Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

EDICARE PART B ALLOWANCES FO 

WOUND CARE SUPPLIES 

JUNE GIBBS BROWN 

Inspector General 

JUNE 1998 

031-03-94-00793 
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. 

OEI’s Philadelphia prepared this report under the direction of Robert A. Vito, Regional Inspector 

General and Linda M. Ragone, Deputy Regional Inspector General. Principal OEI staff 

included: 

REGION HEADQUARTERS 

Nancy J. Molyneaux, Project Leader Lisa A. Foley, Program Specialist 

Liana Wu, Intern Brian Ritchie, TSS 

To obtain copies of this report, please call the Philadelphia Regional Office at l-800-53 l-9562. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY 

PURPOSE 

This report identifies trends in Medicare Part B allowances for wound care supplies in 

1996. 

BACKGROUND 

Wound care supplies are protective covers or fillers for openings on the body causedby 

surgical procedures, wounds, ulcers, or burns. These supplies are covered under Medicare 

Part B when they are medically necessaryfor the treatment of surgical or debrided wounds. 

Wound care supply claims are processedby the four Durable Medical Equipment Regional 

Carriers (DMERCs). 

Changes in Medicare Part B CoveragePolicy for Wound Care Supplies 

As of March 30, 1994, Medicare expandedits coverageof wound care supplies to include 

both primary and secondarydressings. Primary dressingsare coverings applied directly to 

wounds or lesions on the skin or wounds causedby an opening to the skin. Secondary 

dressings include adhesivetape, roll gauze, and bandages. The 1994 policy also removed 

time limits on the coverageof wound care supplies and provided coverageregardless of 

type of debridement or what type of health care professional performed the procedure. 

On October 1, 1995, the four DMERCs implemented new policies concerning their 

coverage of theseproducts. Included in thesepolicies are utilization parametersfor wound 

care supplies. In addition, modifiers to the codeswere added to identify the number of 

wound sites treated with wound care supplies. 

More recently, the Balanced Budget Act of 1997 included a provision which bundles 

payment for Part B servicesand supplies provided to beneficiaries covered under a Part A 

stay in a skilled nursing facility (SNF) into a per diem payment. Therefore, suppliers can 

no longer bill separately for wound care supplies provided to beneficiaries in SNFs whose 

stays are covered under Part A. Further, the Act requires servicesprovided to beneficiaries 

in nursing facilities not covered under a Part A stay to be billed directly by the nursing 

home rather than the supplier. These provisions are to take effect July 1, 1998. 

FINDINGS 

Medicare Part B allowances for wound care supplies have decreasedby nearly 50 percent. 

Allowances for wound care supplies decreasedby nearly 50 percent from $143 million in 

1995 to $74 million in 1996. 

i 
The DMERCs have several measures in place to ident@ and prevent allowances for 

claims that exceedtheir guidelines for wound care supplies. 

The DMERCs have utilized new policies, edit screens,supplier review and education, and 

post-payment audits to identify and prevent allowances for excessiveclaims for wound care 

supplies. 

Medicare Part B allowances for wound care supplies exceeding DMERC guidelines in 

1996 also decreasedsignificantly. 

Allowances for wound care supplies exceeding DMERC parametersdropped from $65 

million in 1995 to $7 million in 1996, a decreaseof nearly 90 percent. 

CONCLUSION 

The allowances for wound care supplies have decreaseddramatically. The Health Care 

Financing Administration (HCFA) and the DMERCs have taken stepsto identify and 

prevent inappropriate payments. Concerted efforts by HCFA, DMERCs, and the Office of 

Inspector General (OIG) in the form of policy changes,utilization review, and reports have 

contributed to the declines in Medicare allowances documented in this report. The new 

policy provided utilization parametersfor many products. The reports made DMERCs and 

others concerned with claims processing aware of questionablebilling practices. As a 

result, $58 million in excessiveallowances was savedbetween 1995 and 1996. If these 

allowances continue to be held in check, 5 year savings of nearly $300 million could be 

achieved. 

