Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MEDICARE PAYMENTS FOR ORTHOTIC


BODY JACKETS


JUNE GIBBS BROWN 

Inspector General 

JUNE 1994 

OEI-O4-92-O1O8O 
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 Office 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 OIGS 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 intended 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 OIGS 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 INSPECHONS 

The OIGS 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 on the efficiency, vulnerability,


and effectiveness of departmental programs.


OEI’SAtlanta Regional Office prepared this report under the direction of Jesse J. Flowers,


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


Principal OEI staff included:


Atlanta Retion Headquarters


Jacqueline Andrews, Project Leader Tom Noplock


Betty Apt, Team Leader Barbara Tedesco


Peggy Daniel


Josiah Townsel


For additional copies of this report, please contact the Atlanta Regional Office at 404-730-


9452.

Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERA . 

MEDICARE PAYMENTS FOR ORTHOTIC 

BODY JACKETS 
EXECUTIVE SUMMARY


PURPOSE 

To determine whether or not Medicare is appropriately billed for orthotic body 

jackets. 

BACKGROUND 

In February 1992, the Office of Inspector General (OIG) received an allegation from 

a company which provides Medicare billing services to nursing homes. The allegation 

was that durable medical equipment (DME) suppliers were billing Medicare 

approximately $1,200 per device for devices consisting of “nothing more than a $50 

piece of foam rubber.” The bills were submitted to Medicare under HCFA’S Common 

Procedure Coding System (HCPCS) code L0430. This code represents an orthotic 

device commonly used to treat injuries to the spine such as vertebra fractures and 

compressions, and to facilitate healing following a surgical procedure on the spine or 

related tissue. 

FINDINGS 

Medicare ClaimsandAllowed Cha~es for OrthoticBody JacketsHave Increased 

SubstantiallySince 1990 

Medicare claims paid under HCPCS code L0430 remained relatively steady until 1990. 

The number of claims submitted to Medicare increased 6,400 percent by the end of 

FY 1992. Likewise, allowed Medicare charges increased over 8,200 percent. 

Preliminary data for 1993 shows a 50 percent reduction in claims submitted and 

Medicare allowed charges. However, the claims and charges are still significantly 

higher than the 1990 levels. 

Ninety-FivePe~ent of the OrthoticBodyJack%CikirnsPaid by Medicare Were For NonLegi”timateDw”ces 

Ninety-five percent of the devices claimed under code L0430 did not meet 

construction requirements and medical purpose of a legitimate body jacket. Many of 

the devices were primarily used to keep patients upright in a wheelchair. 

Medicare Paynmm For Non-LegitimateDew”cesErceeded $7 Millwn In 1991 

Total Medicare payments for non-legitimate devices exceeded $7 million in 1991, and 

may have increased to as much as $13.7 million in 1992. Medicaid funds were also at 

risk. Payment of the 20 percent Medicare co-payment by Medicaid could have 

resulted in as much as $670 thousand of inappropriate payments in 1991. 

i 
Non-LegitimateDm”ces Were MarketedAs An AlternativeTo Rewrainti 

We observed that the significant increase in claims for body jackets occurred shortly 

after enactment of the Omnibus Budget Reconciliation Act of 1990 (OBRA ‘90). The 

Act gave nursing home residents the right to be free from chemical and physical 

restraints. DME suppliers marketed non-legitimate body jackets to nursing homes as 

alternatives to restraints. 

Mtiical Supplien UsedLuopholes ih HCFA Guidance andMonitotig To ClaimNonLq#irnate Devices As Bo@ Jackm 

Suppliers were able to claim devices that were non-legitimate because HCFA 

guidelines generally defined medical necessity and construction requirements for a 

body jacket. Suppliers took advantage of the vague definitions to assert that their 

non-legitimate devices met the requirements of a body jacket. In addition, Medicare 

regulations only required carriers to conduct postpayment reviews for the upper three 

percent of codes with the highest Medicare payments. Since body jacket codes were 

not in the upper three percent, carriers did not rapidly detect the significant increase 

in code L0430 claims. 

Recent HCFA Eflom May Reduce Inapproptite Payrnenfi 

On October 1, 1993, HCFA started processing DME, orthotics, and prostheses claims 

through four regional carriers called the Durable Medical Equipment Regional 

Carriers (DMERCS). One DMERC, called the Statistical Analysis DMERC 

(SADMERC), will track spending and utilization trends for all DMERCS. DMERCS 

also developed new coverage and medical review guidelines for orthotic body jackets. 

