Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
M P
EDICARE  AYMENTS TO 
A S
MBULATORY  URGICAL 
C
ENTERS FOR 
I L
NTRAOCULAR  ENSES 
Inspector General 
February 2004 
OEI-06-02-00710  Office of Inspector General

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs. This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 
and program evaluations (called inspections) that focus on issues of concern to the 
department, the Congress, and the public. The findings and recommendations contained 
in the inspections reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerability, and effectiveness of departmental programs. 
Office of Investigations 
The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. The OI also oversees 
state Medicaid fraud control units, which investigate and prosecute fraud and patient 
abuse in the Medicaid program. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. The OCIG imposes program exclusions and 
civil monetary penalties on health care providers and litigates those actions within the 
department. The OCIG also represents OIG in the global settlement of cases arising 
under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops model compliance plans, renders advisory opinions on OIG sanctions to the 
health care community, and issues fraud aler ts and other industry guidance.  A B S T R A C T

The objective of this inspection was to determine whether 
Medicare payment to ambulatory surgical centers (ASCs) for 
intraocular lenses (IOLs) is reasonable and related to the cost 
of the lenses, as required by law. We found that the current 
$150 per lens payment for IOLs is not reasonable and related to 
the cost.  For the 12 months ending June 2002, 40 percent of 
IOL payments by Medicare and its beneficiaries were in excess 
of ASC IOL cost. Overall, IOL cost averaged $90.30 per lens, 
$59.70 below the $150 Medicare payment. IOL cost varied 
significantly by type of lens (grouped by lens material), with the 
highest cost IOL averaging $125 per lens, the most frequently 
used IOL averaging $69 per lens, and the lowest cost IOL 
averaging $39 per lens. We estimated that Medicare and its 
beneficiaries could have achieved substantial savings through 
the use of alternative payments rates. 
We recommend that Centers for Medicare & Medicaid Services 
(CMS) reduce Medicare payment to ASCs for IOLs in a manner 
that takes into account the different types and cost of IOLs. In 
comments, CMS agreed to take into account our 
recommendation and IOL cost data in developing the revised 
payment system for ASCs required by the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  i  E X E C U T I V E   S U M M A R Y

OBJECTIVE 
To determine whether Medicare payment to ambulatory surgical 
centers (ASCs) for intraocular lenses (IOLs) is reasonable and 
related to the cost of IOLs, as required by law. 
BACKGROUND 
Medicare payment to ASCs for IOLs is required by section 
1833(i)(2)(A)(iii) of the Social Security Act to be reasonable and 
related to the cost of lenses. Medicares current payment is 
$150 per lens for virtually all types of IOLs. The payment rate 
has remained unchanged, despite 1994 cost data suggesting that 
it substantially exceeds the cost of IOLs. The Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA) requires the Centers for Medicare & Medicaid (CMS) to 
implement a revised payment system for ASCs betweem 
January 2006 and January 2008. 
We gathered ASC cost information for 359 randomly selected 
Medicare-covered IOLs for the 12 months ending June 2002. We 
determined the average cost per IOL and projected the results to 
the population of Medicare-covered IOLs in the sample period. 
We also analyzed cost by type of IOLs. Finally, we identified 
possible alternative payment rates and estimated potential 
Medicare and beneficiary savings. 
FINDINGS 
Medicare payment to ASCs for IOLs was not reasonable and 
related to the cost of lenses, with about 40 percent of total 
amount paid exceeding cost. 
We found an average ASC IOL cost of $90.30 per lens for the 12 
months ending June 2002, which is $59.70 below the current 
$150 per lens Medicare payment.  The average cost per lens 
varied by IOL lens material, with $124.77 per lens paid for IOLs 
made of soft acrylic, $69.37 for silicone, and $39.10 for 
polymethyl methacrylate (PMMA). These differences in cost 
strongly suggest that a single payment rate for these IOL types 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  ii  E X E C U T I V E   S U M M A R Y  
is not reasonable. We estimate that, depending upon how CMS 
chooses to refine IOL payment, Medicare and its beneficiaries 
could have achieved substantial savings if alternative payment 
rates had been paid to ASCs for IOLs instead of the $150 per 
lens that was paid. 
RECOMMENDATION 
We recommend that the Centers for Medicare & Medicaid 
Services reduce Medicare payment to ASCs for IOLs in a 
manner that takes into account the different types and cost of 
IOLs. 
Agency Comments 
CMS agreed to take into account our recommendation and IOL 
cost data in developing the revised payment system for ASCs 
required by MMA. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  iii  T A B L E   O F   C O N T E N T S

