Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Inspector General 

February 2004 

OEI-06-02-00710 

MEDICARE PAYMENTS TO 

AMBULATORY SURGICAL 

CENTERS FOR 

INTRAOCULAR LENSES 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors 

in carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the department. 

Office of Evaluation and Inspections 

The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 

and program evaluations (called inspections) that focus on issues of concern to the 

department, the Congress, and the public. The findings and recommendations contained 

in the inspections reports generate rapid, accurate, and up-to-date information on the 

efficiency, vulnerability, and effectiveness of departmental programs. 

Office of Investigations 

The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 

and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. The OI also oversees 

state Medicaid fraud control units, which investigate and prosecute fraud and patient 

abuse in the Medicaid program. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support in OIG's internal operations. The OCIG imposes program exclusions and 

civil monetary penalties on health care providers and litigates those actions within the 

department. The OCIG also represents OIG in the global settlement of cases arising 

under the Civil False Claims Act, develops and monitors corporate integrity agreements, 

develops model compliance plans, renders advisory opinions on OIG sanctions to the 

health care community, and issues fraud aler ts and other industry guidance. 
ABSTRACT

The objective of this inspection was to determine whether 

Medicare payment to ambulatory surgical centers (ASCs) for 

intraocular lenses (IOLs) is “reasonable and related to the cost” 

of the lenses, as required by law. We found that the current 

$150 per lens payment for IOLs is not “reasonable and related to 

the cost.” For the 12 months ending June 2002, 40 percent of 

IOL payments by Medicare and its beneficiaries were in excess 

of ASC IOL cost. Overall, IOL cost averaged $90.30 per lens, 

$59.70 below the $150 Medicare payment. IOL cost varied 

significantly by type of lens (grouped by lens material), with the 

highest cost IOL averaging $125 per lens, the most frequently 

used IOL averaging $69 per lens, and the lowest cost IOL 

averaging $39 per lens. We estimated that Medicare and its 

beneficiaries could have achieved substantial savings through 

the use of alternative payments rates. 

We recommend that Centers for Medicare & Medicaid Services 

(CMS) reduce Medicare payment to ASCs for IOLs in a manner 

that takes into account the different types and cost of IOLs. In 

comments, CMS agreed to take into account our 

recommendation and IOL cost data in developing the revised 

payment system for ASCs required by the Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES i 
EXECUTIVE SUMMARY

OBJECTIVE 

To determine whether Medicare payment to ambulatory surgical 

centers (ASCs) for intraocular lenses (IOLs) is “reasonable and 

related to the cost” of IOLs, as required by law. 

BACKGROUND 

Medicare payment to ASCs for IOLs is required by section 

1833(i)(2)(A)(iii) of the Social Security Act to be “reasonable and 

related to the cost” of lenses. Medicare’s current payment is 

$150 per lens for virtually all types of IOLs. The payment rate 

has remained unchanged, despite 1994 cost data suggesting that 

it substantially exceeds the cost of IOLs. The Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 

(MMA) requires the Centers for Medicare & Medicaid (CMS) to 

implement a revised payment system for ASCs betweem 

January 2006 and January 2008. 

We gathered ASC cost information for 359 randomly selected 

Medicare-covered IOLs for the 12 months ending June 2002. We 

determined the average cost per IOL and projected the results to 

the population of Medicare-covered IOLs in the sample period. 

We also analyzed cost by type of IOLs. Finally, we identified 

possible alternative payment rates and estimated potential 

Medicare and beneficiary savings. 

FINDINGS 

Medicare payment to ASCs for IOLs was not “reasonable and 

related to the cost” of lenses, with about 40 percent of total 

amount paid exceeding cost. 

We found an average ASC IOL cost of $90.30 per lens for the 12 

months ending June 2002, which is $59.70 below the current 

$150 per lens Medicare payment. The average cost per lens 

varied by IOL lens material, with $124.77 per lens paid for IOLs 

made of soft acrylic, $69.37 for silicone, and $39.10 for 

polymethyl methacrylate (PMMA). These differences in cost 

strongly suggest that a single payment rate for these IOL types 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES ii 
EXECUTIVE SUMMARY 

is not reasonable. We estimate that, depending upon how CMS 

chooses to refine IOL payment, Medicare and its beneficiaries 

could have achieved substantial savings if alternative payment 

rates had been paid to ASCs for IOLs instead of the $150 per 

lens that was paid. 

