Today’s WorkCompCentral edition [sub req] reported on an emergency revision to Illinois’ state workers comp fee schedule that will change the methodology for repricing surgical implant devices.
The move is a response to what the Illinois Workers Comp Commission described as ‘price gouging’. In the announcement, [opens pdf] the state noted “some providers have inflated their reported charges for implants so high that the final reimbursement is as much as 33% over the average cost from other providers.
The previous rate was set at 65% of billed charges; the new reg sets reimbursement at 25% over manufacturer’s net invoice price. The rationale for this? The “reimbursement rate is reasonable. It provides a significant profit margin while providing cost-containment and certainty for payers. In addition, in order to arrive at an accurate provider’s cost, the Commission decided that the invoice price would be net of any rebates but also that actual and customary shipping costs for the implants additionally would be reimbursed.”
What does this mean?
Well, using an invoice plus is better than a discount off billed charges, which has to be the most easily-gamed pricing methodology every conceived. Factoring in rebates is a good step as well; to my knowledge IL is the only state that considers the impact of rebates. And stating reimbursement is for the NET manufacturer’s invoice price will help forestall gaming the invoice as well.
The challenge lies in determining what ‘rebate’ means, how it will be determined, reported, and factored into pricing, and how ‘net’ will be defined.
As I noted in a post a while back, The problem lies in the documentation of the paid amount. Most payers ask for a copy of the invoice, which, on the surface, makes sense – this is what was paid.
Not exactly. What the invoice doesn’t show can include:
– volume purchase discounts
– rebates
– “3 for the price of 2” deals
– waste (some surgeons use the cage from one kit and screws from another, so the payer is paying for more hardward than is actually being used)
– internally developed invoices (documents prepared not by the supplier but by the provider)
This last point is the crux of the issue. Hospital systems often buy in bulk, with several implant kits shipped and billed; this obviously makes it impossible for the provider to produce the invoice for the device used in a specific surgery, as they never got one. Thus, many providers develop the invoice for a specific implant kit themselves.
There’s another problem with implants – when they are defective, the patient has to go back in for more surgery. And the WC insurer has to pay. The only way to mitigate risk is to track the model and manufacturer for each implant – yes, it’s work, and yes, it’s work worth doing.
Finally, even the original invoice is for a device with a markup that is, well, huge. One analyst estimates gross margins are in the 80% range…driving profit margins that are the envy of any payer or health system.
The net? Kudos to IL for recognizing and addressing this issue. Now it will be up to payers to enforce the regulation, by demanding the actual invoice, not one developed in the basement. They may also want the provider’s notarized statement that the invoice is the real, actual, honest-to-goodness true price net of rebates, discounts, etc.
Jul
9
I was pretty happy to receive the email about this yesterday afternoon. I immediately posted it to the Work Comp Analysis Group and sent it out on my Twitter feed. I wanted to make sure everyone in Illinois saw this.
We were seeing hospital charges for lumbar fusions in Chicago that were more than double the same surgery in St Louis. The difference was the cost of the implant. This was a long overdue fix to a hole in the fee schedule.
Joe,
While this emergency rule certainly is a step in the right direction for Illinois (my home state)it is not as well thought out or regarded as one would assume at first glance. The current medical fee schedule guidelines for Ambulatory Surgical Centers contains this language: The Ambulatory Surgical Treatment Center (ASTC) fee schedule provides the maximum medical fee schedule amount for surgical services administered in an ASTC setting for codes 10021 – 69990. The ASTC is a partial global reimbursement schedule
1) in that all charges rendered during the operative session are subject to a single fee schedule amount; however, the following exceptions do exist – these
are the carve-out categories/revenue codes which should be paid at 65% of charged amount:
• Prosthetics/orthotics
• Pacemaker
• Lens implants
• Implants
• Investigational devices
• Drugs requiring detailed coding
Charges billed under the above listed items will be at a provider’s normal rates under its standard
chargemaster.
We have seen bills in Illinois where implants have been billed for thousands of times over cost by facilities. This works out to reimbursement under the old rule well in excess of the Chairman’s assertion of some at 33% over cost. That being said, the language used in the current guidelines indicates a payer may request the chargemaster from any facility to ascertain what it is charging to all other payers. To the best of my knowledge no payers took advantage of that provision in an effort to control costs.
The line between health care providers and cut-throat businesses is a blurry one. Regulation like this is definitely necessary.