Department of Health and Human Services

OFFICE OF

INSPECTOR GENERAL

MEDICARE SUPPLIER 

ACQUISITION COSTS FOR 

L0631 BACK ORTHOSES 

Daniel R. Levinson 

Inspector General

December 2012

OEI-03-11-00600
EXECUTIVE SUMMARY: MEDICARE SUPPLIER ACQUISTION COSTS FOR 

L0631 BACK ORTHOSES 

OEI-03-11-00600

WHY WE DID THIS STUDY 

From 2008 to 2011, Medicare claims for L0631 back orthoses more than doubled, 

increasing Medicare allowances from $36 million to more than $96 million. Suppliers 

may bill Medicare for a variety of back orthosis products using code L0631, and the 

acquisition cost for each product may vary according to the manufacturer and model 

provided. However, Medicare does not collect information on the supplier acquisition

costs or the models of L0631 back orthoses provided to beneficiaries. This study 

provides information on supplier acquisition costs for L0631 back orthoses that could 

assist the Centers for Medicare & Medicaid Services (CMS) in determining whether the 

Medicare payment amount is appropriate. 

HOW WE DID THIS STUDY

From CMS’s National Claims History file, we extracted Medicare claims for L0631 back 

orthoses with dates of service between July 1, 2010, and June 30, 2011. We randomly 

selected a sample of 350 suppliers and then randomly selected 1 claim from each. We 

requested that suppliers provide the acquisition cost of the L0631 orthoses they purchased 

for the claims, reflective of any discounts, rebates, fees, or charges. We also requested 

that suppliers describe the services they provided to beneficiaries, including fitting and 

adjustment services and instructions for using the orthoses.

WHAT WE FOUND

Medicare payment amounts were more than four times greater than supplier acquisition 

costs for L0631 back orthoses. Between July 2010 and June 2011, the average 

Medicare-allowed amount for L0631 back orthoses was $919 and the average supplier 

acquisition cost was $191. Consequently, Medicare and its beneficiaries paid 

approximately $37 million more for L0631 back orthoses than suppliers paid to acquire 

them. Beneficiary copayments alone would have almost covered suppliers’ L0631 

acquisition costs. The description for the L0631 back orthosis code includes not only the 

orthosis but also fitting and adjustment services. However, for one-third of claims, 

suppliers did not report providing fitting and adjustment services. For 93 percent of 

claims, suppliers did not report providing any additional services regarding the L0631 

back orthoses other than general instructions.

WHAT WE RECOMMEND 

We recommend that CMS use supplier acquisition cost information to lower the fee 

schedule amount for L0631 back orthoses by including it in the Competitive Bidding 

Program or by using CMS’s inherent reasonableness authority. CMS concurred that 

Medicare payments for L0631 back orthoses should be adjusted to more closely reflect 

supplier acquisition costs and the level of service provided when furnishing the devices.
 

TABLE OF CONTENTS

Objectives ....................................................................................................1 

Background ..................................................................................................1 

Methodology ................................................................................................3 

Findings........................................................................................................7 

Medicare payment amounts were more than four times greater 

than the supplier acquisition costs for L0631 back orthoses ...........7 

Suppliers did not report providing fitting and adjustment services 

for one-third of claims .....................................................................8 

Conclusion and Recommendation .............................................................10 

 Agency Comments and Office of Inspector General Response .... 11

Appendixes ................................................................................................12 

A: Point Estimates and Confidence Intervals for L0631 Back 

Orthoses Findings ..........................................................................12 

B: L0631 Back Orthosis Models Provided to Beneficiaries ........15 

C: Agency Comments ..................................................................18 

Acknowledgments......................................................................................20 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 1

OBJECTIVES 

1. To compare the Medicare payment amount for L0631 back orthoses to 

supplier acquisition cost. 

2. To determine the extent to which suppliers provided services to 

Medicare beneficiaries who received L0631 back orthoses. 

BACKGROUND 

The number of Medicare claims and total allowances for L0631 back 

orthoses rose sharply from 2008 to 2011. During that time, Medicare 

allowances for L0631 back orthoses more than doubled, increasing from 

$36 million in 2008 to more than $96 million in 2011.1 Although 

Medicare pays for 13 different lower-back orthoses codes, in 2011 it paid 

more for orthoses coded as L0631 than the other 12 lower-back orthoses 

codes combined.2

 

Medicare Coverage of Back Orthoses 

Back orthoses provide back support, reduce back pain, and facilitate 

healing of the spine. Medicare covers back orthoses prescribed for one of 

the following indications:

• to reduce pain by restricting mobility of the trunk, 

• to facilitate healing following an injury to the spine or related soft 

tissue, 

• to facilitate healing following a surgical procedure on the spine or 

related soft tissue, or 

• to otherwise support weak spinal muscles and/or a deformed spine.3 

To bill Medicare, a supplier must have a written order from a physician 

indicating that the back orthosis is reasonable and necessary for the 

beneficiary. Beneficiaries obtain back orthoses from suppliers, which 

purchase them from manufacturers and wholesalers.

