/.. 
MEDICARE

CATARACT IMPLANT SURGERY

. 1981  1982  1983  198  1985 
$ 2,856 M 
816,000 
$ 877 M

327,000 
'" !t L..VICls. 
J:, 
0I."'4JU 
NATIONAL PROGRAM INSPECTION 
OFFICE OF INSPECTOR GENERAL 
DEPARTMENT OF HEALTH & HUMAN SERVICES 
MARCH 1986  OFFICE OF INSPECTOR GENERAL 
the  San 
This inspection was conducted under  leadership of the  Francisco 
and its Seattle field office with assistance from the New 
regional office 
York regional office. 
The report was prepared by:  With asistance from: 
Barry Steeley 
- Paul Gottlober 
Julie Bautista

Headquarters Office
John Daise

Wayne Wilson  Washington, D.

Office of Analysis and Inpections , Region IX

March 1986

Control # OAI-85-IX-046  IMPLA 
MEDICARE CATARACT  SURGERY

INTRODUCTION

Within the pat decade  cataract surgery (especialy the implantation of
intraocular lenses) has given many elderly restored viion 
, increasing their self
- sufficiency and sense of well-being. Technical advances and widely-mastered
surgical precision have combined to make this brief surgery remarkably effective 
with minimal risk to the patient. 
sight and near 
Dramatic restoration of  unversal consumer satisfaction have 
created a demand which wil result in almost one milion cataract surgeries in 
increase to two milion 
1985, and is projected to  by the year 1990. 
Detracting from this success story are reports of fraud, waste and abuse which 
have tainted those involved: 
the manufacturer, the surgical facilty and the 
ophthalmologist. The House Subcommittee on Health and Long Term Cae projects
that this wil result in a loss to the taxpayer of almost $2 bilion in 1985. This 
inspection , unike the House Subcommittee report, does not address the issue of 
medical necessity of individual cataract surgeries. - The Inpector General of 
Health and Human Services finds that Medicare is paying over $500 milion each 
year in unecessary costs , including discounts such as rebates and kickbacks that 
are not being pased on to the government. Overcharging for the lenses
inflating the costs of surgery 
and exorbitant mark-ups of facilty fees are almost 
universal. In more human terms , it is sometimes the elderly Medicare beneficiary
who is helping to subsidize the high incomes, perks and gratuities of the cataract
surgery industry. This report identifies the significant. factors 
involved and 
ca 
recommends measures that  be taken to prevent such losses in the future. 
The specific purpose of this inspection is to: . (1) determine what Medicare 
the 
paying for the components of cataract surgery (the facilty,  lens and the 
professional practitioner), (2) identify the factors affecting costs and charges
among hospital inpatient 
settings, hospital outpatient departments, ambulatory
surgical centers and physicians' non-crtified surgical suites  (3) assess the impact
on 
beneficiaries and (4) determine how manufacturers and the forces of the 
market place are 
influencing services and expenditures. 
This inpection is baed on the results of 
valid random sample of
ophthalmologists who bil for intraocular lenses and a representative sample of 
surgical facilties. It was conducted in Caifornia, New York  Florida, 
Pennsylvania , Texas and Washington, where more than one-third of Medicare 
beneficiaries reside. Contacts included 46 hospitals and surgical facilties , 38 
physicians , 50 ancilary staffs , 93 beneficiaries and their familes 
and 5 of the 12 
major lens manufacturers. Inpector General staff analyzed physician Medicare
payment histories , patient medical and financial records, manufacturers' invoices 
and Medicare claims.  MAJOR FINDINGS 
, VOLUME AND HIGH TECHNOLOGY IN CATARACT 
SPECIALIZATION 
SURGER Y HAVE MERGED TO GIVE SIGHT AND SELF-SUFFICIENCY TO THE 
ELDERLY. 
KEEN COMPETITION FOR MEDICARE PATIENTS HAS PRODUCED A WlDE-
OPEN MARKET PLACE FOR AN EXPANDING 2.  BILLION DOLLAR 
INDUSTR Y. 
UNCHECKED  CATARACT SURGERIES WILL INCREASE TO 2 MILLION AND 
COST THE TAXPAYER NEARLY $6 BILLION BY 1990. 
THE MEDICARE PROGRAM AND BENEFICIARIES ARE PAYING MORE THAN 
NECESSARY-AT LEAST $500 MILLION MORE PER YEAR. 
MANUF ACTURERS' INCENTIVES AND SALES PROMOTIONS ARE CONTRI
BUTING TO EXCESSIVE COSTS. 
PROVIDERS, NOT MEDICARE, ARE BENEFITING FROM MANUFACTURERS' 
AGGRESSIVE PRICE CUTTING. 
SOPHISTICATED MARKETING SCHEMES BY THE INDUSTRY ARE COSTING 
THE ELDERLY AND MEDICARE MILLIONS. 
MEDICARE REIMBURSEMENT POLICY ENCOURAGES WIDE VARIATIONS IN 
THE COSTS OF LENSES, EQUIPMENT AND SURGERY. 
UNNECESSARY COSTS OCCUR BECAUSE MEDICARE: 
PAYS DOUBLE OR TRIPLE THE PURCHASE PRICE FOR LENSES. 
PAYS HIGH FEES TO ALLOW ANY PROVIDER TO PURCHASE HIGH TECH 
EQUIPMENT THAT COULD BE SHARED. 
REIMBURSES HOSPITAL OUTPATIENT DEPARTMENTS UNDER THE 
"REASONABLE COST" SYSTEM WHICH ENCOURAGES INEFFICIENCY. 
ALLOWS THE SERVICES OF OPHTHALMOLOGISTS, ASSISTANT SURGEONS 
AND ANESTHESIOLOGISTS TO BE BILLED AND PAID SEPARATELY. 
PAYS FOR ASSISTANT SURGEONS AND ANESTHESIOLOGISTS ALTHOUGH 
LESS COSTLY BUT QUALIFIED AND PROFICIENT TECHNICIANS AND 
NURSES ARE AVAILABLE. 
 PROPOSED CHANGES 
LIMIT HOSPITAL OUTPATIENT FACILITY FEES AND BENEFICIARY 
CHARGES TO APPROXIMATE MEDICARE PAYMENTS AND CHARGES NOW 
AUTHORIZED FOR AMBULATORY SURGICAL CENTERS. 
ESTABLISH A NATIONAL CAP (BASED ON A GENERIC PRUDENT BUYER 
CONCEPT) FOR LENS PA YMENTS WHEN LENSES ARE 
BILLED 
SEPARATELY. 
PAY A SINGLE PROFESSIONAL FEE TO COVER ALL PROFESSIONAL STAFF 
ASSOCIATED WITH CATARACT SURGERY. 
CREATE AN INDEPENDENT COMMISSION TO ASSESS PERIODICALLY THE 
CHANGES IN SURGICAL PROCEDURES AND TECHNOLOGY AND MANDATE 
ADJUSTMENTS TO MEDICARE REIMBURSEMENT.
 CA TARACT SURGERY AND IOL IMPLANTS

