Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

JUNE 2000 

OEI-03-99-00620 

Medicare Losses Resulting from Early 

Payments for Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 
OFFICE OF INSPECTOR GENERAL 

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

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

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

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

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

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

effectiveness of departmental programs. 

OEI's Philadelphia Regional Office prepared this report under the direction of Robert A. Vito, 

Regional Inspector General, and Linda M. Ragone, Deputy Regional Inspector General. Principal 

OEI staff included: 

REGION HEADQUARTERS 

Tara Schmerling, Project Leader Stuart Wright, Program Specialist 

Brian Ritchie, Technical Support Staff 

To obtain copies of this report, please call the Philadelphia Regional Office at 1-800-531-9562. 

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

http://www.dhhs.gov/progorg/oei 
June Gibbs Brown

Inspector General

OIG Final Report: “Medicare Losses Resulting from Early Payments for Durable Medical

Equipment, Prosthetics, Orthotics, and Supplies,” OEI-03-99-00620

Nancy-Ann Min DeParle

Administrator

Health Care Financing Administration

Summary 

The purpose of this report is to inform the Health Care Financing Administration (HCFA) of 

an improvement that can be made to provider billing requirements for durable medical 

equipment, prosthetics, orthotics, and supplies (DMEPOS). We found that the Medicare trust 

fund would have earned significant interest if HCFA had required providers to wait until the 

end of the service period to submit DMEPOS claims. We estimate this unearned interest to be 

$7.2 million in 1998. 

Background 

Title XVIII of the Social Security Act authorizes coverage of durable medical equipment, 

prosthetics, orthotics, and supplies (DMEPOS) under Medicare Part B. Medicare allowed 

approximately $6.1 billion for DMEPOS claims in 1998. Durable medical equipment includes 

items such as hospital beds, wheelchairs, and oxygen equipment. Prosthetics, orthotics, and 

supplies include such items as artificial arms and legs, neck braces, enteral nutrients, and 

wound dressings. Depending on the type of DMEPOS, these services can be rented on a 

monthly basis, purchased, or billed over a number of days corresponding to the amount of the 

supply provided. 

According to the Medicare Carriers Manual, Part B expenses for items and services are 

incurred on the date the beneficiary receives the item or service. For DMEPOS claims, 

expenses are incurred on the date the item is delivered to the beneficiary’s home. This date is 

also known as the “date of service” and is the earliest date that a provider can submit a claim. 

For rental items, the day of delivery is the initial date of service for the monthly rental period, 

and subsequent rental periods start on that same day of the month. 

The Supplementary Medical Insurance (SMI) trust fund pays for physician and outpatient 

services under Part B of the Medicare Program. The SMI is financed by monthly premiums 

charged to Medicare beneficiaries and by payments from Federal general revenues. The money 

in the trust fund is invested in special Treasury securities that are guaranteed by the U.S. 

Government. Those securities that are available only to the trust fund are called special issues. 

The rate of interest on special issues is determined by a formula and is established at 
Page 2- Nancy-Ann Min DeParle 

the end of each month. This rate of interest applies to new investments in the following month. 

The average interest rate for 1998 was 5.625 percent. 

Methodology 

Claims Data. We gathered all 1998 DMEPOS claims for a 1 percent sample of Medicare 

beneficiaries using HCFA’s National Claims History file. From this file, we used variables 

associated with the service start date, service end date, carrier receipt date (i.e., date carrier 

receives claim from provider), type of service code (e.g., rental or purchased item), and 

allowed amount. 

To determine if a provider billed Medicare for a service before it was completed, we compared 

the carrier receipt date to the service end date. Almost all (99.9 percent) of the rental claims 

that we reviewed had the same start and end dates of service. For these claims, we created a 

new end date by adding 30 days to the date of service provided on the claim. We did this since 

rental services span a monthly period and these dates of service did not accurately reflect the 

service period. For all the remaining services, we used the actual end date of service. We then 

identified those services where the carrier receipt date preceded the service end date. For these 

services, we subtracted the carrier receipt date from the end date of service to calculate the 

number of days in interest that Medicare lost. Using the average 1998 interest rate on specialissue investments issued to the SMI trust fund, we calculated a daily interest rate by dividing 

the 1998 interest rate by 365 days. To calculate the total interest lost for each service, we first 

multiplied the number of days lost in interest by the daily interest rate then multiplied that 

amount by the service’s allowed amount. We then aggregated the results for all identified 

services. 

We also analyzed when, during the service period, providers submitted these claims. To 

determine this, we found the mid-point of each service period by dividing the number of days in 

the service period by two. We then subtracted the carrier receipt date from the end date of 

service and compared this number to the mid-point of the service period. If the number was 

greater than or equal to the mid-point, we determined that the service was billed in the first half 

of the service period. If the number was less than the mid-point, we determined that the 

service was billed in the second half of the service period. Additionally, if the carrier receipt 

date was before the start date of service, we determined that the service was billed before the 

start of the service period. 

