Procurement officials lacked knowledge of Medicare coding process; failed to negotiate discounts.
The Department of Veterans Affairs Office of Audits and Evaluations
recently issued an audit report from the Office of Inspector General that
showed the Veterans Health Administration overpaid for veterans’
prosthetic limbs in 2010.
According to the audit, the Department of Veterns Affairs (VA) spent
$53.7 million on prosthetic limbs in fiscal year 2010. In that year, contract
vendors provided 4,000 prosthetic limbs, at a cost of $49.3 million, and VHA
prosthetic labs fabricated almost 1,500 prosthetic limbs for $4.4 million.
The average cost for limbs purchased from contract vendors was
approximately $12,000, while the average cost for VHA-fabricated limbs was about
The Veterns Health Administation (VHA) examined data from 3,933 payments
made to vendors and revealed that 915 (23%) included overpayments totalling
about $2.2 million, or 4% of the $49.3 million paid to vendors.
The VHA does not have a national contract for procuring prosthetic
limbs; rather, 21 Veterans Integrated Service Networks (VISN) procure
prosthetic limbs from local vendors who must meet certain criteria, including
offering a discount on Medicare prices and ensuring that practitioners who work
with veterans are certified by the American Board for Certification in
Orthotics, Prostheticcs & Pedorthics or the Board for Orthotist/Prosthetist
According to VISN prosthetics officials, prosthetic purchasing agents
(PPAs) are responsible for important aspects of the acquisition of prosethetic
limbs. However, the audit suggested the “responsibility for ensuring
compliance with vendor contract terms and payment processing should be
separated to ensure proper segregation of duties between ordering, reviewing
invoices, and making payments.”
The audit also found that contracting officer’s technical
representatives did not always ensure that vendor invoices accurately
documented the work completed.
Previous to this audit, Prosthetics and Sensory Aids Service (PSAS)
officials assessed quote reviews from VISNs. According to these officials, PPAs
did not know proper Medicare coding so they could not red flag vendors who
added inappropriate codes to limb quotes or overcharged for limbs. PSAS
subsequently issued guidance requiring certified prosthetists to review vendor
quotes to ensure compliance with prescriptions and proper use of Medicare
codes; however, the guidance did not address what actions local staff should
enact to avoid the problem. The current audit will give certified prosthetists
new breadth in their oversight of contracts and proper coding.
The audit also found in many instances in which VISN contracting
officers did not negotiate better discount rates with vendors and in some cases
lacked specific pricing guidance from the Procurement and Logistic Office
(P&LO) and PSAS.
Negotiating with vendors for lower prices is required by the Federal
Acquisition Regulation. Vendors are required to provide prosthetic limb items
at a discount, amounting to the best percent discount they can offer, to prices
established by Medicare.
At three of four VISNs the auditors visited, P&LO contracting
officers did not negotiate with vendors to receive a more favorable price. In
one example, one VISN did not negotiate discount rates with all 36 of its
vendors and received an average discount of only 8%. The audit estimated that
the VISN could have saved $58,000 by negotiating a minimum discount of 10%. By
establishing more favorable discounts, the VHA could have received better value
for the $49.3 million it paid to contract vendors in 2010.
The audit also stressed the need for more guidance regarding the use of
prosthetic limbs that have not been priced by Medicare. The VA uses NOC codes
(Not Otherwise Classified) to classify these items, as it may take years for
Medicare to properly price and code newer technology. Current prosthetic limb
contract guidance does not state how to price items that have not been coded
and priced by Medicare.
The audit demonstrated that VISN needs to develop comprehensive
negotiation and pricing guidance to ensure that vendors are providing the VA
with better value, and that VISN staff can determine a reasonable price for
items not priced by Medicare.
The OAE and VHA created an action plan regarding acquisition and cost
controls of prosthetic limbs. Under these recommendations, the Under Secretary
of Health should:
- Strengthen controls over the process for reviewing vendor quotes,
purchase orders and verification of invoices and costs charged by prosthetic
- Improve the guidance issued to certified prosthetists fore their
review of vendor quotes
- Establish collection actions to recover funds overpaid to vendors
- Establish a mechanism to ensure procurement and logistics office
contracting officers conduct price negotiations with prosthetic limb vendors to
obtain the best value of prosthetic limb items
- Establish reasonable pricing standards for prosthetic limb items
that Medicare has yet to classify
- Identify and assess the adequacy of VA’s in-house fabrication
capabilities for prosthetic limbs
- Implement procedures to ensure VISNs identify an appropriate number
of contract vendors needed to provide veterans with prosthetic limbs.
- Ensure procurement and logistics office contracting officers
document their electronic contract files for VISN prosthetic limb contracts.
According to the report, if the VHA does not strengthen its controls,
the agency could continue to overpay approximately $8.6 million over the next 4
years. — by Carey Cowles
For more information:
VA Office of Inspector General, Office of Audits and Evaluations.
Veterans Health Administration. Audit of the Management and Acquisition of
Prosthetic Limbs. March 8, 2012.