is the lens. , Light paes through the 
Immediately behind the pupil of the eye 
lens and is focused on the inner beck of the eye, or retina. The normal lens is 
clear. A 
cataract is a dakening of the lens. The lens changes in color from 
clear to black or opque. When the lens is fuly opque, no light ca pas
through and the patient is totaly blind. 
ca 
The cataract condition  be corrected by surgicaly removing the lens and 
lens.  , eyeglaes 
replacing it with a prosthetic  Prosthetic lenses include contacts
- or surgicaly implanted intraocul lenses. An intraocula lens (lOL) consists of 
an optic portion which actualy corrects the vision and an haptic, or loop, portion 
which secures the lens to the eye. 
ca 
Most optics are made from a platic, caed PMMA, while the loops  be either 
PMMA or polypropylene. rLensies cdome ign a vareiety osf sty.les  which are primarily 
lop 
lens 
distinguished by the  configuration or material. Many  styles are 
nae 
deignated by the  of the ophthalmologist who deigned the lop style; i.e., 
available with added 
"deigner lenses"  Lenses are alo  features such as 
ultraviolet filters or laer 
THE EYE  INTRAOCULAR LENSES 
CORNE 
PUIL 
NTEOR 
LOO 
The most commonly implanted lenses are positioned behind the pupil in the 
posterior chamber of the eye. When this cannot be done, an anterior chamber 
in front of the  Most 
lens is used which is attached  pupil and iris.  providers
maintain an inventory of both types of lenses in several styles and numerous 
strengths. The inventory frequently includes lenses from several manufacturers. 
The lenses are usually supplied on consignment so that providers only pay for the 
lenses when they are used.  CATARACT SURGERIES - u. s. - 1985	 Cataracts occur most commonly
after the  50 and 
age of  the 
Medicare aged  the 
population is 
predominate receiver of cataract 
surgery. Although cataracts are the 
second leading 
cause of blindness
the 
condition rarely becomes an 
emergency. The decision of when 
to have surgery is normally left to
the 
significance of 
patient. The 
improved viion for an individual to 
perform daily activities is a primary 
consideration. For example, the 
cataracts who fails a 
1 MILLION tOol. IMPLANTS  dperri svoinn gw ittehs t can either choose 
Medicae 
al  pays for about 82 percent of  surgery or dicontinue operating an
cataract surgeries.  automobile. 
CATARACT SURGERY CAN BE EFFECTIELY PERFORMED IN EIHER 
OUTPATIENT OR INPATIENT SETTG 
dramatic shift in the setting for cataract surgery ha occurred in the last 
year. The surgery, that hitorically involved an inpatient hopital stay of three
to six, days, ca now be performed on an outpatient bais. Formerly the
exclusive province of the hospital, the surgery is now frequently performed in
ambulatory surgical centers and even doctor'  offices. 
Significantly, hospitals 
themselves have been a part of this change in that surgery is now most 
frequently performed in the outpatient department of the hospital. 
ha 
hatened this trend. A' major 
combination of factors  influence is the 
Professional Review Organization (PRO) which requires prior authorization for 
hospital stays asociated with cataract surgery. Other factors contributing to
this change 
include the reduced rik asociated with the operation, technological 
advances in the surgical procedure, and Medicare prospective payment rates. 
While a patient with severe coronary or pumonary diease (or other life-
threatening condition) may need inpatient hopitalization
, ophthalmologists agree 
that routine cataract surgery can be performed in the outpatient department of a 
in an 
hospital or  ambultory surgical center. Some ophthalmologists are 
performing surgery in their own surgical suites, which are comparably equipped to 
certification asures
surgical centers, but lack Medicare certification. Medicare 
that the facilty meets safety standards and many of the ophthalmologists
included in this inpection were in the proces of obtaining Medicare certification 
for their surgical facilties.

