

Source: OIG analysis of claims data, 2010. 

We removed three sampled claims because they involved open OIG 

investigations and four sampled claims because they did not match the 

study criteria upon review of the documentation, creating an adjusted 

sample size of 492 repair claims. The four claims not matching the 

study criteria appeared as repairs for capped rental DME according to 

claims data, but upon review of the record, we determined that each 

claim was not a repair for capped rental DME. We received responses 

from suppliers for 482 of our sampled claims for a response rate of 

98 percent. Of the 10 sampled claims we were unable to review, 7 were 

from suppliers that were out of business and 3 were from suppliers that 

we were unable to locate and that we could not confirm remained in 

business. 

Since the RP modifier used at the time of our review indicated both 

repair and replacement, we could not differentiate between claims for 

repair or replacement without reviewing the records. Based on a review 

of the records associated with the 482 claims, we determined that 

335 were for repair of capped rental DME.46 We used these claims to 

determine the extent to which repair claims met Medicare payment 

requirements. The remaining 147 claims were generally for 

46 Eighty-seven percent of the sampled claims were for PMDs. 

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INTRODUCTION INTRODUCTION 

replacement of capped rental DME when it was determined that the 

original DME no longer met the beneficiaries’ needs. 

Interviews with DME suppliers. Prior to our record review, we interviewed 

DME suppliers to ascertain their practices and better develop our data 

collection instruments. We asked suppliers questions about volume of 

repairs, nature and location of repairs, followup with beneficiaries, 

methods for accessing policy guidance, documentation used to support 

claims, warranty coverage, and accumulated repair costs. 

Review of repair records. We reviewed repair records provided by 

suppliers for sampled claims to determine whether each repair met 

Medicare requirements or whether supplier practices created 

vulnerabilities in claims payment. Specifically, we reviewed the extent 

to which records for repairs to capped rental DME indicated that: 

Requirements: 

 a prescription existed documenting DME medical necessity, 47, 48 

 service was documented,49

 delivery was documented,50 

 the DME was under warranty, 51 and 

 service fees were charged to beneficiaries.52 

Additional matters considered: 

 a valid serial number was provided, and 

 repair costs exceeded 60 percent of the new purchase price. 

Objective 5 

To describe how certain DME supplier practices adversely affected 

beneficiaries. 

47 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 20, § 10.2. Accessed online at http://www.cms.gov on January 22, 2010. 

48 CMS, Program Integrity Manual (Internet Only Manual), Pub. 100-08, ch. 5, § 5.2.1. 

Accessed online at http://www.cms.gov on January 22, 2010. 

49 The Act § 1833(e). 

50 42 CFR § 424.57(c)(12). 

51 42 CFR §§ 414.229(f)(3) and 414. 210(e)(1). 

52 CMS, Medicare Claims Processing Manual (Internet Only Manual), Pub. 100-04, 

ch. 1, § 30.3.2. Accessed online at http://www.cms.gov on January 22, 2010. 

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INTRODUCTION 

Beneficiary interviews. In addition to conducting a record review, we 

conducted structured interviews with beneficiaries who received repairs 

for their capped rental DME in excess of $5,000 in 2007. 

We conducted structured interviews with beneficiaries representing 

34 of the 53 sampled claims in stratum four. At the time of our review, 

eight beneficiaries were deceased. Eleven beneficiaries were 

unreachable by U.S. Postal Service mail or telephone. We requested 

that beneficiaries confirm whether repairs billed for capped rental DME 

were actually rendered. We also asked the beneficiaries to describe the 

services they received and any problems they encountered with 

suppliers that may have adversely affected their ability to use the 

capped rental DME. 

Overall limitations. During our review period, we were unable to 

determine from claims data alone the difference between a repair and a 

replacement of DME using the RP modifier. We were able to make 

definitive determinations based upon review of the records. This 

reduced the number of sampled units we could review for payment 

errors. 

Standards. This study was conducted in accordance with the Quality 

Standards for Inspections approved by the Council of the Inspectors 

General on Integrity and Efficiency.

