Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

PART B SERVICES IN NURSING HOMES 

- An Overview -

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~w JUNE GIBBS BROWN

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‘%d~o OEI-06-92-O0865 
OFFICE OF INSPECTOR GENERAL 

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

amended, is to protect the integrity of the Department of Health and Human Services’ (HHS) 

programs as well as the health and welfare of beneficiaries served by those programs. This 

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

inspections conducted by three OIG operating components: the OffIce of Audit Services, the 

OffIce of Investigations, and the Oftlce of Evaluation and Inspections. The OIG also informs the 

Secretary of HHS of program and management problems and recommends courses to correct them. 

OFFICE OF AUDIT SERVICES 

The OIG’S Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying out 

their respective responsibilities and are intend~ to provide independent assessments of HHS 

programs and operations in order to reduce waste, abuse, and mismanagement and to promote 

economy and efficiency throughout the Department. 

OFFICE OF INVESTIGATIONS 

The OIG’S OffIce of Investigations (01) conducts criminal, civil, and administrative investigations


of allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment


by providers. The investigative efforts of 01 lead to criminal convictions, administrative


sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud control units which


investigate and prosecute fraud and patient abuse in the Medicaid program.


OFFICE OF EVALUATION AND INSPECTIONS 

The OIG’S OffIce of Evaluation and Inspections (OEI) conducts short-term management and 

program evaluations (called inspections) that focus on issues of concern to the Department, the 

Congress, and the public. The findings and recommendations contained in these inspection reports 

generate rapid, accurate, and up-to-date information 

effectiveness of departmental programs. 

Dallas Staff 

Leah Bostick 

Kevin Golladay 

Sarah Taylor 

Clark Thomas 

on the efficiency, vulnerability, and 

Central OffIce 

Jennifer Antico 

Brian Ritchie 

Barbara Tedesco 

For further information contact: Kevin GoIladay at 214/767-3310 or 1/800-848-8%0. 
Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

PART B SERVICES IN NURSING HOMES 

- An Overview ­

4%smc&~.& 

**4 

JUNE GIBBS BROWN ~ -J Inspector General 

s 

% 

%+ ~
 MARCH 1996 %&xa > OEI-06-92-O0865

EXECUTIVE SUMMARY 

PURPOSE 

To describe the Medicare Part B services provided to nursing home residents and to identify 

and discuss known or potential program vulnerabilities. 

BACKGROUND 

Medicare Part B covers a wide range of medical services and supplies for the program’s 

beneficiaries, including those in nursing homes. These services include physician services 

and outpatient hospital services, diagnostic laboratory tests, imaging, ambulance services, and 

a wide range of medical equipment and supplies. 

We obtained information about Part B expenditures from a 1992 nationally protectable sample 

of nursing home residents from 10 States and 150 nursing homes. This includes residents 

receiving Medicare extended care benefits in a skilled nursing facility (SNF), residents paying 

for their stay with private insurance or personal fi.mds,residents on Medicaid, or a 

combination of the above. 

This inspection was conducted as a part of Operation Restore Trust. The initiative, focused in 

five States, involves multi-disciplinary teams of Federal and State personnel seeking to reduce 

fraud, waste, and abuse in nursing homes and home health agencies, and by durable medical 

equipment suppliers. 

FINDINGS 

Medicare was charged $4.1 billion and Medicare payments of $2.7 billion were made in 

1992 for Part B services provided to nursing home residents. 

�	 The most money was spent on physician evaluation services ($894 million), followed 

by medical equipment, supplies, prosthetics, and orthotics ($772 million). 

�	 More nursing home residents received a physician evaluation service (82 percent of 

residents) than any other service, followed by laboratory tests (66 percent of residents) 

and x-rays (47 percent of residents). 

The Part B average daily charge varies signl~cantly among both States and nursing homes. 

�	 The State average daily charge ranged from an estimated high of $10.88 in Louisiana 

to a low of $4.42 in Maine. (The estimated national average was $8.75 per day.) 

Differences between nursing home average daily charges ranged from a low of $1.16 

to a high of $49.67. These are sometimes, but not always, explained by differences in 

the acuity level of the residents treated in the facility. 

i 
The accessibili~ and vulnerability of nursing home residents provide a unique opportunity 

forfraud, waste, and abuse. 

The Medicare Part B program is particularly vulnerable because payment rules and safeguards 

largely ignore the unique character of the nursing home environment and the varied services 

and supplies which can be provided. Program Vulnerabilities identified include: 

�	 Dudicate Payments: Considered the payer of last resort, it is appropriate for Medicaid 

agencies to require that providers bill Medicare first for Part B covered services 

provided to dually eligible nursing home residents. Medicaid pays only for services 

not covered by Medicare. This overlapping responsibility creates a vulnerability 

whereby both Medicare and Medicaid could mistakenly pay for the same service or 

supply when each is unaware the other has paid. To determine the consequences of 

this vulnerability the OIG is currently conducting an evaluation of duplicate payments. 

Additionally, the shilling of payment responsibility from one program to another can 

increase overall costs to the taxpayer when the program paying for the service allows 

reimbursement at a greater rate than would ordinarily be paid by the other program. 

�	 Lack of Oversight: Medicare Part B contractors (carriers and intermediaries) often 

lack enough information to adequately ensure appropriate payments for residents of 

nursing homes. For example, carriers generally do not have information that a resident 

is in a nursing home unless the claim specifically notes the place of service was a 

nursing home. 

�	 Ouestionable Sumiier or Phvsician Practices: We have previously documented 

questionable billing and marketing practices in the provision of incontinence supplies, 

wound care, and orthotic body jackets to patients in nursing homes. In addition to 

suppliers, physicians and other practitioners warrant fiuther review for such practices 

as billing for questionably high numbers of residents on the same day. 

CONCLUSION 

This review of the utilization of Part B services by nursing home residents suggests the need 

for further work in many areas such as: 1) examining the appropriateness of consolidated 

billing of Part B nursing home expenses and the daily rate, 2) monitoring trends in Part B 

payment utilization over time, 3) evaluating issues of poor quality care resulting from such 

practices as physicians treating too many patients in one day, exposure to excessive or 

inappropriate medical services, provision of supplies not medically necessary, etc., and 4) 

developing and applying various fraud detection methods to identi~ abusive practices and 

fraud involving residents of nursing homes. 

To support the development of fraud detection methods, iiwt.her information is currently 

being gathered on the mture and magnitude of abusive provider practices or program 

ii 
vulnerabilities involving nursing home residents. This information will be used to identify 

the most efficient fraud detection methods. 

COMMENTS 

We thank the Health Care Financing Administration (HCFA) and the Assistant Secretary for


Planning and Evaluation (ASPE) for their comments on the draft report. Changes were


made based on their suggestions. In addition to suggestions, the HCFA pointed out several


actions it has taken to address vulnerabilities such as: 1) requiring carriers and


intermediaries to selectively initiate pre-pay reviews on high dollar payment areas and


aberrant trends, and 2) development of enhanced duplicate payment detection methodologies


for the Medicare Transaction System. The full text of HCFA and ASPE comments are


provided in Appendix B.


... 

111 
TABLE OF CONTENTS 

Page 

EXECUTIVE SUMMARY 

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


UTILIZATION OF PART B BY NURSING HOME RESIDENTS . . . . . . . . . . . . . . . . . . . 7


PROGRAM VULNERABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..14


Duplicate Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...14


Nursing Home Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...16


LackofOversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...17


Abusive Supplier and Physician Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18


CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22


ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...25


APPENDICES 

ProcedureCode ClassificationandBed Day Cost . . . . . . . . . . . . . . . . . . . . . . . . . . A-1


Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-1


GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary-1 

iv 
INTRODUCTION 

PURPOSE 

To describe the Medicare Supplementary Medical Insurance program (Part B) services 

provided to nursing home residents and to identi~ and discuss known or potential program 

vulnerabilities. 

BACKGROUND 

With the aging of the American population, long-term care is becoming an increasingly 

important component of the U.S. health care system. Since 1966, the proportion of those over 

age 65 residing in nursing homes has risen from 2.5°/0to over 5°/0.1 Both the Medicare md the 

Medicaid programs contribute significantly to this population’s cost of care. 

Medicare Program 

Medicare is a Federal health insurance program, authorized by Title XVIII of the Social 

Security Act, that covers most people 65 years or older, people with end-stage renal disease, 

and some disabled people. The program consists of two distinct insurance prograrns.2 

Hospital Insurance Benefits for the Aged and Disabled (Part A) covers services fi.umishedby 

hospitals, home health agencies (HHA), hospices, and skilled nursing-facilities (SNFS). 

Supplementary Medical Insurance for the Aged and Disabled (Part B) covers a wide range of 

medical services and supplies, including physician services, outpatient hospital services, and 

home health services (not covered under Part A), as well as diagnostic laboratory tests, Xrays, ambulance services, and the purchase and rental of durable medical equipment (DME). 

While Medicare does not cover the institutional costs for traditional long-term nursing home 

care, benefits are provided for extended care to qualified beneficiaries in a Medicareparticipating SNF. A certified SNF is a nursing home with the staff and equipment to provide 

skilled nursing care, skilled rehabilitation services, and other related services, and that meets 

the conditions of Medicare participation specified by regulations.3 

Medicaid Program 

The Medicaid program, enacted by Congress under Title XIX of the Social Security Act, 

provides medical assistance to certain low-income families with dependent children and lowincome persons who are aged, blind, or disabled. State Medicaid programs must offer certain 

basic services, including inpatient and outpatient hospital, physician, nursing home, and home 

health services. 

Historically, the Medicaid program recognized two levels of long-term care: 1) that care 

provided at an intermediate level in an Intermediate Care Facility (ICF) and 2) that care 

provided at a skilled level in a Skilled Nursing Facility (SNF). (~edicare has ahuays recognized 

1

m’y me kvel - SNF kvel care) However, the administrative distinctions between SNFS and ICFS 

do not, in practice, indicate marked differences in the residents serviced. Further, in many 

cases, the regulatory distinction between SNF and ICF simply reflected differences in nursing 

staff.4 

In recognition of this, Congress enacted the Omnibus Budget Reconciliation Act of 1987 

(OBRA) to eliminate the distinction by combining SNF and ICF levels of service into a single 

level (called nursing facility services (NF)). States were also required to recognize only the 

nursing home level of care for purposes of Medicaid certification. Additionally, OBRA 1987 

required all facilities to assess residents’ needs and to provide those services and activities 

necessary to attain or maintain the “highest practicable level” of fimctioning (physical, mental, 

and psychosocial well-being) for each resident.5 

Although the Federal government finances between 50 and 83 percent of care provided under 

the Medicaid program, individual States administer Medicaid within broad Federal 

requirements and guidelines.c Medicaid covers Medicare beneficiaries who meet the limited 

income and assets standards set by each State’s Medicaid program. These beneficiaries are 

know as dual eligibles. For these persons, State Medicaid programs usually pay the 

Medicare premiums and cost-sharing (coinsurance) requirements. 

Many residents enter the nursing home with assets that are utilized to pay for nursing home 

care. The process of resource depletion to pay for care is called “asset spend-down” and, once 

impoverished, the resident typically applies for public assistance through Medicaid. Even 

after all assets are depleted, a person is likely to pay a portion of nursing home expenses with 

private monthly income, while Medicaid pays the difference. 

Nursing Home Capacity and Resident Characteristics 

The number of licensed nursing homes in the United States totaled 16,751 in 1992. Seven 

States (Californi~ Illinois, Montan~ New York, Ohio, Pennsylvania, and Texas) accounted 

for nearly 39 percent of the total nursing home bed capacity. By June of 1995, the number of 

facilities had increased to 17,022, with over 1.8 million licensed nursing home beds. The 

average number of beds per nursing home grew from 93 beds in 1980 to 102 beds in 1992, 

while the total number of licensed nursing home beds per 1,000 persons age 65 and over 

stayed nearly stable at 53. 

