.. .. .. \ , :

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Department of Health and Human 
 Servces

OFFICE OF


:INSPECTOR GENERAL


l! SERVIC'l'n 

Richard P. Kusserow 

INSPECfOR GENERA 

-'if"d NOVEMBER 1991 

. rl 
. .;;j:,

. ?); .:/:. .; . ,, . . .. . . . :: :: . .

OFFICE OF INSPECfOR GENERA 

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

amended, is to protect the integrty of the Department of Health and Human Servce' (RRS) 

rognims as well as the health and welfare of beneficiaries served by those programs. This' 

statutory mision is carried out through a natiOliwidenetwork of audits, investigations, and 

offiCrOFAUDIT SERVICE 

General, Offce of' Evaluation"and' InsJ?ettions:and Natalie Coen; DeputyRegional InspeCtor 

;General, Offce ofEvaluatioo: and Inspections, Region V. Participating in this project were 

"i;(;;)" 

' the following people: 

Headquaers ChcaI!O, 

John M. Traczyk (Project Leader) W. Mark Krushat 

Thomas F. Komaniecki (Lead Analyst) Wayne A Powell 

Kate McFadden 
Department .of Health and Human Services


OFFICE OF


INSPECTOR GENERAL


CARRIER SHOPPING


A MANAGEMENT ADVISORY REPORT 

l! st;RVIC'l'S. 

Richard P. Kusserow 

INSPECTOR GENERAL 

-'if"dIG OEI-05-91-003 
EXECUTIVE SUMMARY


PUROSE 

To determine if point of sale encourages Medicare bilers to shop for the best paying 

carner. 

BACKGROUN 

Through repeated contacts with the Medicare carriers, suppliers learn which carriers 

pay the most for a medical supply item. They also learn just how much of a particular 

medical supply each carrier wil allow before stopping or cutting back on payments. 

Armed with information collected from carrier shopping, suppliers use point of sale to 

turn that information into profits at the expense of the Medicare program. 

Point of sale policies hold that the site where the medical supplier met with the 

beneficiary or received the beneficiary s call determines which carrier will have 

jurisdiction and process the claim. This enables suppliers to elude Medicare payments 

and safeguards by establishing multiple business locations in multiple carrier 

jurisdictions. 

This study looked at Medicare payment for medical supply items. We did not 

examine the extent of this problem in the areas of durable medical equipment 

prosthetics or orthotics. 

FININGS 

In 1989 carner shopping ma have reslted in at least $22 million in excess payents. 

Point of sale compromises carner program safegurds. 

Point of sale increases the rik of fraud abuse and waste. 

RECOMMNDATION 

The Health Care Financing Administration (HCF A) should have all bils for 

medical supplies submitted to the carrier having jurisdiction over the 

beneficiary s home rather than point of sale. 

This change in policy would have avoided the nearly $22 millon Medicare lost in 1989 

due to point of sale policies. Additional losses could also have been avoided if the 

same policy were applied to all durable medical equipment, prosthetics, orthotics and 

supplies. 
AGENCY COMMNT 

The HCFA and the Assistant Secretary for Planning and Evaluation (ASPE) were 

asked to comment on the draft of this report. Both ASPE and HCF A concur with our 

recommendation. We are pleased that we have reached agreement on this important 

policy and that HCF A is planning to modify its regulations. The full text of ASPE' 

and HCF A's comments are contained in Appendix A. 
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................................ .......................................... .. .. 

. . . . . . . . . . . . . . . . .. .. .. .. .. .. . . . . . . . . . . . . . .. 

TABLE OF CONTENTS


PAGE


EXJC1 

INODUCfION 

Purpose


Background


Methodology . . . . . . . . . . . . . . . 2


FINrnGS ...................................................... 4


In 1989, carrier shopping may have


resulted in at least $22 milion


in excess payments. ............................................. 4


Point of sale compromises carrier


program safeguards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5


Point of sale increases the risk of


fraud, abuse and waste. .......................................... 6


RECO A110N ............................................ 8


APPE 

Draft Report Comments and OIG Response. 
INTRODUCTION


PUROSE 

To determine if point of sale encourages Medicare bilers to shop for the best paying 

carrIer. 

