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Note from Hugh

Medicare Weekly Update, May 20, 2008

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In the May 6 issue of Medicare Weekly Update, I discussed CMS’ Change Request 5860 relating to billing for implantable devices furnished to inpatients where the hospital received a replacement device at no cost or received a full or partial credit for the device due to a recall or premature failure of the original device.

The Change Request provided implementing instructions for a new regulation (42 CFR 412.89) that CMS promulgated as part of the 2008 IPPS final rule. Under the new regulation, for certain MS-DRGs involving implantable devices, the DRG payment amount is reduced if the hospital received a replacement device at no cost or if the hospital received a full or partial credit for replacement device due to a recall or premature failure of the original device.

Change Request 5860 originally stated that the payment reduction would be effective for inpatient discharges on or after July 1, 2008. As I previously noted, that seemed inconsistent with the regulation which states that the payment reduction is effective for inpatient discharges on or after October 1, 2007. It was also consistent with the Change Request’s effective date of October 1, 2008.

I subsequently contacted Joe Bryson at CMS to discuss these inconsistencies. Mr. Bryson informed me that the July 1 date in the Change Request was an error and that CMS is not implementing the payment reduction for inpatient cases until October 1, 2008, notwithstanding the fact that the regulations states that the payment reduction is effective October 1, 2007. As reported below, CMS last week issued a new transmittal (Transmittal 1509 to the Medicare Claims Processing Manual) amending Change Request 5860 to change the July 1 date to October 1, 2008, which is consistent with the guidance I received from Mr. Bryson by phone.

An interesting, although perhaps academic, question is whether CMS has the legal authority to delay implementation of its own regulation without formally amending the regulation. However, assuming they do (or at least that no on challenges the delay), I have two thoughts for hospitals.

First, although not entirely clear, the requirement that hospitals report Condition Codes 49 (Product Replacement within Product Lifecycle) and 50 (Product Replacement for Known Recall of a Product) appears to still be in effect even though CMS is delaying implementation of the payment reduction and the use of value code “FD” (Credit Received from the Manufacturer for a Replaced Medical Device) until October 1, 2008.

Second, it is important to remember that the delay relates only to cases paid under the IPPS. The payment reduction and special billing requirements for cases paid under the Outpatient Prospective Payment System are not affected by Change Request 5860 and remain in effect.

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