In 1987, about three-quarters of all nursing home residents were women. Over 90 percent 

were white and over 65 years of age with a median age of 82. Over half of all nursing home 

residents in 1987 needed assistance with more than three activities of daily living (ADLs), 

such as dressing or bathing. Many of these residents are likely to also have std%eredsome 

form of cognitive impairment. Only 11 percent had no ADL limitations. 

Most nursing home stays are relatively short. Of those residents discharged in 1985, about 52 

percent stayed for less than three months, and 63 percent stayed for less than six months. Of 

the discharged residents, about 50 percent had additional nursing home stays, with the 

majority of those persons (77 percent) having additional stays in the same nursing home. Of 

2

all persons discharged from a nursing home in 1985, 48 percent were discharged to another 

health facility, 30 percent were discharged to the community, and the remainder either died in 

the nursing home or their outcome was unknown. 

Program Vulnerabilities 

Medicare is the nation’s largest payer of health care services, with 1992 costs of $128 billion. 

Additionally, this represents the fourth largest category of Federal expenditures. Despite 

attempts to constrain costs, Medicare spending and beneficiary out-of-pocket costs have risen 

at troubling rates according to the Government Accounting Office (GAO).7 The growth of 

these payments increases Medicare’s potential vulnerability to erroneous and excessive 

payments, either for claims resulting from program weaknesses or for claims resulting from 

provider fraud and abuse. 

The accessibility and vulnerability of nursing home residents provide a unique opportunity for 

fraud, waste, and abuse. Unless protected by concerned family or friends, the attending 

physician, or by the policy and practices of the nursing home, the extended care resident may 

be subjected to health care practices in which decisions on care can be governed by greed, 

rather than medical need. 

Program vulnerabilities are circumstances which may lead to excessive costs to the Medicare 

program, the Medicare beneficiary, and, ultimately, the tax payer. Both fraud and abuse are 

included in our definition of program vulnerabilities. 

METHODOLOGY 

Sources and Limitations of Data 

Two principle sources of data were analyzed and are presented in this report. The primary 

data source represents data obtained from a two-stage stratified sample in which 150 nursing 

homes were selected for review from 10 States(15 nursing homes per State). Those States 

were Californi~ Delaware, Florida, Indiana, Kansas, Louisiana, Maine, Michigan, Montan% 

and Wyoming. Stratification was based on nursing home size (large, medium, and small). 

Nursing home residents are dejined as anyone residing in a Medicare- or il4edicaidcerti~ed nursing facility. This includes residents receiving Medicare extended care 

benejits in a skilled nursing fmilily, residents paying for their stay wi%hprivate insurance 

or personal finds, residents on Medicaid, or a combination of the above. 

Each sample nursing home provided us with a list of all Medicare-eligible residents residing 

in the facility during 1992, along with their corresponding dates of stay. After verification 

of each beneficiary’s Health Insurance Claim Number (HICN) with the Medicare enrollment 

database, all Medicare services provided during each nursing home stay were extracted from 

the Medicare National Claims History File for calendar year 1992. The Part B services 

processed by both the carrier and the intermediary were identified. 

3

Data from the sample were projected to the total nursing home population (residents in 

Medicare or Medicaid-certified nursing homes). The estimates provided in this report are very 

conservative. This is because many of the sampled nursing homes did not provide us with a 

complete and accurate list of all residents in the nursing home during 1992. We estimate 

under-reporting to be as much as 20 percent. (This percentage was determined by veri&ing 

with the Health Care Financing Administration (HCFA) all SNF admissions to the sample 

nursing homes that were not accurately or completely reported by nursing homes. Because we 

were unable to determine the degree of under-reporting beyond just the Medicare SNF 

population, we chose not to make adjustments to the projections. Consequently, data 

projections should be viewed within this context. 

The sample consists of 24,654 nursing home stays. Twenty percent of these stays involved 

payment by Medicare Part A for SNF level care. The sample projects to nearly one-half 

billion days of care during 2.6 million stays. The 150 nursing home sample projects to 15,356 

nursing homes. 

TWO TYPES OF PART B DATA USED 

1.	 Carrier-processed Part B data reflect the allowed churges unless otherwise noted. 

Allowed charges represent what Medicare considers reasonable for these services. The 

program pays 80 percent of the allowed charges, with beneficiaries responsible for 

coinsurance and deductibles. 

2.	 Intermediary-processed outpatient Part B data reflect interimchurges by providers. 

This is because reimbursement is based on the application of reasonable costs, subject to 

certain limits which are reported through cost reports. Thus, these charges may not 

represent the final, settled cost to the Medicare program. 

Important Note: In reviewing this report, the reader should recognize that two types of data are 

combined - data for claims processed by carriers and data for claims processed by intermediaries 

(outpatient). The data from carriers refer to those charges which Medicare considers reasonable 

(allowed charges) and to which coinsurance and deductiblesare applied. In contrast, the data for 

intermediary claims refer to total charges. Total charges (include both covered and noncovered 

charges) refer to all services for a billing period before reduction for the deductible and 

coinsurance amounts and before any adjustmentsfor the cost of services provided. 

Total charges for intermediary-processedclaims were used because they were readily available 

and could be broken out in suftlcient detail (e.g., at least at the revenue center level, and often at 

the procedure code level) allowing analysisof discrete types of services(supply, lab, etc.). 

The second data source presented in this report was obtained from a one percent sample of all 

Medicare beneficiaries ;eceiving Medicare-extended care benefits during 1991, 1992, or 1993. 

After selecting the sample of beneficiaries, all Part B services received during the covered 

nursing home stay were extracted, similar to the sample above. Data from the sample were 

projected to the total SNF population by multiplying by 100. The 1991 to 1992 and 1992 to 

1993 percent change calculations made in this report reflect an inflation adjustment factor 

(7.4 and 5.9 percent, respectively), which is used to reflect more accurately the true percent 

change due to charge variation rather than to medical care inflation. Although we are aware 

4

of other adjustment (inflation) factors (e.g., HCFA’SMedicare Economic Index (MEI)), the 

Medical component of the Consumer Price Index for all urban consumers, the U.S. city 

average (CPI-U), appeared adequate for our use in this report in light of MEI’s limitations. 

While MEI is specific to certain Medicare categories of services (such as physician services, 

lab tests, etc.), it does not account for all categories of Medicare services. 

The reader should recognize that the medical component of the CPI is not always a true 

representation of the medical care cost changes in Medicare. This is because of various 

constraints specific to Medicare (e.g., fee schedules, Congressionally-mandated reductions or 

controls on the pricing of certain types of services, etc.) which do not exist in the general 

medical community from which the CPI is derived. 

Data Presentation Bv Categories 

To facilitate the presentation of the types of Part B services provided, we classified HCFA 

Common Procedure Coding System (HCPCS) procedure codes and revenue center codes 

(used in outpatient facility cost reporting.) into one of many Part B categories. No procedure 

or revenue center code is included in more than one category (except in the case of podiatry 

services which were extracted based on the podiatry specialty code ‘48’). Where possible, we 

tried to classifi services in terms of the law’s reference to coverage of the category. 

Additionally, we modeled much of the major categorization afler a developmental 

categorization system of HCPCS procedure codes prepared by HCFA’SOffice of Research and 

Development in coordination with the Urban Im.titute. (See Appendix A.) 

Vulnerabilities 

Discussions of program vulnerabilities are drawn from our review of applicable law and 

regulations and analysis of the services depicted in our sample. Additionally, we reviewed 

findings from prior OIG reviews and fraud alerts for evidence illustrating program 

vulnerabilities. Finally, we conducted a survey of each Medicare carrier to determine types of 

abuses involving nursing homes. The survey was completed by the Medicare Fraud and 

Abuse coordinator or director. 

This review was conducted in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

5

PREFACE 

This repofiwas conducted asapafi of Operation Restore Tmst. The initiative, focused on 

five States, involves multi-disciplinary teams of Federal and State personnel seeking to 

reduce fraud, waste and abuse in nursing homes, home health agencies, and by durable 

medical equipment suppliers. 

This report gives the reader a sense of the utilization of Part B services by residents of nursing 

homes certified by Medicare and/or Medicaid. Also, we point out areas of vulnerability for 

consideration as fiture work by this and other State and Federal oftlces associated with 

Operation Restore Trust. 

Our discussion begins with a section describing Part B utilization statistics, and concludes 

with a general discussion of the known or potential vulnerabilities suggested by the nursing 

home sample, other work conducted by this ofllce, or based on carrier survey responses. 

It is important for the reader to note that this report discusses the fill range of Part B services 

provided to residents of nursing homes. Some of these services are billed only by certain 

providers (e.g. nursing homes can not bill Part B for physician visits). On the other hand, 

supplies and equipment used by a resident can be billed either by a supplier to Part B or by the 

nursing home under its cost reporting as a Part A or Medicaid expense. Any discussions in 

this report of inappropriate Part B payments apply only to certain categories of service and 

should not be construed as applying to the full range of Part B services. 

Further, this report discusses generally three types of Medicare eligible nursing home 

residents: 1) residents receiving Medicare SNF benefits, 2) dual eligible residents with 

Medicaid coverage, and 3) residents paying for their own stay. Each of these types of 

residents might be impacted differently due to the application of limitations on Part B 

payments. Thus, while billing Medicare Part B maybe deemed inappropriate for one group, it 

may be appropriate, and even necess~, for another group. 

For reference in reviewing this and retied reports, a 

glossary of terms has been included in the back of this report. 

6

UTILIZATION OF PART B BY NURSING 

HOME RESIDENTS 

Medicare was charged $4.1 billion and Medicare payments of $2.7 billion were made in 

1992 for Part B services provided to nursing home residents. 

At the 95?40confidence level, we project Part B charges between $3.6 and $4.7 billion were 

made in 1992 on behalf of residents during nursing home stays. We estimate payment to be 

$2.7 billion. As discussed in the methodology, these are very conservative estimates due to 

suspected under-reporting of the resident population by sampled nursing homes. Coinsurance 

and deductibles for beneficiaries (Medicaid for dual eligibles) may exceed $1 billion of the 

estimated Part B charges. 

On a per day basis, Part B daily costs were approximately $8.75. This charge is composed of 

$5.41 in carrier allowed charges and $3.34 in outpatient total charges. When considering only 

charges for residents receiving Medicare extended care benefits in a skilled nursing facility, 

this amount is considerably more at $20. 

Part B represents a substantial (estimated nine percent) cost of the 1992 Federal and State cost 

of care. (See Figure 1.) 

I Part B Provides an Estimated Nine Percent of Federal and State 

Expenditures for Care to Nursing Home Residents 

Medicaid Nursing 

“:;;’)n 

mms:yii;:of 

10% $2.7 Billion) 

Medicare Part A 

Extended Care Benefits 

In a Skilled Nursing Facility 

($3.1 Bllllon) 

Source Medicaid end Part A SNF etatktks based on 1992 published HCFA data. 

Part B esthiate based on the 1992 rrurshg home sample of 150 nurshg homes. 

Figure 1 

Medicaid is the largest payer of nursing home care with payments of $24 billion in 1992 for 

over 1.6 million users. Medicare Part A extended care benefits in a skilled nursing facility 

were $3.1 billion for 919,115 stays totaling 25.3 million days of care. (NOTE: Part A also 

paid an estimated $60 million for hospice and $29 million for home health for nursing home 

residents - based on the nursing home sample.). Since the Federal government pays 50 to 80 

percent of Medicaid costs, this brings the total Federal institutional cost of nursing home care 

to between $12 and $22 billion. 