A B S T R A C T  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .   i

E X E C U T I V E   S U M M A R Y  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .   ii

I N T R O D U C T I O N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .  1

F I N D I N G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .  7

Medicare payment not reasonable and related to ASC IOL cost ...... 7

R E C OM M E N D A T I O N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .  11

ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .  12

A P P E N D I C E S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .   15

A: Estimates and Confidence Intervals ........................................... 15

B: IOL Cost Distributions ................................................................ 17

C: Agency Comments ....................................................................... 19

A C K N O W L E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .  21

OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  I N T R O D U C T I O N

OBJECTIVE 
To determine whether Medicare payment to ambulatory surgical 
centers (ASCs) for intraocular lenses (IOLs) is reasonable and 
related to the cost of IOLs, as required by law. 
BACKGROUND 
An ASC provides surgical services to patients not requiring 
hospitalization.1  The Centers for Medicare & Medicaid Services 
(CMS) determines which surgical procedures may be performed 
in ASCs and periodically publishes a list of covered procedures 
in the Federal Register.2  Medicare covers five procedures 
involving IOL implants: three cataract surgery procedures, and 
two IOL replacement procedures. 3  An IOL is an artificial lens 
made of polymethyl methacrylate (PMMA), silicone, acrylic, or 
other material that is implanted inside the eye during or 
subsequent to cataract surgery. Cataract surgery with IOL 
insertion ranks as the highest outpatient surgical procedure 
covered by Medicare Part B in terms of total expenditures. 4 
Payments to ASCs for cataract surgery and other IOL implant 
procedures are made up of two parts: a prospectively 
determined payment for the surgical procedure and a payment 
for the IOL itself.5  While various factors affect the payment for 
each of the five surgical procedures (e.g., geographic wage 
adjustments), payment for IOLs is fixed nationwide and not 
subject to inflation adjustments. With the exception of two lens 
models designated as new technology IOLs,6 the Medicare 
program and its beneficiaries have paid ASCs the fixed amount 
of $150 per IOL since 1994. At $150 per IOL, program and 
beneficiary payments totaled about $134 million in the 12 
months ending June 30, 2002 for IOLs alone.7 
The current $150 payment per IOL was originally mandated by 
Congress in the Omnibus Budget Reconciliation Act of 1993 
(OBRA 93) and applied to all IOLs implanted from January 
1994 through December 1998.8  Congress took this action after 
the Office of Inspector General (OIG) found that the previous 
Medicare payment of $200 per IOL substantially exceeded prices 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  1  I N T R O D U C T I O N  
that ASCs paid for IOLs in both 1991 and 1993.9  The previous 
$200 payment per IOL had also been based on information 
provided by OIG in a 1988 report.10 
Since the congressionally-mandated OBRA 93 rate expired in 
1998, the Social Security Act (hereafter, the Act) establishes the 
criteria for appropriate payment. Section 1833(i)(2)(A)(iii) of the 
Act specifies that Medicare payment to ASCs for IOLs should 
include ...payment which is reasonable and related to the cost 
of acquiring the class of lens involved. 
Medicare payment to ASCs for IOLs has not been adjusted since 
the expiration of the OBRA 93 rate, despite evidence that the 
payment exceeded the cost of IOLs. In a 1994 survey of ASC 
cost, the Centers for Medicare & Medicaid Services (CMS) found 
a weighted mean ASC IOL cost of $100 for all ASCs sampled.11 
The 1994 survey was the last survey of ASC cost conducted by 
CMS. Until recently, CMS had been required by section 1833 
(i)(2)(A)(i) of the Act to conduct a survey of ASC costs every 5 
years (e.g., 1999, 2004).12  However, the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA) 
repealed the survey requirement and mandated that CMS 
implement a revised payment system for ASCs beginning on or 
after January 1, 2006 and not later than January 1, 2008.13 
The MMA also requires the General Accounting Office (GAO) to 
conduct a study of ASC payments, including consideration of 
cost data submitted by ASCs, and to report the results to 
Congress by January 2005. 
Further, while the last two changes in Medicare payment to 
ASCs for IOLs have involved paying a single rate for lenses 
other than new technology IOLs, CMS has the authority to set 
different payment rates for different classes of IOLs. The Act 
specifies that payment to ASCs for insertion of IOLs must be 
reasonable and related to the cost of acquiring the class of lens 
involved (emphasis added). The House Conference Report 
accompanying the Omnibus Budget Reconciliation Act of 1987 
(OBRA 87), which added this requirement, emphasizes that for 
the purposes of paying an amount that is reasonable and related 
to the cost, the [Department of Health and Human Services 
(HHS)] Secretary may establish categories of IOLs based on 
differences in type and cost.14 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  2  I N T R O D U C T I O N  
SCOPE AND METHODOLOGY 
Utilizing the 100 percent Medicare National Claims History file 
of paid Part B claims with a date of service for the 12 months 
ending June 30, 2002, we identified the population of 893,428 
claims for which Medicare and its beneficiaries paid $150 per 
IOL used in an implant procedure performed in an ASC.15 
Sample.  We stratified the 893,428 IOL implant claims into 3 
groups, based on the number of claims associated with a unique 
Medicare Part B carrier provider number (Table 1). The 
purpose of stratification was to allow for the over sampling of 
claims associated with provider numbers with relatively few 
claims in the population.16  The divisions between strata  at 
120 and 1,200 annual claims  are equivalent to ASCs 
submitting, on average, fewer than 10 claims per month, 
between 10 and 100 claims per month, or more than 100 claims 
per month. 
Table 1:  Sample Design 
Stratification of IOL Claims Associated with Unique 
Medicare Part B Carrier Provider Numbers 
Population 
Strata (Claims per  Provider  Population  Sampled 
Provider Number)  Numbers  Claims  Claims 
1,200 or more  165  293,652  180 
121  1199  1,160  564,917  120 
120 or fewer  1,662  34,859  60 
Total  2,987  893,428  360 
We sampled a total of 360 claims, a number that permits 
projection to the population at a 95 percent confidence level. We 
randomly selected 60, 120, and 180 claims from the 3 strata.17 
By selecting more claims from the two strata that had more 
claims per unique provider number, we ensured the sample 
