Description Annual Price

Multi-piece or Contract Canadian US.
Manufacturer One-piece Volume Dollars Dollars
Hospital #9
Company E One-piece 132 $155.00 $135.38
Company E Multi-piece 127 $130.00 $113.54
Company E One-piece 292 $140.00 $122.28
Hospital #10/11
Company G * 108 $140.00 $122.28
Company G * 2 $140.00 $122.28
Company G * 2 $140.00 $122.28
Company G * 32 $140.00 $122.28
Company G * 25 $140.00 $122.28
Company G * 2 $140.00 $122.28
Company G * 2 $140.00 $122.28
Company G * 165 $140.00 $122.28
Company G * 60 $140.00 $122.28
Company G * 7 $140.00 $122.28
Company G * 7 $140.00 $122.28
Company G * 6 $140.00 $122.28 |
Company D * 150 $105.00 $91.71
Company G * 395 $110.00 $ 96.07
Company F Multi-piece 312 $190.00 $165.95
Company F One-piece 16 $190.00 $165.95
Company A *, 122 $150.00 $131.01
Company D * 60 $105.00 $9L71
Hospital #12
Company H One-piece 60 $160.00 $139.74
Company H Multi-piece 1400 $135.00 $117.91
Hospital #13
Company I * 12 $275.00 $240.19
Company F Multi-piece 47 $315.00 $275.12
Company F * 42 $255.00 $222.72
Company E * 2 $315.00 $275.12
Company E * 17 $295.00 $257.65
Company E * 6 $315.00 $275.12
Company E * 43 $225.00 $196.52
Company E * 22 $315.00 $275.12
Company E * 2 $319.00 $278.61
Company E * 34 $295.00 $257.65


LOW IOL PRICES CAN BE ACHIEVED WITHOUT HIGH VOLUME PURCHASE

No direct correlation exists between price and the number of IOLs purchased by Canadian
hospitals. Average prices ranged from $73 to $245. Volumes purchased ranged from 50 to
1540. There was no significant correlation between price and volume, as shown in the chart
below. It should be noted that most of these hospitals had contracts with more than one
company further reducing the volume of their purchases (see Appendix A for more details.)
Our findings indicate that contract negotiations are more effective than volume purchase in
acquiring IOLs at lower costs.

No Direct Correlation Exists
Between
Annual |OL Volume and Price

Annual Volume Prices
$300
1500
1250 $250
1000 $200
750 $150
500 $100
250 $50
oO $0
1 2 3 4 5 6 7 8 9 10/11 12 13 14 15
Hospital #

Canadian !OLs

#24 Contract Volume —— Average Price

*Prices shown have been converted to
U.S. dollars for comparison purposes



FINDINGS
Canadian hospitals purchase IOLs for an average of $110
. Negotiated IOL prices ranged from $68 to $279 per lens, and included one-piece
posterior chamber lenses which are generally considered to be more expensive.

Ophthalmologists interviewed indicated approximately 55 percent of the IOLs
they purchase are one-piece lenses.

Low IOL prices can be achieved without high volume purchase
Canadian hospitals use effective negotiating techniques

. Hospital purchasing directors stated they had effectively reduced IOL prices
over the last couple of years.

° Ophthalmologists are involved in the selection of IOL manufacturers awarded
contracts.

. Canadian hospitals purchase their IOLs under negotiated contracts.

. Canadian hospitals solicit bids from several manufacturers when negotiating
IOL contracts.

. Canadian hospitals contracting with more than one IOL manufacturer purchase
IOLs for less.

. Contracts of 24 months or less produce lower average IOL prices.

RECOMMENDATIONS

The Health Care Financing Administration (HCFA) should consider the prices paid by
Canadian hospitals for IOLs in adjusting Medicare IOL reimbursement rates. The Medicare
program would save $99 million annually if Medicare reimbursed for IOLs at the average
Canadian price of $110, rather than the current Medicare reimbursement rate of $200 effective
March 12, 1990.

The HCFA should inform U.S. hospitals and ASC’s of the effective contracting practices noted
in this report.


Description Annual Price

Multi-piece or Contract Canadian US.

