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Report (OEI-03-11-00600)

12-18-2012
Medicare Supplier Acquisition Costs for L0631 Back Orthoses

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Summary

WHY WE DID THIS STUDY

From 2008 to 2011, Medicare claims for L0631 back orthoses more than doubled, increasing Medicare allowances from $36 million to more than $96 million. Suppliers may bill Medicare for a variety of back orthosis products using code L0631, and the acquisition cost for each product may vary according to the manufacturer and model provided. However, Medicare does not collect information on the supplier acquisition costs or the models of L0631 back orthoses provided to beneficiaries. This study provides information on supplier acquisition costs for L0631 back orthoses that could assist CMS in determining whether the Medicare payment amount is appropriate.

HOW WE DID THIS STUDY

From CMS's National Claims History file, we extracted Medicare claims for L0631 back orthoses with dates of service between July 1, 2010, and June 30, 2011. We randomly selected a sample of 350 suppliers and then randomly selected 1 claim from each. We requested that suppliers provide the acquisition costs of the L0631 orthoses they purchased for the claims, reflective of any discounts, rebates, fees, or charges. We also requested that suppliers describe the services they provided to beneficiaries, including fitting and adjustment services and instructions for using the orthoses.

WHAT WE FOUND

Medicare payment amounts were more than four times greater than supplier acquisition costs for L0631 back orthoses. Between July 2010 and June 2011, the average Medicare-allowed amount for L0631 back orthoses was $919 and the average supplier acquisition cost was $191. Consequently, Medicare and its beneficiaries paid approximately $37 million more for L0631 back orthoses than suppliers paid to acquire them. Beneficiary copayments alone would have almost covered suppliers' L0631 acquisition costs. The description for the L0631 back orthosis code includes not only the orthosis but also fitting and adjustment services. However, for one-third of claims, suppliers did not report providing fitting and adjustment services. For 93 percent of claims, suppliers did not report providing any additional services regarding the L0631 back orthoses other than general instructions.

WHAT WE RECOMMEND

We recommend that CMS use supplier acquisition cost information to lower the fee schedule amount for L0631 back orthoses by including it in the Competitive Bidding Program or by using CMS's inherent reasonableness authority. CMS concurred that Medicare payments for L0631 back orthoses should be adjusted to more closely reflect supplier acquisition costs and the level of service provided when furnishing the devices.

Copies can also be obtained by contacting the Office of Public Affairs at Public.Affairs@oig.hhs.gov.

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