BACKGROUN 

Supplementary Medical Insurance, commonly referred to as Part B of the Medicare 

program, assists patients in paying for medical servces and supplies. Part B helps 

patients pay for physician servces and other medical servces including medical 

supplies. 

The term medical supplies, as used in this report, is limited to supplies biled to 

Medicare under procedure codes A4000 through A4999. Medicare payments for these 

supplies have increased by 75 percent during the period 1987 through 1989. In 1987 

Medicare paid $232 millon for medical supplies. In 1989, program spending had risen 

to $407 milion. 

Medical supplies represents a small portion of the $3 bilion annual market which is 

composed of durable medical equipment, prosthetics, orthotics and supplies 

(DMEPOS). While this study focuses on medical supplies, the policies and procedures 

and the problems which accompany them are representative of problems encountered 

by Medicare in other areas of DMEPOS. 

The Health Care Financing Administration (HCF A) manages the Part B program and 

administers benefits with the assistance of contractors called carrers. Each carrer is 

responsible for the adjudication of claims submitted to them by suppliers located 

within the carrier s geographic servce area. 

To clear up jurisdictional problems which occur on some medical supply claims 

HCF A developed a claims processing policy known as point of sale jurisdiction. Point 

of sale requires suppliers to submit their claims to the carrier servicing the geographic 

area where the beneficiary s order for medical supplies is received. It has been 

hypothesized that point of sale permits large suppliers to shop around and locate their 

business operations in areas servced by a carrier that pays more and/or has more 

liberal coverage policies. 
The HCF A and carriers determine which medical supplies wil be covered and under 

what circumstances payment wil be made. The carriers, with guidance from HCF A, 

also: 

decide how much will be paid for each medical supply item; and 

establish the volume and number of each medical supply the Medicare program 

will buy for each beneficiary in a given period of time. 

Different approaches to pricing have resulted in considerable payment variance for 

medical supplies among the carriers. The policies and procedures of one carrier do 

not necessarily mirror another s practice. Each carrier has established their own 

system for assigning provider numbers used by bilers. Each maintains their own 

computer system for adjudicating claims. 

METHODOWGY 

Both qualitative and quantitative data were used to prepare this report. To gather 

qualitative information, discussions were held with 11 carriers concerning their 

experiences in adjudicating medical supply claims. Selection of the carriers was not 

random. Carriers in 8 of HCF A's 10 regions were selected to participate in this study 

because they process a large volume of claims. Three others were selected due to 

their proximity to the HCF A regional office. 

Quantitative data pertaining to medical supplies was obtained from HCF A's Part B 

Medicare Annual Data (BMA) file for 1989. Only national procedure codes ranging 

from A4000 - A4999 were reviewed in our data analysis. In 1989, 149 different 

procedure codes in this range were biled to Medicare. These 149 codes were selected 

for indepth analysis for this study. No other procedure codes were used. 

Resident carrier, as used in this report, refers to the carrier having jurisdiction for 

processing claims in the geographic area in which the beneficiary resides. Outside 

carrier refers to carriers outside the geographic area of the beneficiary s residence. 

The BMA file was used to identify beneficiaries who had medical supply items 

(A4000 - A4999) submitted on their behalf to outside carriers. A total of 81 159 line 

items were analyzed. Using zip code information, we determined that 20 344 of the 

159 line items were paid by an outside carrier. The number and dollar value of 

medical supplies paid by outside carriers was determined (See Table 1). The average 

amount payable for each medical supply by the resident carrier was also determined. 

The difference between what was paid by outside carriers and what would have been 

paid for the medical supply items by the resident carrier is reported in this study. In 

some cases, the BMAD file contained no information on resident carrier pricing. 

When this occurred, the original amount allowed was used in our calculations. 

