Most Medicare beneficiaries purchase part B insurance, which helps pay for certain physician, outpatient hospital, laboratory, and other services; medical supplies and DME (such as oxygen, wheelchairs, hospital beds, and walkers); and certain outpatient drugs. Medicare covers a wide variety of DME items--including power wheelchairs. Medicare covers power wheelchairs when they are medically necessary, the beneficiary would be bed- or chair-confined without one, and the beneficiary can operate a power wheelchair, but not a manual wheelchair. Medicare part B pays for most medical equipment and supplies based on a series of state-specific fee schedules. Medicare pays 80 percent, and the beneficiary pays the balance, of either the actual charge submitted by the supplier or the fee schedule amount, whichever is less. If a beneficiary has supplemental insurance, the insurance may cover the 20 percent co-payment. CMS contracts with four insurance companies, referred to as DME regional carriers, which review and pay claims submitted by outpatient providers and suppliers on behalf of beneficiaries residing in specific parts of the country. (See app. II for the states under each DME regional carrier's jurisdiction.) For example, Palmetto Government Benefits Administrators is responsible for processing claims for beneficiaries permanently residing in region C, which encompasses 14 states, Puerto Rico, and the Virgin Islands. In 2002, Palmetto made about two-thirds of Medicare's payments for power wheelchairs. In addition, the DME regional carriers and other CMS contractors conduct program safeguard activities to identify and respond to improper payments for DME claims (see table 1). CMS oversees contractors' activities through various means, such as performing yearly on-site evaluations, reviewing planned activities, monitoring data and periodic reports, and conducting regular conference calls with the contractors. These key safeguard activities help ensure that the more than 10 million claims the DME regional carriers process each year for power wheelchairs and other items are properly paid. For example, medical reviews can alert the DME regional carriers to potential cases of fraudulent billing, which they may refer to their respective fraud investigation units. The DME regional carriers use both automated medical reviews and complex medical reviews to make decisions to pay or deny claims based on coverage criteria. Automated medical reviews are computerized checks of claims using available electronic information. Complex medical reviews are conducted by clinical staff, such as a nurse or doctor, who examine additional documentation provided by the supplier or the beneficiary's physician. A key responsibility of CMS and its contractors is constraining improper program spending, while ensuring that beneficiaries who qualify for items and services have access to them. In the case of power wheelchairs, spending for claims processed by the DME regional carriers rose markedly from 1997 through 2003, as shown in figure 1. A number of factors other than improper payments may have contributed to it, including increased demand due to technological improvements or a growing number of beneficiaries who may meet the Medicare coverage criteria. Beginning in 1997 and continuing over the next 6 years, CMS's contractors repeatedly communicated their concerns to the agency about rapid increases in Medicare spending for power wheelchairs. One area of concern focused on the CMN, which did not provide sufficient information to adjudicate claims, according to medical directors. During this period, the contractors, however, took a variety of steps, including conducting medical reviews of claims and investigating suspected instances of power wheelchair fraud. Other issues related to improper payments for power wheelchairs surfaced concerning the process for verifying the legitimacy of Medicare suppliers. However, CMS did not begin to lead efforts to address the underlying problems contributing to potentially improper payments for power wheelchairs until September 2003. In 1997, CMS's SADMERC--its data analysis contractor--alerted CMS and the DME regional carriers about rapid increases in the spending for, and utilization of, power wheelchairs in the Medicare program. As part of its data monitoring efforts, the SADMERC noted that Medicare spending for power wheelchairs had grown from almost $8 million in October 1995 to about $24 million in March 1997. For the next several years, the SADMERC's quarterly reports continued to highlight rapid growth in power wheelchair spending and utilization, identifying the states and the suppliers for which claims volume was particularly high. Although the SADMERC's reports were sent to agency officials responsible for ensuring that program funds are safeguarded, CMS staff told us that they did not take action because the DME regional carriers have primary responsibility for responding to data indicating rapid increases in utilization. CMS officials acknowledged that the agency was not proactively identifying trends in data related to Medicare spending, developing strategies to address concerns about possible