Medicare: Orthotics Ruling Has Implications for Beneficiary Access and Federal and State Costs
Published: 2002-05-22T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: In the late 1980s and early 1990s, the Health Care Financing Administration (HCFA), now called the Centers for Medicare and Medicaid Services (CMS), became concerned that some suppliers were improperly billing Medicare for items that attach to wheelchairs and other equipment. Some suppliers were billing for such items using codes for orthodic devices, including arm, back, and neck braces that provide support for or immobilize weak or injured limbs, while others were billing using codes for durable medical equipment, which includes equipment such as wheelchairs and crutches that can withstand repeated use and is appropriate for home use. Whether an item is billed as an orthotic or DME device can affect whether such claims are paid. To clarify Medicare's payment policy on orthotics, HCFA issued a ruling stating that Medicare considered such items to be durable medical equipment rather than orthotics. HCFA issued Ruling 96-1 to clarify the circumstances under which certain items would be classified as orthotics or as DME for Medicare part B payment purposes. A federal appellate court found that HFCA had followed appropriate procedures to issue the rule as an interpretation of Medicare policy, the interpretation in the ruling was wholly supportable, and the treating of seating systems as DME was consistent with congressional intent. HCFA's ruling that attached bracing devices were in the DME benefits category and could no longer be billed as orthotics affects beneficiaries residing in Medicare-certified skilled nursing facilities and other institutions primarily engaged in providing skilled nursing care (SNF). Because Medicare part B does not cover DME in SNFs and other institutions primarily engaged in providing skilled nursing care, claims for such items are no longer paid for residents in nursing homes. This ruling affects residents of all nursing homes, not just SNFs. If HCFA's ruling were rescinded and Medicare's policy changed so that attached bracing devices were classified as orthotics, how much Medicare and Medicaid would spend for orthotics is uncertain. The increase in Medicare spending would depend on how extensively attached bracing devices would be provided to nursing home residents following the ruling's recission. The distinction between DME and orthotics would become less clear, which could lead to inappropriate billing. Therefore, if the ruling were rescinded, additional controls, such as closely monitoring billing and reviewing medical justification for customized items prior to payment, would be vital to help curb potentially inappropriate billing.

section_title: Letter
paragraphs: In the late 1980s and early 1990s, the Health Care Financing  Administration (HCFA—now called the Centers for Medicare and  Medicaid Services or CMS)—became concerned that some suppliers were  improperly billing Medicare for certain items that attach to wheelchairs  and other equipment. These suppliers were billing such items using codes  for orthotic devices, which include leg, arm, back, and neck braces that  provide rigid or semi-rigid support to weak or deformed body parts or  restrict or eliminate motion in a diseased or injured part of the body.  However, other suppliers were billing devices that served essentially the  same purpose using codes for durable medical equipment (DME), which is  equipment—such as wheelchairs and crutches—that serves a medical  purpose, can withstand repeated use, is not generally useful in the absence  of an illness or injury, and is appropriate for use in the home. Whether an  item is billed as an orthotic or DME device can affect whether such claims  are paid. To clarify Medicare’s payment policy on orthotics, HCFA issued  Ruling 96-1 in September 1996. The ruling stated that Medicare’s long- standing policy was to consider items that attach to DME (or to other  equipment) as DME and not orthotics.
Medicare covers both orthotics and DME when medically necessary and  prescribed by a physician, but the type of coverage depends on where the  beneficiary receives care. For example, under part B, which is the part of  the program that pays for physician, laboratory, and certain other services,  Medicare covers both orthotics and DME for beneficiaries in their homes  or in institutions that serve as their homes, but covers only orthotics for  beneficiaries in a skilled nursing facility (SNF). In contrast, some states’  Medicaid programs cover and pay for customized DME items for program  beneficiaries in SNFs, including wheelchairs with attachments that have  been measured and fitted to the beneficiary. Often such residents are  eligible for both Medicare and Medicaid benefits.
In addition to HCFA’s concerns about billing for certain items that attach  to wheelchairs and other equipment as orthotic devices, the Department of  Health and Human Services (HHS) Office of Inspector General (OIG)  reported several times on other types of problems related to inappropriate  Medicare payment for orthotic devices. For example, when the OIG  reviewed a sample of beneficiary medical records, it found that many  orthotic devices were not being provided to the beneficiaries as billed. The  OIG also reported that practitioners who had not been certified to  dispense these items were more likely than other suppliers to bill  inappropriately. To help address these program integrity concerns, in  March 2000 the OIG recommended that only qualified practitioners be  allowed to provide to beneficiaries custom-fabricated orthotic devices that  are individually made for a specific patient. In response, the Medicare,  Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000  (BIPA) restricted payment for custom-fabricated orthotic devices that are  individually fabricated over a positive model of the patient—custom- molded devices—to practitioners and suppliers meeting prescribed  accreditation or other requirements. The BIPA requirement applies only  to custom-molded orthotic items, but not to other custom-fabricated  orthotic devices.
Cognizant of program integrity issues and concerned that the HCFA ruling  could have adversely affected Medicare beneficiaries, the Congress  directed us in BIPA to study the ruling. We addressed the following  questions: (1) Why did HCFA issue its ruling and did it follow required  procedures in issuing it? (2) What has been the impact of the ruling on  Medicare beneficiaries? (3) If the ruling were rescinded by CMS, what  would be the financial impact on Medicare and Medicaid? (4) Given the  new BIPA requirement, what would be the implications for Medicare  program integrity if the ruling were rescinded?
