CMS Did Not Ensure that Medicare Hospital Payments for Claims that Included Medical Device Credits Were Reduced in Accordance with Federal Regulations, Resulting in As Much As $35 Million in Overpayments

CMS implemented an OPPS, which is effective for services furnished on or after August 1, 2000, for hospital outpatient services. Under the OPPS, Medicare pays for hospital outpatient services on a rate-per-service basis that varies according to the assigned ambulatory payment classification (APC). CMS uses Healthcare Common Procedure Coding System (HCPCS) codes and descriptors to identify and group the services within each APC group. All services and items within an APC group are comparable clinically and require comparable resources.In general, an ASC provides outpatient surgical services to patients who need no hospitalization. CMS implemented a revised ASC payment system, which is effective for services furnished on or after January 1, 2008, for these services. Like OPPS payments, Medicare pays ASCs on a rate-per-service basis that varies according to the assigned APC. CMS has estimated that average ASC payment rates have declined relative to OPPS payment rates over a recent 10-year period, from 65 percent of average OPPS rates in CY 2008 to 56 percent (as proposed) of average OPPS rates in CY 2018. Medicare Part B provides supplementary medical insurance for medical and other health services, including coverage of hospital outpatient services. CMS administers Part B and contracts with Medicare administrative contractors (MACs) to, among other things, determine reimbursement amounts and pay claims, conduct reviews and audits, and safeguard against fraud and abuse. CMS relies on a network of MACs to serve as the primary operational contact between the Medicare fee-for-service program and the health care providers enrolled in the program. MACs calculate the payment for each outpatient service using the OPPS or the ASC payment system.OPPS and ASC Federal regulations require payment reductions for medical device credits to be based on the device offset amount (42 CFR §§ 419.45 and 416.179). The device offset amount is CMS’s best estimate of the device cost that is included in the APC payment. Appendix B contains additional information that defines the term “device offset.”CMS guidance specifies how a hospital or ASC must report the occurrence of a medical device credit, as part of its claim under the OPPS or ASC payment system, each time the hospital or ASC:• furnishes a replacement device received without cost or with a full credit or • furnishes a replacement device for which the hospital or ASC receives a partial credit of 50 percent or more of the cost of a new replacement from a manufacturer, due to warranty, recall, or a defect in a previous device.Before January 2014, for outpatient hospitals, CMS guidance also stated that the hospital must report a modifier on claims that include a medical device (if replaced at no cost or if replaced with a full or partial credit). The Manual, chapter 4, sections 61.3.1, 61.3.2, and 61.3.3. When a hospital reported this modifier, CMS guidance stated that the OPPS payment was reduced based on the device offset amount, which is consistent with 42 CFR § 419.45. The Manual, chapter 4, section 61.3.4. However, after CMS’s publication in CY 2013 of an OPPS Final Rule effective for CY 2014 (the CY 2014 Final Rule ), CMS revised its guidance to state that, effective January 2014, hospitals must report the amount of the device credit in the amount portion of the value code and that OPPS payments for replaced devices are reduced by using the lower of the device credit reported with the value code or device offset amount. The Manual, chapter 4, sections 61.3.5 and 61.3.6. This Manual provision is inconsistent with the current OPPS regulation at 42 CFR § 419.45 and the ASC regulation at 42 CFR § 416.179.