Uncertain Surgery Costs: A Call for Transparency in WCMSA Pricing of Allocated Surgeries

7.29.2020 Blog

One of the most significant cost-drivers in MSAs can be surgeries.  In addition to CMS becoming more aggressive in allocating for surgeries, we have recently seen the costs of these procedures increase as well.  This brings back not-so-fond memories from a few years ago when CMS began including urine drug screens in MSAs where there was little, if any, evidence to substantiate the frequency of these tests.  The number of tests included was not the only problem: the costs of each test could be staggering.  Due to the variety of potential tests and procedure codes available for urine drug screens, submitters were left to guess at how and why CMS was pricing these the way they did.  Our office has started noticing similar trends with surgeries in approved-MSA: CMS is allocating for surgeries where they shouldn’t be; and the pricing does not appear to match-up with the applicable fee schedules.  Like many processes in the WCMSA review and approval process, CMS tends to keep their guidelines and procedures for surgery pricing vague, general, or just down-right confusing.

The inclusion/exclusion of a surgery alone can certainly make a big difference between the proposed and approved WCSMAs.  But the difference in pricing can sometimes create as much of an impact as including the procedure itself.  Whether a specific procedure should be included or excluded in an MSA is very case-specific, and usually an issue or argument of degree:  in many situations, it is impossible to know at the time of settlement whether a claimant will definitively need or undergo a future surgery.  While primary payers and submitters will argue that future need for the surgery is speculative, CMS can always argue that it is better to be on the safe side.

For the other half of this issue, the pricing of these procedures, it appears that CMS is not adhering to the applicable state fee schedule or practical facts of the case.

Fee Schedules and the WCMSA Reference Guide

Most states have some form of a workers’ compensation fee schedule that limits or reduces medical costs based on a set amount or a percentage of the charge.  According to WCMSA Reference Guide Version 3.1, the states without fee schedules are Indiana, Iowa, Missouri, New Jersey, Virginia, and Wisconsin.

The Reference Guide allows submitters to base the pricing of their proposed WCMSAs on either actual charges or the jurisdiction’s applicable fee schedule.  But that is not the end of the story.  The Reference Guide provides restrictions and guidelines on how a proposed surgery should be priced.  The problem is that these do not provide any clear guidance or insight into how or why CMS will price surgeries a certain way.

To be fair, even if it is extremely likely that a beneficiary will require and undergo a surgery, there are certain aspects of a future procedure affecting the fee schedule price that cannot be definitively predicted or quantified in advance: anesthesia time, use of an assistant and to what degree, and separately reimbursed supplies such as drugs and implants.  Further, even though the surgery itself might be likely, the specific procedures might be a game-time decision; for example, it is not unreasonable for a shoulder surgeon to indicate that a rotator cuff repair versus debridement would be decided based on the intraoperative findings.  Finally, many fee schedules calculate reimbursement of some procedures based on a percentage of the provider’s charge, which again, cannot be easily refined to a prospective formula.

The Reference Guide also allows submitters to provide an explanation or breakdown of how they calculated the costs of surgeries included in their proposal which the reviewer will “consider;” however, oftentimes that is met with a counter-higher and insightful explanation that “MEDICAL SERVICES PRICING WAS HIGHER THAN THE SUBMITTED PROPOSAL.”  If CMS is dictating what amount needs to be allocated, they should be able to provide the data behind it.

Solutions? Or More Problems?

To its credit, CMS does provide some guidance on how submitters should price surgeries in their submissions.  They have even added detailed sections on how they are pricing some of the more expensive and “common” procedures like spinal cord stimulators (SCSs).  However, their guidance in general seems to be lacking, and sometimes at odds with the real world.

Section 9.4.3 of the Reference Guide states:

“The WCRC strives to comply with the laws of the state determined to be the appropriate state of venue.  The reviewers research the applicable state regulations and fee schedules.  In previous years, the WCRC has priced WCMSAs using the highest fee schedule zone possible within any state that uses fee schedules.  Currently the WCRC prices WCMSAs according to the correct region for the state of venue.  Hospital fee schedules are currently determined using the Diagnosis-Related Groups (DRG) payment for the median Major Medical Center within the appropriate fee jurisdiction for the pricing ZIP code, unless otherwise defined by state law.”