RECOMMENDATION 

We recommend that the Centers for Medicare & Medicaid 

Services reduce Medicare payment to ASCs for IOLs in a 

manner that takes into account the different types and cost of 

IOLs. 

Agency Comments 

CMS agreed to take into account our recommendation and IOL 

cost data in developing the revised payment system for ASCs 

required by MMA. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES iii 
TABLE OF CONTENTS

ABSTRACT ................................ ....................... i

EXECUTIVE SUMMARY ................................ ......... ii

INTRODUCTION ................................ .................. 1

FINDINGS ................................ ........................ 7

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

RECO MMENDATION ................................ ............ 11

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

APPENDICES ................................ .................... 15

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

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

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

ACKNOWLEDGMENTS ................................ .......... 21

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 
INTRODUCTION

OBJECTIVE 

To determine whether Medicare payment to ambulatory surgical 

centers (ASCs) for intraocular lenses (IOLs) is “reasonable and 

related to the cost” of IOLs, as required by law. 

BACKGROUND 

An ASC provides surgical services to patients not requiring 

hospitalization.1 The Centers for Medicare & Medicaid Services 

(CMS) determines which surgical procedures may be performed 

in ASCs and periodically publishes a list of covered procedures 

in the Federal Register.2 Medicare covers five procedures 

involving IOL implants: three cataract surgery procedures, and 

two IOL replacement procedures. 3 An IOL is an artificial lens 

made of polymethyl methacrylate (PMMA), silicone, acrylic, or 

other material that is implanted inside the eye during or 

subsequent to cataract surgery. Cataract surgery with IOL 

insertion ranks as the highest outpatient surgical procedure 

covered by Medicare Part B in terms of total expenditures. 4 

Payments to ASCs for cataract surgery and other IOL implant 

procedures are made up of two parts: a prospectively 

determined payment for the surgical procedure and a payment 

for the IOL itself.5 While various factors affect the payment for 

each of the five surgical procedures (e.g., geographic wage 

adjustments), payment for IOLs is fixed nationwide and not 

subject to inflation adjustments. With the exception of two lens 

models designated as new technology IOLs,6 the Medicare 

program and its beneficiaries have paid ASCs the fixed amount 

of $150 per IOL since 1994. At $150 per IOL, program and 

beneficiary payments totaled about $134 million in the 12 

months ending June 30, 2002 for IOLs alone.7 

The current $150 payment per IOL was originally mandated by 

Congress in the Omnibus Budget Reconciliation Act of 1993 

(OBRA ‘93) and applied to all IOLs implanted from January 

1994 through December 1998.8 Congress took this action after 

the Office of Inspector General (OIG) found that the previous 

Medicare payment of $200 per IOL substantially exceeded prices 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 1 
INTRODUCTION 

that ASCs paid for IOLs in both 1991 and 1993.9 The previous 

$200 payment per IOL had also been based on information 

provided by OIG in a 1988 report.10 

Since the congressionally-mandated OBRA ‘93 rate expired in 

1998, the Social Security Act (hereafter, the Act) establishes the 

criteria for appropriate payment. Section 1833(i)(2)(A)(iii) of the 

Act specifies that Medicare payment to ASCs for IOLs should 

include “...payment which is reasonable and related to the cost 

of acquiring the class of lens involved.” 

Medicare payment to ASCs for IOLs has not been adjusted since 

the expiration of the OBRA ‘93 rate, despite evidence that the 

payment exceeded the cost of IOLs. In a 1994 survey of ASC 

cost, the Centers for Medicare & Medicaid Services (CMS) found 

a weighted mean ASC IOL cost of $100 for all ASCs sampled.11 

The 1994 survey was the last survey of ASC cost conducted by 

CMS. Until recently, CMS had been required by section 1833 

(i)(2)(A)(i) of the Act to conduct a survey of ASC costs every 5 

years (e.g., 1999, 2004).12 However, the Medicare Prescription 

Drug, Improvement, and Modernization Act of 2003 (MMA) 

repealed the survey requirement and mandated that CMS 

implement a revised payment system for ASCs beginning on or 

after January 1, 2006 and not later than January 1, 2008.13 

The MMA also requires the General Accounting Office (GAO) to 

conduct a study of ASC payments, including consideration of 

cost data submitted by ASCs, and to report the results to 

Congress by January 2005. 

