The $16,100 Markup: How a Coding Loophole Overpaid Prosthetic Vendors $7.7 Million

Prosthetists billed high-tech limbs under “not otherwise classified” codes with no set rates — one i-Limb billed at up to $61,702 against a $27,000 correct code — under guidance the OIG traced to a single program director, over his own committee’s objections.

Prosthetic limbs are billed under specific CMS "L codes" with established rates — except items coded "not otherwise classified" (NOC), which are reimbursed with no pre-set rate. Two anonymous allegations said VHA was overpaying through that loophole. The OIG substantiated both.

Prosthetists used NOC codes for items — Ottobock microprocessor knees, the Touch Bionics i-Limb — that specific L codes adequately described. One i-Limb that cost about $27,000 under the correct code was billed at $31,604 to $61,702 under an NOC code. The misuse of NOC codes for the Ottobock knees traced to incorrect guidance from the former National Program Director for Prosthetic and Orthotic Clinical Service, issued over the objections of the L Code Committee, and oversight failures let it stand.

Pricing guidance compounded it: a cost-plus-$16,100 markup and an across-the-board 50 percent markup the OIG found excessive and unsupported. Total: about $7.7 million overpaid, classified as an improper payment. VHA’s Executive in Charge concurred with all five recommendations. The prosthetics system is the same one that approved a power chair for a dying sailor and never delivered it — his story is here.

"VHA overpaid vendors about $7.7 million from October 2014 through July 2017"
— VA OIG

Source: VA OIG — Use of Not Otherwise Classified Codes for Prosthetic Limb Components. Part of the VA Fraud library — see also the case files for the prosecutions these systems produced.