Department  of  Health and Human  Services 
OFFICE  OF 
NSPECTOR  GENERAL 
ACQUISITION  COSTS  OF  PROSTHETIC 
INTRAOCULAR  LENSES 
MARCH  1994  OFFICE  OF INSPECTOR  GENERAL 
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  Setices  (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 three  OXG operating  components:  the  Office  of  Audit  Services,  the 
Office of Investigations,  and  the Office  of Evaluation  and  Inspections.  The  OIG also informs 
the  Secretary  of  HHS  of  program  and  management  problems  and  recommends  courses  to 
,- correct  them. 
OFFICE  OF AUDIT  SERVICES 
The  OIGS  Office of Audit  Services  (OAS)  provides all auditing sefic=  for .HH$  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 INVESTIGATIONS 
The OIGS Office of Investigations (01) 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 01 lead to criminal convictions, 
administrative sanctions, or civil money penalties.  The 01 also oversees State Medicaid fraud 
control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 
OFFICE  OF EVALUATION  AND INSPECTIONS 
The OIGS 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 these inspection 
reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, 
,  and effectiveness of departmental  programs.  This report was prepared in the Chicago regional 
. . 
office under the direction of WNiam C. Moran, Regional Inspector General  and Natalie A. 
Can,  Deputy Regional Inspector  General.  Project staf~ 
CHICAGO
 lzEADQuARTERs
 PHILADELPHIA

John M. Traczytq Project Leader
 Barbara R. Tedesco
 Joy Quill

Suzanne G. Johnson
 W. Mark Krushat
 Robert A. Vko

Thomas Komaniecki
 Wayne A Powell
 Nancy J. Motyneaux

Linda M.Ragone

BOSR3N  DALLAS
 RobertA Baiocco

TheodoreT.Watt  Frank Atmendarez
 Robert A Katz

SANFRANCISCO
 ATLANTA
 NEwYORK

Paul Gottlober
 Jacqueline .4mtrews
 Joseph Corm

Don Loeb
 Chrk Koehler
 AtariMeyer

Brian PattiSon
 LucilleCop

Joseph Benkoski
 I 
Department  of  Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENEML 
ACQUISITION  COSTS  OF  PROSTHETIC 
INTRAOCULAR  LENSES 
MARCH  1994  OEI4I5-92-O1O3O  FINDINGS 
Intraocukw lenwx can be pumhased for km  than $2(M. 
On  average,  ASCS paid  $126 per  IOL  in 1991 and  are  paying  $112 for the  same  lenses 
today.  The  OPDS paid  $230 per  IOL  in 1991, over  $100 more  than  ASCS.  Todays  IOL 
acquisition  costs for OPDS have  decreased  to an average  of $198 per  lens, but  this price 
is nearly  $86 more  per  IOL  than  that  paid  by ASCS. 
The ability of pumhasem  to secure a lowpice  for IOLS h not dkymdent  on the number of 
IOJQ purchased  annually. 
Contrary  to expectations,  our  data  show that  the  ability  of purchasers  to secure  a low 
price  for  IOLS did not  depend  on the  number  of IOLS purchased  annually,  had  no 
relationship  to the  type  of lens  technology  purchased  and  did not  depend  on facility 
location  or size. 
iUedicareh  ability to obtain a fair price for IOih  undkr todayb payment  mechanisms  is 
probkvnatic,  particukhrly in OPD settings. 
In an effort  to gain  a competitive  edge,  many  IOL  vendors  offer  volume  discounts, 
rebates,  loans,  customized  packages  of related  cataract  surgical  supplies  and  other 
business  arrangements.  These  incentives  were  equally  distributed  between  the  ASCS and 
OPDS in our  sample.  Since  Medicare  pays ASCS a fixed fee  for  IOLS, the  prices  ASCS 
pay and  the  business  arrangements  they  have  with  IOL  vendors  have  no immediate  effect 
on Medicare  expenditures.  Medicare  pays OPDS for the  costs  they  incur.  Therefore, 
Medicare  is financially  vulnerable  to undisclosed  business  arrangements  OPDS enter  into 
with  IOL vendors. 
Benejkiwy  out-of-pocket  apensm  for catamct  surgery with IOL  implant  are 2.5 to 3 times 
greater in OPDS than in AS(X 
Patient  coinsurance  for cataract  extraction  with IOL  insertion  averages  $195 in ASCS 
versus  $586 in OPDS.  Patients  pay  coinsurance  on the  total  charges  they  incur  for 
services  provided  by an OPD.  The  amount  of coinsurance  an ASC  can  collect  is limited 
to 20 percent  of Medicares  allowed  payment  rate. 
RECOMMENDATIONS 
On  June  18, 1993, the  Principal  Deputy  Inspector  General  for the  Office  of Inspector 
General  testified  before  the  Senate  Appropriations  Committee,  Subcommittee  on Labor, 
Health  and  Human  Services,  Education  and  Related  Agencies.  At  that  hearing  the 
Subcommittee  was notified  that  this study was nearing  completion  and  that  the  data 
collected  for  the  study indicated  that  ASCS were  paying  about  $126 for IOLS while 
ii  Medicare  waspaying  ASCs$200  per  lens.  That  testimony  andtheinformation  in this 
report  subsequently  resulted  in legislation  reducing  Medicares  $200 fixed IOL  payment 
to $150. 
At a $150 fixed IOL  payment  rate,  we project  that  reduced  payments  to ASCS would 
save the  Medicare  program  over  $18 million  annually,  and  more  than  $90 million  over  5 
years.  The  change  will also reduce  beneficiary  coinsurance  payments  to ASCS by $10 per 
procedure  or $3.6 million  annually. 
We  project  $9.7 million  in OPD  savings annually  from  this legislative  change.  We have 
reservations  about  whether  these  OPD  savings would  actually  materialize.  Complexities 
of the  OPD  cost reporting  system  coupled  with opportunities  for OPDS to shift  costs or 
increase  charges,  may totally  erode  any potential  savings.  Unlike  beneficiaries  who have 
their  cataract  surgery  with  IOL  implant  performed  in an ASC, patients  of OPDS are 
unlikely  to see  any change  in their  out-of-pocket  expenses. 
COMMENTS  TO  THE  DRAFT  REPORT 
This  report  has been  modified  and  program  savings  adjusted  to reflect  the  Health  Care 
Financing  Administrations  (HCFAS)  comments.  The  full text  can  be  found  in 
Appendix  B. 
The  most  significant  change  to the  report  involved  the  deletion  of our  recommendation 
that  HCFA  seek  legislation  that  would  enable  them  to establish  a fixed payment  level for 
cataract  surgery  performed  in OPDS that  would  bring  OPD  payments  more  in line with 
ASC payments. 
While  we believe  paying  OPDS a fixed rate  similar  to ASCS to be  the  best  interim 
solution,  HCFA  felt  that  this report  in itself  did not  present  enough  evidence  or make  a 
convincing  argument  for such  change.  At this time,  HCFA  is continuing  to pursue  their 
ongoing  work  to  determine  the  best  method  of calculation  and  reimbursement  for an 
outpatient  prospective  payment  system  encompassing  all outpatient  procedures. 
Should  HCFA  consider  implementing  an outpatient  prospective  payment  system  in 
stages,  we would  encourage  them  to include  cataract  surgery  with IOL  insertion  in the 
first stage.  Cataract  surgery  encompasses  unique  characteristics  that  distinguish  it from 
other  outpatient  procedures.  It is the  number  one  outpatient  procedure  paid  by 
Medicare.  It is a procedure  that  is scheduled  days or weeks  in advance.  It is essentially 
an elective  procedure.  The  beneficiary  has control  over whether  to have  the  procedure 
done  and  at what  stage  in the  cataract  development  to have  surgery,  Access  to facilities, 
ophthalmic  surgeons  and  follow up  care  is widely available. 
... 
111  TABLE  OF  CONTENTS