In preparing this report, we conducted interviews with officials and  representatives from CMS, and from durable medical equipment regional  carriers (DMERC), who are contractors that process orthotics and DME  claims. We interviewed representatives from state Medicaid programs to  determine the potential financial impact of changing the ruling on states’  Medicaid spending for individuals dually-eligible for Medicare and  Medicaid. We also interviewed representatives from the OIG, advocacy  groups, orthotic industry representatives, and provider associations;  reviewed federal statutes and regulations, documents related to a legal  challenge to the ruling, CMS documents, and Medicare coverage policy;  and analyzed data on orthotic claims and characteristics of nursing home  residents. Appendix I presents the details of our methodology. We  performed our work from January 2001 through March 2002 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: CMS, an agency within HHS, is responsible for much of the federal  government’s multi-billion dollar payments for health care, primarily  through the Medicare and Medicaid programs. Medicare covers about 40  million individuals 65 years old and older, as well as some disabled  individuals. Eligible individuals enroll to receive part A insurance, which  helps pay for inpatient hospital, SNF, hospice, and certain home health  services. Most Medicare beneficiaries also elect to purchase part B  insurance, which helps pay for physician, outpatient hospital, laboratory,  and other services.
Medicaid is a state-administered health insurance program, jointly funded  by the federal and state governments, that covers approximately 40 million  eligible low-income individuals including children and their parents, the  aged, blind, and disabled. Each state administers its own program and  determines, under broad federal guidelines, eligibility for, coverage of, and  reimbursement for specific services and items, such as orthotics and DME.  In 2000, about 5.5 million low-income aged and disabled Medicare  beneficiaries were also covered by Medicaid. For such beneficiaries,  Medicare serves as their primary health care coverage, while Medicaid  pays for certain other health care costs. The extent of their Medicaid  coverage is primarily dependent on their income. For the lowest income  beneficiaries, Medicaid covers long-term care, prescription drugs, and  their Medicare part B premiums, deductibles, and copayments, as well as  other items and services not available through Medicare. For those dually- eligible beneficiaries with somewhat higher incomes, Medicaid support is  limited to cost sharing and/or part B premiums.
Benefits covered by Medicare are broadly established in statute and  further delineated through regulation and other means, such as rulings.  Generally, a regulation is a substantive requirement promulgated by a  federal agency that has the force and effect of law. Such regulations are  generally first proposed, to allow for a period of public notice and  comment, before they are finalized. In addition to such substantive  regulations, CMS also issues interpretive rules—including administrative  rulings—that are decisions of the agency’s administrator that serve as final  opinions and statements of policy and interpretation. They provide  clarification on, and interpretation of, complex or ambiguous provisions of  the law or regulations relating to Medicare, Medicaid, and related matters.  CMS characterizes rulings as interpreting previously promulgated policies,  rather than establishing new policies. Rulings are final upon issuance  without prior public notice or comment period.
Medicare pays for orthotic devices and DME under both its part A and part  B benefits. Through its post-hospital extended care services benefit under  part A, Medicare pays for inpatient skilled nursing care and rehabilitative  services furnished by a SNF. To qualify for this benefit, a Medicare  beneficiary must be admitted to the SNF within a short period (generally  30 days) after a hospital stay of at least 3 days and receive daily skilled  nursing care or rehabilitative services for a condition related to  hospitalization. Medicare’s part A per diem payment generally covers all  necessary services and supplies provided by the SNF, such as room,  board, and drugs, for as long as the need for daily skilled care continues,  up to 100 days of care per benefit period. Medicare also covers both  orthotics and DME under the part A per diem payment for a beneficiary in  a SNF. HCFA considered whether orthotics should be separately  reimbursed under part B when the SNF payment method was being  developed. In advising the Congress on what to include in the part A per  diem payment, the agency took the position that it would be appropriate to  include orthotics in the SNF part A per diem payment, because orthotics  were frequently used, and could be overprovided, if separately reimbursed  under part B.
Medicare also covers orthotic devices and DME under part B in some  instances. Orthotic devices are covered under part B for a beneficiary who  is not in a part A-covered SNF or hospital stay. In contrast, DME is not  covered under part B for a beneficiary in a facility that is primarily  engaged in providing skilled nursing or rehabilitative services. These  facilities include SNFs certified for Medicare part A payment and other  facilities that meet criteria developed by HCFA and used to determine  whether a facility is a SNF for DME payment purposes. However,  Medicare part B covers both orthotics and DME for a beneficiary living at  home or in an institution (other than a Medicare-certified SNF or other  facility that meets HCFA’s SNF criteria) that serves as a home. Information  summarizing Medicare coverage for orthotics and DME is presented in  table 1.
Suppliers and practitioners bill Medicare part B for orthotics and DME  using the Healthcare Common Procedure Coding System (HCPCS) codes.  Certain HCPCS codes are designated for orthotic devices, while others are  designated for DME. Orthotic HCPCS code listings give a brief description  of the device and state whether the device is prefabricated or custom- fabricated. Prefabricated, off-the-shelf devices are manufactured in  quantity, such as an adjustable, semi-rigid, knee-joint brace. A  prefabricated orthotic may be trimmed, bent, adjusted, or otherwise  modified for use by a specific patient. An orthotic device that is custom  assembled from prefabricated components is still considered  prefabricated. Custom-fabricated devices are individually made for a  specific patient, starting with basic materials, such as plastic, metal,  leather, or cloth. These would include devices such as an ankle and foot  brace that is attached to a shoe to control stability of the ankle and has  been custom fabricated based on measurements of the patient’s ankle and  foot. Custom-fabricated orthotics include custom-molded devices, which  are molded to a model of the patient—such as an ankle and foot brace  custom-molded on a casting made from an impression of the patient’s  ankle and foot.