improper payments tied to spending increases, and implementing actions to address these concerns. After reviewing the SADMERC data in 1997, the four DME regional carriers' medical directors found cause for concern and identified possible approaches to address what they described as "tremendous growth" in Medicare power wheelchair spending. In a joint April 1998 memorandum sent to CMS officials, the medical directors requested CMS's assistance in addressing power wheelchair spending growth and proposed implementing changes in the coverage policy for power wheelchairs. However, because of competing demands, the DME regional carrier medical directors never completed the policy revision, nor did CMS direct them to do so. Power wheelchair fraud had already surfaced as a serious problem in Florida and in other southeastern states. In 1996, Palmetto began a major investigation of power wheelchair suppliers, during which it uncovered fraudulent activities such as billing for services not provided or not medically necessary, or delivering a less expensive power-operated vehicle--commonly called a "scooter," while charging Medicare for a more expensive power wheelchair. Palmetto developed a fraud alert for other contractors and investigative agencies, which explained the schemes that suppliers were using to obtain inappropriate payments for power wheelchairs. CMS issued the fraud alert in June 1998. Fraud alerts are intended to increase external awareness of potential vulnerabilities and help the agency direct its efforts to address potential fraud. However, the June 1998 fraud alert did not prompt CMS to require the DME regional carriers to specifically scrutinize power wheelchair claims or to undertake any other efforts to identify fraudulent billing for this item. In June 2000, the DME regional carriers' medical directors sent a second jointly signed memorandum to CMS officials. The medical directors identified several problems tied to the provision of power wheelchairs and again asked for CMS's assistance in addressing them. Despite this second warning from the medical directors, CMS officials did not begin to lead a coordinated effort to address escalating spending for power wheelchairs until September 2003. One problem cited in the June 2000 memorandum concerned the CMN, a document that the physician is required to complete and sign to order a power wheelchair for a beneficiary. DME regional carriers do not routinely obtain beneficiaries' medical records when deciding whether to pay wheelchair claims. Instead, DME regional carriers rely on information contained on the CMN. However, the medical directors of the four DME regional carriers noted that the CMN for power wheelchairs does not ask about the beneficiary's functional abilities and limitations in sufficient detail for them to be able to determine if the Medicare coverage criteria are met. These criteria provide guidance on whether and under what conditions Medicare will cover--and help pay for--a power wheelchair for a beneficiary. Our comparison of the CMN and the Medicare coverage criteria highlighted limitations in this document. (See table 2, which provides information on the clinical questions on the power wheelchair CMN, the Medicare coverage criteria, and limitations of the CMN.) For example, the CMN does not include a question about the beneficiary's capability to safely operate the controls of a power wheelchair, although having that capability is required by the Medicare coverage criteria. CMS did not change its CMN in response to the medical directors' 2000 memorandum that outlined their concerns with the CMN. In written comments on a draft of this report, CMS stated that it has a revised CMN under development, which it anticipates having in use in 2005. The HHS OIG recently testified that the CMN for power wheelchairs, which does not list coverage guidelines and is not completely consistent with coverage policy, is one of the reasons that DME regional carriers have paid claims for power wheelchairs for beneficiaries who did not qualify for them under Medicare coverage rules. In a related report, the OIG discussed the findings of an independent medical review contractor, which the OIG retained to review 230 medical records for beneficiaries for whom Medicare claims for power wheelchairs were submitted in 2001. The independent reviewer found that only 13 percent of the claims met the Medicare coverage criteria for a power wheelchair. The reviewer also found that 31 percent of the claims did not meet the Medicare coverage criteria for any type of power wheelchair or scooter, while an additional 45 percent did not meet the criteria for a power wheelchair, but may have met the criteria for another type of wheelchair or scooter. The HHS OIG recommended that CMS educate physicians and beneficiaries about the Medicare coverage criteria for power wheelchairs and develop coverage policy to include specific information about the medical conditions for which Medicare will cover different types of power mobility equipment. Because annual funding for the DME regional carriers to conduct medical reviews declined, while power wheelchair spending rose, the DME