Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

March 2009 

OEI-02-07-00660 

 

COMPARISON OF PRICES FOR 

NEGATIVE PRESSURE WOUND 

THERAPY PUMPS 
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 th ntegrity of the Department of Health and Human Services 

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

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

investigations, and inspe tions conducted by the following operating components: 

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Office of Audit Services 

The Office of Audit Servi es (OAS) provides auditing services for HHS, either by conducting 

audits with its own audi 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 resp nsibilities and are intended to provide independent assessments of 

HHS programs and oper tions. These assessments help reduce waste, abuse, and 

mismanagement and pro ote economy and efficiency throughout HHS. 

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Office of Evaluation and Inspections 

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

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

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and ffectiveness of departmental programs. To promote impact, OEI 

reports also present prac ecommendations for improving program operations. 

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Office of Investig tions a

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct elated to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

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Office of Counsel to the Inspector General 

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

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

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and moni ors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.

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Δ EXECUTIVE SUMMARY 

OBJECTIVES 

(1) To compare the prices that suppliers paid for new negative pressure 

wound therapy pump models to Medicare’s purchase price for the 

pumps. 

(2) To describe how suppliers acquired these new pumps. 

(3) To describe the extent to which suppliers reported providing 

required services to Medicare beneficiaries who rented these pumps. 

BACKGROUND 

Negative pressure wound therapy pumps (the pumps) are portable or 

stationary devices used for the treatment of ulcers or wounds that have 

not responded to traditional wound treatment methods. Medicare pays 

for the pumps under Part B coverage of durable medical equipment, 

prosthetics, orthotics, and supplies (DMEPOS) as a capped rental item. 

Between 2001 and 2007, Medicare payments for these pumps increased 

583 percent, from $24 million to $164 million. 

When Medicare first started covering pumps in 2001, it covered only one 

model, which was both manufactured and supplied by Kinetic Concepts, 

Inc. (KCI). Medicare reimbursed KCI for this pump based on the 

purchase price as identified by KCI. Beginning in 2005, Medicare 

expanded its coverage to include several new pump models that are 

manufactured by other companies. Medicare reimburses suppliers for 

these new pumps based on the purchase price of the KCI pump. 

This study compares the prices that suppliers paid for new pump 

models to Medicare’s purchase price. Although the new pump models 

currently account for a small percentage of the pump market, their 

market share may grow rapidly if there is a large difference between the 

amount that suppliers pay for these pumps and the amount that they 

are reimbursed by Medicare. Wide profit margins may also make 

pumps vulnerable to fraud, waste, and abuse.

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EXECUTIVE SUMMARY 

FINDINGS 

Suppliers paid an average of $3,604 for the new pump models, 

compared to Medicare’s purchase price of $17,165. Suppliers 

purchased 171 of the 223 new pump models that were provided to 

beneficiaries in the first half of 2007. Suppliers paid an average of 

$3,604 for these pumps. Medicare reimbursed suppliers for these 

pumps based on a purchase price of $17,165, which is more than four 

times the average price paid by suppliers. On a monthly basis, 

Medicare reimbursed suppliers $1,716 for these pumps for the first 3 

months. At this rate, suppliers recouped the average cost of a new 

pump model in about 2 months. Further, beneficiaries’ coinsurance 

payments for pumps cover a substantial portion of the average cost of a 

new pump model. After just 4 months of rental, a beneficiary’s 

coinsurance of $1,286 covers over one-third (36 percent) of the average 

cost of a new pump model. 

Suppliers acquired one-quarter of the new pump models by 

leasing, renting, or exchanging them. Suppliers acquired nearly 

one-quarter (52 of 223) of the new pump models provided to 

beneficiaries in the first half of 2007 through methods other than 

purchasing them. They acquired these pumps through lease-to-own 

agreements, daily rentals, hourly rentals, or exchanges of old pumps for 

new ones. 

Suppliers reported not always communicating with beneficiaries’ 

clinicians, as required; however, they appeared to meet other 

standards. Suppliers are required to communicate with the 

beneficiary’s treating clinician to assess wound healing progress and to 

determine whether the beneficiary continues to qualify for Medicare 

coverage of the pump. In addition, suppliers must meet certain 

standards that include providing delivery and instruction on equipment 

usage (either from the supplier or another qualified party), maintaining 

and repairing the equipment as needed, and responding to beneficiaries’ 

questions and complaints about the equipment. Suppliers reported not 

having contact with clinicians for almost one-quarter of the 

beneficiaries. Suppliers reported delivering the pumps and educating 

almost all of the beneficiaries, as well as providing maintenance and 

repairs when needed.

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EXECUTIVE SUMMARY 

RECOMMENDATIONS 

Based on the findings in this report, we recommend that CMS: 

Reduce Medicare’s reimbursement amount for pumps. CMS should 

consider two methods to reduce its reimbursement amount for pumps. 

CMS should:

• Use its inherent reasonableness authority to reduce the reimbursement 

amount for pumps. CMS should consider using its inherent 

reasonableness authority to reduce the amount that it reimburses 

suppliers for pumps. 

