Why does CMS persist in overpaying for durable medical equipment?

Durable medical equipment (DME) has been fertile ground for fraud for decades because Medicare pays far above the market price. In two recent examples, DME supply companies were convicted of fraudulently billing $3.3M and $3.5M. Fraud is so attractive because companies are buying wheelchairs for $900 and selling them to Medicare for $6000. In another case, the Dept of Health and Human Services Office of the Inspector General called out Medicare for overpayment of $251 million dollars for portable infusion devices because they have not updated their market price list since 2003. This kind of systematic over payment has been going on for many years.
Having a large discrepancy between the amount Medicare will reimburse for equipment compared to the market price for obtaining that equipment creates a big incentive for fraud. Every piece of equipment sold scores a big profit. Not surprisingly, DME has been a fertile area of Medicare fraud for decades. If the prices Medicare paid reflected  true market prices there would not be such an incentive for fraud. Prices that better reflected market pricing would also mean that DME items could be made available to more patients who would actually benefit from them.
To combat DME fraud, the Center for Medicare and Medicaid Services (CMS) has enacted detailed documentation requirements that physicians must complete before a patient can receive DME items. Certificates of Medical Necessity must be completed and often additional patient visits must be scheduled for the sole purpose of documenting specific items on the physical exam. As a result, DME fraud prevention has become a substantial administrative burden on primary care physicians, and completing CME paperwork is one the least favorite activities of any primary care provider. Believe me, been there done that. All this time spent completing fraud prevent paperwork is a significant drain on primary care provider time, moral and productivity. There are numerous studies saying that we have and face an increasing shortage of primary care physicians. Dealing with fraud prevention paperwork is one of the things that makes primary care an unattractive career choice for physicians. A better solution would be to pay for DME at market prices eliminating most of the incentive for fraud and relieving physicians of much of the fraud prevent paperwork burden.
While Medicare can be criticized for overuse of services, Medicare is very efficient at procuring healthcare services and pays lower costs than most private insurers. It seems like CMS should be well-positioned to negotiate favorable pricing from DME suppliers, but this never seems to happen.  Why? In 2003, Congress mandated that CMS develop a system for market based pricing of DME equipment, but thirteen years later, the system that they devised does not seem to be working very well.
DME is a $30 billion plus market here, and Medicare is paying a substantial fraction of that. Medicare pricing also sets the market for private insurers. As Everett Dirksen once said “A billion hear a billion there, pretty soon we’re starting to talk about real money.”

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