Further, while the last two changes in Medicare payment to 

ASCs for IOLs have involved paying a single rate for lenses 

other than new technology IOLs, CMS has the authority to set 

different payment rates for different classes of IOLs. The Act 

specifies that payment to ASCs for insertion of IOLs must be 

“reasonable and related to the cost of acquiring the class of lens 

involved” (emphasis added). The House Conference Report 

accompanying the Omnibus Budget Reconciliation Act of 1987 

(OBRA ‘87), which added this requirement, emphasizes that for 

the purposes of paying an amount that is reasonable and related 

to the cost, “the [Department of Health and Human Services 

(HHS)] Secretary may establish categories of IOLs based on 

differences in type and cost.”14 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 2 
INTRODUCTION 

SCOPE AND METHODOLOGY 

Utilizing the 100 percent Medicare National Claims History file 

of paid Part B claims with a date of service for the 12 months 

ending June 30, 2002, we identified the population of 893,428 

claims for which Medicare and its beneficiaries paid $150 per 

IOL used in an implant procedure performed in an ASC.15 

Sample. We stratified the 893,428 IOL implant claims into 3 

groups, based on the number of claims associated with a unique 

Medicare Part B carrier provider number (Table 1). The 

purpose of stratification was to allow for the over sampling of 

claims associated with provider numbers with relatively few 

claims in the population.16 The divisions between strata – at 

120 and 1,200 annual claims – are equivalent to ASCs 

submitting, on average, fewer than 10 claims per month, 

between 10 and 100 claims per month, or more than 100 claims 

per month. 

Table 1: Sample Design 

Stratification of IOL Claims Associated with Unique 

Medicare Part B Carrier Provider Numbers 

Strata (Claims per 

Provider Number) 

Population 

Provider 

Numbers 

Population 

Claims 

Sampled 

Claims 

1,200 or more 165 293,652 180 

121 – 1199 1,160 564,917 120 

120 or fewer 1,662 34,859 60 

Total 2,987 893,428 360 

We sampled a total of 360 claims, a number that permits 

projection to the population at a 95 percent confidence level. We 

randomly selected 60, 120, and 180 claims from the 3 strata.17 

By selecting more claims from the two strata that had more 

claims per unique provider number, we ensured the sample 

would contain more ASCs than if we had selected the same 

number of claims from each stratum. The final sample 

contained 360 claims from 268 different ASCs. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 3 
INTRODUCTION INTRODUCTION 

Initial Data Collection. We requested ASCs with the associated 

sampled claims to identify the manufacturer, model, and various 

characteristics of the IOL used in each implant procedure and to 

report its cost, net of discounts, rebates, and any other 

reductions in price. Additionally, we requested supporting 

documentation, such as copies of supplier invoices, purchase 

agreements, and IOL identification labels relating to each 

sampled claim. 

Document Reviews and Follow-up Data Collection. In order to 

verify the accuracy of the IOL cost data reported by ASCs, we 

reviewed supporting documentation provided with each 

response. These reviews involved examining supplier invoices, 

discount and rebate statements, purchase agreements, and 

contracts. When the document review revealed any apparent 

discrepancy between reported cost and supporting documents, or 

whenever additional documentation or clarification of a response 

was needed, we contacted the respondent to resolve the 

question(s). When appropriate, we adjusted the initial selfreported ASC IOL cost data to more accurately reflect cost, as 

revealed through document reviews and follow-up interviews of 

respondents. 

Despite these efforts, we learned during data collection that we 

were not always able to measure and document all reductions to 

the IOL sales prices listed on invoices. Some ASC respondents 

reported they lacked access to full financial information when 

contracts were handled at the corporate level. Others 

acknowledged that they could not report all price reductions 

because either they purchased IOLs through group purchase 

organizations or their purchase arrangements with IOL vendors 

were highly complex.18 Therefore, while we were able to 

document an accurate invoice sales price for each IOL in the 

sample and an accurate net sales price (cost) for most IOLs in 

the sample, some ASCs likely paid less than the reported 

amount. Of the sampled IOLs where we were able to obtain 

information on rebates and agreements, all of them decreased, 

rather than increased, the actual IOL cost compared to invoice 

price. We found no evidence to suggest that any ASC paid more 

for an IOL in the sample than the cost we used in the analysis. 