• Include pumps in the second round of the the Competitive Bidding 

Acquisition Program. CMS should include pumps in the second round 

of the Competitive Bidding Acquisition Program. This could better 

align Medicare’s reimbursement amount for pumps with the amount 

that suppliers pay for the new pump models. 

In addition, CMS should: 

Monitor the growth of the new pump market. CMS should continue to 

monitor the growth of the new pump market by tracking trends in market 

share among different suppliers. 

Educate suppliers of new pump models on the importance of 

communication with beneficiaries’ treating clinicians. CMS should 

educate suppliers of new pump models that the continued need for a 

pump can be determined only through clinician input and that it is 

inappropriate for suppliers to submit claims for continued pump use 

without this input. 

Follow up on the pump claims that may be inappropriate. CMS 

should follow up on the claims in which suppliers: (1) reported having no 

contact with the beneficiaries’ treating clinicians, (2) could not be 

located, or (3) did not submit any documentation. To help CMS address 

this recommendation, we will forward information about these claims in 

a separate memorandum. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with four of our recommendations and will consider the 

remaining recommendation. It noted that it has worked on a number of 

regulatory and administrative initiatives related to the prescription, 

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EXECUTIVE SUMMARY 

coding, and coverage of pumps in response to the significant growth in 

expenditures for these items. 

In response to our recommendations, CMS concurred that it has the 

authority to adjust payment rates using Medicare’s inherent 

reasonableness authority. It stated that it will consider whether it 

would be able to gather valid and reliable data, as the statute 

requires, to make a determination that the payment amount for 

pumps is grossly deficient or excessive and to establish, if needed, a 

new amount that is realistic and equitable. CMS also stated that it 

will consider including pumps when designing the second round of the 

Competitive Bidding Acquisition Program. Further, CMS stated that 

it will monitor and track trends in utilization of pumps and track the 

market share among different pump suppliers. CMS also concurred 

with our recommendation to educate pump suppliers on the 

importance of communication with beneficiaries’ treating clinicians. 

Lastly, CMS concurred with our recommendation to follow up on 

pump claims that may be inappropriate and stated that it is working 

with its contractors to strengthen its oversight in this area. 

We support CMS’s efforts to address these issues and encourage it to 

continue to make progress in these areas. 

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Δ TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 

Suppliers paid an average of $3,604 for new pump models . . . . . . . . . . 9 

Suppliers acquired one-quarter of these pumps by leasing, renting, or 

exchanging them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

Suppliers reported not always communicating with clinicians . . . . . . . 12 

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

Agency Comments and Office of Inspector General Response . . . . . . . . 15 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

 A: DMEPOS Competitive Bidding Winning Amounts . . . . . . . . . 17 

 B: Local Coverage Determination for Pumps . . . . . . . . . . . . . . . . 18 

 C: Medicare DMEPOS Supplier Standards. . . . . . . . . . . . . . . . . . 19 

 D: Centers for Medicare & Medicaid Services Comments. . . . . . . 20 

 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
 

 

Δ INTRODUCTION 

OBJECTIVES 

(1) To compare the prices that suppliers paid for new negative pressure 

wound therapy pump models to Medicare’s purchase price for 

pumps. 

(2) To describe how suppliers acquired these new pumps. 

(3) To describe the extent to which suppliers reported providing 

required services to Medicare beneficiaries who rented these pumps. 

BACKGROUND 

Negative pressure wound therapy pumps (the pumps) are portable or 

stationary devices used for the treatment of ulcers or wounds that have 

not responded to traditional wound treatment methods. Medicare pays 

for pumps under Part B coverage of durable medical equipment, 

prosthetics, orthotics, and supplies (DMEPOS) as a capped rental 

item.1 Between 2001 and 2007, Medicare payments for these pumps 

increased 583 percent, from $24 million to $164 million. 

When Medicare first started covering pumps in 2001, it covered only one 

model, which was both manufactured and supplied by Kinetic Concepts, 

Inc. (KCI). Medicare reimbursed KCI for this pump based on the 

purchase price as identified by KCI. Beginning in 2005, Medicare 

expanded its coverage to include several new pump models that are 

manufactured by other companies.2 Medicare reimburses suppliers for 

these new pumps based on the purchase price of the KCI pump. 

There are indications that Medicare’s purchase price for pumps may be 

high compared to what suppliers pay for the new pump models. In fact, 

an executive from one of the manufacturers that produces new pump 

models publicly stated that Medicare’s current reimbursement is too 

high for this type of equipment.3

 This manufacturer further noted that 

1 42 CFR § 414.210(b)(2); 42 CFR § 414.229. 

2 We refer to all non-KCI pump models as the new pump models to distinguish them 

from the KCI pumps. 

3 Market Wire, “Bluesky Medical Requests a Decrease in the Reimbursement for 

Negative Pressure Wound Therapy Market,” June 2002. Available online at 

http://www.findarticles.com/p/articles/mi_pwwi/is_200206/ai_mark09043751. Accessed on 

May 4, 2007. 

