Department of Health and Human Services 

OFFICE OF

INSPECTOR GENERAL

 

 

PROGRAM INTEGRITY PROBLEMS 

WITH NEWLY 

ED

ENROLLED 

M ICARE EQUIPMENT 

SUPPLIERS 

Daniel R. Levinson 

Inspector General 

December 2011 

OEI-06-09-00230 
 

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 E X ECUTIVE SUMMARY

OBJECTIVES 

1. To determine the extent to which newly enrolled suppliers of 

durable medical equipment, prosthetics, orthotics, and supplies 

(DMEPOS) had their billing privileges revoked or were placed 

on prepayment claims review. 

2. To determine the extent to which newly enrolled suppliers 

omitted from their Medicare applications required information 

regarding (a) owners or managers or (b) the criminal histories of 

owners or managers or any adverse legal actions taken against 

these individuals. 

BACKGROUND

Historically, DMEPOS suppliers have presented significant program 

integrity problems for the Medicare program. In 2010, the Patient 

Protection and Affordable Care Act (ACA) strengthened the 

enrollment-screening process for all Medicare, Medicaid, and Children’s 

Health Insurance Plan providers, including DMEPOS suppliers. The 

Centers for Medicare & Medicaid Services (CMS) contractor responsible 

for enrollment of new DMEPOS suppliers is the National Supplier 

Clearinghouse Medicare Administrative Contractor (NSC). At the time 

of our review and prior to ACA enactment, NSC assessed the fraud and 

abuse risk of new supplier applicants and assigned each a risk rating 

(from low to high), the Fraud and Abuse Indicator of Risk (FAIR). NSC 

uses the FAIR rating to determine the frequency of unannounced site 

visits for new enrollees. In February 2011, CMS staff stated that they 

were developing policies and procedures to transition NSC’s FAIR 

rating system and corresponding monitoring practices to the specific 

policies and practices required by the ACA. 

This report uses the results of contractors’ oversight activities as 

indicators of program integrity problems among DMEPOS suppliers 

during their first year in Medicare. Our nationally representative 

sample of 229 DMEPOS suppliers enrolled in Medicare during October–

December 2008 includes suppliers representing all FAIR ratings. We 

examined data from Medicare contractors to identify suppliers that had 

their Medicare billing privileges revoked by CMS or that CMS placed on 

prepayment claims review. We also used a proprietary database of 

public records to identify suppliers that omitted required information 

from their enrollment applications. 
 

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EXECUTIVE SUMMARY

FINDINGS

During their first year in Medicare, 26 percent of high- and 

medium-risk suppliers and 2 percent of low/limited-risk suppliers

had their billing privileges revoked or were placed on prepayment 

claims review. 

CMS revoked the Medicare billing privileges of 21 percent of high- and 

medium-risk suppliers in their first year of enrollment. Although NSC 

conducted postenrollment site visits within the timeframes required by 

CMS, several suppliers in our sample had already received significant 

Medicare payments before the first site visit. For example, one supplier 

in our sample received almost $800,000 from Medicare prior to NSC’s 

first postenrollment site visit. CMS placed 9 percent of high- and 

medium-risk suppliers on prepayment claims review for reasons such as 

billing for services not ordered by a physician or not rendered, having 

unusual billing patterns, and failing to respond to CMS or contractor 

requests for information. CMS revoked the Medicare billing privileges 

of 2 percent of low/limited-risk suppliers. CMS did not place any of the 

sampled low/limited-risk suppliers on prepayment claims review. 

Thirteen percent of high- and medium-risk suppliers and 4 percent 

of low/limited-risk suppliers omitted ownership or management 

information from their Medicare enrollment applications. Our review 

of public records revealed that these suppliers did not disclose the name 

of at least one owner or manager. Further, 11 of the 20 sampled 

suppliers that omitted ownership or management information remained 

in Medicare through December 2010. This suggests that information 

omitted from enrollment applications can remain undetected for more 

than a year despite NSC’s application reviews and postenrollment site 

visits. 

Four percent of high- and medium-risk suppliers omitted 

information regarding criminal histories or adverse legal actions 

from their applications. In their applications, a small number of highand medium-risk suppliers did not report information regarding criminal 

histories of their owners or managers and any adverse legal actions taken 

against these individuals. Examples of omissions include convictions for 

insurance fraud, theft by deception, and felony aggravated battery. 
 

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EXECUTIVE SUMMARY

RECOMMENDATIONS

Although ACA provisions strengthen the enrollment screening of 

DMEPOS supplier applicants and CMS’s oversight authorities, our 

review demonstrates that further scrutiny of the riskiest applicants is 

needed to prevent dishonest individuals from receiving Medicare 

payment. We recommend that CMS:

Conduct postenrollment site visits earlier for new DMEPOS suppliers 

receiving the most money from Medicare. Although NSC conducted the 

correct number of site visits of high- and medium-risk suppliers as 

required by CMS, Medicare had already made significant payments to 

some suppliers in our sample before they received their first 

postenrollment site visits from NSC. CMS could use the FAIR rating to 

prioritize certain newly enrolled suppliers and require NSC to conduct 

postenrollment site visits earlier, possibly within a month, for newly 

enrolled high- and medium-risk suppliers that submit large dollar 

amounts of claims. 

Apply investigative techniques and tools to identify any owners or 

managers of DMEPOS suppliers who are not reported on supplier 

applications as required. Our findings demonstrate that omissions of 

the names of owners or managers can allow a supplier to gain billing 

privileges when it might otherwise be denied Medicare participation. Such 

omissions could circumvent ACA-required fingerprint-based criminal 

background checks because CMS would not be running checks on omitted 

individuals. CMS should improve processes to detect information that 

suppliers may have deliberately omitted. CMS should focus such 

investigative activities on suppliers deemed high- or medium-risk by an 

in-depth assessment, such as the FAIR rating. 

Take appropriate action regarding DMEPOS suppliers that omit 

information from applications. We will forward to CMS the names of 

those suppliers that we identified as having either omitted the names of 

owners or managers or omitted information regarding the criminal 

histories of owners or managers and any adverse legal actions taken 

against these individuals. CMS can then determine whether the 

omissions were intentional and whether further action is needed. 

Additionally, in the future, when CMS determines that suppliers have 

inappropriately omitted required information from their Medicare 

enrollment applications, CMS should refer these individuals and 

suppliers to OIG for (if warranted) permissive exclusion. 
 

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EXECUTIVE SUMMARY

AGENCY COMMENTS 

In its comments on the draft report, CMS concurred with our 

recommendations and stated that it is using authorities granted under 

the ACA to address potential vulnerabilities. CMS stated that it will 

instruct NSC to conduct earlier site visits of newly enrolled suppliers, 

have its new DMEPOS supplier-screening contractor alert NSC and 

MACs when it identifies individuals affiliated with companies but not 

reported on enrollment documents, take appropriate action regarding 

individuals identified by OIG, and continue to refer to law enforcement 

suppliers that omitted required enrollment information.
 

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 TABLE OF CONTENTS

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

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

FINDINGS ................................................. 11

During their first year in Medicare, 26 percent of high- and 

medium-risk suppliers and 2 percent of low/limited-risk 

suppliers had their billing privileges revoked or were placed on 

prepayment review ..................................... 11

Thirteen percent of high- and medium-risk suppliers and 4 percent 

of low/limited-risk suppliers omitted ownership or management 

information from their Medicare enrollment applications....... 12

Four percent of high- and medium-risk suppliers omitted 

information regarding criminal histories or adverse legal actions 

from their applications .................................. 13

RECOMMENDATIONS ..................................... 15

Agency Comments and Office of Inspector General Response.... 16

APPENDIXES ............................................. 18

A: Estimates and Confidence Intervals ..................... 18

B: Agency Comments ................................... 20

 

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

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 INTRODUCTION

OBJECTIVES 

1. To determine the extent to which newly enrolled suppliers of 

durable medical equipment, prosthetics, orthotics, and supplies 

(DMEPOS) had their billing privileges revoked or were placed 

on prepayment claims review. 

2. To determine the extent to which newly enrolled suppliers 

omitted from their Medicare applications required information 

regarding (a) owners or managers or (b) the criminal histories of 

owners or managers and any adverse legal actions taken against 

these individuals. 

BACKGROUND

DMEPOS are covered under Medicare Part B and include items such as 

oxygen supplies, wheelchairs, prosthetic limbs, and surgical dressings.1 

Medicare covers DMEPOS only when ordered for a beneficiary by a 

physician or, in some cases, a nonphysician practitioner.2 Medicare 

reimbursed $8.8 billion for DMEPOS in 2010.3 

Historically, DMEPOS suppliers have presented significant program 

integrity problems for the Medicare program. Prior Office of Inspector 

General (OIG) work documented significant problems, including 

fraudulent Medicare billing by suppliers, particularly in specific 

high-risk geographic areas.4 To help protect Medicare from DMEPOS

fraud and abuse, the Centers for Medicare & Medicaid Services (CMS) 

has over time instituted standards of participation for DMEPOS

suppliers, processes for screening new supplier applicants, and 

1 See Social Security Act §§ 1832(a), 1861(s)(6), and 1861(s)(8). The complete list of 

covered items can be found online at www.cms.gov. Accessed on October 7, 2010.

2 Medicare Program Integrity Manual (PIM), Pub. No. 100-08, ch. 5, § 5.2.

3 The figure cited is for reimbursement amounts for all DMEPOS claims in 2010 and is 

based on OIG analysis of the National Claims History File. 

4 See, for example, Department of Health and Human Services (HHS) OIG, South Florida 

Suppliers’ Compliance With Medicare Standards: Results From Unannounced Visits, OEI03-07-00150, March 2007; HHS OIG, Los Angeles County Suppliers’ Compliance With 

Medicare Standards: Results From Unannounced Visits, OEI-09-07-00550, February 2008; 

HHS OIG, South Florida Medical Equipment Suppliers: Results of Appeals, 

OEI-03-07-00540, October 2008; HHS OIG, Power Wheelchairs in the Medicare Program: 

Supplier Acquisition Costs and Services, OEI-04-07-00400, August 2009; HHS OIG, 

Payments to Medicare Suppliers and Home Health Agencies Associated With “Currently 

Not Collectible” Overpayments, OEI-06-07-0080, November 2008; and HHS OIG, Aberrant 

Claims Patterns for Inhalation Drugs in South Florida, OEI-03-08-00290, April 2009. 
 

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INTRODUCTION

requirements for contractor monitoring of suppliers. In 2010, the 

Patient Protection and Affordable Care Act (ACA) strengthened the 

enrollment-screening process for all providers—including DMEPOS 

suppliers—participating in Medicare, Medicaid, and the Children’s 

Health Insurance Program (CHIP). 

DMEPOS Supplier Standards of Participation

To participate in Medicare, each DMEPOS supplier must complete an 

enrollment application and demonstrate that it meets the 30 standards 

of participation.5 CMS can deny enrollment to applicants that do not 

meet one or more of the standards.6 CMS can also revoke the billing 

privileges of existing Medicare suppliers that do not continue to meet 

the standards.7

DMEPOS applicants must also provide “complete and accurate 

information in response to questions” on enrollment applications.

 

8 

Applicants must disclose—among other information—the identity of any 

person or business that has an ownership or a controlling interest in the 

business or that functions in a management role.9 For each person or 

business on the application, suppliers must also report any history of 

certain types of criminal convictions and adverse legal actions taken 

against the person or business, such as exclusions from a Federal or 

State health care program, loss of billing privileges, and payment 

suspensions.10

DMEPOS Supplier Applicant Screening and Risk Assessment

 

The CMS contractor responsible for the DMEPOS supplier enrollment 

process is the National Supplier Clearinghouse Medicare 

Administrative Contractor (NSC). NSC’s responsibilities include 

reviewing enrollment applications, conducting unannounced site visits 

to applicants’ business locations, conducting fraud risk assessments, 

and issuing Medicare billing numbers to applicants that meet program 

participation standards.

