Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

AUGUST 2001 

OEI 04-99-00670 

Medical Equipment Suppliers 

Compliance With Medicare Standards 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as 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 Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 

Regional Inspector General, and Christopher H. Koehler, Deputy Regional Inspector General. 

Principal OEI staff included: 

Lisa Keating, Lead Analyst

Peggy Daniel, Program Analyst

Robert Gibbons, Program Analyst

Barbara Tedesco, Statistician

Joe Townsel, Team Leader

Stuart Wright, Program Specialist

To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7723. Reports 

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

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY 

PURPOSE 

To determine whether or not durable medical equipment suppliers who received a 

supplier number in 1999 were in compliance with Medicare standards. 

BACKGROUND 

To receive reimbursement from Medicare, business organizations who supply durable 

medical equipment to Medicare beneficiaries must obtain a unique identifying number. 

That number is referred to as a durable medical equipment supplier number. The Centers 

for Medicare and Medicaid Services contract with the National Supplier Clearinghouse in 

Columbia, South Carolina, to approve applications for durable medical equipment 

supplier numbers. 

To obtain approval for a durable medical equipment supplier number, suppliers must 

demonstrate that they meet 11 Medicare standards. 

Because of concerns that durable medical equipment suppliers were not complying with 

the Medicare standards, CMS initiated a pilot program in 1996 to do site inspections 

before granting a durable medical equipment supplier number. In 1997, the Office of 

Inspector General reported that suppliers were only fully meeting one of the 11 standards. 

The report further showed that in some instances suppliers were not operating legitimate 

businesses. 

Partly in response to its pilot program, and the OIG report, CMS and the National 

Supplier Clearinghouse expanded its pilot program to include physical site inspections of 

suppliers in all States before granting a supplier number. Our present inspection provides 

an assessment on how well suppliers meet the standards after CMS fully expanded its site 

inspection program in 1999. 

FINDINGS 

Less Than One Percent of Suppliers Did Not Have a Physical Presence at Their 

Business Address of Record 

In our 1997 inspection on supplier compliance with Medicare standards, we reported that 

7 percent of suppliers and applicants were not doing business at their address of record. 

Supplier failure to have a presence at their address of record raised serious questions 

about the legitimacy of their business. However, our current inspection showed that only 

one of 165 suppliers (.61 percent) were not located at and doing business at the address 

1 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
they had provided to the National Supplier Clearinghouse. Based on our referral, the 

National Supplier Clearinghouse revoked the supplier number for that supplier. 

All Suppliers Complied With Delivery, Warranty, Repairs, Returns, Complaints 

and Disclosing Ownership Standards 

Some Suppliers Failed to Comply With Inventory, Liability Insurance and 

Licensure Standards 

C Five percent of suppliers did not have an inventory of durable medical equipment.

C Eight percent of suppliers did not have appropriate liability insurance. 

C Thirteen percent of suppliers did not have appropriate licensure.

Fifty Percent of Suppliers Did Not Comply With Standard to Provide Consumer 

Information 

Medicare standards required DME suppliers to provide a list of the 11 Medicare 

standards to beneficiaries. Fifty percent of DME suppliers did not meet the standard. 

RECOMMENDATIONS 

The physical site inspections of suppliers before granting a DME supplier number has 

improved compliance with Medicare standards. If CMS desires a higher compliance 

rate, we offer the following suggestions. 

C CMS and the NSC could implement efforts to educate suppliers about the 

requirement to provide beneficiaries a list of supplier standards. This could be 

done in their letter transmitting a number to an approved supplier. The NSC 

could emphasize compliance with Medicare supplier standards, which are 

included in the package accompanying the letter. Such education would help 

assure that beneficiaries know their rights and supplier obligations to them. 

C CMS could revise its standards to require suppliers to transmit a copy of the 

Medicare supplier standards to each beneficiary at the time of each sale or rental. 

C CMS and the NSC could institute random, unannounced site inspections of 

supplier operations. Such inspections should be made at times other than the time 

of initial enrollment or reenrollment. 

Enforcing full compliance with each standard is difficult and could be cost prohibitive. 

In our 1997 report, we recommended that CMS charge suppliers an application fee. We 

did not assess the benefits of such a fee in our present inspection. However, we continue 

2 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
to believe such fees would help assure that only legitimate DME suppliers are approved 

for a Medicare number. Further, the fees would help offset CMS’ cost of doing site 

inspections to assure that suppliers comply with all Medicare standards. 

Agency Comments 

The CMS concurred with our findings. CMS outlined several initiatives that we believe 

respond to our recommendations. First, CMS plans to increase site visits on suppliers 

that do not comply with standards, and to reward those that pass. Additionally, CMS 

plans to assess the impact of the new supplier standards. Finally, during their site 

inspections, CMS compliance inspectors are also charged with educating suppliers on 

requirements to provide beneficiaries with a copy of the Medicare DME supplier 

standards. The full text of CMS’ comments are presented in Appendix E. 

3 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
TABLE OF CONTENTS 

EXECUTIVE SUMMARY ............................................... 1

INTRODUCTION ..................................................... 5

FINDINGS

Less Than One Percent of Suppliers Had No Physical Presence at Business Address of

Record ................................................................ 9

All Suppliers Complied With Delivery, Warranty, Repairs, Returns, Complaints and

Disclosing Ownership Standards .......................................... 10

Some Suppliers Failed to Comply With Inventory, Liability Insurance and Licensure

Standards ............................................................. 12

Fifty Percent of Suppliers Failed the Standard to Provide Consumer Information ..... 13

RECOMMENDATIONS ............................................... 14

APPENDICES

A: Supplier Standards at Time of our Fieldwork ............................... 16

B: New Supplier Standards ............................................... 17

C: Locations of Site Inspections ........................................... 18

D: Point Estimates and Confidence Intervals ................................. 20

E: Agency Comments ................................................... 21

4

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
INTRODUCTION 

PURPOSE 

To determine whether or not durable medical equipment suppliers who received a 

supplier number in 1999 were in compliance with Medicare standards. 

BACKGROUND 

Approving DME Suppliers for Medicare 

To receive reimbursement from Medicare, business organizations who supply durable 

medical equipment (DME) to Medicare beneficiaries must obtain a unique identifying 

number. That number is referred to as a DME supplier number. The Centers for Medicare 

and Medicaid Services (CMS)1 contracts with the National Supplier Clearinghouse 

(NSC) in Columbia, South Carolina, to approve applications for DME supplier numbers. 

CMS defines durable medical equipment as that which can withstand repeated use, is 

primarily used to serve a medical purpose, is generally not useful to a person in the 

absence of illness or injury, and is appropriate for use in the home. For coverage under 

Medicare Part B, DME must be furnished for use in a beneficiary’s home. For the 

purpose of this report, when we refer to DME suppliers, we include suppliers of 

prosthetics, orthotics, and other medical supplies. 

DME Supplier Standards 

To obtain NSC approval for a DME supplier number, suppliers must demonstrate that

they meet 11 Medicare standards required by Section 1834 of the Social Security Act.

The standards require that suppliers 

C fill orders from their own inventory or under a contractual arrangement,

C oversee delivery of equipment,

C answer questions and complaints from beneficiaries,

C maintain and repair rental equipment,

C maintain a physical address at the business site,

C comply with State and Federal licensure requirements,

C honor warranties on equipment,

C accept the return of substandard equipment,

C disclose consumer information (a list of standards) to beneficiaries,

C comply with ownership disclosure provisions of the Social Security Act, and

C have appropriate liability insurance.

1

Formerly the Health Care Financing Administration 

5 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
The supplier standards are front-end measures. They provide minimal assurance that 

suppliers physically exist and are operating a legitimate business. A detailed statement of 

each standard is shown in Appendix A. 

DME suppliers must reenroll every 3 years for participation in Medicare. The 

reenrollment process is similar to the new application process, in that the NSC must 

assure that both existing and new suppliers meet the standards for Medicare participation. 

Additional Supplier Standards 

In an effort to better assure that Medicare suppliers for DME are operating legitimate

business, the CMS proposed nine additional supplier standards in January 1998. CMS

required suppliers to achieve compliance with the new standards by December 2000. 

This was about 4 months after we had completed our data collection for this report. 

Therefore, we do not address compliance with the nine additional standards in this report. 

The standards require that suppliers

C comply with Medicare law,

C make no material misrepresentations on their application,

C provide documentation of compliance with standards to CMS upon request,

C notify beneficiaries that they may rent or purchase certain items,

C ensure application is signed by someone whose signature binds the supplier,

C agree not to transfer or reassign a supplier number,

C have a business phone at the facility, and a listing in the phone directory,

C agree not to telemarket to beneficiaries, except in limited circumstances, and

C receive payment in their own name for drugs used with DME.

A detailed statement of each standard is shown in Appendix B. 

DME Supplier Compliance With Medicare Standards 

Because of concerns that DME suppliers were not complying with the Medicare 

standards, and in some instances were not operating legitimate businesses, CMS initiated 

efforts in 1996 to improve the process for granting DME supplier numbers. Through the 

NSC, CMS began a pilot program to physically inspect suppliers in one State before 

approving them for a DME supplier number. 

In 1997, the OIG completed an inspection documenting the extent that suppliers who 

obtained a DME supplier number operated bona fide businesses.2 That report showed 

that many existing suppliers and new supplier applicants were not in compliance with 

Medicare supplier standards. For example, 41 percent of suppliers and 40 percent of new 

applicants failed to meet at least one of the standards. 

2

“Medical Equipment Suppliers: Assuring Legitimacy” (OEI-04-96-00240) 

6 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
Partly in response to the OIG recommendations and the results of its pilot test, CMS and 

NSC expanded the physical site inspections through a contract with ChoicePoint, Inc.3 

The expansion of site visits was phased in over the next 4 years. By 1999, the NSC was 

using site inspections of DME suppliers in all 50 States as part of the process for assuring 

compliance with Medicare standards before granting a DME supplier number. 

METHODOLOGY 

In 1999, about 12,682 DME suppliers nationwide obtained a Medicare supplier number. 

For our inspection, we reduced that universe to 4,927 independent suppliers. We 

included free standing suppliers, independent drug stores, and small drug store chains 

(those with under 25 business locations). 

We excluded large chain stores such as K-Mart, Wal-Mart, and Kroger who frequently 

provide DME as part of their business. Many chain stores such as those have a pharmacy 

as part of their business and the DME would be included in that part of the operation. 

Likewise, we excluded large chain drug stores such as Eckerd, CVS Pharmacy, and 

Walgreen’s. Finally, we excluded physician practices that also supply DME as part of 

their business. We excluded such DME suppliers because our preinspection showed that 

such suppliers were more likely to comply with the Medicare standards -- particularly the 

requirement to have an appropriate physical address. 

Data Collection 

From the reduced universe of 4,927 DME suppliers, we randomly selected 16 clusters of 

suppliers nationwide. We used a cluster sampling strategy to control the travel costs of 

our inspection and still assure geographic coverage. We initially included each supplier 

in the 16 clusters for our inspection -- a total of 208 suppliers. 

We then reduced our sample size by excluding any suppliers that were a part of a large 

chain operation and had inadvertently been included. We further excluded suppliers who 

were under investigation by CMS or OIG, and suppliers who no longer had an active 

DME supplier number. Our final sample size was 165 suppliers, encompassing 16 States. 

Appendix C shows the geographic coverage of our sample. 

For each member of our sample, we conducted an unannounced site inspection at the 

business location shown in the NSC records. At each site, we determined whether or not 

suppliers were meeting the 11 Medicare standards. We did so by physical observation of 

supplier operations, interviews with owners and staff, and record reviews. 

We relied on supplier self-reports to determine compliance with some standards. For 

example, we asked suppliers whether they had received any complaints from 

beneficiaries. Likewise, we asked suppliers whether they had repaired equipment under a 

3

A national company that contracts to provide prevention and risk management to the insurance industry, as well as 

other industries 

7 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
warranty. If they said no, we relied on their self-reported answer. If they said yes, we 

asked to see and reviewed documentation on the complaints and warranty repairs. 

In some instances, we were unable to determine whether a supplier met a specific 

standard. For example, if the business was closed or a spokesperson for the supplier was 

not available, we were only able to assess whether the supplier had an appropriate 

physical location. Since we were unable to test compliance with all standards at each 

location, our projections of compliance rates are based on the number of suppliers 

complying with each standard individually. 

To understand supplier application policies, processes, and outcomes, we also 

interviewed staff at CMS, NSC, and ChoicePoint, Inc. 