PAGE 
EXE~  SuMMARY  . . . . . . ..""  """"""""""""""""""""""""""""""""1 
1 
llTIIIODU~ON  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
3 
FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
  Intraocular  lenses can be purchased  for less than $200  . . . . . . . . . . . . . . . . . . . 3

  The  ability  of purchasers  to secure  a low price  for IOLS

is not  dependent  on the  number  of IOb  purchased  annually  . . . . . . . . . . . . . .  4

  MedicaresabfitY  to obtain  afahptice  for IOh  under

todays  payment  mechanisms  is problematic,  particularly  .4

in OPD  settings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  Medicare  beneficia~  copayments  for cataract  extraction

with  IOLinsefiion  are  almost  2.5 to 3timesgreater  inOPDs  6

than  in Arcs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RECOMMEN_DAmONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 
APPENDICES: 
A  &pndedMetitioloPYmdStititidMomation

B:  Health  tie  FkmtigA-tiation  Ccmnenti
 INTRODUCTION

PURPOSE 
This  study  evaluates  whether  Medicares  current  payment  policy for  prosthetic  intraocular 
lenses  (IOLS) is prudent. 
BACKGROUND 
Cataract  extraction  with  IOL  insertion  is the  most  frequently  performed  procedure  paid 
by Medicare  and  accounts  for  approximately  6 to 8 percent  of the  Medicare  outpatient 
budget.  The  number  of IOLS implanted  in Medicare  beneficiaries  has  increased  steadily 
over  the  last decade.  In  1991, the  Medicare  program  paid  for  an estimated  1.14 million 
IOLS.  Hospital  outpatient  departments  (OPDS)  account  for two out  of three  of the  IOLS 
implanted  in Medicare  beneficiaries.  Ambulatory  surgical  centers  (ASCS) account  for 
most  of the  remaining  IOL  implants  and  about  2 percent  of the  implants  were  performed 
in hospital  inpatient  or physician  office  settings. 
In March  1986, the  Office  of Inspector  General  (OIG)  issued  a report  which  concluded 
that  Medicare  payment  policies  encouraged  inflated  IOL  prices.  Discounts  negotiated  by 
purchasers  were  not  passed  on to the  Medicare  program  resulting  in Medicare  paying 
double  or triple  the  actual  IOL  purchase  price. 
In June  1990, the  OIG  conducted  a follow-up  study on Medicares  reimbursement  for 
IOLS and,  like the  previous  report,  found  that  IOLS were  widely  available  well below 
Medicare  payment  level.  Both  reports  concluded  that  a national  cap  for  IOL  payment 
was needed  to bring  Medicare  payment  more  in line with  actual  procurement  costs. 
The  Consolidated  Omnibus  Budget  Reconciliation  Act  of 1985 and  the  Omnibus  Budget 
Reconciliation  Act  of 1986 sought  to correct  the  inequities  fostered  by Medicare  payment 
policies.  These  Acts  reduced  cataract  surgery  fees,  limited  IOL  payment  and  attempted 
to address  Medicare  payment  inequities  to ASCS and  OPDS. 
In an effort  to  control  expenditures  for IOL  acquisition  costs, Medicares  current  policy 
limits  IOL  payment  in ASCS.  After  beneficiaries  meet  their  annual  deductible,  Medicare 
pays 80 percent  of the  $200 fixed fee,  established  by the  Health  Care  Financing 
Administration  (HCFA),  to cover  ASC  IOL  acquisition  costs.  Payment  for the  IOL  is 
included  in Medicares  ASC facility payment  and  is not  an itemized  charge  on ASC 
claims. 
Hospital  OPDS are  paid  on a cost basis.  Payment  for  cataract  surgery  includes  the  IOL 
and  is based  on the  lower  OR  (1) charges,  (2) cost,  or (3) the  blended  rate.  The  blended 
rate  is equivalent  to 58 percent  of the  ASC  cataract  surgery  rate  less deductible  and 
1  coinsurance,  plus  42 percent  of the  costs the  OPD  incurred  less deductible  and 
coinsurance.  Medicare  pays for OPD  services  using interim  payments  and  then 
reconciles  these  interim  payments  with  actual  costs at the  end  of the  cost reporting 
period. 
Payment  for  IOLS implanted  during  hospital  inpatient  cataract  surgery  is included  in the 
hospitals  DRG  payment.  Physicians  who perform  cataract  surgery  in their  office  are 
paid  for IOLS based  on reasonable  charge.  The  reasonable  charge  may not  exceed  the 
actual  acquisition  cost for the  IOL  plus up  to a 5 percent  handling  fee. 
SCOPE  and  METHODOLOGY 
A random  sample  of 361 Medicare  patients  was drawn  from  a 1 percent  sample  of the 
1991 Medicare  Part  B Common  Working  File.  A total  of 326 IOL  purchasers  responded 
to our  survey. 
An  effort  was made  to  contact  each  of the  ophthalmic  surgeons  who  operated  on the  361 
beneficiaries  in the  sample.  The  surgeons  were  asked  to identi~  the  IOL  manufacturer 
and  model  number.  When  the  surgeon  did not  purchase  the  10~  we contacted  the 
OPD,  ASC  or other  purchaser  for IOL  cost and  procurement  information. 
All respondents  were  asked  to provide  information  about  their  business  transactions  with 
IOL  vendors.  In addition  to specific  information  about  the  IOL  implanted  in our 
sampled  Medicare  beneficiary,  IOL  purchasers  were  asked  to provide  cost information 
about  all of the  IOL  models  they  purchased  in  1991 and  1992.  They  were  also  asked  to 
provide  information  about  the  cost of IOLS they  purchased  and  intended  to purchase  in 
1993. 
Respondents  were  contacted  in person,  through  mail  sumeys  or over  the  telephone.  In 
some  cases,  the  ophthalmologist  had  died  or the  facility  or practice  had  been  sold  and 
the  medical  records  pertaining  to the  beneficiary  in our  sample  could  not  be  located. 
Some  surgeons  and  facilities  chose  not  to participate  in our  study  others  were  not 
contacted  because  they were  under  investigation  for fraud  or abuse.  A total  of 35 
potential  IOL  purchasers  were  dropped  from  the  study  for one  or more  of the  above 
reasons. 
Survey  responses  and  information  collected  from  surgeons  and  facilities  on the 
beneficiary  sample  and  for IOL  purchases  in 1991 and  1992 were  entered  into  a data 
base.  This  information  was subsequently  prepared  for  analysis by merging  it with 
information  obtained  from  the  Food  and  Drug  Administration  (FDA)  on IOL 
manufacturers  suppliers  and  distributors,  model  numbers,  and  FDA  approval  dates. 
A more  complete  discussion  of the  methodology  used  for this study  can be  found  in 
Appendix  A.  Appendix  A also contains  more  detailed  information  on how the  data  and 
projections  presented  in this report  were  determined. 
2  FINDINGS

Findikg #I:  Ihtmocular  knses  can be pun%sed  for kw  than $200. 
The  surgeons  and  facilities  purchasing  IOLS reported
 that  they  spent  between  $30 and 
$450 to secure  the  lenses  implanted  in our  sampled
 beneficiaries.  In  1991, the  average 
price  paid  was $198.

