Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

QUESTIONABLE PRACTICES INVOLVING 

NEBULIZER DRUG THERAPY 
OFFICE OF INSPECTOR GENERAL 

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

95-452, is to protect the integrity of the Department of Health and Human Services 

programs as well as the health and welfare of beneficiaries served by them. This 

statutory mission is carried out through a nationwide program of audits, investigations, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary 

of program and management problems and recommends legislative, regulatory, and 

operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the 

Office of Inspector General. It conducts short-term management and program 

evaluations (called inspections) that focus on issues of concern to the Department, the 

Congress, and the public. The inspection reports provide findings and 

recommendations on the efficiency, vulnerability, and effectiveness of departmental 

programs. 

The OEI’S Philadelphia Regional Office prepared this report under the direction of 

Robert A. Vito, Regional Inspector General. Principal OEI staff included: 

Region


Robert A. Katz, Project Leader


Amy Sernyak, Lead AnaZyst


Linda M. Ragone, Program AnaZyst


Cynthia Hansford, Program Assistant


Karen Folk, Intern


Ethan Shaw, Intern


Patti Loyack, Intern


Office of Audit Services


David J. Graf, Advanced Techniques


Lourdes Puntonet, Auditor, Atlanta


Headquarters 

Mary Beth Clarke, Program Specialist


Brian Ritchie, Technical Suppoti Staff


Barbara Tedesco, Statistician


Linda Moscoe, Technical SuppoH Staff


Sta&, Philadelphia 
EXECUTIVE SUMMARY 

PURPOSE 

This report identifies questionable practices relating to nebulizer drug therapy 

provided to Medicare beneficiaries under Part B of the Medicare program. 

BACKGROUND 

A nebulizer is a type of durable medical equipment (DME) through which 

prescription inhalation drugs are administered. Nebulizers andassociated drugs are 

covered by Medicare “if the patient’s ability to breathe is severely impaired.” 

Medicare allowances for nebulizer drugs remained relatively stable during the years 

1990 through 1992, never exceeding about $78 million annually. In 1993, allowances 

increased to about $169 million and rose to about $226 million in 1994, an increase of 

almost 200 percent from 1990. Albuterol sulfate 0.083% is the most commonly 

reimbursed nebulizer drug code. This drug accounted for $150 million, or more than 

65 percent, of the total dollars allowed for all nebulizer drugs in 1994. While 

Medicare payments for nebulizer drugs have increased in recent years, payments for 

nebulizer equipment have actually decreased. Allowances for nebulizer equipment 

dropped from $131 million in 1993 to $40 million in 1994. This maybe due in part to 

Medicare’s capped rental policy for certain types of nebulizer equipment. 

To review Medicare payments for nebulizers and associated drugs, we utilized a 

random sample of nebulizer claims focusing on albuterol sulfate 0.083%. We also 

analyzed data from the Health Care Financing Administration’s (HCFA) National 

Claims History File. We sought to determine 1) if Medicare reimbursed nebulizer 

equipment when a beneficiary had no corresponding nebulizer drug claims, and 2) if 

beneficiaries were receiving more than one type of nebulizer drug at the same time. 

FINDINGS 

Medicare paid for multiple inhalation drugs that when used together may be harmful 

to beneficiaries. 

Medicare paid $8 million for multiple beta -adrene~”c bronchodilator drugs that 

should almost never be taken during the same time period. 

Medicare paid an additional $22 million for drugs that may be inappropriate when 

taken together. 

One of HCFA k four Durable Medical Equipment Regional Cam”ers (DMERCS) 

accounted for a dkpropoti”onate share of multiple nebulizer drug allowances. 
Other questionable drug provision practices may compromise beneficiaries’ care. 

Medicare beneficiaries received units of albuterol sulfate that diflered from 

amounts prescribed by their physicians. 

Prescribed dosage levels for some beneficiaries exceed medical guidelines. 

Beneficiaries do not use all of the nebulizer drugs provided to them. 

Questionablebilling practices contribute to improper Medicare payments for nebulizer 

therapy. 

Medicare allowed over $10 million for nebulizer equipment without corresponding 

billings for nebulizer drugs. 

Suppliers billed Medicare for drug dispensing services thqy did not perform. 

Some suppliers did not collect beneficia~ coinsurance payments. 

RECOMMENDATIONS 

We recommend that HCFA develop a strategy to 1) eliminate the questionable and 

abusive billings we encountered in this inspection, and 2) ensure that beneficiaries 

requiring nebulizer therapy receive treatments that are appropriate. 

As part of this strategy, we urge HCFA to implement a comprehensive coverage and 

medical review policy focusing on nebulizer equipment and inhalation drugs. In 

concert with these policies, the DMERCS should develop and issue guidelines to 

suppliers and pharmacies outlining recommended prescribing practices for inhalation 

drugs used with nebulizer equipment. To ensure compliance with the recent Medicare 

policy revision prohibiting drug payments to non-dispensing suppliers, the HCFA 

should take action to confirm that only appropriately licensed suppliers be permitted 

to dispense drugs, bill for dispensing fees, and physically handle drug products. In 

addition, the DMERCS could also provide suppliers with a reminder about Medicare 

regulations prohibiting the routine waiver of beneficiary coinsurance. 