Our cluster sampling method allowed us to project the extent that our universe of 4,927 

suppliers complied with the 11 Medicare standards. However, our selection method did 

not enable us to directly compare our results to the results of our 1997 report. Our 1997 

inspection was not based on random sampling methods. For that study, we 

judgementally selected suppliers located in large urban areas across the United States. 

We also focused on urban areas that were traditionally associated with high incidence of 

Medicare fraud. 

Data Analysis 

We aggregated our on-site inspection results to determine how many suppliers in our 

sample met and did not meet each standard. 

Based on our sample results, we estimated the national proportion of suppliers that were 

not complying with each standard. 

Appendix C provides confidence intervals for estimates of noncompliance. 

_____ ____ ____ _____ 

We conducted our inspection between November 1999 and February 2001. We 

conducted this inspection in accordance with the Quality Standards for Inspections 

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

8 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
FINDINGS 

Fifty-six percent of suppliers were in compliance with all 11 Medicare standards. Only 8 

percent of suppliers failed to comply with more than one Medicare standard. However, 

44 percent of suppliers were out of compliance with at least one Medicare standard. 

One standard requires suppliers make a list of all 11 supplier standards available to 

beneficiaries. For this standard, the noncompliance rate was 50 percent. For another 4 

standards, the noncompliance rate was 13 percent or less. The suppliers fully met the 

remaining 6 of 11 standards in effect at the time of our review. 

Noncompliance Rates for Supplier Standards 

0 10 20 0 40 0 0 70 0 90 100 

Disclosing Owners 

Quest ions and Complaint s 

Ret urns 

Maintenance and Repair 

Warrant ies 

Delivering Equipment 

Supplier St andards 

Licensure 

Liability Insurance 

Inventory 

Physical Address 

Supplier Standards 

Percent of Suppliers out of Compliance 

3 5 6 8

Less Than One Percent of Suppliers Did Not Have a Physical

Presence at Their Business Address of Record 

One Medicare standard requires a supplier to have an appropriate physical address to 

conduct business. One of the 165 suppliers in our sample (.61 percent) did not have a 

physical presence at their business address of record. The building at the listed address 

was unoccupied. We observed no evidence that the supplier was ever there. 

We can logically assume the supplier was previously doing business at the listed address. 

ChoicePoint inspectors verified the existence of a supplier business before the NSC 

approved the supplier’s application for a DME supplier number. However, neighboring 

9 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
business operators were unaware that any supplier business had ever existed at the listed 

address. 

The supplier had not notified the NSC of any recent change of address, and continued to 

bill the Medicare program through the date of our fieldwork, in September 2000. 

Because their business operation could not be observed at their address of record, we 

could not determine that they were a legitimate business. Accordingly, we referred the 

supplier to the NSC for review. The NSC did a follow-up review to determine their 

current status. After confirming our observations, the NSC revoked the supplier number 

for this supplier. 

Projected to the population of suppliers from which our sample was drawn, the .61 

percent would equal about 30 suppliers. 

In our 1997 inspection on supplier compliance with Medicare standards, we reported that 

7 percent of suppliers and applicants were not doing business at their address of record. 

Supplier failure to have a presence at their address of record raised serious questions 

about the legitimacy of their business. We cannot directly compare those results to our 

current study results due to differences in methodology. 

All Suppliers Complied With Delivery, Warranty, Repairs,

Returns, Complaints and Disclosing Ownership Standards 

We discuss each of the Medicare standards below to show common practices by suppliers 

to meet them. In many instances, we relied on self-reported compliance with the 

standards. The Medicare standards did not require suppliers to maintain documentation 

of their compliance with the standards. However, we reviewed documentation and 

observed supplier operations to corroborate self-reported compliance where records were 

available and actual business operations were underway. 

Suppliers had a System for Delivering Equipment 

This standard requires suppliers to deliver DME items to beneficiaries and to oversee 

delivery of items ordered from other suppliers on behalf of a beneficiary. All suppliers 

had a system for delivering equipment as required by the standard. 

We based our conclusion that suppliers were complying with this standard on discussions 

with 138 of the 165 suppliers in our sample. We also corroborated our interviews by 

observing over the counter business transactions, delivery staff, and delivery trucks on 

the premises. 