Considerable  difference  exists in the

IOL COSTS 
price  paid  by ASCS and  OPDS.  The

1991 DATA 
ASCS in our  sample  paid,  on

Lqend 
average,  $126 to secure  the  IOL

 
implanted  in our  sampled  beneficiary.  oPm
 $150.0O0RLESS 
 
$150.01-$300.00 
The OPDS paid  considerably  more,
 (14%) 
 
~~~ ~.oo 
averaging  $230 per  IOL.

.. ,..,,.,,,.,,..,,.,,,,.,,,.,,.,,
,.:.x..:::.:.:.:,:...:.,.i.
::?:::::* 
..,:%xm.,..,,:.,,:.~.:....
According  to survey responses,  nearly  .:{:... ASCS 
(17%) 
e
9 out  of 10 respondents  still purchase  ~w%) 
the  same  IOL  model  they  implanted 
in 1991 in 1993.  The  same  IOLS that  (=) 
cost on average  $198 in  1991 are 
being  purchased  in 1993 for an  v  1%) 
average  price  of $172.  As the  table 
below  illustrates,  OPDS are  paying 
less in  1993 than  in 1991, but,  on 
average,  OPDS pay nearly  $86 more  per  IOL  than  ASCS.  Finding #2:  l%e ability of pumhasem  to secure a low prke  for IOLJ k not dependent  on 
the number of IOLS pumhased  aruuudly. 
Contrary  to expectations,  our  data  show that  the  ability  of purchasers  to secure  a low

price  for  IOLS did not  depend  on the  number  of IOLS purchased  annually.  When  we

analyzed  the  data  on all of the  lenses  our  respondents  purchased  in 1991 and  1992, we

found  that  less than  3 percent  of the  variance  in IOL  prices  can be  explained  by the

volume  of lenses  purchased.

When  we analyzed  our  data  on lens  purchases,  we found  that  OPDS affiliated  with

hospitals  having  100 beds  or less had  no problem  securing  IOLS at  competitive  prices.

As with  our  analysis  of volume  versus  price,  we found  little  correlation  between  bed  size

and  IOL  prices.

Analysis  of data  and  information  provided  by respondents  show that  the  price  negotiated

between  purchaser  and  vendor  was usually valid for all similar,  if not  all, IOL  models  in

the  vendors  product  line.  For  example,  a single price  would  be  negotiated  for  all

poly(methyl  methacrylate)  or PMMA  IOLS, all posterior  chamber  IOLS or all IOLS

except  specific  models.

The  same  data  and  information  indicate  that  surgeons  tended  to use  the  same  posterior

chamber  IOL  model  for  all of their  patients.  Surgeons  deviated  from  their  IOL  of choice

only when  an  anterior  chamber  IOL was needed,  when  experimenting  with  trial  lenses  or

when  the  surgeons  preferred  IOL was contraindicated.  Some  surgeons  changed  their

IOL  preference  when  the  lens  they used  was no longer  offered  by the  vendor.

We  also  expected  that  newer  lenses  would  be more  costly than  older  model  IOLS.  When

we examined  the  acquisition  costs of foldable  ultraviolet  absorbing  silicone  lenses  we

found  that  they were  available  in prices  ranging  from  $75 to $475.  Our  data  also  showed

that  this 10~  which  many  consider  to be  the  newest  technology  available,  was being

purchased  by ASCS for  $125 or less.

Examination  of the  data  on all IOLS purchased  in  1991 and  1992 shows that  vendors

charged  purchasers  whatever  the  market  would  bear  for  a particular  model.  For

example,  one  vendor  sold a particular  model  for $100 to one  purchaser  and  for $410 to

another  purchaser.  Of the  seven  purchasers  of this IOL  model,  five paid  more  than  $100

but  less than  $410.  All of the  purchasers  bought  at least  500 units  of this particular

model  in 1991 and  1992.  The  price  paid  for this IOL  had  no apparent  correlation  to the

volume  of other  products  purchased  from  the  vendor.

Finding #3:  Mxlicareh  abildy & obtain a fairpice  for IOLJ undertodaykpayment 
mechankm  k problematic,  particuk@  in OPD settings. 
In an  effort  to gain  a competitive  edge,  many  IOL vendors  offer  volume  discounts, 
rebates,  loans,  customized  packages  of related  cataract  surgical  supplies  and  other 
4  business  arrangements.  When  we examined  invoices,

contracts,  agreements  and  other  documents  provided  by 
101+ PURCHASERS

our  respondents,  we found  evidence  to establish  that  52 
IU3CETVE

percent  of the  IOL  purchasers  had  one  or more  of the  ..... ......................

following  included  in their  IOL  purchase:

Free 
  Customized  package  deals  in which  other  cataract  . ~Urg~al~u~~lie~

related  supplies  and  pharmaceuticals  are  included  at  viscoekistic

no cost  or provided  at greatly  reduced  cost.  -pharmaceuticals

-IOU

  Discounted  microscopes  and  other  surgical 
equipment  and  supplies.

D&cotuzted

  Volume  discounts  based  on minimum  purchase 
-lllicroscopes
commitments. 
-swgkal equipment

  Free  IOLS or further  price  reductions  after  meeting  -smgkal blades

certain  volume  level  commitments.

  Loans,  some  of which  appear  to have  been  forgiven  Incentiws

in later  years.  -bans

  Frequent  buyer  points  good  toward  the  purchase  of  --h  rebat~

-ilequent buyerpoints

the  vendors  other  product  lines. 
  Free  equipment  and  trial  IOLS.

  Cash  rebates  on total  IOL  purchases.

The  actual  number  of purchasers  with  a quid  pro  quo business  arrangement  with  their 
IOL  vendor  is probably  closer  to 75 or 80 percent.  We believe  the  higher  number  to be 
correct  after  examining  all of the  invoices  and  other  documents  submitted. 
Some  respondents  did not  provide  conclusive  evidence  acknowledging  their  business 
arrangement  with  their  IOL  vendor;  the  information  they  did provide  fit the  pattern  of 
business  arrangements  established  horn  files with more  complete  information.  For 
example,  some  respondents  did not  acknowledge  in our  survey that  they  had  made 
equipment  purchases  through  their  IOL  vendor.  No documentation  to establish 
conclusively  that  an  equipment  purchase  was included  in the  IOL  purchase  price  was 
submitted.  However,  the  IOL  price  reflected  on invoices  or other  documents  provided 
fits the  pattern  of business  established  by IOL vendors.  When  complete  information  was 
provided,  this vendors  pattern  of business  established  that  the  purchasers  IOL 
acquisition  cost included  payment  for more  than  the  IOL  itself. 
While  providers  are  required  by law to disclose  discounts  and  other  incentives  that  affect 
the  costs they  clainy  discounts  and  other  incentives  have  not  always been  passed  on to 
the  Medicare  program.  We  are  concerned  because  the  complexities  of cost  reporting  still 
leave  the  Medicare  program  vulnerable  to financial  harm  from  undisclosed  business 
arrangements  OPDS enter  into  with  IOL  vendors. 
Perhaps  the  most  abusive  practice  we found  involved  IOLS purchased  by an  OPD  that 
