Shoes for amputees? Medicare waste revealed

The Senate investigation was conducted by both Democratic and Republican committee staff. Sen. Carl Levin, D-Mich., who chairs the subcommittee, declined to sign onto the final report, citing lack of time for review due partly to congressional efforts in the Wall Street bailout.

Responding in the report, CMS said it had taken steps in recent years to identify potential fraud and abuse, such as creating warning flags in the processing system for high-risk items such as glucose strips.

CMS also argued it should not be faulted for failing to review Medicare claims prior to 2003 that had questionable or invalid diagnosis codes. The agency contended that even though diagnosis codes had been widely used on forms since 1991, federal regulations were ambiguous until 2003 as to whether the codes were actually required to process a claim. As a result, if claims forms had blanks, question marks or even icons such as a smiley face for the diagnosis code, they might have been improper but they did not technically bar payment, CMS said.

"This report highlights a vulnerability that we addressed five years ago related to our review of claims for medical services and supplies," CMS spokesman Jeff Nelligan said Tuesday. "CMS has always used clinical information, including diagnosis codes, to target certain vulnerable and high risk claims." He said that CMS has validated diagnosis codes on all medical equipment claims since 2003.

Investigators, however, noted CMS has pledged for many years to fix problems with little success.

Years of problems
For example, CMS put flags in its system to help check diagnosis codes listed in claims for glucose strips in response to a June 2000 report by the Health and Human Services Department's inspector general that warned of the potential for fraud. Yet the Senate investigation found that despite reforms, CMS in 2006 still paid $535,032 for glucose strips with the highly questionable diagnosis of chronic airway obstruction — an amount roughly equivalent to the $526,059 paid in 2001 for the same cited diagnosis.

Other findings:

• Medicare paid suppliers with little question after the suppliers submitted claims forms with blank or otherwise invalid diagnosis codes. Roughly $4.8 billion in payments were made from 1995 to 2006 despite invalid coding or nothing listed at all; about $23 million of that amount was paid after 2003, when federal rules made clear the codes were required. Based on a sample of 2,000 of those invalid coding claims, investigators found more than 30 percent could not be verified as legitimate and "bore characteristics of fraudulent activity," such as doctors who were actually dead, retired or who denied authorizing the treatment or making the diagnosis.
  
• The CMS contractor responsible for analyzing Medicare claims data maintained information that was incorrect and out of date. Investigators said that raised questions as to whether the contractor had effectively carried out its role of identifying potential waste and fraud; CMS has since changed contractors.
  
• Federal regulations require that CMS pay only for items that are deemed "medically necessary." Yet CMS does not examine diagnosis codes to determine whether the equipment is actually necessary before making payment; the agency instead relies on medical suppliers to maintain paperwork from doctors attesting to that fact. Such paperwork is not routinely submitted, and only 3 percent of claims are reviewed after payment is made.

Tyler J. Wilson, president of the American Association for Homecare, which represents manufacturers and sellers of medical equipment, agreed that Medicare should check claims forms more carefully. He attributed the Senate's findings to both "criminal behavior" as well as "a lack of familiarity" with the Medicare system among newer medical suppliers.

"We'll take our share of the responsibility that all providers have a duty to be precise when filling out any claims form," he said. "We're concerned about Medicare officials' failure to impose upfront controls to prevent people with no intention of following procedures from getting payment."

The report comes as advocacy groups such AARP have urged Congress and the next president to make changes to the rapidly growing domestic entitlement program to stem rising health care costs while preserving benefits for millions of the elderly and disabled.

Sen. John McCain, the Republican presidential nominee, has promised to balance the budget by the end of his first term if elected in part by curbing wasteful spending and overhauling costly entitlement programs. Sen. Barack Obama, the Democratic nominee, also has pledged generally to reexamine "programs that are wasting your money."

CMS has acknowledged that its medical equipment program is susceptible to fraud and waste, estimating in 2007 that $1 billion of the roughly $10 billion in Medicare payments over a one-year period were improper. A recent report by the HHS inspector general suggested that annual waste could actually be as high as $2.8 billion, citing particularly shoddy government oversight.

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