Some claims still exceededDMERC guidelines in 1996. These claims may have been 

justified through additional documentation from the supplier which we did not examine. In 

addition, once implemented, the changesenactedin the Balanced Budget Act of 1997 may 

further reduce allowances for wound care supplies that exceedDMERC guidelines. Part of 

the Act changesthe method for reimbursing SNFs. Instead of paying for Part B services 

and supplies separately, thesecosts will be bundled into a per diem payment at each facility 

for as long as the beneficiary’s stay is covered under Part A. Since a large portion of 

allowances (56 percent) for claims exceeding DMERC guidelines were made for 

beneficiaries in SNFs, this change in reimbursement methodology could have a significant 

impact on future billing for wound care supplies. However, to ensurethat appropriate per 

diem rates are established, excessiveallowances identified in 1995 must be taken into 

account. Another changethat could affect future billing is that claims for medical services 

and supplies, including wound care supplies, will be billed by the nursing facilities 

themselvesrather than individual suppliers. 

ii 
AGENCY COMMENTS 

The HCFA reviewed the draft report and concurred with both our conclusion and the 

savings identified. The full text of their comments is in Appendix B. 

. . . 111 
TABLE OF CONTENTS 

PAGE 

EXECUTIVE SUMMARY 

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..I 1 

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4 

l Dramatic decreasesin allowances for wound care supplies . . . . . . . . . . . . . . . . . . 4 

l Stepstaken to identify and prevent excessiveallowances .................... 5 

l Decreasein claims exceeding DMERC guidelines ........................ 6 

CONCLUSION ................................................ 8 

APPENDICES 

A: Confidence Intervals ......................................... A-l 

B: Agency Comments ........................................... B-l 
INTRODUCTION 

PURPOSE 

This report identifies trends in Medicare Part B allowances for wound care supplies in 

1996. 

BACKGROUND 

Wound care supplies are protective covers or fillers for openings on the body causedby 

surgical procedures, wounds, ulcers, or burns. These supplies are covered under Medicare 

Part B when they are medically necessaryfor the treatment of surgical or debrided wounds. 

Wound care supply claims are processedby the four Durable Medical Equipment Regional 

Carriers (DMERCs). 

Changes in Medicare Part B CoveragePolicy for Wound Care Supplies 

As of March 30, 1994, Medicare expandedits coverageof wound care supplies to include 

both primary and secondarydressings. Primary dressings are coverings applied directly to 

wounds or lesions on the skin or wounds causedby an opening to the skin. Secondary 

dressings include adhesivetape, roll gauze, and bandages. The 1994 policy also removed 

time limits on the coverageof wound care supplies. In addition, the policy provided 

coverage regardlessof type of debridement or what type of health care professional 

performed the procedure. Previously, wound care supplies would only be covered if the 

procedure was a sharp debridement (e.g., scalpel, laser) and was performed by a physician. 

Finally, the policy removed the requirement for suppliers to submit a certificate of medical 

necessity. 

On October 1, 1995, the four DMERCs implemented new policies concerning their 

coverage of theseproducts. Included in thesepolicies are utilization parametersfor wound 

care supplies. For example, certain types of supplies should not be billed in excessof one 

per day. The guidelines statethat theseparametersmay be exceededif the supplier includes 

documentation to substantiatethe claim. The new policy also included modifiers to the 

codes to identify the number of wound sites treated with wound care products. 

More recently, the Balanced Budget Act of 1997 included a provision which bundles 

payment for Part B servicesand supplies provided to beneficiaries covered under a Part A 

stay in a skilled nursing facility (SNF) into a per diem payment. Therefore, suppliers can 

no longer bill separately for wound care supplies provided to beneficiaries in SNFs whose 

stays are covered under Part A. Further, the Act requires servicesprovided to beneficiaries 

in nursing facilities not covered under a Part A stay to be billed directly by the nursing 

home rather than the supplier. These provisions are to take effect July 1, 1998. 

1 
Other Office of Inspector General Work 

The 1995 report Questionable Medicare Payments for Wound Care Supplies (OEI-03-94-

00790) found that $65 million of the $98 million allowed for wound care supplies between 

June 1994 and February 1995 was for questionableclaims. This was one of a series of 

reports issued in 1995 concerning Medicare payments for wound care and provided baseline 

information on questionable billings which our current inspection will employ for 

comparison purposes. Marketing of Wound Care Supplies (OEI-03-94-00791) described 

supplier and nursing home practices that can lead to questionable allowances and examined 

issuesconcerning Medicare beneficiaries’ use of wound care supplies. Wound Care 

Supplies: Operation Restore Trust Data (OEI-03-94-00792) examined questionable billing 

practices and supplier and nursing home practices that can lead to questionablebilling in the 

five Statestargeted by the anti-fraud initiative known as Operation Restore Trust. 

