The Five Things You Need to Do To Prepare for an OIG Med Device Audit

Written By: Joe Heminger, SpendMend Marketing Manager

The Center for Medicare and Medicaid Services (CMS) in conjunction with the Office of Inspector General (OIG) have announced their intention to recoup over $1 Billion in improper payments. Your organization will likely fall within their scope of review.  It’s crucial that hospitals properly report warranty credits they receive from vendors for medical devices that fail or are recalled. Failure to comply could lead to significant bottom line loss from OIG fines, penalties, and even potential jail time for hospital executives for Medicare Fraud.

Recently, SpendMend’s own, Al Brander, wrote an article titled “Department of Health and Human Services-Office Inspector General Released a New Report on Hospital Compliance for Reporting Cardiac Device Credits” (HERE).  Al gives an in-depth overview of what the OIG found during audits of 911 hospitals and what issues led to overpayments. It was apparent that the issues the OIG were finding, were consistent across the audited hospitals. It seemed like the same issues kept arising. To avoid these issues and stay compliant, we compiled 5 steps that you can take to make sure your hospital is ready when the OIG comes knocking. The thought of the OIG putting a target on your back can be a scary thought, but it doesn’t have to be!

The first recommendation is to have an external, independent compliance audit of the last 4 years as the OIG found that hospitals do not conduct internal audits for gaps in compliance. These gaps in compliance can be critical to your hospital and will determine what action the OIG takes. One small gap in compliance can cost your hospital tremendously.

The second recommendation is to update your hospital billing system to reflect the 2014 billing changes for the new condition and value code requirements. Amy Frontz, the Deputy Inspector General for Audit Services, stated that out of date billing systems were an underlying issue when it came to staying compliant. It became apparent that a large number of hospitals who did update their billing system were not entering the correct condition and value codes when submitting the UB-04 on original and resubmitted claims.

The third recommendation for being prepared for the OIG involves polices and procedures. Having current policies and procedures in place is key, but more importantly; make sure you are following them.

The fourth recommendation to assure compliance, is to have a tool that increases communication between the various departments involved in the process, clinical, supply chain, finance, patient billing and compliance. Miscommunication/lack of communication between these departments can be detrimental to your hospital staying compliant. Communication is key!

The fifth and final recommendation has to do with vendor involvement. Hospitals have relied upon the vendor to manage the device return and credit process, resulting in gaps and non-compliance. The hospital must have an internal process to return and track the explant back to the vendor.

We know that staying compliant can be a tricky process and isn’t an easy thing to do. However, if you follow these five steps, then you will be on the right track and can breathe easy when the OIG comes for you. If you need additional information or have question’s we are here to help.

Department of Health and Human Services-Office of Inspector General Released a New Report on Hospital Compliance for Reporting Cardiac Device Credits

Written by: Alan Brander, FACHE,

As a follow up to previous audits of hospital compliance with Medicare requirements for reporting cardiac device credits between 2004 and 2016, the OIG conducted a new audit to assess if hospitals had shown improvement. In the primary audit, the OIG found an estimated 1.5 billion dollars in overpayments which revealed a dire need for a subsequent audit.

For this audit, the OIG reviewed a list of warranty credits issued between January 1, 2015 and June 30, 2017 by the top three cardiac device manufactures to Medicare recipients, and matched them against claims submitted by hospitals for cardiac device replacement procedures. OIG reviewed 6,558 claims from 911 hospitals and determined that 3,233 of these claims or nearly half (49.2%) of them were not correctly reported. This resulted in overpayments of $33 million. This was not the only troubling discovery other key results included: 754 of those Medicare claims at 405 hospitals were issued as ‘reportable warranty credits’ by the manufacture at least 10 days prior to them submitting the original claim. In addition, the report found that 817 hospitals were issued 2,643 ‘reportable warranty credits’  (81 percent) within 90 days of the replacement procedure.

The bottom line revealed that hospitals are not taking the appropriate action to identify potential overpayments. The report clearly shows that the audited hospitals did not have adequate internal controls and procedures in place to correctly report on the initial or subsequent resubmitted claims of the manufactures warranty credits they received. Hospitals did not have adequate internal controls for tracking and reporting overpayments. The underlying causes are summarized more thoroughly below:

  • Billing systems that were not updated to reflect changes in 2014 regarding new condition and value codes. Hospitals that have made those updates in their systems are not using the code when updating the UB-O4 either on original or resubmitted claims
  • Lack of written policies and procedures or a lack of following those that are in place.
  • Insufficient communication between departments when receiving reportable claims. The audits clearly show that hospitals are getting 25% of the credits in time to submit them on the original claim and 81% on the 90-day resubmission.
  • Inadequate compliance testing by the hospitals. Contributing factors include: lack of internal resources or expertise, and difficulty collecting the data both from the facility and the vendors.

Despite CMS making significant efforts to educate hospitals regarding requirements for reporting manufacture warranty credits, most hospitals are not correctly returning overpayments. The OIG report gives several recommendations on how to improve compliance, but for now CMS continues to rely on hospitals to report overpayments and using onsite audits to assess compliance.


Source: Hospitals Did Not Comply with Medicare Requirements for Reporting Cardiac Device Credits, A-01-18-00502 ( by Amy Frontz Deputy Inspector General for Audit Services November 2020.

With OIG Waivers Lifted, Hospitals Face Steep Penalties at the Worst Time

On March 30, 2020, in reaction to the President’s declaration of a national health emergency due to the COVID-19 pandemic, the Department of Health and Human Services (HHS) waived several CMS and OIG program requirements and their related audits.

Several months later CMS signaled the reversal of their order announcing their intention to “discontinue exercising enforcement discretion beginning on August 3, 2020, regardless of the status of the public health emergency.”

Translation:  At the direction of CMS, OIG is back doing audits to ensure hospitals are following procedures and one of their key focal points is Medical Device Explant Warranties, an initiative that, alone, is projected to recover billions of dollars from U.S. hospitals.

While there isn’t clear guidance on exactly how the rollout of the audit programs will take place, it’s clear that CMS and the OIG are intent on trying to eliminate fraud, waste, and abuse in pursuit of recovering monies they feel are owed back to Medicare.

All U.S. hospitals are in scope and there have been cases where some systems have been blindsided by claims in excess of $40M.  Your hospital has likely been in violation of the credit handling process and will owe significant dollars based on the OIG audit.  In a recent sample of 296 hospitals, the OIG found that 100% of hospitals were in violation.

Unseen errors can come in many different forms and are based on several factors.  For example, in 2017 Abbott Laboratories recalled a Coronary Dilation Catheter which was experiencing a protective balloon inflation malfunction.   The recall resulted in thousands of replacements and subsequently resulted in thousands of potentially mismanaged warranty credits.  The OIG will be checking to see if your hospital handled these (and many other recall-based credits) correctly.

Are you prepared?

SpendMend recommends calling in one of our tenured specialists to perform a Mock OIG Audit to assess your compliance and any risk you might have. Program oversites are as common as they are costly – and they happen every day.