Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

MEDICAL EQUIPMENT 


SUPPLIERS: 


COMPLIANCE WITH MEDICARE 


ENROLLMENT REQUIREMENTS


Daniel R. Levinson


Inspector General 


March 2007


OEI-04-05-00380

Office of Inspector General 
 http://oig.hhs.gov 

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

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

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

abuse, and mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

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

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

significant issues. Specifically, these evaluations focus on preventing fraud, waste, or 

abuse and promoting economy, efficiency, and effectiveness in departmental programs. 

To promote impact, the reports also present practical recommendations for improving 

program operations. 

Office of Investigations 

The Office of Investigations (OI) 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 OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

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

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

legal support in OIG's internal operations. OCIG imposes program exclusions and civil 

monetary penalties on health care providers and litigates those actions within HHS. 

OCIG also represents OIG in the global settlement of cases arising under the Civil False 

Claims Act, develops and monitors corporate integrity agreements, develops compliance 

program guidances, renders advisory opinions on OIG sanctions to the health care 

community, and issues fraud alerts and other industry guidance. 
Δ EXECUTIVE SUMMAR Y 

OBJECTIVE 

To determine if selected Medicare durable medical equipment, 

prosthetics, orthotics, and supply (DMEPOS) suppliers physically 

existed at their listed addresses and were open to conduct business. 

BACKGROUND 

According to the Centers for Medicare & Medicaid Services (CMS), 

Medicare expenditures for DMEPOS were approximately $10 billion in 

calendar year (CY) 2005. DMEPOS includes devices such as power 

wheelchairs, oxygen equipment, diabetic equipment, canes, braces, and 

artificial limbs. 

DMEPOS suppliers provide equipment to Medicare beneficiaries and 

submit claims to the Federal Government for reimbursement. At the 

time of our review, DMEPOS suppliers were required to meet 

21 Medicare standards in order to obtain a supplier number for these 

billing privileges, pursuant to 42 CFR § 424.57(c). Suppliers must 

obtain a different supplier number for each location at which they will 

furnish equipment. The National Supplier Clearinghouse (NSC), 

operated by Palmetto Government Benefit Administrators (GBA), 

reviews DMEPOS suppliers through site visits at enrollment, and 

3 years later for reenrollment, to determine if they meet the Medicare 

standards. Generally, no site visits occur outside of the 3-year cycle. 

However, NSC may conduct out-of-cycle site visits if it receives 

notification that a supplier may be in violation of one or more Medicare 

standards. Out-of-cycle site visits have detected suppliers not meeting 

the standards. For example, in April and May of 2005, Palmetto GBA’s 

Supplier Audit and Compliance Unit conducted out-of-cycle site visits of 

40 DMEPOS suppliers in Miami, resulting in the revocation of 

27 supplier numbers, 68 percent of the suppliers visited. 

There are planned changes for DMEPOS supplier enrollment in the 

Medicare program. Section 302(a)(1) of the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 requires the Medicare 

program to develop and implement quality standards for DMEPOS 

suppliers. In August 2006, CMS issued a final rule requiring DMEPOS 

suppliers to go through an accreditation process. This process will 

utilize approved quality standards that DMEPOS suppliers must meet 

to participate in and bill the Medicare program. Until these changes 

are fully implemented, NSC will continue with its enrollment 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S i 
EXE CUTIVE S U MMAR Y 

responsibilities, which include conducting site visits and reenrolling 

DMEPOS suppliers. 

In a 2001 report, the Office of Inspector General (OIG) recommended 

that CMS conduct random site visits of DMEPOS suppliers. In 

response to our recommendations, CMS stated that it would increase 

site visits to suppliers who did not pass inspection. However, CMS did 

not directly address whether it would conduct random site visits of the 

larger DMEPOS supplier population. In a September 2005 report, the 

Government Accountability Office recommended that CMS establish an 

annual minimum of out-of-cycle site visits of DMEPOS suppliers. CMS 

has agreed to conduct these site visits as resources permit. 

For our evaluation, we conducted out-of-cycle site visits of 169 DMEPOS 

suppliers from October 24 to November 4, 2005, to determine if they met 

the Medicare requirements of maintaining a physical facility and were 

open to conduct business. We chose these requirements because they 

directly impact the ease of beneficiary access to DMEPOS services. We 

determined compliance with these Medicare requirements through 

physical site observations and attempts to gain access to the facilities. 

