BILL ANALYSIS Ó
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 959|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 959
Author: Lieu (D), et al.
Amended: 4/9/12
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM. : 5-0, 5/9/12
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NO VOTE RECORDED: Wyland, Runner
SUBJECT : Workers compensation: provider reimbursement:
Implantable medical devices, hardware, and
instrumentation
SOURCE : Author
DIGEST : This bill repeals the additional, separate
reimbursement in excess of the Official Medical Fee
Schedule, for implantable medical devices, hardware, and
instrumentation for spinal surgeries, also known as "spinal
pass-through."
ANALYSIS : Existing law establishes a workers'
compensation system that provides benefits to an employee
who suffers from an injury or illness that arises out of
and in the course of employment, irrespective of fault.
This system requires all employers to secure payment of
benefits by either securing the consent of the Department
of Industrial Relations to self-insure or by securing
insurance against liability from an insurance company duly
CONTINUED
SB 959
Page
2
authorized by the state.
Existing law requires the Administrative Director of the
Division of Workers' Compensation to adopt and periodically
revise an Official Medical Fee Schedule (OMFS) to establish
reasonable maximum medical fees for medical services,
including physician services and medical-legal expenses.
These fees are generally in accordance with the Medicare
and Medi-Cal payment systems.
Existing law provides for an additional, separate
reimbursement for implantable medical devices, hardware,
and instrumentation for spinal surgeries. This separate
reimbursement, also known as the spinal pass-through is:
The provider's documented paid cost of the device,
hardware, or instrumentation.
The lesser of either $250 or 10 percent of the provider's
documented paid cost for the device, hardware, or
instrumentation.
Any sales tax and shipping and handling charges actually
paid.
Existing law also provides that the spinal pass-through is
operative only until the Administrative Director adopts a
regulation specifying separate reimbursement, if any, for
implantable medical hardware or instrumentation for complex
spinal surgeries.
This bill repeals the additional, separate reimbursement in
excess of the OMFS, for implantable medical devices,
hardware, and instrumentation for spinal surgeries, also
known as "spinal pass-through."
Comments
Workers' Compensation System Reimbursement for Spinal
Procedures . Since 2003, the OFMS reimburses most workers'
compensation procedures at 120 percent of the Medicare
payment system rate. Like the Medicare system, the OMFS
utilizes Medicare Severity Diagnosis Related Groups
(MS-DRG) when calculating appropriate reimbursements for a
CONTINUED
SB 959
Page
3
variety of surgical procedures, including spinal surgeries.
The MS-DRG system was put in place by Medicare in 2007,
and it creates a classification system for hospital
payments that can be adjusted by the cost of the procedure,
geography, and other considerations.
The appropriate MS-DRG is selected based on diagnosis of
the patient and any relevant complications or
co-morbidities (a disease or disorder in addition to the
primary disease or disorder) the patient may have. Using
spinal surgeries as an example, MS-DRG 30 is for spinal
procedures without major complications or co-morbidities;
MS-DRG 28 is for spinal procedures with major complications
and co-morbidities. As MS-DRG is more complicated and
requires additional resources, it weighted more
significantly. In both cases, for the purposes of
Medicare, the MS-DRG includes the cost of the device. No
additional reimbursement is allowed.
For example, a hypothetical MS-DRG 30 procedure (spinal
procedure without complications or major complications) in
a non-teaching generic hospital in 2012 would be reimbursed
as follows (with the workers' compensation reimbursement in
parentheses):
(Base-operating costs)(MS-DRG)= Medicare Reimbursement.
(Medicare Reimbursement)(1.2)= Workers' Compensation
Reimbursement.
($5,209.74)(1.6924)= $8,816.97 ($10,580.36).
However, a hypothetical MS-DRG 28 procedure (spinal
procedure with major complications) in the same hospital in
2012 would be reimbursed as follows:
(Base-operating costs)(MS-DRG)= Medicare Reimbursement.
(Medicare Reimbursement)(1.2)= Workers' Compensation
Reimbursement.
($5,209.74)(5.6476)= $29,422.58 ($35,307.03).
In short, while the specific reimbursement amount will vary
from hospital to hospital, the more labor intensive and
resource intensive procedures will be reimbursed at a
higher rate. The MS-DRG weights are adjusted annually by
Medicare, allowing for utilization and market factors to
CONTINUED
SB 959
Page
4
impact reimbursements.
Additionally, the workers' compensation system has an
additional reimbursement with the spinal pass-through.
According to the California Workers' Compensation
Institute, the spinal pass-through in 2007 and 2008 added,
on average, $15,409 to each spinal procedure, though the
cost of the pass-through varies significantly between
MS-DRGs (between $6,137 and $49,304). The use of the
pass-through differs from Medicare, as the MS-DRG is
calculated to capture the cost of the device, which will be
discussed below.
Studies on the Spinal Pass-Through in the Workers'
Compensation System . The spinal pass-through was codified
in SB 228 (Alarcon), Chapter 639, Statutes of 2003, in the
most recent wave of workers' compensation reform bills,
culminating in SB 899 (Poochigian), Chapter 34, Statutes of
2004. Prior to the codification of the spinal
pass-through, the Commission on Health, Safety, and
Workers' Compensation (CHSWC) released a report from RAND
that raised concerns on the need for a spinal pass-through,
which at that time existed as a regulation. The RAND study
noted that the pass-through results in the "paying for the
hardware twice: once in the DRG fee schedule relative and
again in the additional payment for the hardware costs."