The shift to the outpatient  welcome 
setting is a  development for Medicare
beneficiaries who generally prefer being able to recuperate in their own homes 
and often dread the thought of a hospital stay. Professionals concur in this 
attitude from a 
gerontological standpoint, as it reduces the image of progressive
disabilty asociated with the aging process. Among beneficiaries there 
widespread acceptance of having surgery in a free-standing ambulatory surgical 
center.  ...-.-. ..- ....-......,...- --. . -  .-........ ..-......-....... .&:....  ............. . ....... ...-..... ._....  -..-..-_.... ... _.-... .-. ..._ -.-.-_.......
FUTURE TRENDS

INTRAOCULAR LENS IMPLANTS FOR CATARACT PATIENTS IS A GROWTH 
INDUSTRY 
number of cataract 
Lens manufacturers and market ana)ysts predict that the 
intraocular lenses will continue to increase and 
surgeries involving the tEe of

may, in fact , double by the year 1990. For Medicare,a tnhiusa wyi l mean an increase 
by 1990. 
to almost 2 milion surgeries costing almost $6 billon 
FU TA

MEDARE COSTS
MEDICARE LOL 
- -- .-- -.. -. t. 
188  181  188  1887  118  '18  '''0 
1888  1887 
cot to Medcae are prjected to nealy 
Cataract sureries and the 
yea. 
double in five 
Many factors influence these projections, including the growing aged population 
Medicare beneficiaries, and the
cataract surgery on younger 
the trend towards  there is less reluctance to 
success rate of the implant surgery itself. Alo, 

undergo the surgery and cataract patients who have been wearing eyeglaes 

lenses.
contacts are now opting for intraoculr 

SETTG FROM 
AN OBVIOUS TREND IS THE CONTIUED SHIFT OF SURGICAL 
INPATIENT TO OUTPATIENT 
hopital  away from the 
to encourage the move 
There are some advantages for 
the suery  hospital. Many 
inpatient setting, so long E  is stil performed at the 
hospital have found that the payments under the Medicare prospective payment 
surgery unprofitable and that more 
system have rendered inpatient cataract 
department. 
Medicare revenue can be generated by the outpatient 
surgeons seize 
As surgical procedures become les complicated and riky, many 
autonomy from hospital. This incentive, coupled 
the opportunity to achieve more 
, is expected 
with the generaly reduced intervention of health planning agencies
surgeon-controlled ambulatory surgical centers 
to lead to the development of more 
dependent on the hospital and can receive payments 
where the physician is les 
for the facilty as well as the surgery.  CA TARACT SURGERY 
THE MARKETING  OF 
The marketing of cataract surgery and intraocular lens implants is
determining the cots for Medicare and its beneficiaries. 
Cataracts are currently coting the government over $2.8 bilion a 
year. 
This may  increased demand for this 
double by 1990 if the 
the 
surgery continues and  Medicare reimburement dos not 
change. The projected economic growth js the primary force 
behind an intense marketing strategy involving physicians, surgical 
facilties and manufacturers. Alost 30% of the elderly between 
65 and 74 have  are the taget 
impaired viion and  of an 
advertising blitz by hospital and physician. This is the first 
time a Medicare procedure ha been so aggresively marketed by 
so many diferent components of the health cae community. 
The major players-physician, surgical facilties, maufacturers
ditributors and saespersons-
drive the marketing. 
Ophthalmologits  compete for patients by opnly advertising their 
services on radio, TV and in newspapers, and offering inducements
such as no-cot surgery, free transportation, and free lunch 
following surgery. Some of the highest volume physicians own and 
operate specialized centers devoted excl15ively to cataract surgery 
and fuly equipped with state-of-the-art technology. 
Hospital  are moving aggresively to maintain their relative market 
share by advertising diectly to the elderly. Like, physicians, some
offer free surgery by waiving the Medicare coinsurance and 
hopital
deductibles. Recent shifts to outpatient settings put 
diect  surgical centers and physicians 
competition with ambulatory 
who operate in their offices. 
Lens and Equipment Manufacturers  are competing aggressively for
sales and market domination. Large dicounts are common and 
include equipment rebates or credits. Free trips and training are 
almost routine exchanges for lens purchases. Intances have been 
to 
reported of , offers  depoit kickbacks in foreign benks. 
lens saes to 
Ophthalmologists are even offered commisions for 
hospital. 
Although these intense marketing activities have sometiines 
resulted in improved products and reduced cots, the savings have 
not been paed on to the federal government, which pays more 
than $500 millon annualy in unecesary Medicare expenditures 
for cataract surgery. 
-7 " -
THE BENEFICIARY'S EXPERIENCE