would contain more ASCs than if we had selected the same 
number of claims from each stratum. The final sample 
contained 360 claims from 268 different ASCs. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  3  II NN TT RR OO DD UU CC TT II OO NN  
Initial Data Collection.  We requested ASCs with the associated 
sampled claims to identify the manufacturer, model, and various 
characteristics of the IOL used in each implant procedure and to 
report its cost, net of discounts, rebates, and any other 
reductions in price. Additionally, we requested supporting 
documentation, such as copies of supplier invoices, purchase 
agreements, and IOL identification labels relating to each 
sampled claim. 
Document Reviews and Follow-up Data Collection.  In order to 
verify the accuracy of the IOL cost data reported by ASCs, we 
reviewed supporting documentation provided with each 
response. These reviews involved examining supplier invoices, 
discount and rebate statements, purchase agreements, and 
contracts. When the document review revealed any apparent 
discrepancy between reported cost and supporting documents, or 
whenever additional documentation or clarification of a response 
was needed, we contacted the respondent to resolve the 
question(s). When appropriate, we adjusted the initial self-
reported ASC IOL cost data to more accurately reflect cost, as 
revealed through document reviews and follow-up interviews of 
respondents. 
Despite these efforts, we learned during data collection that we 
were not always able to measure and document all reductions to 
the IOL sales prices listed on invoices. Some ASC respondents 
reported they lacked access to full financial information when 
contracts were handled at the corporate level. Others 
acknowledged that they could not report all price reductions 
because either they purchased IOLs through group purchase 
organizations or their purchase arrangements with IOL vendors 
were highly complex.18  Therefore, while we were able to 
document an accurate invoice sales price for each IOL in the 
sample and an accurate net sales price (cost) for most IOLs in 
the sample, some ASCs likely paid less than the reported 
amount. Of the sampled IOLs where we were able to obtain 
information on rebates and agreements, all of them decreased, 
rather than increased, the actual IOL cost compared to invoice 
price. We found no evidence to suggest that any ASC paid more 
for an IOL in the sample than the cost we used in the analysis. 
Response Rate.  Of the 360 claims sampled, we excluded 1 claim 
as ineligible and imputed cost for 1 claim where cost data could 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  4  not be reported. For the first of these claims, the respondent 
reported that the IOL implanted was actually a new technology 
IOL, a type of lens that should not have been included in the 
sample. We excluded this claim from our analysis, leaving a 
total sample of 359 claims and a population of approximately 
891,797 IOL implant claims for the 12-month study period.19 
For the second claim, we learned that the ASC had been sold 
since the date of the claim, and that the new owners could only 
identify the IOL implanted, but could not report the previous 
owners cost. For this claim, we imputed the highest cost 
reported among the other eight claims in the sample with the 
same manufacturer and model of IOL.20 
Analysis.  We calculated an average per IOL cost for the 359 
claims in the sample, which were weighted to reflect the 
proportion of claims represented by each stratum. 21  We 
subtracted this average per IOL cost from the Medicare per lens 
payment of $150 to determine the average per lens payment 
above cost. We also calculated the average per lens cost and 
payment above cost for different types of IOLs by grouping the 
359 claims, based on the primary material used in the 
construction of each lens. The sample contained 187 IOLs made 
primarily of silicone, 147 made of soft acrylic22, and 25 made of 
polymethyl methacrylate (PMMA). 
We projected the average per lens cost to the population of 
891,797 implant claims to estimate total ASC IOL cost for the 
12-month period. We calculated total program payments by 
multiplying the population of claims by $150. We refer to this 
amount as Medicare payments and recognize that it includes 
both program and beneficiary payments.23  We subtracted total 
ASC IOL cost from total Medicare payments to determine 
estimated payments above cost. We also calculated total 
estimated payments, cost, and payments above cost by IOL 
material. 
Further, we developed two possible alternative payment rates 
for each lens material type. For the first alternative, we 
calculated the weighted 90th percentile rate for each lens type. 
That is, using a computer application, we estimated the dollar 
amount that was greater than or equal to cost for 90 percent of 
all IOLs purchased by ASCs for the sample period. For the 
second alternative, we examined the cost distribution of sampled 
IOLs to identify high outlier ASC cost  reported cost that 
appeared excessively high when compared to the rest of the 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  5  sample. Determining outlier cost was accomplished primarily 
using data display analysis. We arrayed IOL cost data from 
lowest to highest cost and displayed the distribution graphically. 
We then visually determined where along the graph that outlier 
cost began, as evidenced by a dramatic decrease in the frequency 
of IOLs above a particular cost. 
For each lens material type, we located an alternative payment 
rate that would have covered all reported costs, except the 
outliers. We then calculated how much Medicare and its 
beneficiaries would have paid to ASCs for IOLs, if payment had 
been set at the rates given by these two alternatives. We also 
retrospectively estimated the amount of savings that would have 
resulted through use of each of the sets of alternative payment 
rates. 
Limitations.  As mentioned, actual net cost per IOL is likely 
lower than the IOL cost used in our analysis, because some 
respondents found it difficult to report all reductions in price. 
As a result, our analysis likely underestimates the amount of 
total Medicare payments above ASC IOL cost. While it would be 
beneficial to know the exact cost, net of all price reductions, of 
each IOL in the sample, we are confident that we are 
underestimating differences between payment and cost rather 
than overestimating them. 
Finally, our analysis of types of lenses relies on only one 
characteristic of IOLs, namely, the primary material used in the 
construction of each lens. We recognize that, in addition to lens 
material, other IOL features, such as design characteristics, 
might also be useful for grouping IOLs for analysis or payment 
purposes. 
Standards.  We conducted this inspection in accordance with the 
Quality Standards for Inspections issued by the Presidents 
Council on Integrity and Efficiency. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  6  FF II NN DD II NN GG SS