Manufacturer One-piece Volume Dollars Dollars
Hospital #13 (continued)
Company E * 28 $295.00 $257.65
Company E * 4 $225.00 $196.52
Company E * 4 $295.00 $257.65
Company E * 1 $225.00 $196.52
Hospital #14
**Unknown One-piece 50 $129.00 $112.67

Unknown One-piece 400 $129.00 $112.67
Hospital #15
Company A One-piece 26 $200.00 $174.68
Company E Multi-piece 268 $102.00 $ 89.09
Company E Multi-piece 148 $102.00 $ 89.09
Company E Multi-piece 25 $102.00 $ 89.09
Company E Multi-piece 2 $102.00 $ 89.09
Company E Multi-piece 10 $102.00 $ 89.09
Company E Multi-piece 2 $102.00 $ 89.09

10844

*Lens type not provided by hospital.
**Hospital refused release of company name


APPENDIX C

Overview
IOL Costs in Canadian Hospitals

(Negotiated IOL Contracts)

lOL Prices
00

#1 #2 #3 #4 #5 #6 #7 «#8 #9 #10811#12 #13 #14 #15
Hospitals

{OL Prices
ETM Lowest Priced IOL EB average Price of |OL
EES Highest Priced |OL

+Prices shown have been converted to
U.S. dollars for comparison purposes.


RECOMMENDATIONS

The HCFA should consider the prices paid by Canadian hospitals for IOLs in adjusting
Medicare IOL reimbursement rates. The Medicare program would save $99 million annually
if Medicare reimbursed for IOLs at the average Canadian price of $110, rather than the current
Medicare reimbursement rate of $200 effective March 12, 1990.

The HCFA should inform U.S. hospitals and ASC’s of the effective contracting practices noted
in this report.

COMMENTS

A preliminary draft report was shared with the HCFA, and an exit conference conducted with
them on March 21, 1990. During the exit conference they provided us with their comments
and expressed agreement with our recommendations. All HCFA comments were incorporated
in the final report.

10


payments that were discussed in the OIG March 1986 inspection report on Medicare cataract
surgery had not been resolved. Manufacturers continued to offer discounts, incentives and
tebates that were not passed on to the Medicare program. Current reimbursement policy does
not provide an incentive for providers to be prudent buyers. The OIG again recommended
that the Health Care Financing Administration (HCFA) establish a national Part B
reimbursement cap of $200 for any IOL billed to Medicare.

More recently, the OIG issued two additional studies in the form of Management Advisory
Reports (MARs), which focused on IOL prices. One, entitled “Intraocular Lenses Purchased
through the Federal Supply Schedule,” (OAI-07-89-01661) reported that quality IOLs are
available on the Federal Supply Schedule (FSS) for under $200, and that the majority of VA
medical centers and military hospitals purchase IOLs outside the FSS for under $200. The
OIG recommended that the HCFA use the information presented in adjusting IOL
reimbursement rates.

The other MAR and fourth study, entitled “Intraocular Lenses Purchased by Indian Health
Service Hospitals,” (OAI-07-89-01662) reported that Indian Health Service Hospitals
purchase JOLs for an average of $155, and that IOL manufacturers are competitive. The OIG
recommended that the HCFA consider the prices paid by IHS hospitals for IOLs in adjusting
Medicare IOL reimbursement rates.

Federal Regulations were subsequently published February 8, 1990. These regulations
establish a single payment rate of $200 for IOLs provided to Medicare patients in connection
with cataract surgery performed in an ASC. These regulations, effective March 12, 1990, also
serve as a base for IOL payments to hospitals for cataract surgeries performed in their
outpatient departments.

METHODOLOGY

Between July 1989 and January 1990, we contacted provincial purchasing directors in each of
the ten Canadian Provinces and requested the names of two hospitals in each province where
cataract surgery is performed. Seven of the ten directors provided us with the names of 14
hospitals. In two provinces, the director provided the name of only one hospital and another
director provided the names of three. The last purchasing director was able to provide us with
the name of only one hospital, since it is the only hospital in the province where cataract
surgery is performed. In total, we received the names of 19 Canadian hospitals where cataract

surgery is performed.