CHSWC commissioned a second study in 2005 to review the
spinal pass-through. This study, titled "Payment for
Hardware Used in Complex Spinal Procedures under
California's Official Medical Fee Schedule for Injured
Workers" made several important findings:
On average, workers' compensation patients are less
costly than Medicare patients and have a shorter length
of stay. The Medicare cost per discharge was found to be
about 14 percent higher than the cost per discharge for
workers' compensation patient.
Since the workers' compensation fee schedule reimburses
at 120 percent of the Medicare rates, workers'
compensation reimbursements exceed estimated costs
without the pass-through.
CONTINUED
SB 959
Page
5
Four hospitals in California showed usages rates in
excess of what would be expected when compared to other
hospitals performing workers' compensation spinal
surgeries.
The existing spinal pass-through does not incentivize
prudent purchasing and use of spinal hardware.
The findings of this study were further discussed and
supported in two RAND studies that followed in 2009. One
study, titled "Inpatient Hospital Services: An Update on
Services Provided Under California's Workers' Compensation
Program" showed an increase in utilization of spinal
hardware from 2003 to 2005, notably in DRGs that included
hardware that would qualify for the pass-through.
The second study, titled "Regulatory Actions that Could
Reduce Unnecessary Medical Expenses Under California's
Workers' Compensation Program" identified the spinal
pass-through as an area of potential savings in the
workers' compensation system. This study pegged the
savings between $23 million and $60 million, depending on
the policy adopted to replace the current spinal
pass-through reimbursement.
Prior legislation
SB 228 (Alarcon), Chapter 639, Statutes of 2003, codifies
the current spinal pass-through reimbursement.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/21/12)
Actief Case Management, Inc.
Aerospace Dynamics International, Inc.
American Insurance Association
Association of California Insurance Companies
California Association of Joint Powers Authority
California Coalition on Workers' Compensation
California Grocers Association
California Labor Federation, AFL-CIO
California Manufacturers & Technology Association
CONTINUED
SB 959
Page
6
California Professional Firefighters
California Restaurant Association
California Retailers Association
California School Employees Association
California Self-Insurers Association
California State Association of Counties
California Trucking Association
Costco Wholesale
County of San Bernardino
CSAC Excess Insurance Authority
EME International
Employers Group
FedEx Corporation
Gallagher Bassett Services, Inc.
Grimmway Farms
IBA West
Indio Chamber of Commerce
iUnlimited Investigative Services
Liberty Mutual Group
Marriott International, Inc.
Morehouse Foods, Inc.
National Federation of Independent Business
Nordstrom
North Bay Schools Insurance Authority
Pacific Athletic Wear, Inc.
PPG Aerospace
Regional Council of Rural Counties
San Diego and Imperial County Schools JPA
Schools Insurance Authority
Schools Insurance Group
Seawright Custom Precast, Inc.
Sedgwick Claims Management Services, Inc.
The Boeing Company
TRISTAR Risk Management
U.S. Healthworks
Western Home Furnishings Association
Western Propane Gas Association
OPPOSITION : (Verified 5/21/12)
Access MediQuip
California Hospital Association
Medtronic
CONTINUED
SB 959
Page
7
ARGUMENTS IN SUPPORT : Proponents, such as the California
Labor Federation and the California Coalition on Workers'
Compensation, note that the OMFS already provides a
reimbursement 20 percent above the Medicare reimbursement,
which already includes the cost of the device. Proponents
argue that the RAND studies conclusively show that the
additional spinal pass-through reimbursement in the
workers' compensation system is unnecessary and promotes
destructive incentives. Proponents cite a recent Wall
Street Journal (WSJ) that provides a detailed account of
how consultants have helped some hospitals cash in on the
high reimbursements and, in the process, intentionally
inflated the cost of medical devices in order to profit
even more handsomely. Proponents argue that the story is
evidence that the RAND findings are correct and that
overreimbursement leads to bad behavior that drives bad
results for injured workers and high costs for employers.
Proponents argue that, with the RAND findings and WSJ story
taken together, and with the absence of immediate
regulatory action by the Division of Workers' Compensation,
there is a need for immediate legislative action to repeal
the spinal pass-through reimbursement.
ARGUMENTS IN OPPOSITION : Opponents, such as the
California Hospital Association (CHA) and Medtronic, Inc.,
argue that eliminating the spinal pass-through will limit
the ability of injured workers to receive necessary spinal
surgeries. CHA argues that, prior to the existence of the
pass-through, hospitals cancelled spinal surgeries for
injured workers. CHA therefore argues that hospitals will
be unable to provide this service without the pass-through.
Medtronic also disputes the fiscal analysis done by RAND,
as it relies on Medicare data, rather than workers'
compensation data.
Access MediQuip, a third-party benefit manager of surgical
implants for hospitals, is also in opposition. Access
MediQuip notes that their business model of purchasing
devices and assuming the liability for workers'
compensation claims management is dependent on at least a
portion of the pass-through. Access MediQuip argues that
these services save hospitals significant amounts of money
through utilizing the scale of third party benefit managers
like Access MediQuip. Access MediQuip also argues that,
CONTINUED
SB 959
Page
8
due to their experience with spinal hardware, they can
steer payors towards safer and more cost effective spinal
hardware, which provides secondary benefits to the workers'
compensation system. Access MediQuip suggests that the
Legislature pursue alternatives to the complete elimination
of the spinal pass-through, which would allow companies
like Access MediQuip to continue to provide services to
hospitals but remove the "double-dipping" aspect of the
current reimbursement system.
PQ:do 5/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED