Knowledge Base Article

A Medicare patient presents to your hospital to have her pacemaker replaced. Is your hospital due a manufacturer’s credit because the pacemaker is still under warranty, is being recalled, or has malfunctioned? How do you know? If a credit is due, did you receive it? And if you received the credit, did you pass the appropriate information on to Medicare by including the correct modifiers and/or codes on the claim? Understanding and implementing the rules on credits for replaced devices is important in order to receive correct payment and to prevent non-compliance.

The Office of Inspector General (OIG) continues with their compliance reviews of hospitals which look at a number of high-risk issues that the OIG has previously identified. One issue that affects both inpatient and outpatient billing and appears on almost every OIG compliance audit is “manufacturer credits for replaced medical devices not reported.” For example, in four compliance audits published in September, overpayments for manufacturer credits not reported totaled almost $350,000.

Federal regulations require reductions in the inpatient (IPPS) or outpatient (OPPS) payment for the replacement of an implanted device if

1. the device is replaced without cost to the provider or the beneficiary,
2. the provider receives full credit for the device cost, or
3. the provider receives partial credit equal to or greater than 50 percent of the cost of the replacement device.

The biggest challenge for hospitals is not the billing instructions (explained below), but internal policies and processes to identify, obtain, and properly report credits from medical device manufacturers. Within the hospital, this will require coordination and communication between the hospital purchasing department, the product manufacturer, the department performing the procedure (usually cardiology or surgery), patient accounts, and possibly the physician performing the procedure.

Making this even more difficult is the government’s expectation that not only will hospitals correctly report credits they have received, but also that they be aware of when they are due a credit. The Medicare Provider Reimbursement Manual states that Medicare providers are expected to pursue free replacements or reduced charges under warranties for medical devices. The OIG discusses this in their reports as the “prudent buyer principle.”

A recent FDA rule may make the process easier for hospitals to track devices. On September 25, 2013, the FDA finalized a rule that requires most medical devices to have a “unique device identifier” (UDI). This will allow devices to be tracked from the manufacturer to the seller to the buyer to the patient. This new identifier may assist hospitals in tracking credits received and credits due them.

The instructions for reporting device credits on the Medicare claim are found in the Medicare Claims Processing manual: Chapter 3, section 100.8 for inpatient claims and Chapter 4, section 61.3 for outpatient claims.

Inpatient Claims

The important things to remember for inpatient billing regarding device credits include:

• Report condition code 49 or 50 -
• 49 Product Replacement within Product Lifecycle—Replacement of a product earlier than the anticipated lifecycle due to an indication that the product is not functioning properly.
• 50 Product Replacement for Known Recall of a Product—Manufacturer or FDA has identified the product for recall and therefore replacement.

• Report value code FD with the amount of the credit, or cost reduction, received by the hospital for the replaced device. Medicare deducts this amount from the final IPPS payment.
• Inpatient device credits only apply to specific MS-DRGs defined by Medicare. A list of the applicable DRGs can be found in MLN Matters Article MM7457.

Outpatient Claims

Outpatient claims must include:

• Modifier FB when the hospital receives a device at no cost or with full credit -
• If the replacement device costs the same or less than the device being replaced, the hospital would report a charge of less $1.01 for the replacement device.
• If the replacement device costs more than the credit for the device being replaced, the hospital would report a device charge of the difference between its usual charges for the replacement device and the device being replaced.
• Modifier FC when the hospital receives a partial credit of 50 percent or more of the cost of a new replacement device due to warranty, recall, or field action.
• Modifiers FB and FC are applied to the procedure code (not the device code)
• Medicare payment is reduced by the full offset payment amount for modifier FB and partial offset amount for modifier FC.
• Outpatient device credits only apply to specific APCs defined by Medicare. The list of applicable APCs can be found at the Hospital OPPS webpage.

MMP encourages hospitals to make sure they have sufficient systems in place to identify manufacture credits for replaced devices they are due or have received, and to perform correct billing to report these credits. Remember, the OIG is watching!