Claims submitted on behalf of railroad retirees were not included in our analysis. We 

also eliminated 87 line items from our analysis because we could not identify the 
Table 1


resident carrier; consequently, the $407 milion paid for medical supplies was reduced 

to $406 milion in our final analysis reported in the findings. 

The number of beneficiaries who had medical supply claims submitted to outside 

carriers was further refined by identifying beneficiaries who reside in counties 

bordering on the outside carrier. We also considered the migration habits of 

beneficiaries. This analysis was conducted on a sample of 300 line items. The medical 

supplies beneficiaries purchased in an adjoining State and the migration habits of 

some beneficiaries were taken into consideration before any projections were made. 

We also analyzed our sample to determine the impact of End Stage Renal Dialysis 

(ESRD) patients on our projections. This analysis indicated that more than half 

(55%) of all items listed by HCFA as ESRD medical supplies were paid by the 

resident carrier. The prevalence of carrier shopping among ESRD patients appears to 

be no different than for non-ESRD patients; consequently, projections reflected in this 

inspection include ESRD patient data. 
FINDINGS


Finding #1: In 1989, caer shopping may have resulted in at least $22 mion 

excess payments. 

In 1989, Medicare paid $406 milion for medical supplies biled under procedure codes 

A4000 through A4999. Approximately 43 percent of this $406 milion, or $175 milion 

was paid by outside carriers. Resident carriers processed 75 percent of medical supply 

items and accounted for 57 percent of the payments. The remaining 25 percent of 

medical supply items were processed by outside carriers and accounted for 43 percent 

of the payments. 

Our analysis indicates that it 

may be financially Carrier Selection and advantageous for bilers of

Payment Levels medical supplies to bil an


outside carrier rather than the 

resident carrier. The 149 

different medical supply items 

'OO'd. 'd.	 biled to Medicare in 1989 and 

described by procedure codes 

43% 25%	

A4000 through A4999 are, by 

and large, inexpensive 

Outside Carrier Outside Carrier disposable items, widely 

available through a number of Total Total diverse sources, including mail Payments Services order houses. The beneficiary, 

in most cases, would have no 

Reside carers account for 57% of medical supply paymts and proces 75% reason to purchase these items 1M ilem billed Outside carrers account for 43% of paymts but only proces outside their resident Medicare

25% of medical supply ilem. carrier s jurisdiction. 

Our analysis of the 1989 BMA fie for procedure codes A4000 - A4999 indicates that 

excess payments totalling at least $22 milionl were made by the Medicare program in 

The total paid by outside carriers for medical supplies was $175 084 800. To determine how 

much would have been paid if the beneficiary s residence carrier had paid for the medical supplies 

instead of an outside carrier, we used the average allowed for a HCPCS by the beneficiary s residence 

carrier. In cases where the beneficiary s residence carrier did not pay for a specific HCPCS, the original 

amount allowed for that HCPCS was used to determine what would have been paid, Using this 

method, the total amount that would have been paid was $153 256 300, The amount of payment made 

in excess of what would have been paid by the beneficiary s residence carrier was $21 832 600, 
1989. These excess payments would not have occurred if the medical supplies were 

paid by the carrier having jurisdiction over the beneficiary s residence. 

Finding #2: Point of sale compromies caer program safeguards. 

All of the carriers we intervewed believe that Medicare s point of sale policy 

detrimental to the program. The carriers believe that point of sale: 

results in excessive payments; 

enables suppliers to avoid close carrier scrutiny; 

inhibits their ability to make medical necessity decisions; and 

contributes to duplicate payments for medical supplies. 

Carriers report that they receive requests from suppliers, trade publications and 

consultants concerning their medical supply fee schedules, prevailing charge rates and 

coverage policies. Suppliers then use the information they gain from pollng the 

carriers to decide where to set up business. Establishing an office in a carrier 

jurisdiction can be easy and relatively inexpensive. Telephone answering servces, call 

forwarding and mail drops allow suppliers to ostensibly conduct business in one 

carrier s jurisdiction, while its operations are actually based in another carrier 

jurisdiction. 

