Use of Not Otherwise Classified Codes for Prosthetic Limb Components

The VA Office of Inspector General (OIG) substantiated allegations received in January and February 2016 alleging the Veterans Health Administration (VHA) was overpaying for prosthetic items because it incorrectly used Not Otherwise Classified (NOC) codes to classify the items for payment to vendors. Incorrectly using an NOC code can result in an overpayment because the payments are not based on pre-established reimbursement rates. For example, the Touch Bionics I-Limb, when classified with the correct code, costs VHA about $27,000. However, VHA paid vendors as much as $61,702 for the same item when classified using an NOC code. The OIG found that VHA overpaid vendors about $7.7 million from October 2014 through July 2017. The OIG found prosthetists incorrectly used NOC codes to classify prosthetic items when existing codes adequately described the items. Prosthetists incorrectly used NOC codes because they were either unaware of the existing codes or because they allowed vendors to classify the items with NOC codes. The incorrect use of NOC codes to classify some prosthetic items was not detected because the Prosthetic and Sensory Aids Service lacked a process to monitor the use of NOC codes. Because prosthetists incorrectly used NOC codes to classify prosthetic items for reimbursement, VHA paid more for the items. The OIG made five recommendations including determining which codes are appropriate to classify prosthetic items for reimbursement and issuing revised guidance, establishing an oversight and reporting structure that defines the roles and authorities to approve recommendations for the use of codes to classify specific prosthetic components, developing processes to monitor the use of NOC codes, and implementing processes to establish pricing guidance that ensures VA pays a fair price for items classified using an NOC code.