October 12,2005

Grassley works to stop fraudulent and abusive spending of Medicare dollars

Washington — Sen. Chuck Grassley said today that the federal government agency responsible for Medicare has failed to keep tabs on the contractor it hired to look out for certain problems and, as a result, the Medicare program continues to be vulnerable to fraudulent and abusive billing for medical equipment including prosthetics, orthotics and other supplies.

“Complacency by the watchdogs hurts both taxpayers and beneficiaries. Money is wastedor lost to fraud, and quality of care can be jeopardized when products and services come fromcon artists rather than qualified suppliers,” Grassley said.

In response to a request made by Grassley, the Government Accountability Officereviewed the performance of the Centers for Medicare and Medicaid Services and the NationalSupplier Clearinghouse in deterring the billing practices that resulted in Medicare improperlypaying $900 million in fiscal year 2004 for durable medical equipment, prosthetics, orthotics andsupplies.

This independent audit found that the National Supplier Clearinghouse, the contractorhired by Medicare officials to verify that suppliers meet 21 standards before they can billMedicare, relies too heavily on self-reported information from suppliers rather than on-siteinspections and fails to effectively check state licensure of suppliers.

“Medicare dollars have gone to pay bills from suppliers that aren’t properly licensed andwho may be under investigation for fraud,” Grassley said. “There are cases where Medicare hasre-enrolled suppliers in its system even when those same suppliers had their billing privilegesrevoked by Medicare just three months previously.”

In its report to Grassley, the Government Accountability Office suggested that Congressconsider whether suppliers found to be noncompliant should wait a specified period of timebefore having their billing numbers reissued. The Government Accountability Office also maderecommendations to the Medicare administrator to improve the National SupplierClearinghouse’s licensure verification and on-site inspections, the supplier standards, andoversight of the National Supplier Clearinghouse.

Based on the new findings of the Government Accountability Office and following up onthe oversight hearing he conducted in April 2004 on durable medical equipment and theMedicare program, Grassley today asked both the Secretary of Health and Human Services andthe Administrator of the Centers for Medicare and Medicaid Services to report to him on exactlywhat is being done to address problems with the contractor and the resulting improper payments.

Grassley is Chairman of the Senate Committee on Finance, which has oversight andlegislative jurisdiction over the Medicare program. The text of his letter follows below. TheGovernment Accountability Office report is attached in a pdf file.

October 12, 2005

The Honorable Michael O. Leavitt
Department of Health & Human Services
200 Independence Avenue, SW
Washington, DC 20201

Mr. Mark McClellan
Centers for Medicare & Medicaid Services
Department of Health & Human Services
200 Independence Avenue, SW Room 339G
Washington, DC 20201

Dear Secretary Leavitt and Administrator McClellan:

The Committee on Finance (Committee) has a duty to investigate, review, and evaluatethe effectiveness of the Medicare Program to ensure we are responsible stewards of the Medicaretrust funds. It is alarming that in FY 2004, the Centers for Medicare and Medicaid Services(CMS) erroneously paid ten percent, or $900 million, for durable medical equipment (DME).

Most DME suppliers are honest businesspersons, but this statistic proves there is a problem withrespect to DME payments that causes CMS to waste precious tax dollars. As Chairman of theCommittee on Finance, I asked the Government Accountability Office (GAO) to look into thisimportant matter and to evaluate the screening and enrollment standards for DME suppliers byCMS. The GAO report released today determined that CMS provides insufficient oversight ofthe National Supplier Clearinghouse (NSC). The GAO report also determined that suppliers donot comply with the 21 national standards established by CMS federal regulations and notices.As a result, CMS jeopardized quality of care by permitting fraudulent suppliers - scam artists - toprovide services to beneficiaries. This is completely unacceptable.

More than a year after the April 2004 Committee on Finance hearing on powerwheelchairs (POV hearing), it is disconcerting that CMS has not enforced supplier standards andhas only now begun to edit the NSC contract. In fact, many of these changes will not take placeuntil 2006. During the April 2004 hearing, CMS stated they would, “revise the supplier’sstandards for enrolling in Medicare to include quality measures.” However, the GAO reportfound that CMS allowed suppliers convicted of fraud or in violation of multiple standards to reenrollin the Medicare program within an average of three months. Clearly, CMS should onlyallow qualified suppliers with sound business practices to participate in the Medicare Program.

At the POV hearing in 2004, the Committee also heard accounts of how suppliersfrequently billed for items never delivered. The GAO report released today still found thatsuppliers are not meeting the standard to maintain proof of delivery and NSC is not checking tosee if suppliers have a real source of inventory. In fact, CMS was unaware that NSC did notconduct all the required inspections and had suspended on-site inspections for 605 suppliers.

The GAO report also determined that NSC is not sufficiently reviewing state licensurerequirements for DME suppliers. For example, in FY 2004 CMS improperly paid Floridasuppliers more than $56.3 million for custom-fabricated orthotics and prosthetics. At least 46 ofthese fraudulent suppliers were already under investigation for fraud. Nevertheless, CMScontinued to pay these claims and allowed fraudulent suppliers – scam artists - to provideservices to beneficiaries.

At the same time, the Committee appreciates CMS’ efforts in California to focus onMedicare supplier fraud. However, to be diligent stewards of the Medicare trust funds we mustprospectively identify fraudulent and abusive behavior and implement the appropriate safeguardsin real time. In response to GAO comments, CMS stated they would “explore the idea ofrequiring the NSC where appropriate, to routinely compare the items for which a supplier billsthat require licensure against the items the supplier indicates on the enrollment application it willsupply to Medicare beneficiaries.” What I conclude from this response is that CMS will wait torequire a stronger licensure verification process, as opposed to smothering a flame before it turnsinto a bonfire.

In addition to the questions raised in this letter, I would appreciate the followinginformation:

1. Provide a detailed explanation of the process for removing fraudulent suppliers from theMedicare program.

2. Establish a timeline for implementing quality standards required by Section 302 of MMA.

3. Detail how CMS will:

a. enforce quality standards required under the competitive bidding program, and
b. ensure uniformity across suppliers that are not in the competitive bidding program.

4. Provide a list that identifies suppliers under investigation in FL, CA, NJ, NY, IL, PA, WA,OH, and NC from FY 2003-FY 2005. Include the corresponding dates of the investigation andenrollment of the supplier in the Medicare program.

5. Describe how CMS and NSC review financial standards for DME.

6. Describe the pros and cons associated with requiring suppliers to provide adelivery/confirmation slip for payment.

7. In 2004, CMS reviewed less than .08 percent of supplier’s enrollment and re-enrollmentapplications. Describe CMS’ plans to strengthen the review process.

8. Provide copies of NSC performance evaluations from 2003 – 2005.

9. Provide copies of the NSC scope of work from 2003 – 2006.

10. Describe how the new accreditation program and NSC will coordinate and identify possibleareas of overlap.

Last but not least, it appears that NSC may not have met the terms and conditions of itscontract with CMS in light of the major deficiencies identified by the GAO. Accordingly, pleasedetermine whether it is CMS’ position that NSC is in compliance with the terms and conditionsof its CMS contract. If a determination is made that NSC is in full compliance, please advise meof that fact and the basis of that determination. In the event CMS determines that NSC is not incompliance with the terms and conditions of its contract, please describe what actions CMS willtake to recoup tax payer dollars and ensure compliance.

Thank you in advance for your assistance on this matter. I would appreciate a response tothe enumerated request and concerns raised in this letter no later than October 31, 2005.Sincerely,

Charles E. Grassley