Report 2007-122 Summary - June 2008

Department of Health Care Services:

Although Notified of Changes in Billing Requirements, Providers of Durable Medical Equipment Frequently Overcharged Medi-Cal

HIGHLIGHTS

Our review of the Department of Health Care Services' (Health Care Services) Medi-Cal billing system for durable medical equipment (medical equipment) found that:

  • Health Care Services' policies and procedures regarding reimbursement methodologies for medical equipment generally agree with state laws, regulations, and federal program requirements.
  • Providers are adequately informed regarding changes in reimbursement methodologies and health care codes.
  • Because Health Care Services has not identified a practical means to monitor and enforce its billing and reimbursement procedures, price controls enacted in 2003 have not met their intended purpose.
  • Health Care Services conducted a limited review of providers and found that 21 providers overbilled, and Health Care Services overpaid, about $1.2 million, or 25 percent of the $4.9 million those providers billed.
  • Although Health Care Services has recovered almost $960,000 of the overpayments, it does not know the extent to which other providers may have also overbilled for medical equipment.
  • Although Health Care Services intends to use postpayment audits to enforce its price controls for medical equipment, its current auditing efforts do not provide enough coverage of medical equipment reimbursements to effectively ensure providers' compliance with the billing procedures.

RESULTS IN BRIEF

Medicaid, a federal program funded and administered in partnership with the states, provides health insurance to low income families and to the aged, blind, and disabled. The Department of Health Care Services (Health Care Services) administers California's Medicaid program, the California Medical Assistance Program (Medi-Cal), which provides medical assistance to more than six million beneficiaries each month. In addition to covering health care needs, such as pharmaceuticals, physician services, and long term care, Medi-Cal covers durable medical equipment (medical equipment) that licensed practitioners prescribe within the scope of their normal duties (for example, wheelchairs). According to reimbursement data maintained by Health Care Services, from October 1, 2006, through September 30, 2007, it reimbursed providers about $93 million for medical equipment supplied to Medi-Cal beneficiaries.

Health Care Services establishes the limits on payments, known as reimbursements, that providers of medical equipment receive under Medi-Cal. Through its Allied Health Provider Manual (provider manual) and monthly Medi-Cal Update bulletins, Health Care Services communicates information on reimbursement rates and the methodologies for calculating allowable reimbursements for various medical equipment. We found that Health Care Services' policies and procedures and the information in its provider manual regarding reimbursement methodologies for medical equipment generally agree with state law and regulations and federal program requirements. We noted, however, that the provider manual does not contain the current methodology for calculating reimbursements for speech generating devices included in state law. In addition, federal program requirements and state law allow Health Care Services to establish some of the elements of the reimbursement procedures for medical equipment, such as development of the methodologies for calculating reimbursements. We found that Health Care Services gained the necessary federal approvals for its plan for implementing its Medi-Cal reimbursement methodologies and conferred with providers regarding the development of the reimbursement methodologies. Moreover, we reviewed its processes for informing providers of the Medi-Cal requirements for billing and reimbursements and found that Health Care Services has adequately informed providers of those requirements and significant changes.

Nonetheless, some providers have overbilled Medi-Cal, and Health Care Services has overpaid providers, $1.2 million for certain wheelchairs and wheelchair accessories with listed Medicare prices. The primary cause of the overbillings is the providers' failure to adhere to the upper billing limit—a price limit provision Health Care Services includes in its billing and reimbursement procedures. The primary cause of the overpayments is that Health Care Services has not identified a practical means to effectively monitor and enforce its medical equipment billing and reimbursement procedures.

In 2003 Health Care Services implemented new price controls for reimbursing providers, establishing a means of calculating reimbursements based on the lowest of five options, including the upper billing limit. Intended to lessen the opportunity for fraud and abuse, the upper billing limit restricts a reimbursement to the lesser of the provider's net purchase price for the supplied medical equipment plus a markup of up to 100 percent or the provider's usual charge to the general public. The other options for calculating reimbursements include using the provider's cost according to its vendor's invoice, applying a variation of the listed Medicare price, or using a rate negotiated by Health Care Services and the provider.

However, as indicated by a small number of limited scope audits that Health Care Services conducted of billings that providers submitted from September 1, 2005, through August 31, 2006, the price controls have not met their intended purpose. In 2007 and 2008 Health Care Services conducted these audits of providers' billings for wheelchairs and wheelchair accessories with listed Medicare prices to determine whether the amounts billed complied with Health Care Services' billing and reimbursement procedures. It identified 43 providers, each of whom had billed more than $50,000 for a popular power wheelchair type. At the time of our fieldwork, Health Care Services had performed audits on 21 of the 43 providers and found that none had consistently complied with price controls when billing for medical equipment. In fact, the 21 providers overbilled, and Health Care Services overpaid, about $1.2 million, or 25 percent of the $4.9 million billed.

Although Health Care Services had recovered almost $960,000 of the overpayments from the 21 providers, it does not know the extent to which other providers may have overbilled for medical equipment. The health care codes assigned to the wheelchairs and wheelchair accessories it reviewed represent only 10 of the more than 400 health care codes. For perspective, the $4.9 million in reimbursements Health Care Services reviewed represents about 6.5 percent of the over $75 million reimbursed for all medical equipment with listed Medicare prices during federal fiscal year 2006-07. In addition, because Health Care Services has not yet reviewed billings for medical equipment without listed Medicare prices, including wheelchairs and wheelchair accessories, it does not know the extent to which those providers comply with the price controls and bill using the lowest billing rate option.

According to the response provided by the California Association of Medical Product Suppliers when Health Care Services was developing and implementing the upper billing limit, some providers viewed the price controls as burdensome and as requiring them to establish a unique business and accounting model expressly for Medi-Cal. The providers claimed that the model would have an adverse impact on their non Medi-Cal business by affecting their calculated usual and customary charges.

According to the chief deputy director of health care programs (chief deputy director), Health Care Services expects providers to bill for medical equipment at the appropriate rates. Thus, it does not require providers to submit documents that would show they billed at the lowest of the billing options for medical equipment with a listed Medicare price. In addition, the chief deputy director stated that Health Care Services does not require providers to submit invoices because it does not intend to review them during claims processing to ensure compliance with the billing procedures. According to the chief deputy director, for a billing that a provider submits electronically, Health Care Services has no automated method for auditing the claim to determine the relationship between the billed amount and the invoiced amount.

The chief deputy director stated that, at the time Health Care Services was implementing the new reimbursement rates, including the upper billing limit, it was also imposing major rate reductions to medical equipment, such as wheelchairs and wheelchair accessories. He stated that Health Care Services was very concerned about affecting the ability of Medi-Cal beneficiaries to access the wheelchairs they needed. Health Care Services decided not to require invoices for wheelchairs or wheelchair accessories without listed Medicare prices because of the burden it would place on providers to submit two sources of documentation. In federal fiscal year 2006-07, wheelchairs and wheelchair accessories without listed Medicare prices made up more than $8 million in reimbursements. According to the chief deputy director, Medi-Cal continuously receives complaints from providers about excessive paperwork requirements, and Health Care Services is concerned that increasing the billing requirement from one form of documentation to two might lead some providers to stop supplying wheelchairs and wheelchair accessories to beneficiaries who need them.

Nonetheless, audits performed by Health Care Services in 2007 and 2008 revealed that the providers it reviewed billed for most of the wheelchairs and wheelchair accessories they supplied at the maximum listed Medicare prices, not the significantly lower amounts the upper billing limit would have produced. The chief deputy director told us that Health Care Services has always intended to use postpayment audits to monitor and enforce its medical equipment billing and reimbursement procedures, including the upper billing limit. However, because medical equipment reimbursements make up a relatively small portion of total Medi-Cal payments—0.8 percent according to the 2006 payment error study Health Care Services conducted—auditing efforts do not provide enough coverage of medical equipment reimbursements to effectively ensure compliance.1 Moreover, perceiving a high cost and a low potential for benefits from the effort, Health Care Services focused its audits in 2007 and 2008 on medical equipment that represented only 10 of the more than 400 health care codes and reviewed a provider only if it had billed more than $50,000 from September 1, 2005, through August 31, 2006, for only one wheelchair type. However, using that methodology excluded some providers from a monitoring device intended to ensure that they adhere to price controls.

RECOMMENDATIONS

To better ensure its provider manual represents a comprehensive guide for medical equipment providers, Health Care Services should include the current methodology for calculating reimbursements for speech generating devices.

To maintain control over the cost of reimbursements, Health Care Services should develop an administratively feasible means of monitoring and enforcing current Medi-Cal billing and reimbursement procedures for medical equipment. If unsuccessful, Health Care Services should consider developing reimbursement caps for medical equipment that are more easily administered.

If Health Care Services continues using audits to ensure that providers comply with Medi-Cal billing procedures for medical equipment, including the upper billing limit, it should design and implement a cost effective approach that adequately addresses the risk of overpayment and ensures all providers are potentially subject to an audit, thereby providing a deterrent to noncompliance.

AGENCY COMMENTS

Health Care Services states that it appreciates the work performed by the Bureau of State Audits and provides comments on the draft report beginning on page 27.


1 The payment error study is released annually by Health Care Services in an effort to detect, identify, and prevent fraud and abuse of Medi-Cal funds.


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