For the beneficiary, cataract removal and IOL implant is a literal miracle. 
Surgery is simple and relatively painles. Hospitalization is normally 
unnecessary and recovery is brief. The cot is frequently minimal and 
vision is improved or restored. 
OIG staff talked to 93 beneficiaries during the inpection. Most expressed 
an overwhelmingly poitive reaction to the results of their cataract surgery. 
Typica comments were: 
eay 
"It'  marvelous and so  to go though.  "I'd recommend it 
th a problem." -"I'm so happy  I ca even read without my 
anyone 
glaes now. 
A few people, although satisfied with the results , encountered complications 
such as glaucoma. Fewer than 4' were diatisfied with their surgical
experience. 
Most of the patients recovered quickly from surgery, went home within a 
few hour and resumed normal activity almost immediately. One man 
returned to work the 
following day. 
The  their surgery was 
typical setting for  outpatient-most commonly 
hospital outpatient clnic. Some beneficiaries reported that doctors have
told them that Medicare will not alow patient hopital admissions for 
cataract surgery. 
This misconception resulted in such beneficiary comments 
as "I'm violently opposed to the Medicare restriction that surgery ha to be
outpatient. The U.s. government ha no buines setting the conditions 
under which a doctor can operate or which dictate where a doctor can
operate. I can't see clearly and think it is 
because the doctor had to hurry 
to finish the surgery in the outpatient setting. 
In most caes, however, Medicare beneficiaries are well aware of their 
cataract surgery. 
options for  Ophthalmologists ditribute educational 
pamphlets , give taks at senior citizen centers and stres 
patient education.
During surgery, they even alow relatives 
to observe the actual procedure on 
closed-circuit TV. 
Beneficiaries' out-of-
pocket expenses for cataract surgery vary greatly. In 
this sample, haf said they paid nothing, but most had supplemental
insurance whose premiums must be taken into ,account. These premium$
frequently total $1400 or more a year. Few beneficiaries said Medicare, 
solely or in combination with Medicaid, paid for everything. Total payments
(in addition to Medicare 
and supplemental inurance), varied 
commonly about $1000 but as high as $2500. Several greatly, most 
persons were 
ditressed about the extraordinary charges. As one said, "I'm not happy
about having to pay extra for the anesthesiologist.  Another stated 
is too cotly. 
"Cataract surgery  I worked at the Medical Center 16 years, 
and I know the cots are too high. 
Beneficiary opinions and comments supported conclusions drawn by the OIG. 
The benefits are 
cots  remarkable, the medical practice is patient oriented, but
are often excesive.  SURGICAL SETTINGS DICTATE CURRENT MEDICARE

PA YMENTS AND BENEFICIARY LIABILITIES

Complex Medicare reimbursement principles and policies result in wide 
payment
variations among the four settings for cataract surgery. Even within a 
given
differences. A 
setting there are marked  description of these complexities
explains why excessive Medicare payments can occur. 
REIMBURSEMENT POLICIES 
Services asociated with cataract surgery are reimbured by the Medicare program 
based on Diagnostic Related Group (DRG) rates for inpatient hopital services,
cot 
reasonable 
determinations for outpatient hopital services, reasonable charge
alowances for physician services and fixed rates for Ambultory Surgical Centers
(ASC). The total 
payment for any patient receiving cataract surgery wil almost 
always include at least two of these methodologies; the only exception is when a 
physician performs the surgery in hi office and his office ha not been certified
as an ASC. (In this cae, he would not receive a 
facilty fee. 
PHYSICIAN FEES

Cataract surgery always includes a physician professional component which is 
reimbursed by Medicare under the reasonable charge methodology. The payment
is made directly to the beneficiary unless the doctor ha accepted asignment. If 
the doctor does not accept assignment, he may bil and receive payment from the 
beneficiary for hi total charge. If the doctor accepts asignment, he can collect 
only the difference between the Medicare payment and the Medicare allowance 
plus any outstanding annual deductible 
($75). Under most circumstances, Medicare
pays 80  reasonable charge alowance. 
percent of the  One major exception is
when cataract surgery is performed on an 
outpatient bais; if the doctor accepts
assignment , he receives 100 percent of the reasonable charge determination and
the 
beneficiary is not liable for any coinsurance or ded ctible. The physician
may charge a separate fee for the 10L except when the surgery ha been 
performed during an inpatient hospital stay. The IOL is always reimbursed at the
80 percent rate. 
FACILITY FEES

In addition to the payment for the physician's service, Medicare will pay: 
Hospital Inpatient-A Prospective Payment DRG-39 rate baed on a three-day 
stay. including al facilty services, the IOL and other supplies. The hospital 
hopital 
can collect only the Medicare  deductible from the beneficiary. 
Hospital Outpatient-A percentage of cot to charges baed on a cot report
audit by the hospital'  fiscal intermediary. The charges may or may not
include the IOL and the hospital can collect 20 percent of its charges from
the beneficiary. 
Ambulatory Surgical Center-A 
fixed fee for al facilty services which does
not include the IOL. The ASC receives 100  reasonable
percent of the 
charge alowance and the 
beneficiary pays no coinsurance or deductible. The
IOL charge is 
subjected to a reasonable charge determination and the ASC 
can bil the beneficiary for the difference between the Medicare allowance 
and payment.  .'\
..... ~~~
' .-,...... ... '..:":""",-:::,'.:..': ' - 
Within a given setting, Medicare payment is determined by the physician' 
diagnosis or the procedure performed. However, the actual facilty payments for 
the same treatment differ from one setting to another. Medicare payment is not 
adjusted to the payment actualy made to the provider in the least expensive 
setting. 
COMPARATIE ' COSTS AMONG SETTIGS 
finds that the  involving one eye 
This inpection  total cost of cataract surgery 
can be as little as $1 416 or as much as $6,740. The charts below present the 
different settings. 
breakdown of cots among 
1tv 
(RS) 
tJlCA 
TOTAl  COSTS 
INPATIENT 
HOSPITAL  HOSPITAL OUATIENT 
250780 
Lena  (INCUD IN ORO) 
'-1wl 
FaclUty  120280  18320 
M.D.  lii(  1212-2150  1212-2110 
_t-' 
.tntEl
TOTAL  'ai- iif k:l 
AMBULATORY SURGICAL CENTER  PHYSICIAN' S OFFICE 
144-408 
Lens 
481-" 
Facilty mi 
iiit 
M.D.  t.l  1272-2110  1272-2750
201-3103  1418-3158 
TOT Al

