How SpendMend's Explanted Medical Device Warranty Credit Tracking solution helps hospitals to avoid costly fees and penalties.

 

 

Episode Introduction 

 

In this episode, Lisa Miller, founder of VIE Healthcare and CEO of Spendmend ,and Jim Cagliostro, VIE’s Clinical Operations Performance Improvement Expert, interviewed Al Brander to explore in detail the challenges and financial risks of managing medical device warranties. Topics include the risk of ‘’Medicare fraud’’, how hospitals are throwing away cash, why financial and legal responsibility lies with the explanting hospital, and a detailed presentation on the compliance and revenue benefits of SpendMend’s innovative software solution. 

 

Show Topics 

 

Background to the Explanted Medical Device Warranty Credit Tracking solution

The risk-reward element that helps hospitals to avoid penalties and add revenue

The high risk of financial penalties for failure to comply

Mock audits are invaluable for hospitals in this low frequency/high risk areas

The simple shipping label that keeps vendors accountable

How SpendMend’s software provides audit defense

Understanding revenue benefits at a glance

 

Main Topics

 

04:43 Background to the Explanted Medical Device Warranty Credit Tracking solution

 

Al explained that when a device fails, hospitals have a responsibility to return it to the manufacturer to obtain warranty credits. 

 

‘’…there are all kinds of great implants that we put into people to make their lives better, the most common of which is a pacemaker, but there's all kinds of neural stimulators, total joints, all of these items. And so interestingly, all of them come with kind of a warranty. They're expected to last for a certain amount of time, but all of us have cell phones, so we understand that batteries and motherboards don't always last as long as they're supposed to. And so for years, CMS, the Center for Medicare and Medicaid Services, is the primary buyer of these things because most of them go into our elderly patients. And so CMS realized that "hey, we pay for the first device to get put in and then if it does fail, we pay for the second device to get put in and the hospitals are supposed to be sending back these devices, back to the manufacturer to see if there's a warranty." When the hospital gets that money, well really it's not their money, it's CMS’s money. And so the new standards came out in the late 2000's, actually. And what the expectation was is, when there's a device that fails, for whatever reason there's a malfunction or patient morbidity that happens because of that device, when it gets switched out, hospitals are expected to send it back to the manufacturer and pursue those warranty credits.’’

 

 

06:05 The risk-reward aspect that helps hospitals to avoid penalties and add revenue

 

Al said that hospitals could be literally throwing away cash by failing to return medical devices under warranty.

 

‘’In order to incentivize hospitals to do this every time, they've said, "Hey look, if that warranty credit is 50% or more of the replacement cost of that device, then send it back to us. But anything that's 49% or below you guys get to keep. We know we've paid for the full cost of the device, but that additional 49% is yours because you've gone through the effort to return it….the first part to remember about these is that probably 90% of the warranties are going to be below those 50% threshold. So this is just money that the hospital gets to keep. And I can tell you as a bedside nurse, there was a huge reliance on the vendor rep and just asking them, "Hey, do we need to send this back for warranty?", "Is this under recall?" Because in the heat of the moment, in that case I would have no idea. And so if the rep said no, I would throw that device into the biohazard bag, literally throwing cash in the trash can. Because these devices could have anything from a $3000 to a $15,000 warranty credit on them.’’

 

 

07:53 The high risk of financial penalties for failure to comply

 

Al said that fines have increased significantly in the past few years. 

 

‘’So the first is under the prudent buyer standard. Before it was, "if you got the credit, repay the credit" and now they've said, "Hey, regardless of whether you get the credit or pursue the credit, if there was a warranty, you owe it to us." So that's where it's a double whammy for the hospital. If they don't return that device but there was a credit, they lose out on that money and they have to pay CMS. The fines have greatly changed. It used to be a $5,000 flat fee and they would have you return the monies that you had and maybe charge a slight interest payment if you've had it for a number of years. Now they've gone to a per-instance fine. So the bottom of that fine is about a little over $11,000. The high end of that fine is 22.9, so almost $23,000. So if you take a $20,000 credit that you don't get, now you need to pay that fine. And what CMS has said is that, "hey, if you don't do this correctly, you don't just owe us that credit, you owe us three times that credit. So that $20,000 you just lost out on now turns to $60,000 and if we apply the high end of the fine, you're now at $80,000." So it adds up very fast…..’’ 

 

 

17:52 Mock audits are invaluable for hospitals in this low frequency/high risk area

 

Al gave an example of one high performing hospital at risk of a $1.5million to $2 million fine.