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FINDINGS FINDINGS 

For the period 2006 to 2008, 

Medicare erroneously allowed 

31,939 routine maintenance 

and servicing claims totaling 

$2,211,106 for capped rental 

DME with rental periods that 

began after implementation of the DRA.53 

From 2006 to 2008, Medicare erroneously allowed 

$2.2 million for routine maintenance and servicing of 

capped rental DME with rental periods after 

implementation of the DRA 

Medicare has never allowed claims for maintenance and servicing 

during the rental period; therefore, MACs should not have had to make 

changes to their payment systems to prevent these payments after 

implementation of the DRA. Additionally, MACs should not have 

allowed maintenance and servicing after 13 months of continuous rental 

for beneficiary-owned capped rental DME (see Table 2). 

Table 2: Erroneous Maintenance and Servicing Claims 

Year 

During Rental 

Period 

(Allowed Claims) 

During Rental 

Period 

 (Allowed Amount) 

Beneficiary-Owned 

(Allowed Claims) 

Beneficiary-Owned 

(Allowed Amount) 

2006* 1,303 $88,643 119 $19,928 

2007 10,508 $731,702 6,471 $519,463 

2008 10,488 $575,768 3,050 $275,602 

 Total 22,299 $1,396,113 9,640 $814,993 

*Beneficiary-owned results from 2006 are not comparable to those for other years because 

section 5101(a) of the DRA became effective January 1, 2006. Aside from beneficiary-purchased DME, 

title to capped rental DME that was under a rental agreement did not begin to be transferred to 

beneficiaries until February 1, 2007 (13 months after implementation). 

Source: OIG analysis of claims data, 2010. 

Erroneous routine maintenance and servicing claims occurred for 

several categories of capped rental DME. The erroneous claims most 

commonly included nebulizers (14,420), continuous positive airway 

pressure devices (5,378), hospital beds (3,540), standard wheelchairs 

(2,111), and elevating leg rests for wheelchairs (1,377). These five 

categories represented 84 percent of erroneous claims. 

13 

53 Medicare allowed 6,344,684 claims for routine maintenance and servicing of all capped 

rental DME, totaling $456,328,500. Most of these allowed claims were for maintenance and 

servicing of capped rental DME with rental periods beginning prior to implementation of 

the DRA. 

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FINDINGS 

Medicare erroneously allowed 

40,452 claims totaling nearly 

$4.4 million for repairs of 

beneficiary-rented capped rental 

DME. These payments have 

never been permitted, before or after the DRA. These repair claims 

were erroneous because costs for repair of rented capped rental DME 

are included in the monthly rental payment to suppliers. Over the 

3-year period after implementation of the DRA, erroneously allowed 

claims almost doubled and erroneously allowed payments increased by 

nearly $1.8 million (see Table 3). 

From 2006 to 2008, Medicare erroneously 

allowed nearly $4.4 million for repairs for 

capped rental DME during rental periods 

Table 3: Erroneous Rental Repair Claims 

Year Allowed Claims Allowed Amount 

2006 7,478 $493,178 

2007 13,507 $1,631,757 

2008 19,467 $2,257,190 

 Total 40,452 $4,382,125 

Source: OIG analysis of claims data, 2010.

Erroneous repair claims occurred for several different categories of 

capped rental DME. The erroneous claims most commonly included 

continuous positive airway pressure devices (12,215), nebulizers 

(11,489), infusion pumps (5,531), standard wheelchairs (3,770), and 

hospital beds (2,573). These five categories represented 88 percent of 

erroneous claims.

Of the $90 million allowed for 

capped rental DME repair 

claims in 2007, nearly 

$27 million was for claims 

associated with payment errors. 

These claims represent 27 percent of all allowed claims for repair of 

capped rental DME meeting the parameters of the methodology, which 

involved reviewing documentation for allowed claims. See Appendix A 

for point estimates and confidence intervals. See Appendix B for case 

examples of additional allowed claims failing to meet payment 

requirements. 

In 2007, Medicare allowed nearly $27 million for 

repair claims for beneficiary-owned capped 

rental DME that failed to meet payment 

requirements

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F INDINGS 

Medicare claims that did not meet payment requirements (claim and 

payment errors) are summarized in Table 4. 

Medicare-allowed claims that did not meet payment requirements 

Payment errors included (1) lack of documentation of medical necessity, 

(2) lack of documentation of service, (3) lack of documentation of 

delivery, and (4) repairs for capped rental while under warranty. 

Additionally, we identified suppliers that violated Medicare assignment 

policy by charging service fees to beneficiaries. 

Payment errors included (1) lack of documentation of medical necessity, 

(2) lack of documentation of service, (3) lack of documentation of 

delivery, and (4) repairs for capped rental while under warranty. 

