BILL ANALYSIS �
SB 959
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Date of Hearing: June 20, 2012
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 959 (Lieu) - As Amended: May 17, 2012
SENATE VOTE : 34-2
SUBJECT : Workers' compensation: implantable medical devices
SUMMARY : Repeals the statute that provides for a separate
reimbursement for implantable medical devices in addition to the
reimbursement paid for the hospital facility, which includes the
cost of the device.
EXISTING LAW :
1)Provides for a comprehensive system of benefits to be provided
to workers for injuries or conditions that arise out of, or in
the course of, employment, including medical benefits.
2)Establishes a fee schedule to govern the payment to medical
providers for the goods and services that are provided to
treat injured workers.
3)Provides for reimbursement to hospitals for the costs
associated with the use of the hospital, surgical, and other
facilities and goods provided in the course of in-patient or
out-patient treatment of injured workers.
4)Provides, in addition to the above reimbursement, an
additional reimbursement for certain implantable medical
hardware used in spinal surgery (often referred to as the
"spinal pass-through").
5)Establishes that these hardware devices will be reimbursed at:
a) The provider's documented paid cost of the device,
hardware, or instrumentation; plus
b) The lesser of either $250 or 10% of the provider's
documented paid cost for the device, hardware, or
instrumentation; plus
c) Any sales tax and shipping and handling charges actually
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paid.
FISCAL EFFECT : While the bill is not tagged "fiscal" for
purposes of referring the bill to the Appropriations Committee,
all studies on this issue have found substantial saving to the
workers' compensation system, including a significant savings to
the State's workers' compensation program.
COMMENTS :
1)Purpose . According to the author and sponsor, studies on the
issue of the "spinal pass-through" have uniformly found that
the current approach provides inappropriate incentives to
medical providers, and results in a "double payment" of the
costs of the implantable hardware. Recent news reports have
identified substantially increased utilization at some
hospitals that has occurred due to these inappropriate
incentives, as well as fatalities when these incentives led to
inappropriate types of surgical interventions.
2)How Does the Workers' Compensation System Currently Reimburse
for Spinal Procedures?
Since 2003, the Official Medical Fee Schedule (OFMS) provides
for the reimbursement of most workers' compensation procedures
at 120% 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 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. In
both cases, for the purposes of Medicare, the MS-DRG includes
the cost of the device. No additional reimbursement is
allowed.
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However, 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).
3)Studies on the Spinal Pass-Through in the Workers'
Compensation System:
The spinal pass-through was codified in SB 228 (Alarcon) in
2003 in the most recent wave of major workers' compensation
reform bills, which culminated in SB 899 (Poochigian) in 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:
a) 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% higher than the cost per discharge for a workers'
compensation patient;
b) Since the workers' compensation fee schedule reimburses
at 120% of the Medicare rates, workers' compensation
reimbursements exceed estimated costs without the
pass-through;
c) Four hospitals in California showed usages rates in
excess of what would be expected when compared to other
hospitals performing workers' compensation spinal
surgeries; and
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d) 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.
1)Proponent Arguments :
Proponents, such as the California Labor Federation and the
California Coalition on Workers' Compensation, note that the
Official Medical Fee Schedule already provides a reimbursement
20% 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) article
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.
2)Opponent Arguments :
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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 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
argues that these services save hospitals significant amounts
of money through utilizing the scale of third party benefit
managers like Access. Access also argues that, 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 suggests that the Legislature pursue alternatives to
the complete elimination of the spinal pass-through, which
would allow companies like Access to continue to provide
services to hospitals but remove the "double-dipping" aspect
of the current reimbursement system.
6. Prior Legislation :
SB 228 (Alarcon), Chapter 639, Statutes of 2003, codified the
current spinal pass-through reimbursement.
REGISTERED SUPPORT / OPPOSITION :
Support
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
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California Labor Federation, AFL-CIO
California Manufacturers & Technology Association
California Professional Firefighters
California Restaurant Association
California Retailers 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
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
Western Home Furnishings Association
Western Propane Gas Association
Opposition
Access MediQuip
California Hospital Association
Medtronic
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
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