1 Summary analysis of the Centers for Medicare & Medicaid Services’ (CMS) Services 

Tracking, Analysis, & Reporting System National Database. 

2 Ibid.

3 Local Coverage Determination (LCD) for Spinal Orthoses: TLSO and LSO (L11470), 

January 1, 2010. This is the LCD for one of the four claims processors for durable medical 

equipment, prosthetics, orthotics, and supplies (DMEPOS). The other three claims processors 

have identical LCDs. LCD L11470 was accessed at 

http://www.medicarenhic.com/dme/medical_review/mr_lcds/mr_lcd_current/L11470_2010-

01-01_PA_2010-07.pdf on October 5, 2011.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 2

Medicare Payment for Back Orthoses

To obtain payment for covered equipment, suppliers submit claims using 

procedure codes. The Healthcare Common Procedure Coding System 

(HCPCS) provides a standardized coding system for describing specific 

items and services provided. In the case of back orthoses, each HCPCS 

code defines a type of orthosis but does not specify the individual models 

covered under each code. Therefore, a single HCPCS code can be used to 

bill for a number of different manufacturers’ products as long as they meet 

the requirements outlined in the definition of the code. 

There are 13 HCPCS codes (L0628 through L0640) for lumbar-sacral 

(lower-back) orthoses. 4 Medicare allowed $166 million for all lumbarsacral orthoses codes. Medicare allowed $96 million for code L0631 

alone—58 percent of the total 2011 payments for all lumbar-sacral 

orthoses.5 Medicare-allowed amounts include the 80 percent that 

Medicare pays and the 20 percent the beneficiary pays as a copayment. 

The L0631 code is one of seven lumbar-sacral codes for prefabricated 

back orthoses. The remaining six lumbar-sacral codes are for 

custom-fabricated back orthoses. According to local coverage policy 

articles for back orthoses, prefabricated back orthoses are “manufactured 

in quantity without a specific patient in mind” and custom-fabricated 

orthoses are “individually made for a specific patient.”6 

Medicare payment amounts for durable medical equipment, prosthetics, 

orthotics, and supplies (DMEPOS) are based on fee schedules. Medicare 

pays the lower of the supplier charge for the item or the fee schedule 

amount. Medicare uses a separate fee schedule for each State to account 

for geographic differences in prices. For prosthetics and orthotics, 

Medicare uses regional fee schedule amounts, which are the weighted

averages of the statewide fee schedule amounts in each CMS region. 

4 According to the LCD in note 3 above, L0631 is defined as “lumbar-sacral orthosis, sagittal 

control, with rigid anterior and posterior panels, posterior extends from sacrococcygeal 

junction to T-9 vertebra, produces intracavity pressure to reduce load on the intervertebral 

discs, includes straps, closures, may include padding, shoulder straps, pendulous abdomen 

design, prefabricated, includes fitting and adjustment.”

5 Summary analysis of CMS’ Services Tracking, Analysis, & Reporting System National 

Database. 

6 Local Coverage Article for Spinal Orthoses: TLSO and LSO (A23663), July 1, 2010. This 

is the Policy Article for one of the four DMEPOS claims processors. The other three claims 

processors have identical Policy Articles. Policy Article A23663 was accessed at 

http://www.medicarenhic.com/dme/medical_review/mr_lcds/mr_lcd_current/L11470_2010-

01-01_PA_2010-07.pdf on October 5, 2011.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 3

The 2011 fee schedule amounts for L0631 ranged from $906.34 to 

$940.65.7

The payment amount for L0631 includes fitting and adjustment services. 

The local coverage determinations for back orthoses do not define “fitting 

and adjustment.” They also do not specify that certain types of personnel, 

such as certified orthotists, should perform fitting and adjustment services. 

Suppliers are not required to provide any additional services to 

beneficiaries receiving L0631 back orthoses.

Competitive Bidding for DMEPOS

For some DMEPOS, payment amounts are set through competitive 

bidding in certain jurisdictions. Under the DMEPOS Competitive Bidding 

Program, suppliers compete to become Medicare contract suppliers by 

submitting bids to furnish certain items in a geographical area. CMS 

awards contracts to suppliers that offer lower prices and meet the 

program’s quality and financial standards.8 However, back orthoses are 

not among the DMEPOS items included in competitive bidding. 

Inherent Reasonableness Authority

CMS has the authority to adjust Medicare payment amounts that are not 

inherently reasonable.

9

 The Act requires that payments made under 

Medicare Part B be “reasonable.”10 The Act provides that CMS may 

establish a special reasonable payment limit for a category of service if,

after consultation with representatives of affected parties (such as 

suppliers), it determines that payment amounts are grossly deficient or 

excessive. CMS staff reported that, since the implementation of fee 

schedules in 1989, the agency has used its inherent reasonableness 

authority successfully once, in 1995, to lower the payment amounts for 

standard home blood glucose monitors.11 

METHODOLOGY

Data Sources and Collection

Sample Selection. From CMS’s National Claims History (NCH) file, we 

extracted all claims for L0631 back orthoses that (1) had dates of service 

between July 1, 2010, and June 30, 2011; (2) had an allowed charge 

greater than $0.00; (3) were from suppliers within the 50 States and the 

7 The range excludes the fee schedule amounts for Puerto Rico, Virgin Islands, and other U.S. 

territories.

8 Social Security Act (the Act), § 1847(b)(2)(A).

9 The Act, §§ 1834(a)(10)(B) and 1842(b)(8) and (9).

10 Coverage for L0631 back orthoses is provided under Medicare Part B.

11 60 Fed. Reg. 3405 (Jan. 17, 1995).
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 4

District of Columbia; and (4) had a specific National Provider Identifier 

(NPI) for the supplier. As Table 1 shows, the Medicare allowed amount 

for all claims in the universe totaled $83 million. 

From this universe of claims we selected a two-stage cluster sample. For 

the first stage, we randomly selected 350 of the total 3,131 suppliers. 

These sampled suppliers had between 1 and 3,537 allowed claims. For the 

second stage, we randomly selected 1 claim from each of the 

350 suppliers. We removed two claims filed by two suppliers that were 

under investigation by the Office of Inspector General’s (OIG) Office of 

Investigations. 

Supplier Survey. We used the NPI from each claim to obtain contact 

information for each supplier from CMS’s National Plan & Provider 

Enumeration System. We sent letters to the suppliers asking them to 

complete an online survey regarding their L0631 claims and to provide 

relevant documentation, such as invoices and physician orders. We made 

a minimum of three written attempts to obtain information from the 

sampled suppliers. If we received no information after three attempts, we 

attempted to contact the supplier by telephone and/or email. 

For the specific product provided by the supplier, we requested (1) the 

manufacturer name; (2) the model name; (3) the model number, 

(4) a description of the item; (5) the acquisition cost (reflective of any 

discounts, rebates, fees, or charges); and (6) the physician order for the 

item. 

We also requested that each supplier describe the services it provided the 

beneficiary. We asked suppliers about their fitting and adjustment 

services, any instructions regarding the use of the orthoses, and a 

description of any other services provided. 

Table 1 shows the number of claims, suppliers, and Medicare-allowed 

amounts for the population, sample, and survey respondents. We removed

six claims for six suppliers that reported they erroneously billed for L0631 

back orthoses. In each of those cases, the supplier billed Medicare for an 

L0631 orthosis but actually provided the beneficiary with some other type. 

Twenty-one suppliers did not complete the survey. Of those, four did not 

complete the survey because their businesses had closed. Four could not 

be reached because their addresses were incorrect and their letters were 

returned as undeliverable. Another 13 suppliers never responded after 

receiving our survey request letters and followup calls.12

12 OIG referred the 21 suppliers that did not respond to the survey to CMS.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 5

Table 1: Population and Sample Size

Population Sample Respondents

Suppliers 3,131 350 321

Claims 90,181 350 321

Allowed Amount $82,819,632 $319,592 $293,901

 Source: OIG analysis of claims extracted from NCH file. 

We reviewed 321 claims from the 321 suppliers that responded to the 

survey. One respondent provided documentation but did not complete the 

survey. However, on the basis of its documentation, we included that 

supplier in our analysis. 

Data Analysis

For the 321 suppliers who responded to our survey, we compared 

Medicare’s allowed amount to supplier acquisition costs for L0631 back 

orthoses and determined the extent to which suppliers provided services 

associated with them. 

Supplier Acquisition Cost. To calculate the supplier acquisition cost for

each orthosis, we asked suppliers to provide the invoice purchase prices as 

well as any discounts or fees associated with the purchases. To calculate

acquisition cost, we subtracted any discounts from the invoice purchase

price and added any fees. When suppliers provided prices, discounts, or 

fees that were not supported in their documents, we used the information 

in the documentation for our calculations. The calculation of acquisition 

cost does not include a supplier’s indirect costs, such as the cost of 

performing services or other supplier business expenses. 

Discounts received by suppliers included rebates, prompt-pay discounts, 

volume discounts, and other discounts. Fees paid by suppliers included 

delivery charges, fuel charges, and sales taxes. When suppliers received

orthoses as part of a delivery with other items, we prorated the delivery 

charge on the basis of the number of items on the shipment documentation 

provided by the suppliers. In five cases, suppliers did not have 

documentation indicating the number of other items that were included 

with shipment of the orthoses. We used the full delivery charges they 

reported for our calculations. 

