New Developments in O&P Medicare Claims and Other Matters

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By Peter W. Thomas, JD, and Christina Hughes, JD, MPH

The Centers for Medicare & Medicaid Services (CMS) continues to issue policy changes that impact O&P claims audits and other matters of interest to O&P practitioners. CMS issued new limits on how many claims Recovery Audit Contractors (RACs) can seek to review in a given period. One of the Durable Medical Equipment Medicare Administrative Contractors (DME MACs) issued a report finding a 99-percent error rate in its review of custom AFO claims, largely due to a lack of physician documentation. CMS also issued-and then rescinded-a transmittal impacting the ability of an O&P business from enrolling in the Medicare program if overpayments are pending, and the Office of the Inspector General (OIG) issued a report on CMS' lax enforcement of surety bonds to collect overpayments of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). This article contextualizes these developments as they relate to the O&P profession.

New Additional Documentation Request Limits

These days it seems there is not much good news in the area of documentation, but the creation of additional documentation request (ADR) limits for O&P practices is at least a modest step forward. In April 2013, CMS released revised limits on the number of ADRs that RACs may request. The new limits offer some small protection to O&P practitioners, but how these new limits impact individual providers depends on how many Medicare claims are typically submitted by the provider on an annual basis. Generally speaking, the larger the O&P practice, the greater protection it receives under this new guidance.

Under the limits, all DMEPOS suppliers are subject to a limit equal to 10 percent of the previous year's claims, oneeighth of which can be requested every 45 days in a given year. There is a cap of 250 records in any 45-day period. However, for DMEPOS suppliers with specialized O&P personnel on staff, a cap of ten records per 45-day period applies for O&P-specific claims. Thus, for O&P practices that exclusively provide O&P items and services, there is effectively a cap of ten records every 45 days.

The following scenarios provide examples of how this guideline would be applied:

  • Durable medical equipment (DME) Supplier A billed 1,253 claims last year. The supplier's ADR limit would be (1,253 x 0.1) / 8 = 15.6625, or 16 ADRs every 45 days.
  • DMEPOS Supplier B billed 255,000 claims last year. The supplier's ADR limit would be (255,000 x 0.1) / 8 = 3,187.5 claims. But the ADR limit is capped at 250 records every 45 days.
  • If DMEPOS Supplier B employs a certified prosthetist and 15 percent of last year's claims were O&P items (255,000 x 0.15 = 38,250 claims), the supplier's ADR limit would still be 250 ADRs per 45 days, but only ten of those would be permitted to cover O&P claims.
  • Prosthetic-Orthotic Clinic C billed 4,000 claims last year, and all were for O&P items and services. The supplier's ADR limit under the 10-percent limit would be (4,000 x 0.1) / 8 = 50, or 50 ADRs per 45 days, but the ADR limit for O&P claims is capped at ten records every 45 days.

As these examples demonstrate, these limits are only somewhat helpful to most O&P practices. While a limit of ten claims is far less than the limit on DME suppliers and other Medicare providers, it still represents a serious challenge for an O&P practice to receive ten ADRs every 45 days. Given the size of many O&P claims, significant recoupments can still occur even with these new limits, causing major cash flow problems for legitimate O&P practices.

Unfortunately, the RACs are not always conscientious about sticking to the limits imposed by CMS. Sometimes the RAC submits an ADR requesting more records than permitted. Other times, the RAC submits multiple ADRs within the same 45-day period, which is also impermissible, even if the first ADR did not exhaust the limit on record requests from the supplier. When a RAC exceeds the ADR limit, there is no formalized method for challenging the request. A provider's best option in such instances is to contact the RAC directly to challenge the request. This needs to be done as soon as possible in the process, in case the challenge is not successful and the records must be submitted anyway. For questions regarding ADR limits as well as all other RAC questions, contact CMS at

Custom AFO Error Rate at 99 Percent

Noridian, the Jurisdiction D DME MAC, recently conducted an audit of custom AFO claims submitted to the Medicare program under Healthcare Common Procedure Coding System (HCPCS) code L-1960 (ankle foot orthosis, posterior solid ankle, plastic, custom-fabricated). The audit uncovered an astounding error rate of 99 percent, where 221 out of 225 claims were denied. (Author's note: It must be stated that an error rate this high suggests there is something wrong with the methodology used in the audit itself.) More specifically, 27 percent of claims received a denial because the treating physician's records did not provide detailed documentation to support medical necessity of custom rather than prefabricated orthoses, 21 percent of claims received a denial because certain coverage criteria (for example, that the orthosis was required for more than six months) were not met, 16 percent of claims lacked sufficient documentation to support basic coverage criteria, and 7 percent of claims did not adequately document the reason for replacing the orthosis. As a result, Noridian intends to continue to employ widespread prepayment review of claims for these AFOs.

