California Division of Workers Compensation

Page 2

California Division of Workers’ Compensation

November 28, 2012

Maureen Gray

Regulations Coordinator

Department of Industrial Relations

Division of Workers’ Compensation, Legal Unit

Post Office Box 420603

San Francisco, CA 94142

RE: CHA’s Comments Regarding the Inpatient Hospital Fee Schedule - Spinal Implant Regulations

Dear Ms. Gray,

On behalf of more than 400 member hospitals and health systems, the California Hospital Association (CHA) appreciates the opportunity to comment on the second round of proposed revisions to the inpatient hospital fee schedule (IHFS) regulations, in particular the complex spinal surgery payment regulations.

Proposed Add-On Payment

CHA supports the Division of Workers’ Compensation’s (DWC) current proposal to increase the additional allowance for spinal devices used in complex spinal surgery for MS-DRGs 453, 454, and 455, from $2,925 to $9,140. We appreciate the DWC’s thoughtful review of the costs associated with these spinal devices, and the access issues that could arise if hospitals incur routine losses on these complex spinal procedures. As demonstrated in our letter to the DWC on November 2, 2012, the add-on amounts originally proposed would have resulted in unsustainable losses for many California hospitals, further compressing the number of providers and reducing access for injured workers.

The newly proposed add-on amount for MS-DRGs 453, 454 and 455 will allow hospitals to move closer to recovering their costs when performing complex spinal procedures under these specific MS-DRGs. However, the proposed add-on amounts for MS-DRGs 028, 029, 030 and 456 remain inadequate to cover costs. Based on the data analysis performed by Triage Consulting Group and submitted to the DWC on November 2, 2012, CHA urges DWC to allow for an additional $6,475 for MS-DRGs 028, 029 and 030 and an additional $9,975 for MS-DRG 456.

The drafting of SB 863 (Chapter 363, Statutes of 2012) eliminated the cost-based reimbursement for spinal devices used during complex spinal surgery for MS-DRGs 457, 458, 459, 460, 471, 472 and 473; however, none of these procedures are eligible for an add-on payment to cover the device cost. These seven MS-DRGs represent approximately 75 percent of the complex spinal procedures performed on injured workers. In the absence of an add-on payment, California hospitals will be providing many of these services at a significant, unsustainable loss. CHA is deeply concerned that these seven MS-DRGs do not qualify for an add-on payment and will not adequately reimburse hospitals at a rate that will ensure access to care for injured workers. CHA looks forward to working with the DWC to address this legislative drafting error in the near future to ensure adequate payment that will preserve access to these important services.

Complex Spinal Surgery Outlier

We appreciate the DWC’s effort to address cost compression in the outlier calculation by utilizing the invoice cost for spinal devices. True cost accounting for spinal devices in the outlier calculation is critical to help mitigate the losses from high cost procedures. However several technical errors must be addressed.

The definitions of “cost” and “cost outlier threshold” within the regulations are inconsistent. CHA recommends the following updates:

Section 9789.21(f) “Costs” means the total billed charges for an admission, excluding non-medical charges such as television and telephone charges, charges for Durable Medical Equipment for in home use, charges for implantable medical devices, hardware, and/or instrumentation reimbursed under subdivision (g) of Section 9789.22, multiplied by the hospital’s total cost-to-charge ratio plus documented paid spinal device costs, net of discounts and rebates, plus any sales tax and/or shipping and handling charges actually paid.

Without the correction to Section 9789.21(f) above, the definition of the costs would exclude the spinal devices and the spinal device costs would not be counted toward the outlier threshold, which is inconsistent with 9789.22(f)(1).

Section 9789.21(i) “Cost Outlier Threshold” means the sum of the Inpatient Hospital Fee Schedule payment amount, the payment for new medical services and technologies reimbursed under Section 9789.22(h), any additional allowance for spinal devices under Section 9789.22(g)(2) and the hospital specific outlier factor.

The addition of the spinal device add-on amount to the cost outlier threshold makes the definition consistent with 9789.22(f)(1) Step 3.

CHA appreciates the DWC’s consideration of our comments and continued willingness to look at the long-term impact of proposed reductions in spinal implant reimbursement and the impact it will have on hospitals’ ability to continue providing these vital services to return employees to work. If you have any questions or comments, please contact me at or (916) 552-7669.

Sincerely,

Amber Ott

Vice President, Finance

California Hospital Association

Office: (916) 552-7669