Additionally, we identified suppliers that violated Medicare assignment 

policy by charging service fees to beneficiaries. 

Table 4: Payment Errors 

Type of Error Sample 

Size 

Claims in Error 

(Percentage) Payments in Error 

Repair or replacement 

Lack of documentation of 

medical necessity 482 20.4 $20,772,891 

Lack of documentation of 

service 482 4.8 $4,624,264 

Lack of documentation of 

delivery 482 1.8 $1,234,534 

 Total repair or replacement 

 errors 482 27.1* $26,631,689 

Repair only 

Repairs while under warranty 335 2.6 $1,912,669 

 Total errors (gross) 482 29.4* $28,738,808* 

(Overlapping errors) 482 (2.3) ($1,943,653) 

 Total errors (net) 482 27.1 $26,795,154 

*Totals may not sum exactly because of rounding and the effect of having denominators of 

335 and 482 for different statistics. Overlapping errors are subtracted from gross errors to 

derive the net errors. 

Source: OIG analysis of claims data, 2010.

Lack of documentation of medical necessity. Twenty percent of claims were 

associated with supplier-provided records that did not include 

prescriptions to document medical necessity of the capped rental 

DME.54 Without such documentation, determination factors were 

unknown, such as the anticipated timeframe that the capped rental 

DME would be needed, expected therapeutic benefit, the physician’s 

54 We counted an initial prescription or a prescription for the repair as documentation of 

medical necessity for the claim. 

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FINDINGS 

involvement in supervising the use of the prescribed capped rental 

DME, and the detailed description of the beneficiary’s clinical and 

functional status. 

Lack of documentation of service or delivery. Five percent of claims lacked 

sufficient information to indicate the service provided. An additional 

2 percent of claims had no evidence of delivery or evidence that the 

beneficiary actually received the capped rental DME replacement parts 

or repaired DME as required under supplier standards. 

Repairs while under warranty. Three percent of repair claims were for 

repairs that should have been covered under warranty. Separately, we 

also identified an instance in which the documented date of service 

would have been under warranty, but the claim form submitted by the 

supplier indicated a date of service much later than noted in other 

documentation. This new date was outside of the warranty period, and 

Medicare allowed the claim. 

The percentage of claims that did not comply with this policy might 

have been greater because certain suppliers provided invalid serial 

numbers or did not provide serial numbers. Without correct serial 

numbers, we were unable to check warranty coverage. Additionally, we 

found that larger PMD manufacturers have systems that suppliers can 

query to determine warranty coverage. However, some of the 

manufacturers remove serial numbers from these systems for items that 

were manufactured more than 5 years ago, which prevented 

determination of warranty coverage. 

Service fees charged for repairs. Suppliers that have accepted Medicare 

assignment of benefits may not charge beneficiaries additional fees for 

Medicare-covered services. Record reviews indicated that suppliers that 

accepted assignment charged beneficiaries service fees ranging from 

$25 to $100 for 2 percent of claims.55 These fees were in addition to the 

normal copays and deductibles. For example, one supplier charged a 

$20 travel service fee when it picked up a beneficiary’s PMD for repair 

work and a $40 travel service fee when it returned the chair to her 

home. Another record indicated that a beneficiary paid $5 in cash and 

an additional $20 with a personal check. Because the suppliers did not 

55 Based on a lack of information in claims data, we were unable to determine whether 

sampled repair claims were for rented or purchased capped rental DME. 

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FINDINGS 

submit separate line item claims for these service fees, the extent of the 

problem is unknown. 

Of the $90 million allowed for 

capped rental DME repair claims 

in 2007, nearly $29 million were 

questionable (i.e., suppliers did 

not provide serial numbers, suppliers provided invalid serial numbers, 

and repair costs claims on sampled dates of service exceeded 60 percent 

of the purchase price of new capped rental DME). These claims 

represent 49 percent of all allowed claims for repair of capped rental 

DME. The net result of either erroneous claims (the prior finding) or 

claims that were questionable was 62 percent, or nearly $39 million. 

Medicare claims that were questionable are summarized in Table 5. 

See Appendix A for point estimates and confidence intervals for claims 

that were questionable. See Appendix C for statistics on net results of 

payment errors and claims that were questionable. 

In 2007, Medicare allowed nearly $29 million 

for questionable repair claims for 

beneficiary-owned capped rental DME 

Table 5: Questionable Claims for Beneficiary-Owned Capped Rental DME 

Questionable Practice Sample 

Size 

Claims 

(Percentage) 

Allowed 

Amounts 

Supplier did not provide serial 

number 335 24.8 $10,943,415 

Supplier provided invalid serial 

number 335 23.2 $13,921,304 

Repair costs on the date of 

service exceeded 60 percent of 

the new purchase price 

335 2.9 $6,687,925 

 Total (gross) 335 50.9 $31,552,644 

(Overlapping) 335 (1.6) ($2,697,105) 

 Total (net) 335 49.3 $28,855,539 

Overlapping amounts are subtracted from gross amounts to derive the net amounts. 

Source: OIG analysis of claims data, 2010.

Suppliers did not provide serial numbers or provided invalid serial numbers. 

Suppliers did not provide serial numbers for 25 percent of repairs and 

provided invalid serial numbers for 23 percent of repairs, which 

prevented us from determining the models and therefore the purchase 

prices of new capped rental DME. Overall, 48 percent of claims had 

insufficient information for us to identify the manufacturers, makes, 

and models of capped rental DME. This prevented us from determining 

the replacement cost of some capped rental DME, as discussed below. 

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FINDINGS 

Repairs exceeded 60 percent of replacement cost. The costs of repairs 

associated with the dates of service for 3 percent of sampled claims 

exceeded 60 percent of the purchase prices for new capped rental DME. 

If total accumulated repair costs exceed 60 percent of the replacement 

cost for capped rental DME and the items have been in use for less than 

5 years, the MAC may choose to hold suppliers responsible for 

replacement.56 Since our analysis included only a single date of service, 

our estimate of the number of items for which repairs exceeded 

60 percent of the replacement cost is an underestimate. Accumulated 

repair claims would likely have been greater over the lifetime of the 

item. Because of missing and invalid serial numbers, we could not 

calculate the replacement cost for 48 percent of new capped rental 

DME; thus our estimate of vulnerable payments is conservative. 

Because tracking repair costs is not a CMS requirement, CMS staff 

indicated to us that they have not provided guidance to MACs on how to 

track accumulated repair costs. 

56 See 71 Fed. Reg., No. 217 (Nov. 9, 2006) p. 65921. 

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FINDINGS 

Supplier practices adversely affected some 

beneficiaries with high-cost repairs 

Our interviews with beneficiaires 

representing 34 of the 53 high-cost 

claims revealed that some 

supplier practices adversely affected beneficiaries’ quality of life and 

activities of daily living. Certain suppliers failed to properly customize 

PMDs, rendering them useless to beneficiaries. Even though Medicare 

will pay for loaner DME when capped rental DME is being repaired, 

some suppliers did not offer this service when repairing PMDs, leaving 

some beneficiaries immobile. Some beneficiaries reported difficulty in 

contacting suppliers. Finally, beneficiaries reported that some suppliers 

failed to provide information and instruction, as required. 

Some suppliers billing for high-cost repairs failed to properly customize

Medicare-allowed capped rental DME. PMDs are medically necessary for 

beneficiaries who cannot effectively perform mobility-related activities 

of daily living using other mobility-assistive equipment, such as a cane, 

walker, or manual wheelchair.57 PMDs for beneficiaries with severe 

mobility limitations can be upgraded with power options and other 

electronic features to accommodate beneficiaries’ specific mobility needs. 

In some cases, beneficiaries did not receive the proper customization to 

meet their needs. Below are a few examples: 

 A beneficiary reported multiple repairs to his chair. He stated that 

nothing on his current PMD is original aside from the frame. The 

computer system for his chair had been repaired 11 times and still 

did not meet his needs because it did not function properly. Further, 

the supplier repaired his $16,000 power tilt and recline seating 

system twice, but the repairs did not meet his needs for daily 

activities. The last attempt to properly fit the seating system 

included an inappropriately sized foam pad placed in the back of the 

chair; this failed to work. 

 A beneficiary reported that he was provided a PMD that he was 

unable to use because he would slide out of the chair. The supplier 

indicated to him that it would fashion a pole for the chair that would 

keep him from sliding out. The beneficiary reported that the 

supplier never fashioned the pole; he keeps the PMD in a closet 

because he cannot use it. 

57 CMS’s Medicare Learning Network, Medicare Coverage of Power Mobility Devices: 

Power Wheelchairs and Power Operated Vehicles. Accessed at http://www.cms.gov on 

January 22, 2010. 

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FINDINGS 

 One record for a beneficiary noted that she received an evaluation 

for a new PMD after only 3 months of using her current PMD. The 

beneficiary was given a new PMD, but she was unable to operate its 

controls because of her paralysis. 

Some suppliers did not provide loaner DME. Although suppliers are not 

required to loan DME, suppliers receive additional Medicare 

reimbursement when loaning DME to beneficiaries while their original 

items are being repaired. Claims information indicated that 

beneficiaries received loaner DME for only 22 of our sampled claims. 

Without loaner DME, beneficiaries may not have the ability to maintain 

their daily functioning. For example: 

 A beneficiary reported that although his supplier is located minutes 

away from the PMD manufacturer, replacement parts took weeks to 

arrive because they had to be mailed. The supplier provided a 

loaner only when the supplier initially ordered his new chair. 

Although the PMD had been repaired frequently since then, the 

supplier never again provided a loaner PMD. The beneficiary, who 

has quadriplegia, reported that he was completely immobile until 

his PMD was repaired. 

Some beneficiaries reported difficulty in reaching their suppliers for 

high-cost repairs. Medicare requires that suppliers answer questions 

and respond to complaints beneficiaries have about Medicare-covered 

items that they have sold or rented. Four of the beneficiaries 

interviewed reported difficulty in reaching their suppliers. Specifically: 

 One beneficiary reported that a supplier often would not answer the 

telephone or return calls. The beneficiary had to call repeatedly to 

finally reach a customer service representative. Because of such 

poor service by this supplier and problems with the PMD, the 

beneficiary purchased a backup manual wheelchair from eBay for 

$300 and planned to buy a $1,200 PMD from a private owner as a 

backup. 

 Two beneficiaries reported that their PMDs needed repairs and/or 

modifications, but because their suppliers had gone out of business 

without notification, they had to locate new suppliers that were 

willing to repair and/or modify their PMDs. 

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FINDINGS 

Not all suppliers provided beneficiaries with instructions about the proper 

use of their high-cost capped rental DME, as required. Suppliers must 

provide beneficiaries with necessary information on how to use the 

equipment safely and effectively. If beneficiaries are provided with 

information regarding the general maintenance of their capped rental 

DME, unnecessary repairs or replacements to items may be less likely. 

Without this information, beneficiaries may not know how to maintain 

their capped rental DME. Collectively: 

 Eight beneficiaries reported that the suppliers that provided their 

items did not provide any information about the items’ warranties, 

common problems, or general maintenance. 

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 RRECOMMENDATIONS ECOMMENDATIONS 

From 2006 to 2008, Medicare erroneously allowed $2.2 million for 

routine maintenance and servicing of capped rental DME with rental 

periods after implementation of the DRA and $4.4 million for repairs of 

capped rental DME during rental periods. In 2007, $27 million (27 

percent) of Medicare claims for repairs of beneficiary-owned capped 

rental DME did not meet payment requirements. In addition, 

49 percent ($29 million) of claims during 2007 were questionable. A net 

62 percent ($39 million) of claims were either erroneously allowed or 

were questionable. Further, our beneficiary interviews revealed that 

certain supplier practices adversely affected those beneficiaries. 

CMS should take action to reduce erroneous payments and ensure 

quality services for beneficiaries. To accomplish this, we recommend 

that CMS: 

Implement an edit to deny claims for routine maintenance and servicing of 

capped rental DME with rental periods beginning after January 1, 2006 

CMS should ensure that routine maintenance and servicing claims are 

denied for capped rental DME with rental periods beginning after 

January 1, 2006.

Implement an edit to deny claims for repairs of beneficiary-rented capped 

rental DME 

CMS should ensure that claims for repairs during the rental period are 

never allowed. 

Improve enforcement of existing payment requirements for beneficiaryowned capped rental DME 

CMS should ensure that claims for repairs of capped rental DME 

include documentation of medical necessity (for the initial prescription 

of the item), service, and delivery (if applicable). CMS should also 

ensure that claims for repairs are not allowed for capped rental DME 

under warranty and enforce Medicare assignment policy (i.e., when 

DME suppliers charge beneficiaries service fees). 
 

RECOMMENDATIONS 

Consider whether to require MACs to track accumulated repair costs of 

capped rental DME 

CMS should consider requiring MACs to obtain serial numbers of 

repaired equipment and track accumulated repair costs of capped rental 

DME in the same way it tracks repair costs of prosthetics. This would 

allow MACs to identify and prevent payment for repairs that exceed 

100 percent of the purchase price for replacement capped rental DME, 

which is not allowed. This same technique could be used to identify 

claims for accumulated repairs that exceed 60 percent of the purchase 

price for replacement capped rental DME. 

Develop and implement safeguards to ensure that beneficiaries have access 

to the services they require 

CMS could update the supplier standards and guidance to increase 

protections for beneficiary-purchased DME with respect to not charging 

extra service fees, such as prohibiting service fees for purchased capped 

rental DME. CMS could promote access to suppliers through resources 

such as a listing of capped rental DME suppliers that provide 

high-quality services integrated with a listing of suppliers that routinely 

accept assignment. 

Take appropriate action on erroneously allowed claims for maintenance and 

servicing, repair, and payment errors 

We will forward information on erroneously allowed claims identified in 

our review to CMS in a separate memorandum. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its written comments on the report, CMS agreed that maintaining 

strong and effective controls to ensure accurate payment of capped 

rental DME claims is essential. CMS responded positively to each of 

our six recommendations and indicated that, in general, it will work to 

improve its comprehensive oversight of capped rental maintenance and 

servicing. 

In response to the first and second recommendations, CMS stated that 

it implemented claim edits in Transmittal 1177 (Change Request 5461) 

in February 2007 to instruct contractors to deny claims for maintenance 

and servicing of capped rental items and pay claims only for beneficiaryowned capped rental items. In view of our findings, CMS will conduct 

further systems analysis and implement additional edits, as required, to 

ensure these claims are denied. 

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RECOMMENDATIONS 

In response to the third recommendation, CMS concurred and said it 

will communicate the policy of nonpayment for repairs and maintenance 

for items under a manufacturer’s or supplier’s warranty to contractors 

and suppliers. CMS will also issue a Medicare Learning Network 

article to the provider and supplier community to emphasize that 

documentation requirements will be enforced. 

In response to the fourth recommendation, CMS agreed to consider the 

feasibility of requiring MACs to obtain serial numbers of repaired 

equipment and track accumulated repair costs. 

In response to the fifth recommendation, CMS stated that it will issue 

guidance to DME suppliers advising them that beneficiaries should not 

be charged service fees above the capped rental fee unless an Advanced 

Beneficiary Notice is signed by the beneficiary. 

In response to the sixth recommendation, CMS concurred and said it 

will take the appropriate action and send information about the 

erroneously allowed claims to the contractors. 

The full text of CMS’s comments can be found in Appendix D.
 

 APPENDIX ~ A 

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Table A-1: Point Estimates and Confidence Intervals 

Description Sample 

Size (n) 

Point 

Estimate 95% Confidence Interval 

Statistics from Table 4 

Percentage of claims that lacked documentation of medical necessity 482 20.4 14.8–26.0 

Allowed amount of claims that lacked documentation of medical necessity 482 $20,772,891 $16,707,498–$24,838,284 

Percentage of claims that lacked documentation of service 482 4.8 1.6–8.0 

Allowed amount of claims that lacked documentation of service 482 $4,624,264 $2,263,479–$6,958,049 

Percentage of claims that lacked documentation of delivery 482 1.8 0.6–5.5* 

Allowed amount of claims that lacked documentation of delivery 482 $1,234,534 $120,026–$2,349,042 

Percentage of claims that lacked documentation of medical necessity, service, or delivery 

(gross) 482 27.1 20.2–34.0 

Allowed amount of claims that lacked documentation of medical necessity, service, or 

delivery (gross) 482 $26,631,689 $21,805,711–$31,457,666 

Percentage of claims for repairs while under warranty 335 2.6 1.0–6.4* 

Allowed amount of claims for repairs while under warranty 335 $1,912,669 $438,549–$3,386,789 

Percentage of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (gross) 482 29.4 22.3–36.5 

Allowed amount of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (gross) 482 $28,738,808 $23,573,956–$33,903,659 

Percentage of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (overlapping) 482 2.3 0.9–5.7* 

Allowed amount of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (overlapping) 482 $1,943,653 $480,217–$3,407,090 

Percentage of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (net) 482 27.1 20.8–33.4 