Medicare and its beneficiaries
Medicare payment to ASCs for IOLs was 
paid ASCs approximately
not reasonable and related to the cost 
$133.7 million for IOLs for the 
of lenses, with about 40 percent of total 
12 months ending June 2002. 
amount paid exceeding cost.  We estimated that ASCs had 
IOL cost of $80.5 million, 
resulting in Medicare and beneficiary payments above costs of 
$53.2 million (Figure 1). These amounts indicate that 40 
percent of total Medicare payments to ASCs for IOLs for the 
study period exceeded the cost of lenses. 
Figure 1: 
Forty Percent of Medicare and Beneficiary Payments 
to ASCs for IOLs Were in Excess of Cost 
(July 2001 to June 2002) 
Total IOL Payments = $133.7 million 
Soft Acrylic  $9.4 (18%) 
ASC IOL  Payments 
Cost  Above 
Cost 
Silicone  $36.8 (69%) 
$80.5 (60%)  $53.2 (40%) 
PMMA  $7.0 (13%) 
Source: OIG analysis of IOL Cost and Payments. 
All dollars in millions. 
IOLs made of silicone, the most prominent lens material in the 
sample, accounted for about $36.8 million (69 percent) of 
payments above cost. IOLs constructed of soft acrylic and 
PMMA accounted for an estimated $9.4 million and $7.0 million, 
respectively, in total payments above cost. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  7  F I N D I N G S  
ASC cost varies significantly by three IOL types; Medicare 
payment exceeds the average cost per lens for each type . 
While we estimated that the average cost to ASCs per IOL was 
$90, we found that average cost varied significantly by lens 
material (Table 2). Soft acrylic lenses accounted for 41 percent 
of the sample and had an average cost of $125, $25 below 
Medicares $150 per IOL payment. Silicone lenses accounted for 
52 percent of the sample and had an average cost of $69 per 
lens, about $81 below the payment rate. PMMA lenses 
accounted for 7 percent of the sample and had an average cost of 
$39 per lens, $111 below the payment rate. 
Table 2: 
Average ASC Cost Per IOL Differs by Lens Material 
Average Payment 
IOL Type  Sample  Average  (Percent) Above 
(Material)  Size  Cost  Costa  Cost Range 
All 
IOLs  359 (100%)  $90  $60 (40%)  $23 -$150 
Soft 
Acrylic  147 (41%)  $125*  $25 (17%)  $85 -$150 
Silicone  187 (52%)  $69*  $81 (54%)  $23 -$150 
PMMA  25  (7%)  $39*  $111 (74%)  $28 - $69 
a Average payment above cost calculated as $150 minus average cost. 
* Average costs are different by lens type at p <.05 significance level, based 
on Sudaan analysis. 
ASC cost for sampled IOLs ranged from a low of $23 to a high of 
$150. While no sampled IOLs cost more than the current $150 
Medicare payment per lens, ASC respondents reported paying 
exactly $150 per lens for 11 sampled IOLs - 7 soft acrylic and 4 
silicone. Follow-up document reviews and interviews revealed 
that, for 10 of the 11 IOLs, the $150 reported cost may not have 
accounted for all reductions in price realized by the ASCs 
through various purchase arrangements. For example, 5 of the 
11 lenses were all purchased by different ASCs from the same 
distributor. During an interview with a representative of this 
distributor, we learned that the distributor provided IOLs to 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  8  F I N D I N G S  
ASCs under contracts that included other cataract surgery 
supplies and equipment. Regardless of the IOL used, the 
distributor stamped every surgical package invoice with a 
statement indicating that, for Medicare reporting purposes, the 
cost of the IOL was $150. Respondents reported that another 5 
of these 11 lenses were purchased through group purchasing 
organizations or bundled with capital equipment, arrangements 
which made it difficult for respondents to determine all 
applicable reductions in cost. One of the 11 IOLs cost $150 
because it involved a lens power outside the normal production 
range. 
Substantial savings could have been achieved through the use 
of alternative payment rates. 
Knowing the average ASC IOL cost is useful for estimating the 
difference between Medicare payments and ASC IOL cost. To 
provide information on payment rates that could be considered 
reasonable and related to the cost, we used two different 
analysis methods to identify alternative payment rates for each 
of the three IOL material types. Each method provided 
alternative payment rates that, if used instead of the single 
$150 Medicare payment rate, would have achieved substantial 
savings to Medicare and its beneficiaries while covering the vast 
majority of ASC IOL cost (Table 3). 
Table 3: 
Program and Beneficiary Savings Are Possible Through 
Use of Alternatives to the Current $150 Payment 
Alternative Payment Rates 
Average 
IOL  Cost  Weighted  Excluding 
Material  Estimate  90th Percentile  Outliers 
Soft Acrylic  $125  $134  $134 
Silicone  $69  $100  $95 
PMMA  $39  $55  $45 
Estimated 
N/A  $34.8 million  $37.7 million 
Savings 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  9  F I N D I N G S  
Payment rates set at the weighted 90th percentile (i.e., rates 
greater than or equal to cost for 90 percent of each of the 3 IOL 
types purchased for the sample period) would have resulted in 
estimated savings of $34.8 million. Payment rates that covered 
all sampled IOL costs, except high outliers, would have resulted 
in estimated savings of $37.7 million (see IOL cost distributions 
in Appendix B.)  While there are numerous ways of determining 
possible alternative payment rates, these methods provide 
similar payment amounts for each of the three lens types and 
cover all but the highest reported ASC IOL cost. 24 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  10  R E C O M M E N D A T I O N