If the recommendations we just outlined had been in place during the time period of 

our review, Medicare could have saved up to $40 million in payments for questionable 

nebulizer equipment and drugs. Although this $40 million is an estimate, we believe it 

is credible since a more rigorous review of inhalation drug claims by one DMERC 

resulted in savings of nearly $20 million during only a 5 month period. The savings 

occurred after DMERC C implemented a review screen for claims involving both 

incompatible multiple inhalation drugs and overutilization. The DMERC took the 

initiative to implement this screen when concerns about Medicare payments for 

inhalation drugs in this region were raised by HCFA and the OIG after reviewing data 

compiled by the Statistical Analysis Durable Medical Equipment Regional Carrier. 
We will refer possible abusive or fraudulent claims we encountered during our review


to the fraud units responsible for handling such activities. In addition, we are planning


a multi-disciplinary review, including evaluation and investigation staff, to determine


the magnitude of inappropriate multiple nebulizer drug use as well as the


identification of suppliers employing fraudulent or abusive practices in their Medicare


billings.


AGENCY COMMENTS


The HCFA concurred with our recommendations. They have already taken steps to


institute corrective actions, including revising their policies relating to nebulizer


equipment and drugs which will take effect in April 1997. The revised guidelines


contain more stringent requirements and are aimed at curtailing improper billings such


as overutilization and billing for nebulizer equipment without corresponding billings


for nebulizer drugs. To ensure that beneficiaries receive appropriate nebulizer


therapy treatments, HCFA has clarified its guidelines to require that only licensed


entities meeting pharmacy standards established by State Boards of Pharmacy be


allowed to dispense and bill for nebulizer drugs. This change, according to HCF~


will prevent such abusive practices as supplying incompatible multiple drugs and


excessive dosages of drugs. The full text of HCFA’S comments may be found in


Appendix B.


... 

111 
TABLE OF CONTENTS


PAGE


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


INTRODUCI’ION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1


FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...6


�Medicare paid for multiple drugs that maybe harmful. . . . . . . . . . . . . . . . . . . . 6


. Other drug provision practices compromise care . . . . . . . . . . . . . . . . . . . . . . . . 8


. Questionable billing practices lead to inappropriate payments . . . . . . . . . . . . . . 9


RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...12


APPENDIXA Point Estimates and Confidence Intervals . . . . . . . . . . . . . . . . . A-1


APPENDIX B: HCFA Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. B-l

INTRODUCTION


PURPOSE 

This report identifies questionable practices relating to nebulizer drug therapy 

provided to Medicare beneficiaries under Part B of the Medicare program. 

BACKGROUND 

Title XVIII of the Social Security Act prescribes coverage requirements under Part B 

of the Medicare program. Part B covered items and services include durable medical 

equipment (DME) as well as certain outpatient prescription drugs. The Health Care 

Financing Administration (HCFA) administers the Medicare program. The HCFA 

designated four Durable Medical Equipment Regional Carriers (DMERCS) to process 

all claims for DME, prosthetics, orthotics, and medical supplies, including nebulizers 

and inhalation drugs. Effective October 1, 1993, the DMERCS replaced local carriers 

which had previously processed these claims. 

MedicareCoverageof NebukzerTherapy 

A nebulizer is a type of DME through which prescription inhalation drugs are 

administered. It consists essentially of two components: 1) a power source such as an 

air compressor or ultrasonic device, and 2) a dispensing mechanism consisting of 

flexible tubing, a mouthpiece, and liquid reservoir. Nebulizer drug therapy is 

administered by placing a prescription inhalation drug into the reservoir of a nebulizer. 

The nebulizer’s power source converts the drug into a fine spray which is inhaled by 

the patient. 

The Medicare Coverage Issues Manual states that nebulizers are “covered if the 

patient’s ability to breathe is severely impaired.” While Medicare does not generally 

pay for outpatient prescription drugs, drugs used in conjunction with a nebulizer are 

covered under the program. Section 2100.5 of the Medicare Carriers Manual specifies 

the covered uses of outpatient prescription drugs including drugs used in conjunction 

with DME. In accordance with HCFA policy, if a beneficiary has a severe respiratory 

illness or disease, Medicare will pay for any drug that transforms a nebulizer into 

effective therapy for that condition. Medicare guidelines stipulate that the prescribed 

drug must be used to deliver respiratory therapy, and the nebulizer must be the means 

to deliver that therapy. If these conditions are met, Medicare will reimburse both the 

drug and the equipment for as long as the nebulizer drug therapy is necessary. 

In 1994, the DMERCS proposed a new nebulizer medical policy which focused on 

specific coverage and medical necessity issues. The proposed policy outlined baseline 

documentation requirements to support Medicare coverage criteria for nebulizer 

therapy. In addition, the policy required trial use of a metered dose inhaler (MDI), a 

non-covered device under Medicare, before nebulizer treatment would be reimbursed. 
The HCFA withdrew the policy proposal in response to concerns voiced by 

organizations and physicians. Primarily, these concerns centered on the possible 

deterioration of a patient’s condition during the MDI trial period to the point where 

an emergency room visit or hospitalization might be required. 

MedicareAllowancesfor Nebuluer Therapy 

Between 1991 and 1993, allowances for nebulizer equipment increased from $87 

million to $131 million. However, in 1994 there was a sharp reduction in Medicare 

allowances to $40 million. The decline was due in large part to an almost $100 million 

decrease between 1993 and 1994 for nebulizers with compressors (HCFA Capped 

Rental Code E0570). However, in contrast, allowances for portable nebulizers (Code 

E1375) increased more than 700 percent from $389,047 in 1993 to more than $3 

million in 1994. Portable nebulizers are not capped rental items. Medicare will pay 

for only 15 months of rental for capped rental items if beneficiaries choose not to 

purchase these items. 

While payments for nebulizer equipment have diminished in recent years, payments 

for drugs used with nebulizers have increased. Medicare allowances remained 

relatively stable during the years 1990 through 1992, never exceeding about $78 million 

annually.1 In 1993, allowances for 21 nebulizer drug codes increased to about $169 

million and rose to about $226 million in 1994, an increase of almost 200 percent from 

1990. Albuterol sulfate 0.083% (Code J7620), hereafter simply referred to as 

albuterol sulfate, is the most commonly reimbursed nebulizer drug code. This drug 

accounted for $150 million, or more than 65 percent, of the total dollars allowed for 

all nebulizer drugs in 1994. 