‘’We go in, we get information from the hospital on what they've purchased, what devices they've had. So they're paid history from the big fours, we call them, the big four cardiac manufacturers. Then we get all of the credits that they've issued to the hospital, all of the devices they've sent for the hospital to have warranty. And then we plug it into our database that has all of these warranties to figure out which ones qualified, which ones do they need to report back. Then we take a deep dive into the UB-04s of all of those patients, to make sure it was credited properly and the right condition and value code was there. So those are invaluable to the hospital. One of the things this is really falls into that low frequency high risk area. So we recently just did an audit for a 250 bed community hospital. Standard average American hospital across the country. There's more of those than just about any other size hospital. And they did 2200 implants/explants a year. So over the six years, you guys can do the math, they only had 28 mistakes. So if you're a nice statistics geek, that's way inside of the standard bell curve. But when we extrapolated out that money, those 28 mistakes were just over $300,000. And if OIG had found that $300,000, they would've had to pay back $900,000, because it's the three times rule. And if they applied the low and high jeopardy, you were between a $1.5 and $2 million finding. And so by us going in there and doing this mock audit, we were able to find where the holes were in their process, have them report it without having any fines. One of the things that has been very cool is we help hospitals self-report this. We've never had a hospital fined in hundreds that we've done across the country, large and small health systems.’’

 

 

27:04 The simple shipping label that keeps vendors accountable 

 

Al presented the Explanted Medical Device Warranty Credit Tracking solution, and highlighted the need to monitor the role of the vendor. 

 

‘’So the key to this is that on the clinical side, all I need to do or worry about as a clinician is the front end of this. And if I do my part right, and SpendMend's going to make sure that I do, we're going to be okay. Then when it's time to send it back, we're working with supply chain, "Hey, you need to send this back. Here's the label." You can get boxes still from the manufacturers. In fact, we have a link in our help section where you can just go on and order those boxes from each manufacturer. Then when it goes to the vendor, we're communicating with them. It's amazing how often we hold the vendors accountable. They'll say, "Well, we didn't get that device didn't ever show up." We can prove from the shipping label, "Yes it did.’’ “Well it came after 30 days.’’ “No it didn't. This is Joe who signed for it on the loading dock and you did get it." We also hold them accountable to their warranty rules. What is very interesting about this, CMS does not dictate what a warranty is. CMS does not dictate what qualifies. CMS doesn't even have a list, which would be incredibly helpful, of all the devices that have warranties. It is 100% up to the manufacturer to create those rules and conditions for returning that warranty. However, once that warranty is returned or once there is a warranty on that device, now CMS is involved, making sure that you return those.’’

 

 

31:31 How SpendMend’s software helps hospitals provides audit defense

 

Al highlighted the benefits of SpendMend’s software for hospitals, including visibility, insight, standardization and audit defense. 

 

‘’What we learned early on, the first software that I worked on the tissue side, that was one where we could sell a software to a hospital and they could run it. They could manage the program. With this, because it's five to six departments over across a six-month timeline, we learned very early on that the service was the critical component to this. And that service, looking back at what you've done previously to make sure you have no risk. And then day to day. We don't just sell a software and walk away, we sell you a process, we sell you the software to make you standardize. My mantra, when I was running the OR, was "consistency in procedure is going to lead to predictability of results." There is no process flow out there that needs more consistency and procedure. Imagine a health system with 14 hospitals and each cath lab and each OR all have to do this. And each supply chain, and each of those hospitals have to track this. …., this gives visibility and insight as to what's going on and SpendMend manages it for you. And then just like, should you be audited by the IRS, we come in the back end. And because we've been involved in this process, because we have this tool that does all the documentation, we actually provide audit defense. So you're not alone.’’

 

 

35:40 Understanding the revenue benefits at a glance

 

Al said that the software solution allows hospitals to see revenue received and fines avoided. 

 

‘’Absolutely. So part of what we do in the dashboard, because if you get higher up in the food chain, you're less involved in the details, right? So I can go in as the chief nursing officer or the chief compliance officer and say, "Hey, what's going on?" And I can go to this dashboard and I can look at how many devices, plant procedures we've had in this system, how many of those qualified for a warranty and are sent back. At a glance, I can see the total dollars were received, what we sent to the payers, what we retain. This is the money that we now, and we want to see this go up every year at those hospitals. And then of course, how many fines have we avoided? And then for those compliance folks out there, this is where we get to look at the holes in the cheese.’’

 

Connect with Lisa Miller on LinkedIn

Connect with Jim Cagliostro on LinkedIn

Connect with Al Brander on LinkedIn

 

Check out VIE Healthcare and SpendMend 

 

You’ll Also Hear:

 

Al Brander’s career background, from an early call to ministry and going into nursing, to Chief Sales Officer at SpendMend and creator of the innovative software that helps hospitals to track and manage warranty credits. 

 

Why compliance in warranty credits is compulsory for all hospitals and health systems. ‘’Non-compliance … falls under the False Claims Act…. This is Medicare fraud….’’

 

The survey that suggested hospitals are failing to complete warranty claims correctly.

 

Why financial and legal accountability for medical device warranties lies with the explanting hospital. 

 

From clinical to rev cycle – the complex process of identifying warranty credits. ‘’You've got two separate clinical departments …you have AP that has to recognize the credit. You've got the supply chain folks who are getting the new device in and then sending this old device back and then the rev cycle. …typically when we go into a hospital, what we see is six different spreadsheets. Nobody quite knows what's going on.’’

 

Why time triggers are critical to every hospital. ‘’You've got 30 days from when that explant happens to getting the device back. You have 60 days from when you get that credit to reporting it to CMS. So not only is it difficult to do, there's some very significant time triggers that have to happen.’’

 

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