RECOMMENDATIONS 

We recommend that HCFA require the DMERCS to closely monitor claims for body 

jackets. If inappropriate body jacket claims are not discontinued in FY 1994, HCFA 

should implement more stringent controls. Finally, HCFA should inform suppliers and 

physicians about the abuse of body jacket codes and stress its intent to prevent such 

abuse. Through stringent monitoring of orthotic body jacket codes, HCFA will 

consematively avoid paying $7 million for non-legitimate devices in the future. Claims 

that were found inappropriate by this study will be turned over to HCFA for recovery. 

AGENCY COMMENTS 

The HCFA Administrator commented on our draft report and agreed with our 

recommendations. HCFA staff believe that the regionalization of durable medical 

equipment claims processing and the development of medical review policies will 

strengthen their ability to monitor use the use and payment of orthotic body jackets. 

We encourage HCFA to take quick corrective action if their monitoring shows that 

inappropriate body jacket claims have not discontinued. 

ii 
TABLE OF CONTENTS


PAGE 

EXECUTIVE SUMMARY 

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


FINDINGS 

Medicare Claims and Allowed Charges for


Orthotic Body Jackets Have Increased


Substantially Since 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3


Ninety-Five Percent ofthe Body Jacket Claims


Paid by Medicare Were ForNon-Legitimate Devices . . . . . . . . . . . . . . . . . . . . 4


Medicare Payments for Non-Legitimate


Devices Exceeded $7 Million in 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7


Non-Legitimate Devices Were Marketed asan


Alternative to Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...8


Medical Suppliers Used Loopholes in HCFA


Guidance and Monitoring To Claim Non-Legitimate


Devices As Body Jackets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...9


Recent HCFAEfforts May Reduce Inappropriate


Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...10


RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...11


AGENCY COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...12


APPENDICES 

Medicare and Medicaid Payments for


Non-Legitimate Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..A-1


HCFAComments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..B-1

INTRODUCTION


PURPOSE 

To determine whether or not Medicare is appropriately billed for orthotic body 

jackets. 

BACKGROUND 

Medicare I+ogram 

Medicare is a Federal health insurance program for individuals age 65 or older and 

certain categories of disabled people. It is administered by the Health Care Financing 

Administration (HCFA), Department of Health and Human Services (DHHS). The -


Medicare program has two types of insurance, Part A and Part B. Part A (hospital


insurance) helps pay for inpatient hospital care, some inpatient care in a skilled


nursing facility, skilled home health care, and hospice care. Part B (medical


insurance) covers physician services, outpatient hospital services, and other medical


services and supplies. This report focuses on payments for orthotic body jackets


purchased under Medicare Part B.


Medicare Part B claims are processed by private insurance companies, called carriers,


under contract with HCFA. Carriers are responsible for ensuring that coverage


requirements are met before approving payment. Carriers use a coding system to


process Medicare claims and determine payment amounts. HCFA developed the


coding system, called the HCFA Common Procedure Coding System (HCPCS) in 1983


to bring about uniformity in defining and billing for medical services and supplies. A


supplier places a HCPCS code on a Medicare claim form to designate what type of


supply was rendered to a beneficiary.


Allegation of Inapproptite Billing 

In February 1992, the Office of Inspector General (OIG) received an allegation from 

a company which provides Medicare billing services to nursing homes. The allegation 

was that suppliers were billing Medicare approximately $1,200 per claim for devices 

consisting of “nothing more than a $50 piece of foam rubber.” The bills were 

submitted to Medicare under HCPCS code L0430. Code L0430 is for a device that is 

defined by HCFA as a “Thoracic Lumbar Sacral Orthosis (TLSO), Anterior-PosteriorLateral Control (Body Jacket) with interface material custom fitted.” 

SCOPE 

We focused on HCPCS code L0430 because our analysis of 1991 data for all body 

jacket codes showed that code L0430 had the most significant increase in number of 

claims. We conducted our inspection between May and October, 1993. 

1 
METHODOI.OGY 

We reviewed all claims for code L0430 contained in HCFA’S 1991 Common Working 

File which is a one percent random sample of all Medicare claims. This sample 

consists of 120 claims. We dropped 25 of the 120 claims from our sample because 

carriers disallowed them for payment. This left us with a sample size of 95 paid 

claims. 