Pharmacies or DME suppliers use drug-specific procedure codes to claim Medicare 

reimbursement for nebulizer drugs. Each DMERC determines allowances for 

prescription drug codes in its respective region based on the guidelines stated in 

HCFA regulations. In addition to reimbursing for the drug product, Medicare will 

also pay a monthly dispensing fee of $5 when pharmacies provide drugs used in 

nebulizers. 

Related Work by the (ljjice of IhspectorGeneral 

This report is one of a series of Office of Inspector General (OIG) inspections 

concerning Medicare payments for outpatient prescription drugs in general and 

inhalation drugs in particular. In 1996, we released a report entitled, Medicare 

Payments for Nebulizer Drugs (OEI-03-94-O0390). We found that Medicaid reimbursed 

albuterol sulfate and other nebulizer drugs at significantly lower prices than Medicare. 

10 ffice of Inspector General, Medicare Part B - Reimbumement to Rrovidem for 

Drugs Used in Conjunction with Durable Medical Equipment, A-06-92-OO079 

(Washington, D. C.: U.S. Department of Health and Human Services, 1995),3. 

2 
In a companion report called A Comparison of Albuterol Su~ate Prices (OEI-03-94-

00392), we found that many retail and mail-order pharmacies charge customers less 

for generic albuterol sulfate than Medicare’s allowed price. A previously issued 

report, Suppliers’ Acquisition Costs for Albuterol Sulfate (OE1-03-94-O0393), examines 

how much suppliers pay for albuterol sulfate. An additional report, Appropriateness of 

Medicare Prescription Drug Allowances (OEI-03-95-O0420), compared Medicare drug 

reimbursement mechanisms with Medicaid payment mechanisms for 17 drugs and 

found that Medicare could achieve significant savings by adopting reimbursement 

strategies similar to those used by Medicaid. 

The HCFA, in response to these inspections, concurred with our recommendation that 

it reexamine its drug reimbursement methodologies. The HCFA agreed to explore 

new reimbursement mechanisms to take into account actual drug costs and reduce 

Medicare payments. 

O~ration Restore lhmt 

This study was conducted as part of Operation Restore Trust, an initiative combining 

the forces of multiple agencies to combat Medicare and Medicaid fraud, waste, and 

abuse in five States. The five States – California, Florida, Illinois, New York, and 

Texas – account for 40 percent of the nation’s Medicare and Medicaid beneficiaries. 

The initiative centers on services provided by DME suppliers in addition to nursing 

homes, hospices, and home health agencies. 

METHODOLOGY 

We reviewed pertinent background information on nebulizer therapy from a wide 

variety of sources including HCFA officials, medical equipment suppliers, 

pharmaceutical reference books, and pharmacies. In addition, we consulted with the 

DMERCS’ medical and utilization review staffs regarding nebulizer and inhalation 

drug therapy coverage, medical necessity, and other technical issues such as acceptable 

supplier documentation and pharmaceutical practices. We received information and 

reports from the Statistical Analysis Durable Medical Equipment Regional Carrier 

(SADMERC). For guidance on recommended inhalation drug dosage and 

administration practices, we used the USP Drug Information for the Health Care 

Professional, the Physicians’ Desk Reference, and the product information provided in 

the package insert for one brand of albuterol sulfate. 

We requested information from two main sources – suppliers and beneficiaries. We 

selected the suppliers and beneficiaries based on a sample of claims from a One 

Percent DME Claims File developed from HCFA’S National Claims History File. 

Focusing on albuterol sulfate, the nebulizer drug most frequently reimbursed under 

Medicare, we selected a stratified random sample of albuterol sulfate claims from the 

file. Seven strata were designated in the sampling plan: one for each of the five 

Operation Restore Trust States, Puerto Rico, and a strata comprised of J7620 claims 

from all other States. Service dates were confined to a 14-month period of review, 

.) 
January 1, 1994 through February 28, 1995. Medicare allowances foralbuterol sulfate 

exceeded $182 million during the 14-month period of our review, representing 68 

percent of the $269 million in total allowances for nebulizer drugs. Our sample of 485 

claims is statistically representative of the universe of over one million claims for 

albuterol sulfate which Medicare processed during the period of our review. 

SupplierInfortnutionRequests 

We mailed requests for information to the suppliers that billed Medicare for the 485 

sample albuterol sulfate claims. In this report, we use the term “supplier” to indicate 

the entity which billed Medicare for the nebulizer drug provided to the beneficiary. 

These requests covered a variety of subjects, including 1) supplier business 

characteristics, 2) how the supplier obtained the nebulizer drug and delivered it to the 

beneficiary, 3) description of the drug provided, and 4) drug procurement costs and 

related drug costs. We asked suppliers to submit copies of documents from their files, 

such as physician prescriptions, invoices showing drug procurement costs, and 

beneficiary medical information, to support each sample J7620 claim. 

Suppliers returned completed requests for 418 of the 485 sample J7620 claims (86 

percent response rate). Some suppliers did not, however, submit copies of all of the 

claim-supporting documentation that we requested. We contacted these suppliers by 

telephone and letter to secure missing documentation. 

BeneficiaryInformationRequeim 

We mailed information requests to the Medicare beneficiaries identified in the sample 

claims. We did not send information requests to deceased beneficiaries if we knew 

they were deceased at the time of the mailing. Questions related to five broad areas: 

1) nebulizer and inhalation drug utilization patterns, 2) health condition, 3) nebulizer 

and inhalation drug characteristics, 4) ordering and receipt of inhalation drug, and 5) 

efficacy of nebulizer and inhalation drug. 