Orthotics and DME suppliers and providers claim reimbursement for the  services and products provided to Medicare beneficiaries under part B  from CMS’s four DMERCs. DMERCs are responsible for checking the  validity of, and paying, orthotics and DME claims. Medicare part B has  different methodologies, specified in law, for determining payment  amounts for different categories of DME, but generally uses separate fee  schedules for each state, based on historical charges that have been  updated some years to reflect inflation. There are also upper and lower  limits on the fees paid for DME. For orthotics, Medicare uses 10 regional  fee schedules, which are also based on historical supplier charges and are  subject to upper and lower limits. Payments for DME and orthotics are  based on the lesser of the fee schedule amount or the submitted charge.  DME and orthotics fee schedules include amounts for newly purchased  items, rented items, and for purchase of used devices. The beneficiary is  responsible for a 20 percent copayment for DME and orthotics covered  under part B.
section_title: HCFA’s Ruling Issued to Clarify Medicare Policy for Orthotics and DME
paragraphs: HCFA issued its orthotics ruling in September 1996 to clarify the  distinction between certain DME and orthotics for Medicare part B billing  purposes. HCFA’s ruling helped address concerns about the manner in  which some suppliers were billing Medicare for a system consisting of leg,  arm, neck, and back supports that attached to a base. These suppliers  were billing for each attached support as a separate orthotic brace.  HCFA’s ruling stated that it has been Medicare’s longstanding policy to  treat braces attached to DME or other medical or nonmedical equipment  as DME. The ruling also said that only braces that could be used  independently qualified as orthotics. Attached devices that brace  individuals, such as items that attach to wheelchairs, would not be paid  under Medicare’s orthotics benefit. Shortly after it was issued, several  beneficiaries, a manufacturer, and several suppliers of attached bracing  devices challenged the ruling in court, claiming HCFA did not follow  appropriate procedures because it should have promulgated this decision  as a regulation after public notice and comment. However, a federal  appellate court found that HCFA had acted properly in issuing it as a  ruling, which is an appropriate way to interpret existing policy. The court  also found that the interpretation in the ruling was wholly supportable and  that the treatment of seating systems as DME was consistent with  congressional intent.
subsections: section_title: HCFA’s Ruling Clarified the Distinction Between Orthotics and DME
paragraphs: In the late 1980s and early 1990s, HCFA and its contractors had become  increasingly concerned about how certain suppliers were billing Medicare.  Particular concern was raised by the way in which suppliers of an item  manufactured by a company called OrthoConcepts were billing Medicare.  The OrthoConcepts system consisted of leg, arm, neck, and back supports  that attached to a base that could be put on wheels. OrthoConcepts said  that its adjustable system of multiple supports provided orthotic support  to the body, which would be particularly helpful to individuals with severe  neurological problems who needed to be properly positioned. Suppliers of  its system were billing each attached support as a separate orthotic brace,  using multiple orthotics billing codes that described braces expected to be  used independently of other medical equipment. As DMERCs became  aware of this billing practice, they began to deny these orthotics claims  because the attached bracing devices being provided as a group appeared  to be similar in function to a seating system or customized wheelchair,  which were both considered DME. However, some of the claims denials  were subsequently overturned by an ALJ, who hears Medicare appeals on  denied claims.
These decisions by an ALJ prompted HCFA to issue its September 1996  ruling, which is binding on these judges. HCFA’s ruling limited payment  for orthotics under Medicare part B to leg, arm, back, and neck braces that  can be used independently of other equipment. (See app. II for an excerpt  from the Conclusions and Illustrations section of the ruling to  demonstrate its practical application.) As a result of the ruling, attached  bracing devices, such as OrthoConcepts’ items and other attached devices,  were placed in the DME benefit category and could no longer be billed as  orthotics.
The ruling cited the Congress’ action in the Omnibus Budget  Reconciliation Act of 1990 (OBRA) as evidence for Medicare’s policy on  whether attached items could be considered orthotics. OBRA provided  that wheelchairs measured, fitted, or adapted for a particular patient, and  assembled or ordered with customized features, modifications, or  components intended for a specific patient’s use, were considered  customized DME. A committee report on the OBRA legislation discussed  how wheelchairs could be customized by adding attachments, such as  postural control devices and custom-molded cushions, inserts, or lateral  supports designed to brace the individual using the wheelchair. HCFA  concluded in its ruling that, while the Congress specifically addressed only  customized wheelchairs and their accessories in OBRA, it also intended  that devices attached to noncustomized wheelchairs be considered part of  the wheelchair and, therefore, DME.
section_title: Court Finds HCFA Acted Properly in Issuing the Ruling
paragraphs: Concern about whether HCFA’s issuance of its ruling violated statutory  requirements was the focus of a court challenge in 1997. The ruling was  challenged by OrthoConcepts, whose seating system was affected by the  ruling; two Medicare beneficiaries, who used the OrthoConcepts product;  and three DME suppliers of the OrthoConcepts product. These parties  argued that the ruling was invalid because it was adopted without  following the prescribed notice and comment procedures for a substantive  rule and that the agency’s refusal to classify the OrthoConcepts seating  system as orthotics was arbitrary and capricious.
After these parties were initially successful in challenging the ruling in the  United States District Court for the District of Massachusetts, HCFA  appealed the lower court’s decision. On July 27, 1998, the United States  Court of Appeals for the First Circuit found that HCFA’s characterization  of the OrthoConcepts seating system as DME was consistent with the  agency’s earlier stated position covering such devices and that the agency  had merely clarified its policy. Further, the court held that HCFA was not  required to provide for public notice and comment before issuing the  ruling because it was interpretive rather than legislative or substantive.  Because HCFA had followed federal requirements for an interpretive  rulemaking, the court also held that the agency had not acted in an  arbitrary and capricious manner in issuing the ruling. Furthermore, the  court found that the interpretation in the ruling was wholly supportable  and that the ruling’s treatment of seating systems as DME was consistent  with congressional intent. The Supreme Court denied a request to hear a  further appeal.
section_title: HCFA’s Ruling Affects Beneficiaries Who Reside in Nursing Homes
paragraphs: As a result of HCFA’s ruling, attached bracing devices are now clearly  classified as DME and cannot be billed as orthotics, which affects  beneficiaries who live in nursing homes. Part B no longer pays claims for  attached bracing devices for beneficiaries in institutions primarily engaged  in providing skilled nursing care because part B does not cover DME in  these settings. HCFA and the DMERCs developed criteria and guidance on  how to define such institutions that prohibit payment for DME for  beneficiaries in most nursing homes—not just Medicare-certified SNFs.  These beneficiaries would need to purchase such devices with their own  resources or through other payers.
When Medicare was established in 1965, facilities providing skilled nursing  care under part A were expected to serve as a bridge between the hospital  and other, less skilled care or home. Medicare part B did not cover  medical and other health services—such as DME—provided in what were  then called extended care facilities and are now called SNFs. Medicare  part B did pay for DME in facilities that provide a lesser level of care, but  as the nursing home industry evolved, fewer did not provide skilled care.  In 2001, most nursing homes were certified as SNFs. A significant number  of Medicare beneficiaries reside more or less permanently in SNFs or  other nursing homes that DMERCs consider as meeting HCFA’s criteria for  a SNF for DME payment purposes. Such beneficiaries are therefore unable  to obtain Medicare coverage for DME, while other beneficiaries living in  congregate settings such as assisted living facilities, as well as those living  at home, do receive DME coverage.
subsections: section_title: HCFA’s Ruling Reduced Medicare Payments For Beneficiaries in Nursing Homes by at Least $1.4 Million
paragraphs: Following the ruling, claims were no longer paid for attached bracing  devices for beneficiaries living in nursing homes, which caused a drop in  the number and amount of such claims paid by Medicare. Medicare  expenditures for such devices declined by at least $1.4 million between  1996 and 1997, and expenditures remained lower in subsequent years.  Prior to the ruling, the HCPCS coding system had nine codes that  described bracing devices that attached to wheelchairs. Suppliers used  these codes to bill for such items under Medicare’s orthotics benefit  category and DMERCs paid such claims. These devices included one back  support to position wheelchair users and eight mobile arm supports to  assist them in moving their hands and arms. (See table 2 for information  on these nine devices.) These codes were unlike other orthotics codes  because most of the other HCPCS orthotics codes were for braces  designed to be used independently of other equipment. In addition, most  other items that attached to wheelchairs—such as special headrests to  provide postural support—had codes that categorized them as DME and  were paid under the DME benefit category.
To develop a conservative assessment of the effect of the ruling on claims  payment, we analyzed Medicare claims data for the nine attached bracing  devices that were classified in the DME—rather than the orthotic—benefit  category as a result of the clarification in the ruling. Our analysis showed  that Medicare part B expenditures for the nine attached bracing devices  provided to beneficiaries in nursing homes dropped by about $1.4 million  between 1996 and 1997 and the number of claims paid for these  beneficiaries for such devices declined from about 3,200 claims in 1996 to  only 11 claims in 1997. Furthermore, the reduction has continued, with no  claims paid for the nine attached bracing devices for beneficiaries in  nursing homes in either 1999 or 2000. (See fig. 1.) However, our estimate  of the change in Medicare spending for attached bracing devices for  nursing home residents prior to and after the ruling is conservative  because payment under the nine codes we analyzed does not represent all  payments for such devices. Some suppliers—such as those providing  OrthoConcepts’ products—were billing for attached bracing devices using  codes for nonattached braces. Because both attached and nonattached  items were being billed using these codes, we could not isolate the claims  for attached items from claims for nonattached items. As a result, we  could not analyze all billing in the orthotics benefit category for attached  bracing devices prior to the ruling.
The effect of the ruling was to make beneficiary place of residence pivotal  as to whether Medicare would reimburse for attached bracing devices  under part B. HCFA’s ruling did not affect Medicare beneficiaries living in  their own homes, or settings such as assisted living facilities, because  attached bracing devices that are considered DME are covered for  beneficiaries in those settings. The ruling affected beneficiaries who are  long-term residents of SNFs and other institutions primarily engaged in  providing skilled nursing care because DME is not covered by part B for  beneficiaries in these facilities. If the beneficiary is in a part A-covered  stay, both orthotics and DME are included in the per diem part A payment.  However, when a beneficiary is not in a Medicare part A-covered stay, part  B will cover orthotics, but not DME, including customized DME items that  are uniquely constructed or substantially modified for a specific  beneficiary.
Some beneficiaries who reside in SNFs and other institutions primarily  engaged in providing skilled nursing care and need attached bracing  devices that are not paid for through Medicare can obtain them through  other sources. For example, certain state Medicaid programs separately  cover attached bracing and similar devices as customized DME for nursing  home residents, and other Medicaid programs may include payment for  these devices in their per diem rates. However, other beneficiaries may  have to pay out of pocket or forgo using such devices.
section_title: DME Coverage Policy Predates Evolution of Nursing Home Industry
paragraphs: The policy of not covering DME for beneficiaries in facilities primarily  engaged in providing skilled nursing care has its roots in the early years of  the Medicare program. When the Congress created the Medicare program  in 1965, part A was designed to cover only hospitalizations and relatively  short-term, post-hospital care in the home or in a facility that provided  skilled nursing care. Part A post-hospital care in such a facility was  expected to involve skilled nursing or rehabilitative care, which would  serve as a bridge between the hospital and other, less intense nursing care  or therapy. In this skilled nursing home environment, Medicare did not pay  for any service, drug, or other items under part A—including DME and  orthotics—that could not be paid for if furnished in a hospital. Payment  under part A for a beneficiary’s SNF stay would cover only such needs as  would be covered for a beneficiary’s hospital stay. When the Medicare  program began, facilities providing skilled nursing care were not expected  to serve as patients’ residences past the immediate recovery from their  hospitalization.