Response Rate. Of the 360 claims sampled, we excluded 1 claim 

as ineligible and imputed cost for 1 claim where cost data could 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 4 
not be reported. For the first of these claims, the respondent 

reported that the IOL implanted was actually a new technology 

IOL, a type of lens that should not have been included in the 

sample. We excluded this claim from our analysis, leaving a 

total sample of 359 claims and a population of approximately 

891,797 IOL implant claims for the 12-month study period.19 

For the second claim, we learned that the ASC had been sold 

since the date of the claim, and that the new owners could only 

identify the IOL implanted, but could not report the previous 

owner’s cost. For this claim, we imputed the highest cost 

reported among the other eight claims in the sample with the 

same manufacturer and model of IOL.20 

Analysis. We calculated an average per IOL cost for the 359 

claims in the sample, which were weighted to reflect the 

proportion of claims represented by each stratum. 21 We 

subtracted this average per IOL cost from the Medicare per lens 

payment of $150 to determine the average per lens payment 

above cost. We also calculated the average per lens cost and 

payment above cost for different types of IOLs by grouping the 

359 claims, based on the primary material used in the 

construction of each lens. The sample contained 187 IOLs made 

primarily of silicone, 147 made of soft acrylic22, and 25 made of 

polymethyl methacrylate (PMMA). 

We projected the average per lens cost to the population of 

891,797 implant claims to estimate total ASC IOL cost for the 

12-month period. We calculated total program payments by 

multiplying the population of claims by $150. We refer to this 

amount as “Medicare payments” and recognize that it includes 

both program and beneficiary payments.23 We subtracted total 

ASC IOL cost from total Medicare payments to determine 

estimated payments above cost. We also calculated total 

estimated payments, cost, and payments above cost by IOL 

material. 

Further, we developed two possible alternative payment rates 

for each lens material type. For the first alternative, we 

calculated the weighted 90th percentile rate for each lens type. 

That is, using a computer application, we estimated the dollar 

amount that was greater than or equal to cost for 90 percent of 

all IOLs purchased by ASCs for the sample period. For the 

second alternative, we examined the cost distribution of sampled 

IOLs to identify high “outlier” ASC cost – reported cost that 

appeared excessively high when compared to the rest of the 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 5 
sample. Determining outlier cost was accomplished primarily 

using data display analysis. We arrayed IOL cost data from 

lowest to highest cost and displayed the distribution graphically. 

We then visually determined where along the graph that outlier 

cost began, as evidenced by a dramatic decrease in the frequency 

of IOLs above a particular cost. 

For each lens material type, we located an alternative payment 

rate that would have covered all reported costs, except the 

outliers. We then calculated how much Medicare and its 

beneficiaries would have paid to ASCs for IOLs, if payment had 

been set at the rates given by these two alternatives. We also 

retrospectively estimated the amount of savings that would have 

resulted through use of each of the sets of alternative payment 

rates. 

Limitations. As mentioned, actual net cost per IOL is likely 

lower than the IOL cost used in our analysis, because some 

respondents found it difficult to report all reductions in price. 

As a result, our analysis likely underestimates the amount of 

total Medicare payments above ASC IOL cost. While it would be 

beneficial to know the exact cost, net of all price reductions, of 

each IOL in the sample, we are confident that we are 

underestimating differences between payment and cost rather 

than overestimating them. 

Finally, our analysis of types of lenses relies on only one 

characteristic of IOLs, namely, the primary material used in the 

construction of each lens. We recognize that, in addition to lens 

material, other IOL features, such as design characteristics, 

might also be useful for grouping IOLs for analysis or payment 

purposes. 

Standards. We conducted this inspection in accordance with the 

Quality Standards for Inspections issued by the President’s 

Council on Integrity and Efficiency. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 6 
FINDINGS

Medicare and its beneficiaries Medicare payment to ASCs for IOLs was paid ASCs approximately not “reasonable and related to the cost” $133.7 million for IOLs for the 

of lenses, with about 40 percent of total 12 months ending June 2002. 

amount paid exceeding cost. We estimated that ASCs had 

IOL cost of $80.5 million, 

resulting in Medicare and beneficiary payments above costs of 

$53.2 million (Figure 1). These amounts indicate that 40 

percent of total Medicare payments to ASCs for IOLs for the 

study period exceeded the cost of lenses. 

