OIG Report Overview: Hospitals Did Not Comply with Medicare Requirements for Reporting Cardiac Device Credits

SpendMend Team

Why The OIG Did This Audit

The Office of Inspector General (OIG) OIG’s objective was to determine whether hospitals have complied with Medicare requirements for reporting manufacturer credits associated with recalled or prematurely failed cardiac devices.

Concerns stemmed from prior OIG audits with audit periods ranging from 2005 through 2016, which found that hospitals did not always comply with Medicare requirements for reporting credits received from manufacturers for medical devices that were replaced. Specifically, hospitals did not always report to CMS the device manufacturer credits that they received.

One prior audit estimated that services related to the replacement of seven recalled and prematurely failed cardiac medical devices cost Medicare $1.5 billion during calendar years 2005 through 2014.

How the OIG performed this Audit

OIG obtained a list of warranty credits from the device manufacturers and matched the device recipients to the Medicare enrollment database to determine which recipients were Medicare beneficiaries. Next, they matched the beneficiaries to the Medicare National Claims History to identify claims that had a cardiac device replacement procedure for which the date of service matched to the device replacement procedure date on the credit listing. Finally, they evaluated compliance with selected billing requirements.

What the OIG Found

For 3,233 of the 6,558 Medicare claims that the OIG reviewed, hospitals likely did not comply with Medicare requirements associated with reporting manufacturer credits for recalled or prematurely failed cardiac medical devices.

Device manufacturers issued reportable credits to the hospitals for these devices, but the hospitals did not adjust the claims with proper condition and value codes to reduce payments as required. As a result, 911 hospitals received payments of $76 million rather than the $43 million they should have received, resulting in $33 million in potential overpayments.

Medicare contractors made these overpayments because they do not have a post-payment review process that would ensure that hospitals reported manufacturer credits for cardiac medical devices.

What the OIG Recommends and CMS Comments

OIG recommends that CMS:

  1. Instruct Medicare contractors to recover the portion of the $33 million in identified Medicare overpayments that are within the reopening period.
  2. Notify hospitals associated with potential overpayments outside the reopening period so that they can exercise reasonable diligence to identify, report, and return any overpayments in accordance with the 60-day rule.
  3. Require hospitals to use condition codes 49 and 50 on claims.
  4. Instruct Medicare contractors to implement a post-payment review process.
  5. Obtain device credit listings from manufacturers and determine whether providers reported credits as required.
  6. Direct Medicare contractors to determine whether hospitals, which we have identified as having billed incorrectly in both this audit and our prior audit (A-05-16-00059), have engaged in a pattern of incorrect billing after our audit period and, if so, take appropriate action in accordance with CMS policies and procedures.
  7. Consider eliminating the current Medicare requirements for reporting device credits by reducing the payments for cardiac device replacement procedures.

CMS concurred with three of our seven recommendations and described the actions it planned to take to address them. For the four recommendations that CMS did not concur with, OIG maintains that CMS should require the use of condition codes; implement a post payment process; acquire the credit listings from manufacturers; and determine whether providers identified as having billed incorrectly continued to do so after the audit period.

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The Typical Points of Failure for Reporting Medical Device Credits

SpendMend Team

Written By: Joe Heminger, Business Development Manager

The Office of Inspector General (OIG) performed a review of cardiac device credits to determine whether hospitals complied with Medicare requirements for reporting manufacturer credits associated with recalled or prematurely failed cardiac devices.

For every 3,233 of the 6,558 Medicare claims that were reviewed, hospitals likely did not comply with Medicare requirements associated with reporting manufacturer credits. That equates to a 49.3% rate of non-compliance.

The following list outlines the typical points of failure:

  1. Clinical Areas Product Collection

    • – Device discarded or given to the patient​
    • – Device improperly cleaned/sterilized​
    • – Device not recognized as requiring return​ under the warranty program
    • – Vendor rep wrongly indicates that the item is not under warranty
    • – Vendor rep takes the device and fails to properly initiate a claim​
    • – Non-standard workflows​

  2. Shipment Process

    • – Vendor box or kit used, but tracking number not captured​
    • – Vendor rejects item because it is past the 30-45-day return window for warranty
    • – Return Merchandise Form not completed

  3. Vendor Process

    • – Vendor unable to obtain sufficient information
    • – Device evaluation not requested​
    • – Product analysis report not requested​
    • – Vendor never processes warranty claim​

  4. Credit and Finance Process

    • – Patient name and device serial number not documented
    • – Credit memo is not detected as explant​ and applied to the outstanding invoice
    • – 50% rule not calculated correctly​
    • – Explant returns and credits not reconciled​
    • – Patient Accounts never notified of credit received​
    • – Patients claim not adjusted via the UB-04

For insights and advice on how to address these typical points of failure and construct a fully compliant process for reporting manufacturer device credits – contact SpendMend today.

Why Is Your Process For Reporting Medical Device Credits Falling Short?

SpendMend Team

Written by: Joe Heminger, Business Development Manager

So, why is your process for reporting medical device credits falling short?
The Office of Inspector General (OIG) performed a review of cardiac device credits to determine whether hospitals complied with Medicare requirements for reporting manufacturer credits associated with recalled or prematurely failed cardiac devices.
In November 2020 OIG issued a report detailing that for every 3,233 of the 6,558 Medicare claims that were reviewed, hospitals likely did not comply with Medicare requirements associated with reporting manufacturer credits for recalled or prematurely failed cardiac medical devices.
OIG concluded that hospitals would continue to struggle with compliance because of the following consistent areas of difficulty:

  • Billing Systems – Health billing systems are not consistently updated to reflect the changes from 2014 regarding new condition and value codes. Hospitals that have made updates to their systems are not using the code when updating the UB-O4 on original or resubmitted claims.
  • Lack of Written Policies and Procedures – Health systems either have inadequate or non-existent written policies and procedures or do not enforce the current policies that are in place.
  • Insufficient Communication – Health systems suffer from a lack of interdepartmental communication when receiving reportable claims. The audits show that hospitals are submitting25% of the credits on time from the original claim and 81% on the 90-day resubmission.
  • Inadequate Compliance Testing – Health systems lack internal resources and/or expertise.  In addition, they are far too inconsistent at collecting the data both from the facility and the vendors.
  • Vendor Involvement – Health systems relied upon the vendor to manage the device return and credit process which resulted in gaps.

For insights and advice on how to address these common areas of failure and construct a fully compliant process for reporting manufacturer device credits – contact SpendMend today.

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

SpendMend Team

Written by: Alan Brander, FACHE, abrander@spendmend.com

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 (hhs.gov) by Amy Frontz Deputy Inspector General for Audit Services November 2020.

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

SpendMend Team

Written By: Alan J. Brander, CSO at SpendMend, abrander@spendmend.com

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%.