FINDINGS 

Of 169 DMEPOS suppliers, 10 did not exist at their business 

address, yet they billed Medicare almost $393,000 in the 

2 months after we had determined that they were absent. Pursuant 

to 42 CFR § 424.57(c)(7), DMEPOS suppliers that bill Medicare must 

maintain a physical facility. At the time of our site visits, 10 suppliers 

did not exist at the business address listed on their enrollment 

application. We confirmed with NSC that we had conducted our site 

visits at the correct business addresses. In one instance, there was a 

law office at the DMEPOS business address. One of the attorneys 

informed us that he had been there for about 1 year, and that he was 

unaware of a DMEPOS supplier at that location. The 10 absent 

suppliers should have been located in 6 of the 27 counties where we 

conducted our site visits, and represented 13 percent (1 of 8) to 40 

percent (2 of 5) of the total number of suppliers that we visited in each 

of those counties. Because these suppliers were not randomly selected, 

our results are not representative of the entire six counties where the 

absent suppliers should have been located. 

The 10 absent DMEPOS suppliers collectively billed Medicare $392,720 

for services rendered from the day of our site visits through the end of 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S ii 
EXE CUTIVE S U MMAR Y

CY 2005. Of the $392,720 in submitted claims, the suppliers had 

received a total of $196,842 in reimbursements as of December 31, 2005. 

From our site visits, we cannot determine whether the absent suppliers 

were submitting claims that should not have been paid by Medicare, or 

were submitting legitimate claims from another location. However, 

suppliers are required to have a different billing number for each of 

their locations, and the 10 suppliers were not at the locations associated 

with the Medicare billing numbers used to receive reimbursement in the 

2 months after our site visits. 

Of 169 DMEPOS suppliers, 6 were closed during posted business 

hours at the time of our site visits. Pursuant to 

42 CFR § 424.57(c)(8), DMEPOS suppliers that bill Medicare must be 

accessible to beneficiaries and to CMS. Six DMEPOS suppliers existed 

at the business address on their enrollment application, but were closed 

during their posted hours of operation at the time of our single site visit. 

For example, the proprietor of a business adjacent to one DMEPOS 

establishment informed us that the DMEPOS staff were absent for 

months at a time. One of the six closed suppliers was in one of the same 

counties where we could not locate the suppliers previously described. 

The six closed suppliers collectively submitted $101,833 in Medicare 

claims, and had been reimbursed $51,948 of this amount as of 

December 31, 2005. These claims were for services rendered from the 

day of our site visits through the end of CY 2005. 

CONCLUSION 

We conducted primarily observational, out-of-cycle site visits of 

DMEPOS suppliers to determine if they were in compliance with 

selected Medicare requirements. We found that as many as 40 percent 

(2 of 5) of the establishments visited in one county did not physically 

exist at their business address, yet they continued to receive Medicare 

reimbursements. These results are not representative of the entire 

county because the suppliers that we visited were not randomly 

selected. 

While this study did not uncover supplier noncompliance with Medicare 

requirements in all areas visited, our findings suggest that out-of-cycle 

site visits of targeted DMEPOS suppliers may be warranted in other 

areas of the country. By helping to ensure the legitimacy of DMEPOS 

suppliers, out-of-cycle site visits may help to prevent fraud, waste, and 

abuse in the Medicare program. CMS may want to consider the 

OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S iii 
EXE CUTIVE S U MMAR Y 

findings of our study as they determine how and to what extent out-ofcycle site visits of DMEPOS suppliers will occur. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with the basic findings of this report. CMS agreed that 

out-of-cycle site visits can identify suppliers who are no longer in 

business or do not meet basic supplier standards. CMS also noted that 

there can be added value from using an abbreviated protocol. However, 

CMS is concerned that using an abbreviated site visit protocol would not 

be adequate to appropriately revoke supplier numbers and ensure 

revocation decisions are upheld upon appeal. CMS also stated that it is 

in the process of taking several aggressive actions, such as requiring 

DMEPOS suppliers to go through an accreditation process. 

OIG is encouraged that CMS is in the process of taking additional steps 

to ensure that suppliers meet the required Medicare standards. 

