The “What, What, What” of Medical Device Explants

By Joe Heminger, Business Development Representative

The OIG listed on the 2022 workplan that they will be auditing the hospital’s explanted medical device credit process and approved $50 million in funding for these audits.

To give you a quick breakdown, we have listed what you need to know.

The What

Explanted medical devices sometimes fail and must be replaced. Hospitals owe Medicare warranty monies for explanted items even if they do not send the explant in for review or if they do not recover the funds.

The So What

Centers for Medicare & Medicaid Services (CMS) reported that the Office of Inspector General (OIG) is currently auditing hospitals across the United States. Medical Device Explant credits are a huge focus for them. The new fine and penalty structure for non-compliance can result in a huge financial burden when hospitals are already suffering due to COVID-19.

The Price of Non-Compliance

Penalty = 3x the credit + additional fines

Designated as an Excluded Provider

The Now What

SpendMend can perform a low-cost OIG Mock Audit of the last 4 years of this high-risk low-frequency occurrence. Let us determine if your program is compliant or at risk!

For any questions about how a SpendMend Medical Device Explant Warranty Credit Review can impact your bottom line and improve your process, please do not hesitate to contact me at

“Internal Audit” can better support a hospital’s financial stability during the COVID-19 pandemic.

Written By: Dan Geelhoed

The Ongoing Cost of COVID-19

The COVID-19 pandemic has driven revenues down for nearly every industry especially the healthcare industry.  In particular, the widespread decision of practically all U.S. hospitals this past spring to suspend elective surgeries and services proved to be extremely costly.

According to data gathered by the Crowe Revenue Cycle Analytics (Crowe RCA) with very few outliers, “health systems across the United States experienced an average decline in patient volume of 56%… this equates to an estimated national decline of $1.44 billion in net revenue per day for hospitals with more than 100 beds.”


The Role of Internal Audit

Prior to the COVID-19 outbreak, hospitals routinely suffered operational lapses and financial leakage as a typical cost of doing business.  To counter these gaps, many healthcare systems depend on their Internal Audit department to better understand the cause of errors and put measures in place to stop them. No matter how meticulous these departments have become, they alone cannot cover the full scope of the problem and are forced to make priority decisions about which process gaps to address.
With few exceptions, Internal Audit teams chose to prioritize processes related to the hospital’s core charter: delivering patient care.  For the sake of limited time and resources, auditors are often forced to leave some cost-cycle and financial leakage issues unattended or un-resolved.


The Current Environment

At present, amid a global pandemic, Internal Audit groups remain more focused than ever on supporting policies and procedures that are directly related to caring for patients.  Sadly, a staggering volume of revenue loss continues to go unchecked as staff sizes have been reduced, operations have suffered, fraud has increased, and compliance has lapsed.  Although many hospitals have resumed elective services throughout July and into August – enough time has already passed to cause severe revenue shortfalls.


Recovery Audit: Why is it Important?

Recovery Audit can serve as a vital part of an Internal Audit by discovering and returning hard dollars to the hospital’s bottom line.  At the same time, a Recovery Audit is also an effective tool to uncover compliance issues, control gaps and operational concerns in the financial department, the procure-to-pay process and the cost cycle.

In our 27 years of experience, SpendMend has observed that Internal Audit groups gain a dramatic increase in visibility when leveraging a Recovery Audit. At a time when the system has been strained and resources are particularly scarce, the additional funds and insights delivered by a Recovery Audit can potentially be the difference between a hospital’s ability to deliver crucial patient care… or not.

By championing a Recovery Audit project, the Internal Audit department is easing the burden on their own department, mitigating the impact of financial loss, helping to reinstate best practices, and most importantly doing their utmost to support patient care.

How Are Your Hospital’s Finances Just Like Halloween Candy?