Medicaid’s coverage of nursing home care is broader than Medicare’s,  because Medicaid also covers institutional care for beneficiaries who do  not need skilled nursing care. In 1971, the Congress expressly designated  intermediate care facilities (ICF) as a service states could cover under  Medicaid. ICFs were defined as providing regular health-related care and  services to individuals who needed institutional care and services above  the level of room and board, but not the level of care a hospital or a SNF  would provide. State Medicaid policies, rather than the statute’s  distinction in the types of care provided, determined whether nursing  homes were designated as SNFs or ICFs. In some states, almost all nursing  homes were designated as SNFs, although many of these SNFs served  longer term residents who would be receiving care similar to that provided  by ICFs in other states.
Under the original 1965 Medicare statute, part B did not pay for medical  and health services provided by hospitals, extended care facilities (now  known as SNFs), or home health agencies. As a result, DME and other  ancillary services—such as physical therapy—were not paid for under part  B in a SNF. In 1967, the law was changed to eliminate the prohibition on  part B payment for certain ancillary services provided in a SNF. In a report  accompanying the 1967 legislation, the Senate Finance Committee noted  that retaining a sweeping part B prohibition against paying for any services  under part B in a SNF would deprive a beneficiary who had exhausted, or  never qualified for, part A benefits of any payment for services that—in  another setting—would be separately coverable under part B. However,  the Congress added language that retained the prohibition on paying for  DME under part B in a SNF, at the same time that it allowed part B  payment in a SNF for other ancillary services.
HCFA and its carriers had to delineate when a facility was primarily  engaged in providing skilled nursing care, particularly for facilities that  were not Medicare- or Medicaid-certified SNFs, such as ICFs. In 1982 and  1984, HCFA published rulings with criteria to determine under what  circumstances a facility would be classified as primarily engaged in  providing skilled nursing care. A facility has to meet five criteria to be  considered as primarily engaged in providing skilled nursing care:    Nursing services are provided under the direction or supervision of one or  more registered, licensed practical, or vocational nurses.
Nursing personnel, including nursing aides or orderlies, are on duty on a  24-hour basis.
On average, the ratio of full-time equivalent nursing personnel to the  number of beds (or average patient census) is no less than 1 to 15 per shift.    Bed and board are provided to inpatients in connection with the furnishing  of nursing care, plus one or more medically related health services, such  as physicians’ services; physical, occupational, or speech therapy;  diagnostic and laboratory services; and administration of medication.
The facility is not licensed or certified solely as an ICF.
These criteria provided a means for identifying facilities that may not meet  all of the requirements for SNFs but could be classified as primarily  engaged in providing skilled nursing care for the purposes of prohibiting  part B DME coverage. In a 1985 court case, HCFA indicated that about 90  percent of the 11,000 ICFs were classified as primarily providing skilled  nursing care, leaving about 10 percent of ICFs as being facilities in which  beneficiaries could have part B coverage for their DME.
ICF as a category of nursing home distinct from a SNF under Medicaid  disappeared when the Omnibus Budget Reconciliation Act of 1987  combined them into a single category, nursing facility (NF). A single set  of requirements was developed for all nursing homes participating in  Medicare and Medicaid. With the single set of participation requirements  and more generous Medicare coverage of stays, many more nursing homes  became wholly or partially certified as Medicare SNFs to be eligible for  part A payment. Most of their residents would, however, still need longer  term less skilled services that would not qualify for part A coverage.
In 2001, most nursing home residents were in SNFs, including Medicare  beneficiaries who were long-term residents. Although they are in SNFs,  these Medicare beneficiaries may not be receiving a level of care that  would qualify them for the Medicare part A-covered SNF benefit or  otherwise might not be eligible for this coverage, which is only post- hospital and for a maximum of 100 days. Such beneficiaries who are  paying for their care out of their own pockets or through other payers are  not eligible for part B DME benefits that they could receive if living at  home or in an assisted living facility. This prohibition includes even paying  for items that need to be customized for them, such as customized  wheelchairs.
Beneficiaries in NFs are also included in the group for which DME is not  payable under part B. The four DMERCs have issued guidance to suppliers  indicating that they will not pay for DME under part B in any nursing  home. For example, the region B DMERC supplier manual, dated June  2000, states “DME and related supplies and accessories are not covered by  Medicare part B and claims must not be submitted to the DMERC for  patients in a SNF or NF, regardless of whether the patient is in a Medicare  covered stay or not. This is true even if the nursing facility could be  considered the patient’s permanent residence.” CMS officials noted that  DMERCs do not pay for DME in nursing homes because DMERCs presume  that these facilities meet the criteria for being primarily engaged in  providing skilled nursing care for DME part B payment purposes and,  therefore, cannot be considered as a beneficiary’s home.
section_title: Rescinding the Ruling Would Increase Medicare Payments, But Financial Impact on States Would Vary
paragraphs: If the ruling were rescinded by CMS and attached bracing devices were  paid as orthotics, annual spending under Medicare part B for such devices  for beneficiaries in nursing homes would increase modestly if utilization  returned to the pre-ruling level. However, several factors suggest that  utilization could increase more with the ruling’s rescission. The effect on  Medicaid expenditures is less certain. Because state Medicaid coverage  policies are not uniform, rescinding the ruling would have a varying effect  on states’ Medicaid expenditures.
It is difficult to predict with confidence how much Medicare payments  might increase if the ruling were rescinded. For example, if the utilization  level returned to the pre-ruling level, spending increases would be modest.  Rescinding the ruling would move the nine HCPCS codes for attached  bracing devices back into the orthotics benefit category. If the change  were limited to billing under those nine codes and we assumed no growth  in future billing, claims volume might only return to the pre-ruling level.  This would be an increase of about 3,000 claims, and payment increases of  about $1.8 million per year—given the amounts Medicare currently pays  for these items, which generally now cost between $500 and $800.  However, as discussed above, this estimate is based on a claims analysis  that does not include all the billing for attached devices that occurred  before the ruling. Because some suppliers billed attached bracing devices  using codes that were not specific for such devices, all of the claims paid  prior to the ruling for attached bracing devices cannot be identified with  certainty.
Moreover, several factors could lead to considerable growth in the use of  such devices, which would increase Medicare costs more substantially  than our conservative estimate. First, the number of Medicare  beneficiaries is likely to grow significantly over time, with the number  over age 85 growing fastest, which would likely increase demand for  bracing devices in nursing homes. In addition, estimates of the number of  beneficiaries who might use attached bracing devices are higher than the  prior utilization levels for the devices we identified. Our analysis of data  maintained by CMS on characteristics of nursing home residents identified  about 53,000 nursing home residents from July 1999 through June 2000  who at that time were 65 years and older, were likely eligible for Medicare  part B, and were wheelchair-bound with disabling medical conditions,  pressure ulcers, and functional limitations. Others have also developed  estimates on the number of elderly nursing home residents with  characteristics that indicate that they could potentially use attached  bracing devices. These estimates vary considerably—ranging from 35,000  individuals by OrthoConcepts to almost 170,000 individuals by  researchers at the University of Pittsburgh. HCFA developed an estimate  of as many as 80,000 individuals who might potentially use these attached  bracing devices.
Second, should the ruling be rescinded, Medicare part B would pay for  attached bracing devices for nursing home residents, providing financial  incentives that could lead to increased utilization. For example, suppliers  who could profitably furnish attached bracing and related devices to  beneficiaries in nursing homes would have a financial incentive to supply  that market. Manufacturers would have incentives to develop new  products that fit within the orthotics definition—such as chairs that  provide “orthotic” support—if such items could be paid for under part B.  Many items that support and position wheelchair-bound individuals could  be described as having an orthotic benefit, including the chair itself.  Furthermore, some nursing homes might shift a portion of the costs of  their beneficiary services to Medicare. For example, to increase their  revenues, nursing homes could substitute orthotics devices that could be  paid separately under part B for items of DME that are not separately paid  under part B. Finally, if the ruling were rescinded, the distinction between  DME and orthotic devices would be blurred, making it more confusing for  providers who are trying to bill appropriately and more difficult for  DMERCs to identify and deny claims that were inappropriately billed.
In addition to increasing Medicare expenditures, rescinding HCFA’s ruling  would also affect state Medicaid expenditures for beneficiaries who are  dually eligible for Medicare and Medicaid. These effects also cannot be  quantified with certainty. The impact on a particular state’s spending  would depend on its current coverage policies for customized DME,  increases in the use of such items, and changes in state reimbursement  policies. For example, states paying separately for customized DME—for  example, Michigan, Ohio, and Washington—would likely see their  expenditures decrease. Since Medicare would become the primary payer  for such items, these states would be responsible only for the copayments  and deductibles for these beneficiaries. However, increases in the use of  such devices could significantly affect potential Medicaid cost savings.  Other states—such as Florida—do not separately cover customized DME.  If the ruling were rescinded, these states would become responsible for  copayments and deductibles for Medicaid-eligible beneficiaries, which  could cause states’ payments to increase. However, these states may offset  potential cost increases if they reduced their Medicaid per diem rates.  Such reductions could be justified because these states would now be  required to separately cover a portion of the cost of items that had been  previously covered in their nursing homes’ per diem rate.
section_title: Ruling’s Rescission Would Have Implications for Medicare Program Integrity
paragraphs: The rescission of HCFA’s ruling on orthotics would raise program integrity  concerns. If HCFA’s ruling on orthotics were rescinded by CMS, the  requirement in BIPA aimed at increasing program integrity by restricting  payment for custom-molded orthotics to qualified providers would not  apply to the attached bracing devices we identified as being affected by  the ruling. Even if some attached bracing devices were affected by the new  BIPA requirement after the ruling’s rescission, this requirement may have  limited potential for curbing inappropriate orthotic payments because  most Medicare payments are for orthotics not covered by the requirement  and, if industry trends continue, proportionally fewer devices may be  covered by the requirement in the future. In addition, the ruling’s  rescission could lead to inappropriate billing because suppliers would  have more difficulty determining if items should be billed as orthotics or  DME, given that the distinction between some items in these two benefit  categories would be less clear. Furthermore, Medicare beneficiaries in  nursing homes have been the target of fraudulent or abusive billing in the  past for orthotics, DME, and other services. Therefore, should the ruling  be rescinded, additional controls would be needed.
subsections: section_title: BIPA Requirement Added to Safeguard Orthotics Payments
paragraphs: The BIPA requirement was developed because the HHS OIG had reported  on problems related to Medicare orthotics in recent years, including  inappropriate billing practices associated with these devices. For  example, the OIG found that, compared to certified suppliers, noncertified  suppliers are more likely to inappropriately provide or bill for orthotics.  The OIG recommended that HCFA require that only qualified practitioners  provide beneficiaries with certain kinds of orthotic devices.
BIPA modified the Medicare requirements related to customized items to  stipulate that Medicare will pay for custom-molded orthotics only if  furnished by a qualified practitioner and fabricated by a qualified  practitioner or supplier. The statutory definition of qualified practitioner  includes a physician; an orthotist who is licensed, certified, or has  credentials and qualifications approved by the HHS Secretary; or a  qualified physical therapist or occupational therapist. The language added  by BIPA describes a custom-fabricated orthotic as an item that (1) requires  education, training, and experience to fabricate, (2) is included in a list of  items to be developed by CMS, and (3) is individually fabricated over a  positive model of the patient. CMS will be working with experts in the  field of orthotics, using a negotiated rulemaking process, to develop the  list of custom-fabricated orthotic items subject to the new requirement.
Professionals in the field of customized seating and orthotics told us that  they believe the new BIPA requirement relating to qualified providers will  help address some problems related to inappropriate billing. They also  said that the requirement will improve the quality of care provided to  beneficiaries by ensuring that providers have the knowledge and skills  needed to craft and fit custom-molded orthotic devices.