5 42 CFR § 424.57 and 42 CFR pt. 424, subpart P. The number of standards of 

participation that apply to DMEPOS suppliers has increased over time.

6 42 CFR § 424.57(b) and (d). (Subsequently, paragraph (d) was moved to paragraph (e).) 

7 Ibid.

8 42 CFR § 424.57(c)(2). See also 42 CFR § 424.510(d)(2)(i).

9 Sections 5 and 6 of Form CMS-855S. CMS requires this information pursuant to 

42 CFR §§ 420.206 and 424.510(d)(2)(i).

10 Sections 3, 5, and 6 of Form CMS-855S.
 

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INTRODUCTION

Enrollment application review. CMS requires NSC to review suppliers’ 

enrollment applications and supporting documentation for complete and 

valid information.11 To determine its accuracy, NSC compares some 

applicant-reported information—such as National Provider Identifier 

(NPI) and Tax Identification Number—to external sources. However, 

the accuracy of some reported information cannot be readily determined 

by NSC. For example, CMS recently stated: “While we require our 

Medicare contractors to verify data submitted on, and as part of, the 

Medicare provider/supplier application, our contractors are not able to 

verify information that may have been purposefully omitted or changed 

in a manner to obfuscate any previous criminal activity.”12 

Preenrollment site visits. CMS requires NSC to conduct at least one 

unannounced site visit to an applicant’s business location to assess 

compliance with the Medicare standards of participation, with certain 

types of supplier applicants exempted.13 In site visit reports, NSC 

investigators record their findings about supplier compliance with 

standards and their assessment of the fraud risk that the applicant

poses. The site investigation reports also include site investigator notes 

from supplier staff interviews; photographs of the business and onsite 

inventory; and any supporting documentation obtained, such as 

business and professional licenses. 

Supplier approval and risk rating. Once NSC determines that a supplier 

applicant meets the Medicare standards of participation, it grants the 

new supplier Medicare billing privileges by assigning a unique billing 

number for each approved business location. At the time of our review

and prior to ACA enactment, NSC also assessed the fraud and abuse 

risk of new supplier applicants and assigned each a risk rating called 

the Fraud and Abuse Indicator of Risk (FAIR).14 (We discuss related 

ACA-required changes beginning on page 5.) Prior to ACA enactment, 

DMEPOS suppliers were the only Medicare provider type to receive 

risk-based screening and monitoring as part of their participation.15

11 NSC Statement of Work (SOW), Att. J.1, § 1.2.2, obtained by OIG from CMS on 

June 18, 2009.

12 76 Fed. Reg. 5867 (Feb. 2, 2011).

13 NSC SOW, Att. J.1, § 1.15. Certain Medicare suppliers were exempt from these 

preenrollment site visit requirements, including suppliers with 25 or more active locations, 

physicians, and certified Medicare providers (e.g., hospitals, home health agencies).

14 PIM, ch. 10 § 21.4. Formerly known as Fraud Level Indicator. See also NSC SOW.

15 See PIM, ch. 10.
 

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INTRODUCTION

To determine the FAIR rating, NSC scored each applicant using 

15 predefined risk factors, such as:

● the applicant’s geographic area, 

● the fraud potential of the applicant’s products and services,

● the applicant’s prior Medicare experience, and

● the applicant’s site visit results.16

Using information from the site visit report and the supplier’s 

application, NSC assigned one of four FAIR ratings:

● low risk (e.g., national drugstore),

● limited risk (e.g., clinicians in low-fraud areas),

● medium risk (e.g., medium-sized medical supplier in a high-fraud 

area), or 

● high risk (e.g., small supplier with low inventory levels in a 

historically high-fraud area).17

NSC tracked each supplier’s individual risk factors and FAIR score on a 

spreadsheet, known as the FAIR matrix. Once a supplier was approved 

to participate in Medicare, the newly enrolled supplier’s FAIR rating 

determined the number of postenrollment site visits that NSC 

performed to ensure continuing supplier compliance with the 

participation standards.

Postenrollment Site Visits of DMEPOS Suppliers 

At the time of our review, CMS required NSC to conduct at least one 

postenrollment site visit per year for medium-risk suppliers and at least 

two for high-risk suppliers.18 CMS did not require postenrollment site 

visits for low-risk or limited-risk suppliers, although NSC could decide 

to conduct a visit if complaints or other factors generated concern about 

a supplier.19 CMS also required NSC to update each supplier’s FAIR 

rating at least annually, based in part on information gathered during 

site visits.20

16 NSC SOW, App. J.1, §1.2.1.

17 PIM, ch. 10, § 21.4; NSC SOW, Att. J.1, § 1.2.1.

18 NSC SOW, Att. J.1, § 1.2.2.

19 Ibid.

20 NSC SOW, Att. J.1, § 1.19.1.
 

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INTRODUCTI INTRODUCTION 

Related Changes From the Affordable Care Act

Section 6401 of the ACA added new requirements at 1866(j)(2) for the 

Secretary to conduct certain enrollment-screening measures for 

different types of Medicare providers, including DMEPOS suppliers. In 

February 2011, CMS promulgated a final rule implementing those 

provisions effective March 25, 2011, for all new DMEPOS supplier 

applicants and existing Medicare suppliers revalidating their 

enrollment information. For all other currently enrolled suppliers, the 

rule will become effective March 23, 2012.21

To implement the new screening measures, CMS will classify all 

DMEPOS suppliers into one of three risk categories: limited, moderate, 

or high.

 

22 CMS will assign nearly all newly enrolling DMEPOS

suppliers to the “high risk” category and currently enrolled and 

revalidating DMEPOS suppliers to the “moderate risk” category.23 

Screening will include at a minimum, verification of compliance with 

Federal and State requirements, licensure checks, and database checks. 