7

The most nwney was spent on physi.chm eviduution services ($894 million), followed by medkal 

equipment, suppliks, prosthetics, and orthotim ($772 millwn). 

The catego~ of evaluation services (used by 82 percent of residents) accounted for the most 

charges of any categorical grouping, followed by the category of medical equipment, supplies, 

prosthetics, and orthotics (used by only 27 percent of residents). (See Figure 2.) The top five 

categories of service in the nursing home (adding these two categories with lab, rehabilitatio~ and 

imaging services) accounted for over 75 percent of the total Part B charges provided to nursing 

home residents. 

1992 Part B Charges by Category of Service 

During a Nursing Home Stay 

MAJOR PART B CLASSIFICATION 

CATEGORY s!; 

Evaluation 

Medkal EquiprnanL SUPplias, 

Prosthetics, and Orthotks 

Lab and Other Tests 

RehabMatbn Therapy 

Irnaghg and Echography 

Major and Minor 

Medical Procadwes 

Ambuknca 

Dialysis Servkes 

and %I@SS m ,1 $1o9 

J 

*Podiatrk Sarvkas ‘s88 

-y 

Mental Health Servkes MA -~ 

Endoscopy m s5j

UI 

Miscellaneous ~ s4i Outpatient Part B 

Ui 

Oncobgy � $3b 

u! 

Other ] $24 ~ 

I

t 

L , 

L 

m$2 

g Carrier Processed Part B 

u Outpatient Part B 

) 

95 Percent CoMderrce 

- Interval J

-

‘O 100 200 300 400 500 600 700 800 900 1 lillion 

/’SLW7XR@gdbnatiaauveyoff &7~tkvrraa 

PART B CHARGES IN MILLIONS wodsbb~il dlli9son mstwkaaqlo rtedaLwh 

Um Wagq of evakmfkm and m@Wrw pncadma If 

, hose pwedras me condded by a PodiWst ) 

Figure 2 

8 
More nursing home residents received aphysician evaluation service (82percent of 

residents) than any other service, followed by laboratory tests (66 percent of resident@, and 

x-rays (47percent of residents). 

Most residents (89%) had Part B services billed during their nursing home stay. The most 

likely service provided a nursing home resident was for a physician evaluation service 

(nursing home or office visit) and laboratory tests. Residents with no Part B billing maybe 

due to a short length of stay (less than one month) or a resident’s ineligibility for Medicare 

Part B. For the residents receiving only Medicare extended care benefits in a skilled nursing 

facility, approximately 18 percent of resident stays had no Part B services. This is 

considerably more than the general nursing home population. This is probably because of the 

short lengths of stay common among Medicare SNF residents (average 28.4 days) and the 

greater services provided under the Medicare extended care benefit. In contrast to residents 

with no Part B billing, some beneficiaries had extremely high average daily charges (some in 

excess of $1,000 per day). Figure 3 compares the total nursing home population with the 

Medicare SNF-only population and is based on the percent of residents with one or more 

services during their nursing home stay. 

During a Nursing Home Stay, Several Types of Part B Services 

Are Typically Provided 

MAJOR PART B CLASSIFICATION 

CATEGORY 

Evabatbn 

Lab and Other Teata 

knaghg end Echography 

Madcal E@nan~ Sup@ear 

Prosthatka, and Orthotks 

Major and M~ocM~~el 

Arrtniwe 

Rehab9tatbn Therapy 

Mental Health Servkes 

other 

Arm91m8sh 

gTy&{ 

VMm mrdHewhg S6rvlces 

D	 Entire Nursing Home Population 

Only Stays Paid For by Medicare 

5.4+0 i 

3! ; : 

<54 

6%:::;:; ::; 

, , ! , I ! , ! I 

O 10 20 30 40 50 60 70 80 90 100% 

Percent of Stays With Part B Charges 

hbk &5p91wYoflsM!7rts ls!l?lwpiwys7kiwd li&Ju#stsJ! 

Sunx’ lvfd?ta msur@ofmnlR@mrnK Wditahn 

lw21nr?pm?Jtsalpb ofhki2Vesw@$?lts 

Figure 3 

9 
The average daily costfor Part B services d~fers markedly, depending on the category of 

service and whether the average is based on all residents or only those who received the 

particular service. 

On average, the daily charge to Part B for a nursing home resident is estimated to be $8.75.


As discussed previously, evaluation services and medical equipment, supplies, prosthetics,


and orthotics have the highest cost. Correspondingly, these categories have the highest


average daily charge at $1.87 and $1.62, respectively. While few residents receive dialysis


services and oncology, they represent the most expensive categories of service when the


average cost is computed for only residents actually receiving these services.


(See Figure 4.)


Average Part B Daily Charge 

$ Charges 

Source: 1992 nursing home sampie (pOint estimates) 

Figure 4 

10 –

Average daily costs vary among States and, especially, among nursing homes. 

The average daily Part B cost ranged from an estimated high of $10.88 in Louisiana to a low 

of $4.42 in Maine. (See Figure 5.) 

Average Daily Charges Vary By State 

1992 Estimated 

Average Dally Charge 

- iilo.80 

Trust 

I 

Source: Projections from 1992 nursing home sample. 

F@we 5 

While we cannot explain these differences, we suspect that Medicaid practices regarding 

billing of Part B for dual eligibles may explain some or most State differences. State 

Medicaid daily reimbursement rates often differ in the services included in each State’s base 

rate. For example, in 1992, only 35 States and the District of Columbia included physical 

therapy, and 32 States and D.C. included occupational therapy. Only two States included 

prescription drugs, and 11 States and D.C. included physician services in their daily SNF 

rates. 

One would expect higher Part B utilization in those States having less comprehensive base 

rates (as is likely the case in Louisiana which excludes several types of service routinely 

included in other States’ rates). However, if the State actively encourages nursing homes to 

bill Medicare, regardless of what is included in the rate, differences should not exist due to 

coverage. 

11

Significant State differences were noted in other areas not addressed in Medicaid rates. For 

example, use of ambulance services during a nursing home stay varied from a high of 44 

percent in Louisiana to a low of 13 percent in Wyoming. As another example, treatment by 

podiatrists is estimated to be as high as 46 percent in Florida (average bed day cost equals 

$0.28) to a low of 7 percent in Wyoming (average bed day cost equals $0.01). 

In addition to State variances, there is considerable variation between nursing homes’ Part B 

average daily charges. (See Figure 6.) 

Part B Daily Charges Were Low in Most 

Nursing Homes and High in a Few 

-$4.99 HIGH LOW 

$10-$14.99 

$5-$9.99 

Average Daily Charge 

(sample estimate) 

Source: 1992 nursing home sample. 

Figure 6 

Based on regression analysis using SUDAAN’S Survey Data Analysis Software, we can 

explain some of the variation (58 percent) in bed day costs between nursing homes. 

Factors increasing bed day cost include:	

� the extent to which the nursing home treats Medicare SNF residents,


� the degree of illness of the residents as evidenced by the number of hospital


admissions during a stay, and 

� the overall number of Medicaid residents in the nursing home. 

One factor decreasing bed day cost is the average length of stay for residents in the 

nursing home. 

Several other factors were tested in the regression analysis and could not be proven to 

significantly impact bed day cost. These included nursing home certification, profitlnonprofit 

status, total bed size of nursing home, and percent of private pay residents. 

12

-----

----

-------

-- -- ------- ---- ----------

------ -------- ------

--------

---- --------

While we do not have trend data for the general nursing home population, data based 

solely on residents receiving Medicare extended care benejits in a skilled nursing facility 

between 1991 and 1993 show that, while the overall cost of Part B has remained nearly 

constant ($19-$20, in 1991 constant dollars), use of some services increased significantly. 

Use of Part B by residents receiving Medicare extended care benefits in a SNF (and possibly 

all other nursing home residents, Medicaid and private pay, for which we have no data to 

confirm this trend) has remained relatively constant with little or no average bed day charge 

change between 1991 and 1993, after adjusting for inflation using the CPI-U. However, this 

finding does not tell the whole story. Notably, some types of service such as mental health 

and imaging, have greatly increased, while others have decreased. (See Figure 7.) 

1991 to 1993 Percent Change in the Average Part B Daily Charge for 

Beneficiaries Receiving Extended Care Benefits in a SNF 

ho adjustment for inflation included) 

Bed Day Charge 117% 

% Change 91-93 

50% 

40% ..37%................................................................................... 

"""""=%""" ""25%""""lg%'""" `""""""""""""""""""""""""`""'`"""""""""" 

20% - . 

10%.--

o% 

------’ ---... --... ---~~%----?7%--

. 

. ‘------ --------’ -“-”-”” ““””””’ ““””””” 

-50% - n l-l n ..lii- ““””””” -53% 

\P *

OQ ,e$ *O* ~e ~~ & s.. & -a .&

# 

#’ & $* 2’ +0 4$* @* * *+ +$’ gQ > .Q e c#Qee + % #+ &#” , b

e

# 

&

‘t ~~~

* a’ 

,&#’ &

$.O 

+8 # &aQ + c) 

+$’ + 

Sourotx Based on a ona percent sample of residents receivhg Medicare Extended Care benefits h a SNF. 

F@.u-e 7 

Within imaging, magnetic resonance imaging (MM) tests exhibited an exceptionally high 

increase horn 1991 to 1993, with estimated total dollars increasing from one-half million to 

nearly 10 million dollars in just two years. This may be explained by a shift from use of 

computerized axial tomography (CAT) scans to MRI testing. 

13 
PROGRAM VULNERABILITIES 

The accessibility and vulnerability of nursing home residents provide a unique opportunity for 

fraud, waste, and abuse. The Part B program is particularly vulnerable because payment rules 

and safeguards largely ignore the unique character of the nursing home environment and the 

varied services and supplies which can be provided. The following discussion presents some 

of the most blatant program vulnerabilities suggested by the nursing home dat~ along with 

abusive supplier and physician billing practices involving nursing home residents. 

PROGRAM PAYMENT OVERLAP 

Medicaid and Medicare Part B 

As the payer of last resort, Medicaid requires providers to bill routine services and supplies 

to the Part Bprogram This creates an opportunity for duplicate payments to occur when 

Medicare and Medicaid mistakenly pay for the same service or supply. 

Services Covered by Medicaid’s Daily Rate 

Services covered under Medicaid’s nursing home daily rate are routinely billed to the Part B 

program. In 1992, the cost of Medical Equipment, Supplies, Prosthetics, and Orthotics alone 

were an estimated $772 million. Much of this equipment and supplies would have been 

paid by the Medicaidprogrant as apart of the nursing home’s daily payrrumt rate had the 

resident not been eligible for Part B. 

A program vulnerability exists because of the overlapping payment responsibilities of 

Medicare and Medicaid when the Part B service is included in the Medicaid per diem rate, but 

the established per diem rate is not adjusted to fully reflect Medicare reimbursement. If the 

Medicaid rate-setting mechanism is based on only those costs the nursing home incurs, or will 

incur, this will not result in duplicate or overlapping payments for the same service or item. 

However, this is only applicable when billing occurs&to either Part B or Medicaid (as a 

cost in the facility’s cost report with no corresponding credit for Medicare payment), but not 

~. Billing both programs constitutes fraud and results in duplicate payments, if not 

detected by either program. Extensive auditing is typically required to detect billing to both 

Medicare and Medicaid, if the item or service is also included in the rate. 