The Section discussing SCS’s which, presumably, (but not explicitly) is intended to apply to surgeries generally, states that SCS replacement procedures can be priced as inpatient or outpatient.  It states that they price inpatient procedures based on DRG codes “priced for a major medical center in that state, unless the fee schedule has pricing for that DRG (like Illinois).”

The problems here are that 1) CMS does not state how procedures should be categorized as inpatient or outpatient, and 2) they do not provide any guidance for what constitutes a major medical center.

Inpatient v. Outpatient

The Reference Guide does not provide much guidance on whether a given surgery should be priced for an inpatient or outpatient setting; however, the difference in pricing between those two categories can be significant.  The SCS section states that the procedure may be inpatient or outpatient “depending on previous surgeries or physician recommendations.”  However, this information is not always available from the medical records, and there is no indication of what pricing scheme CMS will default to in those situations.

A potential source for differentiating between outpatient and inpatient procedures could come from CMS’ own inpatient only (IPO) list which designates certain procedures as only being covered in inpatient settings.  However, it is unclear whether CMS is utilizing the IPO list for pricing WCMSAs, and although incorporating it might provide submitters with more certainty, it might not provide the best results.  The IPO list makes sense for CMS: some procedures are more likely to result in complications that could require significant care beyond the surgery itself, so having them performed in an inpatient setting allows critical care to be readily available and helps consolidate costs.

Still, the IPO list does not always accurately reflect the availability to undergo procedures in a more cost-effective outpatient or ASC setting, and it is constantly changing: in 2018, total knee replacements were removed, and hip replacements were just removed in 2020.  Ultimately, even if CMS were to incorporate the IPO list for WCMSAs, the benefits from clearer expectations in pricing proposals may be outweighed by increased costs in allocating for inpatient surgeries that are more likely to be performed in a more cost-effective setting.

Regardless, all allocations are speculative, and default to a “best-guess” as to where they might be performed.  But, if it is likely that a procedure would actually be performed in an outpatient setting, why would they not be priced that way?

“Major Medical Center”

The reference guide uses the term “major medical center” three times when discussing pricing for inpatient procedures, but nowhere does it provide a definition or any insight whatsoever as to what it considers a “major medical center.”  A web search does not identify any other references to this phrase with CMS specifically.  We couldn’t even find one specific definition or listing, this might be because it is not a discrete term.  The closest we got to a definition came from Wikipedia’s page on “medical centers in the United States” which has a subsection titled Major Medical Centers.  However, that merely “describes some of the largest and most prominent centers in the nation,” and does not provide any other definition.

The issue isn’t that CMS is seemingly basing their pricing on the most expensive facilities, it is that they are using a vague term which has no discrete limitations whatsoever.  If they were to directly state that they are using the facilities with the highest conversion factor or reimbursement rate under the fee schedule, that would at least be something that could give primary payers predictable results.  As it stands now, submitters are just left guessing.

Potential Solutions

Continued variance in surgery pricing in WCMSAs and ill-defined standards could push primary payers away from submission.  While the preferable solution would be discrete and definable standards that provide clear guidance on how submitters should expect surgeries to be priced in WCMSAs, this could have the negative effect of locking submitters into pricing based on facility settings that do not realistically account for the likely costs, and may result in vastly overfunded MSAs.

Any changes should of course involve input and feedback from the MSP community, and will take time to develop.  In the meantime, however, CMS should be more amenable to proposed surgery pricing from submitters and defer to their calculations if they accurately reflect the facts of the case and fee schedule pricing.  CMS should also readily provide more detailed explanations for why their pricing in the approval was higher than the proposal.  If CMS is basing their pricing on discrete variables or standards, they should be able to, at the least, provide the procedure codes, regions, and/or fee schedule types they are using.

The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.