METHODOLOGY 

To learn what stepshave been taken to identify and prevent allowances for claims that 

exceedDMERC guidelines for wound care supplies, we asked each DMERC to provide us 

with information on their policies and proceduresconcerning wound care supplies. We 

asked the DMERCs to describe both pre- and post-payment procedures to identify excessive 

claims as well as to evaluate the successof those procedures. 

To determine both the total amount allowed for wound care supplies and the number of 

claims exceeding the DMERC guidelines, we obtained a 1 percent sample of Part B claims 

for wound care supplies in 1996. While our calculations of claims exceeding DMERC 

guidelines were basedon the 89 percent complete 1996 1 percent file, estimatesof the total 

allowances were basedon the complete 1996 file. 

Based on 1 percent samplesof Part B claims from 1995 and 1996, we compared the total 

allowed for wound care claims in each year. We applied DMERC guidelines implemented 

in October 1995 to the 1996 claims to identify excessiveallowances. Specifically, we 

looked for claims that exceededDMERC utilization parameters. We compared the 1996 

data with the data presentedin our previous report which covered June 1994 through 

February 1995. Unlike our previous report, we were able to use new modifiers to 

determine the number of wounds being treated in calculating the extent of claims exceeding 

the DMERCs’ utilization parameters. However, we did not examine individual claims to 

determine if additional documentation was provided by the supplier. As with our previous 

report we did not addressclaims for wound care supplies that should not be billed together. 

Our analysis of tape overutilization varied considerably from that of our previous work. In 

our earlier inspection, we determined the extent of tape overutilization basedon a sample of 

beneficiaries with allowances for tape. We then determined the number of inches of tape 

that should have been allowed for each bandageand whether the claim exceededthat 

amount. 

2 
For this report, we used the DMERC guidelines on the number of units of tape that could be 

billed with certain bandages. Basedon the number of units allowed for each bandageand 

the allowed amount for eachunit of tape, we determined which claims had allowances for 

tape which exceedthe DMERC parameters. 

This study was conducted in accordancewith the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

3 
FINDINGS 

MEDICARE PART B ALLOWANCES FOR WOUND CARE SUPPLIES HAVE 

DECREASED BY NEARLY 50 PERCENT. 

In 1994, $98 million was allowed for wound care supplies. Allowances rose to $143 

million in 1995. However, expenditures for wound care supplies have dropped significantly 

to $74 million in 1996, a decreaseof nearly 50 percent from 1995. The number of 

beneficiaries receiving wound care supplies has also decreasedfrom 269,700 in 1995 to 

255,100 in 1996. Average allowances per beneficiary have dropped from $769 in 1994 to 

$531 in 1995, and to $290 in 1996; a drop of 45 percent in 1 year. Table A below shows 

the extent to which Medicare reimbursement has changedby type of wound care product. 

Table A. Changesin Allowances from 1995 to 1996 

WOUND CARE PRODUCT TOTAL ALLOWAN 

Transparent Film $5.2 

Hydrocolloid Dressings $5.6 

Composite Dressings $3.8 

Contact Layer $2 

Total $143.0 

* Percentagesmay be slightly off due to rounding. 

$2.6 -49% 

$7.5 +35% 

$1.6 -57% 

$0.0 -100% 

$73.8 -48% 

Nearly half of the total allowances were made by DMERC C, the DMERC which processes 

the most claims. The DMERC C allowed $36 million of the $74 million in total allowances 

in 1996. DMERCs A and B had the next highest allowances for wound care supplies, with 

$14.5 million each. The DMERC D had the lowest allowances with $9 million. 

4 
The data for 1997 indicates that allowances for wound care supplies are remaining at or 

below 1996 levels. Current data reveals 1997 allowances of $61 million. 