However, the BIPA requirement regarding qualified practitioners and  suppliers may have limited potential for curbing inappropriate orthotic  payments in the program as a whole for several reasons. Medicare  expenditures for custom-molded orthotics amounted to less than 30  percent of Medicare spending for orthotics in 2000. Furthermore, the  requirement may apply to an even smaller percentage of covered orthotic  devices in the future, because due to technological advances, more  prefabricated devices that can serve functions similar to customized  components with little or no alteration are entering the market. Therefore,  if this trend continues, proportionately fewer devices will be covered by  the new BIPA requirement because the payment restriction is limited to  custom-molded orthotics. Finally, limiting payment to qualified  practitioners and suppliers does not, in itself, completely resolve  questionable billing practices because some of these providers have also  billed Medicare inappropriately. For example, in 1997, the HHS OIG  reported that certified orthotists billed improperly for items that were not  medically necessary or not provided as billed, but to a lesser degree than  other suppliers. In 1999, the OIG also reported on instances of improper  billing for therapy by physical and occupational therapists working in  SNFs —professionals who can be considered qualified practitioners and  may supply custom-molded orthotics under the BIPA requirement.
section_title: Further Controls Would Better Ensure Program Integrity If The Ruling Were Rescinded
paragraphs: If the ruling were rescinded, the new requirement in BIPA that Medicare  pay only qualified practitioners and suppliers for custom-molded orthotics  would not apply to the attached bracing devices that we identified as  affected by the ruling. BIPA’s requirement applies only to custom-molded  orthotic devices, not all custom-fabricated ones. The devices we identified  as being affected by the ruling are not custom-molded because they are  not made over a positive model of the patient’s body part.
If HCFA’s ruling on orthotics were to be rescinded, a heightened level of  oversight of orthotics billing would be critical to safeguard program  dollars. Concerns about improper billing prompted HCFA to issue its  orthotics ruling to clarify the distinction between DME and orthotics for  Medicare part B billing purposes in the first place. Rescinding the ruling  would once again blur the distinction between DME and orthotics,  increasing the potential for inappropriate billing—both intentional and  unintentional.
A heightened level of oversight would be also be critical, because the OIG  and we have reported that Medicare beneficiaries in nursing homes can be  an attractive target for fraudulent or abusive billing for orthotics, DME,  and other services. Because nursing homes are institutions with a large  number of co-located beneficiaries, providing services to multiple  individuals in this setting can help maximize profits for providers and  suppliers. Although most providers and suppliers are honest and bill  appropriately, some, including certain durable medical equipment and  orthotics suppliers, have been involved in fraudulent or abusive billing of  Medicare for services and supplies furnished to nursing home residents.
Other controls could enhance safeguards associated with Medicare  reimbursement for orthotics, should the ruling be rescinded. In the past,  Medicare expenditures have increased more than anticipated after a  coverage policy change, due, in part, to inappropriate billing. Without  adequate monitoring of orthotics payments, rescinding the ruling could  have a similar outcome. DME claims are currently monitored so that  DMERCs can follow payment trends over time for groups of codes for  similar types of items (such as leg braces). If the ruling were rescinded,  DMERCs might have to extend their monitoring in order to analyze  payment trends for attached devices. Through monitoring claims billing,  DMERCs would be more likely to spot any questionable trends. If such  trends were identified, DMERCs could examine a sample of questionable  claims and their related medical records and take other steps as needed to  determine if the items were medically necessary and provided as billed.
A prior authorization process, such as those used by some state Medicaid  programs for higher priced or other selected orthotic or DME items, may  also provide better control, should the ruling be rescinded. These  Medicaid programs review medical justifications and a description of the  orthotic or customized DME item before it is provided to the beneficiary.  If the item is justified, Medicaid notifies the supplier in advance that it will  pay for the item and the amount it will pay. The Medicaid prior  authorization process helps ensure program integrity because it  establishes that the device is medically necessary. Some providers and  suppliers also noted that prior authorization protects them from the risk of  supplying devices without knowing whether and what they will be paid.  However, the use of the prior authorization process by the Medicaid  program involves an investment of time and resources for prior review of  supporting documentation.
For Medicare, DMERCs do not use all the elements of a prior authorization  process. However, they have begun to use a process for determining  coverage—but not payment—in advance for a few items of DME. As of  October 1, 2001, as part of ongoing program integrity efforts, DMERCs will  accept requests from beneficiaries and suppliers for an advance  determination of Medicare coverage for customized DME, which is an item  that has been uniquely constructed or substantially modified for a specific  beneficiary. This process differs from the prior authorization used by  Medicaid programs in the states whose processes we reviewed because an  advance determination of Medicare coverage does not guarantee a specific  amount that Medicare will pay for an item. As a result, suppliers will be  uncertain about how much reimbursement to expect for customized  wheelchairs and accessories that they supply to beneficiaries.  Practitioners reported that such uncertainty affects suppliers’ willingness  to provide customized items to beneficiaries.
section_title: Concluding Observations
paragraphs: HCFA’s 1996 ruling on orthotics more clearly delineated the circumstances  under which Medicare would consider an item as an orthotic or DME for  payment policy, and HCFA’s issuance of the ruling was found to be proper  in court. The ruling affected relatively few devices and only a small  percentage of overall Medicare program expenditures. Without the ruling,  there would be some confusion for suppliers about whether bracing  devices that are attached to wheelchairs should be billed as DME or  orthotics and for DMERCs about whether particular claims should be paid.  Revising Medicare payment policy to treat attached bracing devices as  orthotics would likely increase program expenditures, although to what  degree is uncertain. We would caution that taking such a step without  addressing program integrity concerns could lead to an increase in  inappropriate payments by Medicare and Medicaid.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to CMS for its review and comment.  (See app. III for CMS’s comments.) CMS generally agreed with our  conclusions. In its comments, CMS observed that, in addition to holding  that the orthotics ruling had been properly issued, the U.S. Court of  Appeals decision in Warder v. Shalala had also found that the content of  the ruling was wholly supportable and that the ruling well effectuated  congressional intent by classifying seating systems as DME. We agreed  and added language to that effect to our final report.
