.

However, also

DEPARTMENT OF HEALTH& HUMAN SERVICES


“MAY 261993 

Bryan B. Mitchell


Principal Deputy Inspec A or &&
General


7
 OIG Management Advisory Report:


OEI-05-92-01031 “Intraocular Lens


See Addressees Below


Office of Inspector General 

Memorandum 

.


Costs,”


The purpose of this report is to provide you with preliminary


information on the costs of intraocular lens (IOL) implants


used in cataract surgery.


Background


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


describing costs and trends in cataract surgery.


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


found that purchasers of IOLS seldom paid list price and we
that


discounts were not passed on to the Medicare program, resulting


in Medicare paying double or triple the actual purchase price ~


for IOLS.
 . 

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


were readily available for under $200 in Canada.


lenses sold in England and other European countries The for same
 $125 or


less. A subsequent report, issued in 1990, documented that
 IOLS were available in the U.S. marketplace below $200.


reports concluded that Medicare reimbursement policies Both


encouraged inflated prices for IOLS.


addressed this issue by recommending a The national first cap report
 be


established for IOL reimbursement.


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


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


ambulatory surgical centers (ASC). 

departments are reimbursed according Hospital to a blended outpatient
 formula which


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


costs . Medicare payment for an IOL implanted in a physician’s
 office is based on the reasonable charge which may not exceed


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


handling fee.


We are now conducting a study to provide the latest information


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


drew a random sample of 361 Medicare patients who had cataract


surgery during calendar year 1991, the latest year for which


full data was available.
 We contacted the ophthalmic surgeon
 and the hospital outpatient department (OPD) or ASC, where the


——. ..= 
--

Page 2 - See Addressees Below 

procedure was performed, to obtain information on IOL 

acquisition costs. We now have information on IOL costs for 82 

percent of the beneficiaries in our sample. .. 

Preliminary Findings 

According to IOL purchasers, ASCS are currently paying about 

$126, or $74 less than the $200 reimbursement they receive from 

Medicare. The OPDS, on the other hand, pay $215, an average of 

$89 more than ASCS for each lens purchased. The reason for 

this difference in acquisition costs has little to do with the 

type of lens purchased. Rather, it appears to be related to 

stronger incentives present for ASCS to reduce their 

acquisition costs. 

For the same type of IOL, acquisition costs across all 

purchasers vary significantly. For example, acquisition costs 

for one model of IOL ranged from $97 to $375. Among the 

factors that may affect acquisition costs are Medicare 

. reimbursement, volume commitments, financial arrangements, and 

related products included with the IOL. 

Approximately 35 percent of the cataract procedures for which 

we now have information were performed in ASCS. Physicians 

performing surgery at ASCS reported little or no difficulty in 

obtaining a particular IOL model despite efforts by ASCS to 

limit the number of sources from whom they buy IOLS and other 

cataract related supplies. Sixty-five percent of the cataract 

procedures were performed by OPDS. 

Preliminary Conclusions 

Based on these preliminary results, we believe that it may be 

reasonable to reduce the $2c)oflat fee currently paid for IOLS 

in ASCS. It is also important to reexamine Medicare~s method 

for reimbursing OPDS for the IOLS they obtain. 

It appears that Medicare policy establishing a fixed 

reimbursement rate of $200 to cover the cost of procuring an 

IOL has provided incentives to ASCS to be prudent buyers. 

Indeed, ASCS have been able to negotiate favorable acquisition 

costs that could allow Medicare to reduce its costs further. 

On the other hand, while our analysis is not complete, we 

believe that we have sufficient information on the cost of 

procuring IOLS to establish that Medicareas current payment 

method for OPDS provides little incentive for hospitals to 

control their IOL acquisition costs. This payment method 

enables OPDS to pass inflated IOL costs on to Medicare. 

Manufacturers know this and, not surprisingly, tend to charge 

OPDS more for their IOLS than ASCS. 
r 

Page 3 - See Addressees Below 

AS we continue our analysis and formulate our findings and 

recommendations, we welcome any co~ents or thoughts on this 

preliminary information. If you have any questions or ... comments, please feel free to call me or Michael Mangano, 

Deputy Inspector General for Evaluation and Inspections, or 

have your staff contact Penny Thompson at 410-966-3138. 

Addressees: 

William Toby, Jr. 

Acting Administrator 

Health Care Financing Administration 

Elizabeth M. James 

Acting Assistant Secretary for 

Management and Budget 

Toni C. Davenport 

Acting Assistant Secretary 

for Legislation 

Gerald H. Britten 

Acting Assistant Secretary for 

Planning and Evaluation