Hot OIG Target Area: OPPS Outlier Payments and Implantable Medical Device Credits

Often overlooked is the line-item price reduction step, particularly related to partial or 50 percent-or-greater credits.

It was inevitable: just when hospitals were getting comfortable with their policies and procedures for reporting implantable medical device credits, even to the point of congratulatory back-slaps for meticulously following all related compliance steps, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) has expanded its reach into this troublesome space.

Early last year, the OIG began auditing hospitals with track records of unique outpatient claims data points: device credits and outlier payments. An outlier payment under the Outpatient Prospective Payment System (OPPS), simply put, is an additional amount of money paid “if the cost of care is extraordinarily high in relation to the average cost of treating comparable conditions or illnesses.” CMS’s Medicare Administrative Contractors (MACs) determine “whether claims qualify for outlier payments after reviewing the cost and charge data in providers’ annual cost reports. To qualify for outlier payments, a provider’s charges for services, adjusted to cost, must exceed a given threshold established by CMS.”

This additional payment is disbursed on a claim-by-claim basis; therefore, even rudimentary data mining can marry the additional outlier dollars paid with the reported device credit. The connection between the claim’s outlier payment and the device credit is often overlooked by hospital revenue cycle staff posting Medicare payments to patient accounts. But this relationship is not overlooked by the OIG, which promised in the 2019 and 2020 annual work plans to “…focus on overstated Medicare charges on outpatient claims that contain both an outlier payment and a reported medical device credit.”

Let’s start at the genesis of this issue: commencing Jan. 1, 2014, hospital outpatient reporting methodology for device credits changed from appending device credit modifiers -FB and -FC, representing 100 percent (full) credits and 50 percent-or-greater (partial) credits, resulting in “block” fixed payment reductions, based on the “device offset amounts” for the anchoring or main procedure codes. The exact amount of each device credit was never reported. For example, prior to Jan. 1, 2014, CPT code 33249 Insertion or replacement of permanent ICD had a national unadjusted reimbursement rate (via APC 0108) of $30,680.01, with a device offset amount (i.e., the amount of the Medicare payment assigned to the value of the device) of $25,743.60, or 83.91 percent. That amount, then, $25,743.60, represented a 100 percent device credit reduction reported via modifier -FB for 2013; the fixed “block” reduction for a partial credit (50 percent or greater, but not 100 percent) was $12,871.80, represented by device credit modifier -FC. Using this methodology, “overstated Medicare charges” were not of great concern in relation to the resulting “block” reductions in Medicare payments.

As of Jan. 1, 2014, the outpatient reporting process for device credits was aligned with the longstanding inpatient reporting methodology: assigning value code “FD” and entering the exact amount of the credit in the value code fields. When this is done a 1:1 ratio, reduction ensues; the exact amount of the credit is deducted from the hospital’s MS-DRG or APC-based reimbursement.

Simple enough. So what’s the big deal? What did not occur with the alignment of the inpatient and outpatient reporting methodologies was comprehensive instructive language from the Centers for Medicare & Medicaid Services (CMS) within the body of federal literature informing the complete device credit reporting process. It comes down to unwritten expectations. While there have always been instructions for line-item device charge revision when reporting free, no-cost or 100 percent-credited devices (i.e., a token charge of $1.00 can be charged for the device line item), there has never been correlating information on the partial credit side. One wonders why this gap in guidelines still exists after all these years!

Circling back, the crux of the issue, again, is that hospitals tend to overlook the line-item price reduction step, particularly related to partial or 50 percent-or-greater credits. When the credited device is reported at its full charge description master (CDM) price, an imbalanced monetary shift occurs between the now-reduced payment due to the reported credit and the claim’s original, unadjusted bottom line, with the artificially inflated claim total causing a skewed difference. And of course, that skewed difference is what triggers an outlier payment. As you might have guessed, the MACs’ “side of the house” that registers and deducts the device credit from the payment does not communicate with the “side of the house” that configures an outlier payment based on the inflated claim’s total charges. If an internal MAC failsafe existed at this juncture to detect these two claim data points, this might never have become an OIG issue!

How do you comply with reducing credited device line-item charges? Assign a staff person or persons in revenue cycle – or other staff in your device credit workflow schemata – with system access for line-item charge override capability to reduce line-item charges for full and partial device credits. In order to reduce and replace a CDM line-item charge, the staff member should know a) the amount of the device replacement cost; b) the amount of the device credit; and c) the hospital’s mark-up ratio. A simple example is: a) replacement cost = $10,000; b) partial or 50 percent-or-greater device credit = $7,000; and c) hospital mark-up for the device = 2.5 x. Therefore, the adjusted line-item pricing should follow as: d) $10,000 – $7,000 = $3,000; and e) reduced device actual cost $3,000 x 2.5 mark-up = $7,500. If the original CDM pricing was $25,000, potentially triggering an outlier payment if inaccurately reported, the now-reduced charge of $7,500 should not trip an outlier payment, based on these simple claim criteria.

Be sure to add this device credit reporting management and oversight step to relevant workflow processes and policies/procedures, and ensure that appropriate staff are apprised of federal expectations. It’s also a good idea to conduct reviews of claims with outlier payments and device credits. Proactive repayment of inappropriately paid claims should be a part of this cycle of correct reporting, compliance, and follow-up.