Carriers feel that suppliers take advantage of jurisdictional loopholes, created by point 

of sale, to bil carriers that either pay the most or have the most liberal coverage 

policies. All 11 carriers believe that suppliers use point of sale to get their claims 

the carrier which wil benefit them financially. Many of the carriers believe that point 

of sale has financially harmed the Medicare program. 

Point of sale enables suppliers to establish multiple business locations in multiple


carrier jurisdictions. These multiple locations enable some suppliers to manipulate 

carrier program safeguards. Carriers report that some suppliers find out a carrier 

tolerances for a medical supply item and then bil up to that tolerance. When one 

carrier s tolerance level is reached, suppliers simply change carriers and bil until that 

carrier s tolerance is reached. Suppliers placed on pre or post-payment review by one 

carrier often establish a new base of operations in another, unsuspecting, carrier 

jurisdiction. 

Many carriers attempt to contact their counterparts in other parts of the country to be 

on the alert for problem suppliers who leave their jurisdiction. Their efforts to track 

and control fraudulent and abusive suppliers are hampered by point of sale and the 

ease with which suppliers can conceal their identity by doing business under another 

name. 
Point of sale also hinders carrier efforts to ensure that the number of medical supplies 

provided to a beneficiary are reasonable and medically necessary. The accuracy of 

payments made for medical supplies depends, to a great extent, on Medicare carrier 

systems and personnel' s ability to identify suspect services and intervene in their 

payment. Point of sale results in carriers receiving claims from all over the United 

States. The carriers who receive claims on behalf of beneficiaries residing outside 

their jurisdiction have no payment history or other information on which to make 

coverage or use decisions. This makes review of claims for medical necessity very 

complex, costly and time consuming, often relying on coordination of efforts and 

information by more than one carrier. 

Finally, point of sale increases the risk of duplicate payments. Eight of 11 carriers 

have found evidence of duplicate biling. One of these carriers has evidence indicating 

that duplicate payments are being made by carrers for medical supplies provided to 

beneficiaries receiving Medicare skilled nursing benefits. The most common duplicate 

biling cited by carriers involves fraudulent suppliers that fragment or unbundle 

medical supplies sold in kits. The kit is biled to one carrier and individual 

components of the kit are biled to another. Carriers believe that duplicate payments 

caused by unbundling would be less likely to go undetected if current point of sale 

policies were abandoned by Medicare. 

The Medicare program has paid at least $22 milion in excess payments due to point 

of sale polices which allow large suppliers to shop around and locate their business 

operations in areas serviced by carriers that pay more and/or have more liberal 

coverage policies. Point of sale policies have also made the Medicare program 

vulnerable to duplicate payments and supplier actions which circumvent carrier 

utilization safeguards. Duplicate payments and inability of carriers to control use wil 

add to the amount of money Medicare has lost under the current point of sale policy. 

Finding #3: Point of sale increases the rik of fraud, abuse and waste. 

Differences in carrier reimbursement rates for medical supplies has led to a number of 

schemes designed to financially enrich some suppliers. One such scheme involves the 

purchase of sales receipts from suppliers in lower paying carrier jurisdictions. These 

sales are then submitted for reimbursement to higher paying carriers. 

Another scheme, investigated by the Offce of Investigations (01), involved a supplier 

that made initial contacts with beneficiaries at their homes. The first bil for medical 

supplies was sent to the carrier having jurisdiction for the beneficiary s residence. In 

subsequent months, beneficiaries received calls from company offices in other States. 

Bills were then submitted to the carrier having jurisdiction of the office where the 

phone call was made. By rotating biling through four different carriers, this supplier 

not only was able to bil the best paying carriers, but also avoided detection for 

providing supplies in excess of patient needs. The scheme was uncovered by the 
carriers but their efforts were hindered by the number of different aliases and provider 

numbers used by the supplier. 