Medicare payments to ASCs for IOLs are required by law to be 
reasonable and related to the cost of lenses.  In OBRA 87, 
Congress granted the HHS Secretary the authority to establish 
rates and specified in the conference report that rates may vary 
by categories of IOLs based on differences in type and cost. 
However, our data suggest that the current $150 Medicare per 
lens payment is not reasonable and related to the cost of IOLs. 
We found that 40 percent ($53.2 million) of total Medicare and 
beneficiary payments were in excess of ASC cost in the 12 
months ending June 2002. Using lens material, one of the 
possible lens characteristics for categorizing IOLs, we found that 
the average cost per lens varied significantly by IOL type. This 
variation suggests that a single payment rate is not reasonable. 
We estimate that substantial program and beneficiary savings 
could be achieved through the use of alternative payment rates. 
To ensure that future payments are reasonable and related to 
the cost of lenses, we recommend that: 
CMS reduce Medicare payment to ASCs for IOLs in a manner 
that takes into account the different types and cost of IOLs 
The MMA requires CMS to implement a revised payment 
system for ASCs, beginning not later than January 1, 2008, and 
GAO to conduct a study of ASC payments in 2004. We 
encourage CMS to consider the information provided in this 
report as it revises the ASC payment system. We also 
encourage CMS to discuss with GAO our findings regarding 
ASC IOL costs and payments. 
Agency Comments 
CMS commented on our draft report recommendation written 
before the MMA was enacted. We had urged CMS to take 
administrative action, or seek legislation, to immediately reduce 
ASC IOL payment rates. In responding, CMS agreed to take 
into account our recommendation and data in developing the 
revised payment system for ASCs. However, CMS stated that, 
in light of the significant changes in how CMS determines ASC 
payments resulting from the MMA, it is deferring action to 
reduce Medicare payment to ASC for IOLs. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  11  E N D   N O T E S