Regarding CMS’s concern that abbreviated site visits could hamper the 

process to appropriately revoke supplier numbers, this study was 

designed to determine if suppliers were meeting selected enrollment 

standards. We continue to believe that the findings of this review 

provide an accurate picture of how DMEPOS suppliers were doing 

business on the days we visited them. CMS may want to consider our 

findings as they determine how and to what extent out-of-cycle site 

visits of DMEPOS suppliers will occur. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S iv 
Δ T ABLE OF CONTENTS 

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

INTR O D U C T I ON ........................................... 1

FINDI NGS ................................................. 5

Ten DMEPOS businesses were not physically present .......... 5

Six DMEPOS businesses were closed during posted hours....... 6

CON C L U SION ............................................. 7

Agency Comments and Office of Inspector General Response .... 7

ENDN OTE S ................................................ 9

APPENDI X ................................................ 11

A: Medicare Standards ................................. 11

B: Agency Comments ................................... 15

ACKN O W LEDGMENTS .................................... 17
Δ INTRODU C TION 

OBJECTIVE 

To determine if selected Medicare durable medical equipment, 

prosthetics, orthotics, and supply (DMEPOS) suppliers physically 

existed at their listed addresses and were open to conduct business. 

BACKGROUND 

Durable Medical Equipment, Prosthetics, and Orthotics Supplies 

According to the Centers for Medicare & Medicaid Services (CMS), 

Medicare expenditures for DMEPOS were approximately $10 billion in 

calendar year (CY) 2005.1 DMEPOS includes devices such as power 

wheelchairs, oxygen equipment, diabetic equipment, canes, braces, and 

artificial limbs.2 

DMEPOS Supplier Enrollment 

DMEPOS suppliers provide equipment to Medicare beneficiaries and 

submit claims to the Federal Government for reimbursement. To obtain 

these billing privileges, suppliers must enroll in the Medicare program 

and apply for a supplier number from CMS. At the time our review was 

conducted, Medicare DMEPOS suppliers were required to meet 

21 standards in order to obtain a supplier number, pursuant to 

42 CFR § 424.57(c). (See Appendix A for the Medicare standards.)3 

Suppliers must obtain a different number for each location where they 

will furnish equipment. 

To verify that Medicare DMEPOS applicants meet the required 

standards, CMS contracts with the National Supplier Clearinghouse 

(NSC), operated by Palmetto Government Benefit Administrators 

(GBA), to review applications and to conduct site visits for supplier 

enrollment. 

Every 3 years, DMEPOS suppliers must reenroll with NSC to maintain 

their Medicare billing privileges. During the reenrollment process, NSC 

conducts and oversees site visits of DMEPOS suppliers to confirm their 

continued compliance with the Medicare standards. Generally, no site 

visits occur outside of the 3-year cycle. However, NSC may initiate 

out-of-cycle site visits if it receives notification from sources such as 

beneficiaries or Palmetto GBA’s Benefit Integrity Unit that a supplier 

may be in violation of one or more Medicare standards. NSC may also 

conduct out-of-cycle site visits when notified by Palmetto GBA’s 

Supplier Audit and Compliance Unit (SACU) about unusual supplier 

billing activity. Out-of-cycle site visits have detected suppliers not 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 1 
INTROD UCT ION 

meeting the Medicare standards. For example, in April and May 2005 

Palmetto GBA's SACU conducted unannounced, out-of-cycle site visits 

of 40 DMEPOS suppliers in Miami. These site visits resulted in the 

revocation of 27 supplier numbers, 68 percent of the suppliers visited.4 

CMS Activities Relating to Medicare DMEPOS Supplier Standards 

There are planned changes for DMEPOS supplier enrollment in the 

Medicare program. Section 302(a)(1) of the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 requires the Medicare 

program to develop and implement quality standards for DMEPOS 

suppliers.5 Pursuant to a final rule published by CMS, all suppliers are 

required to meet quality standards included as part of the accreditation 

process to participate in and bill the Medicare program.6 According to 

the final rule, CMS will phase in the accreditation process of DMEPOS 

suppliers.7 Until these changes are fully implemented, NSC will 

continue with its enrollment responsibilities, which include conducting 

site visits and reenrolling DME providers. 

Related Work 

The Office of Inspector General (OIG) has issued two reports on 

DMEPOS supplier compliance with Medicare standards. First, a 

1997 report included recommendations for CMS to conduct site visits at 

the physical locations of DMEPOS supplier applicants.8 Subsequently, 

site visits became part of the DMEPOS supplier enrollment process. 