Medicaid is typically considered the payer of last resort. Thus, States consider Medicare Part 

B as another third-party payer, expecting payment for the service or a letter of denial before 

Medicaid assumes responsibility (e.g., Ohio’s administrative code 5101:3-1-05 states “the 

department will not pay for any service payable by, but not billed to, Medicare”). However, 

some coniision and blurring of responsibility exists regarding those items included in the 

daily rate paid nursing homes. In most States, this includes such items as wheelchairs, beds, 

bandages, enteral nutrients and infusion pumps, catheters, and sometimes physical therapy. 

14


� 
States reported conflicting views on whether Medicare’s contribution to resident care by 

covering Part B was, in fact, taken into account in their daily rate setting process. As one 

State worker commented, “in theory, it should be; in reality, who knows?’ Interestingly, 

nearly half of the States responded that their rate setting process did not consider payments by 

Medicare unless paid directly to the nursing home and included as part of the cost reporting 

mechanism. Thus, some question exists concerning possible overlap in billing. For example, 

would the costs of an outside supplier, stocking a nursing home with routine supplies and 

billing Medicare directly, be adequately addressed in setting the facility’s daily payment rate? 

Additional study is needed to answer this question. 

A few States reported that if a service is included in the nursing home per diem, Medicare 

should ti be billed (e.g., Florida and Louisiana (sample states), Hawaii and Minnesota (not 

in our 10 State sample)). However, we noted no significantly reduced Part B billing in Florida 

or Louisiana versus other States, which could indicate a failure to enforce their own policy. 

(Enforcement would be evidenced by the State actively denying payment of the Medicare 

coinsurance for Part B services provided to dually-eligible nursing home residents.) A 

Minnesota State ofilcial reported that, while the State does consider Medicare billing for items 

covered under the Medicaid daily rate to be inappropriate, no “oversight is provided to ensure 

this policy is adhered to.” 

Even if the per diem adequately reflects Part B billing as a routine practice of the nursing 

home, the Part B program maybe paying considerably more than necessary by not capitalizing 

on the nursing home’s buying power. One example of this involves enteral nutrient products. 

Our evaluation of enteral nutrients showed that many nursing homes can, or do, purchase 

enteral nutrient products for their non-Medicare residents, at costs significantly lower than 

those billed by outside suppliers to the Part B program. Given that several hundred million 

dollars a year are spent on nutrient products in nursing homes, this represents a substantially 

inflated cost to the taxpayer. More detail is provided on this subject in our report, Entera2 

Nutrient Payments In Nursing Homes. 

Services Not Covered by Medicaid’s Daily Rate 

For services or supplies I@ included in the Medicaid daily rate, it is unlikely that both 

Medicare and Medicaid would mistakenly pay for the same service or item. This conclusion 

is based upon States’ assurances that a Medicare denial is required before Medicaid would pay 

for any service or item known to be covered by Medicare. This inspection did not analyze 

Medicaid data and, consequently, we were unable to determine the extent of any duplicate 

payments. However, the OIG is beginning an inspection which will combine Medicare and 

Medicaid data to determine if duplicate billing is occurring for residents in nursing homes. 

Medicare Part A and Part B 

Cost shifting can also occur between Medicare programs. As discussed in two previously 

published reports, Medicare Services Provided to Residents of Skilled Nursing Facilities and 

Medicare Payments for Nonprofessional Services in Skilled Nursing Facilities, SNFS are not 

required to provide many types of services or supplies as a facility cost. The impact of this 

15


� 
policy is that nursing homes which shifl services to the Part B program (ofien called 

unbundling) may avoid Medicare’s SNF routine cost limits. If routine cost limits are avoided, 

this increases the cost to Medicare. By shifting costs above the routine cost limit, SNFS 

increase their profitability, while the taxpayer and SNF resident assume the cost of the amount 

Medicare allowed for the Part B services billed. 

One reason SNFS are able to shift costs to the Part B program is because section 1861(h) of 

the Social Security Act permits each facilitv to determine whether certain services are 

provided as extended care services. Consequently, the extended care facility is &!QQ 

determine for itself whether those services are covered by either the Part A program or the 

Part B program. 

SIZEABLE DIFFERENCES IN PART B UTILIZATION 

Sizeable variation exis~ from nursing home to nursing home in the average daily Part B 

charge and the percentage of residents receiving Part B services. 

Nursing homes vary considerably in Part B use. Figure 8 shows some of the extremes from 

nursing home to nursing home. Shown is the nursing home with the highest percentage of 

resident stays with the indicated service compared to the nursing home with the lowest. 

Figure 8 

Nursing Homes Can Vary Substantially 

In Their Use of Part B 

California II Delaware II Florida II Indiana Louisiana I 

awwE ligh ILow I 

Evaluation 97% I 46% I 

Imaging & Echography 78 I 30 

Lab & Other Tests 

Selected Categories and ‘/0 of Stays States with Service 

Medical Equipment, etc. ‘:4i’- WE+3E 

Ambulance 36 I <11!661’113’191157!<1 

Rehabilitation Therapy 21 1 

Mental Health + 11 <1 

Podiatry 59 I <1 

Source: 1992 Nurshzg home sample (selectedStatesonly) 

16

The average daily bed day charge also varies between nursing homes. 

As discussed earlier, we can explain some of the variation (58 percent) in Part B utilization 

among nursing homes. The primary determinant of Part B utilization is the type of resident 

treated in the nursing home. The more ill the residents are, the greater their utilization of Part 

B. Factors not proven to impact bed day cost are nursing home certification, profitinonprofit 

status, total bed size of nursing home, and percent of private pay residents. 

However, significant variation exists which is unexplained. While more knowledge about the 

nursing home and residents treated could explain some of this variation, we suspect some 

variation is the result of abusive or fraudulent billing activity. As an example, the number of 

residents receiving medical equipment, supplies, orthotics or prosthetics in one Delaware 

nursing home was 67 percent. In another nursing home, it was only nine percent. 

LACK OF OVERSIGHT 

Medicare Part B contractors (carriers and intermediaries) often lack enough information 

to adequately ensure appropriate paymenti for residents of nursing homes. 

�	 Contractors typically do not know if a beneficiary is in a nursing home, unless the 

place of service on the bill is coded correctly. 

Accurate payment for some types of services are dependent upon knowing the place where the 

beneficiary received the service. This knowledge is especially important for residents of 

nursing homes. For example, if the person resides in a nursing home (generally, DME is not 

covered in a nursing home) but a claim for a wheelchair is received with the place of service 

incorrectly coded as “home,” it is likely the claim will be paid in error. This is because 

contractors rely on the place of service coding by the supplier to alert them where the 

beneficiary resided when the service was provided. Only in the case of the beneficiary 

receiving Medicare extended care benefits in a skilled nursing facility does the Medicare 

contractor receive notification of a SNF stay if the claim involves DME. However, with 

heavy workloads, it is possible that carriers would overlook an alert (only rejects must be 

reviewed by carriers prior to payment). 

The impact of this vulnerability is to expose Medicare to millions of dollars in overpayments. 

Our report, Durable Medical Equipment Payments in Nursing Homes, discusses our finding 

that as much as $27 million may have been paid by Medicare to suppliers, even though the 

beneficiary was residing in a nursing home on the date the durable medical equipment was 

provided. 

17

�	 Some States may restrict nursing homes from billing Part B for services or supplies 

included in the Medicaid per diem rate; however, Medicare contractors are oflen 

unaware of State policies. 

While most States encourage or require providers to bill Medicare for any service covered by 

Medicare (including services or supplies covered in the Medicaid per diem), at least five 

States (Florida, Hawaii, Louisiana, Minnesota, and Nevada) reported to us that services and 

supplies already included in the Medicaid rate, might not be billable to Medicare. In Florida, 

alone, Part B charges for medical equipment, supplies, prosthetics and orthotics (much of 

which is included in the rate and must be provided to Medicaid residents) maybe as high as 

$25 million. 

�	 Medicare contractors are unable to monitor trends and instances of duplicate payments 

between Medicare and Medicaid, because Medicaid data is not available to carriers. 

Medicare Part B contractors currently lack nursing home stay information (admission and 

discharge dates) for the long term care nursing home resident. Thus, no analysis can be done 

cma routine basis to look for trends in payments by service which might indicate abusive 

practices, either within facilities or across the nation. Additionally, Medicaid data is 

unavailable to contractors to determine if duplicate payments are being made. Only Medicaid 

is able to monitor duplicate payments based on information from the Part B coinsurance 

payments it made for dually-eligible residents. 

QUESTIONABLE SUPPLIER AND PHYSICIAN PRACTICES 

Suppliers 

� Some suppliers may provide excessive volumes of supplies to nursing homes. 

An area of potential abuse involves excessive volumes of supplies. As reported previously, 

more money is paid by Medicare for the category of Medical Equipmen& Supplies, 

Prosthetics, and Orthotics than any other major category of Part B services except Evaluation 

Services. One example of excess involves incontinence supplies. Our recently published 

reports on incontinence supplies (Questionable Medicare Payments for Incontinence Supplies 

and Marketing of Incontinence Supplies) discuss how suppliers have overutilized and 

misrepresented these supplies. For example, 30 percent of beneficiaries surveyed reported 

that they do not utilize all of the incontinence supplies that are reimbursed by Medicare. 

Additionally, many nursing homes do not track Medicare-reimbursed supplies to the specific 

beneficiary for which they were billed. Thus, “Medicare and individual beneficiaries may be 

paying month after month for unnecessary supplies which may be used for other patients.” In 

some cases, supplies were delivered in bulk quantities (thus, not designated for any particular 

resident). Some nursing homes stated they are turning away suppliers because their supply 

rooms are already overstocked with unused supplies from previous shipments. 

Another example of Medicare paying for supplies that are excessive involves routine billing 

by suppliers each month. Routine billing becomes a problem when the resident no longer 

18

needs the supply; however, the supplies keep coming. The most blatant example of this found 

in our nursing home sample involves billing for ostomy supplies even though the person no 

longer was in the nursing home. Weeks before the billing, the resident had entered the 

hospital and remained there for nearly a month. The billing was $1,000. This case has been 

referred to the carrier for recovery. 

� Some suppliers bill for medically unnecessary supplies. 

The area of wound care presents an example of not only excessive supplies, but of medically 

unnecessary supplies. Our investigation of wound care products (e.g., tape, gauze, dressings, 

etc.) used in nursing homes found that a substantial amount of these products provided to 

nursing home residents are not used. In addition to being delivered in excessive quantities, 

products were found to be medically unnecessary for some residents. 

Another area of abuse involves air-fluidized beds which are not medically necessary when 

used for preventive purposes only. 

� Still other suppliers bill for supplies or services never provided. 

In addition to excessive and medically unnecessary supplies or services, some suppliers bill 

for services or supplies never provided. One gross example found in our sample involved a 

portable x-ray supplier. The patient purportedly received x-rays at a SNF during two 

consecutive weeks, although the person was in the hospital during this time. Allowed charges 

were over $500 for x-ray transport, setup, and service. This case has been referred for 

investigation. 

After researching the payment vulnerability resulting in this overpayment, it was found that 

the system of edits in Medicare’s payment system (CWF) did not include any edits to suspend 

payment of similar types of services and supplies (except for DME) while the person is known 

to be in the hospital or any other inpatient setting. 

Physicians 

�	 The nursing home presents an opportunity to provide services to many different 

residents during a visit (sometimes called “Gang Visits”). With this opportunity 

comes the potential for abuse and poor quality care. 

While seeing many residents in one day is not inherently bad, the volume of residents seen can 

suggest a physician or supplier maybe billing for a level of care not provided. According to 

HCFA ofllcials, 15 minutes per person is the suggested minimum time to spend reviewing a 

resident’s condition and performing the appropriate visual inspection of the resident (we note 

that HCFA has not defined filly what a visit should entail - length of time actually with the 

resident, time reviewing chart, etc.). The average physician sees 20 or less patients per day. 