Figure 1: 

Forty Percent of Medicare and Beneficiary Payments 

to ASCs for IOLs Were in Excess of Cost 

(July 2001 to June 2002) 

$80.5 (60%) $53.2 (40%) 

$36.8 (69%) 

$9.4 (18%) 

$7.0 (13%) 

Silicone 

PMMA 

Soft Acrylic 

ASC IOL 

Cost 

Payments 

Above 

Cost 

Total IOL Payments = $133.7 million 

Source: OIG analysis of IOL Cost and Payments. 

All dollars in millions. 

IOLs made of silicone, the most prominent lens material in the 

sample, accounted for about $36.8 million (69 percent) of 

payments above cost. IOLs constructed of soft acrylic and 

PMMA accounted for an estimated $9.4 million and $7.0 million, 

respectively, in total payments above cost. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 7 
FINDINGS 

ASC cost varies significantly by three IOL types; Medicare 

payment exceeds the average cost per lens for each type . 

While we estimated that the average cost to ASCs per IOL was 

$90, we found that average cost varied significantly by lens 

material (Table 2). Soft acrylic lenses accounted for 41 percent 

of the sample and had an average cost of $125, $25 below 

Medicare’s $150 per IOL payment. Silicone lenses accounted for 

52 percent of the sample and had an average cost of $69 per 

lens, about $81 below the payment rate. PMMA lenses 

accounted for 7 percent of the sample and had an average cost of 

$39 per lens, $111 below the payment rate. 

Table 2: 

Average ASC Cost Per IOL Differs by Lens Material 

IOL Type 

(Material) 

Sample 

Size 

Average 

Cost 

Average Payment 

(Percent) Above 

Costa Cost Range 

All 

IOLs 

Soft 

Acrylic 

Silicone 

PMMA 

359 (100%) $90 $60 (40%) $23 - $150 

147 (41%) $125* $25 (17%) $85 - $150 

187 (52%) $69* $81 (54%) $23 - $150 

25 (7%) $39* $111 (74%) $28 - $69 

a

 Average payment above cost calculated as $150 minus average cost. 

* Average costs are different by lens type at p <.05 significance level, based 

on Sudaan analysis. 

ASC cost for sampled IOLs ranged from a low of $23 to a high of 

$150. While no sampled IOLs cost more than the current $150 

Medicare payment per lens, ASC respondents reported paying 

exactly $150 per lens for 11 sampled IOLs - 7 soft acrylic and 4 

silicone. Follow-up document reviews and interviews revealed 

that, for 10 of the 11 IOLs, the $150 reported cost may not have 

accounted for all reductions in price realized by the ASCs 

through various purchase arrangements. For example, 5 of the 

11 lenses were all purchased by different ASCs from the same 

distributor. During an interview with a representative of this 

distributor, we learned that the distributor provided IOLs to 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 8 
FINDINGS 

ASCs under contracts that included other cataract surgery 

supplies and equipment. Regardless of the IOL used, the 

distributor stamped every surgical package invoice with a 

statement indicating that, for Medicare reporting purposes, the 

cost of the IOL was $150. Respondents reported that another 5 

of these 11 lenses were purchased through group purchasing 

organizations or bundled with capital equipment, arrangements 

which made it difficult for respondents to determine all 

applicable reductions in cost. One of the 11 IOLs cost $150 

because it involved a lens power outside the normal production 

range. 

Substantial savings could have been achieved through the use 

of alternative payment rates. 

Knowing the average ASC IOL cost is useful for estimating the 

difference between Medicare payments and ASC IOL cost. To 

provide information on payment rates that could be considered 

“reasonable and related to the cost,” we used two different 

analysis methods to identify alternative payment rates for each 

of the three IOL material types. Each method provided 

alternative payment rates that, if used instead of the single 

$150 Medicare payment rate, would have achieved substantial 

savings to Medicare and its beneficiaries while covering the vast 

majority of ASC IOL cost (Table 3). 