Second, a 2001 report recommended that CMS and NSC institute 

random, unannounced site visits of DMEPOS businesses at times other 

than initial enrollment and reenrollment.9 In response to our 

recommendations, CMS stated that it would increase site visits to 

suppliers who did not pass inspection. However, CMS did not directly 

address whether it would conduct random, unannounced site visits of 

the larger DMEPOS supplier population. 

In a September 2005 study, the Government Accountability Office 

(GAO) determined that CMS should improve the DMEPOS supplier 

enrollment process and its oversight of NSC in verifying DMEPOS 

supplier compliance with the Medicare standards.10 In addition, GAO 

recommended that CMS establish an annual minimum of out-of-cycle 

site visits of DMEPOS suppliers. CMS has agreed to conduct these site 

visits as resources permit. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 2 
INTROD UCT ION

METHODOLOGY 

The Medicare standards set forth in 42 CFR § 424.57(c) often contain 

multiple requirements within each standard. For our evaluation, we 

selected two requirements from two Medicare standards.11 We 

conducted out-of-cycle site visits of a purposive sample of DMEPOS 

suppliers to determine if they met these two requirements. We first 

determined if suppliers physically existed at the business address on 

their enrollment application. We next determined if they were open to 

conduct business. We conducted our site visits from October 24 to 

November 4, 2005, using DMEPOS business addresses on file with 

NSC. We confirmed that these addresses were current as of the date of 

our site visits. We visited DMEPOS suppliers only once, unless we 

arrived outside of their posted hours of operation. We did not return to 

sites that were closed during posted business hours. We determined if 

the DMEPOS suppliers were in compliance with the selected Medicare 

requirements by observing the external appearance of, and attempts to 

gain access to, the facilities. 

Site Selection 

To select DMEPOS suppliers for our site visits, we started from a list of 

116,740 suppliers eligible to receive Medicare reimbursement on file 

with NSC as of August 2006. From this list, we excluded suppliers 

associated with large chains (25 stores or more, such as Rite-Aid or 

CVS), self-reported physicians’ and dentists’ offices, hospitals, 

pharmacies, nursing homes, and skilled nursing facilities. We further 

excluded suppliers under OIG investigation at the time we conducted 

our study. From the remaining suppliers, we chose sites that had 

undergone an NSC site visit 16 to 20 months prior to August 15, 2005. 

This timeframe was selected so that our site visits would be out of cycle 

with the 3-year NSC schedule. This process left us with 7,747 suppliers. 

Next, we used the data mining software Clementine® to further analyze 

the 7,747 suppliers remaining from our initial exclusions. We chose 

sites associated with supplier numbers used to bill Medicare at least 

once in CY 2004, and performed cluster analysis on the suppliers based 

upon CY 2004 county-level supplier billing and enrollment data. In 

addition, we also used CY 2004 supplier-level billing and enrollment 

data. The suppliers were selected based on high billing amounts and, in 

some cases, unusual billing patterns (e.g., billing in only one quarter). 

Clementine® also identified suppliers with an unusually rapid increase 

in the number of beneficiaries served. This process identified 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 3 
INTROD UCT ION 

2,312 suppliers in 80 counties. Based on CMS data, all of the suppliers 

in these areas had claims activity in the month of September 2005. We 

checked our selected suppliers against OIG’s exclusion list to confirm 

that none had been excluded from the Medicare program. 

From the listing of 2,312 suppliers, we chose some of the leading 

suppliers based on high billing amounts and unusual billing patterns. 

We were unable to select suppliers at the top of this list because they 

were located in Florida and the area was recovering from a hurricane at 

the time we conducted this study. Our final selection consisted of 

169 DMEPOS suppliers in 27 counties in 10 States. Because these 

169 suppliers were not randomly selected, the results of our site visits 

are not representative of all DMEPOS suppliers, or of the 27 counties 

that we visited. 

DMEPOS Claims Data 

To determine the extent to which DMEPOS suppliers that did not meet 

the Medicare requirements billed for services rendered on or after our 

site visits, we requested CY 2005 claims data from the Statistical 

Analysis Durable Medical Equipment Regional Carrier. For each 

supplier, we grouped the services rendered from the day of our site visit 

through December 31, 2005. We then calculated the total amount of the 

submitted charges, and the total amount of the corresponding Medicare 

reimbursements for these services as of December 31, 2005. 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 4 
Δ FINDINGS

Of 169 DMEPOS suppliers, 10 did not exist at 

their business address, yet they billed Medicare 

almost $393,000 in the 2 months after we had 

determined that they were absent 

Pursuant to 42 CFR § 424.57(c)(7), 

DMEPOS suppliers that bill 

Medicare must maintain a physical 

facility. At the time of our site 

visits, 10 suppliers did not exist at 

the business address listed on their enrollment application. In one 

instance, there was a law office at the DMEPOS business address. One 

of the attorneys informed us that he had been there for about 1 year, 

and that he was never aware of a DMEPOS business at that location. 