1 42 CFR  416.2 
2 42 CFR  416.65 
3 IOL implant procedures include those with CPT codes 66982, 
66983, 66984, 66985, and 66986. American Medical 
Association, Current Procedural Terminology 2001 (Chicago: 
AMA Press, 2001), 229. The 5 procedures are described as 
follows: 66982 -Extracapsular cataract removal with 
insertion of intraocular lens prosthesis, complex; 66983 -
Intracapsular cataract extraction with insertion of 
intraocular lens prosthesis; 66984 -Extracapsular cataract 
removal with insertion of intraocular lens prosthesis; 66985 -
Insertion of intraocular lens prosthesis, not associated with 
concurrent cataract removal; 66986 -Exchange of intraocular 
lens prosthesis. 
4 For example, Medicare Part B paid $1.97 billion for 
extracapsular cataract removal with insertion of intraocular 
lens prosthesis (66984) in 2001. Center for Medicare and 
Medicaid Services, Medicare Leading Part B Procedure 
Codes Based on Allowed Charges, 2001. 
5 Physicians that perform implant procedures are paid, based 
on a separate physician fee schedule. 
6 In 1999, CMS issued regulations authorizing an additional 
$50 be added to Medicare ASC IOL payment when 
designated new technology intraocular lens are used in 
implant procedures. To date, only two specific lenses have 
been designated as new technology IOLs. Our analysis found 
that new technology IOLs accounted for less than 2 percent of 
all Medicare ASC IOL implant claims in the study period. 
7 Based on our analysis of claims, Medicare paid ASCs $150 
per lens for 891,797 claims, for a total of $133,769,400. See 
the Methodology section for more details. 
8 Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-
66, sec. 13533 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  12  9 Department of Health and Human Services, Office of 
Inspector General, OIG Management Advisory Report: 
Intraocular Lens Cost, OEI-05-92-01031, March 26, 1993 
10 Department of Health and Human Services, Office of 
Inspector General, Medicare Certified Ambulatory Surgical 
Centers: Cataract Surgery Cost and Related Issues, OAI-09-
88-00490, March 1988 
11 63 FR 32303-32304, June 12, 1998 
12 Section 1833 (i)(2)(A)(i) of the Act requires a survey. 
13 Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003. Pub. L. 108-173, sec. 626 
14 H.R. Conf. Rep. No. 100-495, at 616 (1987), reprinted in 1987 
U.S.C.C.A.N. at 1362 
15 This population excludes 31,129 claims for beneficiaries who 
were identified as having at least 1 new technology IOL 
implanted. These beneficiaries had at least one claim for the 
sample period with the procedure code Q1001 or Q1002, 
which indicated that a new technology IOL was implanted. 
The population also excludes a total of 51,491 claims with 
modifiers, indicating that the procedure might have been 
discontinued, and claims for which the amount Medicare 
allowed was unusually small, indications that an IOL might 
not have been implanted. Specifically, these claims contained 
modifier codes 52, 53, 73, 74 or allowed payment amounts of 
less than $300. 
16 Stratification accomplished this purpose. While provider 
numbers with 120 or fewer claims in the population 
accounted for only about 4 percent of all claims in the sample 
period, we selected about 17 percent of the sample (60 claims) 
from this group. 
17 For random sampling, we used RAT-STAT, the OIGs 
statistical software program with random number generator. 
18 Some of these purchasing agreements bundled IOLs and 
surgical accessories or equipment together in such a way that 
providers could not determine the price of the IOL without 
requesting additional information from their vendor. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  13  19 The excluded claim came from the 1,200 or more stratum, 
leaving 179 claims in that stratum. 
20 The other eight claims in the sample with the same IOL 
manufacturer and model had a mean cost of $59.38, 
minimum cost of $50.00, and maximum cost of $65.85. We 
imputed the maximum reported cost of $65.85 for the claim 
in question. 
21 The following table shows the calculated weights: 
Calculated Weights for IOL Sample Strata 
Strata (Claims per  Sampled  Calculated 
Provider Number)  Claims  Claims  Weights 
1,200 or more  293,652  180  1,631.4 
121  1199  564,917  120  4,707.6 
120 or fewer  34,859  60  581.0 
Total  893,428  360 
Both SAS and SUDAAN were used in analyzing data. 
SUDAAN was used to determine weighted mean cost and 
their standard errors, adjusted for the sampling design. 
22 The soft acrylic group include hydrophobic, hydrophilic, and 
hydrogel lenses. 
23 This amount should be viewed as a proxy for actual 
Medicare and beneficiary payments. Actual payments may 
be affected by coinsurance, deductibles, multiple procedure 
payment rules, etc. Use of this proxy is necessary, however, 
because the $150 IOL payment is bundled with the surgical 
procedure facility fee when Part B carriers pay ASCs, making 
it impossible to tally actual payments for IOLs alone. 
24 Further examination of those IOLs with reported ASC cost 
above the alternative payment rates confirmed that these 
reported costs were truly outliers. For example, 2 IOL 
models accounted for 13 of the 17 silicone IOLs with reported 
cost above $95. The other 93 IOLs in the sample 
representing the same 2 silicone lens models had an average 
weighted cost of $69.20. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  14    A P P E N D I X   ~   A

