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.