were  delivered  to physicians  who, in turn,  resold  them  to the  OPD  at even  higher  prices. 
Another,  involved  wasteful  and  unnecessary  next  day freight  charges  that  the  OPD 
5  insisted  upon  and  routinely  paid.  Most  cataract  surgeries  are  scheduled  days if not  weeks

in advance.  The  IOLS used  are  taken  horn  stock  on hand.  There  is no reason  to pay

next  day shipping  charges  for routine  restocking.  The  most  prevalent  practices  involved

inflated  IOL  prices  in exchange  for discounts  on other  vendor  products  and  unbundling

of items  included  with the  IOL  purchase.

According  to HCF&  very few OPDS are  subjected  to full scale  audits  of the  costs they

claim  to have  incurred  to provide  cataract  extraction  with  IOL  insertions.  Fiscal

intermediaries  complain  of complex  and  often  conflicting  laws, regulations  and  rules  that

make  indepth  audits  time  consuming  and  not  cost  effective.  Providers  voice  the  same

complaints.  Cost  reporting  forms  have  not  been  changed  to enable  fiscal intermediaries

to effectively  track  the  lesser  of charges,  costs or the  blended  rate  for OPD  cataract

surgery.

Vendor  business  arrangements  with purchasers  are  customized  to meet  the  buyers  needs.

The  arrangement  may be  purely  financial  such  as a loan  to purchase  a piece  of

equipment  or to  establish  an  operating  suite.  It may involve  bundled  cataract  surgery

products  from  a single  source  or from  multiple  sources.  The  vendors  stated  value  of any

item  can vary considerably.  The  list price  for equipment,  supplies,  IOLS and  other  items

is readily  available  but  very few items  offered  by vendors  are  actually  sold at list.  The

cost to produce  an  IOL  and  the  other  items  needed  to perform  cataract  surgery  is

unknown.  Determining  cost becomes  more  difficult  as distributors  and  other  third  parties

add  their  profit  margins  to actual  production  costs.  Eleven  of our  respondents  reported

that  the  value  of items  they  received  with  each  IOL  exceeded  their  IOL  acquisition  cost.

Arrangements  may be  one  time  events,  short  term  (less than  a year)  or long term  (one  or

more  years).  They  may be  limited  to  IOL  purchases  or applied  to other  surgical  or

facility supplies.  They  may be  straight  forward  or backdoor  arrangements  such  as rebates

paid  to corporate  offices  or other  third  parties.  Overall,  they  reflect  business  practices

common  in the  American  economy.  Attempts  by Medicare  to quantify  the  value  of these

arrangements  is extremely  difficult,  if not  impossible.

Finding #4:  M&am  benejkiary  copayment  for catumct  exlnrction with IOL  insertzonare 
25t03tirnesgreater  inoPfithan  iil AsCk 
After  a beneficiarys  annual  cash  deductible  has been  satisfied,  Medicare  pays  80 percent 
of the  ASC prospective  payment  rate  established  by HCFA  for  cataract  extraction  with 
IOL  insertion.  The  beneficiary,  or as is often  the  case  the  beneficiarys  secondary 
insurance,  is responsible  for paying  the  remaining  20 percent.  The  beneficiary  copayment 
for services  provided  in ASCS is limited  to the  difference  between  the  Medicare  payment 
and  the  total  ASC  fixed rate  calculated  by the  carrier  paying  the  claim.  The  fixed rate 
calculation  uses national  payment  rates  established  by HCFA  to approximate  the  cost 
incurred  by ASCS in providing  covered  services.  Each  carrier  adjusts  the  national 
payment  rate  using the  wage  index value  for the  geographical  area  in which  the  ASC is 
located.  Areas  with  high wage  levels  receive  a higher  payment  than  ASCS located  in 
6  areas  with  lower  wage  levels.  Based  on our  sample,  the  average  prospective  rate 
established  by HCFA  for ASC  cataract  extraction  with IOL  insertion  in  1991 was $975. 
On  average,  patients  paid  $195 in coinsurance  to ASCS and  the  Medicare  program  paid 
the  remaining  $780. 
Hospital  OPDS are  not  under  the  same  billing  constraints  as ASCS.  Patients  pay 
coinsurance  on the  total  charges  they  incur.  Our  sample  establishes  that  the  average 
charge  for  OPD  cataract  extraction  with IOL  insertion  in  1991 was $2,928.  On  average, 
OPD  patients  paid  $586 in coinsurance  in  1991, which  amounts  to $390 more  than  ASC 
patients  paid  in the  same  year. 
Medicare  payments  to OPDS are  affected  by the  amount  of coinsurance  OPDS collect. 
The  greater  the  OPD  charge  to the  patient  the  greater  the  patient  coinsurance  and  the 
lower  the  Medicare  payment.  Our  data  established  that  the  average  OPD  charge  to 
patients  for  cataract  surgery  with IOL  implant  in 1991 was $2,928.  The  difference 
between  an  OPDS charges  to patients  and  the  actual  costs they  incur  in providing  OPD 
services  establishes  the  cost to charge  ratio.  Assuming  the  average  cost  to charge  ratio 
for OPDS to be  50 percent,  we calculated  that  the  average  cost of providing  cataract 
surge~  in OPDS in 1991 was approximately  $1,464. 
Our  data  shows that  on average,  patients  paid  OPDS $586 in coinsurance  for  OPD 
cataract  surgery.  This  payment  is deducted  from  the  costs recognized  by the  program. 
After  the  $586 coinsurance  has been  deducted  from  the  $1,464 cost, Medicare  paid,  on 
average,  $878 per  OPD  procedure. 
Currently,  IOL  costs are  not  paid  separately  from  total  cataract  surgery  costs.  Nor  is the 
beneficiary  copayment  for the  IOL  calculated  separately.  If IOLS were  paid  separately, 
the  coinsurance  on the  IOL  would  be  $40 in ASCS.  In OPDS, the  IOL  coinsurance  is 20 
percent  of the  OPD  charge  for the  lens.  In our  sample,  OPDS charged  beneficiaries  an 
average  of $580 for an IOL.  The  beneficiary  coinsurance  on IOLS provided  by OPDS in 
1991, averaged  $116, nearly  3 times  greater  than  ASCS. 
7
 RECOMMENDATIONS

On  June  18, 1993, the  Pticipal  Depu~Inspector  General  forthe  Ofice  of Inspector 
General  testified  before  the  Senate  Appropriations  Committee,  Subcommittee  on Labor, 
Health  and  Human  Services,  Education  and  Related  Agencies.  At that  hearing  the 
Subcommittee  was notified  that  this study was nearing  completion  and  that  the  data 
collected  for  the  study indicated  that  ASCS were  paying  about  $126 for IOLS while 
Medicare  was paying  ASCS $200 per  lens.  That  testimony  and  the  information  in this 
report  resulted  in legislation  to reduce  Medicares  $200 fixed IOL  payment  to $150.  We 
encourage  HCFA  to broaden  the  scope  of that  legislation  by seeking  an  amendment  to 