The 10 absent suppliers should have been located in 6 of the 27 counties 

where we conducted our site visits. In one county, for example, we could 

not locate one of eight (13 percent) DMEPOS suppliers. In another 

county that we visited, two of five (40 percent) DMEPOS suppliers did 

not exist at their listed business address. We confirmed with NSC that 

we had conducted our site visits at the correct business addresses, and 

that none of the 10 absent suppliers had informed NSC that they had 

moved to a different location in the months preceding our visits. 

Because these suppliers were not randomly selected, our results are not 

representative of the entire six counties where the absent suppliers 

should have been located. 

Collectively, all 10 absent DMEPOS suppliers billed Medicare $392,720 

for services rendered from the day of our site visits (October 24 – 

November 4) through the end of CY 2005. Of the $392,720 in submitted 

claims, the businesses had received a total of $196,842 in 

reimbursements as of December 31, 2005. 

From our site visits, we cannot determine whether the absent suppliers 

were submitting claims that should not have been paid by Medicare, or 

were submitting legitimate claims from another location. However, as 

required in 42 CFR § 424.57(b)(2), DMEPOS suppliers must have a 

billing number for each location where they furnish supplies. Our site 

visits demonstrated that 10 suppliers were not at the locations 

associated with the Medicare billing numbers used to receive 

reimbursement in the 2 months after our site visits. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 5 
F I NDING S 

Of 169 DMEPOS suppliers, 6 we Pursuant to 42 CFR re closed during 

§ 424.57(c)(8), DMEPOS posted business hours at the time of our site visits 

suppliers that bill Medicare 

must be accessible to 

beneficiaries and to CMS. 

Six DMEPOS suppliers existed at the business address on their 

enrollment application, but were closed during their posted hours of 

operation at the time of our single site visit. One of these businesses 

was in the same location as another business; the front of the room was 

dedicated to cell phone sales, while the DMEPOS supplier was located 

in the back of the room. The DMEPOS supplier was not staffed when 

we were onsite, and the cell phone vendor stated that the supplier 

“comes and goes.” In another example, the proprietor of a business 

adjacent to the DMEPOS establishment informed us that the DMEPOS 

staff were absent for months at a time. None of the six businesses were 

closed due to relocation, as confirmed by NSC. One of the six closed 

suppliers was in one of the same counties where we could not locate the 

suppliers previously described. 

The six suppliers that were closed during their posted hours of 

operation collectively submitted $101,833 in Medicare claims, and had 

been reimbursed $51,948 of this amount as of December 31, 2005. 

These claims were for services rendered from the day of our site visits 

(October 24 – November 4) through the end of CY 2005. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 6 
Δ CONCLUSION 

Through out-of-cycle site visits, we found that 10 of 169 DMEPOS 

suppliers did not physically exist at their current business address on 

file with NSC. These suppliers collectively received almost $197,000 in 

Medicare reimbursements in the 2 months after we had determined 

that they were absent. We also found that 6 of 169 DMEPOS suppliers 

physically existed at their business address, but were closed during 

their posted hours of operation at the time of our single site visit. 

We conducted our DMEPOS supplier visits primarily through site 

observation, and found as many as 40 percent (2 of 5) of the 

establishments visited in one county did not physically exist at the 

business address on their supplier enrollment application. These 

results are not representative of the entire county because the suppliers 

we visited were not randomly selected. While this study did not uncover 

supplier noncompliance with Medicare requirements in all areas visited, 

our findings suggest that out-of-cycle site visits of targeted DMEPOS 

suppliers may be warranted in other areas of the country. By helping to 

ensure the legitimacy of DMEPOS suppliers, out-of-cycle site visits may 

help to prevent fraud, waste, and abuse in the Medicare program. 