regional carriers' capacity to conduct medical review was affected. CMS decreased the total funding for the medical review of claims submitted to the four DME regional carriers by about 22 percent, comparing fiscal year 1999 and fiscal year 2003. Consistent with the decrease in funding, the number of claims for all items undergoing complex medical review in regions B, C, and D fell by about 39 percent from fiscal year 2001 through fiscal year 2003. These funding decreases can weaken program safeguard efforts. For example, three of the four DME regional carriers told us that conducting medical review on a larger number of claims would allow them to better address improper Medicare billing. Furthermore, Palmetto officials said that the funding they received for medical review did not equip them to handle the level and type of fraudulent power wheelchair billing that was discovered in Texas in 2002. In addition, they told us that they were also addressing fraudulent billing related to other items for which they had made payments. The decline in funding for medical review is even more dramatic when weighed against claims submitted to the DME regional carriers. Overall, the amount of medical review funding from CMS per $100 in total submitted claims dropped over 50 percent from fiscal year 1999 through 2003 for total claims submitted to the four DME regional carriers. Palmetto's funding dropped from about 8 cents per $100 in submitted claims in 1999 to less than 4 cents per $100 in submitted claims in 2003. Compared to the other three DME regional carriers, Palmetto was allocated less medical review funding per $100 in total submitted claims each year from fiscal year 1999 through 2003, as figure 2 shows. Despite the relatively low funding allotted by CMS to Palmetto for medical review, Palmetto more than tripled the number of power wheelchair claims on which it conducted complex medical review from fiscal years 2000 to 2002. Nevertheless, Palmetto still reviewed less than 3 percent of its power wheelchair claims in 2002, while it paid about $550 million to suppliers for this item. The reduction in medical review funding for Palmetto is of particular interest because Palmetto had already found significant power wheelchair fraud in its region in the late 1990s. Further, from 1997 through 2003, spending growth for power wheelchairs in Palmetto's region surpassed that of the three other regions combined, as shown in figure 3. In early 2002, Palmetto officials became concerned that some power wheelchair suppliers in Harris County, Texas, and other parts of the state had submitted--and Palmetto had paid--fraudulent power wheelchair claims. Specifically, a Palmetto fraud analyst had identified highly aberrant billing behavior for one supplier, which he began to monitor. Palmetto analysts also discovered that some suppliers were billing for a power wheelchair or for power wheelchair accessories multiple times on behalf of a single beneficiary. Also in 2002, legitimate power wheelchair suppliers in Harris County, Texas, became increasingly suspicious about the activities of some suppliers in their area. For example, representatives of two suppliers with whom we spoke learned that Medicare had paid other suppliers for power wheelchairs that beneficiaries had never received. Suppliers told us that they, other suppliers, and beneficiaries reported their suspicions to the Palmetto fraud unit, the Medicare fraud hotline, the Federal Bureau of Investigation, and the HHS OIG. The suppliers' suspicions were supported by data indicating that in 2002, 14 percent of Medicare's power wheelchair spending was for beneficiaries in Harris County, although only 1 percent of Medicare beneficiaries lived in that area in 2001. During January 2003, Palmetto referred 22 Harris County area suppliers suspected of fraud in their billing for power wheelchairs to the Dallas office of the HHS OIG for potential prosecution. Palmetto officials estimated that at least 200 individuals in region C were involved in fraudulent power wheelchair schemes and that Medicare had improperly paid at least $20 million in its region for fraudulent claims from fiscal year 2000 through fiscal year 2003. NSC, which is the CMS contractor responsible for DME supplier enrollment, noted in 2002 that Texas had an unusually high number of suppliers compared to the number of beneficiaries residing in the state. At CMS's request, NSC stationed one of its inspectors in the Harris County area to conduct supplier site visits. During these site visits, which began in September 2002, NSC's inspector found instances where suppliers lacked appropriate places of business or had moved their businesses without giving NSC the required forwarding addresses. Based on these findings, NSC's inspector subsequently led site visits of every active supplier that had not been inspected since January 2003 in the Harris County, Texas, area. These out-of-cycle site visits of about 1,300 suppliers were conducted from August 2003 through January 2004, and identified instances where suppliers did not meet required Medicare standards, including lacking appropriate inventory and insurance. Due to problems