Health Law Daily Wrap Up, DURABLE MEDICAL EQUIPMENT—OIG REPORTS: OIG finds Medicare improperly paid suppliers for inpatient DMEPOS worth $22.7 million, (Oct 31, 2025)
Organizations Mentioned:Office of Audit Services
By Justin Marcus Smith, J.D.
The OIG report footnoted that only two percent of the associated overpayments have been recovered so far, where the recovery contractor had only sampled a five percent subset of the situations OIG identified.
The Office of Audit Services (OAS) of the Department of Health and Human Services Office of Inspector General (OIG) published the results of a new audit that found Medicare improperly paid $22.7 million for about 114 thousand DMEPOS (durable medical equipment, prosthetics, orthotics, and supplies) items provided to Medicare enrollees during inpatient stays. The audit period spanned the seven years from January 1, 2018 through December 31, 2024 (OIG Report, No. OAS-24-09-005 (Oct. 28. 2025)).
Inpatient stays. Generally, Medicare Part B should not pay for DMEPOS items provided to enrollees during an inpatient stay. Part B coverage is limited under the DME benefit to items furnished for use in an enrollee’s home. Medicare expects inpatient facilities to provide all inpatient DMEPOS directly or through a facility supplier. The supplier can look to the inpatient facility for payment for items provided to enrollee inpatients. Medicare Part A may ultimately cover inpatient services, including DMEPOS items provided to inpatients. A key point here is that Medicare does not pay any supplier other than the inpatient hospital for services and DMEPOS provided to inpatient enrollees.
Prior audit. The OIG said it conducted this audit because an earlier OIG audit found Medicare improperly paid suppliers $34 million for DMEPOS provided to enrollees during inpatient stays from 2015 through 2017. The OIG said the claims processing system edits that should have prevented or detected overpayments were inadequate.
Claims processing. Two DME Medicare Administrative Contractors (MACs) are responsible for processing DMEPOS claims for two jurisdictions each, four jurisdictions in total. DMEPOS suppliers must submit claims to the DME MAC that services the state or territory where the pertinent Medicare enrollee permanently resides.
The OIG report described how all DMEPOS claims go to the CMS Common Working File (CWF) for verification, validation, and payment authorization. CWF edits are designed to prevent or detect overpayments for DMEPOS items provided during inpatient stays. After the CWF has processed claim, it electronically transmits information to the DME MAC about potential errors. The DME MAC is then responsible for recovering overpayment.
System edits. After CMS modified malfunctioning system edits in January 2020, improper payments did substantially decrease relative to what was going on during the prior audit period. The OIG said it thought the continuation of improper payments suggested CMS should take another look at the system edits, but CMS disagreed. CMS explained it could not find systemic errors after it applied the 2020 system edits.
Before January 2020, the CWF edits were not working properly. That resulted in $18.2 million in improper payments for the period from January 2018 through December 2019, or about 80% of the total $22.7 million in overpayments for the full 7-year audit period through the end of 2024.
Findings. The OIG said that none of the $22.7 million in payments for 114,323 DMEPOS items reviewed in the audit should have been paid. Suppliers should not have billed separately because the DMEPOS items were provided to enrollees during their inpatient stays. In addition, the suppliers may have incorrectly collected up to $5.9 million in deductible and coinsurance amounts from 51,747 enrollees. About half of the improper payments were for artificial limbs, urinary catheters, and other prosthetics and orthotics.
Recommendations. The OIG made five recommendations:
CMS should direct the DME Medicare contractors to recover the $22.7 million in identified improper payments;
Suppliers should refund enrollees up to $5.9 million in related deductible and coinsurance amounts;
CMS should instruct DME MACs to notify suppliers that received an overpayment and urge them to conduct internal audits or investigations and identify and return any similar overpayments;
CMS should look for potential DMEPOS overpayments after the audit period and direct DME MACS to recover them;
CMS should review system edits to determine whether further refinements are necessary to prevent improper payments for DMEPOS items provided to enrollees during inpatient stays.
CMS concurred with recommendations 1 through 4, but it did not concur with recommendation 5 to review system edits. CMS explained that the January 2020 CWF edits significantly reduced improper payments, and after making those edits, it could not find a systemic cause for error in a review of sample claims the OIG identified.
The OIG maintained that recommendation 5 is valid. The OIG said CMS should conduct a review of the complete list of claims to identify whether there are systemic issues. The Recovery Audit Contractor (RAC) also selected only 5 percent of the claims the OIG identified in the audit period for review. Consequently, the RAC has recovered only 2 percent of the associate overpayments so far.
On recommendation 2, CMS clarified that the recovery process notifies suppliers of associated deductible and coinsurance amounts so they can refund incorrectly collected amounts.
On recommendation 4, CMS said the Recovery Audit Contractor (RAC) approved an automated postpayment review that, in RAC parlance, “unbundles” DMEPOS provided during an inpatient stay.
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