In August 2006, CMS issued a final rule requiring DMEPOS suppliers 

to go through an accreditation process. This process will utilize 

approved quality standards that DMEPOS suppliers must meet to 

participate in and bill the Medicare program. Until these changes are 

fully implemented, NSC will continue its enrollment responsibilities, 

which include conducting site visits. In the interim period before full 

implementation of the quality standards and accreditation, CMS may 

want to consider the findings of our study as they determine how and to 

what extent out-of-cycle site visits of DMEPOS suppliers will occur. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with the basic findings of this report. CMS agreed that 

out-of-cycle site visits can identify suppliers who are no longer in 

business or do not meet basic supplier standards. CMS also noted that 

there can be added value from using abbreviated protocols. However, 

CMS is concerned that using an abbreviated site visit protocol would not 

be adequate to appropriately revoke supplier numbers and ensure 

revocation decisions are upheld upon appeal. 

CMS also stated that it is in the process of taking several aggressive 

actions, such as requiring DMEPOS suppliers to go through an 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 7 
C O NCL USIO N 

accreditation process. CMS believes this process is another way for 

Medicare to ensure quality health care for beneficiaries while deterring 

potential fraud, waste, and abuse. In addition, CMS is drafting a 

proposed regulation addressing the posting of surety bonds by suppliers; 

enhancing the number of unannounced NSC site visits of suppliers; and 

developing a proposal to revise deactivation requirements for inactive 

Medicare billing numbers. See Appendix B for the full text of CMS’s 

comments. 

OIG is encouraged that CMS is in the process of taking additional steps 

to ensure that suppliers meet the required Medicare standards. 

Regarding CMS’s concern that abbreviated site visits could hamper the 

process to appropriately revoke supplier numbers, this study was 

designed to determine if suppliers were meeting selected enrollment 

standards. We continue to believe that the findings of this review 

provide an accurate picture of how DMEPOS suppliers were doing 

business on the days we visited them. CMS may want to consider our 

findings as they determine how and to what extent out-of-cycle site 

visits of DMEPOS suppliers will occur. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 8 
Δ ENDNOTE S 

1 CMS estimate based on the Part B Extract and Statistical System, 

provided February 3, 2006. 

2 Sections 1861(n) and (s) of the Social Security Act. 

3 CMS published a final rule on August 18, 2006, at 71 Federal 

Register 48354, entitled "Medicare Program; Inpatient Rehabilitation 

Facility Prospective Payment System for Federal Fiscal Year 2007; 

Certain Provisions Concerning Competitive Acquisition for Durable 

Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS); 

Accreditation of DMEPOS Suppliers." In part, this final rule amends 

the durable medical equipment certification standards regulation at 

42 CFR § 424.57(c) by adding four additional standards. See 

Appendix A for the standards in place at the time of evaluation, as 

well as the text of the new standards. 

4 Intelligence Report: Issue 2, Palmetto GBA SACU, July 18, 2005. 

5 Public Law 108-173, adding section 1834(a)(20) of the Social 

Security Act. 

6 See 42 CFR § 424.57(c)(24) (as added by the Medicare program final 

rule at 71 Federal Register 48354 (August 18, 2006)). CMS has 

posted quality standards for suppliers of DMEPOS on its Web site at 

http://www.cms.hhs.gov/CompetitiveAcqforDMEPOS/downloads/CMS_ 

DMEPOS_Quality_ Standards_081406.pdf. 

7 See the preamble to the Medicare program final rule at 71 Federal 

Register at 48392. 

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

00240), December 1997. Available online at 

http://oig.hhs.gov/oei/reports/oei-04-96-00240.pdf. Accessed March 3, 

2006. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 9 
9 “Medical Equipment Suppliers: Compliance with Medicare 

Standards” (OEI-04-99-00670), August 2001. Available online at 

http://oig.hhs.gov/oei/reports/oei-04-99-00670.pdf. Accessed March 3, 

2006. 

10 “More Effective Screening and Stronger Enrollment Standards 

Needed for Medical Equipment Suppliers” (GAO-05-656), 

September 22, 2005. Available online at 

http://www.gao.gov/new.items/d05656.pdf. Accessed March 3, 2006. 

11 We examined two requirements selected from two Medicare 

standards. Medicare standard seven requires DMEPOS businesses to 

maintain a physical facility [42 CFR § 424.57(c)(7)]. Medicare 

standard eight requires DMEPOS businesses to be accessible to 

beneficiaries and CMS [42 CFR § 424.57(c)(8)]. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 10 
Δ APPENDIX A: M E DICARE ST ANDARDS 

This appendix contains both the standards in place at the time of our 

review as well as standards recently added by CMS. 