Yet, some physicians billed for large numbers of residents for single day visits in several 

nursing homes. 

19 
To illustrate an extreme, one physician billed for more than 80 nursing home visits on the 

same day. While this is possible, such an extreme suggests the physician did little more than 

a paper review (at most). If the physician afforded each resident the desired 15 minutes, it 

would have taken this physician over 20 hours to complete the billed visits (with no breaks). 

Spending even half the time (7 ?4minutes), would require 10 hours, still an unlikely scenario. 

Even under optimistic assumptions (the nursing home is in a remote area where a physician 

must travel a long distance, medical charts are well-documented and assessments are 

completed by the nursing staff prior to the physician’s visit, etc.), it is easily arguable that this 

physician was not providing the expected level of care billed for each patient during his visit. 

Podiatry services present another example of physician services that appear excessive in some 

nursing homes. As previously shown in Figure 8, there is wide variation between nursing 

homes regarding involvement of podiatrists. While nursing homes with little involvement of 

a podiatrist may reflect a medical physician providing foot care, high podiatrist involvement 

could indicate an abusive pattern of practice (non-covered routine foot care billed as a covered 

service). It appears unreasonable that a podiatrist could see over 80 percent of a nursing 

home’s resident population during a year (as occurred in 3 of 150 sampled nursing homes). 

Further, it appears excessive for a podiatrist to treat high numbers of residents on the same 

day (6 of 150 nursing homes had podiatrists treating 50 or more residents on the same day; 

one podiatrist exceeded 65). Finally, we question the medical necessity of seeing the same 

residents as frequently as every month. 

� A few primary care physicians provide the majority of routine care visits. 

It appears, from the sampled nursing homes, that either many doctors are caring for very few 

nursing home patients or a few doctors may be caring for too many patients. This raises 

concerns about the quality and appropriateness of patient care. (Physicians caring for too few 

nursing home residents may be ill-equipped to deal with the nursing home geriatric 

population. Physicians seeing too many nursing home residents may not be giving enough 

time to the care of a special needs population.) 

Nursing home care is predicated on a medical model requiring direct physician leadership in 

the overall management of a patient’s plan of care. Thus, the physician plays a pivotal role as 

gatekeeper, determining and/or providing necessary medical care, equipment, and supplies 

necessary for the patient’s well-being. However, since the beginning of Medicare and 

Medicaid, physicians have been criticized for their perceived lack of involvement in the care 

of nursing home residents.8 

The OBRA 1987 strengthened the role of the medical director in the nursing home, and the 

Resource-Based Relative Value Scale (RBRVS) abolished the rule that !owered 

reimbursements for physicians who see multiple patients during nursing home visits. It also 

raised reimbursement for the two most common types of nursing home visits. The intent was 

to put nursing home visit rates on par with office visit rates (addressing a common complaint 

of nursing home physicians). Our 1992 nursing home data was not recent enough to 

determine if these events, coupled with more emphasis on geriatric training by some medical 

schools, may be improving physician participation in the nursing home. 

20

A FEW EXAMPLES OF PART B ABUSE NOTED BY CARRIERS 

BASED ON SURU?3YOF FM UD ST@F 

Physician and Practitioners 

Eye Exams - Physicians solicit services at nursing homes with eye exams billed as nonroutine or problem focused exams while also using office visit service codes. 

Waiving beneficiary copayments. 

%5* : Physician billed services provided by nursing staff with the physician not 

present. 

Foot Care - Podiatrists performing routine foot care (a noncovered item). 

Psychiatric - Excessive billing for evaluation testing under preadmission assessment and 

amual resident review (PASARR) regulations when not reasonable and


necessary for diagnosis or treatment (e.g., annual screening required by for


Medicaid residents as part of certification process and compensated by


Medicaid as part of the daily rate).


Individual or group therapies not medically necessary or being perfomned by


inappropriate &pe; of providers, not psychiatrists or community mental health


clinics.


Outpatient Rehabilitation Therapy 

- Excessive charges. 

Therapist billing for services that the nursing home staff performs. 

Using one provider number for services to many different nursing homes 

giving the impression all residents are in the same facility. 

- Providing medically unnecessary services. 

Supplies and Equipment 

Excessive and medicallyunnecessarybillingsfor incontinence supplies,


ostomy, and surgical dressings. Also, noted were billing for air-fluidized


beds used for preventive services (not covered by Medicare) and nebulizers


(includingnebulizer drugs).


Providing medically unnecessaryorthotics and prosthetics (e.g., body jackets).


Misrepresentingsuppliesand equipment( e.g., Iymphedemapumps have been


offered to nursing home residents free of charge on a trial basis; however, the


supplier bills Medicare).


Billing for items not covered in a nursing home (e.g., wheelchair).


Laboratory Services 

Billing for placement of glucose monitors, collection of specimens from and 

mileage to the nursing home when not medically necessary or technicians 

providing services for equipment designed for home use by nonprofessionals. 

21

CONCLUSIONS


Significant payments are being made for Part B services, in addition to institutional payments 

to the nursing homes directly paid by Medicaid and the Medicare SNF benefit. Consequently, 

more closely monitoring services provided under these benefits and addressing vulnerabilities 

are important, particularly given Medicare’s potential exposure to abusive practices. 

This review of utilization of Part B services by nursing home residents suggests the need for 

further work in, at least, the following areas: 

Bundling Payments 

This includes examining the appropriateness of consolidated billing of Part B nursing home 

expenses and the daily rate paid by Medicare Part A or Medicaid. The Office of Inspector 

General (OIG) will be doing additional work on both the concept of bundling (consolidated 

billing) and the vulnerability posed by potential duplicate billings. 

Monitoring Trends 

This includes monitoring Part B utilization over time, with focused review of services 

experiencing rapid growth (e.g., mental health, magnetic resonance imaging) without any 

known reason (e.g., coverage change). We plan additional work on a number of such areas. 

Quality of Care 

This includes detecting poor quality care resulting from such practices as physicians treating 

too many patients in one day (e.g., podiatrists), exposure to excessive or inappropriate medical 

services, provision of supplies not medically necessary, etc. Under Operation Restore Trust, 

the HCFA is now experimenting with methods to involve State surveyors in such efforts, 

which might prove fruitfi.d; the involvement of nursing home volunteer ombudsmen in such 

efforts will also be tested as part of ORT. 

Fraud Detection Measures 

This includes developing and applying various fraud detection methods to identifi abusive 

practices and fraud involving nursing homes. We plan to employ such methods in future work 

under ORT. 

For example, the nursing home bed day cost could be a valuable tool in identifying nursing 

homes or providers with aberrant and, possibly, abusive practices. Although use of bed day 

cost is a post review process, it requires a minimum of effort to identi~ and flag potentially 

abusive providers or nursing homes. Depending on the likelihood of abuse underlying the 

high average daily charge, the information could be provided to survey and certification staff 

to be used during their next scheduled visit, to contractor fraud and abuse staff for 

22

investigation, or to others (long term care ombudsmen, OIG, State Health Departments, 

Medicaid Fraud Control Units, etc.) for consideration and action. 

Linking resident assessment data to billing history on services provided to residents maybe 

used, both to identifj medically unnecessary services and to identify quality of care issues 

(e.g., patient care needed but not provided). Facilities must conduct, initially and periodically, 

a comprehensive, accurate, standardized, and reproducible assessment of each resident’s 

functional capacity. The assessment must include the resident’s medical history, current 

medical status, functional status, sensory and physical impairments, nutritional status and 

requirements, special treatments and procedures, psychosocial status, discharge potential, 

dental condition, activities potential, rehabilitation potential, cognitive status, and drug 

therapy. The assessment must be performed within 14 days of admission. It must be repeated 

yearly, as well as promptly afier any significant change in the resident’s condition. 

In order to meet the requirement for a comprehensive assessment, the Minimum Data Set 

(MDS) must be used. The information captured by MDS is available, or will be available in 

the fbture, as an automated database. Thus, this information could be linked to billing history 

data maintained in the National Claims History File or Common Working File (CWF). By 

linking this data, one could test the appropriateness of service billing patterns against factual 

assessment data about individual resident needs. For example, an analysis could be completed 

of residents billed for enteral nutrients, despite the fact that current resident assessment data 

shows no indication of any eating disorder, difficulty swallowing, etc. that would warrant tube 

feedings. The reverse situation may also be reviewed (e.g., the assessment data indicates a 

need for services that were not rendered). 

Resident assessment data could be used to summarize a nursing home’s population based on 

various medical indicators, allowing one to account for case mix differences between nursing 

homes when assessing the significance of differences in bed day costs from one nursing home 

to another. 

The HCFA could also monitor the number of beneficiaries treated by particular providers on 

the same day. As discussed previously, the potential exists for a provider to bill for an 

unrealistically high number of residents on the same day. Determining the total number of 

beneficiaries seen by a provider and comparing it to an average or specified standard can alert 

the carrier to providers requiring closer scrutiny. 

To support the development of fraud detection methods, further information is currently 

being gathered on the nature and magnitude of abusive provider practices or program 

vulnerabilities involving nursing home residents. This information will be used to identi~ 

the most efllcient fraud detections methods. 

23

AGENCY COMMENTS 

We thank the Health Care Financing Administration (HCFA) and the Assistant Secretary for 

Planning and Evaluation (ASPE) for their comments to the draft report. Changes were 

made based on their suggestions. In addition to suggestions, the HCFA points out several 

actions it has taken to address vulnerabilities such as: 1) requiring carriers and 

intermediaries to selectively initiate pre-pay reviews on high dollar payment areas and 

aberrant trends, and 2) development of enhanced duplicate payment detection methodologies 

for the Medicare Transaction System. The full text of HCFA and ASPE comments are 

provided in Appendix B. 

24

ENDNOTES


1.	 Girwitz, J., Sanchez-Cross, M, and Eckler, M. The Epidemiology of Adverse and 

Unexpected Events in the Long-Term Care Setting. Journal of the American 

Geriatrics Society, 1994, (42) pages 33-38. 

2.	 The Health Care Financing Administration (HCFA), within the Department of 

Health and Human Services (DHHS), administers Medicare and contracts with 

private insurance companies (e.g., Blue Cross or Blue Shield plans) to process and 

pay Hospital Insurance (Part A) and/or Part B claims. Contractors, called 

intermediaries, process claims from institutions such as hospitals and nursing homes; 

other contractors, called carriers, process claims from noninstitutional providers, 

such as physicians and suppliers. The HCFA provides direction to contractors on 

payment matters and is, ultimately, responsible for assuring a contractor’s adherence 

to applicable program policies and procedures. 

3.	 Section 1819(a) of the Social Security Act defines a SNF as “an institution (or 

distinct part of an institution) which is primarily engaged in providing to residents 1) 

skilled nursing care and related services for residents who require medical or nursing 

care, or 2) rehabilitative services for the rehabilitation of injured, disabled, or sick 

persons. ” Also, a SNF is not providing care primarily for the care and treatment of 

mental diseases. This definition was formerly found in section 1861(j)(l) and is 

often referred to as the “j1” provision. 

Medicare-participating SNFS are paid their costs and receive interim amounts to pay 

estimated costs. Actual costs are settled later, with adjustments made if interim 

payments were too high or too low. Any costs determined to be in excess of those 

necessary for the eftlcient delivery of needed health services are excluded. The SNF 

services are divided between routine and ancillary services. Routine services include 

room, dietary, nursing services, medical social services, items which are reusable 

and expected to be available in a SNF (e.g., wheelchairs), and items which are 

finmished routinely to all patients. In contrast, ancillary services include laboratory, 

radiology, drugs, therapy, and other items and services for which charges are 

customarily made in addition to a routine per diem charge. 

