Objectives

To determine whether Medicaid managed care organizations inappropriately paid for durable medical equipment beyond allowed rental limits, and whether the Medicaid program could achieve cost savings by implementation of a rental cap on oxygen equipment. The audit covered the period from July 2016 to December 2021 for non-oxygen-related durable medical equipment rentals and September 2018 to December 2021 for oxygen-related durable medical equipment rentals.

About the Program

The Department of Health (Department) administers the State’s Medicaid program. The Department uses two methods to pay for Medicaid services: fee-for-service (FFS) and managed care. Under the FFS method, the Department pays health care providers directly for services rendered to Medicaid recipients. Under managed care, the Department pays managed care organizations (MCOs) a monthly premium for each enrolled recipient and, in turn, the MCOs arrange for the provision of health care services that Medicaid recipients require and reimburse providers for those services.

Medicaid recipients receive necessary durable medical equipment (DME) as a benefit of the program. DME includes devices or equipment, such as wheelchairs or oxygen equipment, that can withstand repeated use and have been ordered by a practitioner in the treatment of a specific medical condition. Certain DME items are available to Medicaid recipients on a monthly rental basis, subject to certain limits (or caps). A special category of DME – oxygen equipment – is only available for rental and generally has no limit on the number of rental payments allowed. By comparison, under Medicare, oxygen equipment rentals are subject to a 36-month limit.

Key Findings

We identified overpayments totaling nearly $1.5 million for managed care DME rentals that exceeded MCOs’ established monthly rental caps. For example, one MCO established a 10-month rental cap on apnea monitors, yet for one recipient the MCO paid $10,450 on 64 extra rental payments for a monitor beyond the 10-month cap. Furthermore, we estimated potential cost avoidance for the Medicaid FFS and managed care program of $8.6 million if the Department had adopted a similar policy to Medicare’s 36-month cap on oxygen equipment rental payments.

Key Recommendations

• Review the identified overpayments and ensure appropriate recoveries are made.
• Advise MCOs to evaluate the feasibility of developing controls to identify and prevent DME overpayments.
• Formally assess Medicaid FFS and managed care policies regarding uncapped continuous rental payments for oxygen equipment to determine whether changes are necessary.