Differences Between Allowed Amount and Supplier Acquisition Cost. For 

each claim in the sample, we calculated the difference between the 

Medicare-allowed amount and the supplier acquisition cost. We then 

calculated the average dollar amount difference across all claims. We 

projected this difference to determine the total dollar amount difference 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 6

between what Medicare and its beneficiaries paid and what suppliers paid 

for the orthoses. We also calculated the average percentage difference 

between the Medicare-allowed amount and the supplier acquisition cost. 

We also analyzed beneficiary copayments for L0631 back orthosis claims. 

From the copayment information included on each claim, we calculated 

the average beneficiary copayment across all claims. In addition, we 

totaled beneficiary copayment amounts across all L0631 back orthosis 

claims. 

Models of Common L0631 Orthoses Provided by Suppliers. For each 

claim, we requested that the supplier report the manufacturer and model of 

the orthosis provided. We aggregated suppliers’ responses to determine 

which models were most commonly provided. 

Services Provided by Supplier. We calculated the percentage of claims that 

involved fitting and adjustment services provided by suppliers. We also 

calculated the percentage of claims in which suppliers provided fitting and 

adjustment services at the beneficiaries’ homes, on the suppliers’ premises, 

or at other locations. We calculated the percentage of fitting and 

adjustment services provided by physicians; certified orthotists; office 

personnel; or others, such as manufacturer representatives.

We also calculated the percentage of claims in which suppliers provided 

instructions to beneficiaries and the percentage of claims in which 

suppliers provided any other services. 

Type of Delivery. We determined how suppliers delivered L0631 back 

orthoses. Each supplier indicated whether the orthosis was provided on 

the supplier’s premises, by personal delivery from the supplier to the 

beneficiary, through a third-party parcel service, by direct delivery from 

the manufacturer of the orthosis, or by some other means. We calculated 

the percentage of claims for which suppliers used each method. 

Point Estimates and Confidence Intervals. We developed point estimates 

and confidence intervals at the 95-percent confidence level for all statistics 

presented in the findings of this report. This information is provided in 

Appendix A. While the response rate for suppliers surveyed was 

92 percent (321 of 350), the claims associated with these 321 suppliers 

represented 56 percent of the claims associated with all 350 sampled 

suppliers. Therefore, the results of our analysis are representative only of 

56 percent of the entire population of L0631 claims. 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 7

FINDINGS

Medicare payment amounts were more than four times 

greater than the supplier acquisition costs for L0631 

back orthoses 

Between July 1, 2010, and June 30, 2011, the average Medicare-allowed 

amount was 380 percent higher than the average supplier acquisition cost. 

During that period, the average Medicare-allowed amount for L0631 back 

orthoses was $919, which was more than four times greater than the 

average acquisition cost of $191. The average difference between the

Medicare-allowed amount and supplier acquisition costs was $728. 

Medicare allowed between $400 and $942 for L0631 back orthoses, while 

suppliers paid as little as $0 and as much as $995 for them.13 

For almost all claims (99.6 percent), the Medicare-allowed amounts

exceeded the suppliers’ acquisition costs. Suppliers purchased 75 percent 

of orthoses for $234 or less, half for $168 or less, and 25 percent for $152 

or less. 

Medicare and its beneficiaries paid $37 million more for L0631 

back orthoses than suppliers paid to purchase them 

Medicare allowed a total of $83 million for L0631 claims between 

July 1, 2010, and June 30, 2011.14 Medicare and its beneficiaries paid 

$37 million more for L0631 back orthoses than suppliers paid to acquire 

them.

15 

Beneficiary copayments alone would have almost covered suppliers’ 

L0631 acquisition costs. Beneficiaries are responsible for paying 20 

percent of the Medicare-allowed amount for back orthoses. The average 

beneficiary copayment for L0631 orthoses was $184, while the average 

supplier acquisition cost was $191. Collectively, beneficiaries paid 

$9.3 million for L0631 back orthoses that cost suppliers $9.7 million. 

13 One supplier reported paying nothing for its L0631 orthosis because the vendor provided it 

as a sample, free of charge. OIG referred this supplier to CMS.

14 Total allowances are for the claims that met the parameters outlined in the Methodology 

section of this report.

15 As described in the Methodology section, the results of our analysis represent 56 percent, 

or $47 million, of the entire population of L0631 claims. The $37 million is calculated on the 

basis of this $47 million.

 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 8

Discounts and fees did not substantially affect suppliers’ 

acquisition costs for L0631 orthoses

Suppliers received discounts on 22 percent of the orthoses they purchased. 

The average discount was $11 (this includes volume discounts, promptpay discounts, rebates, and other discounts). Suppliers paid delivery fees 

or other fees, such as sales tax, on 62 percent of the orthoses they 

purchased. The average fee was $7. We factored discounts and fees into 

the suppliers’ acquisition costs. 