Estimates and Confidence Intervals 
95 % Confidence Interval 
Mean  Standard 
N  Estimate  Error  Lower Limit  Upper Limit  p 
ASC IOL Cost Estimates 
All IOLs  359  $90.30  2.22  $85.95  $94.65 
ASC IOL Cost by Type of Lens 
a 
<(.05)
Soft  147  $124.77  1.11  $122.59  $126.95 
Acrylic 
Silicone  187  $69.37  2.09  $65.27  $73.47 
PMMA  25  $39.10  1.80  $35.57  $42.63 
a
 General Linear Modeling analysis: F< .0005; all lens types differ at p<.05. 
* Average per lens cost differences significant at p level indicated. 
12-Month Medicare Payment Projectionsb 
Payment 
Per IOL  N  Estimate b 
$150.00  891,797  $133,769,490 
95 % Confidence Interval 
Standard 
Mean  N  Estimate b  Error  Lower Limit  Upper Limit 
12-Month ASC IOL Cost 
All IOLs  $90.30  891,797  $80,525,748  2.22  $76,645,531  $84,405,965 
Soft Acrylic  $124.77  371,419  $46,341,756  1.11  $45,533,701  $47,149,812 
Silicone  $69.37  457,083  $31,708,905  2.09  $29,836,447  $33,581,362 
PMMA  $39.10  63,294  $2,475,087  1.80  $2,251,759  $2,698,415 
12-Month Payments Above ASC Cost 
All IOLs  $59.70  891,797  $53,243,742  2.22  $49,363,103  $57,124,381 
Soft Acrylic  $25.23  371,419  $9,371,112  1.11  $8,563,034  $10,179,189 
Silicone  $80.63  457,083  $36,853,602  2.09  $34,981,258  $38,725,946 
PMMA  $110.90  63,294  $7,019,028  1.80  $6,795,736  $7,242,320 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  15  A P P E N D I X ~ A  
Estimates and Confidence Intervals (continued) 
Mean  Standard  95 % Confidence Interval 
Savings  N  Estimate b  Error  Lower Limit  Upper Limit 
12-Month Cost Savings -90th Percentile Rates 

