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Medical Devices, Warranty Credits, and Medicare Regulation
What is Supply Chain’s Role?
SMI Fall 2017 ForumJesse Schafer, Explant Control Manager, Mayo Clinic
Oct 26, 2017
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Objectives
1. Understanding the risk associated with Medicare’s device warranty credit and no charge device requirements
2. Learning how a large multi-site, multi-specialty academic center improved processes around cardiac and surgical device returns
3. Discovering commonplace solutions for efficient and effective device returns and credit processes and resource options, as well as auditing and monitoring techniques
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Key Messages
• Supply Chain has an indispensable role in the compliance and revenue implications of medical device warranty credits
• Vendors are equally instrumental in reducing pain points in the process
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Mayo Clinic Scottsdale, AZ Mayo Clinic Rochester, MN
Mayo Clinic Jacksonville, FL Mayo Clinic Health System
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Interactive Questions
• Polling questions are infused in this presentation
• Goal is to increase audience engagement
• Responses are anonymous so please participate
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What best describes your organization?
A. Manufacturer of implantable medical devices
B. Distributor of implantable medical devices
C. Hospital with implantable medical device services
D. None of the above
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Implantable Medical Device
• Devices surgically implanted that are designed to remain in the patient after the conclusion of the procedure for one or more of the following benefits:
Limb or joint
replacementMedication
delivery
Organ
support
Monitoring and Therapy
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Medicare Regulation
• All eligible explanted medical devices must be pursued for warranty credit and no-charge replacement and paid to Medicare if >50%.
Warranty
Free replacement
MedicareProblem
deviceFull or partial
benefit
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How is this issue a Supply Chain problem?
Clinical Dept. Vendor
Credits
RMA
Ship & Track
Supply Chain
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When is a device warranty credit plausible?
A. Recall issued
B. Problem or malfunction indicated by hospital
C. Early battery depletion indicated by hospital
D. All of the above
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What is the 50% Rule?
• Credits >50% of cost of replacement devices are due Medicare (when CMS is payer)
<50%
>50%
Revenue
potential
Due
Medicare
Warranty
credit
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Common Hurdle
• Difficult to know who owns medical device warranty credits – is it the clinical department, supply chain, revenue cycle, or internal compliance?
• Unless ALL departments participate, success is unlikely
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So what is the risk?
Understanding the risk associated with Medicare’s device warranty credit and no charge device requirements
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Why does the government care?
• US implantable medical device industry ~$35B
• 2012-2014 Medicare paid $30B for cardiac devices alone
• 2010-2017 includes OIG findings of medical device overpayments of $30-300k per hospital.
All facilities that explant medical devices are subject to audit/penalty
Device Warranty Credit
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What do government audits reveal? (link)
• Hospital did not
• Pursue available credits
• Report/Pay credits it received
• Implement adequate process and controls
Supply Chain can help
with all four of these
key elements
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Which devices should you focus on to satisfy the Medicare requirement?
A. Cardiac devices
B. All battery-operated implants
C. Orthopedic joints
D. See Federal Register final rule for IPPS and OPPS annually
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How are explants different than a ‘normal’ return for credit?
Product ShipVendor analysis
Credit memo
Patient accounts
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Things that can go wrong
Product
• Device discarded or given to patient
• Device improperly cleaned/sterilized
• Device not recognized as requiring return
• Non-standard workflows
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Things that can go wrong (cont.)
Product
• Vendor rep takes device and fails to properly initiate the claim
• Vendor rep indicates warranty expired (but it’s not)
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Things that can go wrong (cont.)
Ship
• Vendor requests litany of clinical details prior to authorizing return
• Item rejected as past 30-45 return window
• Vendor box used but tracking # not captured
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Things that can go wrong (cont.)
Vendor analysis
• Vendor unable to obtain sufficient info
• Device evaluation not requested
• Product analysis report not requested
• Vendor never processes warranty claim
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Things that can go wrong (cont.)
Credit memo
• Patient name and device serial not documented
• Credit memo is not detected as explant
• Explant returns and credits not reconciled
• 50% rule not calculated accurately
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Things that can go wrong (cont.)
Patient accounts
• Patient Accounts never notified of credit received
• Annual cost report not updated
• Patient claim not adjusted
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What happens if Supply Chain is not engaged?