The majority of claims were for orthoses that suppliers 

acquired directly from manufacturers

For 67 percent of claims, suppliers purchased L0631 back orthoses 

directly from manufacturers. Another 31 percent of orthoses were 

purchased from wholesalers and 2 percent from other sources, such as 

distributors or retailers. Back orthoses purchased from manufacturers 

were slightly less expensive than those purchased from wholesalers. On 

average, suppliers purchasing from manufacturers paid $180 while those 

purchasing from wholesalers paid $212. The few suppliers who acquired 

orthoses from other sources paid an average of $256. 

Three orthosis models accounted for almost half (48 percent) 

of all L0631 claims 

The Prolign model, manufactured by DeRoyal Industries, Inc., accounted 

for 28 percent of L0631 claims. The DDS-500 model, manufactured by 

Disc Disease Solutions, Inc., and the Summit model, manufactured by 

Aspen Medical Products, Inc., each accounted for 10 percent. Appendix B 

lists all of the manufacturers and models reported by suppliers and 

provides point estimates for the percentage of claims associated with each. 

Suppliers did not report providing fitting and 

adjustment services for one-third of claims 

Fitting and Adjustment Services. Fitting and adjustment services are 

included in the payment amount for L0631 back orthoses. For one-third 

of claims, suppliers did not report providing fitting and adjustment 

services to beneficiaries. Among the remaining two-thirds of claims, the 

extent of the reported fitting and adjustment services varied. Some 

suppliers’ documentation indicated that the services entailed taking 

measurements, such as the beneficiary’s hip and waist size. Other 

suppliers’ documentation indicated that they made physical adjustments to 

back orthoses to fit beneficiaries properly. 

For 42 percent of claims involving fitting and adjustment services, 

suppliers reported that the services were provided not by specialized staff, 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 9

but by office personnel. A certified orthotist provided fitting and 

adjustment services for 9 percent of claims. Another 48 percent of claims 

involved services performed by physicians or other professionals, such as 

registered nurses, chiropractors, physical therapists, or DMEPOS fitters. 

For the remaining 1 percent of claims, fitting and adjustment services were 

provided by others, such as manufacturing representatives. 

The majority of fitting and adjustment services were not provided in 

beneficiaries’ homes. Suppliers reported providing 58 percent of fitting

and adjustment services on the suppliers’ premises. About a quarter 

(27 percent) of fitting and adjustment services were provided in 

beneficiaries’ homes. Another 15 percent were provided in other 

locations, such as a doctor’s office.

Additional Services. Although most suppliers (91 percent) provided 

general instructions on the use of the back orthosis, for the vast majority of 

claims (93 percent), suppliers did not report providing any other types of 

services regarding L0631 back orthoses.16 Additional services that were 

reported included making followup phone calls and providing information 

regarding patient rights and responsibilities.

Delivery Services. For many claims, suppliers did not provide personal 

delivery to beneficiaries. Forty-three percent of claims were from

suppliers that provided orthoses to beneficiaries on the suppliers’ 

premises. For 19 percent of claims, suppliers used third parties (e.g., UPS, 

FedEx) to ship the orthoses to beneficiaries. For 38 percent, suppliers 

delivered the orthoses to beneficiaries. 

16 General instructions include information such as the proper way to put on and remove the 

back orthosis as well as its cleaning and care.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 10

CONCLUSION AND RECOMMENDATION

Medicare payment amounts were substantially more than suppliers’

acquisition costs for L0631 back orthoses. Consequently, Medicare and its 

beneficiaries paid approximately $37 million more for these orthoses than 

suppliers paid to purchase them. For one-third of claims, suppliers did not 

provide the fitting and adjustment services included in the payment 

amounts. For the vast majority of claims (93 percent), suppliers did not 

provide any additional services related to L0631 back orthoses other than 

general instructions. 

The significant difference between the Medicare allowed-amount and 

supplier acquisition cost, especially in light of the noncustomized nature 

of the L0631 back orthosis and the limited services provided to 

beneficiaries, warrants an examination by CMS of its current payment 

amount. 

We recommend that CMS: 

Lower the Fee Schedule Amount for the L0631 Back Orthosis 

CMS could take one of the following actions: 

• Include the L0631 back orthosis in the DMEPOS Competitive 

Bidding Program. CMS could award contracts to suppliers that

offer more appropriate prices while also meeting the program’s 

quality and financial standards. 

• Use its inherent reasonableness authority. The Medicare-allowed 

amount for L0631 back orthoses exceeded the supplier acquisition 

cost by an average of $728. The program and its beneficiaries 

could have paid millions of dollars less if the Medicare 

reimbursement amount for L0631 back orthoses more closely 

resembled the cost to suppliers.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 11

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS concurred that Medicare payments for L0631 back orthoses should 

be adjusted to more closely reflect the suppliers’ acquisition costs for the 

devices and the level of service provided when furnishing them. CMS 

stated that it has invited comments on a list of HCPCS codes, including 

code L0631, that were preliminarily classified as meeting the definition of 

off-the shelf (OTS) orthotics. OTS orthotics, which require minimal selfadjustment and do not require individual customization, are subject to the 

DMEPOS Competitive Bidding Program. CMS stated that it is carefully 

considering comments and consulting with experts in the orthotics field as 

it works toward finalizing Medicare’s classification of OTS orthotic codes. 