Allowed amount of claims that lacked documentation of medical necessity, service, or 

delivery or were under warranty (net) 482 $26,795,154 $22,202,772–$31,387,536 

Statistics from Table 5

Percentage of repair claims for which the suppliers did not provide the serial numbers 335 24.8 17.9–31.7 

Allowed amount for repair claims for which the suppliers did not provide the serial numbers 335 $10,943,415 $7,711,195–$14,175,636 

Percentage of repair claims with invalid serial numbers 335 23.2 16.5–29.8 

Allowed amount of repair claims with invalid serial numbers 335 $13,921,304 $10,509,611–$17,333,007 

continued on next page
 

APPENDIX ~ A 

Table A-1: Point Estimates and Confidence Intervals, Continued

Description Sample 

Size (n) 

Point 

Estimate 95% Confidence Interval 

Percentage of allowed claims for repair costs on the date of service that exceeded 

60 percent of the new purchase price 335 2.9 1.0–4.8 

Allowed amount of repair costs on the date of service that exceeded 60 percent 

of the new purchase price 335 $6,687,925 $4,095,793–$9,280,057 

Percentage of repairs that had invalid serial numbers or no serial numbers provided or 

whose repair costs on the date of service exceeded 60 percent of the new purchase 

price 

335 50.9 42.9–58.9 

Allowed amount of repairs that had invalid serial numbers or no serial numbers 

provided, or whose repair costs on the date of service exceeded 60 percent of the new 

purchase price 

335 $31,522,644 $26,271,998–$36,833,290 

Percentage of repairs that had invalid serial numbers or no serial numbers provided 

or whose repair costs on the date of service exceeded 60 percent of the new purchase 

price (overlapping) 

335 1.6 0.1–2.6* 

Allowed amount of claims for repairs that had invalid serial numbers or no serial 

numbers provided or whose repair costs on the date of service exceeded 60 percent of 

the new purchase price (overlapping) 

335 $2,697,105 $936,258–$4,457,952 

Percentage of repairs that had invalid serial numbers or no serial numbers provided 

or whose repair costs on the date of service exceeded 60 percent of the new purchase 

price (net) 

335 49.3 41.7–57.0 

Allowed amount of claims for repairs that had invalid serial numbers or no serial 

numbers provided or whose repair costs on the date of service exceeded 60 percent of 

the new purchase price (net) 

335 $28,855,539 $24,340,724–$33,370,354 

Other statistics

Percentage of repair claims without serial numbers and without valid serial numbers 335 48.0 40.3–55.6 

Statistics from Appendix C not earlier provided

Percentage of erroneous claims and claims that were questionable (gross) 482 76.7 66.2–87.1 

Allowed amount of erroneous claims and claims that were questionable (gross) 482 $51,102,079 $43,921,779–$58,282,379 

Percentage of erroneous claims and claims that were questionable (overlapping) 482 14.9 9.4–20.5 

Allowed amount of erroneous claims and claims that were questionable (overlapping) 482 $12,413,575 $8,899,211–$15,927,939 

Percentage of erroneous claims and claims that were questionable (net) 482 61.8 54.4–69.1 

Allowed amount of erroneous claims and claims that were questionable (net) 482 $38,688,504 $33,967,207–$43,409,801 

* Confidence intervals were calculated using the logit transformation because of poor coverage properties of the standard approximation method 

when a small number of sample elements possessed the characteristic of interest. 

Source: Office of Inspector General analysis of claims data, 2010. 

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 APPENDIX ~ B 

Case Examples of Allowed Claims That Failed To Meet Payment 

Requirements 

The following are included for illustrative purposes only and are not 

included in our error projections for this finding. 

Billing for more labor time than was provided. Allowed labor units often did 

not match documentation provided by suppliers. For the 59 sampled 

E1340 claim line items, 6 line items did not have documentation 

supporting the number of units billed. In the extreme, a supplier billed 

571 15-minute units (nearly 143 hours) for a single date of service. The 

supplier identified the overpayment and submitted a voluntary 

statement and refund indicating that only 291 15-minute units were 

provided. The 291 units were allowed without further scrutiny by the 

DME MAC even though the claim represented nearly 73 hours, or the 

equivalent of 3 days, of labor for a single date of service. On 

April 1, 2009, MACs implemented standardized labor times allowed for 

common repairs, which may reduce the potential for labor billing abuse. 

