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CMS adjusts payment policy for replacement devices in IPPS proposed rule

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Editor’s note: This article is the second in a series of three IPPS-related updates. The first can be found here.

As previously stated, the April 19 inpatient prospective payment system (IPPS) proposed rule contains an abundance of notable clarifications and updates that will affect multiple departments. Of these proposals, CMS’ clarification on payment for recalled and replaced devices stand out as one of the most significant for providers.

The 2008 IPPS rule implemented a policy that reduced a hospital’s IPPS payment for certain MS-DRGs where the implantation of a device that had been recalled determined the base MS-DRG assignment for that procedure. At that time, CMS stated it would “reduce a hospital’s IPPS payment for those MS-DRGs where the hospital received a credit equal to 50% or more of the cost of the device when a manufacturer provided a credit for a recalled device”.

As a result, CMS implemented condition codes to trigger the payment reduction, according to Debbie Mackaman, RHIA, CHCO, regulatory specialist for HCPro, Inc. When the device is replaced at no cost due to a malfunction of the device prior to the end of its normal lifecycle, condition code 49 is reported. If the device was replaced due to an FDA or manufacturer recall, condition code 50 is reported. Mackaman adds that in this case, the amount of the credit is reported on the UB04 claim form with a value code FD, and that amount is subtracted from the hospital’s DRG payment.

Similarly, CMS implemented a “partial credit” policy in the 2008 outpatient prospective payment system (OPPS) reduced the amount of payment for an implanted device made under the OPPS. It was determined that a significant portion of the payment can be attributed to the cost of an implanted device when the provider receives partial credit for the cost of a replaced device, but only where the amount of the device credit is greater than or equal to 50% of the cost of the implanted replacement device, according to CMS.

Payment reductions are then triggered by using modifiers –FB (without cost) or –FC (partial credit), in addition to using the above condition codes (49 or 50), according to Mackaman.

“Not only does the reduction in payment affect the hospital, it also affects the amount of co-insurance the patient pays out-of-pocket which is different than the IPPS rule, which applies deductibles and co-insurance based on ‘benefit days.’”

In the IPPS proposed rule for 2012, CMS recognizes the discrepancy between the IPPS policy and the OPPS partial credit policy for replacement devices. For the OPPS partial credit policy, credit must be 50% or greater of the cost of the replacement device, and for the IPPS policy – it does not specify whether the credit should be 50% or greater of the replacement device or the original device.

CMS believes that these two policies should be consistent with each other on the issue of whether the 50% or more credit is with respect to the replacement or original device. As a result, CMS is proposing to clarify the IPPS policy to state that the policy applies where “the hospital received a credit equal to 50% of more of the cost of the replacement device.”

Providers should respond to this proposal accordingly, according to Mackaman.

“Since this is a clarification and not a change to the actual regulation, hospitals should review their current policies and align with the CMS policy by ensuring that the language concerning the credit is for the replacement device and not for the original malfunctioning or recalled device.”


  1. jawana binion says:

    We replace the recalled defib lead when we exchange the generator due to ERI. The lead is provided at no cost but the generator is not. How do we handle this since this is not a 50% reduction for the system?

  2. Debbie Mackaman says:

    Can you please provide what HCPCS codes you are using for the replaced lead device and the replaced generator device and what HCPCS/CPT code(s) you are reporting for the actual procedure(s)? It is necessary to understand what services/devices you are potentially billing in order to provide you with more information. Thank you.