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INTRODUCTION 

it could provide its pumps for a significantly lower reimbursement 

amount.4

In addition, although the new pump models currently account for a 

small percentage of the pump market, their market share may grow 

rapidly if there is a large difference between the amount that suppliers 

pay for these pumps and the amount that they are reimbursed by 

Medicare.5 Wide profit margins may also make pumps vulnerable to 

fraud, waste, and abuse. 

Negative Pressure Wound Therapy Pumps 

A pump is a wound therapy option for individuals with specific types of 

wounds and ulcers. The devices apply controlled negative or 

subatmospheric pressure to the affected site and assist in removing 

fluid, increasing blood flow to the site, and stimulating the growth of 

granulation tissue.6 The Food and Drug Administration (FDA), under its 

510(k) approval process, considers pumps to be medical devices that are 

substantially equivalent to previously approved powered suction pumps.7 

Presently, KCI is the principal manufacturer and supplier of pumps for 

Medicare beneficiaries. Unlike other companies, KCI manufactures its 

own pump and rents it directly to beneficiaries. In contrast, the new pump 

models are manufactured by a number of companies, including Smith & 

Nephew;8 Superior Healthcare Concepts, Inc.; Boehringer Wound Systems, 

LLC; Medela; Innovative Therapies, Inc.; and Prospera. These companies 

sell their pumps to suppliers, which then rent them to Medicare 

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4 Travis E. Poling, “KCI Hit by Stunning Court Loss,” San Antonio Express-News, 

August 4, 2006, at 01D. 

5 The new pump models accounted for about 1 percent of the pump market in the first 

half of 2007. 

6 Granulation tissue is a specialized tissue that is rich in tiny blood vessels and is 

created by the body as a response to injury. 

7 Section 510(k) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 360(k)) 

requires device manufacturers to notify FDA, at least 90 days in advance, of their intent 

to market a medical device. A device must be “substantially equivalent” to a device on 

the market prior to May 28, 1976 (a “predicate device”), in terms of design, material, 

chemical composition, energy source, manufacturing process, or intended use. Before 

marketing a device, each submitter must receive an order, in the form of a letter from 

FDA, that finds the device to be substantially equivalent and states that the device may 

be marketed in the United States. This order “clears” the device for commercial 

distribution. See 21 CFR § 878.4780 for product identification and classification 

information for the powered suction pump. 

8 In May 2007, Smith & Nephew acquired Bluesky Medical Group, Inc. 
 

 

INTRODUCTION 

beneficiaries. They use the same Healthcare Common Procedure Coding 

System (HCPCS) code as the KCI pump to bill Medicare for the new pump 

models. 

Medicare Pricing for Pumps 

Medicare covers pumps under a capped rental arrangement.9 Under 

this arrangement, Medicare pays suppliers a monthly fee schedule 

amount for each month that they rent the pumps to beneficiaries. 

Medicare uses the purchase price for the KCI pump to calculate the 

monthly fee schedule amounts. Similar to other capped rental items, for 

the first 3 months of rental, the monthly fee schedule amount equals 

10 percent of the purchase price.10 For months 4 through 13, the 

monthly fee schedule amount equals 7.5 percent of the purchase price.11 

After the 13th continuous month of rental, the supplier must transfer 

title of the equipment to the beneficiary.12 

The fee schedule amount for pumps is the same in all 50 States and the 

District of Columbia. In 2007, Medicare’s purchase price for pumps was 

$17,165. The monthly fee schedule amount was $1,716 for the first 3 

months and $1,287 for months 4 through 13. Medicare reimburses 

suppliers 80 percent of the monthly fee schedule amount. Beneficiaries’ 

coinsurance payments are typically 20 percent, which amounted to $343 

for the first 3 months and $257 for months 4 through 13 in 2007.13 

The Competitive Bidding Acquisition Program 

As required by the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003, CMS started to implement a competitive 

bidding acquisition program for certain DMEPOS in 2007.14 The goal of 

the program was to reduce beneficiary out-of-pocket costs and improve 

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9 42 CFR § 414.229. 

10 42 U.S.C. § 1395m(a)(7)(A)(i); 42 CFR § 414.229(b)(2). 

11 Ibid. 

12 42 U.S.C. § 1395m(a)(7)(A)(ii); 42 CFR § 414.229(f)(2). 

13 42 U.S.C. § 1395cc(a)(2)(A)(ii); 42 CFR § 489.30(b)(5). 

14 Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. No. 108-173, § 302(b) (codified as amended at 42 U.S.C. §1395w-3). 
 

 

INTRODUCTION 

the accuracy of Medicare payments.15 The pump was 1 of 10 DMEPOS 

in the program. The program included the 10 largest Metropolitan 

Statistical Areas (MSAs) in the first round and was expected to include 

80 MSAs in the second round.16 

In the spring of 2008, CMS announced the winning suppliers for the 

first round, known as contract suppliers, and the monthly fee schedule 

amounts based on the winning purchase prices. KCI did not participate 

in the first round; therefore, these amounts were based on bids from 

suppliers that provided the new pump models. All of the amounts were 

lower than Medicare’s current reimbursement amount and averaged 

about $1,446 per month.17 See Appendix A for a list of the monthly fee 

schedule amounts for the first round of competitive bidding. 