To determine the purpose of a body jacket and how one should be constructed, we 

consulted five licensed orthotists, three of whom were members of the American 

Orthotic and Prosthetic Association (AOPA). Orthotic practitioners must have either 

a BS or BA degree in Orthotics. Then, they must serve a one-year internship prior to 

taking written, oral, and practical examinations. Finally, orthotic practitioners must 

take required continuing education courses to maintain certification. AOPA is a 

national organization which represents more than 800 allied health care firms that 

provide orthotic and prosthetic semices. 

To determine what type of devices were supplied to beneficiaries in our sample, we 

obtained descriptions from suppliers, nursing homes, and DHHS OIG Office of 

Investigations (01). Because some suppliers were under investigation by 01, we used 

01 as a source of information rather than contact those suppliers directly. To inspect 

the construction and purpose for devices sold under code L0430, we visited two 

suppliers not under 01 investigation and two nursing homes. Using the licensed 

orthotists and AOPA criteria for the construction and purpose of a body jacket, we 

determined whether or not the devices supplied to beneficiaries in our sample, and 

billed to Medicare, were body jackets. 

To determine whether or not Medicare beneficiaries in our sample had a medical 

need for a body jacket, we obtained information from Medicare claims, physician 

prescriptions, and Certificates of Medical Necessity (CMNS). Sixty-four of the claims 

in our sample were accompanied by CMNS. The prescribing physician’s address is 

typically listed on the CMN. Of the 64 CMNS, 55 listed the physician’s address. We 

contacted these 55 physicians to verify beneficiaries medical need for body jackets. 

Forty of the 55 physicians responded to our questionnaire. 

To determine marketing practices of the suppliers that sold devices to beneficiaries in 

our sample, we interviewed 44 nursing home administrators by telephone and visited 2. 

We also reviewed marketing brochures for each supplier. 

This inspection was conducted in accordance with the Quality Standards for Inspections 

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

2

FINDINGS


MEDICARE CLAIMS AND ALLOWED CHARGES FOR ORTHOTIC BODY 

JACKETS HAVE INCREASED SUBSTANTIAL Y SINCE1990

Medicare claims for body jackets paid under HCPCS code L0430 remained relatively 

steady until 1990. The number of claims submitted to Medicare increased from 275 in 

1990 to 17,910 in 1992--a 6,400 percent increase. Figure 1 illustrates the increase. 

FIGURE 1 

Claims in Thousandk 

20, 1 

17910 

,5 ............................ ... ... ... ......... 

,~ 10,085 ......................... 

5 ... ... 

253 275 

0 $ 1 

1989 1990 1991 1992 

Year 

Total Medicare allowed charges for code L0430 also increased significantly since 1990. 

Total allowed charges increased from $217 thousand in 1990 to $18 million in 1992--a 

8,200 percent increase 2. Figure 2 illustrates the dramatic increase. 

2Thedisparitybetweenpercentageincreasesforclaimsandallowedchargesisattributedto differencesallowedon 

individualclaimsandincreasesin allowed amounts in recent years. 

3 
FIGURE 2


Millions 

20 

$18,049,000 

15 

10 

/ 

5 . . . . . . ,, ...,.. ,,, ,,. . . 

$191*(XN) $217,000 

0 1

389 1990 1991 199: 

Year 

Through September 1993, HCFAreports that about 5,000claims were submitted to 

Medicare and$5,2million wasallowed fororthotic body jackets. According to HCF~ 

the 1993 allowed amounts represents about 60 percent of the expected total for the 

year. Therefore, we project that approximately $8.6 million will be allowed in 1993. 

This represents a decrease of about 50 percent from the 1992 levels. However, the 

projected number of claims submitted and allowed charges still are significantly higher 

than the 1990 levels. 

NINETY-FIVE PERCENT OF ORTHOTIC BODY JACKET CLAIMS PAID BY 

MEDICARE WERE FOR NON-LEGITIMATE DEVICES 

Ninety-five percent of our sampled claims (90 of 95) submitted under code L0430, 

were for devices which were not orthotic body jackets. Hereafter, we will refer to 

these as non-legitimate devices. The remaining 5 percent (5 of 95) were for legitimate 

body jackets. We noticed that the legitimate body jackets in our sample were supplied 

by certified, licensed orthotists whose primary occupation is supplying orthotic and 

prosthetic devices to patients. The non-legitimate body jackets in our sample were 

supplied by Durable Medical Equipment (DME) suppliers that primarily supply DME 

equipment and supplies, not orthotics. 