We contacted the hospital purchasing director in each of the 19 hospitals to solicit information
regarding contract prices for IOLs purchased by their hospitals. We requested the number of
lenses purchased under their contracts, the time period covered by the contracts, the types of
lenses purchased (one-piece posterior, multi-piece posterior, or anterior chamber) and lens
stock numbers. Finally, we requested information regarding any discounts, free equipment, or
supplies received in conjunction with IOL purchases.


HCFA COMMENTS

A preliminary draft report was shared with the HCFA, and an exit conference conducted with
them on March 21, 1990. During the exit conference they provided us with their comments
and expressed agreement with our recommendations. All HCFA comments were incorporated
in the final report.

iii


TABLE OF CONTENTS

EXECUTIVE SUMMARY
INTRODUCTION 2... .. cece cece cece eee e teen een e ene neeenee 1
PUIPOSE «1... eee eee eee nett e eee e tenet 1
Background ......... 0 cece eee cece eee n ee ee eee eeeeee 1
Methodology ..........:e cece cence cece eee nese eee teeee 2
FINDINGS 20... ccc cece eee cece eee ete nee e nee e cnet tenet eeenee 4
Canadian hospitals purchase IOLs for an average of $110 ......... 4
Low IOL prices can be achieved without high volume
PUICHASE 2.0... cee eect e teen eee neeeee 6
Canadian hospitals use effective negotiating techniques .......... 7
Canadian hospitals solicit bids from several IOL
manufacturers when negotiating lIOL contracts ............... 8
Canadian hospitals contracting with more than one IOL
manufacturer purchase IOLs for less ...............0..e eee 8
Contracts of 24 months or less produce lower average
OL priceS 2.0... . ccc cece eee teen eee eeeenee 9
RECOMMENDATIONS .......... 0. ccc cece cence eee e eee ete enne 10

The HCFA should consider the prices paid by Canadian
hospitals for IOLs in adjusting Medicare IOL reimbursement

TALES Lo ccc eee e cee ee ee eee ene eeae 10

The HCFA should inform U.S. hospitals of the good

contracting practices noted in this report ..................005. 10
COMMENTS ........ cece eee cece cence teen te eee e eee eeeneenes 10
APPENDIXA .... 0... cece cece cee e eet e eee ete e eee eeeeeenee A-1

IOL Prices Negotiated by Canadian Hospitals


APPENDIX A

IOL Prices Negotiated by Canadian Hospitals

Description Annual Price

Multi-piece or Contract Canadian US.
Manufacturer One-piece Volume Dollars Dollars
Hospital #1
Company A * 23 $150.00 $131.01
Company A Multi-piece 412 $100.00 $ 87.34
Company B Multi-piece 27 $115.00 $100.44
Company A One-piece 219 $100.00 $ 87.34
Company C One-piece 16 $115.00 $100.44
Hospital #2
Company A * 1000 $ 85.00 $ 74.24
Company A * 200 $ 80.00 $ 69.87
Company A * 200 $78.00 $ 68.13
Hospital #3
Company F * 26 $125.00 $109.18
Company F * 300 $125.00 $109.18
Hospital #4
Company C * 50 $170.00 $148.48
Hospital #5
Company F One-piece 1300 $152.00 $132.76
Company F Multi-piece 240 $120.00 $104.81
Company F One-piece
Hospital #6
Company E * 113 $103.00 $ 89.96
Company E Multi-piece 877 $103.00 $ 89.96
Hospital #7
Company E One-piece 150 $190.00 $165.95
Company A Multi-piece 1700 $ 90.00 $78.61
Hospital #8
Company H * 200 $137.86 $120.41
Company H Multi-piece 52 $137.86 $120.41


INTRODUCTION

PURPOSE

The objectives of this study were to determine the average price which Canadian hospitals pay
for intraocular lenses (IOLs), the methods used by Canadian hospitals to secure those prices,
and to identify effective negotiating strategies.

BACKGROUND

The Medicare program funds 90 percent of the cataract surgeries performed in the United
States. During cataract surgery, the natural lens in the eye is removed. In over 95 percent of
the cataract surgeries an IOL is implanted, replacing the removed natural lens. In addition to
replacing a natural lens removed from the eye during cataract surgery, IOLs are also used to
replace a natural lens missing due to disease or congenital absence.

The Medicare program approved payment for 1.1 million cataract surgeries performed in
ambulatory surgical centers (ASCs) and hospital outpatient departments in 1988. Data
released by the Public Health Service indicates the frequency of cataract surgery continues to
increase, with some moderation. Medicare allowed charges for IOLs billed in connection with
25 percent of these surgeries averaged about $324 per lens in 1988.

Changes have occurred with the reimbursement and place of cataract surgery. Medicare
reimbursement for cataract surgery performed in a hospital inpatient setting is based on
Diagnosis Related Group (DRG) rates. A DRG rate covers all services and supplies connected
with a surgery, including IOLs for cataract surgery patients. However, advances in medical
technology have shifted the majority of cataract surgeries into hospital outpatient facilities or
ASCs. Until recently, Medicare reimbursement for cataract surgeries performed on an
outpatient basis or in an ASC were to be reimbursed by Medicare based on reasonable cost
determinations. In these situations, IOLs were to be billed and paid for separately.

A total of four OIG studies have been conducted regarding the reimbursement for IOLs. The
first study, entitled “Medicare Cataract Implant Surgery,” (OAI-85-IX-046) was issued in
1986. This study reported that Medicare Reimbursement principles neither require nor
encourage providers to obtain lenses at the lowest available price, and the average Medicare
reasonable charge payment to an ophthalmologist or an ASC for an IOL was $365. The
inspection also found that discounts were available from major manufacturers, and that in
Canada, the same U.S. manufactured lenses averaged less than $200. This study estimated
that over $31 million would have been saved in 1984 if Medicare lens payments had been
capped at $200. The study recommended that a national cap, based on a generic prudent
buyer concept, be established for lens payments when lenses are billed separately.

The second study, entitled “Medicare Certified Ambulatory Surgical Centers,”
(OAI-09-88-00490) was issued in 1988. This study reported that the problems regarding lens


INTRAOCULAR LENS COSTS IN
CANADIAN HOSPITALS

OFFICE OF INSPECTOR GENERAL

OFFICE OF EVALUATION AND INSPECTIONS

APRIL 1998


FINDINGS

CANADIAN HOSPITALS PURCHASE IOLS FOR AN AVERAGE OF $110

The sampled Canadian hospitals have negotiated an average price of $110 for the purchase of
10,844 IOLs (on an annualized basis) under their current contracts. Overall, average IOL
prices ranged from $73 to $245, as shown in the chart below. Negotiated prices for IOLs
ranged from $68 to $279 per lens, with only one Canadian hospital paying more than $200 for
an IOL. These contracts cover negotiations with nine U.S. IOL manufacturers and a variety of
lens types, and represent over 10 percent of approximately 100,000 IOLs implanted annually
in Canada. See appendix A for a complete list of IOL prices negotiated by Canadian hospitals.

Average IOL Prices In Canadian Hospitals

Annual Average Average Length
Contract Canadian US of Contract
Hospital Volume Dollars Dollars Contract Timeframe

#1 757 $103.56 $ 90.45 12 mo. 01/89-01/90
#2 1400 $ 83.29 $72.75 24 mo 10/89-09/91
#3 326 $125.00 $109.18 24 mo. 11/88-10/90
#4 50 $170.00 $148.48 24 mo. 02/89-01/91
#5 1540 $147.01 $128.40 24 mo. 12/88-12/90
#6 990 $103.00 $ 89.96 24 mo. 04/88-03/90
#7 850 $107.65 $94.02 12 mo. 03/89-03/90
* #8 252 $137.86 $120.41 40 mo. 06/88-10/92
#9 551 $141.29 $123.40 36 mo. 04/89-03/92
**#10/11 1473 $138.93 $121.34 12 mo. 03/89-03/90
#12 1460 $136.03 $118.81 24 mo. 11/88-11/90
#13 264 $281.02 $245.44 12 mo. 01/89-12/89
#14 450 $129.00 $112.67 24 mo. 07/89-07/91
#15 481 $107.30 $ 93.72 12 mo. 12/89-12/90

Total Volume 10,844

Total Expenditures
(Collective Volume X Price) $1,363,793.72

Average Canadian IOL Price $125.76
Currency Exchange Rate (12/31/89) X.8734

Average Canadian IOL Price
in U.S. Dollars $109.84


In addition to collecting IOL prices, we used discussion guides to conduct telephone
interviews with 12 directors and 8 ophthalmologists in 13 of the 19 hospitals. The remaining
directors or ophthalmologists refused to be interviewed or could not be contacted.