To further verify that suppliers were meeting the delivery standard, we also tested the 

delivery standard by reviewing signed invoices or delivery tickets for one to three 

Medicare beneficiary claims during Calender Year 1999. We did this test at 65 suppliers 

-about 40 percent of the suppliers we interviewed. Although Medicare standards did not 

require it, our test showed that 86 percent could document delivery. The remaining 14 

10 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
percent could not document delivering DME for all claims we tested, but they could 

document deliveries for one or two of them. 

Suppliers Honored Warranty Agreements 

The standard required suppliers to honor warranty agreements on DME equipment under 

applicable State law. Most suppliers said no beneficiaries had returned items under 

warranty. We tested for compliance with this standard at 123 of 165 suppliers. All 

suppliers told us their policy was to make or arrange for warranty repairs or replacements 

as needed. Only 5 suppliers could provide documentation of having made warranty 

repairs or replacements. However, the Medicare standards did not require 

documentation. 

Suppliers Repaired Rented Durable Medical Equipment 

The standard required suppliers to repair DME that they rented to beneficiaries. They 

may repair the items themselves or contract for needed repairs. We tested compliance 

with this standard at 130 of 165 suppliers. Only 29 percent (38 of 130) of them rented 

DME equipment. All of them had provisions for repairing rented DME. Most of them 

repaired rented DME themselves. Only 4 suppliers said they had a contract to repair 

rented equipment. 

Suppliers Accepted Returned Durable Medical Equipment and Supplies 

The standard required suppliers to accept returns of substandard or unsuitable items from 

beneficiaries. We were able to interview 116 of the 165 suppliers in our sample on this 

standard. Ninety-one of them said no beneficiary had attempted to return an item to them. 

The remaining 25 suppliers said they accepted returns of unsuitable items. While CMS 

did not require documentation on compliance with the Medicare standards, 7 of the 25 

had done so. 

Suppliers Responded to Beneficiary Questions and Complaints 

The standard required suppliers to answer beneficiary questions and complaints about 

DME equipment. We tested for compliance with this standard at 127 of 165 suppliers. 

Suppliers seemed to be complying with this standard based on their comments to us. 

Most, however, said they only verbally responded to questions and complaints by 

beneficiaries about their DME and supplies. Some suppliers told us they actually 

documented complaints, and a few also documented questions. 

Suppliers Disclosed Ownership 

This standard requires that suppliers disclose any persons or company with at least 5 

percent ownership interest in their business. We were able to test this standard at 137 of 

the 165 suppliers in our sample. All seemed to be complying with the standard. 

To test compliance with the standard, we asked for the identity of the principal business 

owners. We limited our onsite test to principal owners because on-site managers and 

11 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
employees could not logically be expected to know all ownership parties in a business. 

We did not require on-site persons we interviewed to refer to business records. 

We then compared the principal owners we identified through on-site interviews to those 

listed on the business application for a supplier number. In all instances, the principal 

owners we identified on-site agreed with those identified in the application. 

Some Suppliers Failed to Comply With Inventory, Liability

Insurance and Licensure Standards 

Five Percent of Suppliers did not have an Inventory 

This standard requires that suppliers have an inventory of DME and supplies onsite, or 

that they have a contract with another entity to provide them. Seven of 132 suppliers we 

inspected for this standard had no inventory or contract for supplying DME and supplies. 

However, suppliers out of compliance with this standard could still meet beneficiary 

demand for DME by ordering from a third party, on an as needed basis. In many cases, 

such suppliers directed that DME and supplies they ordered from a third party be shipped 

directly to the Medicare beneficiary. This is referred to as “just-in-time” ordering or drop 

shipping. For example, one supplier of wheelchairs in Illinois ordered products from a 

company in Florida, and the Florida company shipped directly to the beneficiary. 

For “just-in-time” and drop shipping arrangements, there was no formal contract. Thus, 

we considered suppliers with such arrangements out of compliance. However, we 

verified that such suppliers actually did furnish DME to beneficiaries. Where suppliers 

billed Medicare in 1999, we reviewed shipping records and similar documentation, 

showing equipment and supplies had been shipped to beneficiaries. 

We estimated 5 percent of the 4,927 suppliers nationwide were operating without having 

an inventory of equipment or supplies on site, and without a contract for inventory. This 

projects to 261 of the suppliers in our universe. 

