Where a defective medical device, such as a cardiac pacemaker, is replaced under a
warranty, hospital or other provider services rendered by parties other than the warrantor
are covered despite the warrantor's liability. However, Medicare contractors may consider
recovering payment for such services under the liability insurance provisions in HI 00620.175.
With respect to payment for the device itself, under cost reimbursement the following rules apply: If the device is replaced free of charge by the warrantor,
no program payment may be made, since there is no charge involved. If, however, a
replacement device from another manufacturer had to be substituted because the replacement
device offered under the warranty was not acceptable to the beneficiary or his physician,
payment may be made for the replaced device. Also, if the warrantor supplied the replaced
device, but some charge or pro-rata payment was imposed, program payment may be made
for the partial payment imposed for the device furnished by the warrantor.
If a hospital could have obtained an acceptable device free of charge under a warranty
but chose to purchase one instead, payment cannot be made for the purchased device.
Also, if an acceptable device could have been purchased at a reduced price under a
warranty but the hospital did not take advantage of the warranty (i.e., it paid the
full price to the original manufacturer or purchased the replacement device from a
different manufacturer), the most the hospital can receive as reimbursement for the
purchased device is the amount it would have had to pay if it had pursued the warranty.
Payments to a hospital for inpatient services under the prospective payment system (PPS) are not reduced to reflect collections by the provider under warranty provisions
for medical devices.