• Clinical area may rely upon local vendor rep
• Shipments may occur without any tracking
• Supply Chain may have no heads-up that credit memos may be pending
• No one may be following up on unresolved credit claims
• No one may alert Patient Accounting when credits are received and due Medicare
Hospital is at RISK
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What processes can help?
Learning how a large multi-site, multi-specialty academic center improved processes around cardiac and surgical device returns
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SC logs return in
ERP
Device
removed/replaced
and documented in
EHR
Phase 1 – initiate warranty claimPatient requires
new therapy or
device failure
incurred
EHR flags device
for return to vendor
Device routed to
pathology or
holding area
Return to vendor
form submitted to
SC
SC contacts
vendor to request
RMA and return kit
as needed
SC notifies clinical
area item can be
shipped
Item routed
through dock and
tracking performed
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SC monitors credit
memos for explant
identifiers
SC reconciles
vendor warranty
claim reports
against open
returns
SC follows up with
open claims >90
days
SC notifies clinical
area of vendor
requests for
additional info
ERP and EHR
updated with claim
outcomes
Notification routed
to Patient
Accounting for
credits >50%
Phase 2 – close warranty claim
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Role of Clinical Dept.
Identify eligible
explants
Clean and bag devices
Document explant reason
Obtain return kit
Complete vendor
paperwork
Route device for return
within 30 days
Clinical or Supply Chain
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Role of Supply Chain
Track all explant returns (patient
and device)
Request RMA and/or return kit
Detect explant credit memos
Reconcile open explant credits
Notify patient billing of
credits >50%
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Role of Vendor
Provide return kits
Assist with out-of-service
and claim paperwork
Assess warranty claim within
90 days
Provide monthly report claim status
Issue credit memo as needed
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Cardiac Device Returns
• Workflow example
• Return all cardiac explants
• Clinical area submits claims for vendors that don’t automatically initiate a claim
• Allow end user to box/ship using vendor provided pre-paid return kits
• Ensure return record created in ERP
• Watch for credit memos and reconcile monthly vendor report against returns
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Surgical Device Returns
• Workflow example
• Require clinical area to determine if item is eligible for return
• Request minimum data to initiate RMA request with vendor
• Forward the data to vendor as pdf
• Request return kit and direct ship to end user
• Watch for credit memos and reconcile monthly vendor report against returns
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Suggested Minimum Data
• Facility
• Reporter/Contact
• Patient name, DOB, gender
• Device model, serial
• Implant/explant dates
• Explant reason
• Explanting/Implanting MD
• Replacementmodel, serial
• Storage solution?
• Disinfection?
• Destructive analysis ok?
• Vendor rep involvement with case
Reference MedWatch Form FDA 3500A (link) for common vendor questions
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Solutions
Discovering commonplace solutions for efficient and effective device returns and credit processes and resource options, as well as auditing and monitoring techniques
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Strategies
• Capture explant type and reason in EHR
• Build alert to prompt clinical area to route item for shipment
• Add report to EHR that provides key patient and device information
• Develop standard data sheet to allow direct send of patient/device info to vendor to initiate complaint/return
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Strategies (cont.)
• Ensure appropriate documentation in ERP returns record
• Consider automated credit memo scanning to detect key explant identifiers (RMA, serial #)
• Develop reconciliation process to close all explant returns as approved or denied by vendor
• Develop process to notify billing of all credits >50% of replacement device cost
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Strategies (cont.)
• Run ERP reporting to monitor explant return status
• Reconcile with monthly vendor claim reports
• Require explant credit memos in contracting language to assist hospital compliance
• Provide constructive feedback to vendors regarding claim response time
• Consider warranty outcomes as part of vendor performance and product value
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Potential RevenueExamples
Example: 2,500 * 5% * $7,500 * % Retained by Hospital = Potential Revenue
Note: the portion retained by hospital is dependent upon regulation,
payer contracts and hospital policy
Explant volume
% eligible for warranty credit
Average device cost
Average credit value
Portion of credits Medicare and <50%
Portion of credits Medicare and >50%
Portion of credits non-Medicare
2,500
5%
$10,000
$8,000
10%
40% (due Medicare)
50%
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How is this issue a Supply Chain problem?
Clinical Dept. Vendor
Credits
RMA
Ship & Track