4.	 Institute of Medicine. Improving the Quality in Nursing Homes. Washington, DC. 

National Academy Press, 1986. 

5.	 This assessment is completed using a comprehensive resident assessment instrument 

developed by HCFA called the Minimum Data Set (MDS). The MDS was 

implemented nationally in October of 1990 and serves as a basis for the development 

of major, uniform data collection systems for resident characteristics. A slightly 

modified version of the MDS, the Minimum Data Set Plus or MDX +, is seen as the 

cornerstone for the development and implementation of a Medicare Part A case mix 

system for setting reimbursement to nursing homes. 

25

6.	 Federal guidelines allow States discretion in establishing income and resource 

criteria for program eligibility; determining the amount, duration, and scope of 

covered services; and determining provider reimbursement methodologies. As a 

consequence, characteristics of State Medicaid programs vary considerably from 

State to State. 

7.	 General Accounting OfIce. Improper Handling of Beneficiary Complaints of 

Provider Fraud and Abuse. GAOIHRD-92-1, released October 1991. 

8	 Mitchell, JB. Physician Visits to Nursing Homes. Gerontologist, 1982, (22) 

pgs. 45-8. 

26

---------------------

PROJECTED 

Type of Service 

ALL SERl?7CES 

EVALUATION 

Office Visits 

Hospital Visits 

Emergency Room 

Home Visits 

PARTB 

Visits 

Specialist Evaluation 

� Pathology 

� Optharnolo@ 

Other 

Consultations 

Nursing Home Visits 

ANESTHESL4 

M4JORAiW MUVORMWIOIL 

PRWW~ 

Major Procedures 

Eye Procedures 

APPENDIX A 

CTL4RGES FOR NURSING 

Estimated 1992 

Q.@ul!x 

$4,173,S84,532 

$893,831,089 

$72,074,385 

$161,848,927 

$55,554,187 

$2,098,658 

$41,359,353 

$15,471,756 

$18,302,744 

$7,584,853 

$99,912,011 

$460,983,284 

$33,584,865 

$320,949,774 

$92,050,701 

$81,313,693 

HOME RESIDENTS 

Stays 

Stays Also With 

VWth Medicare 

Service XF 

89% 25% 

82% 23% 

22% 21% 

15% 30% 

16% 23% 

1% 14% 

15% 17% 

6% 20% 

10% 14% 

1% 49% 

22% 24% 

Bed day Charge 

With Based on 

Service AJl$jw 

$9.13 $8.75 

$2.00 $1.87 

$0.50 $0.15 

$1.98 $0.34 

$0.54 $0.12 

$0.22 $0.00 

$0.38 $0.09 

$0.37 $0.03 

$0.25 $0.04 

$2.48 $0.02 

$0.73 $0.21 

� Comeal Transplant $2,174,759 � ca@mctRmWWZemMWldOn $56,565,162 � RetinalDetachment $496,023 

TreatmentofRetinalLesions $1,824,844 

Ambulatory Procedures $70,622,822 

Minor Procedures $76,962,558 

ONCOLOGY $35,899,068 

ENDOSCOPY $51,065,945 

DIALYSIS SERVK’ES $108,757,165 

75% 23% $1.10 $0.97 

5% 26% $1.01 $0.07 

30% 21% $1.59 $0.67 

4% 34% $3.85 $0.19 

2% 11% $6.37 $0.17 

o% 15% $8.75 $0.00 

1% 13% $7.72 $0.12 

o% o% $3.95 $0.00 

o% 13% $2.48 $0.00 

5% 28% $1.97 $0.15 

25% 19% $0.45 $0.16 

1% 45% $13.15 $0.08 

4% 25% $1.99 $0.11 

1% 40% $21.82 $0.23 

A-1

---------------------

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Stays Bed day Charge 

Stays Also With 

Estimated 1992 With Medicare With Based on 

Type of Service ChiuzeS - =F ~ervice AllStavs 

$408,111,812 49% 25% $1.47 $0.86 

$302,404,985 47% 25% $1.12 $0.63 

$48,543,6.54 32% 24% $0.27 $0.10 

$51,972,672 19% 26% $0.44 $0.11 

$2,442,160 1% 8% $0.32 $0.01 

$94,095,987 9% 26% $1.55 $0.20 

$9,737,123 2% 25% $0.91 $0.02 

$12,229,717 7% 27% $0.28 $0.03 

$83,383,672 20% 21% $0.69 $0.17 

$71,223,773 6% 27% $1.91 $0.15 

$27,389,120 6% 22% $0.69 $0.06 

$7,206,888 2% 20% $0.44 $0.02 

$11,545,122 2% 21% $0.93 $0.02 

$2,504,886 1% 20% $0.52 $0.01 

$97,668 o% o% $0.50 $0.00 

$4,163,416 1% 36% $0.73 $0.01 

$7,093,934 1% 29% $1.83 $0.01 

$1,597,956 o% 34% $8.35 $0.00 

$5,495,977 1% 28% $1.48 $0.01 

$617,138,509 66% 22% $1.59 $1.29 

$561,483,308 65% 22% $1.46 $1.18 

$224,122,353 44% 19% $0.81 $0.47 

$69,550,382 44% 22% $0.26 $0.15 

$11,457,955 29% 21% $0.06 $0.02 

$50,714,881 44% 22% $0.19 $0.11 

$7,038,917 6% 16% $0.17 $0.01 

$37,912,428 27% 24% $0.23 $0.08 

$160,686,392 51% 23% $0.53 $0.34 

$39,190,232 14% 23% $0.43 $0.08 

$14,201,057 9% 21% $0.23 $0.03 

$386,827 o% 11% $0.46 $0.00 

$3,528,040 1% 16% $0.72 $0.01 

$21,074,307 7% 25% $0.51 $0.04 

$16,464,970 29% 18% $0.09 $0.03 

IiM4GINGAND 

Standard 

Advanced 

ECHOGRAPHY 

Imaging 

Chest 

llusculoskeletal 

Breast 

ContrastGastrohttesdnal 

(G.I.) 

NuclearMedicine 

Other 

TransportandSetup ofX-ray 

Equipment 

Imaging (Cat Scan or NIRI) 

Echography 

Imaging 

Abdomen&elvis 

Heart 

CarotidArterh?s 

Prostate, Transrectal 

Other 

Procedures 

Heart (cardiaccatheritization)


Other


TESTS


Routine Venipuneture


AutomatedGeneralProfties


Urinalysis


Blood Counts


Glucose


Bacterial Cultures


Other


Electrocardiogram


CardwvascularStress Test


EKG Monitoring


Other


LAB	 AND OTHER 

Lab Tests 

Other ;ests 

Speci;en Collection 

A-2

---------------------

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Estimated 1992 

Type of Service 

ikUWC4L EQUi?P!, SUl?P~, 

PROSIHEITC$ AND 0R7HOZKS 

Durable 

Braces, 

ikledical Equipment 

HospitalBeds and Accessories 

(2xy@Tl@@nerltand&pphi3 

Wheelchairs and Accessories 

Other DME 

Walkers 

Canes and Crutches 

Commodes 

SeaiZPatient LIji’s 

Pressure Pads, Cushions, and 

Mattresses 

Trusses, Artl>cial Limbs 

Bracesand Trusses 

ArtificialLhnbs 

Co@, Splintk, and Fracture Reduction 

Devices 

Surgical Dressings 

Prosthetic 

Supplies 

PrhnarySurgicalDressings 

Gauze,Bandages,and Tape 

AdhesiveandRemover 

Devices and Related 

EnteralNutritwn Equipment 

andSupplies 

ParenteralNutrition 

EquipmentandSupplies 

MedicalandSurgicalSupplies 

CathetersandRelatedItems 

T~Dev&mand&ns 

OstomyandRelatedItems 

G!l@@= 

$772,228,643 

$35,428,504 

$5,134,812 

$14,249,157 

$9,353,138 

$3,194,710 

$1,357,581 

$63,412 

$1,092,060 

$348,261 

$2, 635)374 

$62,389,553 

$44,900,809 

$17,488,744 

$8,774,695 

$22,268,560 

$129,032 

$8,104,184 

$14,035,343 

$643,367,331 

$367,573,163 

$8,451,450 

$198,465,794 

$55,626,395 

$350,453 

$7,888,119 

Stays Bed day Charge 

Stays Also With 

With Medicare With Based on 

- =F Service AllStaH 

27% 29% $5.29 $1.62 

6?4 41% $2.08 $0.07 

1% 47% $2.08 $0.01 

1% 37% $6.72 $0.03 

3% 38% $0.92 $0,02 

1% 45% $1.18 $0.01 

1% 57% $0.85 $0.00 

o% 70% $0.43 $0.00 

1% 57% $0.74 $0.00 

o% 26% $1.26 $0.00 

O% 28% $0.68 $0.01 

3% 20% $2.73 $0.13 

3% 18% $2.13 $0.09 

o% 37% $8.46 $0.04 

1% 33% $1.79 $0.02 

1% 18% $3.28 $0.05 

o% 2.2% $0.95 $0.00 

1% 24% $1.73 $0.02 

1% 18% $2.27 $0.03 

20% 27% $5.41 $1.35 

5% 34% $15.57 $0.77 

o% 37% $63.30 $0.02 

14% 26% $2.25 $0.42 

7% 27% $1.28 $0.12 

o% 37% $0.26 $0.00 

1% 18% $1.65 $0.02 

A-3

---------------------

Stays Bed day Charge 

Stays Also With 

Estimatad 1992 With Medicare With Based on 

Type of Service Chuw &z@Q XF Service ~Stavg 

AMBVZANCE $2509046,021 19% 24% $2.10 $0.52 

Basic L@e Support Transport $105,045,057 15% 25% $1.11 $0.22 

Advanced Ll~e Support 

Non-emergency Transport 

$97,274,119 

$40,065,844 

10% 

6% 

23% 

32% 

$1.60 

$0.99 

$0.20 

$0.08 

Oxygen and Medical Supplies $7,661,001 6% 22% $0.19 $0.02 

CHIROPRACTIC SERVICES $155,033 o% 15% $0.35 $0.00 

DRUGS/4ND BIOLOGICAL $17,879,871 5% 30% $0.60 $0.04 

KKIO!N&HE41WGSERKKESAWSU#?LY $4,449,496 1% 15% $0.44 $0.01 

REXL4BILITATION THERAPY $513,823,746 10% 29% $8.99 $1.08 

Physical $225,980,972 7% 30% $6.51 $0.47 

Occupational $163,025,951 4% 27% $7.39 $0.34 

Speech Therapy $124,816,823 3% 35% $7.98 $0.26 

RESPIRA TORY THERAPY $535,266 o% 21% $1.28 $0.00 

MENTAL HEAL THSERWCES $55,919,308 5% 22% $1.71 $0.12 

PODL4T~C SERVICES $99,051,759 35% 18% $0.42 $0.21 

Routine Foot Care $15,622,802 9% 17% $0.23 $0.03 

DENTM SERVICES $19,968 o% o% $2.34 $0.00 

MISCELLANEOUS (OUTPATIENT) $45,077,461 8% 28% $0.92 $0.09 

CARRIER SPECIFIC CODES $24,290,380 4% 28% $1.01 $0.05 

OTHER $4,198,310 3% 20% $0.25 $0.01 

A-4

APPENDIX B 

ASSISTANT SECRETARY FOR PLANNING AND EVALUATION 

COMMENTS 

JN’l1615sfj 

w]: Claudia Cooky 

Executive secrctsuy 

FR031. .Acting As&ant Secretaryfor 

Planning ad Evaluation 

SliBJECT:	 hnd Comments Rcgardiig 010 Drafi ~eporu On Medicare Paytn@s f~ 

ServicesProvidedto Nursing Honw y’ 

III our ~wIIcr response to tbs thma OIG rapom on Medicare pSyaWIS&S fir mmiag home 

rcsidcms. hd c~prcssedconccmIhatthempollscouldhekmeml yleadtothedueivnthat 

Mtxliuv Pm B paytncats should not be made ou bcblfof _ homercskkmawlUmw 

uwukldiscussthisCOncun ~ * k duri~a_ * QICteon ~ 12, 

1995.A>a Icsuhofthis&UX&OCI ~AspE ~ OIG~~ _ f- ME 

conummsarco@cd regardingritethree01c3reportseadtfed“PartB&mica inNmaiag 

I[otncs- ,\n (Nerview.““Durable MedicalEFI@MM Paymentsin NuminsHome4”a 

““htcrd MatrAm Pqnnants ie Nweiag Fkmes”. 