Other schemes investigated by or involve medical suppliers who not only 

circumvented program safeguards but also blatantly falsified c1aims One criminal case 

involved $4 million in Medicare payments for incontinence supplies. These 

incontinence supplies turned out to be no more than diapers and 35 to 60 cents worth 

of plastic gloves, towellettes and iodine swabs in a plastic bag. The or found that as 

carriers stopped paying or cut payments because the volume of servces being 

provided to individual patients appeared excessive, the supplier simply moved to 

another State and began billng another carrier with a new provider number. 

The or has also successfully prosecuted suppliers who fraudulently received duplicate 

payments by biling one carrier for medical supply kits and another carrier for the 

individual components in the kits. Other cases involving duplicate payments 

kickbacks, forged certificates of medical necessity and shady business arrangements are 

under investigation. 
RECOMMENDATION


The current system for determining carrier jurisdiction for the payment of medical 

supplies results in a financial loss to the Medicare program. 

The HCF A should have all bils for medical supplies submitted to the carrier 

having jurisdiction over the beneficiary s residence rather than point of sale. 

Additional savings would also accrue to the Medicare program if the same policy were 

applied to all of the items considered DMEPOS. 

AGENCY COMMNT ON lHS REPORT 

The HCFA and the Assistant Secretary for Planning and Evaluation (ASPE) were 

asked to comment on the draft of this report. Both ASPE and HCF A concur with our 

recommendation. We are pleased that we have reached agreement on this important 

policy and that HCF A is planning to modify its regulations. The full text of ASPE' 

and HCF A's comments are contained in Appendix A. 
APPENDIX A


Draf Report Comments and OIG Response 
) . .

(1- DEPARTMENT OF HEALTH &. HUMAN SERVICES OfC8 of the Secetay 

Washington . D. C. 20201 

AUG 1991 

, r
 : --. I ' 

TO: Richard P. Kusserow 1 ­ .. J 

Inspector General


FROM: Assistant Secretary for 

planning and Evaluation


C.. 

SUBJECT: OIG Draft Report: "Carrier Shopping" 

(OEI-05-91-00043) --CONCUNCE WITH COMMNT 

I concur with the draft Office of Inspector General (OIG) report


entitled "Carrier Shopping" which concludes that the current


system for determining carrier jurisdiction for the payment of


medical supplies results in a financial loss to the Medicare


program. 

In order for the r 2port to be consistent with a HCFA proposed 

rule on this subj ect (i. e., Carrier Jurisdiction for Claims for 

Durable Medical Equipment, Prosthetics, Orthotics and Supplies, 

and Clarification of Other Issues Involving Supplier Claims, 

BPO--102-P), I recommend that references to "point of delivery" 

in the OIG report be changed to "beneficiary residence. Given 

that the two references reflect the same meaning, this change 

simply cuts down" on any confusion that might result by using


different references.


If you have any questions, please contact Elise D. smith at 

245-1870. 

rt in ()Ai?JV . Gerry

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: : ._: ? ,,.,.... .., ._ . ,.,. j :. ..,.,

Heplth Care 

DEPARTMENT OF HEALTH &. HUMAN SERVlq CEiVEu ancing Administration 

uir :V L. I .' I; .. i 1 

"'nIlIG 

Date


From


Subject 

Memorandum 

I 6 3: 2


SEP I 6 1991 

Gail R. Wilensky, Ph.D. q 

Admistrator 

OIG Draf Management Adviory Report: "Caer Shopping," OEI-05-91-O43 

Inspector General 

Offce of the Secreta 

We have reviewed the subject draf management advory report which 

descnbes how the Health Cae Financing Admtrtion s (HCFA) current 

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

biling policy of "point of sale" encourages "caer shopping." Under the "point 

of sale" policy, DMEPOS suppliers bil the Medicae caer who has jurdiction 

over the site where the medical supplier met with the beneficiar or received 

the beneficiar s call. "Carrer shopping" refers to the practice of DMEPOS 

suppliers learg which carrers pay the most for an item, and establihig a 

billng offce in that caer s jurisdiction to maxe the supplier s payments 

from the Medicae program. 

