Device Recalls and Reporting Device Credits

on Wednesday, 28 March 2018. All News Items | Billing

Failures Big and Small

In recent news, a pedestrian bridge under construction on the Florida International University campus collapsed killing 6 people and injuring many others - a terrible tragedy and an engineering failure. Humans are fallible, and objects built by man, big or small, are subject to failure. Sadly, medical devices that save millions of lives are not exempt from the propensity to fail.  In February, Medtronic issued a recall for Cardiac Resynchronization Therapy with Defibrillation (CRT-Ds) and Implantable Cardiovert-Defibrillators (ICDs). The Federal Drug Administration (FDA) identified this as a Class I recall, with the potential to cause serious injuries or death. According to the FDA Recall information “a defect in the manufacturing process … may prevent the device from delivering the electrical shock needed to pace a patient’s heartbeat or revive a patient in cardiac arrest. The delay or inability to deliver a shock to a patient in cardiac arrest or pace a patient’s heart whose heartbeat is too slow could result in serious injury and/or death.” This is a scary life-threatening prospect for patients with one of these devices and replacements will be occurring fast and furious.

Though not nearly as concerning as a fatal heart attack, providers must be concerned with the correct reporting to Medicare of the replacement of these devices for their Medicare patients. Reporting of device credits is an area historically fraught with errors. Almost every Office of Inspector General (OIG) Hospital Compliance Review includes a few inpatient and/or outpatient errors associated with device credit reporting.  This trend continued when a September 2017 OIG report identified that Medicare paid for many device replacement procedures incorrectly. And more recently, a March 2018 OIG Report found that “All 296 payments reviewed for recalled cardiac medical devices did not comply with Medicare requirements for reporting manufacturer credits. Medicare contractors incorrectly paid hospitals $7.7 million for cardiac device replacement claims rather than the $3.3 million they should have been paid, resulting in potential overpayments of $4.4 million.”

Why so many errors? The process of identifying patients receiving applicable no-cost or reduced-cost devices, knowing when credits are received or should be received, the amount of such credits, and coordination between various departments to get this information onto the Medicare claim can be daunting. The OIG states that along with lack of hospital policies, procedures and controls, the need to involve various hospital departments and personnel contributes to the lack of identification, tracking, and reporting of these credits on Medicare claims. The March 2018 OIG report identifies the hospital challenges and discusses them in detail. Here are some of the OIG comments, but I encourage providers to read the entire report as the OIG offers specific suggestions, such as holding claims or submitting adjustment claims when it is not known if a credit will be received for a replacement device.

“Different hospital personnel are responsible for contacting the manufacturer, tracking the availability of the credit, and determining whether an adjustment claim needs to be submitted to pass along the credit to Medicare. …Furthermore, hospital staff submitting Medicare claims must

be aware of credits that are at least 50 percent of the price the facility paid for the replacement device, and staff must report the credit as a deduction on a submitted claim. However, hospitals may not know whether they will receive a credit or how much that credit will be at the time of billing for the device replacement procedure. … Specifically, hospitals attributed their incorrect billings to inadequate policies and procedures for reporting manufacturer credits, lack of awareness of warranties and credit availability, and hospital misapplication of the credit amounts.”

Medicare’s device credit policy only applies to implantable, high-cost devices when the OPPS device off-set amount exceeds 40% of procedure payment and for inpatients, select DRGs. This includes, but is not limited to, devices such as cardiac pacemakers and defibrillators, neurostimulators, prostheses, and intraocular lens. For such devices, credit reporting is required when:

  • a hospital furnishes without cost an initial placement of a medical device as part of a clinical trial or a free sample medical device or
  • when a hospital furnishes a new replacement device due to warranty, recall, or field action
    • without cost or
    • with a credit of 50% or more of the cost of a new replacement from a manufacturer.

Hospitals must report on the Medicare claim

  • Value code “FD” (Credit Received from the Manufacturer for a Medical Device)
  • The amount of the device credit in the amount portion for value code FD, and
  • One of the following condition codes
    • 49 - Product Replacement within Product Lifecycle—Replacement of a product earlier than the anticipated lifecycle.
    • 50 - Product Replacement for Known Recall of a Product—Manufacturer or FDA has identified the product for recall and therefore replacement.
    • 53 - Initial placement of a medical device provided as part of a clinical trial or free sample—Code is for outpatient claims that have received a device credit upon initial medical device placement in a clinical trial or a free sample.

As complicated as it already is, it may get worse. CMS is concerned about the overall cost and health impact of recalled or prematurely failed medical devices. In the OIG September 2017 report, the OIG determined that Medicare costs related to the replacement of recalled or prematurely failed medical devices could not be identified and tracked using only claim data. They recommended a Device Identifier

(DI) be included on the next version of claim forms which is under consideration as a policy by CMS. The OIG maintains “that by including the DI on claim forms and expanding the use of condition codes, CMS could more effectively identify and track Medicare’s aggregate costs related to recalled or prematurely failed devices, reduce Medicare costs by identifying poorly performing devices more quickly, facilitate device recipients’ chances of receiving timely follow-up care, and protect beneficiaries from unnecessary costs.” It would be hard to argue this is not a good idea, but the additional paperwork burden would fall on hospitals submitting the claims. Hospitals who already are not getting the required reporting right.

It is also worth noting the different approach the OIG took for the March 2018 report referenced above.  For this audit, the OIG obtained a list of warranty credits that two device manufacturers issued to hospitals for five cardiac medical devices that had been recalled or had high failure rates. Auditing the at-risk claims identified based on the list, resulted in the OIG finding errors for all claims reviewed as noted above. Providers may want to follow the OIG’s lead and work with their vendors to obtain lists of credits issued. This could help in initial correct claim reporting and identifying prior reporting errors so a corrected adjustment claim could be submitted.

The best practice first step and necessary action is to bring key stakeholders together to consider all the different factors and develop a process together that includes policies, procedures, and controls. First you have to identify the involved departments and personnel – clinical departments of cardiology and surgery, materials management, accounts payable, billing, physicians who may implant such devices, compliance, and maybe others.

If your facility hasn’t already addressed this issue, it is good to do so now. As long as the OIG can identify over $4 million in overpayments, it is not going away.

Article by Debbie Rubio

Debbie Rubio, BS, MT (ASCP), is the Manager of Regulatory Affairs and Compliance at Medical Management Plus, Inc.  Debbie has over twenty-seven years of experience in healthcare including nine years as the Clinical Compliance Coordinator at a large multi-facility health system.  In her current position, Debbie monitors, interprets and communicates current and upcoming regulatory and compliance issues as they relate to specific entities concerning Medicare and other payers.  You may contact Debbie at This email address is being protected from spambots. You need JavaScript enabled to view it..

This material was compiled to share information.  MMP, Inc. is not offering legal advice.  Every reasonable effort has been taken to ensure the information is accurate and useful.

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