Eatcml XuII*ts Pqmeats ia Nttrsiug Ilomes 

- .-

B-1

,n a musing home priymentrate. ASa rewdt,we are ~~e to id~ti$ whichMedieam Part B 

DME poyrncnts arc mde for routine nu~ing h~c -S (i.e., ~ices that should be included 

in a nursing home paymerurate) and which are not- Further, while we understand currerrt law 

limils Part 13DME to persons who are residing in their “homc~ it is not clear when a nursing 

home resident (i.e., in non-h-t A covered stay) is permanenfly residingin such a facility, and, 

thus, is at home in the fkility, v~us a ~idmt tit is -VJng sho~-~ UC and intends tO 

rt-t~ home. ‘~0 e~~c ~~ ~nefici~i~ ~ ~~t ~~pfi~ly de~ed nded cov~c, a 

mdicy prohibiting Part B llh.fE payments to all nursing home resid~~ wotdd have to ~c 

hat Pan B DME payments ~ for ro~ne or core n-h- ~iccs md that t~ ~ no 

.ong-term, permanent nursing home residents for whom tbe nursing home has, in fiiet, bemme 

their home. We do not biieve that thCSCarc accurate ~qio~ Further, we are eoncernd 

that denying Medicare Part B DMF?payments to nursing home ~id~ts could have a negalivc 

“[fWt on their quality of care. Therefore, we bei.ieve,at Ieast in the interim the Department 

should pre.wnncthat nursinghomeresidentsin a non-PartA coveredSNF stayare rcsidmg in 

thek “home” and permit Pat B DME pnyrmmtson behalf of such residents in need of these 

suppfies. We recommend the (33G study this issue and recommend a ea>xizition of 

equiprncmroutinely covered in wwsinghome payment ratesand Dlbfj3not routinely inchxied in 

such rates. A review of State Medicaid nursing My payment methods may provide some 

insight into this issue. 

Finally, we recommend that the conclusion of this reportclearly indicate that Part B DME 

payments made within a week of discharge for ~ nursiog home resident (regad~s of PYer) 

who is c]igibic for Part B are appropriateto f~ili~ disehargaplanning. 

1 1 

Part B Sewices in Nursing Homes I 

We recommend inchding in the FJxund secti?a a d~ “ n of rhe chmmstances under 

which Medicare Part B payments on behalf of nursing home residents are approprh% k 

ditlicuhies in idcnrifykg when such payments are ~-priatq and the variable impact that 

proposalsto iimit Medhre PartB paymemswill@vc ondifFcrentnursinghome residents (i.e.. 

those in a Part A covered SNF stay, those tio arem% d ~ who ~ * eWblc for 

Me&caid) and on State and Federal govemrnen@ I 

We undermnd that the OIG intends to underkke ~ study of State Medi~d n- -V 

payment rates and methods. Wc agree that such a study k -in Q* to ~dcm~ *M 

dup!icate payments have been made (Lc, Medka.re and Me&aid both have paid) and when 

Medicaid cost sharing is inappropriate. 

B-2

HEALTH CARE FINANCING ADMINISTRATION 

coh’mImrrs 

*,Swct, 

.+++ *,+ 

:’ DEPARTMENTOFHEALTH&HUMANSERVICES : Health

1 

3 ~ “%+ 

%,m>

DATE 

TO 

FROM 

SUBJECT 

Care Financing Administration 

The Admlntstrator 

Washington, D.C. 20201 

OEC151995 

June Gibbs Brown 

Inspector General 

Bruce C. Vladeck 

Administrator 

Office of Inspector General Draft Report “Part B Services in Nursing 

Homes, An Overview: (OEI-06-92-O0865) 

We reviewed the above-referenced report that describes the Medicare Part B services 

provided to nursing home residents and identifies known or potential program 

vul.nerabiiities. The report contains no recommendations. 

Various Health Care Financing Administration (HCFA) work groups have identified 

these same vulnerabilities and are working to correct them. HCFA is currently 

investigating payment alternatives,such as bundling nursinghome payments, to prevent 

program fhtud and abuse. Since the inception of the Durable Medical Equipment 

Regional Carriers in 1993, our efforts to monitor trends and take fkaud detection measures 

have increased and become more efficient. We are also building enhanced duplicate 

payment detection methodologies into the Medicare Transaction System. 

HCFA is requi.@ that carriersand intermediaries selectively initiate pre-pay reviews on 

high dollar payment areas and aberrant trends such as respiratory therapy and surgical 

dressings. This should identi@ abuses before claims are paid. 

There k one technical issue that should be noted. On page 5, pamgraph 2, the last 

sentenceimplies that the Consumer Price Index (CPI) is derived solely fbm the general 

medical community. In&t the CPI is based on many factors, of which the medical 

mmmmity is but one. 

Thank you for the opportunity to review and comment on this report. Please contact us if 

you would like to discuss our comments further. 

B-3 
GLOSSARY


Artificial Limb - Replacement for a natural limb (jxothesis). 

Bundling - This term refers to the payment policy of requiring institutions to bill for services 

provided residents, rather than some services provided by the institution and some provided by 

outside suppliers and other providers (who bill Medicare separately). 

Brace - An orthopedic appliance or apparatus (orthosis), usually made of metal or leather, applied 

to the body, particularly the trunk and lower extremities, to support the weight of the body, to 

correct deformities, to prevent deformities, or to control involuntary movements, such as occur in 

spastic conditions. In some cases bracing is needed afler remedial surgery. 

Cardiac Catheterization - The insertion of a catheter into a vein or artery and guiding it into the 

interior of the heart for purposes of measuring cardiac output, determining the oxygen content of 

blood in the heart chambers, and evaluating the structural components of the heart. 

Carriers - Part B contractors that provide administrative services, for given geographic territory, 

to all beneficiaries, physicians, and various suppliers of service, e.g., lab, ambulance, and durable 

medical equipment in that area that are not connected with an institutional provider; process only 

claims which are paid from Medicare Part B trust finds. 

Casts - A stiff dressing or casing, usually made of plaster of Paris, used to immobilize body parts. 

CAT Scan - A revolutionary radiologic imaging modality that uses computer processing to 

generate an image of the tissue density in a “slice” about 1 centimeter thick through the patient’s 

body. 

Catheter - A tubular, flexible instrument passed through body channels for withdrawal of fluids 

from (or introduction of fluids into) a body cavity. 

Cholecystectomy - Excision of the gallbladder. 

Coinsurance - The percentage of the balance of covered medical expenses that a beneficiary must 

pay after payment of the deductible. Under Medicare Part B, the beneficiary pays coinsurance of 

20 percent of allowed charges. See Copayment, Deductible. 

Colonoscopy - Endoscopic examination of the colon, either transabdominally through laparotomy, 

or transanally by means of a colonoscope. 

Common Working File (CWF) - A pre-payment claims validation and Medicare Part AlPart B 

benefit coordination system which uses localized data bases maintained by a host contractor; the 

host contractor provides Medicare contractors within a geographic area (referred to as sector) with 

beneficiary entitlement and eligibility data. 

Contractor - Private health insurers, State, and public or private organizations which process 

Medicare claims and make payments to providers of services and to beneficiaries. 

Copayment - The sum of coinsurance and deductibles. Alternatively, a fixed dollar amount per 

service that is the responsibility of the beneficiary. See Coinsurance, Deductible. 

Current Procedural Terminology (CPT) - The coding system for physicians’ services developed 

by the American Medical Association; basis of the HCPCS coding system for physicians’ services. 

See Coding, HCFA Common Procedures Coding System. 

Glossary -1 
Customary Charge - The amount physicians or suppliers usually bill patients for furnishing 

particular services or supplies. 

Customary, Prevailing, and Reasonable (CPR) - One method used for reimbursement of 

services which typically limit reimbursements for services to the lowest of the provider’s actual 

charge, the provider’s customary charge for comparable services, or the prevailing charge in the 

area. 

Cystoscopy - Examination of the bladder by means of a cystoscope, a hollow metal tube that is 

introduced into the urinary meatus and passed through the urethra and into the bladder. At the end 

of the cystoscope is an electric bulb that illuminates the bladder interior. By means of special lens 

and mirrors the bladder mucosa is examined for inflammation, calculi, or tumors. 

Deductible - A specified amount of covered medical expenses that a beneficiary must pay before 

receiving benefits. In 1992, Medicare Part B had an annual deductible of $100. 

DMERCS (Durable Medical Equipment Regional Carriers) -In June 1992, HCFA issued a 

final rule designating four DMERCS to process all claims for DME, prosthetics, orthotics, and 

supplies. Effective October 1993, DMERCS replaced nearly 40 area carriers which had previously 

processed DME claims. 

Diagnosis-Related Group (DRG) - The prospective payment system established using one price 

for each DRG based on diagnosis and other characteristics. System used to classi& patients into 

clinically coherent and homogeneous groups that use similar resources. Prices are established in 

advance for the coming year, and hospitals are paid these prices regardless of the costs they 

actually incur. 

Discharge - The termination of a period of inpatient SNF or the formal release of the inpatient by 

the hospital. 

Dressing - Any of various materials used for covering and protecting a wound. A pressure 

dressing is used for maintaining constant pressure, as in the control of bleeding. A protective 

dressing is applied to shield a part from injury or from septic infection. 

Durable Medical Equipment (DME) - Medicare-covered items such as oxygen equipment, 

wheelchairs, and other medically necessary equipment prescribed by a doctor for a patient’s inhome use. 

Electrocardiogram - The record produced by Electrocardiography, a tracing representing the 

heart’s electrical action derived by amplification of the minutely small electrical impulses normally 

generated by the heart. 

End Stage Renal Disease @SRD) - Individuals who have chronic kidney disease requiring renal 

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

Medicare coverage, such individuals must be filly or currently insured under social security or the 

railroad retirement system or be the dependent of an insured person. Eligibility for Medicare 

coverage begins the third month after the month in which a course of renal dialysis begins. 

Echography - Ultrasonography, the use of ultrasound as a diagnostic aid. Ultrasound waves are 

directed at the tissues and a record is made, as on an oscilloscope, of the waves reflected back 

through the tissues, which indicate interfaces of different acoustic densities and thus, differentiate 

between solid and cystic structures. 

Endoscopy - Visual examination of interior structures of the body with an endoscope. 

Enteral - Within, by way of, or pertaining to the small intestine. 

Glossa?y -2 
Evaluation and Management Service - A nontechnical service provided by most physicians for 

the purpose of diagnosing and treating diseases and counseling and evaluating patients. 

Fee for Service - A system of paying physicians for individual medical services rendered, as 

opposed to paying them salaries or cavitation payments. The CPR payment system and the 

Medicare Fee Schedule are examples of fee for service payment methods. See Customary, 

Prevailing, and Reasonable; Fee Schedules. 