Table 3: 

Program and Beneficiary Savings Are Possible Through 

Use of Alternatives to the Current $150 Payment 

Alternative Payment Rates 

IOL 

Material 

Average 

Cost 

Estimate 

Weighted 

90th Percentile 

Excluding 

Outliers 

Soft Acrylic 

Silicone 

PMMA 

$125 $134 $134 

$69 $100 $95 

$39 $55 $45 

Estimated 

Savings N/A $34.8 million $37.7 million 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 9 
FINDINGS 

Payment rates set at the weighted 90th percentile (i.e., rates 

greater than or equal to cost for 90 percent of each of the 3 IOL 

types purchased for the sample period) would have resulted in 

estimated savings of $34.8 million. Payment rates that covered 

all sampled IOL costs, except high outliers, would have resulted 

in estimated savings of $37.7 million (see IOL cost distributions 

in Appendix B.) While there are numerous ways of determining 

possible alternative payment rates, these methods provide 

similar payment amounts for each of the three lens types and 

cover all but the highest reported ASC IOL cost. 24 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 10 
RECOMMENDATION

Medicare payments to ASCs for IOLs are required by law to be 

“reasonable and related to the cost” of lenses. In OBRA ‘87, 

Congress granted the HHS Secretary the authority to establish 

rates and specified in the conference report that rates may vary 

by “categories of IOLs based on differences in type and cost.” 

However, our data suggest that the current $150 Medicare per 

lens payment is not “reasonable and related to the cost” of IOLs. 

We found that 40 percent ($53.2 million) of total Medicare and 

beneficiary payments were in excess of ASC cost in the 12 

months ending June 2002. Using lens material, one of the 

possible lens characteristics for categorizing IOLs, we found that 

the average cost per lens varied significantly by IOL type. This 

variation suggests that a single payment rate is not reasonable. 

We estimate that substantial program and beneficiary savings 

could be achieved through the use of alternative payment rates. 

To ensure that future payments are “reasonable and related to 

the cost” of lenses, we recommend that: 

CMS reduce Medicare payment to ASCs for IOLs in a manner 

that takes into account the different types and cost of IOLs 

The MMA requires CMS to implement a revised payment 

system for ASCs, beginning not later than January 1, 2008, and 

GAO to conduct a study of ASC payments in 2004. We 

encourage CMS to consider the information provided in this 

report as it revises the ASC payment system. We also 

encourage CMS to discuss with GAO our findings regarding 

ASC IOL costs and payments. 

Agency Comments 

CMS commented on our draft report recommendation written 

before the MMA was enacted. We had urged CMS to take 

administrative action, or seek legislation, to immediately reduce 

ASC IOL payment rates. In responding, CMS agreed to take 

into account our recommendation and data in developing the 

revised payment system for ASCs. However, CMS stated that, 

in light of the significant changes in how CMS determines ASC 

payments resulting from the MMA, it is deferring action to 

reduce Medicare payment to ASC for IOLs. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 11 
END NOTES

1 42 CFR § 416.2 

2 42 CFR § 416.65 

3 IOL implant procedures include those with CPT codes 66982, 

66983, 66984, 66985, and 66986. American Medical 

Association, Current Procedural Terminology 2001 (Chicago: 

AMA Press, 2001), 229. The 5 procedures are described as 

follows: 66982 - Extracapsular cataract removal with 

insertion of intraocular lens prosthesis, complex; 66983 -

Intracapsular cataract extraction with insertion of 

intraocular lens prosthesis; 66984 - Extracapsular cataract 

removal with insertion of intraocular lens prosthesis; 66985 -

Insertion of intraocular lens prosthesis, not associated with 

concurrent cataract removal; 66986 - Exchange of intraocular 

lens prosthesis. 

4 For example, Medicare Part B paid $1.97 billion for 

extracapsular cataract removal with insertion of intraocular 

lens prosthesis (66984) in 2001. Center for Medicare and 

Medicaid Services, “Medicare Leading Part B Procedure 

Codes Based on Allowed Charges, 2001.” 

5 Physicians that perform implant procedures are paid, based 

on a separate physician fee schedule. 

6 In 1999, CMS issued regulations authorizing an additional 

$50 be added to Medicare ASC IOL payment when 

designated “new technology intraocular lens” are used in 

implant procedures. To date, only two specific lenses have 

been designated as new technology IOLs. Our analysis found 

that new technology IOLs accounted for less than 2 percent of 

all Medicare ASC IOL implant claims in the study period. 

