The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) audit letters dropped silently, one by one across the eight-hospital network, as if delivered by specters in the night. Addressed to each facility’s “compliance officer” by the regional OIG office, the letters targeted potential errors suspected after the furnishing of implantable cardiac medical devices for both inpatients and outpatients, paid by the local Medicare Administrative Contractor (MAC). Specifically citing “cardiac device credits” and covering service periods going back nearly four years (to 2012), the letters signaled to the huddled compliance team that months of locating and pulling documentation, grueling analysis, and painful introspection lay ahead. 

Such notification should come as no surprise. The OIG and Office of Audit Services (OAS) investigative activities associated with particular cardiovascular devices with potential warranty or other credits have been the topics of published reports for several years running. The federal government’s expectations in terms of identifying, tracking, processing, and accurately reporting implantable medical device credits likewise have been “on the books” for years.

For the OIG, uncovering errors in providers’ multi-departmental, multi-step, and often-confusing work processes in order to refund said credits has been like picking low-hanging fruit. As one OIG representative recently said to me, “we nearly always find what we’re trying to uncover.” 

The typical OIG approach into this may take one of two forms: a specifically targeted implantable device credit review or a general billing compliance audit scrutinizing inpatient and outpatient accounts, the latter of which basically sweeps in the device credit cases. Both of these approaches have made various appearances in the OIG annual work plan and are currently featured in the 2016 plan. Aside from the obvious refundable dollars, what is the OIG explicitly looking to uncover and what are its most common findings?

Here’s a list of five soft-target areas germane to implantable medical device credits.   

1. Modifier -FB is for “prior years.” As of Jan. 1, 2014, for outpatient services, modifier -FB has been defined as an “item provided without cost to provider, supplier, or practitioner, or full credit received for replaced device,” including a) a device replaced by the manufacturer due to product or Food and Drug Administration (FDA) recall; b) a device replaced under warranty due to defect or malfunction; or c) a device given to the provider as a free sample or at no cost, no longer reported on the UB-04 facility claim form. The OIG auditors have found instances in which these modifiers continue to be mistakenly reported (see below for conflation scenarios with value code “FD”) and often in various configurations, e.g., multiple -FB modifiers found on the listed anchoring CPT codes as well as appended to HCPCS Level II device codes. 

Tip: Reporting methodologies between inpatient and outpatient services have been aligned since January 2014, with outpatient device credit protocols now leveraging value code “FD” and the dollar amount for the fully credited replacement device in place. However, knowledge of appropriate and accurate -FB modifier reporting should continue to be retained for prior years’ internal audit work, as well as for preparing official responses to federal audit entities (such as continuing OIG investigations). 

2. Modifier -FC is also for “prior years.” Similar to the provider error scenarios with modifier -FB, the erroneous reporting of modifier -FC continues, even with its discontinuance as of Jan. 1, 2014. Defined as “partial credit of 50 percent or more received for replaced device,” these credits still follow a familiar operational timeline: a) partial credits extended at the time of purchase or with payment of the invoice and b) partial credits available to the provider following the replacement procedure when the device has been returned to the vendor for query and a credit subsequently issued. 

As with the -FB modifier, OIG auditors have reviewed recent device claims in which modifier -FC is still being reported (again, see below for conflation scenarios with value code “FD”). One of most common errors in reporting modifier -FC in the past was its listing on the same claim with modifier -FB. Some of the current claims still hold these error patterns. 

Tip: Again, the reporting methodologies for replacement device credits for inpatient and outpatient have been aligned since January 2014, with outpatient device credit protocols hinging on value code “FD” with the dollar amount for the partially credited replacement device. As with modifier -FB, accurate reporting of modifier -FC should continue to be taught and learned in order to prepare to answer questions from the OIG (as well as to skillfully carry out internal audit work of prior years).  

3. Omission of value code “FD,” dollar amount errors, and conflation of “FD” with outpatient modifiers. Both inpatient and outpatient claims currently should report value code “FD,” defined as “credit received from the manufacturer for a medical device,” with the dollar amount of the credit listed when there is a reportable replacement device credit amount that meets the 50 percent-or-greater threshold. As stated, these two vastly different reporting methodologies (inpatient versus outpatient) were aligned as of Jan. 1, 2014, and now both matters are handled in the exact same manner. 

