Are Some Medical Device Companies Trying to Induce Hospitals to Perform Unnecessary Inpatient Procedures?

As medical technology has advanced, more and more surgical procedures have become outpatient procedures. Medicare has encouraged this migration out of the hospital by only paying for inpatient surgical procedures that are medically reasonable and necessary. Indeed, for some medical device makers, the largest obstacle to increasing sales has been the high prices of their devices relative to the Medicare reimbursement available to hospitals when the procedures are performed in the outpatient setting.

In response to this reimbursement disparity, some dishonest medical device makers have initiated marketing strategies to encourage physicians and hospitals to admit Medicare patients undergoing procedures with their devices to the inpatient setting—usually a one-night stay—even though medical necessity may only support outpatient treatment in the majority of the cases. By persuading hospitals to admit these patients for one-night stays, the device makers have sought to maximize Medicare reimbursement for hospitals by exploiting the higher reimbursement rates available under the DRG. The purpose of these strategies has been to boost sales of their devices by marketing the spread, or profit, available to providers who use the devices on patients in the inpatient setting.

Such strategies may prove particularly effective with physician-owned hospitals, for the operating physicians have a financial stake in the hospital’s profits and therefore have an added incentive in treating patients on an inpatient basis. By appealing to the providers’ financial self-interest, the dishonest device maker intends to induce these providers to use their devices as expensive and clinically unnecessary inpatient procedures.

The sales tactics utilized by these manufacturers include using sales reps to promote the reimbursement advantages of inpatient over outpatient treatments. Oftentimes, the reps will use pro formas to walk providers through the financial opportunities. Typically, the pro formas will show that a hospital will lose money if the procedure is performed on an outpatient basis but that it will make money if performed as a short-stay inpatient procedure. The manufacturer will also offer “reimbursement meetings” or conferences, sometimes at high-priced restaurants or hotels. To close the loop, the manufacturer might even coach the physicians and hospitals on how to avoid Medicare rejection on an inpatient claim.

In recent years, the Justice Department has intervened and settled False Claims Act qui tam actions against medical device makers who allegedly deployed such sales tactics. In addition, the government has used the FCA to recoup millions of dollars from healthcare providers who acted on these promotions by submitting medically inappropriate inpatient claims to Medicare. The relators in these cases have collectively received millions of dollars in rewards through the receipt of relators’ shares.