In July 2008, Congress enacted the Medicare Improvements for Patients 

and Providers Act of 2008, which delayed the first round of the 

Competitive Bidding Acquisition Program until 2011. The law also 

excluded pumps from the first round of the program and, instead, 

required the Department of Health and Human Services to evaluate the 

HCPCS code for pumps to ensure accurate reporting and billing and to 

consider whether coding changes are needed.18 According to CMS staff, 

CMS plans to conduct this evaluation but, as of November 2008, has not 

initiated the study. 

CMS Authority for Price Revisions 

CMS or a Medicare carrier may establish limits on payment amounts in 

special circumstances through regulations that govern criteria for 

determining reasonable charges for Part B services.19 Specifically, CMS 

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15 CMS Medicare Fact Sheet, “Expansion of Competitive Bidding Program for Durable 

Medical Equipment, Prosthetics, Orthotics, and Supplies,” issued January 8, 2008. 

Available online at http://www.cms.hhs.gov/apps/media/press/factsheet.asp? 

Counter=2812&intNumPerPage=10&checkDate. Accessed on August 6, 2008. 

16 MSAs are areas designated by the Office of Management and Budget that include 

major cities and the suburban areas surrounding them. 

17 These amounts reflect the first 3 months of rental. From months 4 through 13, the 

fee schedule amounts are equivalent to 7.5 percent of the winning purchase prices. 

18 Medicare Improvements for Patients and Providers Act of 2008, P.L. No. 110-275, 

§ 154(c)(3) (to be codified at 42 U.S.C. § 1395m note). 

19 42 CFR § 405.502(g). Note that Medicare carriers are under contract with CMS to 

process Medicare Part B claims. There are four carriers, known as Durable Medical 

Equipment (DME) Medicare Administrative Contractors, that specifically process DME 

claims. 
 

 

INTRODUCTION 

may use its inherent reasonableness authority to deviate from standard 

payment methodologies if the application of these methodologies results 

in a payment amount that is determined to be grossly excessive or 

deficient. In these cases, CMS or its carriers may establish special 

payment limits that are realistic and equitable. 

Medicare DMEPOS Supplier Requirements 

The Local Coverage Determination (LCD) for pumps specifies the 

clinical circumstances under which pumps are considered to be 

reasonable and necessary.20 The LCD states that suppliers must 

communicate with the beneficiary’s treating clinician to determine 

whether the beneficiary continues to qualify for Medicare coverage of 

the pump. The supplier may contact the clinician by verbal or written 

communication to ascertain that wound healing is occurring from month 

to month. Appendix B provides information regarding the relevant LCD 

requirement. 

In addition, to obtain Medicare billing privileges, suppliers must meet 

certain quality standards. Among other things, suppliers are required 

to deliver the DMEPOS, provide instruction on equipment use (either 

through the supplier or another qualified party), maintain and repair 

the equipment as needed, and respond to questions and complaints 

about the equipment.21 Appendix C provides a list of the applicable 

supplier standards. 

Related Work 

In 2007, the Office of Inspector General (OIG) released a report that 

found that almost one-quarter of pump claims in 2004, which were all 

from KCI, did not meet Medicare coverage criteria, resulting in 

approximately $21 million in improper payments.22 Specifically, 

15 percent of all pump claims were insufficiently documented, another 

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20 LCDs provide guidance to the public and the medical community within their 

jurisdictions. CMS requires that LCDs be the same for each jurisdiction to ensure 

uniformity for DMEPOS suppliers that operate nationally. The four LCDs are entitled 

“LCD for Negative Pressure Wound Therapy Pumps.” The four relevant LCD policy 

numbers are L5008, L11489, L27025, and L11500. We used the version of the LCDs that 

was effective during our sample timeframe. Because all four LCDs are the same, we refer 

to them as “the LCD” for the purposes of this report. 

21 42 CFR § 424.57(c). 

22 OIG, “Medicare Payments for Negative Pressure Wound Therapy Pumps in 2004,” 

OEI-02-05-00370, June 2007. 
 

 

INTRODUCTION 

6 percent were undocumented, and an additional 3 percent were not 

medically necessary. Virtually all pump claims met supplier 

documentation requirements. OIG recommended that CMS educate 

suppliers and wound care providers about the appropriate use of pumps. 

In response, the carriers issued an article reiterating the documentation 

requirements stated in the LCD.23 

METHODOLOGY 

This study compares the prices that suppliers paid for the new pump 

models provided to beneficiaries in the first half of 2007 to Medicare’s 

purchase price for the pumps. In addition, this study provides 

information about how suppliers acquired these new pumps and about 

the services that suppliers reported providing to Medicare beneficiaries 

who rented the pumps. 

We based this study on two sources of data: (1) a review of suppliers’ 

purchase invoices, contracts, and other financial documents for the new 

pump models provided to Medicare beneficiaries in the first half of 2007; 

and (2) a survey completed by suppliers about the services that they 

provided to the Medicare beneficiaries who rented these pumps. 