Fee Schedules - A predetermined flat maximum payment amount for individual procedure codes 

within a type of service. States may develop Medicaid fee schedules or adopt Medicare fee 

schedules. 

Global Service - A package of clinically related services treated as a unit for purposes of billing, 

coding, or payment. 

HCFA Common Procedure Coding System (HCPCS) - A coding system based on CPT, but 

supplemented with additional codes; required for coding by Medicare carriers. See Current 

Procedural Terminology. 

HCFA Data Center (HDC) - A large, centralized, and complex data processing environment 

where state-of-the-art technology is being used, including computer hardware, operating systems, 

and data communications networks; maintains databases on the various contractor report items and 

uses that information to generate subsequent reports for HCFA and DHHS managers’ use. 

Home Health Agency (HHA) - A public or private agency that specializes in giving skilled 

nursing services and other therapeutic services, such as physical therapy, in your home; Medicare 

will pay for such services provided certain conditions are met. 

Home Health Services - Home health services are services and items furnished in patients’ homes 

under the care of physicians. These services are firnished by home health agencies or by others 

under arrangements made by home health agencies. Services are furnished under a plan 

established and periodically reviewed by a physician. The services include part-time or 

intermittent skilled nursing care; physical, occupational, or speech therapy; medical social services; 

medical supplies and appliances (other than drugs and biological); home health aid services; and 

services of interns and residents. 

Hospice - A program operated by a public agency or private organization which engages primarily 

in providing pain relief, symptom management, and supportive services for terminally ill people 

and their families. 

ICD-9-CM - International Classification of Diseases, 9th Revision, Clinical Modification. A 

statistical coding classification system used to measure the incidence of disease, injury, arid illness. 

Imaging - The production of diagnostic images. 

Intermediaries - Contractors that perform Medicare administrative services for institutional 

providers, i.e., hospitals, SNFS,HI-Ms, and hospices. See Home Health Agency, Hospice, Skilled 

Nursing Facility. 

Laryngoscopy - The direct visual examination of the larynx with a laryngoscope. 

Limiting Charge - The maximum amount that a nonparticipating physician is permitted to charge 

for a service; a limit on balance billing. Starting in 1993, the limiting charge will be a flat 

percentage of the Medicare Fee Schedule amount paid to nonparticipating physicians. 

Glossay -3 
Major Diagnostic Categories (MDCS) - A classification system which groups the 467 DRGs into


23 categories based on body systems (e.g., nervous system, respiratory system, etc.) and disease


origin. See Diagnostic-Related Group.


Medicaid - A health care program cooperatively administered by Federal and State governments to


provide medical assistance to eligible needy individuals.


Medical Review (MR) - A contractor activity performed as part of the claims processing function


to determine the medical necessity of services provided to beneficiaries.


Medicare Economic Index (MEI) -An index that tracks changes over time in physician practice


costs and general earnings levels. From 1975 through 1991, increases in prevailing charge screens


were limited to increases in the MEI.


Medicare Fee Schedule - The resource-based fee schedule currently used by Medicare to pay for


physicians’ services.


Occupational Therapy - Services designed to restore self-care, work, and leisure skills to


patients/clients who have specific performance incapacities or deficits that reduce their abilities to


cope with the tasks of everyday living.


Oncology - The sum of knowledge regarding tumors; the study of tumors and cancer.


Ostomy - General term for an operation in which an artificial opening is formed, as in colostomy,


ureterostomy, etc.


Other Practitioners’ Services - Health care services of licensed practitioners other than


physicians and dentists.


Orthopedic - Pertaining to the correction of deformities of the musculoskeletal system; pertaining


to orthopedics.


Outpatient Hospital Services - Outpatient hospital services are preventive, diagnostic,


therapeutic, rehabilitative, or palliative services that are fhrnished to outpatients under the direction


of a physician or dentist by an institution that is licensed or formally approved as a hospital by an


officially designated authority for State standard-setting and meets the requirements for


participation in Medicare as a hospital.


Paid Amount - The portion of a submitted charge that is actually paid by both third-party payers 

and the insured, including copayments and balance bills. See Submitted Charge. 

Parenteral - Not through the alimentary canal, e.g., by subcutaneous, intramuscular, intrasternal, 

or intravenous injection. 

Part A of Medicare - The hospital insurance portion of Medicare; established by section 1811 of 

title XVIII of the Social Security Act of 1965, as amended; covers inpatient hospital care, skilled 

nursing facility care, some home health agency services, and hospice care. 

Part B of Medicare - The supplementary or “doctors” insurance portion of Medicare; established 

by section 1831 of title XVIII of the Social Security Act of 1965, as amended; covers services of 

physicians/other suppliers, outpatient care, medical equipment and supplies, and other medical 

services not covered by the hospital insurance part of Medicare. 

Periodic Interim Payment (PIP) System - A system used by intermediaries to pay providers, in 

which estimated Medicare reimbursement for the year is divided into equal, regularly spaced 

payment amounts; enables a provider to manage its cash flow more easily. 

Glossary -4 
Physical Therapy - The examination, treatment, and instruction of persons in order to detect, 

assess, prevent, correct, alleviate, and limit physical disability, bodily malfunction, and pain from 

injury, disease, and any other bodily and mental conditions. 

Physician Services - Services furnished by, or under the direction of a licensed doctor of medicine 

or osteopathy in the State where the services are performed. Physician services may be provided 

in the physician’s office, the recipient’s home, a hospital, or a nursing facility. 

Podiatry - The specialized field dealing with the study and care of the foot, including its anatomy, 

pathology, medical and surgical treatment, etc. 

Premium - An amount paid periodically to purchase medical insurance benefits; for Medicare Part 

B services in 1992, beneficiaries paid a premium of $31.80 per month. 

Principal Diagnosis - The condition established after study to be chiefly responsible for 

occasioning the admission of the patient to the hospital for care. 

Professional Component - The part of a relative value or fee that presents the cost of a physician’s 

interpretation of a diagnostic test or treatment planning for a therapeutic procedure. See Technical 

Component. 

Qualified Medicare Beneficiaries (QMBs) - QMBs are elderly or disabled persons whose 

incomes are at or below specified percentages of the Federal poverty level. 

Radiation Therapy - The treatment of disease by ionizing radiation. The purpose of radiation 

therapy is to deliver an optimal dose of either particulate or electromagnetic radiation to a 

particular area of the body with minimal damage to normal tissues. 

Recipient - An individual who has been determined to be eligible for Medicaid and who has used 

medical services covered under Medicaid. 

Relative Value Scale (RVS) -An index that assigns weights to each medical service; the weights 

represent the relative amount to be paid for each service. The RVS used in the development of the 

Medicare Fee Schedule consists of three cost components: Malpractice Expense, Medicare Fee 

Schedule, and Physician Work/Practice Expense. 

Relative Work Value (RWlo -An assigned value that reflects the average work of a physician of 

average efficiency relative to an arbitrary standard. See Relative Value Scale. 

Retrospective Cost-Based Reimbursement - A method of payment for hospitals/SNFs based on 

the “reasonable costs” incurred for providing covered services to beneficiaries in the preceding 

year(s). 

Severity of Illness Index - A measure to reflect the relative level of loss of fi.mction and mortality 

normally caused by a particular illness. 

Sigmoidoscopy - Direct examination of the interior of the sigmoid colon. 

Speech Therapy - Therapy by a professional trained to identi~, assess, and rehabilitate persons 

with speech or language disorders such as articulation, language, voice, or stuttering problems. 

Splints - A rigid or flexible appliance for fixation of displaced or movable parts. 

State Buy-In - This is the term given to the process by which a State provides supplementary 

medical insurance and/or hospital insurance coverage for its needy, eligible persons by paying their 

Medicare premiums through an agreement with the Federal Government. 

Glossary-5 

.— 
Stress Test - A technique for evaluating circulatory response to physical stress produced by 

exercise. The procedure involves continuous electrocardiographic monitoring during physical 

exercise, the objective being to increase the intensity of physical exertion until a target heart rate is 

reached or signs and symptoms of cardiac ischemia appear. 

Submitted Charge - The actual charge submitted to the patient or a payer. See Paid Amount. 

Supplementary Medical Insurance Program (SMI) - See Part B (of Medicare). 

Supplier - A provider of health care services, other than a practitioner, that is permitted to bill 

under Medicare Part B. Suppliers include independent laboratories, durable medical equipment 

providers, ambulance services, orthotists, prosthetists, and portable x-ray providers. 

Technical Component - The part of a relative value or fee for a diagnostic test or therapeutic 

procedure that represents the costs of performing the service, excluding the physician’s 

interpretation or treatment planning. See Professional Component. 

Title XVIII of Social Security Act - Passed by Congress in 1965, and subsequently amended; 

provides statutory authority for the Medicare program. Both section 1816 (Part A) and section 

1842 (Part B), provide for the “use” of “public agencies or private organizations” for the 

administration of benefits on behalf of the Secretary. 

Title XIX - The Medicaid program. 

Tracheotomy - Creation of an opening into the trachea through the neck, with insertion of an 

indwelling tube to facilitate passage of air or evacuation of secretions. 

Transcutaneous/Neuromuscular Electrical Nerve Stimulation (TENS) - A procedure in which 

mild electrical stimulation is applied by electrodes in contact with the skin over a painful area. The 

stimulation interferes with the transmission of pain signals and helps to suppress the sensation of 

pain in the area. 

Transurethral Resection (TURP) - Resection of the prostate by means of an instrument passed 

through the urethra. 

Truss - An elastic, canvas, or metallic device for retaining a reduced hernia within the abdominal 

cavity. 

Upcode -To bill for a service that is paid more than the service actually provided. 

Urinalysis - Analysis of the urine as an aid in the diagnosis. Many types of tests are used in 

analyzing the urine in order to determine whether it contains abnormal substances indicative of 

disease. 

Glossa~ -6 
OPERATION RESTORE TRUST 

AND NURSING HOMES 

On May 3, 1995, President Clinton announced a new anti-fraud initiative undertaken by the


Department of Health and Human Services. Led by the Office of Inspector General in


partnership with the Health Care Financing Administration and the Administration on Aging,


this project utilizes the expertise of many Federal, State, and private sector


personnel. They will direct their combined energies to crack down on Medicare and Medicaid


fraud, waste, and abuse initially associated with home health agencies, nursing homes,


hospices, and durable medical equipment suppliers. They will work closely with the


Department of Justice and an intergovernmental team comprised of other Federal and State


personnel.


In addition to identifying and penalizing those who defraud the government, the project is


designed to alert the public and industry to the fraud schemes or vulnerable areas in policy.


To aid in this endeavor, the Offke of Evaluation and Inspections will work within the Office


of the Inspector General to perform its primary mission of conducting evaluations that provide


timely, usefi.d, and reliable information and advice to the pertinent decision makers involved


in the demonstration. To this end, the following reports on nursing homes have been


completed:


Medicare Services Provided to Residents of Skilled Nursing Facilities (OEI-06-02-00863) 

Medicare Payments for Nonprofessional Services in Skilled Nursing Facilities (OEI-06-92-00864) 

Payment for Durable Medical Equipment Billed During Skilled Nursing Facility Stays (OEI-06-92-

00860) 

Part B Services in Nursing Homes -An Overview (OEI-06-92-O0865) 

Enteral Nutrient Payments in Nursing Homes (OEI-06-92-00861) 

Durable Medical Equipment Payments in Nursing Homes (OEI-06-92-00862) 

Ongoing evaluations are being conducted related to Medicare payments for residents of 

nursing homes for such services as mental health therapy, wound care, imaging, hospice, 

ambulance transportation, and nail debridement. Also under review are duplicate payments 

between Medicare and Medicaid for nursing home services.