CMS also suggested that our report clearly indicate the precedent-setting  effect that rescinding the ruling could have on the provision of certain  types of equipment as DME in SNFs. For example, CMS said that if the  ruling were rescinded, other components of a wheelchair could be  construed to be an orthotic, such as the backrest of a wheelchair. In our  report, we discuss and provide examples of the potential impact of  rescinding the ruling, stating that there would be financial incentives that  could lead to increased utilization if Medicare part B paid for attached  bracing devices for nursing home residents. We also note that, if the ruling  were rescinded, the distinction between DME and orthotic devices would  be blurred, making it more confusing for providers who are trying to bill  appropriately and more difficult for DMERCs to identify and deny claims  that were inappropriately billed. In general, we agree with CMS’s  comments, but we did not change the report because we believe that we  had adequately addressed the concerns. CMS also provided technical  comments that we incorporated as appropriate.
We are sending copies of this report to the Administrator of the Centers  for Medicare and Medicaid Services, appropriate congressional  committees, and other interested parties. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please call me at  (312) 220-7600 or Sheila K. Avruch at (202) 512-7277. Other key  contributors to this report were Barrett Bader, Sandra Gove, and Craig  Winslow.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine why the Health Care Financing Administration (HCFA)  issued its orthotics ruling and if the agency followed required procedures  in issuing it, we conducted interviews with officials and representatives  from the agency, two Durable Medical Equipment Regional Carriers  (DMERC), and reviewed the ruling and agency documents related to its  development and issuance. We also interviewed a plaintiff and legal  representatives involved in the legal challenge to the ruling and reviewed  relevant documents, including the federal district and appellate courts’  decisions on whether HCFA had appropriately followed the proper  statutory procedures in issuing the ruling.
To assess the impact of the ruling on Medicare beneficiaries, we reviewed  Medicare payments and coverage policies for orthotics and durable  medical equipment (DME). We analyzed Medicare claims data from the  Medicare part B extract and summary system for the Healthcare Common  Procedure Coding System (HCPCS) codes associated with the nine  attached bracing devices moved from the orthotic to the DME benefit  category as a result of the ruling. We also discussed the impact of the  ruling on beneficiaries living in nursing homes with Centers for Medicare  and Medicaid Services (CMS) officials, and state Medicaid officials in  Florida, Indiana, Michigan, Ohio, Pennsylvania, and Washington. We  judgmentally chose these states to attain geographic diversity and because  these states have a large proportion of elderly Medicare beneficiaries.
We also discussed the impact of the ruling with four providers and  suppliers of attached bracing and other customized seating accessories, in  addition to national organizations representing them, seven clinicians  with experience in the seating and positioning needs of elderly and  disabled individuals, and two manufacturers of attached bracing and  similar devices. We chose the clinicians, providers, suppliers, and  manufacturers to interview based on those recommended for their  expertise by the national organizations.
To assess the financial impact of rescinding the ruling, we reviewed  Medicare and Medicaid coverage and payment policies and then  interviewed representatives from CMS and Medicaid programs in Florida,  Indiana, Michigan, Ohio, Pennsylvania, and Washington. We also  developed an estimate of the number of beneficiaries who could use these  devices by analyzing national data on nursing home residents from the  minimum data set (MDS), and we reviewed demographic findings from  other studies. Our MDS analysis used data from July 1999 through June  2000 and was limited to Medicare beneficiaries with all of the following  characteristics: (1) functional limitations that required the use of  wheelchairs as their primary means of locomotion, (2) one or more of  eight neurological conditions that experts told us could indicate a need  for attached bracing devices because individuals with such conditions can  have poor motor control and may not be able to readily brace or re- position themselves in their wheelchairs, (3) pressure ulcers ranging from  mild to severe, and (4) limited ability to move while in bed or get out of  bed without requiring extensive assistance from either one or two other  people.
To evaluate the implications for Medicare program integrity if the ruling  were rescinded, we interviewed officials from the Department of Health  and Human Services Office of the Inspector General (HHS-OIG) and  reviewed pertinent OIG reports. In order to assess the scope of the  requirement and its possible effect on attached bracing devices, we  analyzed claims data from the statistical analysis durable medical  equipment regional carrier associated with custom-fabricated orthotics as  defined by the Medicare, Medicaid, and SCHIP Benefits Improvement and  Protection Act of 2000. We also interviewed providers and suppliers and   organizations representing them and reviewed documents that they  provided to us to further assess the effect of the requirement on these  devices. We performed our work from January 2001 through March 2002 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Excerpt from HCFA’s Ruling 96-1
paragraphs: The following discussion is excerpted from the Conclusions and  Illustrations section of HCFA’s ruling to demonstrate its application.  “A supplier manufactures and supplies medical devices to individuals who  are generally elderly and suffer from Alzheimer’s or other debilitating  neuromuscular diseases that have caused them to be non-ambulatory,  immobile, and confined to a chair or bed. Due to their immobility, these  patients may suffer from secondary complications, such as pressure sores,  multi-sited contractures, musculoskeletal degeneration and deformities,  and circulatory problems.
Under a physician’s order, the supplier furnishes individually fitted  attachments designed to be used in conjunction with a chair to seat and  position the patient. The attachments, which the supplier labels “orthotic  braces,” are alleged to position limbs and other body parts properly;  restrict motion or weight bearing; immobilize and protect weak  musculoskeletal segments; reduce load; retard progression of  musculoskeletal deformity; and improve function. The design of the  supplier’s “orthotic braces” requires them to be attached to the chair  frame, and the “orthotic braces” cannot function or be used apart from the  chair to which they are attached.
Discussion: Although the devices in question may support or restrict  movement in parts of the body, they are not braces within the meaning of   because they are integral parts of a seating  system and are not designed or intended to be used apart from the seating  system.”