Each supplier in the moderate- and high-risk categories must also 

undergo an onsite visit.24 High-risk suppliers—both current suppliers 

and applicants—must submit the fingerprints of all owners with 5 

percent or greater direct or indirect ownership, who are then subject to 

a fingerprint-based criminal history report.25

The risk-rating system to be implemented by CMS puts all new 

DMEPOS supplier applicants into the high-risk category. In 

February 2011, CMS staff stated that CMS is developing appropriate 

policies and procedures to transition NSC’s FAIR rating system and 

corresponding monitoring practices to the specific ACA-required policies 

and practices. 

A related change resulting from the ACA involves disclosure of 

information on enrollment applications and updates of enrollment 

application information by existing suppliers. The ACA requires 

suppliers to disclose any current or previous affiliation with other 

providers or suppliers that have certain Medicare, Medicaid, or CHIP

21 76 Fed. Reg. 5865 (Feb. 2, 2011). Any currently enrolled supplier that revalidates its 

enrollment information on or after March 25, 2011, and before March 24, 2012, is also 

subject to the rule. 

22 76 Fed. Reg. 5862, 5867 (Feb. 2, 2011).

23 42 CFR § 424.518 (b)(1)(x) and (c)(1)(ii), effective March 25, 2011.

24 42 CFR § 424.518 (a) and (b). 

25 42 CFR § 424.518 (c); 76 Fed. Reg. 5862 (Feb. 2, 2011). 
 

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INTRODUCTION

program integrity problems, including uncollected debt, payment 

suspension, exclusion from program participation, and revocation of 

billing privileges.26 CMS has authority to deny or revoke the Medicare 

billing privileges of suppliers for submitting false or misleading 

information on the Medicare enrollment applications.27

Indicators of Program Integrity Problems

 

This report uses the results of several contractors’ oversight activities as 

indicators of program integrity problems among DMEPOS suppliers 

during their first year in Medicare. As stated, NSC is responsible for 

screening supplier applicants and conducting unannounced site visits. 

Durable Medical Equipment Medicare Administrative Contractors 

(DME MAC) are responsible for DMEPOS claims processing activities, 

which can include monitoring supplier billing, identifying and collecting 

overpayments, and following up on complaints against suppliers. 

Program Safeguard Contractors (PSC) and Zone Program Integrity 

Contractors (ZPIC) are responsible for conducting a variety of oversight 

activities, such as prepayment and postpayment medical reviews of 

claims, provider education, and data analysis, to detect potential 

overpayments and fraud.28

We focus on two types of CMS enforcement actions that potentially 

result from these contractors’ oversight activities: revocation of billing 

privileges and prepayment claims reviews.

• Revocation of Billing Privileges. A revocation is the termination of a 

supplier’s billing privileges. Revocations can be imposed for 

noncompliance with the participation standards, supplier misconduct, 

felony conviction, providing misleading information, or misuse of a 

billing number, among other reasons.29 Once their billing privileges 

are revoked, suppliers are barred from participating in Medicare for a 

minimum of 1 year, but not greater than 3 years, depending on the 

reason for revocation.30

• Prepayment Claims Review. PSCs and ZPICs conduct prepayment 

claims review when they have evidence that a supplier submitted 

26 ACA § 6401; Social Security Act § 1866(j)(5).

27 42 CFR §§ 424.530(a) and 424.535(a). 

 

28 CMS was transitioning PSCs to ZPICs nationwide at the time of our review.

29 See 42 CFR § 424.535(a) and § 424.57(e) for the complete list of revocation reasons. 

See also PIM, ch. 10, § 13.2.

30 42 CFR § 424.535(c).
 

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INTRODUCTION

improper or potentially fraudulent claims. Factors leading to 

prepayment review include unusual supplier billing patterns, 

knowledge of abuses in the service area, or complaints received from 

beneficiaries or others. Prepayment reviews vary in scope; they can

include all claims from a particular provider, or they can focus on 

selected services, place of service, or other specific criteria.31

METHODOLOGY

Scope and Sample

We selected a stratified random sample of DMEPOS suppliers that 

enrolled in Medicare for the first time between October 1 and 

December 31, 2008. We stratified by the supplier’s FAIR rating at the 

time of enrollment. Using the NSC supplier enrollment file, we 

identified 430 low-risk, 529 limited-risk, 207 medium-risk, and 

67 high-risk suppliers.

For sampling and analysis purposes, we combined the groups with FAIR 

ratings of “low risk” and “limited risk” into one stratum, because NSC 

staff informed us that it treats suppliers in the two groups virtually the 

same once they have been approved for Medicare participation. We 

hereafter refer to this stratum as low/limited-risk suppliers. The 

low/limited-risk stratum consisted of 91 of the 959 low-risk and 

limited-risk suppliers. The medium-risk stratum consisted of 71 of the 

207 medium-risk suppliers, and the high-risk stratum consisted of all 

67 high-risk suppliers. Our total sample consisted of 229 suppliers, and 

we had a 100-percent response rate.32

We examined multiple data sources regarding the sampled suppliers, 

covering the period from the date of their Medicare enrollment through 

December 31, 2009. Although we refer to the review period as “the first 

year of enrollment,” the actual review period for each supplier spanned 

up to 15 months, depending on each supplier’s enrollment date. For 

example, a supplier that was enrolled on October 1, 2008, would have 

been in the program for 15 months by December 31, 2009, whereas a 

supplier that enrolled on December 31, 2008, would have been in the 

program for only 12 months.

31 PIM, ch. 3.

32 We originally selected 92 low/limited-risk suppliers but eliminated 1 supplier from the 

sample because of an error in the data regarding the supplier’s enrollment date.
 

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INTRODUCTION

Data Collection and Analysis

We used multiple data sources for our review. 

