COCHLEAR IMPLANTS
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Disability Rights
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Service Contracts and ESCO Insurance
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Section 171 of the Social Security Act Amendments of 1994 (effective July 1, 1994) makes it illegal for a cochlear implant manufacturer to sell service contracts to Federal or State health plan beneficiaries if those service contracts duplicate benefits to which these beneficiaries are already entitled. This is also a condition of enrollment in the Medicare program under 42 Code of Federal Regulations, Section 489.21(a).
Service contracts (even if referred to as "extended warranties") cover repair and replacement of device components. All Federal and State health plans already provide coverage for these services. Therefore, Federal law prohibits a cochlear implant manufacturer from selling these service contract policies to Federal or State health plan beneficiaries.
Service contracts are very lucrative sales for manufacturers. For example, Cochlear Americas charges Nucleus device users at the following rates:
$410 for one processor/headset for one year
$560 for two processors for one year
$850 for two processors for two years
Yet Cochlear service contracts cover only electronic or mechanical device failure and do not provide coverage for theft or loss, or replacement of batteries and cables. In fact, the average Nucleus user does not even require a repair until they have had the device at least 3.3 years.
In early 1997, Otologic Reimbursement Management (ORM) began advising all cochlear implant users not to purchase service contracts if they were covered under a Federal or State health plan (see below). Subsequently, Cochlear Corporation counsel Peter L. Edwards sent a letter to ORM threatening to publish false and defamatory accusations against ORM on the Internet if they did not cease such advisement (Cochlear did not contest the illegality of the sales).
ORM refused such extortionate threats, and in January 1998, Cochlear Corporation's President and CEO did indeed publish such a statement, claiming that he or Cochlear management had never been informed that selling service contracts to Medicare and Medicaid beneficiaries was illegal.
The documents below contain such advisement directly to Cochlear management from Cochlear counsel and staff. As you can see, this statement by Cochlear's CEO was knowingly false.
If you are covered under any Federal or State health plan (including Medicare, Medicaid, CHAMPUS, Veteran's Administration, or the BCBS Federal Employee Program) you are entitled to a full refund for any purchase of a service contract or ESCO insurance. Cochlear Corporation has previously provided refunds to Medicare or Medicaid beneficiaries who have complained.
Additionally, in response to ORM advisement on this issue, Cochlear Corporation has issued notices claiming that they offer "extended warranties" that are solely for "service" and therefore do not violate this Federal law. Policies that provide benefits for any repair service or replacement of device components and accessories duplicate benefits that are already provided by Medicare and Medicaid. So long as the manufacturer is duplicating benefits, the policies are illegal.
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- Legal opinion from Cochlear Corporation counsel
Mark Hobratschk, Carolyn Moora's successor as Supervisor of Reimbursement Services, sought and received this legal opinion on the legality of service contract sales to Medicare and Medicaid beneficaries.
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- Consultant advisement not to purchase service contracts
Kevin Gaudette, a consultant with Otologic Reimbursement Management, advises a cochlear implant user on the purchase of service contracts and ESCO insurance. This user has asked that his or her name and e-mail address be witheld.
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