Medicare's Policies and Prospective Payment Rates for Cardiac Pacemaker Surgeries Need Review and Revision

HRD-85-39: Published: Feb 26, 1985. Publicly Released: May 10, 1985.

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Pursuant to a congressional request, GAO reviewed the impact of Medicare costs on: (1) pacemaker manufacturers' warranty policies; (2) pacemaker manufacturers' marketing policies; and (3) hospitals' procedures for acquiring and charging for pacemakers. In addition, GAO analyzed the impact of hospitals' and manufacturers' policies on the reasonableness of Medicare's new payment rates under the prospective payment system (PPS).

GAO found that, although pacemaker manufacturers offer discounts ranging from 5 to 40 percent, very few hospitals have obtained discounts because: (1) manufacturers do not advertise discounts; and (2) the cost reimbursement system used by Medicare in 1981, which was used as the base for reimbursement rates under PPS, did not provide incentive for hospitals to seek discounts. GAO also found that: (1) most hospitals do not enhance their ability to obtain discounts by coordinating pacemaker purchases with their practicing physicians or with affiliated hospitals; (2) it could not obtain enough data to determine whether hospitals generally take advantage of warranty credits for replacement pacemakers; (3) PPS provides an incentive for hospitals to take advantage of warranty credits; and (4) the data used by the Department of Health and Human Services (HHS) to compute prospective payment rates for pacemaker surgeries contained errors, including the use of unaudited hospital cost reports and classification of pacemaker cases under the wrong diagnostic-related groups (DRG). In addition, GAO stated that HHS may need to: (1) establish separate DRG for procedures involving dual-chamber pacemakers and guidance for the appropriate use of such pacemakers; and (2) require that all explanted pacemakers be returned to their manufacturers for testing.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HHS stated that it reviewed data on dual chamber pacemakers and decided that separate DRG for them were not necessary.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to determine if the increased use of dual-chamber pacemakers, to the extent justified by medical necessity, warrants establishing separate DRG's for them.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: HHS issued coverage criteria outlining the conditions under which dual chamber pacemakers may be medically necessary. Professional review organizations (PRO) use these criteria when reviewing pacemaker cases.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to determine the conditions under which the use of dual chamber pacemakers is medically warranted.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Not Implemented

    Comments: HHS disagreed with this recommendation, and stated that it believes that the problem GAO identified related to improper coding by providers. As discussed in the report, the problems GAO identified did not solely result from coding problems.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to review the appropriateness of the classification under DRG 117 of procedures that involve replacement of pacemaker systems with those that do not.

    Agency Affected: Department of Health and Human Services

  4. Status: Closed - Implemented

    Comments: While HHS has used more current data to calculate revised DRG weights, it has not rebased PPS to account for efficiencies in operations introduced under PPS.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator of the Health Care Financing Administration (HCFA), when updating pacemaker DRG rates, to use data that are as current as possible to reflect the improved efficiency that should result from the incentives toward prudent pacemaker purchasing under Medicare's PPS.

    Agency Affected: Department of Health and Human Services

  5. Status: Closed - Implemented

    Comments: HHS stated that hospitals under PPS will be allowed to retain warranty refunds while those under cost reimbursement must return such refunds to Medicare.

    Recommendation: The Secretary of Health and Human Services should use the information obtained through implementation of the recommendation concerning the return to the manufacturer of explanted pacemakers to ensure that Medicare benefits when warranty credits are issued.

    Agency Affected: Department of Health and Human Services

  6. Status: Closed - Not Implemented

    Comments: HHS stated that, before requiring testing of explanted pacemakers, it wanted to obtain data through its pacemaker registry to ensure that testing is required only when meaningful data will be obtained. HHS has decided not to require explanted pacemakers to be returned to the manufacturer for testing.

    Recommendation: The Secretary of Health and Human Services should require: (1) hospitals to return all explanted pacemakers and leads to the manufacturers; (2) require the manufacturers to test all returned pacemakers and leads; and (3) require the manufacturers to report the results of the tests to the hospitals. This would provide the information necessary to determine the extent to which warranty credits are being issued.

    Agency Affected: Department of Health and Human Services

  7. Status: Closed - Implemented

    Comments: HHS stated that it required PRO to review 100 percent of the pacemaker replacements, and this should identify unnecessary replacements. However, as discussed in the report, in many cases, only manufacturer testing can determine, with assurance, whether a pacemaker needs replacement.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to review the situations resulting in the replacement of pacemakers that are still functioning within specifications to determine if unnecessary replacements occur and, if so, take action to minimize unnecessary replacements.

    Agency Affected: Department of Health and Human Services

 

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