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EDITOR’S NOTE: This is the second installment in a two part series dealing with audit finding for implantable medical device credit errors.

“Oh, absolutely, when we step in and dig a little, we nearly always find what we’re trying to uncover.” 

Who said that, and why? Just a hint: it wasn’t a private investigator reconnecting long-lost relatives; it wasn’t the lost-and-found desk paging the owner of a misplaced key ring; it wasn’t an office hunting party scouring a colleague’s workstation for a misplaced group lottery ticket. It was an Office of Inspector General (OIG) auditor!

“In every facility we step into, we’re finding extensive problems with this issue,” the auditor continued. ”Literally nobody is getting this right – at least not yet.”

The issue is the tracking, management and reporting of implantable medical device credits. Though simple in concept, the design and application of a monitoring system for credit memos received from device manufacturers, vendors and suppliers (hereafter simply termed “vendors”) is not so easily accomplished. There are many questions to consider: Which devices are subject to the credit reporting? What are the correct steps to reporting these credits appropriately? And what, exactly, is the OIG finding in their targeted treasure hunts? 

This top 10 list of federal audit findings regarding device credits aims to guide personnel in clinic and health systems, particularly the “C-suite” hierarchy, A/P staff, materials management analysts, compliance officers, and clinical personnel at points of service such as operating rooms, outpatient surgical suites, catheterization labs, and ambulatory surgery centers (ASCs). Whether in the outpatient or inpatient setting, implantable medical device credits must be reported in specific situations, for specific devices, and in specific ways. Let’s take a walk through the fed’s poorly camouflaged minefield to learn from those who have been through the audit process. Embedded in each OIG finding numbered below is a “fix-challenge” for provider entities to consider as a tool for remediation.

6. Misreporting or Omitting the “-FB” Modifier. Instructive information pertaining to the outpatient modifiers that must be reported with the device credits “-FB” and “-FC” is quite plentiful, which makes it all the more confounding why the sixth-and seventh-most common reasons for OIG “hits” during provider audits is the misreporting of these modifiers. Even more common is the omission of the appropriate modifier “-FB” for 100 percent device credit and “-FC” for 50 percent-or-greater on the UB-04 claim forms when reporting the implantable devices. 

Misreporting is specific to modifier -FB, which is defined as “item provided without cost to provider, supplier or practitioner, or full credit received for replaced device.” This includes a) a device replaced by the manufacturer due to product or FDA recall; b) a device replaced under warranty due to defect or malfunction; or c) device given to the provider as a free sample or at no cost. The misreporting of modifier -FB has allowed the OIG to scour dark corners of the healthcare industry and come up with enormous overpayments. The most common provider error in misreporting involves appending this modifier to the wrong code (line item) on the UB-04 claim form. The secret? This modifier is not appended to the HCPCS-II device code that it targets as being reduced (as one might logically assume), but instead is appended to the “anchoring” or main CPT procedure code for the surgery. Modifier -FB is an outpatient payment modifier, which means that it modifies reimbursement. In this case, the modification is a rather significant payment reduction; therefore, it must be appended to the anchoring procedure code from which the ambulatory payment classification (APC) group is derived, and to which the bundled reimbursement is attached. The -FB modifier flags the payment edits to offset the APC payment by 100 percent of the reimbursement sum associated with the implantable device. If the vendor proffers a 100 percent credit, then the Centers for Medicare & Medicaid (CMS) logic dictates that the APC payment is to be reduced by the same percentage. Submitting claims with this modifier appended to the wrong code doesn’t raise any particular red flags at a CMS jurisdictional entity, resulting in the provider receiving incorrect, unadjusted reimbursement. Upon audit, therefore, one often finds claim after claim, of initial and corrected bill types, with the modifier appended to the device code instead of the procedure code. The explanation of Medicare benefits (EOMB) forms paint a common picture: initial uncorrected claim paid, corrected claim recoupment, immediate repayment in the same amount, provider out of compliance. 