identified during regular and out-of-cycle site visits, NSC revoked 367 supplier billing numbers for power wheelchair suppliers in the Harris County, Texas, area, from September 2002 through March 2004. Many suppliers, whose billing numbers were later revoked, gained entry into the Medicare program because of three weaknesses in the enrollment process. First, NSC did not always verify submitted documents. NSC officials told us that they had routinely accepted copies of key documents, such as liability insurance forms, at face value without verifying them. Failure to verify the accuracy of these documents had enabled supplier applicants to submit falsified papers and still become enrolled as Medicare suppliers. NSC officials indicated that they began verifying suppliers' liability insurance forms in September 2003. Second, the 21 standards that NSC uses to evaluate suppliers lack the specificity needed to screen out illegitimate suppliers and do not provide guidance on appropriate marketing practices. For example, the supplier standards are not specific about the characteristics of a physical location or the amount or type of inventory that would be expected, given the items the supplier intends to provide to Medicare beneficiaries. According to NSC staff, the broad language used in these standards is difficult to interpret and enforce. CMS and NSC are in the process of developing additional guidance concerning supplier standards, including prescribing how existing standards on physical location and inventory should be interpreted. In addition, the 21 standards do not address certain misleading or abusive marketing practices, including offers to routinely waive beneficiaries' co- payments and certain types of personal solicitations. Individuals with whom we spoke contended that misleading and abusive marketing practices have escalated nationwide utilization of power wheelchairs and were a factor in increased utilization of power wheelchairs in Texas. For example, CMS officials told us of instances of suppliers promising free power wheelchairs to beneficiaries in Texas. We also found supplier advertisements on the Internet, in print, and on television, that used the words "free" or "no cost to you" in connection with beneficiaries receiving power wheelchairs. Appendix III shows an example of an Internet advertisement that appears to illegally offer to waive Medicare co- payments. CMS officials also reported suppliers canvassed beneficiaries door-to-door in Texas to solicit their business. By statute, Medicare suppliers are not permitted to offer free wheelchairs by waiving beneficiary co-payments routinely or as part of an advertisement or solicitation. Furthermore, the Medicare statute generally prohibits suppliers from canvassing beneficiaries by telephone to solicit their business. While the 21 supplier standards reflect the statutory restriction on telephone solicitations, they do not prohibit door-to-door solicitation. Furthermore, the standards do not reflect the prohibition on waiving co- payments routinely or as part of an advertisement or solicitation. CMS has statutory authority to specify additional supplier requirements, but has not used this authority to modify the 21 standards to ensure that suppliers' marketing practices are not misleading or abusive. A third weakness in the enrollment process concerns the predictability of NSC's initial and subsequent site visits to suppliers. CMS requires NSC to conduct a site visit to assess compliance with the 21 supplier standards before authorizing a new supplier to bill Medicare. NSC is also required to conduct a site visit to assess the supplier's continued compliance with the standards every 3 years, when suppliers must reenroll in order to retain their Medicare billing privileges. Because the timing of such visits is predictable, a supplier that is intent on committing fraud can anticipate a site visit and present an illusion of legitimacy for the purpose of passing the initial inspection, fully understanding that an inspector is not likely to return for 3 years, even if beneficiaries complain of potential fraud. For example, the person convicted of Medicare fraud who testified before your committee on April 28, 2004, stated that although a fraud analyst contacted her after a beneficiary complained about nondelivery of a power wheelchair billed to Medicare, no inspector visited the facility. According to this individual, she was able to bill Medicare $50,000 for power wheelchairs in the next month without any further scrutiny, though her operation rarely delivered the power wheelchairs billed. The experience in Harris County, Texas, suggests that conducting out-of- cycle site visits was valuable to uncover fraud and suppliers that were not complying with required standards. Nevertheless, CMS does not require NSC to routinely conduct out-of-cycle site visits, maintain data on the number of out-of-cycle visits that NSC may choose to conduct, or report on the results of such visits. According to an NSC official, NSC may choose to conduct an out-of-cycle visit to a supplier when a complaint is lodged or when data analysis of the supplier's claims indicate that there is a potential problem. In its written comments on a draft of this report, CMS reported that, in the summer of 2003, NSC had conducted over 600 out-of- cycle site inspections and had found more than 300 suppliers out of compliance with supplier standards. CMS has recently taken steps, including issuing an action plan in September 2003 and announcing additional initiatives in April 2004, that should strengthen the processes the agency and its contractors use to identify and respond to improper payments for power wheelchairs and other DME items. While some of these activities addressed fraud, abuse, and utilization issues in Harris County, Texas, others focused on clarifying the Medicare coverage criteria for adjudicating power wheelchair claims. Still others were in response to requirements in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). As shown in table 3, CMS's and its contractors' actions to respond to rising spending for power wheelchairs are in different stages of completion and focus on supplier enrollment; coverage policy; pricing; provider and beneficiary education; actions to address concerns in Harris County, Texas; and law enforcement. Fraud, abuse, and misapplication of Medicare rules in the program's power wheelchair benefit highlight four areas of concern relating to how CMS and its contractors safeguard Medicare program dollars. First, while contractors repeatedly communicated concerns about potential problems to the agency, CMS was slow to react to rising spending. Some of this spending was on behalf of beneficiaries who met all of the Medicare coverage criteria, but millions of dollars were spent on power wheelchair claims submitted by suppliers intent on defrauding the Medicare program. CMS's failure to take an early leadership role underlines the need for a more proactive response by the agency in the future when there appears to be disproportionate and suspicious spending for DME items provided to Medicare beneficiaries. A second area of concern centers on the CMN. CMS is in the process of revising the CMN for power wheelchairs, but has not implemented a version that provides sufficient information to allow DME regional carriers to correctly adjudicate power wheelchair claims. Until it does so, its DME regional carriers will continue to be hampered in their efforts to properly pay power wheelchair claims. Third, fraud that occurred among suppliers in Harris County, Texas, highlights significant weaknesses in the supplier enrollment process-- especially standards covering suppliers' physical locations, required inventory, and marketing. Other than constraining suppliers' communications with beneficiaries by telephone, the 21 supplier standards do not provide guidance on appropriate marketing practices. For example, they do not include language reflecting the statutory provision that prohibits suppliers from waiving beneficiaries' co-payments when offered as part of an advertisement or solicitation. While CMS is working on more specific guidance relating to a supplier's physical location and inventory, it has not modified the 21 supplier standards to ensure that marketing practices are not misleading or abusive. Such marketing practices include offering to waive beneficiaries' co-payments, using the words "free" or "no cost to you" in relation to provision of Medicare items to beneficiaries, and using door-to-door solicitations. Fourth, site visits, which can help ensure compliance with supplier standards, are less effective in screening potential suppliers because they are highly predictable. Despite evidence that out-of-cycle site visits proved useful in identifying fraudulent suppliers in Harris County, Texas, CMS does not require its contractor to conduct such site visits on a routine basis across the country. To help ensure that improper payments are identified and addressed in a timely manner and that Medicare pays properly for power wheelchairs and other items of DME, we recommend that the Administrator of CMS take four actions: Develop a process within CMS to focus on trends in Medicare spending and disproportionate or suspicious Medicare payments; develop strategies to address the trends that may indicate possible improper payments for DME; and take timely action, when warranted. Implement a revised CMN that incorporates key elements of power wheelchair coverage criteria to help DME regional carriers properly adjudicate claims. Strengthen the standards for Medicare DME suppliers to include prohibiting certain misleading or abusive marketing practices. In addition to conducting the currently required initial and reenrollment site visits, direct NSC to routinely conduct out-of-cycle site visits to suppliers that are suspected of billing improperly and to maintain data on these visits and their results. In its written comments on a draft of this report, CMS agreed with our recommendations and stated that it had undertaken several efforts to curb the abuse of the power wheelchair benefit in the Medicare program within the last year. CMS mentioned its September 2003 power wheelchair initiative, which focused on aggressive claims review, enforcement, and supplier training, and its April 2004 initiative, which targeted coverage, payment, and the quality of suppliers of power wheelchairs. In response to the draft report's discussion on the decline in annual funding for the DME regional carriers to conduct medical reviews, CMS indicated that it agreed that funding had decreased when fiscal year 1999 is compared to fiscal year 2003. However, CMS noted that funding had increased steadily before it began to decrease. In response to CMS's comment, we revised the report to provide additional information on funding changes from fiscal year 1999 to fiscal year 2003. CMS also stated that it continues to request additional funding for Medicare Integrity Program efforts and that legislative caps on that funding had affected medical review spending. CMS was referring to funding for the Medicare Integrity Program, which was provided by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Medicare Integrity Program activities include medical review of claims, investigation of potential fraud cases, and provider education and training to combat Medicare fraud, waste, and abuse. Beginning in fiscal year 1997, HIPAA appropriated an increasing level of funding through fiscal year 2003 and permanent funding at the 2003 level thereafter. CMS agreed with our recommendation that it develop a process to focus on trends in Medicare spending and disproportionate or suspicious Medicare payments; develop strategies to address the trends that may indicate possible improper payments for DME; and take timely action, when warranted. CMS indicated that it is building on its current program integrity efforts to implement a new data-driven approach to detect improper payments and potential areas of fraud and abuse in the Medicare program. In response to our recommendation that CMS implement a revised CMN for power wheelchairs, CMS stated that it anticipates having a revised CMN in use in 2005, which it said should provide useful information for more accurate and timely claims reviews. CMS agreed with our recommendation on strengthening the standards for DME suppliers by prohibiting certain misleading or abusive marketing practices. The agency noted that it is examining whether its current authorities allow it to address direct-to-consumer marketing beyond telephone solicitations or if it needs to seek a legislative remedy to amend the supplier standards to do so. However, CMS indicated that it intended to further delineate appropriate marketing practices by DME suppliers to beneficiaries. Finally, CMS agreed with our recommendation to direct NSC to routinely conduct out-of-cycle site visits to selected suppliers. CMS noted that NSC had conducted out-of-cycle site inspections in 2003 and 2004, and the agency said that it has directed NSC to continue these reviews in fiscal year 2005. We have reprinted CMS's letter in appendix IV. CMS also provided us with a technical comment, which we incorporated. As agreed with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after its date. We are sending copies of this report to the Administrator of CMS, appropriate congressional committees, and other interested parties. We will also make copies available to others upon request. This report is also available at no charge on GAO's Web site at http://www.gao.gov. If you or your staff 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 are Sandra D. Gove, Joy L. Kraybill, Lisa S. Rogers, and Craig Winslow. We assessed the early and more recent steps taken by the Centers for Medicare & Medicaid Services (CMS) and its contractors to respond to improper payments for power wheelchairs. First, we obtained reports on national and regional annual Medicare claims payment data for power wheelchairs from 1997 through 2003 from the statistical analysis durable medical equipment regional carrier (SADMERC). These annual reports included the paid claims data for power wheelchairs with dates of service during a calendar year. They included all paid claims data received by the SADMERC during that calendar year through March 31 of the next calendar year. We reviewed CMS and contractor internal control procedures to help ensure that these data were accurate, timely, and complete. We determined that these data were sufficiently reliable for addressing the issues in this report. We reviewed actions taken by the SADMERC in identifying claims payment trends and possible improper payments and informing the other durable medical equipment (DME) regional carriers and CMS. To do so, we reviewed SADMERC reports from 1997 to 2003 sent to DME regional carrier and CMS staff that contained information on power wheelchair billing and interviewed SADMERC, DME regional carrier, TriCenturion, and CMS staff about SADMERC activities. We reviewed actions taken by DME regional carriers in responding to possible improper payments and informing CMS about potential issues. We reviewed DME regional carrier and CMS documents, including memorandums, a fraud alert, reports related to power wheelchair fraud activities, the certificate of medical necessity for power wheelchairs, the Medicare coverage criteria, and CMS budget documents for fiscal year 1999 through fiscal year 2003. From the budget documents provided by CMS and submitted claims information provided by the SADMERC, we analyzed funding for claims review activities. Contractor budget and expense data are self-reported by CMS and the contractors, and we did not validate these data. We also interviewed DME regional carriers and TriCenturion staff, including their medical directors, and CMS headquarters and regional staff with responsibility for overseeing, or budgeting for, DME regional carrier and TriCenturion activities. To review steps taken by the National Supplier Clearinghouse (NSC), we reviewed CMS and NSC documents, such as the 21 supplier standards and correspondence from NSC highlighting problems with the supplier standards. We also interviewed CMS and NSC staff about power wheelchair supplier issues; on-site review activities, particularly in Harris County, Texas; and potential weaknesses in supplier verification activities. We assessed the steps taken by CMS to respond to improper payments for power wheelchairs by reviewing CMS's action plan to combat improper payments for power wheelchairs; relevant sections of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and the Social Security Act; and other documents mentioned above. We interviewed CMS officials with responsibility for safeguarding DME payments and overseeing SADMERC, DME regional carrier, TriCenturion, and NSC activities. We also interviewed SADMERC, DME regional carrier, TriCenturion, and NSC staff; supplier representatives; beneficiary advocates; and industry representatives. The beneficiary advocates whom we interviewed included members of the Independence Through Enhancement of Medicare and Medicaid Coalition. In addition, we interviewed clinicians from the University of Pittsburgh. We also interviewed representatives of manufacturers, suppliers, and a trade association, including representatives from Hoveround, Invacare, Pride Mobility Products Corporation, the Power Mobility Coalition, and two suppliers in Harris County, Texas. We also participated in three "listening sessions" on February 24, March 31, and June 14, 2004, that were organized by CMS staff so that they could hear the viewpoints of suppliers, beneficiary advocates, and industry representatives on the actions taken by CMS and its contractors to address power wheelchair issues. We performed our work from February through November 2004 in accordance with generally accepted government auditing standards. Region A (HealthNow New York, Inc.) Region B (AdminaStar Federal) Region C (Palmetto Government Benefits Administrators) Region D (CIGNA HealthCare Medicare Administration)

Summary:
Medicare spending for power wheelchairs--one of the program's most expensive items of durable medical equipment (DME)--rose more than fourfold from 1999 through 2003, while overall Medicare spending rose by about 11 percent for the same period, according to the Centers for Medicare & Medicaid Services (CMS). This spending growth has raised concerns that some of the payments may have been improper. In May 2003, the Department of Justice indicted several power wheelchair suppliers in Texas alleged to have fraudulently billed Medicare. GAO was asked to examine the early and more recent steps taken by CMS and its contractors to respond to improper payments for power wheelchairs. Starting in 1997 and over the next 6 years, CMS's contractors repeatedly communicated with CMS officials about escalating spending for power wheelchairs, and the contractors took steps to respond to improper payments for this Medicare benefit. In 1997, one contractor warned the agency about rapid increases in power wheelchair spending. In 1998 and in 2000, medical directors at the four contractors that pay DME claims suggested steps that could be taken and sought CMS's help in curbing power wheelchair spending growth. However, while contractors continued to conduct in-depth medical reviews of claims for power wheelchairs and to investigate cases of suspected fraud, CMS did not begin to assume an active role in addressing the identified problems until September 2003. Problems included Medicare supplier standards that did not provide adequate guidance on appropriate marketing practices and the predictability of visits to screen suppliers, which made it relatively easy for illegitimate suppliers to prepare for, and pass, site inspections. Since September 2003, CMS has taken steps to prevent fraudulent suppliers from entering the Medicare program, clarify coverage policy, ensure appropriate pricing for power wheelchairs, provide education on coverage rules, conduct detailed claims reviews where power wheelchair fraud was prevalent, and coordinate with law enforcement agencies. Although CMS has made progress, it has not implemented a revised form to collect better information for power wheelchair claims review, clarified guidance for suppliers on appropriate marketing, or required its contractor to routinely conduct less predictably timed site visits. Further, CMS's response to power wheelchair spending highlighted the lack of a process within the agency to rapidly address indications of potentially improper DME payments.