Cataract surgery is more cotly in a hospital setting whether inpatient 
or outpatient. Physician fees are the same in al settings. 
Since Medicare will not pay a physician a separate facilty fee when the surgery 
suite, this is the least expensive 
is performed in the non-certified office surgical 
alo the least common. 
setting for the program; however, it is  Sixteen of the 
ophthalmologists in the sample chose to perform the surgery in their non-certified 
surgical suite where the only facilty fee to be collected was directly from the 
patient. A disproportionate number of physicians who perform surgery in non-
were included in the sample since the sample was drawn 
certified surgical suites 
from physicians and ASCs who biled for lenses and, typically, hospitals supply 
lenses when the  in their outpatient departments. Other 
surgery is performed 
physicians , faced with the inabilty to receive Medicare payments for their non-
certified facilties, choose to perform the operation in the outpatient department 
of the hospital. 
-10 iOsf  athl eth lee acestr tiefixepde nsseittvien gts of otrh cea tMaraecdti csaurreg epryr,o gthrea mam.b Eulvateonry w shuergni ctalh cee nIOteLr 
reimbursement equals that paid to the highest priced physician, the total facility
and lens  to a 
cost averages $865, compared  hospital outpatient department
a verage of $1 655. 
The following chart 
shows average Medicare, payments for facilties and lens
the four settinsr. 
A VERAGE MEDICARE PAYMENTS FOR FACILITY AND 
LENS 
HOSPITAL INPATIENT $1386  ASC 
OFFICE 
HOSPITAL OUTPATIENT $1655  $865 
$365 
HOSPITAL COSTS BY STATE

Hospital outpatient Medicare reimburement in five of the states in the
inspection indicates significant differences and 
intraocular lens implants. Not only does  ranges for cataract surgeries with
the Medicare reimbursement vary
significantly among states, but there was a significant range within each state.
Almost every  for 
hospital received reimbursement  outpatient surgeries that
exceeded the DRG-39 inpatient 
Medicare reimbursement rate. 
COMPARISON OF HOSPITAL OUTPATIENT

MEDICARE REIMBURSEMENT TO DRG-39 INPATIENT 
REIMBURSEMENT 
BY STATE REVIEWED

Out  atient  DRG-39 In  atient
State  Reimbursement  Reimbursement 
California  286-3, 251  $1, 550-2  400 
Flor ida  200-2, 224  820-1  270 
Pennsylvania  143-1, 851  100-2, 800 
Texas  156-1  818  800-1, 800 
Wash ington  960-1  634  900-1  300 
-11 COST TO BENEFICIARIES 
For beneficiaries 
, the outpatient department of the hopital is the most expensive 
place to have cataract surgery if the hospital collects coinsurance. However
this inpection found that many hospital are waiving coinsurance to compete with
ASCs. Some hospitals have developed an outpatient surgery schedule of rates.
These rates are biled to Medicare on an interim ' bais and the beneficiary 
caculted 
coinsurance amount is  as 20% of the fixed rate. This reduces the 
beneficiary' s liabilty, but has no effect on actual Medicare reimburement. All
costs associated with the outpatient department wil 
be included on the hospital' 
cost report without regard to the schedule of rates and a Medicare payment
reflect these cots. 
adjustment wil be made to 
- Some hospital are alo waiving hospital insurance deductibles for Medicare 
cataract  inpatients. 
patients who have the surgery as  Advertising by at least 
two major hospital chains includes such offers. 
the 
Approximately 50 percent of  beneficiaries in the inpection sample 
ca  paid no
out-of-pocket expnses. For those who do pay, the amount  be significant.
At the extreme, this can total as much as $2,500. The chart ilustrates the
range of specific charges asociated with cataract surgery. 
RANGE OF BENEFICIARY COSTS 
Lens Alone  0-180 
Lens & Facilty  0-800 
Surgeon  0-1400 
Asst. Surgeon  0-280 
Anesthesiologist 
0-275 
TOTAL RANGE  0-2500 
Beneficiaries are paying less because of the competition for patients and be ause 
Medicare s outpatient surgery regulations eliminate coinsurance and deductibles. 
Nevertheless , while many beneficiaries frequently pay nothing towards the surgical
fee or the facilty, they can incur expenses for coinsurance asociated with the 
anesthesiology service , the assistant surgeon or the intraoculr lens. 
As indicated above; beneficiaries may stil be faced with out-of-
pocket expenses
totallng up to $2 500 when the surgeon does not accept asignment
, the hospital
outpatient department charges coinsurance (20 percent of amount biled
Medicare) and there is no supplementary insurance. 
-12
 REIMBURSEMENT POLICIES PERMIT 
EXCESSIVE PA YMENTS 
OPEN-ENDED LENS PAYMENTS ACCOMMODATE 
INFLATED PRICES 
Lenses cost $35 to $50 to manufacture. The average list 
$325. Ultraviolet filters and laer ridges add about $75 to thipsr ice for a lens is
lit price. 
Although dicounts on list prices are 8 recent 
manufacturers charge for lenses in foreipghnen coomeunnotnr ieins  thhaev eU. sa.l,w tahey sp rices
- consistently lower. In Canada, U.s. manufactured lenses are readily  been
available for 
under $200, while in England and other European countries the lenses sell for

$125 or les.