The following 21 Medicare standards, as outlined in 42 CFR 424.57(c), were 

in effect at the time of our review. Our study focused on two requirements 

selected from standards seven and eight. The supplier: 

(1) operates its business and furnishes Medicare-covered items in 

compliance with all applicable Federal and State licensure and 

regulatory requirements; 

(2) has not made, or caused to be made, any false statement or 

misrepresentation of a material fact on its application for billing 

privileges. (The supplier must provide complete and accurate 

information in response to questions on its application for billing 

privileges. The supplier must report to CMS any changes in 

information supplied on the application within 30 days of the change.); 

(3) must have the application for billing privileges signed by an 

individual whose signature binds a supplier; 

(4) fills orders, fabricates, or fits items from its own inventory or by 

contracting with other companies for the purchase of items necessary to 

fill the order. If it does, it must provide, upon request, copies of 

contracts or other documentation showing compliance with this 

standard. A supplier may not contract with any entity that is currently 

excluded from the Medicare program, any State health care programs, 

or from any other Federal Government Executive Branch procurement 

or nonprocurement program or activity; 

(5) advises beneficiaries that they may either rent or purchase 

inexpensive or routinely purchased durable medical equipment, and of 

the purchase option for capped rental durable medical equipment, as 

defined in section 414.220(a) of this subchapter. (The supplier must 

provide, upon request, documentation that it has provided beneficiaries 

with this information, in the form of copies of letters, logs, or signed 

notices.); 

(6) honors all warranties expressed and implied under applicable State 

law. A supplier must not charge the beneficiary or the Medicare 

program for the repair or replacement of Medicare covered items or for 

services covered under warranty. This standard applies to all 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 11 
APP E N D I X A 

purchased and rented items, including capped rental items, as described 

in section 414.229 of this subchapter. The supplier must provide, upon 

request, documentation that it has provided beneficiaries with 

information about Medicare covered items covered under warranty, in 

the form of copies of letters, logs, or signed notices; 

(7) maintains a physical facility on an appropriate site. The physical 

facility must contain space for storing business records including the 

supplier's delivery, maintenance, and beneficiary communication 

records. For purposes of this standard, a post office box or commercial 

mailbox is not considered a physical facility. In the case of a multi-site 

supplier, records may be maintained at a centralized location; 

(8) permits CMS, or its agents to conduct onsite inspections to ascertain 

supplier compliance with the requirements of this section. The supplier 

location must be accessible during reasonable business hours to 

beneficiaries and to CMS, and must maintain a visible sign and posted 

hours of operation; 

(9) maintains a primary business telephone listed under the name of 

the business locally or toll-free for beneficiaries. The supplier must 

furnish information to beneficiaries at the time of delivery of items on 

how the beneficiary can contact the supplier by telephone. The 

exclusive use of a beeper number, answering service, pager, facsimile 

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

primary business telephone for purposes of this regulation; 

(10) has a comprehensive liability insurance policy in the amount of at 

least $300,000 that covers both the supplier's place of business and all 

customers and employees of the supplier. In the case of a supplier that 

manufactures its own items, this insurance must also cover product 

liability and completed operations. Failure to maintain required 

insurance at all times will result in revocation of the supplier's billing 

privileges retroactive to the date the insurance lapsed; 

(11) must agree not to contact a beneficiary by telephone when 

supplying a Medicare-covered item unless one of the following applies: 

(i) The individual has given written permission to the supplier to 

contact them by telephone concerning the furnishing of a 

Medicare-covered item that is to be rented or purchased. 

(ii) The supplier has furnished a Medicare-covered item to the 

individual and the supplier is contacting the individual to 

coordinate the delivery of the item. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 12 
APP E N D I X A 

(iii) If the contact concerns the furnishing of a Medicare-covered 

item other than a covered item already furnished to the individual, 

the supplier has furnished at least one covered item to the 

individual during the 15-month period preceding the date on 

which the supplier makes such contact. 

