Los Angeles County Suppliers' Compliance With Medicare Standards: Results From Unannounced Visits

Objective

To conduct unannounced site visits of suppliers of Medicare durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) in Los Angeles County to (1) determine their compliance with selected Medicare supplier standards and (2) identify their atypical characteristics.

Background

DMEPOS are covered under Medicare Part B and include items such as hospital beds, wheelchairs, respirators, walkers, and artificial limbs. DMEPOS suppliers must enroll in the Medicare program to submit claims for Medicare reimbursement. DMEPOS suppliers are required to comply with 5 conditions and 25 supplier standards to enroll in the Medicare program and receive payment for a Medicare-covered item. The Centers for Medicare & Medicaid Services (CMS) contracts with the National Supplier Clearinghouse (NSC) to manage the enrollment and reenrollment of suppliers in the Medicare program.

According to the Department of Health and Human Services, Los Angeles is a high-risk area for fraudulent activity involving DMEPOS suppliers. Supplier site inspections conducted by NSC underscore the risks in Los Angeles County. In 2006, NSC conducted 401 inspections in Los Angeles County and revoked the billing privileges of 95 suppliers.

In the 12 months beginning July 1, 2006, Medicare allowed approximately $245 million for DMEPOS provided in Los Angeles County and $8.6 billion nationwide.

We focused on four requirements with which compliance could be verified quickly through direct observation: suppliers must (1) maintain physical facilities, (2) be accessible during business hours, (3) have visible signs, and (4) post hours of operation. We conducted unannounced site visits of 905 suppliers in Los Angeles County in late 2007. In addition, we analyzed the suppliers’ billing patterns.

Findings

In Los Angeles County, 115 of 905 suppliers (13 percent) did not maintain physical facilities or were not open during unannounced site visits. Thirteen percent of the suppliers we visited (115 of 905) did not maintain physical facilities or were not open during our unannounced site visits. Thirty suppliers did not maintain physical facilities, and 85 suppliers were not accessible during business hours. Medicare allowed $21 million in the 12 months beginning July 1, 2006, for these suppliers’ claims.

Another 79 suppliers (9 percent) were open but did not meet at least one of the two additional requirements for the standards we reviewed. Seventy-eight suppliers did not post hours of operation, but were open during reasonable business hours (10 a.m. to 4 p.m.). Five suppliers did not post signs indicating a business name. Four suppliers did not meet either requirement.

An additional 124 suppliers (14 percent) met the requirements for the standards we reviewed, but their claims had in common an atypical characteristic. More than half of the Medicare beneficiaries for these 124 suppliers did not receive other Medicare services (such as an office visit) from the ordering physician within a 6-month period preceding the DMEPOS claim. Eighty-nine percent of these suppliers have the primary specialty “Medical Supply Company—Other.”

Recommendation

Our findings in this report, along with past Office of Inspector General (OIG) work in Florida, demonstrate that noncompliant suppliers are enrolled in the Medicare program. We recognize that CMS recently has taken action to address vulnerabilities in the DMEPOS benefit, particularly in Florida and California, including initiating a 2-year DMEPOS demonstration project in November 2007. Although this demonstration project has potential to prevent fraud, permanent corrective action is warranted to prevent fraudulent providers from entering and participating in Medicare. Therefore, we recommend that CMS:

Strengthen the Medicare DMEPOS supplier enrollment process and ensure that suppliers meet Medicare supplier standards. OIG presented a number of options to CMS in its March 2007 report, “South Florida Suppliers’ Compliance With Medicare Standards: Results From Unannounced Visits” (OEI-03-07-00150). CMS has made progress toward implementing some of those options for strengthening the Medicare DMEPOS supplier enrollment process and compliance with supplier standards. We continue to recommend that CMS:

• conduct more unannounced site visits to suppliers, which could include full site inspections and abbreviated site inspections, to supplement, not replace full site inspections and to determine whether suppliers still exist at the addresses on record;
• perform more rigorous background checks of applicants and currently enrolled high-risk suppliers (including business owners and managing employees);
• assess the fraud risk of suppliers and focus monitoring and enforcement on high-risk suppliers;
• increase prepayment review of DMEPOS claims, especially claims from new suppliers and suppliers deemed high risk;
• require suppliers in areas particularly vulnerable to fraud and abuse to reenroll with NSC more frequently than every 3 years; and
• strengthen the Medicare supplier standards by establishing a minimum number of hours of operation and establishing minimum inventory requirements for product and service types.

In addition, we recommend that CMS:

• require all suppliers to pay a Medicare enrollment application fee to cover the costs of: (1) full site inspections or abbreviated site inspections to monitor suppliers’ compliance with Medicare standards and (2) criminal background checks;
• require a supplier to pay an additional Medicare enrollment fee if, during a site visit (conducted during business hours), the supplier’s facility is closed or inaccessible, necessitating an additional site visit; and
• seek legislative authority to impose temporary moratoriums, on an as-needed basis, on supplier enrollment in high-fraud areas.

In addition, we sent to CMS information about the suppliers we visited that did not meet one or more of the four requirements. Based on our findings and its own follow up, CMS should take appropriate action.

Agency Comments and Office of Inspector General Response

CMS stated that it believes that it has already addressed the majority of the options we recommend in this report that also appear in “South Florida Suppliers’ Compliance With Medicare Standards: Results From Unannounced Visits” (OEI-03-07-00150). Specifically, CMS modified its scope of work with NSC to increase the frequency of unannounced site visits and to assess the fraud risk of suppliers in certain high fraud areas. CMS will consider increasing prepayment review of suppliers’ claims and is in the process of conducting “targeted background checks on suppliers.” CMS may consider establishing more frequent reenrollment requirements for suppliers. CMS is seeking public comment on a proposed rule that would establish a minimum number of hours of operation required for suppliers.

Regarding the new recommendations in this report, CMS stated that suppliers must pay a fee to the accrediting organization for an initial site visit and that “criminal background checks are conducted as required by State standards.” We note that our new recommendations regarding site inspections and application fees pertain to NSC’s actions to enforce compliance with Medicare supplier standards: the fees we suggest would be paid to the Federal Government. The accrediting organization and NSC are independent of one another and address different standards. We have modified our recommendation to clarify this point. Finally, CMS will consider seeking legislative authority to impose temporary moratoriums on supplier enrollment.

CMS did not indicate whether it concurred with our recommendation to establish minimum inventory requirements. We ask that, in its final management decision, CMS more clearly indicate whether it concurs with this recommendation and what steps, if any, it will take to implement it.

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