7 Based on our analysis of claims, Medicare paid ASCs $150 

per lens for 891,797 claims, for a total of $133,769,400. See 

the Methodology section for more details. 

8 Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-

66, sec. 13533 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 12 
9 Department of Health and Human Services, Office of 

Inspector General, OIG Management Advisory Report: 

“Intraocular Lens Cost,” OEI-05-92-01031, March 26, 1993 

10 Department of Health and Human Services, Office of 

Inspector General, “Medicare Certified Ambulatory Surgical 

Centers: Cataract Surgery Cost and Related Issues,” OAI-09-

88-00490, March 1988 

11 63 FR 32303-32304, June 12, 1998 

12 Section 1833 (i)(2)(A)(i) of the Act requires a survey. 

13 Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003. Pub. L. 108-173, sec. 626 

14 H.R. Conf. Rep. No. 100-495, at 616 (1987), reprinted in 1987 

U.S.C.C.A.N. at 1362 

15 This population excludes 31,129 claims for beneficiaries who 

were identified as having at least 1 new technology IOL 

implanted. These beneficiaries had at least one claim for the 

sample period with the procedure code Q1001 or Q1002, 

which indicated that a new technology IOL was implanted. 

The population also excludes a total of 51,491 claims with 

modifiers, indicating that the procedure might have been 

discontinued, and claims for which the amount Medicare 

allowed was unusually small, indications that an IOL might 

not have been implanted. Specifically, these claims contained 

modifier codes 52, 53, 73, 74 or allowed payment amounts of 

less than $300. 

16 Stratification accomplished this purpose. While provider 

numbers with 120 or fewer claims in the population 

accounted for only about 4 percent of all claims in the sample 

period, we selected about 17 percent of the sample (60 claims) 

from this group. 

17 For random sampling, we used RAT-STAT, the OIG’s 

statistical software program with random number generator. 

18 Some of these purchasing agreements bundled IOLs and 

surgical accessories or equipment together in such a way that 

providers could not determine the price of the IOL without 

requesting additional information from their vendor. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 13 
19 The excluded claim came from the “1,200 or more” stratum, 

leaving 179 claims in that stratum. 

20 The other eight claims in the sample with the same IOL 

manufacturer and model had a mean cost of $59.38, 

minimum cost of $50.00, and maximum cost of $65.85. We 

imputed the maximum reported cost of $65.85 for the claim 

in question. 

21 The following table shows the calculated weights: 

Calculated Weights for IOL Sample Strata 

Strata (Claims per 

Provider Number) Claims 

Sampled 

Claims 

Calculated 

Weights 

1,200 or more 293,652 180 1,631.4 

121 – 1199 564,917 120 4,707.6 

120 or fewer 34,859 60 581.0 

Total 893,428 360 

Both SAS® and SUDAAN® were used in analyzing data. 

SUDAAN® was used to determine weighted mean cost and 

their standard errors, adjusted for the sampling design. 

22 The soft acrylic group include hydrophobic, hydrophilic, and 

hydrogel lenses. 

23 This amount should be viewed as a proxy for actual 

Medicare and beneficiary payments. Actual payments may 

be affected by coinsurance, deductibles, multiple procedure 

payment rules, etc. Use of this proxy is necessary, however, 

because the $150 IOL payment is bundled with the surgical 

procedure facility fee when Part B carriers pay ASCs, making 

it impossible to tally actual payments for IOLs alone. 

24 Further examination of those IOLs with reported ASC cost 

above the alternative payment rates confirmed that these 

reported costs were truly outliers. For example, 2 IOL 

models accounted for 13 of the 17 silicone IOLs with reported 

cost above $95. The other 93 IOLs in the sample 

representing the same 2 silicone lens models had an average 

weighted cost of $69.20. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 14 
� APPENDIX ~ A

Estimates and Confidence Intervals 

95 % Confidence Interval 

Mean Standard 

N Estimate Error Lower Limit Upper Limit p 

ASC IOL Cost Estimates 

All IOLs 359 $90.30 2.22 $85.95 $94.65 

ASC IOL Cost by Type of Lens <(.05)a 

Soft 147 $124.77 1.11 $122.59 $126.95 

Acrylic 

Silicone 187 $69.37 2.09 $65.27 $73.47 

PMMA 25 $39.10 1.80 $35.57 $42.63 

a

 General Linear Modeling analysis: F< .0005; all lens types differ at p<.05. 