Identification of Claims for New Pump Models 

We used the 2007 National Claims History File to identify all of the 

paid claims for the new pump models that: (1) had a service date 

between January 1 and June 30, 2007; and (2) were received by 

September 30, 2007. We used the supplier contact information from the 

National Supplier Clearinghouse to identify the suppliers associated 

with these claims. 

We identified a total of 327 paid claims for the new pump models in the 

first half of 2007, representing 38 suppliers and 237 beneficiaries. 

These claims represented all of the paid claims for the new pump 

models that were provided to beneficiaries in the first half of 2007. Of 

the 38 suppliers associated with these claims, 34 responded to the 

23 The carriers issued the article entitled “Negative Pressure Wound Therapy LCD 

Documentation” nationally under four different article numbers: A47170, A45699, 

A45750, and A45722. 

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INTRODUCTION 

request for documentation.24 We received documentation for a total of 

304 of the 327 claims, for a response rate of 93 percent. 

Review of Supplier Documentation 

We requested from the suppliers the purchase invoice related to the 

pump associated with each claim. Because the same pump could be 

associated with multiple claims and because multiple beneficiaries 

could be associated with the same pump, we compared the serial and 

model numbers of the pumps listed on the invoices to identify the 

unique pumps that were provided to beneficiaries in the first half of 

2007. In total, we identified 240 unique pumps from the 304 claims that 

we reviewed. We received usable documentation for 223 of the 

240 identified pumps. These pumps included four different models: 

Medela Vario, Bluesky Versatile 1, Bluesky V1STA Versatile 1, and 

Boehringer Engenex. 

The purchase invoices included the price that the supplier paid for the 

pumps and any documentation on discounts and shipping charges. To 

calculate the net purchase price for each pump, we identified the 

purchase price on the invoice and subtracted any discounts that were 

listed. We did not include shipping charges in our calculations because 

of the inconsistencies in how suppliers reported the information.25 

We calculated the range and the average prices for the different pump 

models. Because the number of pumps of each model varied, we also 

calculated the weighted average price for all of the new pump models. 

We compared the weighted average price and average prices for the 

different new pump models to Medicare’s purchase price. 

For the pumps that were not purchased, we reviewed documents related 

to the arrangements that the suppliers had with other companies to 

acquire these pumps. These documents included leasing contracts, 

rental contracts, rental invoices, and invoices reflecting pump 

exchanges. We used these documents to describe the different 

arrangements and to determine the number of pumps that were 

acquired under each arrangement. 

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24 Two suppliers could not be located. In addition, one supplier did not submit any 

documentation and another submitted documentation after the study timeframe. 

25 Based on the available information, regular ground shipping for one pump cost an 

average of $10. In limited instances, manufacturers used overnight or other forms of 

expedited shipping, which cost an average of $53 for one pump. 
 

 

INTRODUCTION 

Analysis of Supplier Services 

We surveyed by mail all of the suppliers that provided new pump 

models to beneficiaries in the first half of 2007. Using a standardized 

data collection instrument, we requested that suppliers report all 

services that they provided to beneficiaries for the entire rental period. 

We specifically asked the suppliers about communication with 

beneficiaries’ clinicians. We also asked about services in the following 

categories: delivery, equipment maintenance and repairs, education 

and training, communication with beneficiaries and/or their caregivers, 

and any additional services. The suppliers provided information for 215 

of the 237 beneficiaries. 

Limitations 

The description of the services that suppliers provided to beneficiaries 

during the rental period is based on self-reported data from the 

suppliers. We did not independently verify their responses. 

Standards 

This review 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. 

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Suppliers purchased 171 of the 

223 new pump models that were 

provided to beneficiaries in the first 

half of 2007. Suppliers paid an 

average of $3,604 for these pumps. 

Medicare reimbursed suppliers for these pumps based on a purchase 

price of $17,165, which is more than four times the average price paid 

by suppliers for these new pump models. On a monthly basis, Medicare 

reimbursed suppliers $1,716 for these pumps for the first 3 months. At 

this rate, suppliers recouped the average cost of a new pump model in 

approximately 2 months. Suppliers generally reported that the new 

pump models have an estimated lifespan of 3 to 5 years. As one 

supplier noted, pumps are commonly rented to one beneficiary, 

sanitized, and then rented to another beneficiary. 

Suppliers paid an average of $3,604 for the 

new pump models, compared to 

Medicare’s purchase price of $17,165 

Δ FINDINGS 

Further, beneficiaries’ coinsurance payments for the pumps cover a 

substantial portion of the average cost of a new pump model. After just 

4 months of rental, a beneficiary’s coinsurance of $1,286 covers over 

one-third (36 percent) of the average cost of a new pump model. If a 

beneficiary were to rent the pump for all of the 13 months allowed by 

Medicare, the beneficiary’s coinsurance alone ($3,599) would cover 

almost the entire average cost of a new pump model. 

In addition, as shown in Table 1 on the next page, the average prices for 

all three of the pump models that suppliers purchased were 

substantially lower than Medicare’s purchase price.26 The average price 

that suppliers paid for the three different models ranged from $1,955 to 

$4,970.27 The pump that was most commonly provided to beneficiaries 

in the first half of 2007 had an average price of $2,934. 