● Medicare claims data. We used CMS’s National Claims History

File to identify Medicare reimbursements for each supplier in our 

sample. 

● Data on revocation of Medicare billing privileges. We used NSC 

data to identify suppliers in our sample whose billing privileges 

were revoked during the study period, the revocation dates, and the 

reasons for revocation. 

● Prepayment claims review data. We used data from five CMS 

contractors to identify sampled suppliers placed on prepayment 

review during the study period and the dates of the reviews.33 

● Supplier enrollment applications. We obtained all sampled 

suppliers’ enrollment applications (Form CMS-855S) and any 

updates to them. 

● NSC site investigator reports. We obtained all reports completed by 

NSC site investigators after they conducted an unannounced visit 

to each sampled supplier’s place of business. 

Analysis of DMEPOS supplier program integrity problems. To determine the 

extent to which these newly enrolled suppliers had indicators of 

program integrity problems, we analyzed each supplier’s Medicare 

enrollment application, reports from NSC’s site investigation(s) of the 

supplier, claims submitted by the supplier, and any CMS enforcement 

actions taken against the supplier. Our findings focus on two CMS 

enforcement actions: revocation of suppliers’ billing privileges and 

placement of suppliers on prepayment claims review. Revoking a 

supplier’s billing privileges is one of the strongest enforcement actions 

that CMS can take. Likewise, placing a supplier on prepayment review 

indicates that CMS has significant concerns about the legitimacy of that 

supplier’s claims. Collectively, these data sources exhibited indicators 

of program integrity problems with suppliers during their first year in 

Medicare. 

Analysis of supplier omission of required information. To determine the 

extent to which newly enrolled suppliers omitted required information 

regarding their owners and managers and these individuals’ criminal 

33 AdvanceMed ZPIC, Health Integrity ZPIC, Safeguard Services ZPIC, Safeguard 

Services PSC, and Tricenturion PSC provided this data.
 

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INTRODUCTION

histories from their enrollment applications, we compared each 

supplier’s reported information to the personal, corporate, and criminal 

records information stored in Lexis/Nexis Accurint for Government 

(hereinafter referred to as Accurint) for each of the 229 suppliers in our 

sample.34 We used Accurint to identify individuals who were not 

disclosed on the enrollment application, but who were listed in public 

records as a current owner or manager of the supplier. By matching

Social Security Numbers and dates of birth, we checked the criminal 

histories of owners or managers listed on the enrollment applications to 

identify whether any reported owners or managers did not fully disclose 

their criminal histories.35

For purposes of the report, we present certain findings for the high- and

medium-risk strata together. We chose this presentation because we 

identified few notable differences in the rates of program integrity 

problems between the high- and medium-risk suppliers, whereas the 

main differences were between low/limited-risk suppliers and the 

combined group of high- and medium-risk suppliers. Based on the 

stratified sample design, all findings can be projected to the population 

of suppliers newly enrolled in Medicare during October–December 2008, 

unless otherwise noted as applying specifically to sampled suppliers. 

See Appendix A for statistical estimates and confidence intervals. 

 

Limitations

Our findings about supplier omissions on enrollment applications are 

subject to an inherent limitation in Accurint’s data—namely, that 

because of State privacy laws, the types of public records stored in 

Accurint are not uniform across States. As a result, some record types 

34 Accurint is a database available to law enforcement agencies that collects a broad 

array of public records on both businesses and individuals. For business searches, Accurint 

draws from corporate filings, property information, phone listings, professional licenses, 

and Securities and Exchange Commission filings, among other data. For personal searches, 

Accurint contains information on Social Security numbers, driver’s licenses, and 

professional licenses. Information on property assets and court proceedings is also 

available both for individuals and businesses.

35 We limited the Accurint review (for omitted criminal histories and adverse legal 

actions) to only high- and medium-risk suppliers. We did this because of the 

time-consuming nature of the Accurint analysis and because low/limited-risk suppliers—

such as larger national chain pharmacies—often listed corporate officers rather than 

owners on their applications. Additionally, exploratory analysis suggested that we would 

find few, if any, omissions of criminal history information among low/limited-risk suppliers. 

Criminal records data from Accurint typically included the specific charge, charge date, and 

legal outcome.
 

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INTRODUCTION

(e.g., financial filings) were not available for all sampled suppliers, and 

the comprehensiveness of criminal records, in particular, varied by 

State. We did not verify the accuracy of the public records stored in

Accurint, as that was beyond the scope of this review. 

Another limitation applies to our findings regarding indicators of 

supplier program integrity problems. CMS and its contractors conduct 

more oversight of high- and medium-risk suppliers than of 

low/limited-risk suppliers, and this additional oversight may result in 

more enforcement actions. 

Standards

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors 

General on Integrity and Efficiency.
 

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BANNER 2ND PAGE

During their first year in Medicare, 26 percent of 

high- and medium-risk suppliers and 2 percent of

low/limited-risk suppliers had their billing privileges 

revoked or were placed on prepayment claims review

 FINDINGS

A projected 26 percent of high- and 

medium-risk suppliers had a CMS 

enforcement action, and 4 percent 

both had their billing privileges 

revoked and were placed on 

prepayment review. None of the low/limited-risk suppliers in the 

sample had been subject to both CMS enforcement actions. 

CMS revoked the Medicare billing privileges of 21 percent of high- and 

medium-risk suppliers, yet some received large Medicare payments prior to 

revocation 

Medicare reimbursed high-risk suppliers $2.8 million and medium-risk 

suppliers $70,582 prior to the revocations of their billing privileges. 

Combined, this equates to an average of $191,841 per supplier that had 

its billing privileges revoked and received any payments from 

Medicare.36

Revocations occurred after NSC determined that the newly enrolled 

suppliers no longer met all Medicare supplier participation standards. 

Among the 28 suppliers in our sample whose billing privileges had been 

revoked, revocation occurred for 16 because they had not paid the surety 

bond newly required for DMEPOS suppliers as of July 1, 2009. All 16 of 

these supplier revocations occurred within a 4-day period when NSC 

began fully enforcing the new surety bond requirement. 