Our calculation of the average IOL price is based on information received from 15 of the 19
hospitals. One of the 19 hospitals declined to participate in our study, and another’s
information was never received, resulting in the collection of IOL price information from 17
hospitals. Information received from two of the 17 hospitals was insufficient and could not be
used.

The currency rate of exchange between Canada and the United States on December 31, 1989
(.8734 U.S. dollars for each Canadian dollar) was used in calculating U.S. prices for Canadian
IOLs. All Canadian IOL contract price information received, for which the contract time
period is known, was in effect on that date. With the exception of quoted statements, all IOL
prices shown in this report have been converted to U.S. dollars based on this rate of exchange.


APPENDIX B ... 2... cece cece eee e teen e nner e eee eeeeeees B-1

Application of Free Equipment and Equipment Credits in
Calculating Average IOL price (Hospital #8)

APPENDIX C ........ cece cece cece erent erent erent teense tenes C-1

Overview of IOL Costs in Canadian Hospitals


APPENDIX B

Application of Free Equipment and Equipment Credits
in Calculating Average IOL Price

(Hospital #8)
Hospital #8 pays $245 ($280 Canadian dollars) per IOL, of which $130 ($149 Canadian
dollars) goes toward the purchase of emulsification equipment valued at $69,785 ($79,900
Canadian dollars). They will also receive an additional piece of equipment valued at $34,499
($39,500 Canadian dollars) upon completion of their 40 month contract.

Our calculation of the actual cost of an IOL under this contract, after discounts and credits
were applied is outlined below.
Free Equipment $34,499 ($39,500)
Equipment Credits + $69,785 ($79,900)
= $104,284 (119,400) Discount
Hospital purchases 252 IOLs per year (21 per month)
21 IOLs purchased per month

40 months
840 IOLs purchased under contract

”

840 IOLs
$245 ($280) per lens (contract price)
$205,800 ($235,200) total expenditures under contract

*

$205,800 ($235,200) total expenditures under contract
104,284 ($119,400) discount
$101,516 ($115,800) actual cost of 840 lenses under contract

$101,516 ($115,800) divided by 840 lenses

= $121 ($137.86) per lens


EXECUTIVE SUMMARY

PURPOSE

The objectives of this study were to determine the average price which Canadian hospitals pay
for intraocular lenses (IOLs), the methods they use to secure those prices, and identify
effective negotiating strategies.

BACKGROUND

The Medicare program funds 90 percent of the cataract surgeries performed in the United
States. During cataract surgery, the natural lens in the eye is removed. In over 95 percent of
the cataract surgeries an IOL is implanted, replacing the removed natural lens. In addition to
replacing a natural lens removed from the eye during cataract surgery, IOLs are also used to
replace a natural lens missing due to disease or congenital absence.

The Medicare program approved payment for 1.1 million cataract surgeries performed in
ambulatory surgical centers (ASCs) and hospital outpatient departments in 1988. Medicare
allowed charges for IOLs billed in connection with 25 percent of these surgeries averaged
about $324 per lens in 1988.

Based on Office of Inspector General (OIG) recommendations, Federal Regulations published
February 8, 1990, establish a single payment rate of $200 for IOLs provided to Medicare
patients in connection with cataract surgery performed in an ASC. Prior to March 12, 1990,
the effective date of these regulations, Medicare reimbursement for cataract surgeries
performed on an outpatient basis or in an ASC were to be reimbursed by Medicare based on
charges subject to reasonable cost limitations.

