DEPARTMENT OFHEALTH& HUMAN SERVICES

Office  of Inspector  General 
Memorandum 
MAY 261993 
Bryan B. Mitchell

A  &&

Principal Deputy Inspec or General

..

7

OIG Management Advisory Report:

OEI-05-92-01031  Intraocular Lens
 Costs,

See Addressees Below

The purpose of this report is to provide you with preliminary

information on the costs of intraocular lens (IOL) implants

used in cataract surgery.

Background

In March 1986, the Office of Inspector General issued a report

describing costs and trends in cataract surgery.

the average list price for an IOL was $325.  We found that

found that purchasers of IOLS seldom paid lisHto pwreivceer , awned
 tahlasto

discounts were not passed on to the Medicare program, resulting

in Medicare paying double or triple the actual purchase price  ~

for IOLS.

. 
The 1986 report also determined that U.S. manufactured IOLS

were readily available for under $200 in Canada.

lenses sold in England and other European countriesT hef ors a$m1e2
 5 or

less.  A subsequent report, 
issued in 1990, documented that

IOLS were available in the U.S. marketplace below $200.

reports concluded that Medicare reimbursement policies  Both

encouraged inflated prices for IOLS.

addressed this issue by recommending aT nhaet ifoinraslt  craepp obret


established for IOL reimbursement.

The second report

reconended  that cap be lowered to a flat rate of $150 per IOL.

Currently, Medicare pays a flat fee of $200 per IOL to

ambulatory surgical centers (ASC). 
Hospital outpatient

departments are reimbursed according to a blended formula which

uses 58 percent of the ASC rate and 42 percent of hospital

costs.  Medicare payment for an IOL implanted in a physicians

office is based on the reasonable charge which may not exceed

the actual acquisition cost for the lens plUS Up to a 5 percent

handling fee.

We are now conducting a study to provide the latest information

on IOL costs and other matters related to cataract surgery.  We

drew a random sample of 361 Medicare patients who had cataract

surgery during calendar year 1991, the latest year for which

full data was available.

We contacted the ophthalmic surgeon

and the hospital outpatient department (OPD) or ASC, where the

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Page 2 - See Addressees Below 
procedure was performed, to obtain information on IOL 
acquisition costs.  We now have information on IOL costs for 82 
percent of the beneficiaries in our sample.  .. 
Preliminary Findings 
According to IOL purchasers, ASCS are currently paying about 
$126, or $74 less than the $200 reimbursement they receive from 
Medicare.  The OPDS, on the other hand, pay $215, an average of 
$89 more than ASCS for each lens purchased.  The reason for 
this difference in acquisition costs has little to do with the 
type of lens purchased.  Rather, it appears to be related to 
stronger incentives present for ASCS to reduce their 
acquisition costs. 
For the same type of IOL, acquisition costs across all 
purchasers vary significantly.  For example, acquisition costs 
for one model of IOL ranged from $97 to $375.  Among the 
factors that may affect acquisition costs are Medicare 
. reimbursement, volume commitments, financial arrangements, and 
related products included with the IOL. 
Approximately 35 percent of the cataract  procedures for which 
we now have information were performed in ASCS.  Physicians 
performing surgery at ASCS reported little or no difficulty in 
obtaining a particular IOL model despite efforts by ASCS to 
limit the number of sources from whom they buy  and other 
IOLS 
cataract related supplies.  Sixty-five percent of the cataract 
procedures were performed by OPDS. 
Preliminary  Conclusions 
Based on these preliminary results, we believe that it may be 
reasonable to reduce the $2c)oflat fee currently paid for IOLS 
in ASCS.  It is also important to reexamine Medicare~s method 
for reimbursing OPDS for the IOLS they obtain. 
It appears that Medicare policy establishing a fixed 
reimbursement rate of $200 to cover the cost of procuring an 
IOL has provided incentives to ASCS to be prudent buyers. 
Indeed, ASCS have been able to negotiate favorable acquisition 
costs that could allow Medicare to reduce its costs further. 
On the other hand, while our analysis is not complete, we 
believe that we have sufficient information on the cost of 
procuring IOLS to establish that Medicareas current payment 
method for OPDS provides little incentive for hospitals to 
control their IOL acquisition costs.  This payment method 
enables OPDS to pass inflated IOL costs on to Medicare. 
Manufacturers know this and, not surprisingly, tend to charge 
OPDS more for their IOLS than ASCS.  r 
Page  3 - See Addressees Below 
AS we continue our analysis and formulate our findings and 
recommendations, we welcome any co~ents  or thoughts on this 
preliminary information.  If you have any questions or  ... 
comments, please feel free to call me or Michael Mangano, 
Deputy Inspector General for Evaluation and Inspections, or 
have your staff contact Penny Thompson at 410-966-3138. 
Addressees: 
William Toby, Jr. 
Acting Administrator 
Health Care Financing Administration 
Elizabeth M.  James 
Acting Assistant Secretary for 
Management and Budget 
Toni C. Davenport 
Acting Assistant Secretary 
for Legislation 
Gerald H. Britten 
Acting Assistant Secretary for 
Planning and Evaluation