It believes that implementing competitive bidding for OTS orthotics 

would result in new payment amounts for these items in competitive 

bidding areas. CMS reported that, at this time, it does not want to use its 

inherent reasonableness authority to adjust the payment amounts as it is 

unlikely to undertake the required analysis prior to completing the 

classification of OTS orthotic codes. 

The full text of CMS's comments is provided in Appendix C. 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 12

APPENDIX A

Table A-1: Point Estimates and Confidence Intervals for L0631 Back 

Orthoses Findings

Estimate Description

Number of 

Sample 

Responses

Point Estimate 95% Confidence Interval

Percentage by which the average 

Medicare- allowed amount exceeded the 

average supplier acquisition cost

321 380% 335% to 426%

Average Medicare-allowed amount 321 $919 $914 to $924

Average acquisition cost 321 $191 $173 to $210

Average difference between the 

Medicare-allowed amount and supplier 

acquisition cost

321 $728 $710 to $745

Percentage of claims for which the 

Medicare-allowed amounts exceeded 

suppliers’ acquisition costs 

321 99.59% 97.57% to 99.93%

Median acquisition cost 321 $168 $147 to $188 

Supplier acquisition cost 75th percentile 321 $234 $209 to $259

Supplier acquisition cost 25th percentile 321 $152 $138 to $166

Percentage of claims for which the supplier 

acquisition costs included discounts 321 22% 9% to 46% 

Average amount of discounts received by 

suppliers 65 $11 $2 to $19

Percentage of claims for which the supplier 

acquisition costs included fees 321 62% 44% to 78%

Average amount of fees paid by suppliers 199 $7 $5 to $9 

Percentage of claims for orthoses acquired

from manufacturers 321 67% 52% to 79%

Percentage of claims for orthoses acquired 

from wholesalers 321 31% 19% to 45%

continued on next page 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 13

Table A-1: Point Estimates and Confidence Intervals for L0631 Back 

Orthoses Findings (continued)

Estimate Description

Number of 

Sample 

Responses

Point Estimate 95% Confidence Interval

Percentage of claims for orthoses acquired 

from other sources 321 2% 1% to 5%

Average price of orthoses acquired from 

manufacturers 170 $180 $156 to $204

Average price of orthoses acquired from 

wholesalers 130 $212 $184 to $240

Average price of orthoses acquired from 

other sources 21 $256 $213 to $299

Percentage of claims for Prolign L0631 

back orthoses 321 28% 13% to 50%

Percentage of claims for Summit L0631 

back orthoses 321 10% 5% to 17%

Percentage of claims for DDS-500 L0631 

back orthoses 321 10% 3% to 24%

Additional amount that Medicare and its 

beneficiaries paid compared to suppliers’ 

acquisition costs 

321 $36,811,464 $25,098,260 to $48,524,668

Average beneficiary copayment 321 $184 $183 to $186

Total beneficiary copayments 321 $9,327,080 $6,446,557 to $12,207,602

Total supplier acquisition cost 321 $9,686,441 $6,830,225 to $12,542,656

Percentage of suppliers that provided 

instructions to beneficiaries 321 91% 83% to 96%

Percentage of suppliers that did not report 

providing fitting and adjustment services 321 33% 18% to 53%

Percentage of fitting and adjustment 

services provided on suppliers’ premises 266 58% 42% to 72%

Percentage of fitting and adjustment 

services provided in beneficiaries’ homes 266 27% 15% to 43%

Percentage of fitting and adjustment 

services provided in other locations 266 15% 7% to 32%

continued on next page
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 14

Table A-1: Point Estimates and Confidence Intervals for L0631 Back 

Orthoses Findings (continued)

Estimate Description

Number of 

Sample 

Responses

Point Estimate 95% Confidence Interval

Percentage of fitting and adjustment 

services provided by office personnel 266 42% 27% to 58%

Percentage of fitting and adjustment

services involving certified orthotists 266 9% 6% to 14%

Percentage of fitting and adjustment 

services provided by physicians or other 

professionals 

266 48% 33% to 63%

Percentage of fitting and adjustment 

services provided by other staff 266 1% 0.37% to 4%

Percentage of suppliers that reported not 

providing other types of services related to 

orthoses

321 93% 84% to 97%

Percentage of suppliers that provided 

orthoses on their premises 321 43% 29% to 58%

Percentage of suppliers that delivered 

orthoses through third parties, such as 

FedEx

321 19% 6% to 46%

Percentage of suppliers that provided 

orthoses by personal delivery 321 38% 25% to 54%

Source: Office of Inspector General analysis of survey responses, 2012.
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 15

APPENDIX B

Table B-1: L0631 Back Orthosis Models Provided to Beneficiaries

The Centers for Medicare & Medicaid Services contracts with a Pricing, Data Analysis, 

and Coding (PDAC) Contractor to develop product classification lists that provide 

information on models of back orthoses that would meet the requirements for the L0631 

code. Not all of the manufacturers and models provided below were included in the 

L0631 Product Classification list displayed on the PDAC Contractor’s Web site as of 

September 2012. 

Manufacturer Model Point 

Estimate

95% Confidence 

Interval

DeRoyal Industries, Inc. Prolign 28% 13% to 50% 

Aspen Medical Products, Inc. Summit 10% 5% to 17%

Disc Disease Solutions, Inc. DDS-500 10% 3% to 24%

Bell-Horn/Cybertech Medical Premium Plus 7% 3% to 17%

Spinal Rehab Solutions, Inc. SR 500 7% 3% to 18%

American Medical Products Freedom LSO 6% 2% to 20%

Bauerfeind USA, Inc. Lumbo Plus 4% 0.76% to 20%

Hope Orthopedic Ninja LSO 3% 0.71% to 14%

Swedo-O/United Pacific Industries Pty. 

Ltd. Thermoskin 87273 3% 0.48% to 17%

BSN Medical/FLA Orthopedics, Inc. Cinch-Loc 3% 2% to 6%

Ossur Americas, Inc. Miami 3% 1% to 8%

M-Brace M-Spine 584 2% 0.69% to 8%

XBACK Bracing Services, Inc. X-Back T105 1% 0.32% to 7%

Orthomerica Products, Inc. California Mid Profile 1% 0.61% to 3%

Advanced Orthotic Designs Lace-it x640 LSO 1% 0.18% to 7%

Aspen Medical Products, Inc. Aspen LSO 0.92% 0.40% to 2%

Restorative Medical, Inc. VertebrEase TLSO 0.87% 0.13% to 5%

Optec USA, Inc. Evotec 0.71% 0.12% to 4%

Med Practice Solutions Flex LSO 0.71% 0.21% to 2%

ActiveCare Medical/Drive Medical VerteWrap LSO 0.62% 0.10% to 4%

Aspen Medical Products, Inc. Aspen LSO LoPro 0.48% 0.09% to 3%

XBACK Bracing Services, Inc. X-Back-II 0.46% 0.07% to 3%

Breg, Inc. BOA 0.42% 0.07% to 3%

DeRoyal Industries, Inc. Prolign EXT 0.42% 0.09% to 2%

XBACK Bracing Services, Inc. X-Back T102 0.42% 0.14% to 1%

Bledsoe Brace Systems Volare 0.32% 0.05% to 2%

Restorative Care of America, Inc. 450 LSO 0.28% 0.09% to 0.85%

Orthomerica Products, Inc. California Chairback 0.23% 0.06% to 0.91%

Hope Orthopedic Ortholux Lite 0.23% 0.06% to 0.86%

Swede-O, Inc. Rigid Lumbar Support 0.21% 0.04% to 1%

continued on next page
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 16

Table B-1: L0631 Back Orthosis Models Provided to Beneficiaries 

(continued)

Manufacturer Model Point 

Estimate

95% Confidence 

Interval

Advanced Orthopaedics Spinal Web 31 0.21% 0.04% to 1%

MIH International ActivDay 501 LSO 0.19% 0.04% to 0.93%

Medical Specialties, Inc. Archimed Spinal Brace 0.18% 0.03% to 1%

Orthomerica Products, Inc. California Soft Spinal System LSO 

with PSR 0.16% 0.04% to 0.62%

Hope Orthopedic Ortholux LSO 0.14% 0.06% to 0.34%

Optec USA, Inc. Stealth 0.14% 0.04% to 0.48%

BSN Medical/FLA Orthopedics, Inc. System-Loc 0.14% 0.02% to 0.92%

DeRoyal Industries, Inc. Ultralign 0.11% 0.03% to 0.35%

Hope Orthopedic Vertalux 0.11% 0.02% to 0.69%

Orthomerica Products, Inc. California Low Profile 0.07% 0.02% to 0.23%

Aspen Medical Products, Inc. Contour 0.07% 0.01% to 0.46%

Medi USA, LP Lumbamed Multi Stage Lumbar 

Support 0.07% 0.01% to 0.46%

Hope Orthopedic Ninja Pro 0.05% 0.01% to 0.35%

Freeman Manufacturing Co. C.A.S.H. Orthosis 0.04% 0.01% to 0.23%

Orthomerica Products, Inc. California CPO Chairback Mid 

Profile 0.04% 0.01% to 0.23%

Surgical Appliance Industries, Inc. Lumbotek 2 Lumbosacral Support 0.04% 0.01% to 0.23%

M-Brace M-Spine 574 0.04% 0.01% to 0.14%

Cybertech Medical Original and Chairback 0.04% 0.01% to 0.23%

Aspen Medical Products, Inc. Quickdraw 0.04% 0.01% to 0.14%

Professional Products, Inc. Rachis 0.04% 0.01% to 0.23%

Swede-O/United Pacific Industries Pty. 