4

According to the licensed orthotists and members of AOPA we consulted, a body 

jacket should be made of rigid plastic material that conforms to the body and provides 

a high de~ee of immobility. It should also be custom fitted, which means that it can 

be adjusted to meet the specific needs of a patient. Body jackets are most commonly 

used to treat spinal and muscular diseases such as scoliosis and muscular dystrophy. 

They are also used to treat injuries to the spine such as vertebra fractures and 

compressions, and to facilitate healing following a surgical procedure on the spine or 

related tissue. 

A legitimate body jacket is illustrated in Figure 3. This body jacket is made of a rigid 

plastic material. It applies pressure to certain points along the abdomen and back 

limiting motion in the spine. It is custom fitted because it has three adjustable straps 

that can be tightened or loosened to apply more or less pressure to certain points 

along the abdomen or back, depending on the needs and shape of a patient. 

FIGURE 3 

LEGITIMATE BODY JACKET 

5

We visited three beneficiaries residing in nursing homes to inspect devices they had 

purchased through Medicare as body jackets. Oneofthe devices we inspected is 

shown in Figure 4 below. The other two devices we inspected, as well as 87 other 

devices supplied to sampled beneficiaries, were almost identical to the device in Figure 

4. According to the licensed orthotists and AOPA members we consulted, the device 

in Figure 4 is not a legitimate body jacket. It is not properly constructed and does not 

serve the medical purpose of a body jacket. 

FIGURE 4 

NON-LEGITIMATE BODY JACKET 

The device in Figure 4 has the following construction features that are inconsistent 

with a legitimate body jacket. 

1.	 The device is constructed of soft material which is not rigid 

and does not conform to a patient’s body. It consists of 

two sides, a back and bottom piece that are made of a 

soft foam material covered in vinyl. Each piece is about 

two inches thick. 

6 
2.� The device neither conforms to the patient’s body nor 

restricts motion in the spine. We obselved that one 

beneficiary who was using this device was extremely 

slumped over the arm of his wheelchair. 

3.� The device is not custom fitted because it does not offer 

any adjustability to meet the unique shape of an individual 

or the specific need of a patient. 

Device Did Not Seine the Medical Rupose of An OrthotikBody Jacket 

HCFA requires that body jacket claims be accompanied by a physician’s prescription 

and/or a certificate of medical necessity. A prescription must include a patient 

diagnosis, reason the equipment is required, and an estimate of the duration of need. 

A CMN typically provides more detailed information on a patient’s condition than that 

provided by a prescription. Prescriptions and CMNS must be signed by a physician. 

Our analyses of prescriptions, CMNS, and statements by prescribing physicians and 

nursing home administrators showed that many of the devices in our sample were 

primarily used to keep patients upright in a wheelchair. Ninety-two percent of the 

beneficiaries for whom we had CMNS (59 of 64) are listed as wheelchair bound. Sixtyeight percent of the prescribing physicians who responded to our questionnaire (27 of 

40) stated that the device they prescribed was used to keep a patient upright in a 

wheelchair. 

The orthotists and AOPA members we consulted stated that it is very unusual for a 

body jacket to be prescribed for a wheelchair bound person. One orthotist stated that 

less than 1 percent of elderly people who need body jackets are wheelchair bound. 

The 40 physicians who responded to our survey identified the medical conditions of 

the beneficiaries in our sample. They typically identified schizophrenia, anemia, 

diabetes, parkinson’s disease, alzheimer’s disease, and dementia. According to 

licensed orthotists we consulted, these medical conditions are not normally treated 

with a body jacket. The physicians assumed suppliers had billed Medicare for 

wheelchair seating devices rather than custom-fit orthotic body jackets. 

MEDICARE PAYMENTS FOR NON-LEGITIMATE DEVICES EXCEEDED $7 

MILLION IN 1991 

In 1991, about 95 percent (90 of 95) of the devices purchased through Medicare under 

code L0430 were non-legitimate devices. Total Medicare payments for those devices 

exceeded $7 million. Furthermore, assuming that the percent of Medicare claims for 

non-legitimate devices remained at 95 percent in 1992, inappropriate payments would 

have increased to about $13.7 million. 

7

For orthotics, Medicare pays 80 percent of either the actual charge or the fee schedule 

amount, whichever is less. A beneficiary, or the beneficiary’s secondary insurance, is 

responsible for paying the remaining 20 percent co-payment. Sixty-six percent of the 

claims (44 of 67)3 show that Medicaid was responsible for paying the remaining 20 

percent co-payment. Therefore, Medicaid funds were also at risk. State Medicaid fee 

schedules vary, and we could not determine the precise amount Medicaid paid on 

each claim. However, payment of the entire 20 percent co-payment by Medicaid 

could have resulted in $670 thousand of inappropriate Medicaid payments in 1991. 

We did not determine inappropriate Medicaid payments for 1992 because we did not 

know how many Medicaid claims were filed. 

Appendix A describes in detail how we determined Medicare and Medicaid payments 

for non-legitimate devices. 

NON-LEGITIMATE DEVICES WERE MARKETED AS AN ALTERNATIVE TO 

RESTRAINTS 

Eighty percent of the nursing home administrators (35 of 44) we interviewed said the 

device was marketed to them as an alternative to restraints. Restraints are prohibited 

by the Omnibus Budget Reconciliation Act of 1990 (OBRA ‘90). The Act gave 

nursing home residents the right to be free from chemical and physical restraints. We 

observed that the significant increase in claims for body jackets occurred shortly after 

enactment of OBRA ’90 legislation. 

Ninety-four percent of the beneficiaries for whom we had claims in 1991 (63 of 67) 

resided in nursing homes. The following statements, taken directly from suppliers’ 

brochures, indicate that suppliers sold the devices to nursing homes as an alternative 

to restraints, not to treat a medical condition. 

“These do not only maintain functional alipment, they eliminate the need 

to restrain the resident” 

“Addresses restorative legislative mandates of OBRA ’90” 

“Restraint-free management tool reduces chance of resident inj.uy and noncompliance with restraint regulations” 

3Weobtained paper claims for 67 beneficiaries in our sample. Tbe remaining 53 claims were processed 

electronically and we were not able to obtain paper claims. 

8 
MEDICAL SUPPLIERS USED LOOPHOLES IN HCFA GUIDANCE AND 

MONITORING TO CLAIM NON-LEGITIMATE DEVICES AS BODY JACKETS 

HCFA!SGeneralDefinitionsAllbwed Suppliensto ClaimlVon-LegitimateDew”cesas Body 

Jackxu% 

Suppliers were able to claim non-legitimate devices as body jackets because HCFA 

had not clearly defined medical necessity and construction of a body jacket. HCFA 

classifies body jackets as back braces in section 2133 of the carriers manual. Back 

braces are used for the purpose of “supporting a weak or deformed body member or 

restricting or eliminating motion in a diseased or injured part of the body.” Suppliers 

took advantage of this general definition to assert that their devices were medically 

necessary. They said the device met the definition because it supported a patient’s 

back. However, most of the devices in our sample were merely used to assist patients 

in sitting upright in wheelchairs. According to the orthotists we consulted, a body 

jacket claimed under code L0430 is more sophisticated and should do more than 

simply support a wheelchair patient. 

Some suppliers used HCFA’S general definition for code L0430 to justify that their 

devices were legitimate. They alleged that the devices were custom fitted because the 

arm cushions came in different heights. However, the devices did not conform to a 

patient’s body. According to the orthotists we consulted, custom fit means that the 

device is designed to conform to the shape of a patient’s body, and the device must 

help meet a patient’s specific medical need. 

Linited MonitoringAiYowedPaymenfifor Non-@”tinzate Dm”ces 

In 1991, when claims for body jackets began to significantly increase, HCFA only 

required that carriers look for aberrant payment trends for the upper three percent of 

codes with the highest Medicare payments. Since body jacket codes were not in the 

upper three percent, carriers did not rapidly detect the increase in code L0430 claims. 

In addition, while carriers could look at their own payment trends, there was no 

mechanism to compare trends for all carriers and, therefore determine if the number 

of orthotic body jackets claimed were excessive. 

Most carriers learned of the abusive claims from physicians and beneficiaries, not from 

their own internal reviews. Once they were told about the abuse, they reviewed 

payment trends. These payment trends showed the increase in the number of claims 

and identified suppliers who were submitting large numbers of body jackets claims. In 

early 1992, when carriers began to detect claims for non-legitimate devices, they 

established medical reviews to curtail payments. For example, some carriers in our 

sample contacted physicians, some required that a picture of the device accompany a 

4Thoracic Lumbar Sacral Orthosis, Anterior-Posterior-Lateral Control (body jacket) with interface material 

custom fit. 

9

claim, some coded all L0430 claims under a lower reimbursed code, and a few simply 

required that a prescription accompany the claim. Some suppliers were referred to 

the OIG for investigation. However, medical suppliers claims for non-legitimate 

devices continued to increase through 1992. In 1993, preliminary data on body jacket 

claims and payments indicate a decrease of about 50 percent from the 1992 level. 

However, the claims and payments remain significantly higher than the 1990 level. 

RECENT HCFA EFFORTS MAY REDUCE INAPPROPRIATE PAYMENTS 

HCFA recently took steps to reduce inappropriate payments for body jackets, as well 

as other orthotic, prosthetic, and DME items. In June 1993, HCFA notified the 

regional fraud and abuse coordinators of the abuse of body jacket codes who, in turn, 

notified the carriers. On October 1, 1993, HCFA started processing DME, orthotics, 

and prostheses claims through four regional carriers called the Durable Medical 

Equipment Regional Carriers (DMERCS). The DMERCS will process claims formally 

processed by 33 carriers. HCFA plans to phase-in all claims by June of 1994. One 

DMERC, in addition to claims processing functions, will track spending and utilization 

trends for all DMERCS. This DMERC will be referred to as the Statistical Analysis 

DMERC (SADMERC). 

For payment through the DMERCS, HCFA identified 100 DME, orthotic, and 

prostheses items which had the highest level of Medicare payments. Further, the 

DMERCS developed coverage and medical review guidelines to be published in a 

DMERC manual. Code L0430 was identified as one of the top 100 items. The 

guidelines give DMERCS basic characteristics of a body jacket, a definition of custom 

fit, and coding guidelines. The guidelines also give medical indications for a body 

jacket such as “to reduce pain by restricting mobility of the trunk,” or “to otherwise 

support weak spinal muscles and/or a deformed spine.” 

In addition, HCFA required that the DMERCS perform postpayment review activities. 

Through enhanced computer capabilities, the DMERCS will have access to national 

and local carrier claims data. This will enable DMERCS to compare local data to 

national data for all codes. As a result, drastic increases in claims such as those 

experienced for body jackets in 1991 and 1992 can be detected and reviewed early for 

propriety of payment. In the past, data was run off a mainframe computer and could 

only be accessed semi-annually. The new system will be available on personal 

computers and will allow greater flexibility for reviewing and determining that 

payments are appropriate. 

10

RECOMMENDATIONS 

Preliminary data for the first half of 1993 for body jacket claims and allowed charges 

show a decline from the 1992 level by about 50 percent. We did not determine the 

cause of the decline. However, it may have resulted from actions taken by carriers 

late in 1992 to assure propriety of payments for orthotic body jacket claims, and from 

market saturation. 

HCFA’S recent establishment of the DMERCS and related guidance should help 

further reduce payments for non-legitimate devices in the future. However, the 

number of claims and allowed charges remains significantly higher than the 1990 level, 

and it is likely that non-legitimate devices are still being paid by Medicare. If the 

percentage of inappropriate body jacket claims being paid by Medicare remains as 

high as it was in 1991, Medicare could stand to lose at least $7 million annually. 

Therefore, we recommend that HCFA require the DMERCS to 

Closely monitor claims for body jackets. A monitoring system that includes the 

following could be implemented by the SADMERC. 

�	 Routinely analyze payment trends for body jacket codes to 

identify abusive patterns and aberrant providers. 

� Provide other DMERCS an early warning of abusive practices. 

�	 Develop methods to closely monitor suppliers who have engaged 

in abusive practices. 

If inappropriate orthotic body jacket claims are not discontinued in FY 1994, HCFA 

should implement more stringent controls such as 

�	 requiring physicians to obtain prior approval from DMERCS for 

body jackets, and/or 

�	 programming computer systems to identify and allow payment for 

code L0430 claims only when they match appropriate medical 

diagnoses. 