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26 Suppliers did not purchase the fourth pump model. That model was acquired only 

through another arrangement described in the second finding. 

27 Note that the median price for each of the pump models is similar to the average 

price. 
 

 

FINDINGS 

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Table 1: Prices That Suppliers Paid for the New Pump Models* 

Model Number of Pumps Range of Prices Average Price 

Difference Between 

Average Price 

and Medicare 

Purchase Price 

Model 1 8 $1,085–$2,825 $1,995 $15,170 

Model 2 60 $3,448–$6,173 $4,970 $12,195 

Model 3 103 $2,449–$3,950 $2,934 $14,231 

Weighted average $3,604 $13,561 

* The prices include documented discounts but not shipping charges. 

Source: OIG analysis of supplier documentation, 2008. 

The individual prices for all of the pumps that suppliers purchased were 

also substantially lower than Medicare’s purchase price. The lowest 

price that suppliers paid for one of the pumps was $1,085, a difference of 

$16,080 from Medicare’s purchase price. The highest price that 

suppliers paid for one of the pumps was $6,173, a difference of $10,992. 

The price for the pump that was most commonly provided to 

beneficiaries ranged from $2,449 to $3,950. 

Suppliers acquired nearly 

one-quarter (52 of 223) of the new 

pump models provided to 

beneficiaries in the first half of 2007 

through methods other than 

purchasing them. Suppliers acquired these pumps through 

lease-to-own agreements, daily rentals, hourly rentals, or exchanges of 

old pumps for new ones.28

Suppliers acquired one-quarter of the 

new pump models by leasing, 

renting, or exchanging them 

As shown in Table 2 on the next page, suppliers acquired nearly half of 

the new pumps that were not purchased (24 of 52) through lease-to-own 

agreements. These suppliers commonly obtained financing from leasing 

companies to make bulk purchases of pumps. The leasing companies 

maintained ownership of the pumps until the suppliers paid for them in 

28 Suppliers acquired all four pump models through these methods. 
 

 

FINDINGS 

full.29 The prices that these leasing companies paid for these pumps 

were similar to the prices that suppliers paid to purchase them. The 

suppliers that leased the pumps cited the high cost of the pumps and 

general cash flow problems as the reasons why they leased the pumps 

rather than purchasing them. 

Table 2: Methods for Acquiring New Pump Models 

Number of Pumps 

Lease-to-own 24 

Daily rental 16 

Hourly rental 8 

Exchange of older pumps 4 

 Total 52 

Source: OIG analysis of supplier documentation, 2008. 

Suppliers rented slightly more than a quarter of these new pumps 

(16 of 52) on a daily basis. Under this arrangement, suppliers rented 

pumps from another DMEPOS supplier for the days that beneficiaries 

used them. Suppliers paid $30 to $45 per day for these pumps. In 

addition, suppliers rented another eight of the pumps on an hourly 

basis. These suppliers purchased “clinical hours” directly from the 

manufacturer at a rate of $1.44 per hour. They typically bought a block 

of 2,160 hours for each rental. 

Suppliers acquired the remaining pumps (4 of 52) by exchanging older 

pumps with the manufacturer for newer pumps. These pumps were 

exchanged without cost to the supplier based on a 2:1 ratio (i.e., two old 

pumps for one new pump). 

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29 The leasing terms ranged from 24 to 72 months. 
 

 

FINDINGS 

Suppliers are required to 

communicate with the beneficiaries’ 

treating clinicians to assess wound 

healing progress and to determine 

whether the beneficiary continues to 

qualify for Medicare coverage of the 

pump.30 In addition, to obtain Medicare billing privileges, suppliers 

must meet certain standards that include providing delivery and 

instruction on equipment usage (either from the supplier or another 

qualified party), maintaining and repairing the equipment as needed, 

and responding to beneficiaries’ questions and complaints about the 

equipment.31 

Suppliers reported not always 

communicating with beneficiaries’ 

clinicians, as required; however, they 

appeared to meet other standards 

Suppliers reported not having contact with clinicians for almost one-quarter 

of the beneficiaries 

Suppliers reported having no contact with the treating clinicians for 

almost one-quarter (28 of 123) of the beneficiaries who rented the new 

pump models for multiple months. In the absence of clinician input, 

suppliers cannot determine whether there is a continued medical need 

for a pump. Therefore, these claims may be inappropriate. 

In the instances when suppliers reported communicating with 

clinicians, they most frequently had contact with beneficiaries’ home 

health staff, followed by physicians. Suppliers noted that they 

discussed the beneficiaries’ wound progress and supply needs with these 

clinicians. 

Suppliers reported delivering pumps and providing education to almost all 

of the beneficiaries, as well as providing maintenance and repairs when 

needed 

Suppliers reported delivering pumps to 96 percent (206 of 215) of the 

beneficiaries who rented new pump models in the first half of 2007. A 

small number of beneficiaries picked up their pumps at the supplier’s 

store. For almost all of the remaining beneficiaries, delivery was 

provided by the company from which the supplier rented the pump.32 

Suppliers most commonly reported delivering pumps to the 

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30 “LCD for Negative Pressure Wound Therapy Pumps.” 

