Medicare wastes billions on defective medical devices, audit finds

Medicare's fiscal watchdog has documented $1.5 billion in spending on seven types of defective heart devices that doctors implanted in thousands of beneficiaries.

In addition to the money Medicare paid to health care providers for services and procedures related to recalls or premature device failures, the patients who got the defective devices paid an estimated $140 million in deductibles and coinsurance costs from their own pockets, according to a report that U.S. Health and Human Services Inspector General Daniel Levinson published Tuesday.

The three companies that manufactured the seven devices have yet to be identified by investigators. Their examination, which has been underway for about a year, resonates in Minnesota, home to cardiac divisions of the world's largest heart-device makers: Medtronic PLC, St. Jude Medical Inc. and Boston Scientific Corp.

"While the costs to government of these failed devices appears to be massive, the actual cost to taxpayers is going to be much higher, [because of] ancillary costs like future adverse health events, the need for continued medical monitoring, and lost wages and productivity," Patrick Burns, president of the not-for-profit Taxpayers Against Fraud Education Fund, wrote in an e-mail.

Data from the Food and Drug Administration (FDA) show the number of the medical device recalls doubled between 2003 and 2012.

While the increase was attributed to a variety of causes, the rise has led to questions about how to track flawed devices and their cost to the public.

Investigators discovered it was impossible to use insurance claims to make even a cost estimate because the forms are too vague.

To arrive at its estimate, the HHS watchdog office subpoenaed the manufacturers for lists of Medicare patients who received the devices and analyzed individual medical records for more than 72,000 beneficiaries.

Sen. Chuck Grassley, R-Iowa, and Sen. Elizabeth Warren, D-Mass., both of whom have pushed for the watchdog review, are endorsing a proposal to require hospitals and doctors to include a medical device's tracking code, called the device identifier, on claims forms.

"There's a physical cost and a financial cost to patients when medical devices fail, and a big expense to taxpayers as well. It makes sense to track medical devices on claims forms so flawed devices can be taken out of use and patients and taxpayers can be better protected," Grassley said in a statement Tuesday.

Levinson's report says the tracking code "could assist in identifying the costs to Medicare for recalled or defective medical devices, help ensure patient safety, and safeguard Medicare trust funds."

In a letter last September, Levinson told Grassley and Warren it wasn't possible to tally Medicare spending on defective medical devices with claims forms.

But he noted that just one situation — Medtronic's widely publicized recall of 268,000 Sprint Fidelis leads for implanted defibrillators — cost Medicare more than $1 billion, according to two independent studies.

"We believe that Medicare, and by extension taxpayers, has most likely spent several billions of dollars on monitoring, hospitalization, surgeries, imaging, postacute care, and physician costs," Levinson said in his letter last year.

The ongoing audit is examining seven specific cardiac devices that were implanted in 376,000 Medicare patients over an unspecified period that were later recalled or had high rates of unexpected failures.

More than 72,000 of those patients eventually had their devices replaced, resulting in more than $5 billion in Medicare expenses.

But those figures include necessary device upgrades. Auditors had to pore over individual medical records obtained via subpoena to narrow their estimate to the $1.5 billion in costs related only to recalls and unexpected device failures.

"Government needs a better handle on what is happening here, not only to make sure we are getting better health care outcomes, but also to see if we can claw back some of the public and private money being spent on defective devices," Burns said Tuesday.

The final audit report is scheduled for release later this year. Levinson issued Tuesday's memo in part to tell the Centers for Medicare and Medicaid Services (CMS) — the federal agency that monitors Medicare — that a lack of specificity in claims data was hindering the work.

Last July top officials with the CMS and the FDA endorsed the addition of device identifier (DI) codes to the claims forms.

But they noted it wouldn't be as easy as it might sound — they may need new computer systems to get it done.

"Collecting the DI is complex and involves providers changing their workflow and billing systems as well as requiring public and private payers … and other entities to change their claims processing systems," the officials said in a July 13 letter. "CMS also needs to modify numerous legacy computer systems to collect DIs for implantable devices on Medicare claims, which would require additional funding and resources."

Joe Carlson • 612-673-4779