CMS Pub. 100-04, ch. 3, § 100.8

Background

To identify and track claims billed for replacement devices, CMS issued CR 4058 on

November 4, 2005. This CR provided instructions for billing and processing claims with the

following condition codes:

• 49 Product Replacement within Product Lifecycle—Replacement of a product

earlier than the anticipated lifecycle due to an indication that the product is not

functioning properly.

• 50 Product Replacement for Known Recall of a Product—Manufacturer or FDA

has identified the product for recall and therefore replacement.

Policy

Beginning with discharges on or after October 1, 2008, CMS reduces Medicare payment

when a replacement device is received by the hospital at a reduced cost or with a credit that

is 50 percent or greater than the cost of the device, and when the assigned MS-DRG for the

claim is one of the MS-DRGs applied to this policy.

For a list of MS-DRGs for which this policy applies to, please see the IPPS Final Rule.

This adjustment is consistent with section 1862(a)(2) of the Act, which excludes from

Medicare coverage an item or service for which neither the beneficiary, nor anyone on his or

her behalf, has an obligation to pay.

Billing Procedures (Discharges on or after October 1, 2008)

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 value code FD

will communicate to Medicare the amount of the credit, or cost reduction, received by the

hospital for the replaced device.

Payment (Discharges on or after October 1, 2008)

Medicare deducts the partial/full credit amount, reported in the amount for value code FD,

from the final IPPS reimbursement when the assigned MS-DRG is one of the MS-DRGs

applied to this policy.

Reminder about Charging for Recalled Devices

As a reminder, section 2202.4 of the Provider Reimbursement Manual, Part I states, “charges

should be related consistently to the cost of the services and uniformly applied to all patients

whether inpatient or outpatient.” Accordingly, hospital charges with respect to medical

devices must be reasonably related to the cost of the medical device. If a hospital receives a

credit for a replacement medical device, the charges to Medicare should also be

appropriately reduced.