Finally, HCFA should inform the medical CQmmunity about non-legitimate devices 

coded under HCPCS code L0430 and indicate its intent to closely monitor the use of 

body jacket codes, as a deterrent to further abuse. 

Claims that we found inappropriate during our study will be turned over to HCFA for 

recovery. 
AGENCY COMMENTS 

The HCFA Administrator agreed with our recommendations. He stated that 

regionalization of durable medical equipment claims processing and development of 

medical review policies will strengthen HCFA’S ability to monitor use of and payment 

for orthotic body jackets. We encourage HCFA to take immediate corrective action if 

their monitoring shows that inappropriate body jacket claims have not discontinued. 

In response to HCFA’S technical comments, we made appropriate revisions to the 

report. Appendix B contains the full text of the HCFA Administrator’s comments. 

12

---------

APPENDIX A


MEDICARE PAYMENTS FOR NON-LEGITIMATE DEVICES 

1991 Paymentsfor Non-~”timate Dm”ces 

1.	 Add total allowed amounts in the HCFA Part B Extract Statistical System 

(BESS) 1 percent file and then subtract all allowed amounts for the legitimate 

claims to determine total allowed for non-legitimate claims. 

$92,262 (Total allowed entire 1 percent file) 

- 4,499 (Total allowed for legitimate claims) 

$87,763 (Total allowed non-legitimate claims) 

2.� Multiply total allowed for non-legitimate claims by 100 to get total 

allowed in universe. 

$87,763 x 100 = $8,776,300 (Average allowed in universe) 

3.� Multiply total allowed in the universe by 80 percent to determine total 

Medicare payments for non-legitimate devices. 

$8,776,300 x .80 = $7,021,040 (Total Medicare payments for nonlegitimate devices) 

Confiiknce Interval&: 

Universe Size Sample Size Estimated Lower 95% Upper 95% 

Overpayment Confidence Confidence 

Interval Interval 

12,000 120 $7,021,040 $6,261,629 $7,780,450 

A-1

1992 Paymentsfor Non-@”tirnate Devices 

1.	 Total allowed amount for HCPCS code L0430 in the 100 percent HCFA 

BESS file was $18,049,881. 

2.� From the 1991 data, we found 95 percent (standard error of .021) of the 

payments were made for non-legitimate devices. 

3.� Apply this percentage (95 percent) to the 1992 allowed amounts to get 

the total allowed amount for non-legitimate devices. 

$18,049,881 x .95 = $17,147,386 (Allowed for non-legitimate devices) 

4.� Apply the 80 percent Medicare portion to determine total Medicare 

payments for non-legitimate devices. 

$17,147,386 x .80 = $13,717,909 (Total Medicare payments for 

non-legitimate devices) 

Con@ience Intemak 

Estimated Overpayment� Lower 959%Confidence Upper 95% Confidence 

Interval Interval 

$13,717,909 $13,125,872 $14,338,824 

A-2

1. 

2. 

3. 

1991 MEDICAID PAYMENlll FOR NON-LEGITIMATE DEVICES 

Add total Medicaid allowed amounts in the HCFA BESS 1 percent file. 

$34,353 (Total Medicaid allowed non-legitimate claims) 

Multiply total Medicaid allowed for non-legitimate claims by 100 to get 

total allowed in the universe. 

$34,353 x 100 = $3,435,800 (Total allowed in universe) 

Multiply total allowed in the universe by 20 percent to determine total 

Medicaid payments for non-legitimate devices. 

$3,435,800 x .20 = $687,160 (Total Medicaid payments for 

non-legitimate devices) 

Con.ce Intervak 

Universe Size Sample Size Estimated Lower 95% Upper 95% 

Overpayment Confidence Confidence 

Interval Interval 

12,000 120 $687,000 $495.674 $878,325 

A-3

APPENDIX B 

HCFA COMMENTS 

B-1 
.

.�* @qm?.o&. Health Care . . 

