BILL ANALYSIS �
SB 959
Page 1
SENATE THIRD READING
SB 959 (Lieu)
As Amended May 17, 2012
Majority vote
SENATE VOTE :34-2
INSURANCE 12-0
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|Ayes:|Solorio, Hagman, | | |
| |Bradford, Fong, Carter, | | |
| |Feuer, Beth Gaines, | | |
| |Hayashi, Olsen, Skinner, | | |
| |Torres, Wieckowski | | |
| | | | |
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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:
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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
paid.
FISCAL EFFECT : While the bill is not keyed "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 :
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.
Current Reimburse for Spinal Procedures . Since 2003, the
Official Medical Fee Schedule (OMFS) 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
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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.
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).
Studies on the Spinal Pass-Through . The spinal pass-through was
codified in SB 228 (Alarcon), Chapter 639, Statutes of 2003, in
the most recent wave of major workers' compensation reform
bills, which culminated 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:
1)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.
2)Since the workers' compensation fee schedule reimburses at
120% of the Medicare rates, workers' compensation
reimbursements exceed estimated costs without the
pass-through.
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3)Four hospitals in California showed usages rates in excess of
what would be expected when compared to other hospitals
performing workers' compensation spinal surgeries.
4)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.
Proponent Arguments : Proponents, such as the California Labor
Federation and the California Coalition on Workers'
Compensation, note that the OMFS 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
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reimbursement.
Opponent Arguments : 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.
Prior Legislation: SB 228 (Alarcon), Chapter 639, Statutes of
2003, codified the current spinal pass-through reimbursement.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0004172