the  statute  and  regulations  that  would  extend  the  $150 limit  on IOLS to physicians  who 
perform  cataract  surgery  in their  office. 
At a $150 fixed IOL  payment  rate,  we project  that  reduced  payments  to ASCS would 
save the  Medicare  program  over  $18 million  annually,  and  more  than  $90 million  over  5 
years.  The  change  will also reduce  beneficiary  coinsurance  payments  to ASCS by $10 per 
procedure  or $3.6 million  annually. 
We  project  $9.7 million  in OPD  savings annually  from  this legislative  change.  We  have 
reservations  about  whether  these  savings would  actually  materialize.  Complexities  of the 
OPD  cost  reporting  system  coupled  with opportunities  for  OPDS to shift costs  or increase 
charges,  may totally  erode  any potential  savings.  Unlike  beneficiaries  who have  their 
cataract  surgery  with  IOL  implant  performed  in an ASC, patients  of OPDS are  unlikely 
to see  any change  in their  out-of-pocket  expenses. 
COMMENTS  TO  THE  DRAFT  REPORT 
The  Health  Care  Financing  Administration  (HCFA)  commented  on our  draft  report. 
The  report  has been  modified  and  program  savings adjusted  to reflect  HCFAS 
comments.  The  full text  can be  found  in Appendix  B. 
The  most  significant  change  to the  report  involved  the  deletion  of our  recommendation 
that  HCFA  seek  legislation  that  would  enable  them  to establish  a fixed payment  level  for 
cataract  surgery  performed  in OPDS that  would  bring  OPD  payments  more  in line with 
ASC payments. 
Until  a comprehensive  outpatient  system  can be  developed  we believe  paying  OPDS a 
fixed payment  rate  similar  to the  rate  paid  to ASCS to be  the  best  interim  solution.  The 
HCFA  felt  that  this report  in itself  did not  present  enough  evidence  or make  a 
convincing  argument  for such  change.  At this time,  HCFA  is continuing  to pursue  their 
ongoing  work  to determine  the  best  method  of calculation  and  reimbursement  for  an 
outpatient  prospective  payment  system  encompassing  all outpatient  procedures. 
If HCFA  should  consider  implementing  a prospective  payment  system  for  outpatient 
8  semices  in stages,  we would  encourage  them  to include  cataract  surgery  with  IOL  in the 
first stage.  Cataract  surgery  encompasses  unique  characteristics  that  distinguish  it from 
other  outpatient  procedures.  It is the  number  one  outpatient  procedure  paid  by 
Medicare.  It is a procedure  that  is scheduled  days or weeks  in advance.  It is essentially 
an  elective  procedure.  The  beneficiary  has  control  over whether  to have  the  procedure 
done  and  at what  stage  in the  cataract  development  to have  surgery.  Access  to facilities, 
ophthalmic  surgeons  and  follow up care  is widely available. 
9
 APPENDIX  A 
Eqymded  Methodology 
and 
Statistical  Information 
A-1  METHODOLOGY

A random  sample  of 361 Medicare  beneficiaries  who had  cataract  surgery  with  IOL 
insertion  performed  in  1991 was drawn  from  a  1 percent  sample  of the  Medicare  Part  B 
Common  Working  File  (CWF).  Using  CWF  information,  we identified  the  ophthalmic 
surgeon  for each  patient  in the  sample. 
An  effort  was made  to  contact  each  surgeon  either  in person,  through  the  mail  or over 
the  telephone. 
We  did not  receive  information  from  8 ophthahnic  surgeons: 
.  Five  surgeons  did not  respond  to our  requests, 
.  Two were  under  investigation  and  were  not  contacted  at the  request  of the  Office 
of Investigations,  and 
  One  could  not  be  located. 
A total  of 353 ophthalmic  surgeons  (nearly  98 percent  of the  sample)  responded  to our 
request  for information. 
Three  beneficiaries  were  dropped  from  the  sample  for the  following  reasons  reported  by 
the  ophthalmic  surgeon: 
.  The  cataract  procedure  with  IOL  implant  had  actually  been  performed  in 1990, 
  One  patient  died  and  surge~  was aborted  before  lens  implant,  and 
.  One  patient  had  a cataract  removed  but  no lens was implanted. 
Overall,  we were  able  to identify,  from  surgeon  records:  (1) the  IOL  purchaser,  (2) the 
IOL  manufacturer,  (3) the  IOL  model  number,  and  (4) the  IOL  serial  number  for 350 of 
the  361 patients  in our  sample. 
Using  the  information  gained  from  surgeon  records,  we attempted  to contact  each  IOL 
purchaser  (ASC,  OPD  or physician)  to ascertain  the  cost of the  IOL  implant.  We were 
unable  to secure  a response  to our  request  for information  from  27 IOL  purchasers: 
.  Twenty-one  purchasers  did not  respond  to our  request  for information, 
.  Three  were  under  investigation  and  at the  request  of the  OffIce  of Investigations 
were  not  contacq 
.  Three  could  not  be  identified  (the  ophthalmic  surgeon  did not  respond  and 
information  on hand  was insufficient  to ident~  the  purchaser). 
A-2
 Information  was received  from  326 IOL  purchasers,  representing  90 percent  of the

sample.  The  information  presented  in this study was derived  from  the  information  we

received  from  these  326 IOL  purchasers.

Each  purchaser  was asked  to disclose  the  cost they  incurred  to procure  the  IOL

implanted  in our  sampled  patient.  They  were  also asked  to provide  a copy of the  invoice

showing:  (1)  the  IOL  manufacturer,  (2) the  IOL  model  number,  and  (3) the  IOL  serial

number.  Accuracy  of reported  IOL  acquisition  costs were  verified  by comparing

reported  acquisition  costs with  the  purchase  prices  shown  on the  purchase  invoices.

Discrepancies  between  survey responses  and  the  invoice  price  were  documented  for

analysis.

Finding  #1

The  IOL  cost incurred  by the  326 purchasers  responding  to our  request  for information

was entered  into  a data  base  for  analysis.  Arraying  the  data  established  that  the  IOLS

implanted  in our  sampled  beneficiaries  ranged  in price  from  $30 to $450.  The  average

price  paid  was $198.

Analysis  of IOL  acquisition  cost  data  by type  of purchaser  revealed  that  OPDS paid

significantly  more  for their  IOLS than  did the  ASCS in our  sample.  On  average,  OPDS

paid  $230 for  each  lens  they  implanted  during  1991.  The  ASCS paid  an  average  $126 per

lens  during  the  same  period.

Nine  out  of 10 (299 of 326) purchasers  indicated  that  they were  still purchasing  the  same

IOL  model  implanted  in our  sampled  Medicare  beneficiary.  Information  provided  by

these  purchasers  established  that  the  average  price  they  paid  for IOLS had  decreased

between  1991 and  1993.  The  average  cost of an  IOL  fell from  $198 per  lens  in 1991 to