*

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: 

DEPARTMENTOF HEALTH& HUMAN SERVICES Financing Administration 

: 

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%%ztid,a > Memorandum

Date 

Bruce C. VIadeckFrom Administrator \%/ 

Subject	 Office of Inspector General (OIG) Draft Report: “Medicare Payments for Orthotic 

Body Jackets” (OEI-O4-92-O1O8O) 

To 

June Gibbs Brown 

Inspector General 

We reviewed the above-referenced draft report which analyzed claims and charges 

for orthotic body jackets. The report correctly identifies anumber of instances of 

overutilization and abuse; as a result, Medicare payments for orthotic body jackets 

have increased tremendously in recent years. 

We are aware of the increased number of claims for body jackets and believe that 

as a result of regionalization of durable medical equipment claims processing, and 

/’ the development of regional medical review policies for spinal orthoses, we have 

/’ strengthened our ability to monitor the use and payment of orthotic body jackets. 

\ 

Our detailed comments on the report findings and recommendations are attached 

for your consideration. Thank you for the opportunity to review and comment on 

this draft report. Please advise us if you would like to discuss our position on the 

recommendations at your earliest convenience. 

Attachment 

-.� 7 .-, **�

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Comments on Office of Inspector General (OIGl Draft Report: 

Medicare Pawn ents for Orthotic Body Jackets 

(OEI-O4-92-O1O8O) 

Recommendation 1 

The Health Care Financing Administration (HCFA) should require the Durable 

Medical Equipment Regional Carriers (DMERC) to closely monitor claims for body 

jackets, including analysis of payment trends, provision of an early warning of 

abusive practices, and monitoring of suppliers who have engaged in abusive 

practices. 

HCFA Response 

We concur, and have instituted several methods to detect payment trends and 

identi& suppliers who have exhibited abusive practices. 

As part of its contract responsibilities, the Statistical Analysis (SA) DMERC closely 

monitors claims for body jackets, produces standard quarterly reports, and provides 

analysis of data to identify trends and aberrances. Additionally, the SADMERC 

conducts postpayment medical review for national suppliers in order to determine if 

future corrective action is needed. 

By producing standard quarterly reports along with monthly ad hoc reports, the 

SADMERC assists the DMERCS in identifying potential abusive practices, and 

monitors those suppliers that appear to engage in abusive practices. The 

SADMERC will continue to be a resource for the DMERCS to detect patterns of 

abusive billing by suppliers. 

In addition to the regionalization initiative (creation of the DMERCS and the 

SADMERC), HCFA has issued several new codes to better distinguish the various 

types of products currently on the market. Claims for some classes of orthotic 

devices, previously paid for by the local carriers, are now denied by the DMERCS. 

Claims for those devices that are covered by the DMERCS must be submitted with 

additional medical documentation including, but not limited to, the following: a 

description of the item and the diagnosis; a description of the spinal problem, the 

brand name and model number or photo of the actual device; and features of the 

orthosis and medical necessity of each. 
,*� .�

Page 2 

Recommendation 2 

If inappropriate orthotic body jacket claims are not discontinued in FY 1994, HCFA


should implement more stringent controls, such as requiring physicians to obtain


prior approval from DMERCS for body jackets, and/or programming computer


systems to identify and allow payment for code L0430 claims only when they match


appropriate medical diagnoses.


HCFA Response


We agree that there is a need for stringent controls, and we feel that we have the


necessary control mechanisms in place to detect increased use of these products.


While the specific actions recommended were examples or suggestions, we wish to


point out that we do not agree that we should seek the legislation necessary to


institute a prior approval program for body jackets as a means to impose more


stringent controls for inappropriate claims. We anticipate that because of the


regionalization and development of regional policy for orthotic body jackets, we will


see decreased utilization of the body jackets. We are confident that the regional


policies presently in place are at least as good as a prior approval program would


be.


Recommendation 3


HCFA should inform the medical community about nonlegitimate devices coded


under HCPCS code L0430 and indicate its intent to closely monitor the use of body


jacket codes, as a deterrent to further abuse.


HCFA Response


We concur. We will encourage the DMERCS to use their monthly bulletins to


inform the medical community of inappropriate use of devices such as orthotic body


jackets.


Technical Comments:


Page 10, first full paragraph: change “phase-in claims by March’ to June. Decisions


have been made recently to delay the transition of several States to the new


regional carriers.


Page 10, last paragraph: delete the first sentence, which refers to “focused medical

.,.� .,�

Page 3 

Page 11, last sentence of the second paragraph should read, “Ifinappropriate 

payments fororthotic body jackets continue to increase, Medicare could standto 

lose at least $7 million annually.”