Billing for repairs that exceed the purchase price. Repairs for five claims on 

our sampled date of service exceeded the purchase price of replacement 

capped rental DME. In total, Medicare allowed $21,206 for these five 

claims, $6,105 of which exceeded the purchase price of replacement 

DME. Additional repair costs prior to the sampled date of service may 

have also been reimbursed, which would increase the amount Medicare 

paid in excess of the price of replacement DME for these five claims.

High-dollar claim allowed in error. One supplier provided a beneficiary a 

replacement electronic wiring harness costing $141.91. The supplier 

submitted a claim for 100 times that amount, or $14,191. Medicare 

allowed $9,990 for the claim. We confirmed with the DME MAC 

responsible for processing the claim that a $9,990 payment was made to 

the supplier for the $141.91 part. 
 

 APPENDIX ~ C 

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Table C-1: Net Payment Errors and Questionable Claims 

Type of Concern Claims of Concern 

(Percentage) Allowed Amount (Total) 

Payment errors (net) 27.1 $26,795,154 

Questionable claims (net) 49.3 $28,855,539 

 Gross concerns 76.7* $51,102,079* 

 Overlapping concerns (14.9) ($12,413,575) 

 Net concerns 61.8 $38,688,504 

*Totals may not sum exactly because of rounding and the effect of having denominators of 335 and 

482 for different statistics.

Source: Office of Inspector General analysis of claims data, 2010. 
A P PEN D x D 

Agency Comments 

/f,f.AYIC''-.t.~ 

~-1- DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

Administrator 

Washington, DC 20201 

DATE: MAY 1 1 2010 

TO: 	 Daniel R. Levinson 


Inspector General , 


FROM: 	 Marilyn Tavenner 


Acting Administrator and Chief Operating Officer 


SUBJECT: 	 Office ofInspector General (DIG) Draft Report: "Capped Rental DME: A Review 

of Repair Claims" (OEI-07-08-00550) 

Thank you for the opportunity to review and comment on the Office of Inspector General's draft 

report, "Capped Rental DME: A Review of Repair Claims." The Centers for Medicare & 

Medicaid Services (CMS) appreciates the time and resources the DIG has invested to determine 

the extent to which Medicare improperly paid claims for routine maintenance and servicing of 

capped rental durable medical equipment (DME). 

The DME items covered by Medicare are medical equipment that often requires maintenance 

and repairs and Medicare paysDME suppliers for maintenance and repairs in certain 

circumstances. Capped rental DME is a specific category of DME for which Medicare pays a 

fee schedule amount that is capped after 13 continuous months of rental to a beneficiary. The 

Deficit Reduction Act of 2005 (DRA) revised the payment rules for capped rental DME so that 

ownership of the equipment would transfer to the beneficiaries after 13 continuous months of 

rental. 

During this audit, the DIG reviewed approximately 500 claims and conducted 34 beneficiary 

interviews and concluded claims for repairs of beneficiary-owned capped rental DME were 

improperly paid. The OIG's recommendations address strategies to reduce improper payments 

and strengthen program integrity. 

The eMS appreciates the DIG's efforts and insight on this report. As described in our detailed 

responses, CMS agrees that maintaining strong and effective controls to ensure accurate payment 

of capped rental DME claims is essential. In fact, CMS has already taken action to strengthen 

Medicare claims processing edits to eJ?sure proper payments in this vulnerable area. We agree to 

pursue additional analyses to validate the effectiveness of our claims processing and enforcement 

requirements and, as necessary, implement improvements to ensure all systeins and requirements 

achieve our goal of accurate payments. In general, the CMS will work to improve our 

comprehensive oversight of capped DME rental maintenance and servicing. The CMS looks 

forward to continually working with the OIG on issues related to waste, fraud and abuse in the 

Medicare program. 

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APPENDIX ~ D 
 

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APPENDIX ~ D 
 

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APPENDIX ~ D 
 

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 ACKNOWLEDGMENTS 

This report was prepared under the direction of Brian T. Pattison, 

Regional Inspector General for Evaluation and Inspections in the 

Kansas City regional office, and Deborah Walden, Deputy Regional 

Inspector General. 

Brian T. Whitley served as the team leader for this study. Other 

principal Office of Evaluation and Inspections staff from the Kansas 

City regional office who contributed to the report include Julie Dusold, 

LCDR Mike Garner, and Rae Hutchison; central office staff who 

contributed include Scott Manley and Megan Ruhnke. 
Office of Inspector General 

http://oig.hhs.gov 

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 the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides 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. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.