$172 per  lens  in 1993.  The  lowest  price  paid  for  an IOL  in 1993 was $40 and  the  highest

price  $450.  The  average  price  paid  by ASCS declined  from  $126 to $112, while  the

average  price  paid  by OPDS declined  from  $230 to  $198 per  lens.

Finding  #2 
In addition  to information  about  the  IOL  implanted  in our  sampled  Medicare  beneficiary, 
all purchasers  were  asked  to provide  volume  and  cost  data  on all of the  IOLS they 
acquired  in calendar  years  1991 and  1992.  Invoices  and  contracts  provided  by our 
respondents  were  used  to validate  the  awurq  of the  reported  costs.  The  information 
provided  was entered  into  a data  base  for  analysis.  Discrepancies  between 
invoices/contacts  and  reported  data  were  documented  and  analyzed. 
The  326 purchasers  in our  sample  bought  a total  of 213,745 IOLS in 1991 and  a total  of 
233,036 lenses  in  1992.  We  calculated  the  mean  and  median  for all lenses  purchased  in 
1991 and  1992.  The  analysis  of the  213,745 lenses  purchased  in calendar  1991 produced 
A-3  a mean  of $121 for ASCS compared  to our  sample  mean  of $126.  The  same  data  set 
produced  a mean  of $219 for OPDS compared  to our  sample  mean  of $230.  Analysis  of 
the  233,036 IOLS purchased  in  1992 revealed  that  the  average  IOL  acquisition  cost had 
declined  from  1991 levels for both  ASCS and  OPDS.  This  finding  was consistent  with the 
results  of our  initial  sample  which  showed  that  the  average  price  paid  to acquire  an IOL 
had  fallen  between  1991 and  1993 from  $198 in  1991 to $173 in 1993. 
Neither  ASC  or OPD  variance  in IOL  prices  was explained  by the  volume  of lenses 
purchased.  We  analyzed  the  data  on all lenses  purchased  in  1991 and  1992 to determine 
if a correlation  existed  between  the volume  of lenses  purchased  and  acquisition  cost. 
Correlation  analysis  indicated  that  overall  less than  3 percent  (1991 R-square  =  0.0289, 
1992 R-square  =  0.0274)  of the  variance  in IOL  prices  was explained  by the  volume  of 
lenses  purchased. 
Analysis  of the  OPD  data  for  1991 and  1992 produced  R-squares  slightly higher  than  the 
overall  sample.  R-squares  for OPDS were  0.0566 for  1991 and  0.0483 for  1992 indicating 
again  little  of the  variance  in IOL  prices  paid  by OPDS was explained  by the  volume  of 
lenses  they  purchased.  Additional  analysis  of the  1991 and  1992 OPD  data  revealed  that 
no correlation  existed  between  the  price  OPDS paid  for  IOLS and  the  size of the 
purchasing  institution. 
The  data  on  all  lenses  purchased  in  1991  and  1992  was further  analyzed  by merging  it 
with a data  base  containing  Food  and  Drug  Administration  (FDA)  approved  IOLS.  The 
FDA  data  base  contained  information  on all IOL  model  numbers  approved  by the  FDA 
for each  manufacturer/distributor  and  the  year  in which  the  IOL  model  received  FDA 
approval.1  Analysis  of this data  revealed  the  price  paid  for a particular  lens  model 
varied  significantly  and  that  neither  the  attributes  of the  lens  (Pm  hepatics  etc.)  nor 
the  number  of years  the  lens  had  been  on the  market  affected  the  price  of the  lens. 
Finding  #3 
Providers  are  required  by law to disclose  discounts  and  other  incentives  that  might  affect 
the  costs they  claim  and  the  providers  subsequent  reimbursement  from  the  Medicare 
program.  Several  prior  studies  have  attempted  to make  adjustments  to the  IOL  costs 
claimed  by respondents  by taking  into  account  the  value  of free  or discounted  services 
and  supplies  provided  by IOL  manufacturers  and  distributors.  We  made  no such 
adjustments  to  IOL  acquisition  costs reported  by our  respondents. 
4 
  As of August 8, 1989 manufacturers could make certain model additions without FDA approval. These new 
model numbers dld not require FDAapproval because they were essentialitythe same lens already approved by the FDA. 
Likewise,manufacturers and distributors were not required to report new model numbers assigned lenses already approved 
by the FDA. 
A-4  We  found  evidence  to establish  that  169, or 52 percent,  of our  study respondents  clearly 
had  business  arrangements  with IOL  manufacturers,  distributors  and  others  that  arguably 
could  have  inflated  the  IOL  acquisition  price  they  reported  to us.  A number  (76)  of 
respondents  did not  provide  complete  copies  of their  financial  agreements  with  their  IOL 
vendors.  The  invoices  and  other  information  that  these  76 respondents  did provide 
indicated  that  they  might  have  business  arrangements  with  IOL  vendors  similar  to the 
169 respondents  who  disclosed  such  arrangements.  Overall,  we concluded  that  75 
percent  our  respondents  had  business  arrangements  with  one  or more  of their  IOL 
suppliers  that  might  artificially  inflate  the  cost they  incurred  in procuring  IOLS.  The 
number  climbs  to nearly  80 percent  when  arrangements  involving  third  parties  are  taken 
into  consideration. 
Finding  #  4 
All of coinsurance  amounts  reported  in this study were  derived  from  the  actual  bills 
submitted  to the  Medicare  program  by the  OPDS and  ASCS in our  sample. 
The  ASC billing  and  payment  information  was readily  obtained  from  the  Part  B history 
contained  in the  common  working  file (CWF)  from  which we drew  our  sample.  The 
ASC patient  deductibles  and  coinsurance  were  determined  by subtracting  program 
payments  from  the  recognized  ASC facility  charge  shown  on the  CWF. 
The  ASC  data  in the  CWF  indicated  that  the  average  ASC  allowed  charge  for the 
beneficiaries  in our  sample  was $975.  The  data  also  established  that  beneficiaries  paid, 
on average,  $195 in coinsurance  to ASCS.  On  average  the  Medicare  program  paid  $780 
to ASCS for  each  cataract  procedure  performed  in  1991. 
To  determine  what  OPDS were  charging  patients  for  cataract  surgery  with  IOL  implant 
we used  information  that  we obtained  from  the  OPDS that  responded  to our  sumey.  All 
of the  HOPDS  in our  sample  were  asked  to provide  a copy of the  itemized  bill they 
provided  to the  Medicare  patient  in our  sample.  They  were  also asked  to provide  a copy 
of the  bill that  they  submitted  to Medicare  for payment.  This  information  was entered 
into  a data  and  when  analyzed  revealed  that  on average: 
1)  OPDS charged  $2,928 for cataract  surgery  with IOL  implant  in  1991, and 
2)  Medicare  beneficiaries  paid,  on average,  $586 in coinsurance. 
SAVINGS  PROJECTIONS 
