Compliance officers face daily challenges in understanding new regulations and guidelines, and monitoring and mitigating the risks associated with established rules and policies. One such challenge involves the requirements to report the no-cost and warranty credit for medical devices. This topic has been a focus of the Office of Inspector General (OIG) and appears to be receiving attention from nongovernmental payers as well.
CMS billing requirements
According to the Centers for Medicare & Medicaid Services (CMS) Medicare Claims Processing Manual:
Effective January 1, 2014, when a hospital furnishes without cost an initial placement of a medical device as part of a clinical trial or a free sample medical device or when a hospital furnishes without cost a new replacement device or with a credit of 50 percent or more of the cost of a new replacement from a manufacturer, due to warranty, recall, or field action, the hospital must report the amount of the device credit in the amount portion for value code ‘FD’ (Credit Received from the Manufacturer for a Medical Device). Also, effective January 1, 2014, hospitals must report one of the following condition codes when the value code ‘FD’ is present on the claim:
49 Product Replacement within Product Lifecycle—Replacement of a product earlier than the anticipated lifecycle.
50 Product Replacement for Known Recall of a Product—Manufacturer or FDA has identified the product for recall and therefore replacement.
53 Initial placement of a medical device provided as part of a clinical trial or free sample—Code is for outpatient claims that have received a device credit upon initial medical device placement in a clinical trial or a free sample.[1]
The Medicare payment is reduced by the amount of the device credit for specified procedure codes reported with value code FD.
OIG concerns regarding overpayment
OIG has conducted several audits related to reporting manufacturer credits associated with recalled or prematurely failed cardiac medical devices. Federal regulations and guidance specify how hospitals must report the replacement of a beneficiary’s implanted device if a hospital receives a full or partial credit from the manufacturer for a medical device covered under warranty or replaced because of a defect or recall. OIG found that some hospitals likely did not comply with Medicare requirements associated with reporting manufacturer credits for recalled or prematurely failed cardiac medical devices. These hospitals did not adjust the claims with proper condition and value codes to reduce payments as required. One such audit report issued in March 2018 (A-05-16-00059) estimated potential overpayments of $4.4 million across 296 claims or approximately $14,865 per claim.[2] A similar audit report issued in November 2020 (A-01-18-00502) estimated $33 million in potential overpayments related to the 911 hospitals reviewed.[3]
CMS issues letters to hospitals to require a self-assessment to investigate, identify, report, and return cardiac medical device-related overpayments.
Many Medicare Advantage (MA) plans have also conducted medical record reviews and denied payments related to recall or warranty credit medical device-related procedures. The plans seek to recoup or reduce the payment made for the affected cases through these audits. Medicare pays these plans a fixed amount per enrollee to provide benefits covered by Medicare, so any reduction in provider reimbursement raises plan profits. Therefore, there are strong incentives for MA plans to perform audits to recoup potential overpayments.
Compliance officer challenges
There are three scenarios in which hospitals may perform a medical device initial or replacement procedure that would involve a no-cost device or warranty credits: (1) the medical device is under a recall; (2) the medical device needs to be replaced before the end of its useful life, and the hospital receives a warranty credit; or (3) the device is in a clinical trial and provided free of charge by a research sponsor. In these circumstances, the challenges a compliance officer may encounter include:
Timely notification/billing
To apply the required condition and value codes, the department responsible for billing must be notified of each case, and the amount of the credit must be available to be reported on the claim. This can be a complex process involving multiple departments. Depending on the interface between the clinical and financial systems, the account can be flagged electronically; otherwise, the hospital may need a manual workflow to notify everyone involved in the process.
The person who is aware of the recall, warranty credit, or no-cost device is typically the electrophysiology (EP) lab/catheterization (Cath) lab/operating room (OR) manager, or a dedicated staff member from these departments who processes the paperwork for the devices. The clinical departments typically do not have access to, and/or are not trained to add, any condition code and value code. It is then critical the clinical personnel understand the billing requirements to initiate the downstream workflows and flag the account electronically or through a manual process.
Purchasing usually involves processing the paperwork for no cost or warranty credit of the devices and corresponding with the manufacturer. The credit amount may not be available until weeks or months later (postdate of service) after accounts payable (AP) receives the credit memo.