31 42 CFR § 424.57(c). 

32 One supplier did not give a reason why it did not provide delivery. 
 

 

FINDINGS 

beneficiaries’ homes, while in other instances they delivered them to the 

hospital shortly before the beneficiaries’ discharge. Most suppliers 

reported delivering the pumps themselves, rather than relying on a 

third-party delivery service. 

Suppliers reported that they educated 95 percent (205 of 215) of 

beneficiaries on the use of pumps. Many reported providing training on 

the day of delivery. Beneficiaries and/or their caregivers were the most 

common recipients of the training, although in many instances, the 

beneficiaries’ home health, hospital, or wound care center provider also 

received training. 

Suppliers reported pump malfunctions for 13 percent (28 of 215) of the 

beneficiaries. In most cases, the suppliers reported replacing the 

pumps; in a few cases, they reported repairing them. Suppliers noted 

that a few beneficiaries had problems with multiple pumps, 

necessitating a number of replacements. 

Finally, suppliers reported communicating with approximately 

two-thirds (144 of 215) of the beneficiaries or their caregivers during 

their rental period. Most commonly, suppliers spoke with the 

beneficiaries and their caregivers about supply needs or wound 

progress. Suppliers reported that, in a few instances, they visited the 

beneficiaries in their homes. 

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Δ RECOMMENDATIONS 

Medicare’s purchase price for pumps was established when there was 

only one manufacturer in the market. Since then, a number of 

manufacturers have introduced new pump models to the market and 

are charging substantially less for them. Specifically, we found that 

the prices that suppliers paid for the new pump models were 

significantly less than Medicare’s purchase price. Suppliers paid an 

average of $3,604 for these pumps, compared to Medicare’s purchase 

price of $17,165. This price is more than four times the average price 

paid by suppliers for the new pump models. Aside from our pricing 

analysis, the winning amounts for the first round of competitive 

bidding also indicate that suppliers could provide the pump at a lower 

reimbursement amount than Medicare currently provides. 

We also found that suppliers acquired one-quarter of the new pump 

models provided to beneficiaries in the first half of 2007 through 

lease-to-own agreements, daily rentals, hourly rentals, or exchanges of 

old pumps for new ones. Additionally, we found that suppliers reported 

not always communicating with beneficiaries’ clinicians, as required; 

however, they appeared to meet other standards. 

Based on the findings in this report, we recommend that CMS: 

Reduce Medicare’s Reimbursement Amount for Pumps 

CMS should consider two methods to reduce its reimbursement amount 

for pumps. CMS should: 

• Use its inherent reasonableness authority to reduce the reimbursement 

amount for pumps 

CMS should consider using its inherent reasonableness authority 

to reduce the amount that it reimburses suppliers for the pump. 

• Include pumps in the second round of the Competitive Bidding 

Acquisition Program 

CMS should include pumps in the second round of the Competitive 

Bidding Acquisition Program. This could better align Medicare’s 

reimbursement amount for pumps with the amount that suppliers 

pay for the new pump models. In addition, if the pump is included 

in the program, CMS should use the data from this report to assess 

suppliers’ bids for the pump. 

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RECOMMENDATIONS 

In addition, CMS should: 

Monitor the Growth of the New Pump Market 

CMS should continue to monitor the growth of the new pump market 

by tracking trends in market share among different suppliers. 

Substantial growth in the new pump market may indicate that CMS 

needs to further align reimbursement with the prices that suppliers 

pay for the new pump models. 

Educate Suppliers of New Pump Models on the Importance of 

Communication With Beneficiaries’ Treating Clinicians 

CMS should educate suppliers of new pump models that the continued 

need for the pump can be determined only through clinician input and 

that it is inappropriate for suppliers to submit claims for continued 

pump use without this input. 

Follow Up on Pump Claims That May Be Inappropriate 

CMS should follow up on the claims in which suppliers: (1) reported 

having no contact with the beneficiaries’ treating clinicians, (2) could 

not be located, or (3) did not submit any documentation. CMS should 

determine whether these claims are inappropriate and should not have 

been paid. To help CMS address this recommendation, we will forward 

information about these claims in a separate memorandum. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred with four of our recommendations and will consider the 

remaining recommendation. It noted that it has worked on a number of 

regulatory and administrative initiatives related to the prescription, 

coding, and coverage of pumps in response to the significant growth in 

expenditures for these items. 

In response to our first recommendation, CMS concurred that it has the 

authority to adjust payment rates using Medicare’s inherent 

reasonableness authority. It stated that it will consider whether it 

would be able to gather valid and reliable data, as the statute requires, 

to make a determination that the payment amount for pumps is grossly 

deficient or excessive and to establish, if needed, a new amount that is 

realistic and equitable. 

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RECOMMENDATIONS 

In response to our second recommendation, CMS stated that when 

designing the second round of the Competitive Bidding Acquisition 

Program, it will consider including pumps. 

In response to our third recommendation, CMS concurred and stated 

that it will monitor and track trends in pump usage and track the 

market share among different pump suppliers. 