Our  sampling  of the  CWF  indicated  that  approximately  1.14 million  cataract  procedures 
with IOL  implant  were  performed  in calendar  year  1991.  Of the  361 beneficiaries  in our 
sample,  238 (66 percent)  had  cataract  surgery  performed  in an OPD;  114 (32 percent) 
had  surgery  in an ASC.  The  remaining  9 beneficiaries  (2 percent)  were  classified  as 
A-5
 other  or unknown  and  includes  beneficiaries  who had  surgery  performed  while  hospital 
inpatients  or in a physicians  office. 
JUediMre l+vgmm  Savings Fmm  Changes to ASC  P~ 
The  legislation  enacted  by Congress  would  not  change  the  current  method  used  by 
Medicare  to pay ASCS for cataract  extraction  with IOL  implant.  The  ASC payment 
method  adds  the  maximum  allowable  amount  for an IOL  to the  geographically  adjusted 
standard  overhead  amount  or payment  group.  In  1991, $200 (the  maximum  allowable  for 
an IOL)  was added  to the  payment  group  (adjusted  standard  overhead)  determined  for 
each  ASC.  The  legislation  enacted  by Congress  lowered  this amount  from  $200 to $150. 
One  out  of every  3 (32 percent)  cataract  procedures  with  IOL  implant  was performed  in 
an ASC.  This  equates  to 360,000 of the  1.14 million  procedures  performed  in  1991.  The 
change  enacted  by Congress  will lower  the  amount  Medicare  allows for IOL  acquisition 
costs by $50 per  procedure  and  produce  savings of over  $18 million  per  year  (360,000 
procedures  x $50).  Over  5 years  these  savings will amount  to more  than  $90M. 
Calculations  may vary slightly due  to rounding. 
-9  Savings 
As previously  mentioned,  we used  the  CWF  to determine  the  average  coinsurance  paid 
by Medicare  beneficiaries  to ASCS.  The  change  in the  amount  recognized  for  an IOL 
will have  a direct  impact  on the  amount  of coinsurance  that  will be  paid  by beneficiaries 
electing  to have  their  cataract  surgery  with IOL  implant  performed  in an ASC. 
Beneficiary  coinsurance  liability will decrease  by $10 for each  cataract  procedure  with 
IOL  insertion  performed  at  an ASC.  Overall,  the  360,000 beneficiaries  who  use ASCS 
each  year  will save  a more  than  $3.6 million  annually  (360,000x  $10). 
M&are  Rngmm  Savihgs Rvm  Changes to OPD Payments 
Using  the  billing  information  provided  by the  OPDS our  sample,  we determined 
approximately  how much  Medicare  might  have  paid  each  of them  for the  claim  they 
submitted  on our  sampled  beneficiary.  To  do this we determined  how much  Medicare 
would  have  paid  each  OPD  using  cost reimbursement,  the  blended  rate  and  actual 
charge.  The  lowest  payment  amount  was then  used  in all calculations. 
Our  first  calculation  established  the  likely Medicare  payment  if the  OPD  in our  sample 
had  been  paid  using  cost reimbursement.  To  arrive  at  a Medicare  payment  amount 
based  on cost, we used  an average  cost to charge  ratio  of 50 percent.  The  50 percent 
figure  was taken  from  a HCFA  draft  report  concerning  outpatient  services. 
A-6
 For  each  OPD  in our  sample  we took  50 percent  of the  total  charges  indicated  on the 
bill (UB820r  other)  submitted  to Medicare  for payment.  From  this  amount  (total  billed 
charges  x 0.50) we subtracted  the  actual  amount  of coinsurance  the  patient  was required 
to pay (20 percent  of the  total  charges  shown  on the  bill).  This gave  us the  approximate 
Medicare  payment  if the  claim was paid  using cost reimbursement. 
Our  second  calculation  established  Medicares  payment  to each  OPD  in the  sample  using 
the  blended  rate.  To  establish  a potential  Medicare  payment  amount  using  the  blended 
rate  it was necessary  for us to determine  the  ASC  and  OPD  portion  of the  blend. 
The  ASC  portion  of the  blend  was determined  using  data  from  the  CWF.  The  average 
ASC  payment  rate  for  1991 ($975) was adjusted  to reflect  the  average  coinsurance  ($195) 
paid  by beneficiaries.  This  gave us the  average  net  amount  paid  by Medicare  to ASCS or 
$780 ($975 - 195).  The  net  amount  paid  to ASCS was then  adjusted  by 58 percent  to 
arrive  at the  ASC  portion  of the  blend  ($780x  0.58 or $452.40). 
The  OPD  portion  of the  blended  rate  was determined  by taking  42 percent  of the  cost 
determined  under  the  cost reimbursement  method  described  above. 
A-7
 The  Medicare  payment  amount  determined  from  each  method  (cost  reimbursement  and 
blended  rate)  described  above  was compared  to actual  amount  billed.  The  lowest  of the 
three  numbers  was established  as Medicares  likely payment  amount  for  each  OPD  in our 
sample. 
Savings from  the  change  in IOL  reimbursement  were  derived  by changing  the  blend 
calculation  to reflect  the  lower  ASC portion  resulting  from  legislative  change.  This  new 
blended  rate  was compared  to the  lowest  rate  established  in the  above  calculations.  If 
the  new blended  rate  was lower  than  the  previously  established  payment  rate,  savings 
would  accrue  to the  Medicare  program. 
We  calculated  that  the  ASC portion  of the  blend  would  decline  from  $452.40 to $429.20. 
Using  the  lower  ASC  portion  of the blend  we recalculated  the  blended  rates  for each 
OPD  in the  sample.  The  revised  blended  rates  were  compared  to the  lowest  payment  we 
calculated  for the  OPD  bill submitted  to Medicare  in 1991.  When  the  revised  blended 
rate  was lower  than  the  amount  paid  in 1991 savings would  accrue  to the  Medicare 
program.  We  added  up  these  individual  OPD  savings and  determined  $12.90 to be  the 
average  savings per  OPD  procedure. 
Of the  1.14 million  cataract  procedures  with  IOL  implant,  approximately  66 percent,  or 
752,000 procedures,  were  performed  in OPDS.  Savings of $12.90 per  procedure  are 
projected  to yield  savings of $9.7 million  annually  or $48.5 million  over  5 years. 
A-8
 APPENDIX  B 
Comments 
of 
The  Health  Care  Financing  Administration 
B-1  ,,*,  ,, 
** .. Health  Care 
%4  J,g,  DEPARTMENTOFHEALTH  & HUMAN  SERVICES  Financing  Admmls~ration 
. 
: 
: 
: 
7
., %v,m  Memorandum 
#w?29@ 
Date 
Bmce  C. VladO  /.  /.&( 
From 
\ 
Administrator  \ 
b 
Subject  Office  of Inspector  General  (OIG)  Draft  Report  Intraocular  Lens  (IOL)  Implant 
Acquisition  Costs,  (OEI-05-92-01030) 
To 
June  Gibbs  Brown 
Inspector  General 
We  reviewed  the  subject  draft  report  which  examines  IOL  acquisition  costs. 
HCFA  concurs  with  Option  1 presented  in the  report.  A provision  included  in the 
Omnibus  Budget  Reconciliation  Act  of  1993 reduces  the  IOL  payment  rate  for 