Eight Percent of Suppliers did not have Current Liability Insurance 

This standard requires suppliers to carry appropriate liability insurance. Appropriate 

insurance was not defined in the Medicare standard. 

In our sample, 8 percent (10 out of 125) of suppliers we inspected on this standard could 

not document they had current liability insurance. The NSC verifies liability insurance 

with the issuing insurance company as part of the application process. In the case of 

suppliers out of compliance with this standard, suppliers had liability insurance when 

they applied for a supplier number, but they had allowed it to lapse after obtaining their 

DME supplier number. For example, the expiration date on the insurance policy of a 

supplier in Oklahoma was April, 2000, about 6 months after the NSC had granted a DME 

supplier number. 

12 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
We estimated that 8 percent of suppliers were operating with no liability insurance, 

which amounts to 394 suppliers nationwide. 

Thirteen Percent of Suppliers did not have Appropriate License 

The licensure standard requires that suppliers operate in compliance with all State and 

Federal licensure and regulatory requirements. The standard does not specifically require 

a local license, however, one is required on the application for a supplier number. 

Eighty-seven percent of suppliers had the appropriate business license. 

However, we estimated that 13 percent (18 of 137) of the supplier population was 

operating without a current license at the time of our inspection. Projected to the supplier 

population included in our sample, this equals about 640 DME suppliers. 

In several instances, a supplier had a current State business license, but the local license 

was expired. For example, one supplier in North Carolina had a current local license, 

however, the state license had expired about 15 months after the supplier was approved 

for a DME supplier number. The NSC verifies licensure at application and reenrollment, 

but has no system to assure that suppliers remain licensed during the three-year interim 

period between initial enrollment and reenrollment. 

Fifty Percent of Suppliers Failed the Standard to Provide

Consumer Information 

One Medicare standard requires that suppliers make a list of all 11 Medicare supplier 

standards available to each beneficiary. The list of standards lets beneficiaries know the 

responsibilities of suppliers. The list also functions, in part, as a statement of beneficiary 

rights. For example, a beneficiary with a rented wheelchair could reference the list of 

standards and know that the supplier is responsible for repairs. Similarly, beneficiaries 

could look at the list and see that suppliers must accept the return of items which are 

substandard or unsuitable. 

Fifty-six of 112 suppliers we inspected for this standard, or 50 percent of suppliers 

nationwide, did not disclose the supplier standards to beneficiaries. Projected to our 

sample of 4,927 suppliers, this equals about 2,463 suppliers. 

Many suppliers told us they were not even familiar with the requirement. In one case, a 

supplier with a poster-size copy of the standards on the wall behind his desk claimed 

never to have heard of Medicare supplier standards. Of note, in our 1997 inspection, we 

also reported that suppliers most often failed to comply with the standard. 

13 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
CC RECOMMENDATIONS 

We believe that DME supplier compliance with Medicare standards has improved 

substantially since our 1997 inspection. Because we used different methodologies, we 

cannot directly compare the results of this inspection to the results of our 1997 

inspection. However, the 1997 inspection showed varying levels of non-compliance with 

all standards except one. Our current inspection shows that the supplier noncompliance 

rate was relatively low or non-existent for all Medicare standards except one. Only one 

standard had a non-compliance rate greater than 13 percent. 

We believe that much of the improvement can be attributed to physical site inspections 

by an NSC contractor, ChoicePoint, Inc. If a supplier does not meet standards as 

documented by the ChoicePoint site inspection, the National Supplier Clearinghouse 

does not grant a Medicare supplier number. In many instances, noncompliance occurred 

after a supplier number was issued. In recognition of the value of onsite inspections, the 

NSC recently began performing site inspections on its own in one State. 

If CMS desires to further improve the compliance rate, however, we offer the following 

options for consideration. 

C CMS and the NSC could implement efforts to educate suppliers about the 

requirement to provide beneficiaries a list of supplier standards. This could be 

done in their letter transmitting a number to an approved supplier. The NSC 

could emphasize compliance with Medicare supplier standards, which are 

included in the package accompanying the letter. Such education would help 

assure that beneficiaries know their rights and supplier obligations to them. 

C CMS could revise its standards to require suppliers to transmit a copy of the 

Medicare supplier standards to each beneficiary at the time of each sale or rental. 