High volume users of 1015 have been willng to pay the list prices knowing that
Medicare s reasonable cost or charge determination wil 
readily accept the prices
without applying any prudent buyer requirement. Furthermore, ASC rates do not
include the 10L which is reimbured 
on 8 reasonable charge bais and can add 
considerably to the ASC's revenues.

PROVIDER LENS COST AND MEDICARE 
REIMBURSEMENT 
MANlEACTU

o-25

SELS 
81LLS  PAYS 
The minority of hospitals 
, ophthalmologists, and ASCs who have bargained with
10L manufacturers or put lenses out for bid have found that 
lenses they formerly
purchased for over $300 can now be bought for $150 or less. . Hospitals that
participate in consortium purchase arangements for other supplies are just
beginning to consider 10L purchases as part of these arrangements. 
-13
 -_.
~~~
.....:..:......  ::....: .","::::::.:..:.,. ....
In the inpection 

program.  sample, such dicounts were not paed 
Medicare pParyoivnigd emrso rceo ntinue to bil their pre-scount  on to the Medicare
than $100 millon in
 price .which wil result
alone.  1985 in unnecesary cots 

for lenses

OPHTHALMOLOGIST

FEES  MAY 
TREAMLlING  REFLECT 
NOT  TECHNOLOGICAL

The 
performance of cataract 
surgery has 
development of advanced sugical techniques
 changed significantly with 
settings geared for  , sophisticated  the
specialized procedures.  equipment and mediCal
ophthalmologist is now executed in  The knowledge and skil of 
- than a  minutes rather than hour the
This OCgecnuerra l anestheticr,i kIn  an outpatient setting rather,  utshianng  ian l oac
 al rather
with les 
technological " and. dicomfort to the patient.  hospital.

streamlining"
, the fees have actualy  Despite this

increased. 
An examination of the 
relationship 
between surgical time and
defines one of the major 
without  reasons why cots  Medicare payment
complications now take  are exorbitant. Standard sugeries 
20 to 30 minutes. A sugeon
as many as 10 to 15  may now perform
s$a1m, 2p0l0e  to $3,000 for oepearaticonsh   proceind a u
 red. aMye.d iFcoarr et hriesi, mtbheurer semies na
t  surgeon' s fee of
, is $960 to $2 
000 per surgery. Non- , as found in the
paid by Medicare certified facilty fees

, Band coinIsuraLnce are Doften added to this  , which are not 
amount. 
PRSSION SUy
FES FOR CATARCT 
PAID 
2000 
!2'?G
,/ ::::::::irilmm:::. 
::::::H!UU 'i:::::::nm:m.  :mc
i::::::::'-: :, 
:::::::::::::::::: ::::::::::iI '
44  tW--- 92-36 
ASSSTAN ....  ii:m!it 
TOTAl  1840-4150 
1272-2700 
Directly stated
, this inpection found the fees
excessive. Ten of the thirty-eight  . of some ophthalmologits to
and $6.  milion in 1984.  ophthalmolOgists were paid between
millonaires.  Each or  $1 milion
Inflated surgery cots  the states in the sample had 
too much and Medicare  are attributable to ophthalmologiisttss  Mcehdairgcianrge

Medicare  paying too much. 
has acknowledged these  Neither the medical 
technological advances and  profession nor 
reducing the charges or payments 
efficiencies by 
associated with cataract surgery.
-14
 Some physicians , who complained about losing money because Medicare would not 
tahlleo ws uar gfearcyi lityn  ftheee ifro or wthnei or fnfiocne-cse rrtaitfhieedr  stuhraginc arle ssouritte st,o  sutsililn cgh otshee  toou ptpeartfioernmt
hopital. 
department of the  Since these physicians were among the Medicare
milionaires, it is fair to assume that the Medicare surgical reimburement amount 
was more than adequate to offset the losses attributed to non-reimbursable
facilty fees which normally include all supplies and diposables used in the 
surgery. 
High-tech equipment used in connection with cataract surgery is expensive. For 
example, a YAG laser , which is used to treat the minority of cataract patients
- who develop secondary cataracts (a clouding of the  ' after 
posterior capsule 
implant which is treated 0by0 p0ie.r cing the capsule surgically or with a laer beam),
costs in . excess of $60, Rather than use someone ele s YAG, or pool
resources , each high volume  own knowing that the
ophthalmologist purchases his 
inflated Medicare reimburement wil pay for the cost of the equipment. Some
olepshsth tahlmaonlo 1g5is ts charge as much as $1 000 for the Y AG procedure, which takes
minutes and involves no manual incision, oprating ,room , or
additional 
supplies. Although the Medicare payment may only be $500, th 
excessive charges wil eventualy be recognized by the program tmder the existing
reasonable charge 
methodology. Thus, Medicare will accept these charges as 
appropriate and they wil become intitutionalized. 
SHIFTING SURGERY 
OUTP A TIENT  DEPARTMENTS  DOESN'T  BRING
EXPECTED SAVINGS 
-A popular perception is that surgery in Ii hospital outpatient department is far
less costly to Medicare than when performed in an inpatient setting. This 
inspection found this to be generally inaccurate. In fact, hospital outpatient
costs can  inpatient hospital stays because 
equal or exceed those for  program 
reimbursement for hospital outpatient departments is not subjected to any
limitation similar to a DRG rate or fixed ASC rate. By shifting cots to the 
outpatient department, hospitals can increase their Medicare revenues. 
