Hospitals Did Not Always Comply With Medicare Requirements for Reporting Cochlear Devices Replaced Without Cost

Federal regulations require a payment reduction in the outpatient prospective payment system for the replacement of an implanted device if (1) the device is replaced without cost to the provider or the beneficiary, (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 ' 419.45(a)).

To identify devices replaced without cost, CMS requires hospitals to report the modifier -FB and reduced charges (services furnished prior to January 1, 2014), or value code FD along with condition code 49 or 50 (services furnished on or after January 1, 2014). Payment is reduced for specified procedure codes subject to the adjustment.

Hospitals nationwide did not always comply with Medicare requirements for reporting cochlear devices replaced without cost to the hospital or beneficiary. Specifically, for 116 of the 149 claims we reviewed, hospitals did not report the appropriate modifiers and charges (for claims with dates of service in calendar years (CY) 2012 and 2013) or a combination of the appropriate value code and condition codes (for claims with dates of service in CY 2014) to alert the Medicare contractors of the need for payment adjustments. For the remaining 33 claims, we confirmed that the hospital had paid for the device, or the medical records showed that the procedure performed was not a device replacement. For the 116 incorrectly billed claims we identified, hospitals received $2.7 million in Medicare overpayments.

We recommended that CMS instruct the Medicare contractors to (1) verify the $1.4 million in identified overpayments for incorrectly billed claims that hospitals stated they refunded to Medicare during our review; (2) recover $686,000 in identified overpayments for CYs 2013 and 2014 that had not been refunded to Medicare by the conclusion of our audit; (3) assist hospitals in returning the agreed-upon overpayments of $553,000 for CY 2012 claims that are outside the Medicare 4-year reopening period, but which a contractor can reopen based upon a hospital's request related to the 60-day repayment rule; and (4) educate hospitals on how to appropriately bill for and report medical devices replaced without cost to the hospital or beneficiary, including cochlear devices. CMS concurred with our recommendations.