In recent audits, OIG staff have found that providers might a) inadvertently forget to list the value code and related dollar amount of the 50 percent-or-more replacement device credit, b) list the “FD” value code but omit the dollar amount of the credit, and/or c) conflate the old reporting protocols with the newly aligned protocols by listing all three claim elements: value code “FD,” a credit amount, as well as modifiers -FB or -FC on the procedure code line items in the body of the claim.     

Tip: Do not report modifiers -FB/-FC for outpatient claims; as done with inpatient claims, report only value code “FD” and the dollar amount of the 50 percent-or-greater credit for the replacement device.

4. Condition Code 53 is not for replacement devices. The Outpatient Prospective Payment System (OPPS) Final Rule for 2015 detailed the new Condition Code 53, defined as “initial placement of a medical device provided as part of a clinical trial or a free sample.” Following its implementation on July 1, 2015, there has been a fair amount of confusion on its reporting, with very little additional guidance published by the Centers for Medicare & Medicaid Services, or CMS (see my March 2015 RACmonitor article titled “New Condition Code 53: What We Know and Don’t Know”). However, the striking difference from other implantable medical device credit reporting is that this condition code (CC) is strictly germane to initially placed devices, not replacement devices, and is used only for outpatient services. In general billing compliance audits, OIG auditors have reported finding CC 53 listed on claims for clinical trial replacement devices, as well as a sundry of other error variations. 

As an aside, and pertinent only to clinical trials, the reporting requirements for Category B investigative device exemptions (IDEs) involving devices that are sponsor-paid, provided at no cost, or reimbursed at 100 percent have been fully aligned with the new CC 53 as of its implementation date. Note that the CMS online manuals have been amended accordingly, as the Medicare Claims Processing Manual, Chapter 32, Sections 67 and 68, covering institutional inpatient and outpatient reporting, states that the new CC 53 is listed together with value code “FD.” Device credits are only reportable for outpatient Category B IDEs that are fully sponsor-paid. Less-than-100-percent credits are simply reported in a de facto manner by entering the correct line item charge for the device on the UB-04. For inpatients, a free-of-charge Category B IDE is not reported at all; no CC 53, no line item, no token charges, nothing. As CMS has stated, “hospital inpatient providers should not bill for the Category B IDE device if receiving the device free of charge.”

Tip: Again, this new CC is for initially placed implantable medical devices that are provided as free, for no charge, or 100 percent credited. However, the specific devices to which Condition Code 53 are linked are the same devices as the replacement devices that must be reported with 50 percent-or-greater credits (a confusing point, certainly). These can be found in the device table(s) and device-intensive APC table(s) in the Federal Register containing the OPPS final rules.

5. Ignoring mandates to pursue all available device credit(s). OIG audit findings relevant to device credit reporting errors are often quite varied and multi-layered due to the nature of identifying, tracking, and reporting device credits. Frankly, it’s a pain. That said, one of the most prevalent issues found upon OIG audit is also one of the most mundane: a finding that the facility did not pursue or did not know to pursue the available manufacturer warranty credit(s) for the explanted and replaced implantable cardiovascular or other device. 

Tip: Create a muscular policy and procedure (P&P) framework demanding that all warrantied devices follow specific credit retrieval protocols. This not only includes CV devices but also cochlear implants, neurostimulator generators and leads, joint replacement components, and all of the devices associated with the designated inpatient MS-DRG and outpatient device-intensive APC listings found in the final rule(s) and designated CMS transmittal(s).

Assign responsible individuals in the targeted clinics, ORs, catheter/EP labs, accounts payable, materials management/supply chain, and patient financial services and/or revenue cycle department. Develop cross-departmental workflow processes for internal checks and balances. The process is basically the same for any once-implanted device being returned to the vendor/manufacturer for inspection and query: the provider sends back the explanted device or device component, and the vendor tests that device and issues a credit memo (if appropriate) to the provider entity for some percentage of the “actual” replacement cost, which is then applied against that cost to achieve the credit-to-replacement cost percentage. If it’s 50 percent or greater and the device is listed as one that must be reported to Medicare for reimbursement reconciliation, then the claim must be coded with the aforementioned various code identifiers, flags, or markers for appropriate reimbursement. 

About the Author

Michael G. Calahan, PA, MBA, is the vice president of hospital and physician compliance for HealthCare Consulting Solutions (HCS). Michael lives and works in the Washington, D.C. metropolitan area, specializing in federal compliance and facility inpatient/outpatient and physician activities. 

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