For the remaining 12 of the 28 suppliers in our sample, NSC coded the 

reason for revocation of billing privileges as “failure to meet all 

standards.” For this group, revocation often occurred shortly after NSC 

conducted postenrollment site visits to the suppliers’ places of business; 

CMS revoked these suppliers’ billing privileges an average of 16 days 

after a site visit. This timing suggests that revocation stemmed from 

information gathered during NSC’s site visits. 

NSC conducted postenrollment site visits largely within the timeframes 

required by CMS. For the suppliers that required two unannounced 

visits during the first year of enrollment, NSC conducted its first 

postenrollment site visit an average of 163 days (5.4 months) after 

enrollment. For suppliers that required only one site visit during the 

36 CMS revoked the billing privileges of 28 high- and medium-risk suppliers in our 

sample. Fifteen received Medicare reimbursement prior to revocation. Of those suppliers 

that received reimbursement, eight were high risk and seven were medium risk. 
 

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FINDINGS

first year of enrollment, NSC conducted the visit an average of 325 days 

(10.8 months) after enrollment. 

However, several suppliers in our sample had already received 

significant Medicare payments before their first postenrollment site 

visit and the subsequent revocation of their billing privileges. For 

example, one sampled supplier received almost $800,000 from Medicare 

prior to its first postenrollment site visit, which NSC conducted 

7 months after the supplier enrolled. Medicare paid another supplier in 

our sample over $500,000 before NSC conducted the first 

postenrollment site visit, 5 months after the supplier enrolled. 

CMS placed 9 percent of high- and medium-risk suppliers on 

prepayment claims review 

CMS instituted prepayment claims reviews for reasons such as billing 

for services not ordered by a physician, billing for services not rendered, 

having unusual billing patterns, and failing to respond to CMS or 

contractor requests for additional information. As projected from our 

sample, high- and medium-risk suppliers placed on prepayment review 

received $6.7 million from Medicare during our study period. During 

the study period, CMS ultimately revoked the billing privileges of 8 of 

the 17 suppliers in our sample that it placed on prepayment review. 

CMS revoked the Medicare billing privileges of a projected 2 percent of 

low/limited-risk suppliers; none of the low/limited-risk suppliers were placed 

on prepayment claims review

Low/limited-risk suppliers demonstrated few problems. Those sampled 

suppliers whose billing privileges were revoked did not receive any

Medicare reimbursement prior to revocation. Both suppliers’ billing 

privileges were revoked for nonpayment of the surety bond.

Our review of public records 

revealed that a projected 

13 percent of high- and mediumrisk suppliers and 4 percent of 

low/limited-risk suppliers omitted 

the name of an owner or a 

manager. By the end of 2009, 

Medicare reimbursed the 9 sampled high-risk suppliers $2.64 million 

and reimbursed the 6 sampled medium-risk suppliers $280,596. Of the 

four low/limited-risk sampled suppliers that omitted ownership or 

management information, two received $5,217 during the study period

and the other two did not receive any payments. Further, 11 of the 

Thirteen percent of high- and medium-risk 

suppliers and 4 percent of low/limited-risk 

suppliers omitted ownership or management 

information from their Medicare enrollment 

applications
 

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FINDINGS

20 high- and medium-risk sampled suppliers that omitted ownership or 

management information remained in Medicare at the end of 2010. 

Combined, these findings suggest that information omitted from 

enrollment applications can remain undetected despite NSC application 

reviews and postenrollment site visits.37

The types of supplier omissions varied. In one example, an owner’s 

spouse was listed as an owner on State incorporation documents but 

was never disclosed to CMS on the supplier’s enrollment application. In 

another example, individuals listed on incorporation documents had 

apparently left the company. For 5 of the 20 high- and medium-risk 

sampled suppliers that omitted ownership or management information, 

we found that the omitted owners or managers had prior convictions for 

serious crimes or had been subject to adverse legal actions. Whether 

those convictions were the reason that the applicant omitted the 

owner/manager or whether the omissions reflect honest errors requires 

further investigation. For the low/limited-risk suppliers in our sample, 

we did not identify any prior convictions of omitted owners or managers

or other adverse legal actions taken against these individuals. 

 

A small number of high- and 

medium-risk suppliers did not 

report either criminal histories

or adverse legal actions taken 

against owners or managers listed on the suppliers’ applications. 

However, four of the six suppliers in our sample that omitted this 

information did not submit Medicare claims during our study period. 

Medicare reimbursed the other two suppliers a total of $369,054 by the 

end of 2009. 

Examples of adverse legal actions not reported by suppliers in our 

sample include insurance fraud, theft by deception, felony drug 

possession, and felony aggravated battery. Convictions like these, if 

reported, might have resulted in the denial of an applicant’s Medicare 

enrollment application, and their omission is potential grounds for both 

revocation of billing privileges and permissive exclusion by OIG.38

37 We did not classify an individual’s name as “omitted” if the name was added to a 

supplier’s file at any time during the first year of the supplier’s enrollment. 

 For 

example, one high-risk supplier failed to disclose the prior Medicare 

exclusion of one of its owners by omitting that fact on the application. 

38 42 CFR § 424.57(e).

Four percent of high- and medium-risk suppliers

omitted information regarding criminal histories or 

adverse legal actions from their applications 
 

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FINDINGS

Additionally, the supplier transposed the last two digits of the owner’s 

Social Security number, meaning that when NSC checked the listed 

Social Security number against the Medicare Exclusions Database, no 

matches came up. Ultimately, NSC revoked the supplier’s billing 

privileges within 4 months of enrollment. The supplier did not receive 

any Medicare reimbursement prior to revocation.

