Deeper Than the Headlines: What You Can Learn From the OIG's Review of Mount Sinai

Hey compliance peeps! I’m pretty excited about this deeper than the headlines topic this week because I’m pretty sure you folks are going to be into it because it will make you look like a total rockstar and help you nail compliance. What is “it?” The rules for replaced devices and/or device credit.

Earlier this month, the OIG posted their most recent hospital Medicare Compliance Review, a review performed on a well-known hospital, Mount Sinai Hospital in New York. Though the hospital didn’t agree with all the findings, (and surely there is another side of the story when it comes to this compliance review), it’s useful to study the details of the report to see the kinds of services and issues the OIG spent much of their time reviewing.

One of the areas that stood out to me was the OIG’s focus on credits for medical devices. There are rules that hospitals must follow for both the inpatient and outpatient setting when it comes to replaced devices and/or device credits.

Inpatient

Federal regulations require a reduction in the inpatient prospective payment system payment for the replacement of an implanted device if:

• the device is replaced without cost to the provider,
• the provider receives full credit for the cost of the device, or
• the provider receives a credit equal to 50 percent or more of the device cost.

In order to correctly bill for a replacement device that was provided with a credit, hospitals must code Medicare claims with a combination of condition code 49 or 50 (which identifies the replacement device) and value code “FD” (which identifies the amount of the credit or cost reduction received by the hospital for the replaced device).

In the compliance review for Mount Sinai, the OIG determined that for 8 of the 144 selected inpatient claims, the Hospital did not obtain credits for replaced devices for which credits were available under the terms of the manufacturer’s warranty. As a result of these errors, the OIG concluded the hospital received overpayments of $121,732.

The hospital disagreed with these findings. In their response letter they stated: “There is nothing in the pertinent regulations or manual provisions that require an offset when the hospital does not receive a credit and otherwise incurs the full cost for the replacement device. Accordingly, we do not believe that the OIG has the authority to convert the actual costs incurred by the hospital for these devices into overpayments due the Medicare Program. These provisions do not impose a reduction in reimbursement if the manufacturer improperly refuses to provide a credit or the hospital neglects to seek one. In such a case, the hospital provided the device to the patient, paid out of pocket fully for the device and the Medicare Program is obligated to pay the hospital without any reduction for a credit that the hospital never received.”

The OIG responded to the hospital’s disagreement by citing section 2103 of the Provider Reimbursement Manual which states that Medicare providers are expected to pursue free replacements or reduced charges under warranties; therefore, the hospital should have requested manufacturer credits and accordingly adjusted the replaced inpatient medical device claims. Specifically, they quoted the manual as saying, “Implicit in the intention that actual costs be paid to the extent they are reasonable is the expectation that the provider seeks to minimize its costs and that its actual costs do not exceed what a prudent and cost-conscious buyer pays for a given item or service.”

Outpatient

Similarly, on the outpatient side, the OIG also reviewed the issue of replaced medical devices and manufacturer credits. Very much like the inpatient regulations, the outpatient rules require a reduction in the outpatient prospective payment system payment for the replacement of an implanted device if:

• The device is replaced without cost to the provider or the beneficiary.
• The provider receives full credit for the cost of a replaced device.
• The provider receives partial credit equal to or greater than 50 percent of the cost of the replacement device.

CMS requires the provider to report the modifier-FB and reduces charges on a claim that includes a procedure code for the insertion of a replacement device if the provider incurs no cost or receives full credit for the replaced device. If the provider receives a replacement device without cost from the manufacturer, the provider must report a charge of no more than $1 for the device.

The OIG determined that for 11 of the 117 selected claims, the hospital:

• did not obtain a credit for a replaced device that was available under the terms of the manufacturer’s warranty (9 claims),
• received a credit but did not report the credit by indicating an “FB” code on the claim (1 claim), or
• received a credit but did not reduce the cost of charges (1 claim).

The OIG stated that as a result of these errors, the hospital received overpayments of $167,469. The hospital agreed with these findings and stated that “these errors occurred due to possible miscommunication or disagreement among the parties involved in the process of obtaining the medical device credits.”

This report is a really good example of why it’s so important to dive deeper into compliance and go deeper than the headlines.  If you are involved in your hospital’s compliance program, I’d recommend for you to review the regulations as well as the processes at your hospital surrounding medical device replacements and credits, both on the inpatient and outpatient sides of the house.