Again, a related error often made by providers, who interestingly adjust the line-item charge associated with the device credit, is the omission of the modifier that triggers the payment reduction. In this case, the modifier is not appended to the wrong code, it’s simply not reported. Submitting the original claim or a corrected claim by reducing the device line-item charge by the amount of the credit (plus markup), which is represented by the HCPCS-II code for the device, in the absence of the -FB modifier appended to the anchoring procedure code does nothing to influence reimbursement. As previously cited, Medicare simply will take back the original payment, re-adjudicate the claim, and pay out the exact same amount. CMS does not reduce payment from the line-item charge, but instead reduces payment via the -FB modifier.      

Fix-Challenge: As a basis for appropriate modifier reporting, instruction in the correct coding of the -FB modifier is always the initial step. Then, whether done by health information management (HIM) or by staff assigned in patient financial services (or even by someone on the revenue cycle integrity team), the modifier has to be appended to the anchoring CPT code correctly for the major procedure associated with the implantable device. Typically, device credit information is not available at the time of initial claim submission, so particular attention should be paid to the claims reconciliation process. Individuals assigned to corrected claim submissions are the logical choice for parentage of these device claims. Determining the device credit percentage (100 percent or 50 percent-or-greater) is done first, and then the appropriate modifier is appended to the correct CPT code.

7. Misreporting or Omitting the “-FC” Modifier. Similar to the provider errors involving the modifier -FB, the reporting of modifier -FC tends to cause a comparable set of problems. Aside from the difficulties inherent in simply determining if the -FC modifier is needed at all, both the misreporting of the modifier, as well as forgetting to report it, run high on the OIG’s list of errors for which to look. Additionally, identifying, tracking and correcting the multitude of claims that are affected by the 50 percent-or-greater device credits, well after they have been submitted as initial claims, can get overwhelming for any provider entity. 

Modifier -FC is defined as “partial credit of 50 percent or more received for replaced device,” including partial credits extended at the time of purchase or with payment of the invoice (or partial credits available to the provider after the replacement procedure has been performed and the device has been returned to the vendor for testing). The latter time frame, which occurs well after the procedure has been performed and after the initial claim has been submitted (and often paid), tends to be the more common credit-receipt scenario. The number and severity of problems that can develop regarding this factor are immense.


Whether it’s a problem of a protracted timeline and post-initial claim submission coordination efforts, as listed above, or simply internal inefficiencies in catching device replacement cases that need adjusting and resubmission, the same errors that occur with modifier -FB also occur with modifier –FC. Primarily, this means appending the modifier to the wrong code on the UB-04 claim form, or the omission of the modifier altogether. Again, the -FC modifier must be appended to the anchoring CPT procedure code for the major procedure associated with the device, which triggers the Medicare payment edits to reduce the bundled APC payment by 50 percent of the reimbursement amount related to the device. When the modifier mistakenly is appended to the HCPCS-II code for the device, the most common error, then no Medicare payment reduction ensues, and an inaccurate claim reimbursement is the result. Unless post-correction auditing and monitoring is performed by the provider entity, these cases tend to go unnoticed until they’re in the OIG’s hands.

Omission of the modifier occurs on a regular basis, although again, curiously, upon audit the predominant finding in this category of errors is that the line-item charge for the device has been reduced from the usual charge (device cost plus facility markup) down to an amount reduced by the credit. This alerts the OIG auditor that someone in the provider’s work group is aware of a credit; however, the credit often is not reported properly because the modifier was omitted. This, then, is another common error in -FC modifier reporting that causes a CMS entity, when a “corrected” claim is received, to take back its reimbursement, re-adjudicate the claim, and pay the exact same amount to the provider. In effect, under this scenario no correction is registered.  

Fix-Challenge: As with modifier -FB, staff education and training regarding the processes associated with modifier -FC reporting and related claims correction may be in order. Also, designating staff along the food chain of device-credit-receipt to device-credit-reporting is essential. Staff members must own their piece of the process. Firm decisions need to be made by department directors about who does what in the organization as it pertains to tracking, monitoring, and applying implantable medical device credits and essential coding, with an accountability factor built in – perhaps this could include timely feedback reportable at monthly work groups or committee meetings as well.