Other supplier omissions occurred after enrollment, with suppliers 

failing to notify NSC within 30 days of adverse legal actions taken 

against them, as required. If this information is not disclosed, the 

supplier could continue to receive reimbursement until NSC detects the 

adverse legal action through other methods. For example, during an 

unannounced site visit to a high-risk supplier in our sample, the NSC 

investigator learned from the supplier’s landlord that the supplier’s 

owner was incarcerated, which the investigator confirmed with the 

Federal Bureau of Prisons. Based on the site investigator’s notes and 

our review of public records, the incarcerated owner also owned or 

managed five other Medicare-participating businesses. This sampled 

supplier received $65,000 from Medicare before NSC conducted the

postenrollment site visit, discovered the supplier’s omission, and 

revoked its billing privileges 6 months after enrollment.
 

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 RECOMMENDATIONS

The ACA strengthens enrollment screening for all supplier and provider 

types across Medicare, Medicaid, and CHIP. Prior to ACA enactment, 

DMEPOS suppliers were the only Medicare provider type to receive 

risk-based screening and monitoring as part of their Medicare 

participation. This subjected the highest risk DMEPOS applicants to 

enrollment screening, unannounced preenrollment site visits, and one 

or more postenrollment site visits during the first year of program 

participation. 

We found that a number of newly enrolled high- and medium-risk 

DMEPOS suppliers still exhibited program integrity problems once 

enrolled. Some suppliers in our sample received significant Medicare 

reimbursement before NSC conducted its first postenrollment site visits 

and CMS took enforcement actions. Further, some high- and 

medium-risk DMEPOS applicants omitted owner or manager 

information that, if disclosed on their applications or discovered by CMS 

and its contractors, might have prevented their entering the program or 

prevented their continued enrollment. These findings demonstrate 

enduring program integrity problems among DMEPOS suppliers and 

illustrate why effective monitoring of this provider group is essential.

Although the ACA strengthens enrollment screening of DMEPOS 

supplier applicants and CMS oversight authorities, further scrutiny of 

the riskiest applicants and enrolled suppliers is needed to prevent 

dishonest individuals from receiving Medicare payment. Therefore, we 

recommend that CMS:

Conduct postenrollment site visits earlier for new DMEPOS suppliers 

receiving the most money from Medicare 

Although NSC conducted site visits of high- and medium-risk suppliers as 

required by CMS, Medicare had already made significant payments to 

some suppliers in our sample before they received their first 

postenrollment site visits from NSC. CMS could use the FAIR rating to 

prioritize certain newly enrolled suppliers and require NSC to conduct 

postenrollment site visits earlier, possibly within a month, for newly 

enrolled high- and medium-risk suppliers that submit large dollar 

amounts of claims. CMS could also use prepayment claims reviews for 

high-billing newly enrolled high- and medium-risk suppliers. 
 

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RECOMMENDATIONS

Apply investigative techniques and tools to identify any owners or 

managers of DMEPOS suppliers who are not reported on supplier 

applications as required

Our findings demonstrate that omissions of the names of owners or 

managers can allow a supplier to gain billing privileges when it might 

otherwise be denied Medicare participation. Additionally, CMS 

recognizes that its contractors are not currently able to verify 

information that may have been purposely omitted or changed in such a 

manner as to obfuscate it. Consequently, such omissions could 

circumvent new fingerprint-based criminal background checks added by 

the ACA. 

Therefore, CMS should improve processes to detect information that 

may be purposely omitted by individuals who are intent on defrauding 

the program. In doing so, CMS could establish mechanisms to access 

public records, as we did for this report, to identify all owners and 

managers who should be listed by new DMEPOS applicants. Given that 

few low/limited-risk suppliers in our sample omitted such information, 

CMS should focus such investigative activities on suppliers deemed high

or medium risk by in-depth assessments, such as the FAIR rating. 

Take appropriate action regarding DMEPOS suppliers that omit 

information from applications 

We will forward to CMS the names of those suppliers that we 

identified as having omitted (a) the names of owners or managers or 

(b) information regarding the criminal histories of owners or 

managers or any adverse legal actions taken against these 

individuals. CMS can then determine whether the omissions were 

intentional and whether further action is needed. Additionally, in the 

future, when CMS determines that suppliers have inappropriately

omitted required information from a Medicare enrollment application, 

CMS should refer these individuals and suppliers to OIG for (if 

warranted) permissive exclusion. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its comments on the draft report, CMS concurred with our 

recommendations and stated that it is using authorities granted 

under the ACA to address potential vulnerabilities.

 
 

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RECOMMENDATIONS

In response to our recommendation to conduct postenrollment site 

visits earlier for new DMEPOS suppliers receiving the most money 

from Medicare, CMS stated that it has already taken steps to address 

this issue. In December 2009, the NSC began conducting at least bimonthly observational site visits on suppliers with a FAIR rating of 

High. CMS stated that it will instruct NSC to perform, at a 

minimum, an observational site visit on all suppliers with a FAIR 

rating of High within 60 days of enrollment and those with a FAIR 

rating of Medium within 120 days of enrollment.

In response to our recommendation to apply investigative techniques 

and tools to identify any owners or managers of DMEPOS suppliers 

who are not reported on supplier applications as required, CMS 

stated that beginning December 2011, a new screening contractor will 

use external referential data to identify individuals affiliated with 

companies but not reported on enrollment documents and will alert 

NSC and the MACs accordingly. 

In response to our recommendation to take appropriate action 

regarding DMEPOS suppliers that omit information from 

applications, CMS stated that it will research and take action, if 

appropriate, on those individuals identified by OIG. CMS also stated 

that it will continue to refer to law enforcement agencies for action at 

their discretion any individuals and suppliers identified as having 

inappropriately omitted required information from enrollment 

applications. 

For the full text of CMS comments, see Appendix B. We made minor 

changes to the report based on technical comments.
 

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 APPENDIX ~ A

Estimates and Confidence Intervals

We calculated estimates and corresponding 95-percent confidence 

intervals using the statistical software program Sudaan, which 

calculated correct standard errors based on the stratified sample design.

