FWA Insights: Identifying a DME dropshipping scheme

Inappropriate billing for durable medical equipment (DME) continues to be among the most prevalent fraud, waste, and abuse (FWA) schemes in healthcare, with the Department of Justice regularly announcing new indictments for DME-related cases that aim to defraud both public and private payers. In one recent case, Cotiviti’s special investigations unit (SIU) identified a licensed DME provider that was not manufacturing its own equipment in many cases, but rather having it dropshipped from a large online retailer directly to the patient, then billing the health plan at a heavily marked-up rate. 

Through data analysis, peer comparisons, and documentation requests, Cotiviti’s credentialed investigators were able to identify these inappropriate claims—and put a stop to future problematic billing to prevent more overpayments.

Identifying problematic DME billing

In reviewing a licensed DME company’s 12-month billing history for a health plan client, Cotiviti’s SIU identified several potentially problematic areas that warranted further investigation:

• The provider submitted claims for expensive orthotic devices at a higher frequency than other DME services.
• The provider was billing for nebulizers and nebulizer supplies without an appropriate diagnosis.
• The provider billed alginate dressings on a high percentage of the patient population and at a high number of units per patient.

Cotiviti’s investigators then performed peer comparisons with other DME providers, identifying the suspect company as an outlier for these procedure codes.

Implementing prepay review and requesting documentation

While the investigation continued, Cotiviti placed the provider on prepay review for several procedure codes, including A4216 (sterile water, saline, or other drug diluent); A6196, A6197, A6198, and A6199 (alginate or other fiber gelling dressings); and L4361 (walking boot). Over nine months, Cotiviti reviewed approximately 130 claim lines, with the provider failing to produce documentation for 38% of these lines.

Overall, nearly 80% of reviewed claim lines resulted in denials due to documentation issues, including:

• Not meeting the requirements per the surgical dressing benefit policy
• Insufficient clinical documentation to support the patient’s condition
• Not meeting the policy refill requirements
• The written prescription not supporting the units billed
• Incorrect HCPCS code billed (documentation did not support the dressing size)
• Insufficient clinical documentation to support the requirements of the local coverage determination (LCD)
• Documentation provided did not include proof of delivery

Finally, investigators found the provider was submitting receipts for DME from a major online retailer along with its claims, but billing the health plan nearly 70% more than the original purchase price. In total, these findings resulted in more than $11,000 in future inappropriate payments being prevented, while the case was referred back to the plan to perform provider education.

Key takeaways for health plans

With due diligence, health plans can protect their members by helping to ensure they are being prescribed DME appropriately. Here are several key considerations to keep in mind:

• Review specific health plan and Centers for Medicare & Medicaid Services (CMS) guidelines for the required documentation to support the DME services billed.
• Review DME provider billing to identify outlier providers, supplies without an appropriate diagnosis, and excessive units per patient. 
• Review the different requirements for standard equipment versus custom equipment. Ensure when custom DME is billed, appropriate protocol is followed and standard items are not dropshipped in place of custom-billed items.
• Review medical records and place providers on prepay review to find and stop future inappropriate billing behavior.