Hospital outpatient bill include charges for the operating room and the recovery 
room , as well as supplies and dipoables which accompany cataract surgery.
These supplies and dispoables are 
subjected to the hospitals' usual mark-up,
which may be as 
high as 80 to 100 percent. When these same supplies are used 
in an ASC, they are included in the fixed rate and the Medicare program does 
not acknowledge these mark-ups in actual program payments. This inpection 
found that some of the hospitals with the highest mark-up were being reimbursed 
by Medicare at 100 percent of their charges. 
In almost all cases, the hospital outpatient charges are higher than the DRG rate 
for cataract surgery. This does not always mean that Medicare pays more for 
wthei ls urgery when it is performed in the outpatient department, but this can and
happen if Medicare continues to apply the reasonable cot concept to
outpatient services. 
-15
 SEPARATE PAYMENTS TO ASISTANT SURGEONS AND ANESTHESIOLOGISTS 
DISCOURAGE USE OF QUAUFIED TECHNICIANS AND NURSES 
Medicare recognizes and pays separate charges for assistant surgeons and 
anesthesiologists who paticipate in cataract surgery. The asistant surgeon 
payment is lSually 20 percent of th  surgeon' s fee, while the anesthesiologist is 
paid base units plus time lIits. 
ca 
An assistant surgeon fee  be as high as $700, with a maximum Medicare 
payment of $560. Ophthalmologists interviewed in the inpection agreed that the
role of the asistant surgeon could be 
adequately performed by either an 
ophthalmology technician or a trained nurse. However, very few surgeons are
using technicians or nurses because Medicare wil not pay separately for their 
services. The saaries of the technician or nurses would have to come out of 
the surge  s payment. 
The findings in the inpection mirror those of a recent report by the audit 
section of the OlG. That  that the 
report recommends  services of asistant 
surgeons duing cataract surgery should not be paid by Medicare lIless there is 
, clear and specific medical justification for their presence. The Office of Audit 
recommendation has been incorporated in section 147 of the budget reconcilation 
1985. 
Act of  Exaclnudninug apalylmyen.t s for asistant surgeons wil save Medicare at 
least $40 milion 
Anesthesiology during cataract surgery primarily consists of a local anesthetic 
administered by injection by the surgeon. General anesthesia is rarely used. 
This reduces the role of the anesthesiologist to administering intravenous solutions
and  can be, and 
monitoring vital signs-taslcS that  often airte , performed by
certified nurse anesthetists. In states such as Texas  is common for 
anesthesiologists to employ nurse anesthetists (CRNAs) to carry out these 
responsibilties.  , on 
California anesthesiologists the other hand, rarely employ 
of 
CRNAs because there are a sufficient number  anesthesiologists wiling
perform these standby services. In either cae, Medicare payment is separate 
from the surgeon's and adds considerably to the total cost of cataract surgery 
for the program. 
Current fees for anesthesiologists involved in cataract surgery are up to $550 
with Medicare paying a maximum of $440. It is estimated that 1985 Medicare 
payments to anesthesiologists for services associated with cataract surgery wil be 
in excess of $156 milion. 
-16
 ' .
PROPOSED CHANGES 
II 
RECOMMENDATION 
ISSUE:	 Excessive cots are being incurred by both the Medicare program and 
beneficiaries for cataract implant surgeries performed in hospital
outpatient departments. In this inspection, the average reimburse
ment for outpatient hospital services exceeded the DRG payment by 
$269. Some hospitals received as much as $1200 more than their DRG 
p8yment. Compared to the fixed fate for ASC cataract surgeries, 
hospitals receive an average of $790 more than surgical centers. 
RECOMMENDATION:	 UMIT HOSPITAL OUTPATIENT FACILITY FEES AND 
BENEFICIARY CHARGES TO APPROXIMATE MEDICARE 
PAYMENTS AND CHARGES NOW AUTHORIZED FOR 
AMBULATORY SURGICAL CENTERS. 
It 
IMPACT:	 is estimated that the Medicare program could have saved over 
in 
$143 milion  1985 if outpatient hospital reimbursement had 
been limited to the amount a hospital receives under its DRG 
cataract surgery. Even more 
pmaiylimoenn  t cfooru ld have been realized if thes ahvoinsgpsi,ta lu po uttpo at$i4e1n9t  
department payment had been the same as the fixed rate for ASCs. 
the 
Beneficiary expenses for services received in  outpatient 
department should be commensurate with those incurred for ASC ser
vices. The hospital would receive 100% of' the established fate 
biled to the 
and no deductible or coinsurance could be  benefi
ciary. 
HCF A RESPONSE:	 HCF A believes it would be inappropriate to use the ASC 
rate as a limit for hospital outpatient departments 
has  three 
because the rate  not been updated in  years. 
The OIGo sfu pports any initiatives, including the redeter
mining  ASC rates  which would faciltate the 
limit on the 
efsotarb lishment of  surgeprayy.m eIntts  itso  hospitals
outpatient cataract  critically 
aimnpo rtant that Medicare reimbursement policies provide
equivalent reimbursement irrespective of setting to 
address the inequities found in this inpection. 