Table A-1: Percent Estimates and Confidence Intervals

Type of Supplier

Estimated 

Percentage 

of Suppliers

95-Percent 

Confidence 

Interval

At Least One Enforcement Action

Low Risk 2.2% 0.6–8.0%

High and Medium Risk 26.1% 20.3–32.8%

Both Enforcement Actions

High and Medium Risk 3.6% 2.3–5.8%

Billing Privilege Revocation

Low Risk 2.2% 0.6–8.0%

High and Medium Risk 20.7% 15.4–27.2%

Prepayment Review

Low Risk 0.0% 0.0–4.0% 

High and Medium Risk 9.0% 6.2–12.9%

Omission of Ownership or Management

 Information

Low Risk 4.4% 1.7–10.8%

High and Medium Risk 12.9% 9.0–18.2% 

Omission of Criminal or Adverse Legal History

High and Medium Risk 3.6% 1.8–6.9%

Low/Limited-Risk Suppliers (sample size=91) 

High- and Medium-Risk Suppliers (sample size=138)

Source: Office of Inspector General (OIG) analysis of 229 newly enrolled suppliers of 

durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), 2011.
 

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Table A-2: Reimbursement of Suppliers on Prepayment Review

Type of Supplier

Estimated Reimbursement 

of Suppliers

95-Percent 

Confidence Interval

High and Medium Risk $6,722,258.35 $5,781,020.95–$7,663,495.75

High- and Medium-Risk Suppliers (sample size=138)

Source: OIG analysis of 229 newly enrolled DMEPOS suppliers, 2011.

Table A-3: Averaged Elapsed Time Before First 

Postenrollment Site Visit

Type of Supplier Estimated Days

95-Percent 

Confidence Interval

Medium Risk 325.30 days 306.69–343.91 days

Medium-Risk Suppliers (sample size=60)* 

* Eleven medium-risk suppliers in our sample did not have postenrollment site visits 

conducted by the National Supplier Clearinghouse, six were exempt from site visits, and 

five had their Medicare billing privileges revoked prior to a first site visit.

Source: OIG analysis of 229 newly enrolled DMEPOS suppliers, 2011. 

APPENDIX~A
A P PEN D x B 


Agency Comments 

.......,'~ (J­ Cenle", for Medicare & Medicaid Services DEPAIUMENT OF H1!ALTH & HUMAN SERVICES 

DATE: 

TO: 

FROM: 

SUBJECT: 

Administrlltor 

Washington, DC 20201 

NOV 0 2 2011 

Daniel R. Levinson 

Inspector General 

Donald M. lle1\Vick, M.D. 

Administrato'rOffice ofInspector General (OlG) Draft Report: "Program Integrity Problems 

with Newly Enrolled Medicare Suppliers of Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies" (OEI-06-09-00230) 

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

comment on the Office oflnspector General (OlG) draft report entitled, "Program Integrity 

Problems with Newly Enrolled Medicare Suppliers ofDurable Medical Equipment, Prosthetics, 

Orthotics, and Supplies." The OIG had mUltiple objectives. First, it seeks to determine the 

extent to which newly enrolled suppliers ofdurable medical equipment, prosthetics, orthotics, 

and supplies (DMEPOS) had their billing privileges revoked or were placed on prepayment 

claims review. Secondly, it seeks to determine the extent to which newly enrolled DMEPOS 

suppliers omitted from their Medicare enrollment applications required information regarding (a) 

owners/managers or (b) the criminal histories ofowners/managers or any adverse legal actions 

taken against those individuals. 

The Affordable Care Act strengthens the focus on the integrity ofthe Medicare, Medicaid, and 

Children's Health Insurance Program (CHIP) programs and ,provides important new tools to 

combat fraud and abuse, including enhanced provider and supplier screening requirements, 

authority to suspend payments pending investigations of credible allegations of fraud, and, when 

necessary, authority to impose moratoria on new providers and suppliers. 

The DMEPOS benefit has historically been vulnerable to abuse. As such, CMS is taking 

additional steps to address potential vulnerabilities in the ellfollment and claims payment process 

for this supplier group using the authorities granted under the Atfordable Care Act. Under the 

new screening provisions ofCMS 6028-FCI

, currently enrolled (revalidating) DMEPOS are 

considered a moderate-risk provider/supplier and all newly enrolling suppliers of DMEPOS are 

considered a high-risk provider/supplier. Both risk groups are, therefore, subject to unannounced 

site visits. 

I CMS 6028-FC entitled. "Medicare, Medicaid and Children's Health Insurance Programs; Additional Screening 

Requirements, Application Fees, Temporary Enrollment Moratoria, Payment Suspensions and Compliance Plans for 

Providers and Suppliers" was published in the Federal Register on February 2, 20 II. 

OEI·06·09·00230 PROGRAM INTEGRITY PROBLEMS WITH NEWLY ENROLLED MEDICARE EQUIPMENT SUPPLIERS 20 
 

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APPENDIX ~ B
 

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APPENDIX ~ B
 

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 ACKNOWLEDGMENTS

This report was prepared under the direction of Kevin Golladay, 

Regional Inspector General for Evaluation and Inspections in the Dallas 

regional office; Blaine Collins, Deputy Regional Inspector General; and 

Ruth Ann Dorrill, Deputy Regional Inspector General. 

Tom Browning served as the Project Lead for this study and 

Jennifer Gist served as the Lead Analyst. Other principal Office of 

Evaluation and Inspections staff from the Dallas regional office who 

contributed to the report include Ben Gaddis and Deborah McGurk. 

Central office staff who contributed include Kevin Farber, Rob Gibbons, 

Scott Manley, and Meghan Ruhnke. 
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 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. These evaluations focus on preventing fraud, waste, or abuse and promoting 

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

reports also present practical recommendations for improving program operations. 

Office of Investigations 

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

of fraud and misconduct related 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.

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 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 monitors 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.