METHODOLOGY

Provincial Purchasing Directors in each of the ten Canadian Provinces provided us with
names of Canadian hospitals where cataract surgery is performed. We asked purchasing
directors in each of those hospitals to provide information regarding hospital IOL prices and
contracts. We then analyzed the price information to determine the average U.S. price of IOLs
purchased by Canadian hospitals. We used the rate of currency exchange on December 31,
1989 to convert Canadian prices to U.S. dollars.

In addition to reviewing contract prices, we interviewed purchasing directors and
ophthalmologists in 13 Canadian hospitals.


CANADIAN HOSPITALS USE EFFECTIVE NEGOTIATING TECHNIQUES

All 12 purchasing directors interviewed stated they had effectively reduced IOL prices over
the last couple of years. They attribute these price reductions to their negotiations and bidding
processes for IOL contracts. They made the following statements:

“The price has come down. Last year we were paying $180 per lens. We now
pay $102.”

“Prices have really come down. We were paying over $250 per IOL 2 or 3 years
ago. My facility is saving a quarter of a million dollars per year based on
reduced prices through tendering.”

Physician Input

All 12 purchasing directors indicated the ophthalmologists were involved in the selection of
IOL manufacturers awarded contracts. Not only are most involved in deciding which
manufacturers should be invited to solicit bids, but in the actual selection of manufacturers
awarded contracts.

We asked the purchasing directors to rank price, surgeon preference, range of products, and
service/delivery of products in order of importance when negotiating IOL contracts. They
ranked surgeon preference first, followed by price, service/delivery of products, and range of
products offered.

It should be noted that all eight ophthalmologists interviewed indicated they are satisfied with
the quality of lenses under contract.

Bid Solicitation

All 15 canadian hospitals purchase their IOLs under negotiated contracts. These contracts
vary in terms of bid solicitation, selection of lens types, information required from JOL
companies and approval. On the average, four IOL manufacturers compete for the IOL
contracts in each hospital.

Nine of the 12 purchasing directors stated that a list of IOLs preferred by their
ophthalmologists is prepared and submitted to IOL manufacturers invited to bid for their
contract. The manufacturers then submit sealed bids, which are reviewed to determine
contract award.

One director requires each IOL manufacturer competing for their contract to submit three
different bids. Manufacturers must submit prices based on the selection of their company as
the sole supplier, prices based on their company being one of two selected suppliers, and
prices based on their company being one of three selected suppliers. The ophthalmologists
review the information submitted by the IOL companies and determine which company(ies)


“This allows a larger variety of lenses to choose from. We don’t want to put all
our eggs in one basket.”

“Contracting with more than one IOL manufacturer at a time keeps the
manufacturers honest.”

Contracts of 24 months or less produce lower average IOL prices

Contract periods averaged 21 months, ranging from 12 to 40 months, as shown in the chart on
page 4. Canadian hospitals purchasing under contracts of 24 months or less paid an average
of $105 for each IOL. Hospitals purchasing under contracts in excess of 24 months paid an
average of $122 per IOL, over $17 more per lens.

In addition to price, one purchasing director indicated technology is an important factor in
support of short contract periods:

“Changing technology is a good reason to stick with shorter contract periods.
Don’t get stuck with obsolete IOLs at a premium price.”


INTRAOCULAR LENS COSTS IN

__CANADIAN HOSPITALS

=

Richard P. Kusserow
INSPECTOR GENERAL

OEI-07-89-01660 APRIL 1990


OFFICE OF INSPECTOR GENERAL

The mission of the Office of Inspector General (OIG) is to promote the efficiency, effective-
ness and integrity of programs in the United States Department of Health and Human Services
(HHS). It does this by developing methods to detect and prevent fraud, waste, and abuse. ‘Cre-
ated by statute in 1976, the Inspector General keeps both the Secretary and the Congress fully
and currently informed about programs or management problems and recommends corrective
action. The OIG performs its mission by conducting audits, investigations, and inspections
with approximately 1,400 staff strategically located around the country.

OFFICE OF EVALUATION AND INSPECTIONS

This report is produced by the Office of Evaluation and Inspections (OED), one of the three :
major offices within the OIG. The other two are the Office of Audit Services and the Office of
Investigations. Inspections are conducted in accordance with professional standards devel-

oped by OEI. These inspections are typically short-term studies designed to determine pro-
gram effectiveness, efficiency, and vulnerability to fraud or abuse.