The report found that the "point of sale" billig policy for DMEPOS 

should be changed. The Offce of Inspector Genera (OIG) recommends that 

HCFA should have all bill for DMEPOS submitted to the caer havig 

jurisdiction over the "point of delivery" rather than the "point of sae." HCF A 

agrees that the "point of sale" policy must be changed. However, we do not


concur with the OIG recommendation as it is curentl worded. HCFA


advocates a policy of ''beneficiary residence " rather than "point of delivery


Our specific comments are attached for your consideration.


Than you for the opportunty to review and comment on ths report.


Please adve us if you agree with our position on the report s recommendation


at your earliest convenience. 

HHS/OIG

Attachment	 PDIG OFFICE OF EVALUATION


DIG- AND INc;Pj:T.TI0N - ROV


DIG-EI


SEP 25 1991 

DIG­


AIG­


OOO/1G
 V'

EX SEC
 'iIU, DATE SENT 

Comments of the Health Care Financing Admistration 

(HCFA) on the OIG Draft Management Advsory 

Report - "Carrer Shopping." OEI-05-91-03 

Recommendation 

The HCF A should have all bils for medical supplies submitted to the caer 

having juridiction over the point of delivery rather than point of sale. 

HCFA Response 

HCF A agrees that the "point of sale" policy should be chaged. OIG's report 

support the decision that we have made to implement changes in the caer 

jurdicton policy for cla for durable medica equipment, prosthetics, 

orthotics and supplies (DMEPOS). However, we are concerned that OIG is 

using the termology "point of delivery." We believe a more accurte 

description of the policy evaluated by th report is ''beneficia residence. 

Whe most beneficiares wi have mai and telephone ordered items deliered 

to their homes, or the nuring home with which they reside, some companies 

deliver to saes outlets, and the beneficiares pick-up the ordered items. Under 

the "point of deliery" policy, suppliers could stil manpulate the actual delivery 

site. HCF A would concur with thi recommendation, if the term "point of 

delivery" was changed to ''beneficiar residence. 

General Comments 

The OIG estimates that $26 miion more was paid in 1989, under the "point of 

sale" policy than would have occurred under a "beneficiar residence" policy. 

During HCFA's study on carrer shopping, we estimated that the savigs for 

1 year would be $2-3 mion. We believe that OIG should evaluate the effects 

of the followig points and adjust their savigs estimate accrdingl: 

Most of the dierence between HCF A's and OIG's savigs figures 

resulted because OIG used the dierence in the average price paid 

per unit by the resident and outside caers for each code. 

However, the unts used by diferent caers for these codes are 

not necessariy comparable. If the units are not equal, a diference 

between the average price paid per unit by the diferent caers 

would not produce meanigfl results. 

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Page 2


This methodology also does not tae into accunt the "cap 

placed on the tota amount that ca be paid for dialysis 

supplies per patient per month. Th proviion, which 

became effective in 199, must be considered when 

developing a "savigs" estimate. 

o OIG's sample caers for the study were not radomly chosen. To 

project national savigs, the caers chosen for the study should be 

representative of the entire nation. Alo, the saple size of the 

actua paid clai was too sma. Onl 1 percent of paid clai 

for caenda year 1989 were usd, and onl 149 national bilg 

codes out of over 1,500 codes coerig the fu rage of DMEPOS 

were examied. HCF A's savigs estite is based on a 100 

percent saple. 

o Of the 149 coes examined by OIG, 38 are included in the 

prosthetic and ortotic fee schedule. The amounts paid for these 

items are being reduced closer to the national averae amount by 

the litig price proviions in secion 4153 of the Ombus Budget 

Reconcilation Act of 199. Accrdingly, the new caer 

juriction policy will produce only lited savigs with respect to 

these coes. 

Only 86 coes studied by GIG are for supplies that are neither 

coered by the fee schedule nor subject to capped reimburment. 

In HCF A's study, paying clai for these coes under "beneficiar 

residence" rues rather than "point of sae rues would have 

produced onl $200,00 in savigs. 

The rage of coes selected by GIG for study was not appropriate

beus the range conta the codes for hemodalysis supplies. 