8. Omission of Value Code “FD” and/or Misreporting Dollar Amounts for Inpatient Claims. For inpatient claims, there are not two reporting thresholds for device credits, as there are with outpatient claims (50 percent-or-greater with modifier -FC and 100 percent credit or no cost with modifier -FB). Claims filed under the inpatient prospective payment system (IPPS) have only one credit threshold that influences device credit reporting: 50 percent-or-greater, which by default also includes no-cost devices and/or 100-percent credits. Also, an easy modification of the usual claims data related to implantable medical devices is needed when reporting device credits for inpatient claims. However, on audit the OIG has found that providers often mistakenly omit value code “FD” and its necessary monetary component, or that the provider submits an incorrect monetary value in the “FD” field. 

The Medicare Claims Processing Manual, 100-04, Ch. 3, Section 100.8, “Replaced Devices Offered Without Cost or With a Credit,” states the following directive germane to value code FD reporting:

“To correctly bill for a replacement device that was provided with a credit or no cost, hospitals must use the combination of condition code 49 or 50, along with value code FD. The condition code 49 or 50 will identify a replacement device while the value code FD will communicate to Medicare the amount of the credit, or cost reduction, received by the hospital for the replaced device.”

Again, the predominant error in this category has been the omission of the value code FD and its monetary component. Another common error in this category is reporting FD but misreporting the dollar amount associated with the credit. 

Fix-Challenge: The CMS approach to reducing MS-DRG payment in device credit scenarios under IPPS involves a simple 1-to-1 methodology: the value code FD and the amount of credit (when the credit is 50 percent or greater than that of the replacement device for the MS-DRGs affected by this policy) is the exact amount by which the MS-DRG payment to the provider is reduced. For example, if the MS-DRG reported is paid at $10,000, and “value code FD; $4,000” is submitted on the UB-04 claim form, then a 1-to-1 reduction is applied and the provider is paid $6,000. It’s that simple. 

As described above, one of the most common errors associated with inpatient claims occurs when the provider reports the value code FD but makes an error in reporting the correlated monetary component; often, the provider mistakenly reports the difference in cost for device credits at the 50 percent-or-greater threshold instead of reporting the actual credit amount. For instance, consider a scenario in which a pacemaker generator is replaced at the 50 percent-or-greater rate; the full cost is $12,000 and the credit offered is $7,000, with a remaining balance of $5,000 paid by the provider to the vendor. In this type of error case, the provider mistakenly reports the $5,000 paid to the vendor – thinking they should report the cost to CMS in the value code field – instead of reporting the credit amount. To report device credits accurately, simply enter the amount of the device credit in the monetary field that correlates with the value code field. Again, enter value code FD plus the exact amount of the credit, when the 50 percent-or-greater rate is applied, into UB-04 form locators 39-41.

9. Disregarding the Credit Reporting Requirements for Devices Categorized Under “Investigative Device Exemptions” (IDEs) in Clinical Trials.  Federal auditors tend to “back-end” into this category of device credit reporting errors made by provider entities. Their focus usually is directed toward the clinical trial services, not the devices. Numerous providers conduct extremely well-managed, productive, and highly useful clinical trials, advancing the field of medicine across many spheres. The coding, billing and documentation aspects of clinical trials, however, can be overwhelming to deal with, involving numerous moving parts and typically being comprised of facility outpatient and professional fee (“pro-fee”) facets (and often acute-care inpatient functions as well). Hard-coding via the charge description master (CDM), soft-coding via the health information management (HIM) department for facility services, managing point-of-service pro-fee coding, and dealing with unabridged billing systems are just some of the balls in the air personnel often need to juggle. Throw devices into this whirlwind, and matters can swiftly spiral out of control. Being unaware of the billing parameters constructed around IDEs – particularly for providers who might conduct clinical trials regularly, but rarely those involving trial devices – can make for a bewildered provider entity that quickly will find itself getting on the wrong side of CMS or the OIG.


Fix-Challenge: There are two types of devices, per CMS classifications (not the FDA’s) used in clinical trials: IDE Category A and IDE Category B devices. Category A devices are considered experimental and are not covered by Medicare.  These devices are considered important components of emerging technology, and their clinical significance as well as their safety have not been established and/or recognized by the FDA or CMS. Yet although the device is not covered, routine services associated with the clinical trial itself may be covered. Category B devices are recent evolutions or configurations of proven devices, and may be covered provided that a CMS jurisdictional entity is queried, reviews the device specifications, and approves use of the device. Once this happens, the jurisdictional entity notifies the provider that it may begin billing for the IDEs.