Written by: Amanda Geelhoed Papach,

As kids, my sisters and I would travel from our small quiet street to a giant neighborhood. We would head to our uncle’s house where we would meet up with cousins and friends and fuel up with pizza before the big night of trick-or-treating. All the moms would stay home to pass out candy, and the dads would take us trick-or-treating. Our army of costumed kids would sprint house to house filling up our pillowcases. When it was time to head home our little legs were tired, our sugar high (from candy we sneaked past our dads) was fading, and our pillowcases felt like dumbbells. Every year inevitably, someone would drag a full pillowcase on the ground creating a hole for candy to fall out during the walk back and it was too dark for anyone to notice the lost trail of candy. Losing a piece of bubble gum didn’t matter but losing a quarter of your collected candy was devastating.

The same is true for healthcare finances. Just like the hole in the pillowcase, there are unseen control gaps leading to financial leakage throughout every single U.S. health system. But unlike the lost candy your financial leakage can be returned with a recovery audit. Now, if the idea of a recovery audit scares you more than seeing a shadowy figure in the corner of a room then read more HERE.

4 Innovative Ways to Contain Healthcare Financial Leakage

Written By: Michael Koory, RVP of Sales

4 Innovative Ways to Contain Healthcare Financial Leakage 

The financial risk to health systems has never been higher. Decades of reimbursement reductions coupled with operating cost increases have left health systems executives no choice other than innovation. The traditional methods are no longer enough.

For something to be transformational, it must change to grow or metamorphize. And, change can be difficult even when moving from bad to good. We have all seen our New Year’s Resolutions fly out the window in March or even the end of January. So, what works? How can we bring the change so desperately needed to the health systems?

A Guide with a Map - If you have ever been lost in the woods or lost in a new city, you immediately understand the value of a guide and a map. If you rely (as I do) on your GPS to help navigate the way, it is easy to understand the value of a guide with a map. We all need someone who has trekked the path before to help us achieve our goals. A guide is especially essential in healthcare. Our industry is, in some of the most change persistent times in history. The layers of change heaped upon the healthcare providers are unprecedented.

Add Visibility - No one sets out to build a system with leaks. The course of stopping financial leakage is not about finding who failed or who didn’t do something. All procurement systems have oversight and usually excellent system controls. Healthy system purchasing operations are complex and contain millions of moving entities, because of the constant pace of change, compliance variable, and multiple human handoffs, control gaps exist. They exist, but they are hard to see because of dark data.

Illuminate Dark Data  – SpendMend views dark data as the practices, information, and system data hidden from the standard operative view. It exists due to disparate systems, numerous handoffs, multiple entities, vendor practices, not shared industry information, and practices. These cover the control gaps or cause the control gaps that lead to financial leakage.

Limit Financial Leakage  – Beyond the hard dollar financial costs, there are high soft dollar costs in the financial leakage. How much time does your staff spend chasing issues outside of their job description? How many corporate initiatives get inadvertently sabotaged because the team is distracted, chasing problems down outside of their department? Are you experiencing excess turnover? Are goals being missed? All of these are caused in part or entirely from financial leakage the strain of closing down the gaps.

The Path to Prevention  – There is hope, and the path is one I know exceptionally well from guiding clients down it in the past. My experience helping health executives by using a recovery audit has proven that a guided audit identifies more initial savings and more control gaps to close for future savings. Using a guided audit like SpendMend’s Mending audit can identify up to $1.25M for every $1 Billion in spend (click here to learn more from our webinar). You can innovate and contain loss in your health system.

Medical Device Warranty Credits & Regulatory Requirements…Is Your Hospital at Risk?

Written By: Alan J. Brander, CSO at SpendMend,

Medical Device warranty tracking and credit payments have become a focal point for the Centers for Medicare & Medicaid Services (CMS), as evidenced by several new requirements in past last ten years. Hospital compliance of those rules are being closely scrutinized by the Office of Inspector General (OIG) through the Office of Audit Services (OAS).

The reason for this focus is twofold:

  • The US Government is the largest single purchaser of implantable medical devices in the world.  Spending approximately $35B dollars per year. In the period between 2012 -2014, Medicare paid $30B for cardiac devices alone.
  • Recent audits show that hospitals have done a poor job of self-regulation and reporting. A NY Times article from May 4, 2017, quoted the Department of Health and Human Services (HHS) OIG audit report; a NY area hospital was required to repay $14M dollars due to overpayments. Audits like this have fueled CMS, which recently announced it plans to recoup $1 Billion in improper payments by 2020 through wide spread audits, according to a new rule that hit the federal register on November 1, 2018.  CMS has also stated that they intend to recoup a subsequent $381 Million in improper payments (at minimum) every year beyond their 2020 goal.