Billing needs to be notified to report the required condition code, value code, and credit amount on a claim. The challenges are to: (a) ensure notification is promptly sent to all involved parties, (b) balance the compliance and financial risks associated with the process, and (c) certify the compliance risk is mitigated by avoiding sending an incorrect claim, while at the same time minimizing the financial risk of withholding a claim and delaying the accounts receivable collection.
Estimate credit amount
When a medical device is provided at no cost as part of a clinical trial or free sample, the device usually is not commercially available for the specific indications addressed by the trial. For example, the trial may involve an innovative device for which the manufacturer does not have a market price and has provided it to the hospital at no cost. In such a case, the device has no established market-based value or credit amount. Nonetheless, the hospital must report the amount of the appropriate device credit using value code FD, and the Medicare payment would be reduced by the amount of the device credit for specified procedure codes reported with value code FD. This places the hospital in a challenging position as there may be a compliance risk if the reported amount is incorrect.
Maintain the developed process
In general, the volume of recall, warranty credit, or no-cost device procedures may not be significant compared to the total volume of the implant device procedures at the EP lab/Cath lab/OR. Although there may be policies and procedures in place and certain personnel may be well trained on the process, when a special task needs to be performed takes place only a few times a month, special efforts must be made to remember it. Also, when there is staff turnover, the awareness of the process may be lost during the transition. Compliance officers may see the same issue recur every few years because it requires staff to pay special attention when volume is not high enough to make the task routine.
Recommendations
Compliance officers can consider implementing the following approaches for mitigating the risks associated with the billing of no-cost and warranty credit medical devices.
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Develop the policy and procedure document: If your organization has not yet developed a documented policy and procedure for handling no-cost devices and device credits, do it now. Because the reporting process usually involves multiple departments, it is essential to work with each department to develop a well-understood procedure that balances compliance and financial risks. The policy and procedure should define each department’s role and safeguard the involvement of all appropriate parties. The document should also identify the key tasks and assign ownership at each juncture.
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Provide continuing training to involved departments: Not all implant device procedures are subject to payment reduction requirements. Ensure that applicable staff is trained regularly regarding the updated policy. Usually, the volume of no-cost or warranty credit device procedures is not very high, so the issue may not be well-known or highly prioritized. Accordingly, a regular reminder of its importance may be of value.
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Designing internal review: Compliance officers may need to design their internal reviews to focus on two key areas: (1) ensuring the organization pursues warranty credits as it should, and (2) identifying the accounts that involve devices under recall or that have been provided at reduced/no cost and reporting the credit amount as required. Below are a few suggested approaches:
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Perform data analysis to identify procedures that are subject to the no-cost/warranty device policy. For example, identify accounts reported with International Classification of Diseases, Tenth Revision codes for adjustment and management of an implanted device and no 49 or 50 condition code and FD value code reported. Adhere to a sample-based documentation review to identify accounts showing a device that was replaced before the end of life and for which warranty credits were not pursued.
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Obtain a copy of the credit memo from device manufacturer representatives or purchasing or AP departments. Perform a claim review for the accounts that received a credit memo.
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Identify the clinical trial protocols that involve a no-cost device. Perform a claim review for the accounts that involved a device implant procedure.
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If a specific charge description master (CDM) code was set up for the no-cost device, perform a claim review for the selected CDMs.
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Although there are many challenges to ensuring compliance for billing no-cost and warranty credit medical devices, this topic has been a focus of the OIG and appears to be receiving attention from nongovernmental payers as well. It is probably worth the time and effort for compliance officers to consider the above recommendations for your organization to mitigate the associated risks.
Takeaways
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OIG and payers have conducted medical record reviews and denied payments for recall or warranty credit medical device-related procedures.
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Compliance officers face challenges meeting the reporting requirements for no-cost and warranty-credit medical devices.
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Compliance officers may need to look at the organization’s policies and procedures to identify critical tasks and assign ownership at each juncture.
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Ensure the organization provides continued training to involved departments.
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Compliance officers may need to design their internal reviews to focus on key areas.