The audit did not address the types of suppliers submitting these claims, nor the certification, accreditation, or licensure status of the providers and suppliers. The most common reason for denial is reminiscent of lower-limb prosthetic claims denials based on a lack of physician documentation. This is alarming in that the principal reason for the denials in this audit is largely outside the control of the practicing orthotist, despite the fact that payments related to future claims will be withheld or recouped from orthotists directly, not the physicians prescribing the orthotic care.

Enrollment in Medicare

On May 31, CMS caused a great deal of commotion by issuing Medicare Integrity Program Transmittal 469. Under the transmittal, suppliers with outstanding overpayments were subject to denial of initial enrollment. Specifically, the transmittal revised the Medicare Program Integrity Manual (PIM), chapter 15, § 15.13. The revised provision instructed contractors to deny Medicare enrollment for any supplier if a current owner of the entity or a new owner, in the case of ownership changes, had an existing overpayment of $1,500 or more that has not been repaid as of the filing date of the enrollment application. The revised manual provisions explicitly stated that the enrollment was to be denied regardless of the existence of any appeals or ongoing payment through offset or a Medicare-approved repayment plan. While CMS had previously developed regulations that allow for the denial of enrollment in such instances, this is the first indication that CMS actually intended to require its contractors to do so.1

While the implications for new suppliers are obvious, the revisions to the PIM set forth in the transmittal were also concerning to current O&P practices because of their potential impact on future business transactions. The provisions had the potential to restrain innocent providers' and suppliers' abilities to expand or sell their businesses while skirting the adjudication process for claim disputes. Under its provisions, Transmittal 469 improperly treated challenged overpayments as final. At the early stages of the appeals process, that is redetermination and reconsideration, treating the overpayment determination as final and requiring full repayment also impermissibly circumvents the limit on recoupment established under federal law and regulations.2

About a month prior to the issuance of Transmittal 469, on April 29, CMS issued a proposed rule addressing the denial of enrollment for existing Medicare providers and suppliers with outstanding debts and denial of enrollment for existing Medicare providers who were formally affiliated with an entity that has an outstanding debt or overpayment. However, that proposed rule allows providers and suppliers with an existing overpayment to avoid enrollment denial "if the enrolling provider, supplier, or owner thereof...agrees to an extended CMS-approved repayment schedule for the entire outstanding Medicare debt."3 Therefore, the revised manual provisions instructing contractors to deny an enrollment application based on an overpayment irrespective of "whether the person or entity is on a Medicare-approved plan of repayment or payments are currently being offset" was directly in conflict with the proposed rule.

Apparently as a result, CMS was forced to rescind Transmittal 469. CMS has indicated its intention to replace the transmittal at a later date, but the immediate effect of the manual revisions is at least temporarily relieved. It may be that the manual will be revised once CMS finalizes some portion of the April 29 proposed rule.

This proposed rule also includes provisions related to revocation of existing enrollments. Specifically, the proposed rule authorizes CMS to revoke a provider's or supplier's Medicare billing privileges in instances where the provider or supplier has a "pattern or practice of submitting claims for services that fail to meet Medicare requirements" including a "pattern of inaccurate or erroneous claim submissions."4 The "pattern or practice" would be based on a number of factors, to include:

  • Percentage of submitted claims that were denied (i.e., high error rates).
  • Total number of denied claims.
  • Reasons for claim denials.
  • Provider's or supplier's history of adverse final actions.
  • Length of time for pattern.
  • Length of provider's or supplier's enrollment.

CMS has requested comments on what constitutes a "pattern or practice" of inaccurate or erroneous claims submissions, as well as on the appropriate number or percentage of erroneous claims that would trigger such a revocation.5 The National Association for the Advancement of Orthotics and Prosthetics (NAAOP), in conjunction with the O&P Alliance organizations, submitted detailed comments on this proposed rule, arguing that CMS' failure to consider the appeals process in determining error rates would result in high numbers of enrollment revocations.

If the proposed rule is made final with its current language, many O&P providers would be at risk of losing their billing privileges, as they often have very high initial error rates upon audit. While many of these initial claims are subsequently overturned through the administrative law judge (ALJ) appeal stage, producing a lower error rate after the adjudication process, the language of the proposed rule ignores this fact. Evaluating a provider's billing privileges based on initial claims undermines the entire appeals process, and it is hoped that CMS will respond to this inequity by revising the provisions to take into account only error rates based on final adjudicated claims and not any claims that are in the appeals process.