Device credits only are reportable for Category B IDEs that are fully sponsor-paid (i.e., provided to the provider by a trial sponsor at no charge, or at a cost the provider pays initially, but then receives 100-percent reimbursement for as a clinical trial operating cost). Less-than-100 percent credits simply are reported in a de facto manner by entering the correct line-item charge for the device on the UB-04. However, there is a difference in reporting methodology for inpatient versus outpatient services. For items in the inpatient arena, a free-of-charge Category B IDE is not reported at all; no line item, no token charges, nothing. As CMS has stated, “hospital inpatient providers should not bill for the Category B IDE device if receiving the device free of charge.” For less-than-100 percent credits in the inpatient arena (that is, when there is a charge to the facility for the IDE) these are reported with revenue code 0624 and the actual cost of the device, together with the IDE number. The credit should be listed in the line-item charge. For these same items, used in the outpatient arena, the UB-04 line item carries revenue code 0624 (the HCPCS-II code for the device) and the HCPCS-II code is appended with the -Q0 modifier for clinical trial services. In credit scenarios of 100 percent, CMS also requires the anchoring procedure CPT code to be appended with the -FB modifier signifying the 100-percent credit. As CMS puts it, modifier -FB is reported with “the procedure code that reports the service to furnish the device, in instances when claims processing edits require that certain devices be billed with their associated procedures.” A token charge of $1 is entered for the device line-item charge. For outpatient claims with less-than-100 percent device credits in clinical trials, simply report as usual (revenue code 0624, device HCPCS-II code, modifier -Q0) and enter the actual cost of the device as the line-item charge.  The credit is reported in this de facto manner as well, being listed in the line-item charge.         

10. Misreporting of the Line-Item Charges Associated with Device Credits for Outpatient Claims. One final area of device credit reporting that the OIG has taken notice of lately centers on the line-item charges entered for discounted (credited) devices. In the outpatient arena, errors have been seen that both can hurt a facility long-term when it reports lower-than-accurate charges, as well as tarnish the facility’s perceived level of operational integrity when it fails to adjust line-item charges accurately. Currently, these errors neither trigger a repayment mechanism nor invoke a fine. They simply are considered reporting or billing errors. 

Exactly what happens under these scenarios? It’s a mixed bag. Often, when reporting a device credit, the provider correctly reports the line-item HCPCS code, -plus a-modifier combination for the device and credit, but mistakenly reports the full charge for the device. For example, consider a scenario in which a 100-percent credit is received for a device for which the provider typically charges $7,500. Instead of entering a token $1 line-item charge, the provider mistakenly believes that the charge is entered as usual, meaning the -FB modifier takes care of the reduction. The $7,500 line-item charge then mistakenly is billed when the token charge should have been reported. 

Another common error is seen when the provider mistakenly assumes that because the anchoring CPT code for the major service is associated with implanting the device carries (or is appended by the reduction modifier -FB or -FC), the service’s line-item charge is the one that is reduced, not the device’s line-item charge. This is an understandable error, one of the most frequent catalogued by the OIG, and it is made by mistakenly associating the line item carrying the modifier with the line item that requires the charge reduction.

In another type of error, under-pricing occurs: consider a scenario in which a 100-percent device credit is received for a replaced device with a usual charge of $10,000, but the replacement device actually costs 1.5 times as much ($15,000) and is considered a “device upgrade.” Instead of entering the difference between the 100-percent “replaced” device credit and the adjusted cost of the “replacement” device, which would have been $5,000, the provider mistakenly enters the line-item charge with a token charge of $1, which severely under-reports the actual cost to the facility.

Fix-Challenge: In these cited error cases, one of the line-item charges misrepresents the cost to the facility for a device or its anchoring procedure. Since CMS collects charges for future APC bucket re-pricing, a constant pattern of mistakenly misrepresenting costs only serves to skew the pricing data for the facility. For replaced/replacement devices with the same cost to the facility provided at 100-percent credit, the line item must be billed with a token charge of “less than $1.01,” per CMS, or “not more than $1,” per the OIG. 