The last 10 years have seen a huge increase in surgically implanted devices designed to decrease morbidity, mortality, and improve patient lifestyle. These devices remain in the patient after the conclusion of the procedure for one or more of the following reasons: organ support (i.e. pacemakers), limb or joint replacement (i.e. hips, knees), or automation of monitoring and therapy delivery (neural stimulators or medication pumps). Many of these devices are high tech and may include batteries and computer chips which can fail, malfunction, or have early battery depletion. Even low-tech devices like hips or knees can fail or be recalled. Manufactures of these devices stand behind their product and provide either free replacement cost or partial money back.

The hospital is required to pursue either a no cost replacement or available credits if the device is under warranty. This is determined by returning the explanted device back to the manufacture for testing. The manufacturer then assesses the cause of the device failure then sends credits as applicable. The hospital is supposed to report the credits they receive and if 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. This is known at the 50% Rule. A second rule, known as the Prudent Buyer Standard states that a hospital owes the warranty money to the payor, even if they do not send the explant for review or if they do not recover the funds.

Regardless of intention, failure to refund the payor for Medicare overpayments puts hospitals in violation of the False Claims Act and will prove an extremely costly mistake.  In 2019 the U.S. government increased the penalties to a per violation charge of $11,463 plus 3X the amount of the violation in question – to a maximum of $22,927 plus 3X the amount of the violation in question.  The determination of how and why a violation would trigger a minimum versus a maximum violation was not reported in the update.

To put this is more relatable terms, in a recent use case at a SpendMend client, a Southeastern regional healthcare system with only 1 location and 256 Beds incurred fines of nearly $2 Million.

This seems straight forward…right?  Let’s summarize, if an implantable device is recalled, malfunctions, or fails: send the device back to the manufacture.  The manufacturer will determine the cause of failure and issue a credit if the device qualifies. If the hospital receives a replacement or a credit, which they are to keep, unless it is equal or greater than 50% of the device cost. If the 50% Rule applies, then they must send those monies back to who paid for it. If hospitals do not follow these processes, they will be forced to pay significant penalties and fines.  The OIG is reporting that hospitals are not only failing to properly report, but also, they go so far as to say that hospitals lack the internal procedure and control to manage this process.

The complexity of the explant process, vendor return requirements, and the lag time of 3-6 months to get a determination, is the root cause of many of these errors. There are several hospital departments involved: clinical, pathology, supply chain, compliance, hospital finance, patient billing, and coding. Each has a part, but rarely does anyone own it. Manufactures have several hoops to go through as well as documentation you must provide before they to proceed with testing. The hospital gets a credit check several months after the device has been sent. The Patient Billing department has no idea a credit was received and rarely told to revise a bill and return a credit.

Here are some suggestions to decrease your risk.

  • Find a third-party firm that provides tracking and oversite. The tracking is only as good as your staff’s charting. The oversite and auditing are important to catch what is missed.
  • Globally, develop a system wide policy to guide which devices to return, and a procedure that clearly outlines each departments responsibility.
  • Define an owner or champion of the process.
  • Develop a report that provides a minimum data set to aid in returns. Consider putting a flag in the EMR when an eligible device is explanted. Make sure device description and serial number is a required field.  Do not let your Vendor reps retrieve and initiate the process, or if they do make sure there is a tracking sign off by supply chain to record the relevant data like patient name, encounter number and device serial number in the ERP system.
  • Make sure that the RMA and return kit is obtained from the vendor, accurately filled out and returned with in the 30 to 45-day window.
  • To aid in the return create a specific form and process, ideally managed by supply chain. With every return always ask for a product analysis and report to be returned to the hospital.
  • Consider OCR technology to scan and track credit memos. Make sure your policy and procedure include consistent notification of Patient Accounts of any credit > to 50%.