Two hundred and twenty-three beneficiaries or their relatives returned completed 

information requests. These responses account for 307 sample albuterol sulfate claims 

because the sample contains more than one claim for some beneficiaries. 

We analyzed supplier and beneficiary responses to the information requests. To 

detect inconsistencies and irregular practices in the provision of albuterol sulfate we 

compared supplier and beneficiary responses to related questions. We examined 

suppliers’ documentation to identify possible questionable billing practices and 

inappropriate albuterol sulfate utilization. Percentage estimates and corresponding 95 

percent confidence intervals for the supplier and beneficiary data were computed 

using standard statistical formulas for a single-stage stratified random sample. Point 

estimates and confidence intervals for all statistics presented in this report are 

provided in Appendix A. 

4

Nebuli.zerDrugReview 

We performed two separate analyses of data from the One Percent DME Claims File.


We sought to determine 1) if Medicare had reimbursed nebulizer equipment when a


beneficiary had no corresponding nebulizer drug claims, and 2) if Medicare had made


payments for more than one beta-adrenergic bronchodilator drug at the same time.


To identify beneficiaries who had nebulizer equipment claims without nebulizer drug


claims, we matched nebulizer equipment claims for the 14-month period (January 1,


1994- February 28, 1995) with nebulizer drug claims. Because of possible lags in


billing, we believed it would be more conservative to identify only those beneficiaries


who had no matching nebulizer equipment and drug claims in the middle 8 months


(April 1- November 30, 1994) of our review period. In addition, to ensure that


corresponding drug claims for these beneficiaries were not billed before or after the 8-


month period, we searched the One Percent DME Claims File for drug claims billed


during the 3 months prior to April 1, 1994 and the 7 months after November 30, 1994.


No such claims were located.


We also verified our findings with the DMERCS which reviewed the on-line Part B


service histories for a random sample of 100 of the 1,234 beneficiaries who had


nebulizer equipment billings without corresponding nebulizer drug billings. The


medical directors confirmed that the beneficiaries had no history of nebulizer drug


billings during the period of our review. They did find drug billings for 5


beneficiaries in late 1995 and early 1996, which were subsequent to our review period.


Medicare reimburses four categories of nebulizer drugs: bronchodilators, anti-


inflammatories, mucolytics, and antibiotics. Within the bronchodilator category, there


are two types of drugs – beta-adrenergics and anticholinergics. For our analysis of


beneficiaries receiving more than one drug at a time, we focused only on the beta­


adrenergic bronchodilator type of nebulizer drug.


To determine if Medicare had made payments for more than one beta-adrenergic


bronchodilator drug at the same time, we used the data from the DME Claims File


for our 14-month review period. We selected 12 drug codes that represent


bronchodilator drugs with beta-adrenergic stimulator effects. Using these codes, we


determined if two or more beta-adrenergic drugs were billed for a beneficiary in the


same 30-day period. We then calculated the total payment for these multiple


nebulizer drugs.


We did a separate analysis where we matched the 12 beta-adrenergic drug codes


against drug code J7699 which represents “not otherwise classified inhalation drugs.”


Code J7699 can be used to bill for at least one type of beta-adrenergic bronchodilator


drug which does not yet have a specific code. We then determined the total Medicare


payment for these matches.


This inspection was conducted in accordance with the Qzdi~ Standards for Inspections


issued by the President’s Council on Integrity and Efficiency.


J 
FINDINGS


MEDICARE PAID FOR MULTIPLE INHALATION DRUGS THAT WHEN 

USED TOGETHER MAY BE HARMFUL TO BENEFICIARIES. 

Medicarepaid $8 mililonfor multiplebeta-adrenagicbronchodilktordugs thatshod 

almostneverbe takenduringthe same timeperiod 

Medicare made payments for two or more beta-adrenergic bronchodilator drugs for at 

least a 30-day period between January 1, 1994 through February 1995 for more than 

10,000 beneficiaries. Medicare and its beneficiaries paid almost $8 million dollars for 

these drugs during this time. Beta-adrenergic bronchodilator drugs open up or dilate 

the lung’s airways by relaxing the bronchial smooth muscle. Using two beta-adrenergic 

drugs during the same time period is not only ineffective but can be potentially 

harmful to the beneficiary. 

A majority of these beneficiaries received albuterol sulfate along with another 

beta-adrenergic bronchodilator drug, such as metaproterenol sulfate or isoetharine 

hydrochloride. The product information provided in the package insert for one brand 

of albuterol sulfate states that “other sympathomimetic aerosol bronchodilators or 

epinephrine should not be used concomitantly with albuterol.” According to DMERC 

medical personnel, beta-adrenergic bronchodilator drugs such as albuterol sulfate, 

metaproterenol sulfate, and isoetharine hydrochloride, when used in combination, 

provide no further clinical improvement beyond that obtained through the use of only 

one nebulizer drug in this category. 

While these drug combinations provide no increased benefit, they can be harmful to 

the respiratory, heart, and nervous systems. Use of multiple beta-adrenergic drugs can 

effectively be considered an overdosage. Overutilization can lead to a loss of 

sensitivity to the drugs. This can eventually result in unresponsive asthma since 

breathing can no longer be improved with nebulizer drug therapy. In addition, 

overdosage can lead to irregular heart beat, anginal pain, hypertension, tremulousness, 

and other adverse reactions. It can even be potentially fatal, especially in a 

health-compromised elderly beneficiary. 

Medicarepad an additional$22 millwnfor drugsthatmuy be inappropriatewhentaken 

together. 