Survey Data. To determine what other payers’ billing and payment policies for rental services 

were, we conducted phone surveys with representatives of seven fee-for-service health benefit 

plans offered under the Federal Employees Health Benefits Program. 
Page 3- Nancy-Ann Min DeParle 

Findings 

Medicare could have earned an additional $7.2 million in interest on 1998 payments for 

claims that were billed before the end of the service period 

Medicare could have earned an additional $7.2 million (± $40,348) in interest on 1998 

payments for DMEPOS services. This is due to the current Medicare policy that allows 

providers of DMEPOS to bill for a service before the service period is completed. Rental 

claims accounted for almost all (98 percent) of the identified claims. For the majority of 

services, claims were submitted by providers during the first half of the service period. 

Additionally, a small number of services were billed even before the start date of service. The 

table below shows the percentage of services billed in each segment of the service period along 

with the estimated interest Medicare could have earned. 

Percentage of 1998 Services Billed and Estimated Unearned Interest by 

the Segment of the Service Period 

Segment of Service Period 

Billed 

Percentage of Total 

Services Billed 

Estimated Unearned 

Interest 

Before Start Date of 

Service 0.2% $21,855 

First Half of Service 

Period 83.6% $6,703,059 

Second Half of Service 

Period 16.2% $434,992 

Total 100.0% $7,159,906 

Four of seven insurers surveyed do not pay for services before the service period is 

completed 

We asked seven insurers if we were to rent a wheelchair to a member for the month of January, 

(1) when would we be allowed to submit the claim and (2) when would we be paid. Two 

insurers said that their systems would reject the claim if it was submitted before the end of the 

service period. Another two insurers said that if the claim for the wheelchair was submitted 

early they would hold payment of the claim until the end of the service period. The other three 

insurers surveyed said the claim can be submitted at the beginning of the service period and 

that payment would not be delayed until the end of the service period. 
<

<

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Page 4- Nancy-Ann Min DeParle 

Recommendation 

We believe that HCFA is allowing unnecessary losses to the Medicare trust fund, in the form of 

unearned interest, by paying for DMEPOS claims prior to the end of the service period. 

Therefore, we recommend that HCFA not pay for DMEPOS claims before the service 

period has been completed. To accomplish this, HCFA should: 

< require providers to submit claims at the end of the service period; 

< require providers to submit claims with accurate start and end dates of service; 

< require a Common Working File and/or contractor system edit to reject claims 

submitted prior to the end of the service period. 

Agency Comments 

The HCFA did not concur with our recommendation and stated that delaying payment of 

DMEPOS claims until the end of the service period would not be a desirable practice. In 

addition, HCFA questioned our use of the carrier receipt date in our interest calculation and 

stated that our estimate of $7.2 million would likely be reduced if we had factored the 14-day 

payment floor into our calculation. The 14-day payment floor requires contractors to hold 

claims for 14 days before being paid. The full text of HCFA’s comments is attached. 

OIG Response 

We recognize that HCFA needs to prioritize the issues it addresses based on impact to the 

program, and we realize that the $7.2 million financial impact of our recommendation may 

need to be balanced against other agency goals. We suggest that, if it is not practical to take 

action now, HCFA reconsider our recommendation at a later time when making additional or 

broader refinements to Medicare’s claims processing system. 

We do believe there is evidence that paying for DMEPOS claims at the end of the service 

period is a viable option. While HCFA believes that such a practice would be inconsistent with 

customary business practices, we found that four of seven insurers contacted paid for these 

types of services at the end of the service period. 

We would also like to clarify a technical issue raised by HCFA with respect to our interest lost 

estimate. The HCFA questioned our use of carrier receipt date to determine the interest lost 

by early payment of DMEPOS claims, and stated that we did not take into account the 14-day 

payment floor. Using the premise that DMEPOS claims should not be billed until the end of 

the service period, our methodology determined that a claim covering the month of January 

and received on January 5 would have lost 26 days of interest. The HCFA states that we 
Page 5- Nancy-Ann Min DeParle 

should have added 14 days to the January 5 receipt date to determine an estimated payment 

date of January 19. If we had used this payment date in our calculation, HCFA believes that 

the interest lost would be reduced to only 12 days in this example. However, if we had used 

the estimated payment date to calculate interest lost, the program still would have lost 26 days 

of interest. If we replaced receipt date with payment date in the calculation, we would have 

subtracted the estimated payment date of January 19 from the proposed payment date of 

February 14 (proposed receipt date plus 14 days), not from the proposed receipt date of 

January 31. When payment date is applied uniformly in the calculation, the number of days of 

interest lost to the Medicare program is 26 days. Whether receipt date or payment date is used 

to calculate interest lost, the result is the same. Therefore, we believe our $7.2 million estimate 

is an accurate reflection of the interest lost to the program in 1998. 

Attachment 
Attachment 
Attachment