(12) must be responsible for the delivery of Medicare-covered items to 

beneficiaries and maintain proof of delivery. (The supplier must 

document that it or another qualified party has at an appropriate time 

provided beneficiaries with necessary information and instructions on 

how to use Medicare-covered items safely and effectively); 

(13) must answer questions and respond to complaints a beneficiary 

has about the Medicare-covered item that was sold or rented. A 

supplier must refer beneficiaries with Medicare questions to the 

appropriate carrier. A supplier must maintain documentation of 

contacts with beneficiaries regarding complaints or questions; 

(14) must maintain and replace at no charge or repair directly, or 

through a service contract with another company, Medicare-covered 

items it has rented to beneficiaries. The item must function as required 

and intended after being repaired or replaced; 

(15) must accept returns from beneficiaries of substandard (less than 

full quality for the particular item or unsuitable items, inappropriate for 

the beneficiary at the time it was fitted and rented or sold); 

(16) must disclose these supplier standards to each beneficiary to whom 

it supplies a Medicare-covered item; 

(17) must comply with the disclosure provisions in section 420.206 of 

this subchapter; 

(18) must not convey or reassign a supplier number; 

(19) must have a complaint resolution protocol to address beneficiary 

complaints that relate to supplier standards in paragraph (c) of this 

section and keep written complaints, related correspondence and any 

notes of actions taken in response to written and oral complaints. 

Failure to maintain such information may be considered evidence that 

supplier standards have not been met. (This information must be kept 

at its physical facility and made available to CMS, upon request.); 

(20) must maintain the following information on all written and oral 

beneficiary complaints, including telephone complaints, it receives: 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 13 
APP E N D I X A 

(i) the name, address, telephone number, and health insurance 

claim number of the beneficiary, 

(ii) a summary of the complaint, the date it was received, the 

name of the person receiving the complaint, and a summary of 

actions taken to resolve the complaint, and 

(iii) if an investigation was not conducted, the name of the person 

making the decision and the reason for the decision. 

(21) provides to CMS, upon request, any information required by the 

Medicare statute and implementing regulations. 

The additional standards recently added by CMS, see endnote 3, are: 

(22) All suppliers of DMEPOS and other items and services must be 

accredited by a CMS-approved accreditation organization in order to 

receive and retain a supplier billing number. The accreditation must 

indicate the specific products and services, for which the supplier is 

accredited in order for the supplier to receive payment for those specific 

products and services. 

(23) All DMEPOS suppliers must notify their accreditation 

organization when a new DMEPOS location is opened. The 

accreditation organization may accredit the new supplier location for 

three months after it is operational without requiring a new site visit. 

(24) All DMEPOS supplier locations, whether owned or subcontracted, 

must meet the DMEPOS quality standards and be separately accredited 

in order to bill Medicare. An accredited supplier may be denied 

enrollment or their enrollment may be revoked, if CMS determines that 

they are not in compliance with the DMEPOS quality standards. 

(25) All DMEPOS suppliers must disclose upon enrollment all products 

and services, including the addition of new product lines for which they 

are seeking accreditation. If a new product line is added after 

enrollment, the DMEPOS supplier will be responsible for notifying the 

accrediting body of the new product so that the DMEPOS supplier can 

be re-surveyed and accredited for these new products. 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 14 
Δ APPENDIX B: AGENCY COMMENTS 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 15 
APP E N D I X B 

 OE I-04-05-00 380 MEDIC AL E Q U I PM E N T S UPPL IERS : C O M P L I ANCE WITH MEDI C ARE E N R O LLM E N T RE Q U I R EM E N T S 16 
 

 

 O E I - 0 4 - 0 5 - 0 0 3 8 0 MEDICAL E QUIPMENT S UPPLIERS : C OMPLIANCE WITH MEDICARE E NROLLMENT REQUIREMENTS 17 

This report was prepared under the direction of Ann O’Connor, Regional 

Inspector General for Evaluation and Inspections in the Atlanta 

regional office. Other principal Office of Evaluation and Inspections 

staff who contributed include: 

Stacey Bloomer, Co-Team Leader 

Mina Zadeh, Co-Team Leader

Mary-Elizabeth Harmon, Co-Lead Analyst 

Sharon Koehler, Co-Lead Analyst

Mark Biagioni 

Michelle Canady 

Peggy Daniel 

Tricia Davis 

Kevin Farber 

David Graf 

Trevor Johnson 

Scott Manley 

Gerius Patterson

Rob Rutland- Brown 

Barbara Tedesco 

Additional analysts conducting site visits: 

Rosemary Borck 

Emmanuel Diacosavvas 

Paul Gottlober 

Camille Harper 

Deborah Harvey 

Michael Henry 

Scott Hutchison 

Jennifer Jones 

Nancy Molyneaux 

Linda Moscoe 

Emily Multari 

Kenneth Price 

Mark Stiglitz 

Clark Thomas 

Steven Zerebecki 

Δ ACKNOWLEDGMENTS