Ltd. Thermoskin 85273 0.04% 0.01% to 0.23%

XBACK Bracing Services, Inc. X-Back T108 0.04% 0.01% to 0.23%

Cropper Medical, Inc./Bio Skin Black Jack 0.02% 0.003% to 0.12%

Orthomerica Products, Inc. California Ventura 0.02% 0.003% to 0.12%

Restorative Care of America, Inc. Control Fit TLSO 0.02% 0.003% to 0.12%

Spinal Technology, Inc. Custom LSO Lined Single Opening 0.02% 0.003% to 0.12%

US Orthotics Fullback XPA-10 0.02% 0.003% to 0.12%

Surgical Appliance Industries, Inc. Knight 0.02% 0.003% to 0.12%

Kydex Kydex Chairback Brace 0.02% 0.003% to 0.12%

Hely & Weber Low Profile Solly 0.02% 0.003% to 0.12%

Ottobock Lumbo Tristep 0.02% 0.003% to 0.12%

Aspen Medical Products, Inc. Multiple piece system 0.02% 0.003% to 0.12%

Oasis Orthopedics Oasis TLSO 0.02% 0.003% to 0.12%

NeuMed, Inc. Orthofect LSO Brace 0.02% 0.003% to 0.12%

Premier Orthopedic Supply, Inc. Premier LSO 0.02% 0.003% to 0.12%

continued on next page
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 17

Table B-1: L0631 Back Orthosis Models Provided to Beneficiaries 

(continued)

Manufacturer Model Point 

Estimate

95% Confidence 

Interval

ActiveCare Medical VerteWrap Low Profile LSO 0.02% 0.003% to 0.12%

XBACK Bracing Services, Inc. X-Back T100 0.02% 0.003% to 0.12%

Total 99%1

Source: Office of Inspector General analysis of survey responses, 2012.

1 The table does not include two back orthoses that two suppliers fabricated.
APPENDIXC 

Agency Comments 

/""Vk"~, 

f -'- DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

'~~ Administrator 

Washington, DC 20201 

OCT 2 5 2012 DATE: 

TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Mareyn Tavenner 

Acting AdminisN"ator 

SUBJECT: 	 Office o~or General (OIG) Draft Report: Medicare Supplier Acquisition 

Costs for L0631 Back Orthoses (OEI-03-11-00600) 

Tht: Centers for Medicare & Medicaid Services (CMS) would like to thank you for the 

opportunity to review and comment on the OIG draft report entitled, "Medicare Supplier 

Acquisition Costs for L0631 Back Orthoses." The draft report compares suppliers' acquisition 

costs for back orthoses coded under L0631 with Medicare's 2011 fee schedule amounts. Also 

detailed within the report is the nature and frequency of services performed by suppliers in 

relation to Ul631 back orthoses. 

The OJG draft report provides valuable insight for CMS on suppliers' costs for L0631 back 

orthoses. Notably, the report reveals that Medicare and beneficiaries paid suppliers an average 

of $728 beyond the supplier's acqUisition cost for an 10631 back orthosis. · This was coupled 

with a finding that for one third of the claims, suppliers did not provide any fitting and 

adjustment services. OIG recommendations and CMS's response to those recommendations are 

discussed below. 

OIG Recommendation 

The OIG recommends that CMS lower the Fee Schedule Amount for the L0631 Back Orthosis. 

CMS could take one of the following actions: 

• 	 Include the L0631 back orthosis in the Durable Medical Equipment, Prosthetics, 

OrthOtics, and Supplies (DMEPOS) Competitive Bidding Program. CMS could award 

contracts to suppliers who offer more appropriate prices while also meeting the 

program's quality and financial standards. 

• 	 Use its inherent reasonableness authority. The Medicare allowed amount for L0631 

back orthoses exceeded the supplier acquisition cost by an average of $728. The 

program and its beneficiaries could have paid millions of dollars less if the Medicare 

reimbursement amount for L0631 back orthoses more closely resembled the cost to 

suppliers. 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 18 
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 19
 

Medicare Supplier Acquisition Costs for L0631 Back Orthoses (OEI-03-11-00600) 20

ACKNOWLEDGMENTS

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office, and Linda M. Ragone, Deputy Regional Inspector General. 

Tanaz Dutia served as the team leader for this study. Other Office of 

Evaluation and Inspections staff from the Philadelphia regional office who 

conducted the study include Russell Tisinger and Nancy J. Molyneaux. 

Central office staff who provided support include Meghan Kearns, 

Debra Roush, and Tasha Trusty. 
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.