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"Gentlemen, we can rebuild him. We have the technology. We have the capability to make the world's first bionic man. Steve Austin will be that man. Better than he was before. Better ... stronger ... faster."

Those few lines have a special place in the hearts of a generation of men and women who grew up doing super-slow motion runs, leaps and mock fights on the playground while simultaneously making electronic-sounding "TFF TFF TFF TFF TFF" sound effects. I didn't realize it until just recently, but my first exposure to the notion of workers' compensation actually came on Friday nights in the mid-1970s while watching "The Six Million Dollar Man" --a show about a test pilot/astronaut who was critically injured in the line of duty and then was literally "rebuilt" by his employer with $6 million worth of "bionic" parts.

While the idea of implanting $6 million worth of equipment into an injured worker was (cheesy) science fiction 35 years ago, it is rapidly becoming reality in today's workers' compensation market. There is no denying that implantable devices can help injured workers tremendously; the plates and screws stabilizing my brother's spine have enabled him to largely recover from a work injury that would have incapacitated him back in the Six Million Dollar Man era.

However, implantable devices also represent one of the fastest growing cost areas in workers' compensation, driven by a potent combination of factors, including:

-- Implantable devices are carved out of most state fee schedules and are reimbursed as a percent of cost, or worse, as a percent of charges in many jurisdictions.

-- High-profit margins and excessive waste are built into the standard pricing and packaging offered by many implantable device manufacturers.

-- Utilization of implantable devices appears to be rising dramatically in key workers' compensation markets.

TRUE COSTS?

At the core of the rapid growth in workers' compensation payments for implantable devices is bullet No. 1 above--the fact that many states carve out reimbursement for those devices from their standard medical fee schedules. Because there is a constant stream of new and competing devices being introduced to the market, it is difficult for regulators to create standardized fee schedules that can keep pace with the pace of innovation shown by device manufacturers. As a result, in at least 10 states, regulators have based reimbursement for some implantable devices on a percent of whatever the facility elects to charge, essentially creating an open checkbook for facilities.

A slightly better solution has been adopted by more than 20 states that have implemented fee schedules for implantable devices based on a percent of the facility's "cost" for the devices. Unfortunately, establishing the facility's "true cost" for a device is often extremely difficult, if not nearly impossible. The question of the facility's true cost is clouded by the prevalence of volume discounts, rebates and other "special" incentive pricing from device manufacturers.

Even more troubling, some provider facilities are simply creating their own device "invoices" rather than supplying actual manufacturer invoices. In some cases, the facilities have little choice but to create their own invoices because they may not have an invoice that corresponds to the specific implants used on a patient. The facility may buy in bulk or the manufacturer may only sell the implantable devices as part of a comprehensive "kit," which makes it difficult to establish the individual cost of the components that were actually used in a surgery. In some cases, the facility or surgeon may sterilize and save the "spare parts" for use in one or more future surgeries. In other cases, those parts can be sent back to the manufacturer for incorporation into new kits, further complicating the calculation of true cost.

If a facility originally paid $15,000 for an entire kit, say, but only half of the plates and screws in the kit were needed, how should their cost be calculated?

Given the potential for questionable pricing/reimbursement-justification practices, it is not surprising that workers' compensation costs for implantable devices and the accompanying surgeries are increasing dramatically. According to a recent study by the California Workers' Compensation Institute (CWCI), California's method of allowing the "pass-through" of implantable hardware costs for spinal surgeries added an estimated $55 million to the cost of the 3,599 spinal surgeries in 2008 that utilized implantable hardware.

According to one senior executive at a workers' compensation insurer with a large California book of business, the ability to collect these "pass-through" fees associated with implantable spinal hardware is actually changing the practice of medicine in the state. This carrier has seen a 60 percent to 70 percent increase in the use of spinal fusion surgeries in recent years even as their overall claims volume continues to decline! As California contemplates rather dramatic changes to their state fee schedule, the reimbursement complexities for implantable devices outlined above make it unlikely that new regulations alone will be able to turn this tide.

COST CONTAINMENT

Insurers and employers will need to specifically target implantable devices for more rigorous cost-containment efforts. Because implantable reimbursement methodologies in more than half the states create incentives for providers to increase the utilization of implantable devices, the best place to start those focused efforts is within utilization review. Any proposed surgeries that incorporate implantable devices or hardware should be referred to utilization review to ensure that the surgery is actually required and is the most appropriate course of treatment at that point in the life of the claim. The California carrier's experience with spinal fusions suggests that, not only are more surgeries being performed, but that they are also occurring much earlier in the life of the claim, before other less invasive treatment plans have even been attempted.

Once the medical necessity of an implantable device has been established, claims-payers' focus should turn to the calculation of the actual reimbursement amounts for any implantable hardware. Fortunately many of the traditional bill review/managed care firms are already targeting this "less regulated" area of the repricing process, so you should begin by asking your current partner what capabilities they have available to ensure reasonable reimbursements for implantable devices.

At the most basic level, in the states that base reimbursement on the facility's "cost," claims-payers should be requiring supporting documentation (ideally manufacturer's invoices) for all implantable devices. Several specialty companies such as FairPay Solutions, Qmedtrix and NCN go a step further, offering cost-based repricing models. These types of review firms typically compile substantial databases on actual manufacturer's costs and/or reimbursement amounts from multiple other payers (including Medicare) and then use those cost/reimbursement data points to calculate appropriate reimbursements for implantable devices in the percent of cost or percent of charge jurisdictions. Most of those firms, as well as several of the more traditional, full-service managed-care firms, also offer negotiation services and contact the facilities in question on a bill-by-bill basis to obtain their agreement to a (reduced) compromise reimbursement amount for any implantable devices.

DRAWBACKS, SOLUTIONS

While each of those repricing solutions can be effective, one of their major drawbacks is that they attempt to control the cost of the implantable devices after the fact--after the surgery has already occurred. If the facility has already ordered and/or paid for the implants, they are necessarily limited in terms of how much they are able to negotiate on the issue of equipment reimbursement.

One company that I ran into at the recent conference of the Risk and Insurance Management Society (RIMS) is trying to solve that problem by actually managing the supply chain for implantable devices. Access MediQuip can provide a claims-payer with an up-front, presurgery "guaranteed price" for any implantable equipment if the facility in question agrees to use their ordering and fulfillment process. Used in conjunction with more aggressive utilization review, their solution could potentially help both the payer and the facility streamline the process.

Of course all of the strategies outlined above will struggle against any facilities that are actively trying to "game the system" and use the loopholes in state fee schedules to pad their bottom line.

For those types of facilities, the best approach may be to use your "bionic eye" to spot questionable billing practices through analysis of the bill-review data and then flex your "bionic arm" to exclude those facilities and providers from network contracts.

Otherwise, you just may end up creating the $6 million claimant ...TFF TFF TFF TFF TFF.

DAVID HUTH is a senior partner in the Chicago-based Maddy Bowling Consulting Inc.

Read more at the WORKERSCOMP Forum^TM homepage.

June 24, 2010

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