-17
 RECOMMENDATION '2

Medicare reimbursement principles neither require nor encourage 
ISSUE:	 providers to obtain lenses at the lowest available price. The 
average Medicare reasonable charge payment to an ophthalmologist or 
an ASC for an IOL is $365. This inpection found that discounts 
were available from major manufacturers and that lenses could be 
third the average price. 
purchased for one half to one 
RECOMMENDATION:	 ESTABLISH A NATIONAL CAP (BASED ON A GENERIC 
PRUDENT BUYER CONCEPT) FOR LENS PAYMENTS WHEN 
LENSES ARE BILLED SEP ARA TEL Y. 
IMPACT:  . Over $31 milion would have been saved in 1984 if the Medicare, 
lens payment had been capped at $200. If the cap had been $150, 
over $40 milion would have been saved. While , this inspection 
the 
does not recommend that $200 (or $150) be  established cap,
this figure is considered conservative given the inpection fir:d
ings. The future impact ofo tfh itsh reec ommendation wil become even 
more significant  . because  continued shift of cataract 
surgery to ASCs and. physicians' offices where lenses are biled 
separately. 
the  has 
HCFA RESPONSE:	 HCF A concurs with  recommendation and  issued 
Medicare carriers stressing inherent 
instructions to 
reasonableness. On February 18, 1986, HCF A published a 
proposed rule which wil permit special payment
limitations. This r	 ule wil give HCF  expanded
authority and wil provide the  . foundation for pro
mulgating a national cap for intraocular lens payments. 
RECOMMENDATION '3 
ISSUE:  Medicare permibts e'  t	bhiel esder avincdes p oafi da ssseipstaarnatt esluyr gtehonuss '  raenddu cainnegst hthee- 
siologists to 
incentive to utilze less costly but qualified and proficient tech 
nicians and nurses. Use of both physicians can add as much 
the  individual cataract surgery. The OIG issued 
$1,000 to  cost of 
an audit report on June 7  1985, entitled "Review of Medicare 
Payments for Asistant Surgeon Services During Cataract Surgery" 
it  the 
in which  is recommended  services of an asistant surgeon be 
excluded from Medicare reimbursement for routine cataract surgery. 
Although ophthalmologists require asistance during cataract 
surgery, such assistance can usually be provided by a surgical 
technician or an operating room nurse. 
-18
 RECOMMENDATION:	 PAY A SINGLE PROFESSIONAL FEE. TO COVER ALL 
PROFESSIONAL STAFF ASSOCIATED WITH CATARACT 
SURGER Y. 
IMPACT:	 Estimated annual savings are at least $40 milion if payments are 
excluded for assistant surgeons and an additional $150 milion or 
more if payments for 
anesthesiology services are excluded. 
sTihoelo sgurisgteso nr actohuledr c	 tohntainnu el etos su sceo asstsliyst atnetc shunrgiceioannss a ondr a nneusrtshees. 
However , their fees would have to be paid by the surgeon from the
. single Medicare payment he receives  unless prior approval had 
been obtained. Prior approval would be given only if medical 
necessity could be substantiated. 
there 
HCF A RESPONSE:	 HCF A agrees that  need to curtail excess 
and 
anesthesiology  assistant surgeon ser
payments for 
vices for cataract surgery. 
Instructions have been isued requiring that Medicare 
carriers use  prepayment screen for bilings for 
asistant surgeons. M	 edical review wil - be required 
is made. 
before payment  Proposed legislation in H. 
3128 specifically addresses the assistant surgeon isue. 
RECOMMENDATION '4 
is 
There  currently no mechanism to assess the impact of rapidly 
ISS U E:
 changing medical technology on fees charged by physicians for
surgical procedures. For this reason the fees do not reflect 
In 
recent efficiencies.  many cases 
including IOL implants 
Medicare is paying much more than is necessary to perform the pro
cedure in a manner which is efficient, cost effective and yet con
ducive to quality patient care. The Prospective Payment Commfssion 
carries out this function for  but there 
inpatient services 
physician services. 

nothing comparable for 	
RECOMMENDATION:	 CREATE AN INDEPENDENT COMMISSION TO ASSESS 
PERIODICALLY THE CHANGES IN SURGICAL PROCE
DURES AND TECHNOLOGY AND MANDATE ADJUSTMENTS 
TO MEDICARE REIMBURSEMENT. 
19
 IMPACT:  This Commission would determine appropriate reimbursement based 
on actual changes in surgical procedures. It would provide a 
means for HCF A to make rapid adjustments in physician payments
for a wide spectrum,  oift  surgical procedures. While actual savings 
cannot be estimated is anticipated that this mechanism would 
inflationary. medical costs. 
be a centerpiece for controllng 
HCF A RESPONSE:  HCF A opposes the establishment of another  independent
had 
commission. However  this recommendation  been 
R. 
included in H. 3128 as adopted by the  Conference 
Committee. 
ESTIMATED SAVINGS 
RECOMMENDATION  SAVINGS 
1 Year (1986)  5 Year ('86 - '90) 
Limit Hospital  DR2G2 R0at eM  or   ASC Rate DRG1 R7at eB  or  3A.SC Rate
Outpatient Reimbursement  740 M  7 B 
Cap Lens Payment  $150 Cae.  $150 Cap 
74.2 Milion  371 Milion 
Pay Single Professional Fee  Ast. Surgeon  Asst. Surgeon 
$40 Milion  $200 Milion 
Anesthesiologist  Anesthes iologis t 
$260 Milion  $1.3 Billon

Establish Commission  Cannot be estimated 
TOT AL  $594.2 Milion to  $3 Bilion to 
$1.1 Bilion  $5.6 Bilion 
-20