ambulatory  surgicai  centers  to $150.  Our  detailed  comments  are  attached  for your 
consideration. 
Thank  you  for the  opportunity  to  review  and  comment  on  this report  Please  advise 
us if you would  like  to  discuss  our  position  on  the  report  recommendation  at your 
earliest  convenience. 
Attachment 
B-2  Comments  of the Health  Care  Financine Administration  (HCFA\ 
on the Otficeof [nspector  General  (OIG) Draft Report: 
Intraocular  Lens (IOLS) [mdant  Acquisition Costs, 
(OEI-O5-42-O1O3O) 
OIG  Recommendation 
HCFA should establish a fixed payment  level for cataract  surgexy petiormed  in hospital 
outpatient  departments  (OPDS)  that  would  bring  Medicare  reimbursement  to  OPDS 
more  in line with  ambulatory  surgical  centers  (ASCS) payments. 
[f this  is not  achievable,  we suggest  HCFA  consider  our  options  for addressing  lens 
acquisition  costs. 
Option  1- Reduce  the S200 freed IOL payment, without changing cufie~t 
policies for determining  payment. 
Oution  2- ~- Establish a fMed program  payment for IOLS and a f~ed 
beneficia~  copayment  for  each  IOL  Payment  for  10Ls  at 
$ 1~,  and  beneficiary  copayment  at  1991 levels:  $40 for 
&s  and$116  for OPDS. 
~- Establish a fued  program  payment for IOLS and a fixed 
beneficiary copayment  for [Ok  Payment for IOLS at $ 1S0, 
and beneficiary copayment  set at $92 for both ASCS and 
OPDS. 
~- Establish  a fixed program  payment for IOLS and a fixed 
beneficiary copayment  for IOLS, with beneficiary copayment 
set at 20 percent  of the payment rate for both ASCS and 
OPDS. 
HCFA Resrmnse

HCFA concurs with option  1 and has taken  action.  We have already received  legislation

through  the Omnibus  Budget Reconciliation  Act (OBRA)  of 1993, signed on

August  10, 1993, to reduce  the  IOL payment  rate  for ASCS to $150 for the period

January  1, 1994, through  December  31, 1998.  We suggest that in the final report  this

option  include a more detailed  description  of what implementation  would accomplish.

For example,  in addition  to the direct  savings realized  in ASCS, there will be some

indirect savings in OPDS as the payment  level used in the blended  payment  amount

would  also  decrease.  (The  blended  payment  amount  includes 58 percent  of the ASC

rate. )

B-3
 Page 3 
Each segment  of option  2 represents  a piecemeal  approach  to payment  and  coinsurance 
reform,  and  each  contains  inherent  problems,  both  in the  calculation  of savings  and  in 
implementation.  Options  2A and  2B would  increase  the  beneficiary  share  of total 
payment  for  IOIA  in ASCS from  20 percent  to 27 percent  and  61 Percenk  respectively. 
ln addition,  although  option  2B decreases  the  coinsurance  paid  in OPDS for  IOLS by 
$18 million,  at  the  same  time  it increases  actual  beneficiary  payments  by the  same 
amount  in ASCS. 
--- 
The  report  shows  option  2C as saving  the  program  %2+miiKon~ IOL  rates  were  set  at 
$150.  We  believe  that  this option  would actual!y prove a cast to the program,  as 
beneficiary coinsurance  for the IOL would decrease more than would the total  payment. 
A technical appendix  to the report  would be indispensable.  This should describe  the 
sampling methodology  in greater  detail than presented  in the reporg  clarifying ~uch 
questions  as how sumey information  was merged with information  obtained  tiom  the 
Food and Drug Administration  and the relationship between  10L  costs  and  procedure 
costs. 
It is not clear how OIG derived  their  program savings in OPD payments.  There  are 
discrepancies  between  the OIGS estimates  and our own estimates  which suggest a 
systematic difference  in the way these figures are calculated.  Based on information 
contained  in the report,  it appears  to us that the program  savings are greatly overstated. 
We  suggest  that  all savings  calculation  be  presented  in detail,  either  at relevant  places  in 
the  text  or as part  of a technical  appendix. 
Refer  to the attached  markup  of the draft report  for other  suggested changes. 
B-5
 Page 2 
In addition  to supporting  the  reduction  in Medicare  IOL  allowance  to the  $150 level  in 
ASCS, we  also  support  an  amendment  to the  statute  and  regulations  that  would  apply 
that  level  to  IOL  payments  made  to physicians  who perform  cataract  surgery  in their 
office.  Although  these  changes  could  possibly  be  made  through  ordinary  notice  and 
comment  procedures,  we believe  that  legis~ation would  more  expediently  achieve  these 
ends. 
Regarding  the reports  prima~  recommendation,  0BIL4  of 1986 requires  HCFA  to 
develop  a prospective  payment  approach  for hospital  outpatient  senkes.  Toward  this 
en~  the  Office  of Research  and  Demonstrations  is funding  a study  to assist  in 
implementing  such  an  approach.  The  study  will produce  a national  data  base  of 
outpatient  facility  resource  costs  that  can  be used  as input  to formulate  an  outpatient 
prospective  paynent  system.  The  study  wiil cover  400 procedures  including  the  resource 
use  and  costs  for cataract  removal  and  IOL  implants  in both  the  hospital  OpD-aBd  the 
ASC  setting. 
The  study is not complete  at this time.  The final report  is expected to be completed  in 
early  1994.  Upon  completion,  it is expected that  data  from over 70 OPDS and ASCS will 
have  been  analyzed,  comprising  an estimated  2S,000 cataract procedures.  The 
prelimina~  data indicate  that the average  cost of the IOLa is below  $200 (in the range 
of $175),  although  some  were  purchased  at a cost of over $400.  The method  for 
calculating  the cost for the  IOLs will be expanded  beyond  the existing methodology, 
which determines  an average  cost across all sitq  to also include  a weighted  analysis of 
the  number  and range of costs  for IOU  purchased  at each site. 
General  Comments 
Descriptions  of OPD payment  in the Background  sections of the Executive Summary 
and Introduction  are  not completely  accurate.  Twenty percent of the ASC  rate is netted 
out  in the  ASC  portion  of the  blen&  rather  than  actual  coinsurance. 
We suggest that the term blended  payment  amount be used  instead  of blended  rate 
as rate implies  an amount  determined  in advance  based  on a blended  payment 
methodology. 
The  primaxy recommendation  in the repo~  i.e.,  establish  a fixed rate for OPDS 
approximating  ASC payment  levels  does not flow from the findings in the report. 
The first option  does not specifically address  coinsurance;  however, the report  does 
indicate  that  beneficiaries  would save $1.7 billion from this recommendation.  What 
generates  these  savings?  Who pays the $1.7 billion if not Medicare?