Knowledge Base Article

It is officially winter in North America, although the temperatures here in the South last week were in the mid-70’s. But we were glad to see winter come this year because it finally brought the rains to provide some relief from a devastating drought. The drought affected crops, resulted in mandatory limits on water usage, dried up small lakes, and allowed numerous wildfires throughout the region. Firefighters struggled to keep the blazes under control. There always seems to be that one hot spot that won’t go away. It continually smokes and burst into flames again and again. Issues within the OIG hospital compliance audits are often the same – they just won’t go away, reappearing again and again. One such issue is the lack of appropriate reporting of manufacturer device credits.

This is the topic we want to focus on this month for our Medicare medical review article. You can find a list of the latest medical review topics for the Medicare Administrative Contractors (MACs) at the end of this article.

In November 2016, the Office of Inspector General (OIG) released a new report concerning device credit reporting for cochlear implants.   The OIG review looked at 78 hospitals and focused solely on outpatient cochlear implant claims (149 claims). The review identified 116 incorrectly billed claims resulting in over $2 million in overpayments. The issue of failure to correctly report device credits appears in almost all of the OIG’s hospital compliance reviews. In each report, the number of erroneous claims is small (usually 1-7 each for outpatient and inpatient) and the dollar amounts are modest. But since this issue appears repeatedly and often, over time the numbers and dollars add up.

This cochlear implant review was different than usual, since the OIG has previously focused on credits for defective cardiac devices. This is a reminder that the policy for reporting device credits applies to all devices whose cost exceeds 40% of the payment amount for the procedure (devise-intensive procedures). Determining which devices require credit reporting is one step in the extremely complex process of appropriately reporting manufacturer device credits. Challenges for an error-proof process include:

• Knowing which devices are part of the policy, as stated above;
• Identifying patients having a devise-intensive procedure that are receiving a no-cost or discounted device;
• Determining when a device credit is due from the manufacturer, even when not offered (prudent-buyer principle); and
• Getting the correct reporting information on the claim.

As if the process wasn’t complex enough, it is further complicated by changes in the rules and requirements from CMS. The policy has been in place since 2007 and for that year applied only to no-cost or full-credit devices for specified device-dependent APCs. In 2008, the policy was expanded to include partial-credit devices where hospitals receive partial credit of 50 percent or more of the cost of a specified device. Originally, outpatient device credits were reported for no-cost/full-credit devices with modifier FB on the procedure line and modifier FC on the procedure line for partial credit devices. In January 2014, the FB and FC modifiers were deleted and credits were reported with value code FD, the exact amount of the credit, and condition codes that describe the reason for the credit (49 – early replacement, 50 – device recall, and 53 – initial free device).

CMS used to publish a list of the affected devices each year in the OPPS Final Rule. Beginning in 2016, CMS discontinued the device list and providers had to apply the APC payment adjustment to all replaced devices furnished in conjunction with a procedure assigned to a device-intensive APC when the hospital receives a credit for a replaced specified device that is 50 percent or greater than the cost of the device. For 2017, CMS is applying the 40% threshold at the HCPCS level instead of the APC level.

With all of these changes, what are the device-credit rules for 2017?

• The policy applies to device-intensive procedures that
• require the implantation of a device that remains in patient after the conclusion of the procedure and
• have an individual HCPCS code-level device offset of greater than 40 percent, regardless of the APC assignment.

Addendum P of the OPPS Final Rule is a list of the device-intensive procedures. (Select 2017 Final Rule OPPS Addenda in the Related Links section on this webpage.) The lists contains 213 procedures including procedures involving such devices as pacemakers, AICDs, neurostimulators, prostheses, intraocular lens, GI stents, cochlear devices, and more.

• Hospitals continue to report on the claim the credit amount with value code “FD” when the hospital receives a credit for a replaced device that is 50 percent or greater than the cost of the device. The hospital also reports the applicable condition code. (see the Medicare Claims Processing Manual Chapter 4, section 61.3.5 for outpatient instructions and Chapter 3, section 100.8 for inpatient instructions. )
• Medicare payment for inpatient and outpatient claims is reduced by the amount of the device credit reported with value code “FD” but is limited to the device offset amount for outpatient procedures.
• For inpatients, the policy only applies to certain MS-DRGs. See Transmittal 1494 for the latest updated list.

In order to have an effective device credit reporting policy, hospitals must know the most current rules and have a process in place to identify when and how to report device credits. This is no easy task, but you must try … again and again.