Medicare Overpaid Hospitals $10M for Cochlear Devices

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  • August 16, 2018
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Medicare Overpaid Hospitals $10M for Cochlear Devices

Improper payments stem from noncompliance.

Hospitals do not always comply with Medicare requirements for reporting cochlear devices replaced without cost, according to a report issued by the Office of Inspector General (OIG). The U.S. Department of Health and Human Services branch office, charged with protecting program integrity, bases its conclusion on prior compliance reviews in which it identified approximately $10 million that Medicare could have saved between 2012-2014 if hospitals had claimed and properly reported device manufacturer credits.

Cochlear Device Replacements Require Special Coding

A cochlear device is an electronic instrument, part of which is implanted surgically to stimulate auditory nerve fibers and part of which is worn or carried by the patient to capture, analyze, and code sound. The device provides patients with moderate to profound hearing loss with an awareness and identification of sounds to make communication easier.
When an outpatient hospital replaces a device subject to warranty or recall and receives a new device without cost from the manufacturer, the hospital must:

  • Prior to Jan. 1, 2014: append modifier FB Item provided without cost to provider, supplier or practitioner, or full credit received for replaced device to the procedure code (not the device code) and report a token charge for the device (less than $1.01) in the covered charges field on the claim form.
  • Jan. 1, 2014 or later: report value code FD Credit received from the manufacturer for a replaced medical device with condition code 49 Product replacement within product lifecycle or condition code 50 Product replacement for known recall of a product.

If the replacement device is more costly than the device being replaced, for which the hospital receives full credit, charge the difference between the usual charge for the device being implanted and the usual charge for the device for which credit was received.
Bill the procedure code for the work involved in replacing the device as usual. Payment is reduced for specified procedure codes subject to the adjustment if:

  1. The device is replaced without cost to the provider or patient;
  2. The provider receives full credit for the cost of the replaced device; or
  3. The provider receives partial credit equal to or greater than 50 percent of the cost of the replacement device (42 CFR section 419.45(a)).

If you do not know how much credit the manufacturer will provide for the device at the time the replacement procedure takes place, either submit the claim without the modifier and then submit a claim adjustment later or hold the claim until a determination for the amount of credit is made.

Put Procedures in Place to Prevent Billing Errors

The OIG recommends hospitals:

  • Have procedures to coordinate functions among various departments (i.e., clinical, patient accounts, billing) to ensure that they report the appropriate information;
  • Communicate with the cochlear device manufacturers to obtain a comprehensive list of no-cost replacements;
  • Make sure staff is aware and understand billing requirements; and
  • Program billing edits to identify and flag no-cost replacements for service and follow up.

FDA Makes Compliance Easier with Unique Device Indicators

The Food and Drug Administration Amendments Act of 2007 charged the U.S. Food and Drug Administration (FDA) with creating a unique device identifier  (UDI) system to better detect adverse events, improve product recalls, and enable robust post-market surveillance. In 2013, the FDA released a final rule establishing a UDI system. The rule requires the label on most medical devices to include a UDI. The UDI system will be phased in over several years.
Sept. 24, 2018 is:

  • The compliance date for direct marking of class II devices
  • The date the UDI will be required for most kits with at least one class III, I/LS//LS or class II device with the kit
  • The date the UDI will be required for most co-packaged and cross-labeled combination products with a device constituent
  • The expiration date of the 801.30(a)(1) (three-year grandfather) I/LS/LS inventory exception
  • The UDI compliance date for class I/unclassified devices for labeling and Global Unique Device Identification Database (GUDID) submissions

CMS does not require hospitals to report UDIs on Medicare claim forms. The lack of specificity in the claims necessitates a review of the medical record to determine whether the device implanted during the procedure matches the manufacturer’s listing of devices replaced at no cost, according to the OIG. UDIs on claim forms would allow the OIG to match the hospital claim data directly to the manufacturer data, rather than relying on the medical records. This would allow for more accurate reviews and reduce medical errors, according to the OIG.

OIG, “Hospitals Did Not Always Comply with Medicare Requirements for Reporting Cochlear Devices Replaced without Cost,” Nov. 2016, A-01-15-00508

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Renee Dustman, BS, AAPC MACRA Proficient, is managing editor - content & editorial at AAPC. She holds a Bachelor of Science degree in Media Communications - Journalism. Renee has more than 30 years' experience in journalistic reporting, print production, graphic design, and content management. Follow her on Twitter @dustman_aapc.

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