This would enable beneficiaries to question suppliers and help enforce 

compliance. 

C CMS and the NSC could institute random, unannounced site inspections of 

supplier operations. Such inspections should be made at times other than the time 

of initial enrollment or reenrollment. 

Enforcing full compliance with each standard is difficult and could be cost prohibitive. 

In our 1997 report, we recommended that CMS charge suppliers an application fee. We 

did not assess the benefits of such a fee in our present inspection. However, we continue 

to believe such fees would help assure that only legitimate DME suppliers are approved 

for a Medicare number. Further, the fees would help offset CMS’ cost of doing site 

inspections to assure that suppliers comply with all Medicare standards. 

14 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
Further, CMS’ additional supplier standards that became effective in December 2000 

should help enforce compliance with all DME standards. For example, the standards 

require suppliers to keep records on and document compliance with standards for rental 

repairs, warranty work, and notifying beneficiaries of a rental or purchase option. The 

standards also require suppliers to document that they furnish beneficiaries a copy of the 

supplier standards. 

Agency Comments 

The CMS concurred with our findings. CMS outlined several initiatives that we believe 

respond to our recommendations. First, CMS plans to increase site visits on suppliers 

that do not comply with standards, and to reward those that pass. Additionally, CMS 

plans to assess the impact of the new supplier standards. Finally, during their site 

inspections, CMS compliance inspectors are also charged with educating suppliers on 

requirements to provide beneficiaries with a copy of the Medicare DME supplier 

standards. The full text of CMS’ comments are presented in Appendix E. 

15 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX A 

SUPPLIER STANDARDS IN EFFECT AT THE TIME OF OUR FIELDWORK 

June through September 2000 

1. A supplier will fill orders from its own inventory or inventory of other companies with which 

it has contracts to fill such orders; or fabricates or fits such items for sale from supplies it 

buys under contract. 

2. A supplier is responsible to oversee delivery of Medicare covered items to Medicare 

beneficiaries. 

3. A supplier honors all warranties, express or implied, under applicable State law. 

4. A supplier will answer all questions or complaints a beneficiary has about an item or 

use of an item that is sold or rented to the beneficiary, and refers beneficiaries with Medicare 

questions to the appropriate carrier. 

5. A supplier maintains and repairs directly, or through a service contract with another 

company, items it rents to a beneficiary. 

6. A supplier accepts returns of substandard (less than full quality for a particular item) 

or unsuitable items (inappropriate for the beneficiary at the time it was fitted and/or sold) 

from the beneficiary. 

7. A supplier discloses consumer information to each beneficiary with whom it does business. 

This consists of a copy of these supplier standards to which it must conform. 

8. A supplier complies with the disclosure provisions in Title XI of the Social Security 

Act, section 1124(a). 

9. A supplier must comply with all State and Federal licensure and regulatory 

requirements. 

10. A supplier must maintain a physical facility on an appropriate site. 

11. A supplier must have proof of appropriate liability insurance. 

16 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX B 

SUPPLIER STANDARDS EFFECTIVE DECEMBER 2000 

1. A supplier must operate its business and furnish Medicare covered items in compliance 

with all provisions of Medicare law. 

2. A supplier must not make or cause to be made, any false statements or 

misrepresentation of a material fact on an application for a billing number. 

3. A supplier must furnish various documentation to CMS upon request demonstrating 

compliance with supplier standards. 

4. A supplier must notify a beneficiary that they may rent or purchase certain items. 

5. A supplier’s application must be signed by an individual whose signature binds a 

supplier. 

6. A supplier cannot convey or reassign a supplier number. 

7. A supplier must maintain a primary business telephone at the physical facility. This 

telephone number must be listed under the name of the business in the business portion of the 

local telephone company directory. The exclusive use of a beeper number, answering service, 

pager, facsimile machine, car phone, or an answering machine may not be used as the 

primary business telephone for purposes of this regulation. 

8. As required by sections 1834(a)(17)(A) and 1834(h)(3) of the Act, a supplier of 

a Medicare covered item must agree not to contact a beneficiary by telephone regarding the 

furnishing of a Medicare covered item to the individual unless the individual has given 

written permission, the supplier has furnished an item to the individual already, or the 

supplier is contacting the individual regarding a furnished item. 

