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

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

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.

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.

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.