The high incidence of out-of-State bilg for hemodialysis supplies 

is due to the fact that these supplies are not generally avaable 

except through mail order. We do not believe these clai should 

have been included in the study because it is impossible to 

separate the effects of the appropriate out-of-State bilg for these 

supplies and any incidence of "caer shopping. 

o A ' 'bneficiary residence" policy would increase payments to many 

small companies, priarily equipment and prosthetic companes. 

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.. 

no " 

OIG Response to ASPE and RCF A comments 

Both ASPE and RCFA concur with our recommendation. We are pleased that we 

have reached agreement on this important policy and that RCF A is planning to 

modify its regulations. 

Both ASPE and RCF A suggested changing the wordig of our recommendation from 

point of delivery" to ' 'beneficiary residence. We agree with this suggestion and have 

changed the wordig of our recommendation. 

At our own intiative, we recalculated our cost estimate using the same methodology 

as used by RCFA in its study. This resulted in a more conservative cost estimate of 

$22 milion versus the $26 milion in our original draft report. 

The RCF A had a number of comments regarding our methodology and its resulting 

cost estimate. Primarily, RCFA feels our sample size was inadequate because it did 

not included all DMEPOS procedure codes. The RCF A feels that our sample over 

estimates the extent of the problem. Their Carrer Jurisdiction study estimated that 

savings for one year would be $2-3 milion if the policy were changed from "point of 

sale" to ' 'beneficiary residence. 

Considerable differences exist between RCF A's study and our study which could have 

a direct bearing on cost estimates.


The RCFA used 1500 DMEPOS RCPCS codes. Many of which are unlikely to 

be bought out of area. Based on our intervews with the carriers, we targeted 

the 179 RCPCS acceptable to the Medicare program in the A4000 - A4999 

procedure code range. We found that 149 of these 179 RCPCS were biled in 

1989. 

Analysis of the RCFA study indicates that 24 of the top 100 procedure codes 

biled to an outside carrer were included in our study. While these 24 codes 

represent 15.5 percent of dollar volume for the top 100 codes in RCF A's study, 

they represent 40.5 percent of all out of area spending. These numbers also 

suggest that much of the carrier shopping occurs within the procedure codes we 

used in our study.


Approximately 30 percent of data RCF A collected for its study was classified as 

outlier data and excluded from RCF A's analysis because extreme variations in 

carrier payments existed. Except for 87 line items where we could not identify 

the carrier for the beneficiary s residence, no data in the range of codes we 

studied was excluded from our analysis. 

The RCFA used 9 months of 1988 claims data. We sampled 12 months of 

1989 BMA data. 

A ­
When HCF A was unable to identify the benefiCiaries residence they considered 

the claim to have been paid as an in area claim. We excluded cases where we 

were unable to identify the carrier for the beneficiary residence. 

The HCFA points out that our selection of carriers was not random. We agree, our 

sample of carriers was not randomly chosen. The 11 carriers were chosen solely for 

the collection of qualitative data. Their considerable experience in processing medical 

supply claims was a valuable source of information for this study. However, we did 

not base our estimate of losses on these 11 carriers. Our estimate is based on 

statistically valid BMA sample. 

The HCF A also believes that ESRD data is over represented in our sample. Mter 

discussing this issue with HCFA personnel, we examined the effect of ESRD patients 

on our dollar projections. We found that 19 of the 34 procedure codes listed as 

ESRD supplies were paid by the resident carrer in 1989; they were not out of state 

bilings. 

The HCF A admits in the executive summary of their study that: 

A total savings of under $5 milion seems unreasonable since during the 

last year over $2 milion in overpayments have been assessed against a 

few urological companies for not complying with carrier jurisdiction 

rules. 

Our study did not attempt to project potential dollar savings; our estimate reflects 

losses due to the "point of sale" policy in 1989. We cannot attribute differences in 

HCFA' s and our estimates to any single factor. We believe the method we used to 

arrive at our projections is valid and stand by our estimate that the Medicare program 

lost nearly $22 milion in 1989. 

Carrier Jurisdiction Study, September 1990, pg 3. 

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