Along with the almost $8 million paid for multiple beta-adrenergic bronchodilator 

drugs, another $22 million was spent by Medicare on multiple inhalation drugs for 

which the level of effectiveness or harmfulness cannot be determined. The 

beneficiaries for whom Medicare paid these bills received multiple inhalation drugs 

including one beta-adrenergic drug and one drug that cannot be identified since it was 

billed using code J7699. Code J7699 represents “not otherwise classified inhalation 

drugs.” Drugs billed with this code either have no procedure code or are prescribed in 

6 
amounts that do not fit the dosage of current codes. These drugs can be 

bronchodilators or other types of inhalation drugs. 

When billing information for code J7699 was matched against other beta-adrenergic 

bronchodilator drug codes, 22,500 beneficiaries were found to have received multiple 

inhalation drugs. If the drugs billed to Medicare under code J7699 were betaadrenergic drugs, then these beneficiaries may have received drugs that were 

inappropriate if used during the same time frame. 

While it is possible that a beneficiary may receive multiple inhalation drugs during a 

single 30-day period if their doctor makes a prescription change, multiple betaadrenergic drug claims for individual beneficiaries over successive months provide 

evidence that makes this an improbable explanation for such widespread multiple drug 

use. When individual beneficiary nebulizer drug usage was reviewed, we found 

instances where multiple inhalation drugs were used over a number of months. We 

also found claims for some beneficiaries for not just two beta-adrenergic 

bronchodilator drugs, but up to four different inhalation drugs during the same time 

period. To illustrate this point, Medicare paid over $13,000 for one beneficiary who 

received four inhalation drugs over a 9-month period. Three of the drugs were betaadrenergics and the fourth drug could not be identified since it was billed using code 

J7699. 

One DMERC accountedfor a dkprophoraate shareof multiplknebzdizerdrug 

allowances. 

The DMERC for Region C paid over $20 million of the $30 million in questionable


multiple nebulizer drug payments. While only 27 percent of the Medicare population


resides in the area serviced by DMERC C, the region accounted for 60 percent of the


beneficiaries that received multiple nebulizer drugs. The carrier paid an average of


$1133.00 for each beneficiary receiving multiple nebulizer drugs during the 14-month


review period. This was 30 percent more than the average dollars paid by the


DMERC with the next highest average allowance per beneficiary.


The Region C DMERC not only has an unusually large share of multiple drug


payments but also accounts for 60 percent of total allowances for nebulizer drugs


during the 14-month review period. For five specific nebulizer drugs, DMERC C


made 100 percent of the Medicare payments over the 14 months.


Region C’s large share of payments appears to have continued into 1995. According


to a SADMERC statistical report for the third-quarter of 1995, DMERC C accounts


for 67 percent of the quarter’s total national allowances of $88 million for nebulizer


drugs. The report also provided evidence that while DMERC C has hundreds,


sometimes thousands, of beneficiaries using certain drugs, other regions have less than


10 beneficiaries using the same drugs. Similar to what was found during the 14-month


review period, DMERC C allowed 85 percent of the national


payments for bitolterol; 93 percent for acetylcystein; 95 percent for metaproterenol;

99percent forisoetharine; and 100percent forisoproterenol inthethird-quarterof 

1995. 

OTHER QUESTIONABLE DRUG PROVISION PRACTICES MAY 

COMPROMISE BENEFICIARIES’ CARE. 

Questionable practices involving the provision of albuterol sulfate therapy may 

compromise the quality of care received by Medicare beneficiaries. We are 

highlighting these practices because they could adversely affect the benefits of 

nebulizer therapy intended for Medicare beneficiaries. 

Medicarebeneficiariesreceivedunitsof albuterolsulfatethatd~ered @m arnoum 

prescribedby theirphysicians. 

Twenty-six percent of claims represents billings for units of albuterol sulfate that 

differed from the units prescribed by beneficiaries’ physicians. Thirteen percent 

reflects allowed units of albuterol sulfate that exceed prescribed units by between 9 

and 819 milliliters (ml). The other thirteen percent of claims represents allowed units 

that were between 15 ml and 495 ml less than prescribed units. 

Allowed units could not be compared to prescribed units of albuterol sulfate for 36 

percent of claims due to two factors: “PRN’ prescriptions, and billings processed by 

pre-DMERC carriers. A number of claims were supported with prescription 

documents that included a “PRN”, or “as needed”, direction. The “PRN’ direction 

does not indicate a fixed amount of albuterol sulfate to be dispensed. In addition, 

albuterol sulfate claims were being billed to the pre-DMERC carriers as well as the 

four new DMERC carriers during the period of our review. Billing standards for 

albuterol sulfate were not uniform across the pre-DMERC carriers; therefore, 

suppliers were not consistently billing for units equal to the ml of albuterol sulfate 

dispensed. 

l%zwribed &sage levehfor some beneficiati exceedmedicalguidelines. 

Approximately 13 percent of claims had physicians’ orders prescribing 5 or 6 albuterol 

sulfate treatments per day (more than 450 ml per month). Physicians’ orders for more 

than two-thirds of these claims prescribed monthly albuterol sulfate treatments of 540 

or more mls. The product information provided by the manufacturer of one brand of 

albuterol sulfate advises a nebulizer dosage of 3 ml of albuterol sulfate three to four 

times per day. A one month prescription for albuterol sulfate at a dosage of 3 ml 

administered three or four times per day would result in 270 to 360 ml of the drug 

being dispensed. “More frequent administration or higher doses are not 

recommended,” according to guidelines issued by manufacturers. 

Drug labeling information, provided by manufacturers and approved by the Food and 

Drug Administration, presents clear and unmistakable warnings about the dangers of 

overdosage. The package insert for albuterol sulfate cautions against the overuse of 

8 
albuterol sulfate and lists a number of life-threatening conditions that could result 

from overdosage, including cardiovascular and central nervous system reactions. 

Although the drug labeling information for albuterol sulfate currently cautions against 

exceeding the recommended dosage, there are conceivable occasions when a physician 

might escalate the dose for a patient depending on the individual’s needs. However, 

physicians would not normally start a patient on such a high dosage scale, nor is it a 

common dosage regimen. Although these high dosages are not inconceivable, one out 

of every seven albuterol sulfate claims reviewed were based on prescriptions exceeding 

recommended dosages. This number of beneficiary claims for such an uncommonly 

high dosage seems questionable. 

Nineteen percent of claims were supported with prescription documents that included 

a “PRN” direction, Therefore, as discussed above, we could not determine the exact 

number of albuterol sulfate units prescribed for comparison with the dosage 

recommended by manufacturers. Depending on the actual dosage the physician 

intended to prescribe using the “PRN” direction, our analysis may have underestimated 

the percentage of claims with prescriptions for six albuterol sulfate treatments per day. 

Bene&a&?s do not we all of the nebulizerdrugsprovidedto them 

For twenty-four percent of albuterol sulfate claims, beneficiaries reported that they did 

not use all of the nebulizer medication provided to them each month. Almost 33 

percent of these claims involved beneficiaries who only used half of their nebulizer 

medicine each month; another 44 percent of these claims represented beneficiaries 

who used three-quarters of their dosages. For almost half (45 percent) the claims 

where non-use of medication was found, beneficiaries reported discarding the unused 

supply each month. 

While one could argue that beneficiaries were not using all of their nebulizer 

medication due to non-compliance, when this non-use is viewed in the context of this 

report’s previous findings, other explanations seem more credible. Possible 

explanations include: 1) the lack of medical need or clinical effectiveness for the 

number and/or dosages of drugs prescribed, and 2) the oversupply of drug products. 

QUESTIONABLE BILLING PRACTICES CONTRIBUTE TO IMPROPER 

MEDICARE PAYMENTS FOR NEBULIZER THERAPY. 

Medicareallowedover $10 millionfor nebulizerequtpnumtwithoutcorrespondingbillings 

for nebulizerdrugs. 

Medicare allowed over $10 million for nebulizers without corresponding billings for 

nebulizer drugs during the 8-month period, April 1, 1994 to November 30, 1994. This 

$10 million represents almost 40 percent of the $26 million that Medicare paid for 

nebulizer equipment during the 8 months. Two types of nebulizer equipment 

9

accounted for 89 percent of the $10 million in improper Medicare allowances: 

nebulizer with compressor (code E0570) and ultrasonic nebulizer (code E0575). 

According to Medicare DME coverage guidelines, nebulizers are reimbursable only 

when beneficiaries with severely impaired breathing use the nebulizers with albuterol 

sulfate or other inhalation drugs. If inhalation drugs are not being used with 

nebulizers, then the nebulizers should not be paid for by the Medicare program. 

More than one-third of beneficiaries (123,400 of 357,000) had billings for nebulizer 

equipment without corresponding billings for nebulizer drugs. For 16 percent of 

beneficiaries, Medicare paid for 8 months of equipment billings with no corresponding 

claims for nebulizer drugs. About half of the beneficiaries had equipment payments 

for 1 or 2 months without corresponding drug claims. The remaining beneficiaries had 

between 3 and 7 months of claims for nebulizer equipment with no corresponding 

drug billings. 

Supplienbilkd Medicarefor drugdispensingservicestheydidrwtperforrm 

Thirty-six percent of claims for albuterol sulfate involved Medicare payments to


suppliers who did not dispense the drugs to beneficiaries. Instead, these suppliers had


arrangements with pharmacies who actually dispensed the drugs to beneficiaries. For


25 percent of albuterol sulfate claims, suppliers without licensed pharmacy


components billed Medicare not only for the drug but also for the $5.00 dispensing fee


even though they did not dispense the drug to beneficiaries.


Medicare paid an estimated $1.5 million for improper dispensing fee billings between


January 1, 1994 and February 28, 1995. This represents one-third of the total


estimated $4.7 million in albuterol sulfate dispensing fees paid for by Medicare during


the review period.


The payment of both drug allowances and dispensing fees to suppliers who do not


actually provide drugs to beneficiaries conflicts with HCFA’S written policy and


guidelines. Medicare Carriers Manual section 3060 states that “the carrier may pay


assigned benefits only to the physician or other supplier who furnished the service.”


When the policy to pay dispensing fees was introduced, a December 1993 HCFA


memorandum to Medicare administrators and carriers stated that a monthly


dispensing fee for each inhalation drug would be paid “...where pharmacies provide


drugs used in nebulizers.”


Recent revisions to section 3060 of the Medicare Carriers Manual, as outlined in a


HCFA Bureau of Policy Development memorandum dated July 30, 1996, will prohibit


drug and dispensing fee payments to suppliers who do not actually provide drugs


10 
directly to beneficiaries. The memorandum explains that the following language will 

be included in section 3060.D of the manual: 

In the case of drugs used in conjunction with durable medical equipment 

(DME) or prosthetic devices, the entity that dispenses the drug must furnish it 

directly to the patient for whom a prescription is written. Therefore, those 

drugs cannot be purchased for resale to the beneficiary by any supplier that is 

not the entity which dispenses the drug. Such a supplier may only bill for the 

DME or prosthetic devices. In order for prescription drugs that are used in 

conjunction with DME or prosthetic devices to be covered by Medicare, the 

entity that dispenses the drugs must have a Medicare supplier number, must be 

licensed to dispense the drug in the State in which the drug is dispensed, and 

must bill and receive payment in its own name. 

This policy revision should prevent millions of dollars in payments to non-dispensing 

suppliers that Medicare has been allowing up to this point. 

Some suppliersdid not collectbeneficimycoirmmancepayments. 

For 11 percent of the albuterol sulfate claims billed to Medicare, beneficiaries


reported they did not pay the 20 percent coinsurance for their nebulizer medications.


These beneficiaries also reported that they did not have some other form of health


insurance that would cover the coinsurance payments. Since beneficiaries are required


to pay (unless there is financial hardship) 20 percent of the Medicare allowed amount


for services, suppliers who routinely waive this payment are not following Medicare


regulations regarding beneficiary coinsurance.


Routine waiver of the coinsurance amount may constitute a violation of the Medicare


and Medicaid Anti-Kickback provision (42 U.S.C. 1320a-’7b(b)), if the purpose of the


routine waiver is to induce Medicare or Medicaid business. A provider’s routine


waiver of a beneficiary’s obligation to pay may also result in the filing of a Medicare


or Medicaid claim that is considered false because it misrepresents the actual amount


charged for the item or service. Anti-kickback violations and false claims can be


actionable under criminal, civil, and administrative authorities.


11

RECOMMENDATIONS


We recommend that HCFA develop a strategy to 1) eliminate the questionable and 

abusive billings we encountered in this inspection, and 2) ensure that beneficiaries 

requiring nebulizer therapy receive treatments that are appropriate. 

As part of this strategy, we urge HCFA to implement a comprehensive coverage and 

medical review policy focusing on nebulizer equipment and inhalation drugs. In 

concert with these policies, the DMERCS should develop and issue guidelines to 

suppliers and pharmacies outlining recommended prescribing practices for inhalation 

drugs used with nebulizer equipment. To ensure compliance with the recent Medicare 

policy revision prohibiting drug payments to non-dispensing suppliers, the HCFA 

should take action to confirm that only appropriately licensed suppliers be permitted 

to dispense drugs, bill for dispensing fees, and physically handle drug products. In 

addition, the DMERCS could also provide suppliers with a reminder about Medicare 

regulations prohibiting the routine waiver of beneficiary coinsurance. 

If the recommendations we just outlined had been in place during the 14-month time 

period of our review, Medicare could have saved up to $40 million in payments for 

questionable nebulizer equipment and drugs. Although this $40 million is an estimate, 

we believe it is credible since a more rigorous review of inhalation drug claims by just 

one DMERC resulted in savings of nearly $20 million during only a 5-month period. 

The savings occurred after DMERC C implemented a review screen for claims 

involving both incompatible multiple inhalation drugs and overutilization. The 

DMERC took the initiative to implement this screen when concerns about Medicare 

payments for inhalation drugs in this region were raised by HCFA and the OIG after 

reviewing data compiled by the Statistical Analysis Durable Medical Equipment 

Regional Carrier. 

Many of the findings presented pertain to abusive and possibly fraudulent practices. 

We will refer these matters to the DMERC fraud units responsible for handling such 

activities. In addition, we are planning a multi-disciplinary review, including evaluation 

and investigation staff, to determine the magnitude of inappropriate multiple nebulizer 

drug use as well as the identification of suppliers employing fraudulent or abusive 

practices in their Medicare billings. 

AGENCY COMMENTS 

The HCFA concurred with our recommendations. They have already taken steps to 

institute corrective actions, including revising their policies relating to nebulizer 

equipment and drugs which will take effect April 1997. The revised guidelines contain 

more stringent requirements and are aimed at curtailing improper billings such as 

overutilization and billing for nebulizer equipment without corresponding billings for 

nebulizer drugs. To ensure that beneficiaries receive appropriate nebulizer therapy 

treatments, HCFA has clarified its guidelines to require that only licensed entities 

12 
meeting pharmacy standards established by State Boards of Pharmacy be allowed to 

dispense and bill for nebulizer drugs. This change, according to HCF~ will prevent 

such abusive practices as supplying incompatible multiple drugs and excessive dosages 

of drugs. 

13

APPENDIX A


POINT ESTIMATES AND CONFIDENCE INTERVALS 

The tables below contain statistical estimates presented in the Findings section of this 

report. Point estimates and corresponding 95 percent confidence intervals based on 

beneficiary and supplier data were computed using standard statistical formulas for a 

single-stage stratified random sample. Those based on analyses of data from the 

HCFA One Percent DME Claims File were computed using standard statistical 

formulas for a simple random sample. 

MEDICARE PAID FOR MULTIPLE INHALATION DRUGS THAT WHEN 

USED TOGETHER MAY BE HARMFUL TO BENEFICIARIES. 

M&care paid $8 millwnfor multiplebeta-adre~”c bronchodilatordrugsthatshould 

not be takendurihgthe same timeperiod 

Point Estimate 957. ConfidenceInterval 

I $7,707,533 I $6,975,119-$8,439,946 

M&care paki an addzlional$22 millwnfor drugsthatmay be inapproptite whentaken 

togethen 

IIPoint Estimate I 95% ConfidenceInterval II 

$22,416,942 $21,615,746-$23,218,138 

One DMERC accountedfor a dkproptinate shareof multiplenebulizerdug 

allowances. 

1~1 ‘oht””te 95% CkmfideneeInterval 

IIDMERC C share of allowances $20,395,724 I 

$19,129,240-$21,662,208 ,, I

IITotal questionable payments $30,124,480 $29,034,195-$31,214,765 I 

DMERC C pereent of beneficiaries 59.609’o 54.0990- 65.12% 

A-1

OTHER QUESTIONABLE DRUG PROVISION PRACI’ICES MAY 

COMPROMISE BENEFICIARIES’ CARE. 

Medicarebenejiciati receivedunitsof albuterolsulfatethatdi#kredfrom amounts 

prescribedby ttiphysicians. 

11 I 

~1 ‘0’’”-” I“%””’’””’”-

Units differed from prescription 26.44% 18.28% - 34.60% II I 

Units exceeded prescription 13.27’%0 6.72?Z0- 19.83% 

Units less than prescription 13.167. 7.00% - 19.33’%0 

Relationship undeterminable ]]36.30% I 28.16% - 44.45% 

l%wribed dixage levekfor some beneficiariesexceedmedicalguidelines. 

IIGreater than or equal to 450 ml 13.47% 

I 

7.24(?ZO19.70% I - ,, 

IIGreater than or equal to 540 ml 9.38% 4.67% - 14.10% 

II I I 

Prescribed frequency undeterminable 18.8070 11.85% - 25.76% 

Bene&izries do not use all of the nebukzerdrugsprovidedto then 

1]Do not use all nebulizer drugs II23.63% ] 14.50% - 32.75% II 

I]Use half of nebulizer medicine II32.53% I 9.85% - 55.21% II 

IIUse three-quarters of drugs II43.77% 21.3392.- 66.21% II 

Discard unused drugs 45.35% 22.87% - 67.83% 

QUESTIONABLE BILLING PRACTICES CONTRIBUTE TO IMPROPER 

MEDICARE PAYMENTS FOR NEBULIZER THERAPY. 

Medicareallbwedover $10 rnililonfor nebulizerequipmentwithoutcorrespondingbilliiqp 

for nebulizerdrugs. 

IIAllowances for equipment without drugs 1[$10,382,230 [ $10,031,740-$10,732,720 II 

Total equipment allowances II$25,701,454 I $25,169,154-$26,233,753 

A-2

Suppi%mbilledMedicarefor thugdhpensingservicestheydidnotperfom•

Point Estimate 95% Cmfidenee Interval 

Suppliers did not dispense drugs 

Suppliers did not dispense drugs but billed 

dispensing fees 

Medicare allowances for improper dispensing 

fee billings 

Total Medicare allowances for albuterol 

sulfate dispensing fees 

36.38% 

25.449Z0 

$1,525,375 

$4,688,024 

28.01% - 44.74% 

17.5470-33.3370 

$1,051,899-$1,998,851 

$4,351,533-$5,024,514 

Some suppliersdid not collectbenejicimycoinsurancepayments. 

Point Estimate 95% Confidence Interviil 

I 

10.9470 4.05% - 17.83% 

A-3


I 
--

,+S,*vw#, 

*.+ ~., 

* 

f DEPARTMENT OF HEALTH & HUMAN SERVICES Health Care Financing Administration 

5 

“o 

“+ Jf ~++“.,a The Adm!nlstrator > 

Washington, D.C. 20201 

DATE: FEB ‘-6 1997 IV 

v J jJ#wd 

FROM: Bruce C. Vladeck 

Administrator * 

SUBJECT: OffIce of Inspector General (OIG) Draft Report: “Questionable Practices 

Involving Nebuhzer Drug Therapy,” (OEI-03-94-00391) 

TO: June Gibbs Brown 

Inspector General 

We reviewed the above-referenced report that identified questionable practices relatig to 

nebulizer drug therapy provided to Medicare beneficiaries. 

Our detailed comments on the report recommendations are attached for your 

consideration. Thank you for the opportunity to review and comment on this report. 

Attachment 

JG— 

E: = mm 

DIG-AS — gII;c 

325 

m-a — DIG-MP_ AIG-LC 

OGCJIG 

Exccsccz DateW ~ 
The Health Care Financing Administration [HCFA) Comments on 

Office of Inspector General (OIG) Draft Report: 

“Questionable Practices Involving Nebulizer Drug Therarw,>’ 

(OEI-03-94-00391] 

OIG Recommendation 

HCFA should eliminate the questionable and abusive billings encountered in this 

inspection. 

HCFA Response 

We concur. HCFA is aware of existing problems in this area of the Medicare program 

and took corrective action to ensure that nebulizer drug therapy billings are appropriate. 

The durable medical equipment (DME) regional carriers revised the regional medical 

review policy (RMRP) for nebulizers and nebulizer drugs. The revised RMRP was 

published in the December 1996 DME Regional Carrier Advisory for distribution to all 

DME suppliers. The new policy, which becomes effective in April 1997, has more 

stringent guidelines that should reduce over-utilization and overfWing for nebulizer drug 

therapy equipment and services. It requires that suppliers bill Medicare for nebulizers 

and licensed pharmacy entities dispense and bill for nebulizer drugs. The policy also 

provides tightened coverage criteria for respiratory diagnoses and requires more specific 

coding to be used when billing Medicare for nebulizer therapy. The revised coverage 

criteria and coding guidelines will compel the supplier to bill Medicare for the services 

that are medically necessary. This will reduce the opportunity for suppliers to upcode. 

We anticipate significant savings will result from these actions. 

OIG Recommendation 

HCFA should ensure that beneficiaries requiring nebulizer therapy receive treatments that 

are appropriate. 

HCFA Response 

We concur. HCFA recently clarified the Medicare Carriers Manual at section 3060.D. 

That section places the dispensing and billing for nebulizer drugs under the jurisdiction of 

licensed pharmacies that must meet the strict pharmacy practice standards established by 

state boards of pharmacy regulations and professional association ethics. We believe 

pharmacists’ involvement will ensure appropriate dispensing and prevent overuse of 

nebulizer drugs.