Fleecing Medicare: A Case Study

Here's a recipe for easy cash in tough times: Make a piece of medical equipment for $3,600 and sell it to Medicare patients for nearly five times as much.

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In troubled economic times, every case of financial abuse is painful. A report today from the Federal Office of Inspector General finds massive overpayments on the part of the federal Medicare program. Those payments are going to distributers of a medical pump that helps wounds heal. NPR's Patti Neighmond reports.

PATTI NEIGHMOND: It's called VAC for short. The doctor squirts a foam dressing over the wound, covers it and then uses the VAC, a little portable, wearable vacuum cleaner, to gently suck moisture out of the wound to keep it clean and help healthy tissue grow.

A nurse or a doctor attaches the pump to the patient, who wears it, sort of like an exercise belt, for several days at a time. Dr. David Armstrong is a specialist in diabetes at the University of Arizona College of Medicine. Armstrong says the pump treats hard-to-heal wounds like bedsores or ulcers caused by diabetes or compound fractures of an arm or a leg.

Dr. DAVID ARMSTRONG (Diabetes Specialist, University of Arizona College of Medicine): This foam that is put into place over the wound essentially interacts with the wound itself, and by stretching it, probably causes some small blood vessel formation and helps to fill in a wound rapidly where there was often a very big defect.

NEIGHMOND: For complicated wounds that just don't heal, Armstrong says this pump system can be revolutionary in helping patients get back on their feet.

Dr. ARMSTRONG: And it makes, in a nutshell, often very complicated wounds more simple.

NEIGHMOND: But is it worth the $17,000 per pump that Medicare pays? That's what some Medicare officials started to wonder as they analyzed what they were paying.

The contacted the Office of Inspector General. OIG official Jodie Noodleman(ph) decided to investigate.

Ms. JODIE NOODLEMAN (Official, Office of Inspector General) Between 2001 and 2007, there's been a 583-percent increase in the payments. So that alerted us to look into the payments and prices in more depth.

NEIGHMOND: It turned out that over the last several years, more companies were making the pump and selling it for a lot less than $17,000. When medical supply companies noticed the big price drops, they saw an opportunity to make a lot of money.

They started buying pumps themselves and selling them to patients, who passed most of the cost on to Medicare.

Ms. NOODLEMAN: We specifically found that suppliers paid an average of $3,600 for new pumps. Medicare pays about $17,000 for these pumps. So as you can see, Medicare's purchase price is more than four times the average price paid by the suppliers for the new pump models.

NEIGHMOND: Kip Piper is a health-care consultant who's worked with Medicare. He says overpayments like this are not unusual. Five years ago, for example, health inspectors discovered Medicare was overpaying for power wheelchairs.

Mr. KIP PIPER (Health-care Consultant): In the world of durable medical equipment, there are literally thousands of variations: new products, existing products, different vendors, suppliers, manufacturers, all with different prices.

The Medicare program and its contractors need to keep up with all of that, and that's very, very difficult.

NEIGHMOND: A new law, scheduled to take effect later this year, will more closely scrutinize distributors of medical equipment. There are also incentives to increase competition, although they won't apply to this pump. And Piper points out that the federal agency that runs Medicare is still understaffed, particularly considering all the regulation and oversight it needs to do. Patti Neighmond, NPR News.

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