This study was conducted to determine the average price which Canadian hospitals pay for in-
traocular lenses (IOLs). In addition, the study determined the methods Canadian hospitals use
to secure IOL prices, and identified effective negotiating strategies.

The report was prepared under the direction of Don McLaughlin, the Regional Inspector Gen-
eral of Region VII, Office of Evaluation and Inspections. Participating in in this project were the
following people:

Kansas City Headquarters
Tim Dold, Team Leader Wayne Powell
Deborah Walden, Project Leader Mark Krushat

Brian Ritchie


* Hospital #8 receives an equipment credit with the purchase of each IOL. They have ne-
gotiated to purchase IOLs for $245 each, of which $130 goes toward the purchase of a
$69,784 piece of equipment used in cataract surgery. They will receive an additional
$34,499 piece of equipment upon completion of their contract period. A chart depicting
the application of equipment credits and free equipment in the calculation of the aver-
age cost of an IOL for hospital #8 is included as Appendix B.

** — Hospitals 10 and 11 purchase IOLs under a joint contract.

It should be noted that the average IOL price of $110 includes the purchase of one-piece
posterior chamber lenses, generally considered to be more expensive. The ophthalmologists
interviewed indicated approximately 55 percent of the IOLs they purchase are one-piece
lenses. Forty percent of the IOLs purchased are multi-piece posterior chamber lenses, and the
remaining five percent are anterior chamber lenses.

Eleven of the twelve purchasing directors interviewed indicated they purchase the contract
IOLs on a consignment basis. In such arrangements, the IOL manufacturer(s) provide the
hospitals with an inventory consisting of a variety of lens styles and sizes. This inventory is
provided to the hospital at no additional charge, and allows the hospital to pay for lenses as
they are used.

A complete overview of high, low, and average prices for IOLs purchased by the sampled
Canadian hospitals is outlined in Appendix C.


they would select if they were required to select only one manufacturer, or if they could select
two, or three manufacturers. The purchasing director and ophthalmologists meet to negotiate
the final contract(s).

Another director asks bidding IOL manufacturers to submit their very lowest prices for all of
their IOLs. The lowest bid is then given to the ophthalmologists for review and comment.
The ophthalmologists must agree to contract for that lens, or justify why it is unacceptable. If
they find the lens unacceptable, the next higher priced lens is then submitted for their review
and comment. The introduction of the next higher priced lens goes on until the
ophthalmologists can agree on an acceptable lens. It should be noted that the
ophthalmologists review only one bid at a time. They have no idea what other lenses are
available, at what prices. The purchasing director compared this process with that of someone
in need of a car. The purchasing director stated:

“You get prices on several cars, and show them the (small economy car) first.
Ask them if they can settle for the (small economy car) at the quoted price. If not,
they must justify turning it down. Then you show them the next in line. Don’t ask
them up front if they would prefer a (small economy car ) or a (large luxury car).
Don't come right out and ask them what type of car they’ d like, because they
won't specify a (small economy car).”

Finally, another purchasing director requires the ophthalmologists to obtain and review IOL
product information from different IOL manufacturers. After their review, the
ophthalmologists provide the purchasing director with the names of three IOL manufacturers
they are interested in purchasing lenses from. These manufacturers are then invited to submit
sealed bids covering the range of IOLs they offer.

Canadian hospitals solicit bids from several manufacturers when negotiating IOL contracts

The number of manufacturers competing for the IOL contract(s) in each Canadian hospital
ranged from three to seven, and averaged four per hospital. Purchasing directors hold the
opinion that broader bidding holds down cost.

Canadian hospitals contracting with more than one manufacturer purchase IOLs for less

The seven Canadian hospitals contracting with more than one IOL manufacturer pay an
average of $90 per lens. Hospitals contracting with one manufacturer exclusively pay an
average of $102. Even though the average price difference is only $12, applying a per lens
savings of $12 to the total volume of 5169 lenses purchased by hospitals currently contracting
with only one company would result in a $62,028 savings.

The following statements were made by a purchasing director and an ophthalmologist in
hospitals where contracts are awarded to more than one IOL manufacturer at a time: