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Independent Contractor's Review of Durable Medical Equipment Claims From the Fiscal Year 2008 Comprehensive Error Rate Testing Program

We conducted our audit at the request of the Senate Committee on Finance. Palmetto GBA (Palmetto) complied with its CMS contract in performing medical reviews of a subsample of claims from the FY 2008 durable medical equipment (DME) sample, but Palmetto's results did not provide assurance that the FY 2008 DME error rate was accurate. The Comprehensive Error Rate Testing (CERT) program was established to produce a Medicare fee-for-service error rate, which CMS must submit to Congress annually. To determine the error rate for FY 2008, CMS's CERT contractor conducted medical record reviews of a random sample of paid claims. Palmetto reviewed the CERT contractor's payment determinations.

Palmetto found that 175 of the 250 sampled claims were in error, significantly exceeding the 23 errors found by the CERT contractor. After further review, the CERT contractor agreed with 17 of Palmetto's additional error determinations (for a total of 40 error determinations) but disagreed with the remaining 135 error determinations. Most of Palmetto's error determinations were based on insufficient documentation to establish medical necessity.

We recommended that CMS require the CERT contractor to (1) develop a corrective action plan to reduce its number of incorrect determinations and (2) perform a complex medical review by obtaining and reviewing all medical records from all relevant providers to support the medical necessity of DME items. In comments on our draft report, CMS concurred with our findings and recommendations and outlined the steps it has taken to begin implementing our recommendations.