A Key Question About the OIG’s Audit of Medical Device Warranty Credits

Written by: Alan J. Branderabrander@spendmend.com 

Last week we ran a webinar in cooperation with our new partner, the Center for Improvement in Healthcare Quality (CIHQ).  The topic was centered around what can hospitals expect from the Office of Inspector General’s (OIG) extensive, country-wide audit of the Center for Medicare and Medicaid’s (CMS) Medical Device Warranty credit standard.  Our speakers included Traci Curtis of CIHQ,  Jennifer Penn of Providence Health Systems and myself, the author of this blog.

The event was well-attended by over 120 live viewers and after the presentation we opened the chat box for audience questions.  We received a fairly high number of thoughtful questions related to the topic, but what got our attention was that one single question was asked in different ways by about 15 different people.  It’s rare that over 10% of a webinar audience would ask the same question so we thought there must be something to this.  I am rephrasing the question today in this blog and I’ll offer an answer for any of our readers that might have the same question.

QUESTION:  What do you recommend as a hospital’s first step to determine that they are managing their medical device warranty tracking correctly and how can they determine that they’re in (or out of) compliance with the CMS’s requirements?

So… this is a great question and after working with about 100 different IDN’s on this exact project, my strong recommendation is that your first step should be a mock OIG audit.  I recommend that you take this measure to fully inspect how your procedures and processes are working.  This can be a complicated process and could require a considerable amount of staff time and attention to complete.  While I always encourage a hospital to develop its own in-house compliance monitoring. I understand (from my experience as a CNO and a head of O.R.) that few hospitals have free resources lying around to complete this initial assessment task.  To this end, SpendMend can help with this assessment at a little to no cost.  I’ll describe the procedure from our perspective.  While it is labor intensive and requires help from multiple sources – it will reveal  If your hospital is a risk and the steps are shockingly simple.

Author’s Note: If you are interested to learn about how you could do this internally with your own resources, I am happy to have that conversation with you as well.  Feel free to reach out on the topic any time.

When SpendMend is working with a hospital on an Mock OIG audit survey we first like to download all of the hospital’s explant procedures out of their electronic health record for the time we are reviewing.  SpendMend typically reviews 4 years the OIG may look back as far as 6 Years. We will then take that information and reach out the hospital’s vendors.  On the surface this can seem like a daunting task to solicit information from such a vast population of decentralized companies, but we use our experience as well as a well-developed contact library to ensure 100% compliance from targeted vendors.  Based on our communication with the vendors we will request two separate lists:

  1. A list containing information on every device that was sent to replace an- explanted device
  2. A second containing an accounting of every warranty credit that they have issued the hospital for any failed or recalled implanted medical device.

The hospital and vendor data are then compared, scrubbed and analyzed by our specialized audit team.  The results are then compared to our industry data base of manufactures warranties.

From this point, we will work with the hospital’s patient billing department to review of the UB-04’s for every one of those cases. The final report will provide a detailed list of cases where you should have either received a credit and did not or where you did not receive a credit.  If you did not receive a warranty credit, we will work on your behalf to secure monies owed you by the vendor. If the hospital did receive credit, we will apply CMS’s 50% rule which requires the hospital to return any credits they receive where the amount is greater > 50% of the device cost. The hospital is legally responsible to return those monies to the payor of the original procedure. Credits below this threshold may be kept by the hospital. Once we do that, we will be able to tell you exactly what your risk is, we can estimate what your potential fines could be and how much money you owe back to the CMS. Running a proactive review enables the hospital to self-report the findings and payments due to the CMS which is always better than the OIG finding it through an official audit.  Typically, the fines and penalties will always be higher if the OIG comes into an environment and discovers the hospital’s mismanagement of warranty credits with no evidence that hospital has taken their own measure to fix the problem on their own and those results are always reported and find there way to the local media.

Like I said, it’s a simple process but can be very labor intensive but we’ve gotten very good at it and have a team of industry experts who do this daily.  In most cases we charge little to nothing to perform the review and our hospital clients gain an invaluable insight into their procedures that could mean the difference between millions of dollars in fines.