For a device replaced with a more expensive device, but for which the facility receives 100-percent “replaced” credit – in other words, “when a hospital … receives a credit in the amount that the device being replaced would otherwise cost” – then the difference is reported as the line-item charge and the -FB modifier is appended to the HCPCS-II code for the device to signify a 100-percent credit. Per CMS guidelines, “the hospital must charge the difference between its usual charge for the device being implanted and its usual charge for the device for which it received credit.” Basically, it’s a matter of being able to identify and decipher these different credit scenarios, then leverage staff with the expertise to recalculate the associated line-item charges accurately.



Navigating the often serpentine rules of the game pertaining to implantable medical device credits is at once confusing, overwhelming, and, to many, unfairly discriminating in certain areas. There are numerous loose ends to keep track of, and federal entities such as CMS and the OIG are quite aware of it (and also numbly impartial). Claims are expected to be accurate, period. If not reported accurately the first time, claims must be corrected and resubmitted. To achieve this, provider entities must build internal teams along the implantable medical device food chain; such teams should include staff from clinical areas for point-of-service data, materials management or CSR, A/P, HIM/coding, PFS/billing and/or revenue cycle, as well as compliance.  Forming a viable internal “device work group,” acting together as a community with reportable goals, and developing solid working relationships all are crucial steps to take. Similarly, developing a working relationship with device vendors, who report critical information such as original device costs and credit amounts directly to the OIG, is also crucial. All of these disparate components must come together to manage this arena, which increasingly is becoming a target of audits.

About the Author

Michael G. Calahan, PA, MBA, is the vice president of hospital and physician compliance for HealthCare Consulting Solutions (HCS). Michael lives and works in the Washington, D.C. metropolitan area, specializing in compliance, revenue cycle management, CDI, and coding/billing in the facility inpatient/outpatient and physician arenas.

Contact the Author


To comment on this article please go to editor@racmonitor.com



  1. CMS, Medicare Claims Processing Manual (MCPM), 100-04, Ch. 3, Section 100.8.
  2. CMS Transmittal No. 922 (R922OTN, effective 2008; released 2011; implemented 2012), Change Request No. 7457 (revising and expanding original IP instructions set forth in Transmittal No. 1509, Change Request No. 5860 from 2008).

Outpatient & ASC:

  1. CMS, MCPM, 100-04, Ch. 4 Part B Hospital, Sections 20 and 61.
  2. CMS, SE0732 (2012), Change Request No. 5668 for OP and ASC adjustment to partial device credit reporting policy.
  3. Federal Register, OPPS and OPPS/ASC Final Rule for CY 2013, Nov. 15, 2012; various tables, references and data, but in particular pp. 68356-68358 germane to “averaging is inherent” statement regarding current existing policy for component reporting and calculation of device credits.
  4. CMS, online FAQ archives, FAQ No. 2311: ASC payment for implantable devices.
  5. CMS, MCPM,100-04, Ch. 14 ASCs, Section 40.8.
  6. CMS “Medicare Fee-for-Service Payment – Hospital Outpatient PPS” Web pages for devices and procedures contained in the “Device to Procedure Edits” and the “Procedure to Device Edits” at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/device_procedure.html.

Additional References:

  1. CMS, MCPM, 100-04, Ch. 32 Clinical Trials, Sections 68-69.
  2. OIG reports, select cases, in whole or in part containing audit data germane to implantable device credit reporting, as follows:
    • A-01-11-00524  National Government Services (NGS)
    • A-01-11-00530  Boston Medical Center
    • A-07-11-05014  Barnes Jewish Hospital
    • A-05-11-00012  Cleveland Clinic
    • A-01-10-00512  St. Raphael Hospital
  3. OIG Annual Work Plan, years 2011, 2012 and 2013; Part I, Medicare Part A and Part B, “Medicare Inpatient and Outpatient Hospital Claims for the Replacement of Medical Devices.”

Michael Calahan, PA, MBA, AHIMA-Approved ICD-10 CM/PCS Trainer

As Vice President of Hospital and Physician Compliance at HealthCare Consulting Solutions (HCS), Michael G. Calahan, PA, MBA, provides subject matter expertise and consulting services. He has been a speaker for MedLearn for nearly 10 years and has provided webinars on device credit reporting since 2013.

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