Surety Bonds

As part of the supplier standards imposed on DMEPOS suppliers, most suppliers are required to maintain a minimum $50,000 surety bond on which CMS is listed as the party to whom payment is to be made.6 The bond is required to guarantee payment to CMS within 30 days if a request for repayment is made.7 The amount required to be paid by the surety on such requests is the amount of any unpaid claim plus any accrued interest.8 Cancellation of the bond or a lapse in coverage can result in revocation of the supplier's billing privileges.9

Some suppliers are exempt from the surety bond requirements. Physicians, nonphysician practitioners, physical therapists, and occupational therapists have exemptions from the requirements under certain circumstances.10 More importantly, state-licensed O&P professionals in private practice may also qualify for an exemption.11 The professional staff must be licensed by the state; accreditation of the orthotic or prosthetic professional is not sufficient to trigger the exception. In states that do not offer such licenses, the exemption is not available. Specifically, the business must be solely owned and operated by O&P personnel who are making custommade orthotics or prosthetics.12 In such a circumstance, the O&P professionals are responsible for the management and billing of products and services, thereby qualifying for the exemption.

In March 2013, the OIG for the Department of Health and Human Services (HHS) issued report OEI-03- 11-00350 regarding the use of surety bonds to achieve repayment of Medicare overpayments. The OIG report concluded that CMS and its contractors were not making enough claims to recoup outstanding overpayment amounts against the surety bonds held by DMEPOS suppliers. OIG noted a number of alleged deficiencies in CMS' handling of the surety bond requirement and ultimately recommended that CMS immediately begin making claims against the surety bonds to recover outstanding Medicare debt. From recent contractor activity, it appears CMS is implementing this recommendation through its contractors.

Contractor claims against DMEPOS supplier surety bonds are subject to rules set forth in the PIM. Chapter 15, § sets forth the procedures involved in making such a claim. Specifically, with respect to overpayments tied to claims denials, after 101 days have passed from the date of the initial demand letter without any repayment, the contractors are authorized to contact the surety for payment.13

The manual guidance does not mention allowances to be made when a claim is subject to an ongoing appeal or how to address any limitations on recoupment that may be in place as a result of the appeals process. By failing to take such circumstances into consideration, the guidance on claims against surety bonds improperly treats all overpayments as final, even those currently being challenged. At the redetermination and reconsideration appeal stages, treating the overpayment determination as final and requiring full repayment also sidesteps the limit on recoupment-a common theme among recent CMS actions impacting O&P providers and suppliers.14 This constitutes an improper "end run" to payment.

The PIM also indicates that a claim against the surety bond is to be initiated only when "full or partial payment has not been received...."15 This statement implies that, if at least some payment on the overpayment amount has been made (i.e., partial payment), then the contractor may not make a claim against the surety bond. However, at least one contractor has issued a demand for payment from a surety where the DMEPOS supplier already made substantial repayment of the alleged overpayment amount.16

Conclusions and Observations

The heightened level of CMS activity in the area of O&P continues unabated. At the same time CMS appears to be offering more reasonable treatment of O&P practices such as specific limits on O&P ADRs, it continues to implement ever-more stringent rules that are having the cumulative effect of seriously challenging the viability of legitimate O&P practices. In the end, documentation of claims will improve as providers and suppliers of O&P services pay greater attention to technical billing and documentation rules, but there is little doubt that at some point CMS' activities in this area will eventually impact patient access to quality O&P care.

Peter W. Thomas, JD, is general counsel to the National Association for the Advancement of Orthotics & Prosthetics (NAAOP), and principal with the law firm of Powers Pyles Sutter & Verville, Washington DC. He is a registered lobbyist at the federal level and has been a bilateral transtibial amputee since age ten. For more information, visit or e-mail . Christina Hughes, JD, MPH, is an associate with Powers Pyles Sutter & Verville, where she focuses on assisting healthcare organizations in complying with the federal Medicare and Medicaid programs.


  1. 73 Fed. Reg. 69,940 (Nov. 19, 2008).
  2. See 42 U.S.C. § 1395ddd(f)(2)(A); see also 42 C.F.R. § 405.379; Medicare Financial Management Manual, CMS Pub. 100-06, ch. 3, § 200 et seq.
  3. 78 Fed. Reg. 25,013, 25,020 (Apr. 29, 2013).
  4. 78 Fed. Reg. at 25,033.
  5. 78 Fed. Reg. at 25,022.
  6. 42 C.F.R. § 424.57(d).
  7. 42 C.F.R. § 424.57(d)(5)(i).
  8. Id.
  9. 42 C.F.R. § 424.57(d)(6).
  10. 42 C.F.R. § 424.57(d)(15)(i)(C)-(D).
  11. 42 C.F.R. § 424.57(d)(15)(i)(B).
  12. 74 Fed. Reg. 166, 177 (Jan. 2, 2009).
  13. See Program Integrity Manual, CMS Pub. 100-08, ch. 15, §
  14. See 42 U.S.C. § 1395ddd(f)(2)(A); see also 42 C.F.R. § 405.379; Medicare Financial Management Manual, CMS Pub. 100-06, ch. 3, § 200 et seq.
  15. See Program Integrity Manual, CMS Pub. 100-08, ch. 15, § (emphasis added).
  16. The claim was also the subject of an ongoing administrative appeal.