Report: Hospitals failed to pass along millions in credits to Medicare

U.S. hospitals have held onto millions of dollars in warranty credits from medical manufacturers that should have been sent to Medicare, according to the latest audit of federal payments related to recalled and defective heart devices.

In a report out last week, the Medicare inspector general's office concludes that 210 hospitals failed to report a total of $4.4 million in manufacturer warranty credits that should have been passed along to the government insurance program.

Auditors examined 296 surgeries to replace problematic pacemakers, defibrillators and leads in Medicare beneficiaries and found that none was properly billed for by the hospitals.

For example, Medicare paid one unidentified hospital $28,779 to replace a defibrillator that was removed from a patient following a product recall.

But auditors said Medicare should have only paid $3,824 for the surgery because most of the cost was for the replacement device, which was covered under a full credit from the manufacturer.

The audit doesn't name the specific hospitals or device makers involved, but Minnesota is home to cardiac device operations for some of the largest companies in the market, including Medtronic PLC, Boston Scientific Corp. and Abbott Laboratories, Inc. (formerly St. Jude Medical) all of which have announced heart-device recalls in the past decade.

An audit report from the Medicare inspector general's Boston office last year examined $1.5 billion in spending for seven failed cardiac devices and concluded it is impossible for Medicare to use its own billing records to track how many recalled devices are implanted in its beneficiaries. The manufacturers of the devices were Medtronic, Boston Scientific and St. Jude Medical.

The report released Thursday by Medicare's Chicago auditing office examined the actions of hospitals, not device makers. But it reached a similar conclusion as the earlier report: Medicare officials should continue pushing for better record-keeping while supporting administrative changes that would allow hospitals to use bar-code scanners to include part of a medical device's serial number on insurance claims.

While supporting the use of serial numbers in patients' private medical records, the med-tech industry strongly opposes including serial numbers in insurance claims.

They say such a requirement would create a burdensome requirement for doctors and hospital staff.

Proponents say putting part of the device serial number in Medicare claims would benefit patient health and government accountability.

"It would help researchers detect safety problems faster, and give patients and providers better information on the long-term performance of medical implants," Josh Rising, director of health care programs at the not-for-profit advocacy and research group the Pew Charitable Trusts said in an e-mail.

For the audit released last week, government investigators obtained a list of warranty credits that two medical device companies provided to hospitals for five different models of heart devices that had been recalled or experienced high failure rates between 2008 and 2013.

The auditors then used the company data to figure out which Medicare beneficiaries had surgeries to replace devices that were covered under warranty. The work identified 296 cases of device-replacement surgery in which the hospital received a credit for at least half the device cost, and device cost alone made up more than 40 percent of the hospital's total bill.

In total, 210 hospitals were collectively paid $7.7 million, instead of the $3.3 million they should have received. The auditors said the report's publication likely triggers a 60-day window under the Affordable Care Act in which hospitals must return overpayments, once verified.

Heart device companies and their Washington-based device trade group, AdvaMed, declined to comment on the audit. The American Hospital Association in Washington said Friday that it was still reviewing the report.

The report said hospitals face several challenges in getting the right information to Medicare, including their own organizational complexity — clinicians, purchasing officers and accountants might all have separate roles in tracking device replacements.

"This involvement by the separate hospital departments and personnel, as well as insufficient hospital controls ... has contributed to the lack of identification, tracking and reporting of these credits on Medicare claims," the auditors wrote.

In a written response to the audit, the Centers for Medicare and Medicaid Services (CMS) agreed to work with its contractors to notify hospitals of the $4.4 million in "potential overpayments" identified by the auditors. But CMS rejected auditors' suggestion that an investigation is warranted any time a hospital bills for certain device-replacement surgeries without reporting manufacturer credits.

"A device could have been replaced under warranty or due to recall, but the hospital may not have received a credit affecting payment," CMS Administrator Seema Verma wrote in her response to the audit.

Verma, who was sworn in one year ago, has also been circumspect about the recommendation to include a short portion of medical device serial numbers on Medicare claims to improve tracking of recalled devices. In response to the audit last fall, Verma wrote that the Trump administration is reviewing the recommendation to evaluate whether it would "impose a burden on physicians unnecessarily."

Joe Carlson • 612-673-4779