GAO Report: Poor Job by NSC Left Medicare Open to Fraud; Grassley Calls HHS, CMS on the Carpet

WASHINGTON–The National Supplier Clearinghouse has done an
insufficient job of preventing fraud among suppliers of durable
medical equipment, prosthetics, orthotics and supplies, according
to a new Government Accountability Office report.

NSC, the Medicare contractor in charge of making sure suppliers
meet 21 contracting standards, relies too heavily on self-reported
information from suppliers rather than on-site inspections and
fails to check state licenses effectively according to the report,
released Wednesday.

In its report, the GAO, which acts as a watchdog for Congress,
cites one example in which CMS made improper payments of nearly
$56.3 million in 2004 to Florida suppliers who had not had their
licenses checked for custom-fabricated orthotics and prosthetics.
At least 46 of the suppliers were under investigation for fraud as
of April 2005.

NSC also allows companies to regain a supplier number too soon
after a suspension, the GAO said. Of 1,038 suppliers suspended from
Medicare in 2003, the report found that 192 were reenrolled by May
31, 2004. The report also found that CMS allowed suppliers
convicted of fraud or in violation of multiple standards to
reenroll in the program within an average of three months.

According to the GAO, NSC also did not conduct on-site
inspections of 605 suppliers and had inadequately inspected 3,079
more. Where on-site visits occurred, NSC did not require inspectors
to review beneficiary files for proof of delivery or whether
suppliers had real sources of inventory.

The GAO report noted that while Medicare paid suppliers about
$8.8 billion in 2004, the program’s 21 standards are too weak to
screen out fraud effectively and don’t include “measures related to
supplier integrity and capability analogous to those that federal
agencies generally apply to prospective contractors.”

The report said one woman who had pleaded guilty to Medicare
fraud described to the Senate Finance Committee how she was able to
open a sham business with only $3,000 and then begin billing the
program.

In its recommendations, the GAO advised Congress should consider
requiring non-compliant suppliers to wait for a specified period of
time before their supplier numbers are reissued, and suggested that
CMS improve NSC’s licensure verification and on-site inspections,
as well as improve the standards governing DMEPOS and its oversight
of NSC.

The independent audit was conducted from June 2004 to September
2005.

Grassley Wants Answers
The GAO reviewed the performance of CMS and NSC in response to a
request made by Sen. Charles Grassley after Medicare improperly
paid $900 million in 2004 for DMEPOS, in part due to supplier
fraud.

“Complacency by the watchdogs hurts both taxpayers and
beneficiaries. Money is wasted or lost to fraud, and quality of
care can be jeopardized when products and services come from con
artists rather than qualified suppliers,” said Grassley, chairman
of the Senate Finance Committee, which oversees Medicare.

Based on the GAO’s findings, and following up on an oversight
hearing he conducted in April 2004 on DME and the Medicare program,
Grassley wrote to HHS Secretary Michael Leavitt and CMS
Administrator Mark McClellan last week asking for specific details
about what is being done to address problems with the NSC–and
asking them to figure out whether, “in light of the major
deficiencies identified by the GAO,” NSC “is in compliance with the
terms and conditions of its CMS contract.”

Grassley asked for a list of information, including:

–a detailed explanation of the process for removing fraudulent
suppliers from the Medicare program
–a timeline for implementing quality standards required by the
Medicare Modernization Act
–details on how CMS will enforce quality standards required to
participate in its Medicare competitive bidding program, and how it
will ensure uniformity across suppliers that are not in the bidding
program
–a list that identifies suppliers under investigation in Florida,
California, New Jersey, New York, Illinois, Pennsylvania,
Washington, Ohio and North Carolina from 2003-2005
–a description of how CMS and NSC review financial standards for
DME
–the pros and cons associated with requiring suppliers to provide
a delivery/confirmation slip for payment
–CMS’ plans for strengthening the supplier review process, since
in 2004, CMS reviewed less than .08 percent of suppliers’
enrollment and reenrollment applications
–copies of NSC performance evaluations from 2003-2005
–copies of the NSC scope of work from 2003-2006, and
–how the new supplier accreditation program and NSC will
coordinate and identify possible areas of overlap.

“More than a year after the April 2004 Committee on Finance
hearing on power wheelchairs (POV hearing), it is disconcerting
that CMS has not enforced supplier standards and has only now begun
to edit the NSC contract. In fact, many of the changes will not
take place until 2006,” Grassley’s letter stated.

“To be diligent stewards of the Medicare trust funds we must
prospectively identify fraudulent and abusive behavior and
implement the appropriate safeguards in real time.”

Grassley asked for a response by Oct. 31.

To access the GAO report, click
here.