In response to our fourth recommendation, CMS concurred that the 

continued need for pumps can be determined only through clinical 

input. In addition, it agreed that suppliers need continued education on 

local coverage determination requirements for continued coverage of the 

equipment. 

In response to our fifth recommendation, CMS concurred and stated 

that it will strongly encourage its contractors to closely monitor supplier 

compliance with the local coverage determination requirements. It also 

stated that it will investigate the need for a claim modifier to be used by 

suppliers to attest that the prescribing physician has followed up on the 

beneficiary’s care within the last 30 days. CMS further stated that it is 

working with its contractors to strengthen its oversight in this area. 

We support CMS’s efforts to address these issues and encourage it to 

continue to make progress in these areas. The full text of CMS’s 

comments is provided in Appendix D. 

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Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 

Competitive Bidding Acquisition Program: First-Round Monthly Fee 

Schedule Amounts 

In March 2008, the Centers for Medicare & Medicaid Services 

released the monthly fee schedule amounts for the first round of the 

Competitive Bidding Acquisition Program. The following is a list of 

the monthly amounts for pumps in each of the 10 competitive bidding 

areas.33 As a means of comparison, the monthly fee schedule amount 

in noncompetitive bidding areas is $1,716.34 

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Table 1: Monthly Fee Schedule Amounts for First Round of 

DMEPOS35 Competitive Bidding Acquisition Program 

Competitive Bidding Area Winning Monthly Fee 

Schedule Amount 

Charlotte, North Carolina-South Carolina $1,458.99 

Cincinnati, Ohio-Kentucky-Indiana $1,373.17 

Cleveland, Ohio $1,381.18 

Dallas, Texas $1,373.17 

Kansas City, Missouri-Kansas $1,499.08 

Miami, Florida $1,373.17 

Orlando, Florida $1,192.94 

Pittsburgh, Pennsylvania $1,371.58 

Riverside, California $1,587.72 

San Juan, Puerto Rico $1,853.84 

 Average monthly fee schedule amount $1,446.48 

Source: CMS DMEPOS Competitive Bidding Acquisition Program First Round data, 2008. 

Δ APPENDIX~A 

33 These amounts reflect the first 3 months of rental. For months 4 through 13, the fee 

schedule amounts are equivalent to 7.5 percent of the winning purchase prices. 

34 Before competitive bidding, the monthly fee schedule amount for San Juan, 

Puerto Rico, was approximately $2,060. 

35 Durable Medical Equipment, Prosthetics, Orthotics, and Supplies. 
 

 

Δ APPENDIX~B 

Local Coverage Determination for Negative Pressure Wound Therapy 

Pumps 

This Appendix contains the documentation requirements that were 

effective between January 1 and June 30, 2007, for negative pressure 

wound therapy pumps, as they appeared in the local coverage 

determination (LCD). We have included only the section relevant to our 

study. Full copies of the LCD can be found at 

http://www.cms.hhs.gov/mcd/search.asp. 

 General Information: Documentation Requirements 

Documentation of wound evaluation and treatment, recorded 

in the patient’s medical record, must indicate regular 

evaluation and treatment of the patient’s wounds, as detailed 

in the Coverage and Payment Section. Documentation of 

quantitative measurements of wound characteristics including 

wound length and width (surface area), and depth, and 

amount of wound exudate (drainage), indicating progress of 

healing must be entered at least monthly. The supplier of the 

negative pressure wound therapy equipment and supplies 

must obtain from the treating clinician, an assessment of 

wound healing progress, based upon the wound measurement 

as documented in the patient’s medical record, in order to 

determine whether the equipment and supplies continue to 

qualify for Medicare coverage. (The supplier need not view the 

medical records in order to bill for continued use of [negative 

pressure wound therapy] NPWT. Whether the supplier 

ascertains that wound healing is occurring from month to 

month via verbal or written communication is left to the 

discretion of the supplier. However, the patient’s medical 

records may be requested by the [durable medical equipment 

regional carrier] DMERC36 in order to corroborate that wound 

healing is/was occurring as represented on the supplier’s 

claims for reimbursement.) 

36 DMERCs have subsequently been replaced by Durable Medical Equipment 

Medicare Administrative Contractors. 

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Δ APPENDIX~C 

Supplier Standards for Medicare Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies 

This Appendix contains selected Medicare supplier standards. We have 

included only the sections of the supplier standards that are relevant to 

our study. The full text of the standards appears in 42 CFR § 424.57(c). 

Application certification standards. The supplier must meet 

and must certify in its application for billing privileges that it 

meets and will continue to meet the following standards. The 

supplier: 

(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 

purchased and rented items, including capped rental 

items, as described in Sec. 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; 

(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. . . . 

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Δ APPENDIX~D 

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APPENDIX ~ D 

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APPENDIX ~ D 

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Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Jodi Nudelman, 

Regional Inspector General for Evaluation and Inspections in the 

New York regional office, and Meridith Seife, Deputy Regional 

Inspector General. 

Judy Kellis served as the team leader for this study. Other principal 

Office of Evaluation and Inspections staff from the New York regional 

office who contributed to the report include Christine Moundas and 

Iris Lin. Central office staff who contributed include Kevin Farber and 

Scott Manley.