All IOLs  $39.03  891,797  $34,806,821  1.42  $32,324,773  $37,288,870

Payment  Savings 
Per IOL  Per IOL
Soft Acrylic  $134.00  $16.00 
Silicone  $100.00  $50.00 
PMMA  $55.00  $95.00 
Mean  Standard  95 % Confidence Interval 
Savings  N  Estimate b  Error  Lower Limit  Upper Limit 
12-Month Cost Savings  Outlier Exclusion Rates

All IOLs  $42.31  891,797  $37,731,914  1.61  $34,917,761  $40,546,067

Payment  Savings 
Per IOL  Per IOL
Soft Acrylic  $134.00  $16.00 
Silicone  $95.00  $55.00 
PMMA  $45.00  $105.00 
Proportion of Payments Above ASC Cost by Type of IOL 
95 % Confidence Interval 
Standard 
Estimate  Error  Lower Limit  Upper Limit 
Soft Acrylic  17.6%  0.02  13.9%  21.3% 
Silicone  69.2%  0.03  62.9%  75.5% 
PMMA  13.2%  0.03  7.5%  18.9% 
b Projection estimates based upon unrounded weighted numbers of claims in population. 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  16  A P P E N D I X ~ B  
IOL Cost Distributions 
Soft Acrylic IOL Cost Distribution 
$160 
$150 
Outliers 
$140 
$130 
$120 
$110 
Threshold = $134 
$100 
$90 
$80 
Each triangle represents one IOL. Sample size = 147 
Silicone IOL Cost Distribution 
$150 
$130  Threshold = $95 
Outliers
$110 
$90 
$70 
$50 
$30 
$10 
Each triangle represents one IOL. Sample size = 187 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  17
 A P P E N D I X ~ B  
IOL Cost Distributions (continued) 
PMMA IOL Cost Distibution 
$80 
$70 
Outliers 
$60  Threshold = $45 
$50 
$40 
$30 
$20 
$10 
$0 
Each triangle represents one IOL. Sample size = 25 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  18
   A P P E N D I X   ~   C

AGENCY COMMENTS 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  19
 A P P E N D I X   ~   C  
AGENCY COMMENTS (continued) 
OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  20
 A C K N O W L E D G M E N T S

This report was prepared under the direction of Judith V. Tyler, 

Regional Inspector General for Evaluation and Inspections in 

the Dallas Regional Office, and Kevin Golladay, Assistant 

Regional Inspector General. Other principal Office of 

Evaluation and Inspections staff who contributed include:

A. Blaine Collins, Team Leader

Deborah McGurk, Program Analyst

Amy Ashcraft, Program Analyst

Bambi Straw, Program Specialist 

Tricia Davis, Director, Medicare and Medicaid Branch

Technical Assistance

Barbara Tedesco, Mathematical Statistician

Clark Thomas, Program Analyst

OEI-06-02-00710  MEDICARE PAYMENTS TO AMBULATORY SURGICAL CENTERS FOR INTRAOCULAR LENSES  21