9. Only a supplier that is licensed to dispense the drug may bill for a drug used as a 

Medicare covered supply with durable medical equipment or prosthetic devices. A supplier 

must bill and receive payment for the drug in its own name. 

17 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX C 

LOCATIONS OF SITE INSPECTIONS 

STATE CITY STATE CITY 

AZ PARKER FL

YUMA 

CA AUBURN 

BAKERSFIELD 

BORREGO SPRINGS 

BRAWLEY 

CHATSWORTH 

CHULA VISTA 

EL CENTRO 

GRASS VALLEY 

HOLLYWOOD 

HOLTVILLE 

INDIO 

LANCASTER 

LOS ANGELES 

N HIGHLANDS 

NEWHALL 

OROVILLE 

PALMDALE 

PAUMA VALLEY 

PORTERVILLE 

RIO LINDA 

ROSEVILLE 

TULARE 

YUBA CITY 

CT BRISTOL 

CROMWELL 

EAST HARTFORD 

EAST WINDSOR 

GLASTONBURY 

HARTFORD 

NEWINGTON 

PLAINVILLE 

SIMSBURY 

IA 

IL 

IN 

KS 

MS 

BOCA RATON

CORAL GABLES

DELRAY BEACH

FT LAUDERDALE

MIAMI

MIAMI BEACH

POMPANO BEACH

SOUTH MIAMI

DAVENPORT

CHICAGO HEIGHTS

GENESEO

HARVEY

KANKAKEE

LYNDON

MOLINE

ORLAND PARK

PEORIA

POLO

ROCK ISLAND

TINLEY PARK

WALNUT

DEMOTTE

GRIFFITH

HIGHLAND

MERRILLVILLE

MUNSTER

SATANTA

ACKERMAN

CALHOUN CITY

COLUMBUS

GRENADA

KILMICHAEL

LOUISVILLE

SMITHVILLE

STARKVILLE

TUPELO

18 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX C 

continued 

STATE CITY STATE CITY 

NC BUTNER OH ACKRON 

CARY BEDFORD HTS 

DURHAM BROADVIEW HTS 

MORRISVILLE CLEVELAND 

RALEIGH GARFIELD HTS 

ROXBORO NORTH ROYALTON 

WAKE FOREST NORTHFIELD 

PARMA 

NJ COLUMBUS VALLEY VIEW 

EAST BRUNSWICK WALTON HILLS 

EAST WINDSOR 

EDISON OK ELK CITY 

FREEHOLD GRANDFIELD 

HAMILTON HYDRO 

HAMMONTON LAWTON 

LAWRENCEVILLE WEATHERFORD 

LITTLE EGG HARBOR WOODWARD 

MARLTON 

MATAWAN SC CAYCE 

MEDFORD CHAPIN 

MILLTOWN COLUMBIA 

MONROE IRMO 

OLD BRIDGE LEESVILLE 

PARLIN PELION 

PEMBERTON WAGENER 

PERTH AMBOY WEST COLUMBIA 

PRINCETON 

SOUTH AMBOY TX BORGER 

SOUTH BRUNSWICK CANADIAN 

TRENTON SEYMOUR 

VERNON 

NV LAUGHLIN WHEELER 

19 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX D 

POINT ESTIMATES AND CONFIDENCE INTERVALS 

For those suppliers in our sample that did not meet the standards, we estimated the percentage of 

the supplier population that was out of compliance. Our sample of 165 suppliers allows us to 

predict noncompliance with 95 percent confidence. For example, we report 8 percent of all 

suppliers did not have appropriate liability insurance. We are confident at the 95 percent level 

that the actual population estimate lies between 3 and 13 percent. 

Supplier Standard 

Physical address 

Inventory 

Liability insurance 

Appropriate licensure 

Supplier 

standards/Consumer 

information 

Point Estimate 95% Confidence 

Interval 

1% 0 - 4% 

5% 1 - 9% 

8% 3 - 13% 

13% 1 - 25% 

50% 34 - 66% 

20 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
APPENDIX E 

In this appendix, we present in full the comments from the Centers for Medicare and Medicaid 

Services. 

21

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670 
22 

Medical Equipment Suppliers: Compliance with Medicare Standards OEI-04-99-00670