MEASURES ARE IN PLACE AT THE DMERCs TO IDENTIFY AND PREVENT 

CLAIMS EXCEEDING THEIR GUIDELINES FOR WOUND CARE SUPPLIES. 

Edit Screens 

All four DMERCs use edit screensto identify claims exceeding their guidelines for at least 

some of the wound care supply codes. These screenscapture servicesthat exceedthe 

DMERC parametersfor review. One DMERC has edit screensin place for all wound care 

codes. The remaining DMERCs have edit screensin place for certain supplies which they 

have determined to be vulnerable to abuse. These three DMERCs target five types of 

wound care supplies: foam dressings, hydrogel dressings, alginate dressings, hydrocolloid 

dressings, and gauze. One DMERC also has a screento capture excessiveclaims for one 

type of wound filler. 

Flagged Suppliers 

Each of the DMERCs also has a system to suspendall of the claims from certain providers 

for detailed medical review. According to the DMERCs, some suppliers’ claims were 

flagged only for certain supplies. In other cases,all of a supplier’s claims were subject to 

review. 

Supplier Education 

The DMERCs have a variety of approachesfor educating suppliers about their wound care 

policies. The DMERCs reported distributing newsletters and bulletins to make suppliers 

aware of their policies and guidelines for submitting wound care claims. In addition, 

DMERCs conduct supplier seminars. Several DMERCs mentioned providing education for 

specific providers, particularly if the supplier has submitted questionableclaims in the past. 

Post-payment Audits 

Several DMERCs reported conducting post-payment audits to verify that items were 

supplied and were medically necessary. If the audit uncovers questionableclaims, the case 

is turned over to the DMERC fraud unit. If the DMERCs identify a significant 

overpayment to a particular supplier, the supplier may be required to submit to a postpayment Comprehensive Medical Review. 

5 
MEDICARE PART B ALLOWANCES FOR WOUND CARE SUPPLIES 

EXCEEDING DMERC GUIDELINES IN 1996 ALSO DECREASED 

SIGNIFICANTLY. 

Allowances for wound care supplies exceeding DMERC parameters dropped from $65 

million in 1995 to $7 million in 1996, a decreaseof nearly 90 percent. It should be noted 

that DMERC guidelines can be exceededif documentation justifying the claim is provided. 

However, we did not review individual claims for such documentation. 

Table B below shows the decreasein excessiveallowances for wound care supplies. More 

than half of the $7 million allowed for claims exceeding DMERC guidelines in 1996 were 

for three types of wound care supplies. Hydrogel dressings, foam dressings, and specialty 

absorptive dressingsmade up 58 percent of all allowances for items exceeding the DMERC 

guidelines. Of the $7 million in claims exceeding DMERC guidelines, nearly $4 million 

was for thesethree types of wound care supplies. 

Table B. Allowances for Claims Exceeding DMERC Guidelines by Type of Supply 

WOUND CARE PRODUCT 

Hydrogel Dressings 

Tape* 

Gauze 

Contact Layer 

Total 

ALLOWANCES FOR CLAIMS EXCEEDING DMERC 

GUIDELINES (In Millions) 

JUNE 1994- 1996* PERCENTAGE LESS 

FEBRUARY 1995 

$24.8 $1.8 -92% 

$9.8 $0.1 -99% 

$7.8 $0.6 -92% 

$64.5 $6.8 -89% 

* 1996 data was basedon the 89 percent complete 1 percent file. 

t 1995 and 1996 allowances were calculated using different methods. 

’ Estimates of allowances for claims exceeding DMERC guidelines were basedon the 

89 percent complete 1 percent file. 

6 
Nearly 50 percent of all allowances for claims exceeding the DMERC guidelines were 

found in five States. These Stateswere Florida, Texas, Illinois, California, and Michigan. 

Sixteen percent of the allowances ($1.1 million) were for claims for beneficiaries in 

Florida. Three of the Stateswith the most allowances for items exceeding the DMERC 

guidelines in 1996 were also part of the group of eight statesthat made up nearly two-thirds 

of the questionable billings found in our previous inspection. 

Most allowances for claims exceeding the DMERC guidelines for wound care supplies 

were for beneficiaries in SNFs or nursing facilities. Nearly 80 percent of excessive 

allowances were made for beneficiaries residing in SNFs or nursing facilities. Fifty-six 

percent of the allowances for claims exceeding DMERC guidelines were for beneficiaries in 

SNFs. Our previous inspection found that 72 percent of such allowances were made for 

beneficiaries in SNFs or nursing facilities. 