* Average per lens cost differences significant at p level indicated. 

12-Month Medicare Payment Projections

b 

Payment 

Per IOL N Estimate b 

$150.00 891,797 $133,769,490 

95 % Confidence Interval 

Standard 

Mean N Estimate b Error Lower Limit Upper Limit 

12-Month ASC IOL Cost 

All IOLs $90.30 891,797 $80,525,748 2.22 $76,645,531 $84,405,965 

Soft Acrylic $124.77 371,419 $46,341,756 1.11 $45,533,701 $47,149,812 

Silicone $69.37 457,083 $31,708,905 2.09 $29,836,447 $33,581,362 

PMMA $39.10 63,294 $2,475,087 1.80 $2,251,759 $2,698,415 

12-Month Payments Above ASC Cost 

All IOLs $59.70 891,797 $53,243,742 2.22 $49,363,103 $57,124,381 

Soft Acrylic $25.23 371,419 $9,371,112 1.11 $8,563,034 $10,179,189 

Silicone $80.63 457,083 $36,853,602 2.09 $34,981,258 $38,725,946 

PMMA $110.90 63,294 $7,019,028 1.80 $6,795,736 $7,242,320 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 15 
APPENDIX~A 

Estimates and Confidence Intervals (continued) 

Mean Standard 95 % Confidence Interval 

Savings N Estimate b Error Lower Limit Upper Limit 

12-Month Cost Savings - 90th Percentile Rates 

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

Payment Savings 

Per IOL Per IOL

Soft Acrylic $134.00 $16.00 

Silicone $100.00 $50.00 

PMMA $55.00 $95.00 

Mean Standard 95 % Confidence Interval 

Savings N Estimate b Error Lower Limit Upper Limit 

12-Month Cost Savings – Outlier Exclusion Rates

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

Payment Savings 

Per IOL Per IOL

Soft Acrylic $134.00 $16.00 

Silicone $95.00 $55.00 

PMMA $45.00 $105.00 

Proportion of Payments Above ASC Cost by Type of IOL 

95 % Confidence Interval 

Standard 

Estimate Error Lower Limit Upper Limit 

Soft Acrylic 17.6% 0.02 13.9% 21.3% 

Silicone 69.2% 0.03 62.9% 75.5% 

PMMA 13.2% 0.03 7.5% 18.9% 

b

 Projection estimates based upon unrounded weighted numbers of claims in population. 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 16 
APPENDIX~B 

IOL Cost Distributions 

Soft Acrylic IOL Cost Distribution 

$80 

$90 

$100 

$110 

$120 

$130 

$140 

$150 

$160 

Each triangle represents one IOL. 

Outliers 

Sample size = 147 

Threshold = $134 

Silicone IOL Cost Distribution 

$10 

$30 

$50 

$70 

$90 

$110 

$130 

$150 

Each triangle represents one IOL. 

Outliers

Sample size = 187 

Threshold = $95 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 17
APPENDIX~B 

IOL Cost Distributions (continued) 

PMMA IOL Cost Distibution 

$0 

$10 

$20 

$30 

$40 

$50 

$60 

$70 

$80 

Each triangle represents one IOL. 

Outliers 

Threshold = $45 

Sample size = 25 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 18
� APPENDIX ~ C

AGENCY COMMENTS 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 19
APPENDIX ~ C 

AGENCY COMMENTS (continued) 

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 20
ACKNOWLEDGMENTS

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

Regional Inspector General for Evaluation and Inspections in 

the Dallas Regional Office, and Kevin Golladay, Assistant 

Regional Inspector General. Other principal Office of 

Evaluation and Inspections staff who contributed include:

A. Blaine Collins, Team Leader

Deborah McGurk, Program Analyst

Amy Ashcraft, Program Analyst

Bambi Straw, Program Specialist 

Tricia Davis, Director, Medicare and Medicaid Branch

Technical Assistance

Barbara Tedesco, Mathematical Statistician

Clark Thomas, Program Analyst

OEI - 06 - 02 - 00710 MEDICARE P AYMENTS TO AMBULATORY S URGICAL C ENTERS FOR I NTRAOCULAR L ENSES 21