Illinois' Attempt to Control Surgical Implant Costs
Monday, July 19, 2010 | 0
By Joe Paduda
Health Strategy Associates
The July 9 edition of WorkCompCentral 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, 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 Illinois 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
- "Three-for-the-price-of-two" 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)
There's another problem with implants when they are defective, the patient has to go back in for more surgery. And the workers' comp 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 Illinois 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.
Joe Paduda is principal of Health Strategy Associates, an employer consulting firm in Connecticut and co-owner of CompPharma, a pharmacy benefit management consortium. This column was reprinted with his permission from his blog, http://www.managedcarematters.com
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