7 
CONCLUSION 

The allowances for wound care supplies have decreaseddramatically. The Health Care 

Financing Administration (HCFA) and the DMERCs have taken stepsto identify and 

prevent inappropriate payments. Although it appearsthat some allowances for wound care 

supplies exceedthe DMERC guidelines, concerted efforts by HCFA, DMERCs, and the 

Office of Inspector General in the form of policy changes,utilization review, and reports 

have contributed to the declines in Medicare allowances documented in this report. The 

new policy provided utilization parametersfor many products. The reports made DMERCs 

and others concerned with claims processing aware of questionable billing practices. As a 

result, $58 million in excessiveallowances was savedbetween 1995 and 1996. If these 

allowances continue to be held in check, 5 year savings of nearly $300 million could be 

achieved. 

Once implemented, the changesenactedin the Balanced Budget Act of 1997 may further 

reduce allowances for wound care supplies that exceedDMERC guidelines. Part of the Act 

changesthe method for reimbursing SNFs. Instead of paying for Part B servicesand 

supplies separately, thesecosts will be bundled into a per diem payment at each facility for 

as long as the beneficiary’s stay is covered under Part A. Since a large portion of 

allowances (56 percent) for claims exceeding DMERC guidelines were made for 

beneficiaries in SNFs, this change in reimbursement methodology could have a significant 

impact on future billing for wound care supplies. However, to ensure that appropriate per 

diem rates are establishedexcessiveallowances identified in 1995 must be taken into 

account. Another changethat could affect future billing is that claims for medical services 

and supplies, including wound care supplies, will be billed by the nursing facilities 

themselvesrather than individual suppliers. 

AGENCY COMMENTS 

The HCFA reviewed the draft report and concurred with both our conclusion and the 

savings identified. The full text of their comments is in Appendix B. 

8 
APPENDIX A 

CONFIDENCE INTERVALS 

We reported our projected totals by multiplying by 100 the point estimatesin our samples. 

The point estimatesrepresenttotal allowances. The tables below include columns 

containing the confidence intervals for each of the projected totals. All projections were 

made at the 95 percent confidence level. 

Table 1. 

TOTAL 1995 AND 1996 ALLOWANCES 

1995 1996 

Projected Confidence Projected Total Confidence 

Total Interval Interval 

$143,248,682 +/- $5,390,705 $74,049,462 +I- $2,634,834 

Table 2. 

A-l 
Table 3. 

Table 4. 

TOTAL 1996ALLOWANCES BY DMERC 

DMERC 1996 

ProjectedTotal Confidence 

Interval 

DMERC A $14,514,813 +I- $1,237,777 

DMERC B $14,581,662 +/- $1,019,319 

DMERC C $36,181,879 +/- $1,919,587 

DMERC D $8,771,112 +/- $750,292 

EXCESSIVE ALLOWANCES 

JUNE 1994-FEBRUARY 1995 1996 

Projected Confidence Projected Total Confidence 

Total Interval 

$63,693,411 +/- $1,494,300 

EXCESSIVE ALLOWANCES BY WOUND CARE PRODUCT 

WOUND CARE NE 1994- FEBRUARY 1995 

PRODUCT 

A-2 
APPENDIX B 

AGENCY COMMENTS 

B-l 
DEPARTMENT OF HEALTH & HUMAN SERVICES Health Care Financing Administration 

The Administrator 

Washington, D.C. 20201 

DATE: 

TO: 

FROM: 

SUBJECT: 

A?# 291998 

June Gibbs Brown 

Inspector General 

Nancy-AnnMin DeParle 

Administrator 

Office of Inspector General (OIG) Draft Report: “Medicare Part B 

Allowances for Wound Care Supplies,” (OEI-03-94-00793) 

We reviewed the above-referenced report which reflects a concerted effort on the part of 

the Health Care Financing Administration, Durable Medical Equipment Regional 

Carriers, and the Office of Inspector General. We are in agreement with the report 

fmdings and savings identified as a result of these activities. 

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

B-2