General Comments

State Compensation Insurance Fund

1. The study is well founded and provides objective data on which the researchers base their conclusions and recommendations

Republic Indemnity

1. Supports the recommendation of a continuation of the Inpatient Hospital Fee Schedule and the elimination of the exemption for implantable hardware

2. Republic Indemnity concurs strongly with the findings of the report.


Pacific Hospital of Long Beach

1. A fair fee schedule would be helpful in meeting uncertainties and administrative burdens of the current system


California Workers’ Compensation Institute

1. Strong agreement with the study’s findings

Inpatient Hospital Fee Schedule Comments

Jeffrey Coe, Orthopaedic Spine Surgeon and Medical Director of the Hospital Center for Spinal Deformity and Injury, Los Gatos Hospital (pages 95-100)

1. What is the justification for using the criteria in the study to determine which DRGs should be considered candidates for adjustment in reimbursement. (ie percent reimbursement should be at least 10% lower for the WC admissions than for GH admissions)


To be considered a candidate for an adjustment in reimbursement the following criteria were developed:

The percent reimbursement should be at least 10% lower for the WC admissions than for the GH admissions.

The absolute reimbursement amount should be at least $5,000 lower for the WC admissions than for the GH admissions.

There should be at least 100 WC admissions in the sample.

The DRG should not be exempt from the IHFS.

The researchers arbitrarily set the criteria at the stated levels to strike a balance between the need to adjust DRGs where the reimbursement was inequitable and the need not to create adjustments where the differences were relatively

small. The purpose was not to have hundreds of DRGs being adjusted but have those where the payment was most inequitable receive some sort of adjustment in payment amount.

2. Why should there have been at least 100 admissions chosen in the sample and not a greater number when criteria for adjustment of DRGs were established? Dr. Coe commented that this was too small of a sample and excluded main spine DRGs.


A sample size of 100 was chosen for the purpose of achieving a representative, statistically valid estimate of the difference between group health and workers’ compensation average payments, and also to limit those DRGs under consideration for an adjustment in payment to those that were relatively common in recent experience.

3. The implant hardware costs are greater in reality than those given in the report.


The researchers used conservative estimates of costs for the hardware in order not to overestimate either the cost of the exemption or the savings that would be realized if the exemption was eliminated.

If the cost estimates were twice as high as calculated in the study, the cost to the system of having the hardware exemption in place and the potential savings from eliminating the exemption would both have been twice as high as estimates in the report.

4. DRGs are inadequate to describe differences that occur in various spinal surgical procedures. The disparity in surgical procedures covered by one DRG would render the study methodology not feasible. (ie. Many of the more cost and resource-intensive cases that would fall under DRG 497/498 would be "averaged out" with the rest of the more simple DRGs, and DRG 497/498 would therefore not meet the criteria for adjustment.)


There has been a revision in how refusion procedures are coded that has been initiated by the federal government. As a result of this revision, complex anterior/posterior refusion procedures will now fall into DRG 496, which has a higher payment level than DRGs 497 & 498 and for which an additional adjustment is also recommended in the report. However, it is important to note for the record that DRGs were designed precisely to average out the costs of care for groups of procedures. It was never intended that hospitals would receive an excess of payment over costs in every case. As part of the current study, where there was a significant disparity in compensation on average between group health and workers’ compensation, that disparity formed the basis for recommending an adjustment in the amount paid for that DRG.

5. Proxies for acuity (ie length of stay) are too crude. Need to take account of factors that contribute to the acuity measures. These factors are different in the Medicare population than in Workers' compensation population. In workers’ compensation, it is the implants and the acute technology that accounts for the high acuity and drives up workers compensation costs. (In the Medicare population it is generally co-morbidity factors-ie diabetes, heart disease.)


In comparing the difference between workers’ compensation and Medicare resource intensity, the researchers used length of stay and number of procedures. The basis for using these proxies are given below:

The researchers had data on the number of procedures that were coded by the OSHPD system, and this includes both surgical procedures and minor interventional procedures such as insertions of central lines. Anything that affects the potential DRG that would be assigned on discharge that's coded as procedure is counted by the OSHPD system, so the researchers felt that would be one good measure of resource intensity, and we see that that measure is lower for workers' comp than it is for Medicare.

Another measure of resource intensity that was available to us was the length of stay, and we see that for workers' comp the length of stay was 5.0 days on average, and for the Medicare the length of stay was 5.7 days on average. Now, this is case mix adjusted so this is not affected by the distribution of DRGs which was equalized between the two sectors.

What the researchers do acknowledge is that they had no measure of severity within the DRG, but it was assumed that if there were differences in severity within the DRG that would have showed up as more intensive resource use, more procedures or longer length of stay for workers’ compensation admissions, neither of which was seen in the study.

Furthermore, it is absurd to suggest that the acuity of a patient’s condition is determined by the amount of technology that is used to treat that patient. In fact, it should work the other way; acuity should determine the treatment selected. If acuity is not greater there is no justification for using higher cost technology as part of the treatment. There was no evidence that within a given DRG the acuity of the workers’ compensation patients was greater than that of the older, frailer Medicare patients or that of Group Health patients.

6. Cost-shifting cannot be performed as in Medicare and Group Health since in Workers’ Compensation 34% of workers’ compensation admissions are spinal surgeries. Since hospitals that treat workers’ compensation patients have difficulty in recovering costs, there will be an access problem in the future.


Although the payment levels to hospitals might not be sufficient overall, the scope of this study was not meant to address this issue. The purpose of the study was to compare Workers' Compensation to other sectors.

7. OSHPD data doesn’t capture all the implant costs and there is a need to look at specific hospital cost data prior to implementing regulations.


There currently is no coding system that captures the use of implants and it was beyond the scope of this study to develop such a system. The federal government evaluated the implant situation and decided not to add a supplement because the data reported by hospitals does not contain codified information about implants.

8. Hospital Composite factor (which tends to favor inner city urban hospitals) doesn’t take into account the costs of workers’ compensation


The hospital composite factor is designed to adjust for disparities among hospitals in the costs of doing business. There is no evidence to suggest that the inter-hospital variations in these costs are different when treating workers’ compensation patients.

California Workers’ Compensation Institute

1. Adjusting the DRG weights for seven admission categories identified in this study is an equitable method to balance payment that are too low relative to other sectors

2. Current cost outlier provision is a significant improvement over the prior proposal which would have added considerably more cost to the system

3. Agree that the provision for implantable hardware should be eliminated. Separate payment for implantable hardware creates no incentive for hospitals to adopt optimum purchasing practices


Barbara Sato, Program Manager, Spine Center Community Hospital of Los Gatos (pp 101 -102).

1. Medicare and Workers’ Comp patients cannot be compared because workers’ comp patients require more resources due to physiological and psychological problems. The other parts of the comment are similar to Dr. Coe’s #5 comment.


In order to account for differences in the study populations with respect to distribution of cases across the DRGs, the researchers performed case mix adjustment.


2. The hospital will not be able to cover the cost of doing surgeries if the recommendations are implemented. The hospital is already suffering without the elimination of the exemption of the implantable hardware. If the exemption on the hardware is eliminated the hospital will consequentially cut supporting services in the hospital.


Although the payment levels to hospitals might not be sufficient overall, the scope of this study was not meant to address this issue. The purpose of the study was to compare Workers' Compensation to other sectors.

Hospitals should manage their costs in the context of what they are paid for their services rather than expecting the payment system to accommodate their spending on whatever new technology or services they would like to provide.

Comments from Jerome Kutner, Community Hospital of Los Gatos

1. The validity of the report is questionable because it was funded by an agency that has a vested interest in reducing costs.


The study was conducted by an impartial research organization and peer-reviewed by academic researchers at two different institutions.

2. The scope of the report is oriented toward costs. There are no analyses of outcomes or of the benefits of spinal surgery. It is therefore not surprising to see that the costs of spinal surgery have increased and that these costs are greater for workers’ compensation patients than for other kinds of patients


It was not within the scope of the study to evaluate outcomes.

3. The analyses were performed with data that were collected and managed for purposes other than those current study. Large databases, such as those used in this study tend to contain many errors. The author states that the data were cleaned but do not describe how this was accomplished or evidence of the effectiveness of this process.


Standard methods were used to clean and organize the data. Furthermore, OSHPD itself cleans its data and solicits feedback about data quality from each hospital in the state before making the data available to researchers.

4. Data have been analyzed with averages (probably means) and without measures of variability such as standard deviations and descriptions of outliers. To the extent that there are outliers or variability in the samples, the mean is not appropriate in that in can be distorted by extreme data values and therefore we do not know if the appropriate measure was used and therefore if the conclusions were valid.


Standard, peer-reviewed research methods were used to ensure that the conclusions were valid.

5. Change in costs overtime and related differences between patient groups were always tested for statistical significance without regard to practical significance. In effect, all that the report shows is that there probably are differences, not how important how the differences are. The report should have at least included estimates of the sizes of the statistical effects that were found because even a small differences can lead to statistical significance when the sample sizes large.


The magnitude of the differences was reported wherever relevant.

6. The authors state that they control for differences in case mix when comparing patient groups, but no evidence of the effectiveness of the statistical controls is presented. We do not know how case mix was measured or the statistical method used for adjustment. Therefore, any effect that were found in this report may have been produced by a case mix bias.


Case mix was measured using DRGs. A standard indirect adjustment method was used.

7. When measuring change in charges over time, the report did not control for changes in technology or surgical skills that might account for increased charges. How were control variables chosen?


All available, appropriate control measures were utilized.

8. The authors report that the number procedures performed per WC admissions fell overtime, but do not consider change in a type procedures used. It is possible that fewer procedures were necessary overtime as effectiveness increased. Although the authors report no significant differences between WC admissions and group health admissions concerning procedures per admissions, the type of procedures may have differed. Therefore, the use of the number of procedures as a criteria of relative resource intensity is not a very accurate one.


If fewer procedures were necessary, the cost of those DRGs to the hospital would have decreased and the profit margin of those DRGs would have increased.

9. The authors state the sources of their information for estimating their incidence and costs for spine surgery DRGs, but do not describe how the information from these diverse sources was statistically combined. For example, did the investigators weigh the sources?



Other Comments from the Community Hospital of Los Gatos

1. Medicare DRG methodology is not appropriate for spinal surgeries since it is based on 1981 Medicare hospital cost.


In fact, the Health Care Financing Administration is revising the list of DRGs in order to facilitate greater precision in coding spinal surgeries and more specificity among the subgroup of spinal surgery DRGs.

2. DRG based system does not account for patients prior medical history-all patients are reimbursed equally according to diagnosis.


That is true to the same extent for each payer.

Sherreta Lane, Director of Reimbursement, California Health Care Association, (pp102 - 105).

Hospitals’ cost structures and basic funds are not considered in the report and OSHPD Data does not include this type of information.


This was a study of payment levels in group health compared with workers’ compensation, not a fiscal analysis of hospitals and their cost structures.

Concerned that stop loss provision data was not included when researchers looked at the group health data.


The group health data is actual paid data. If a stop-loss provision was in effect it is reflected in the paid amounts that were used in the analysis.

Without adequate payment providers will potentially deny access.


It is a hospital’s job to treat people who need treatment. Hospitals that refuse to treat people will go out of business.


Jim Randlett, Medtronic Sofamor Danek, (pp 105 – 109).

Need to develop a study that looks at cost to hospitals and what is the reasonable level of payment is so that access for injured workers can be ascertained.


The researchers were not asked to and did not have the data that would let them estimate what it costs the hospitals to provide the services.

The study did not examine whether payment level is fair or not.


The researchers were not asked to and did not have the data that would let them estimate whether the payment amounts that are being paid for under the fee schedule based on the Medicare fee schedule are in and of themselves fair.


Need to ensure adequate payments for spinal surgeries because they are highly important for the quality of life of the patients.


In a situation of limited resources not everything that improves quality of life can be afforded. Not to decide is to decide. The choices define the chooser.

Jim Camedo, CFO for Pacific Hospital of Long Beach, (pp 132 – 133).

1. The cost of the hardware is more than the report estimates. There is a lot of money lost on implantable hardware since the hospital does not get sufficiently reimbursed.


Part of the response is similar to Dr. Coe’s #3.

Also, as purchasers of the hardware, hospitals need to pass their reimbursement problem on to the manufacturers of the hardware. If hospitals refuse to purchase the equipment at the current price, basic economic theory holds that the price will come down. We may even see some research being done on new technology that is designed to reduce costs.

Outpatient Fee Schedule Comments:

Brenda Ramirez, State Compensation Insurance Fund (SCIF)

1. State Fund urges the Commission to assist in implementing an Outpatient Facility Fee Schedule without delay. In the absence of a fee schedule, resources are being wasted by providers, claims administrators and the WCAB at the expense of employers of California. Since 1996 SCIF has used a Medicare plus model to benchmark maximum reasonable reimbursement levels for outpatient surgery facility fees. This model has the advantage of being straightforward and clear and is familiar to outpatient facilities.

Kim Wiswell, Kaiser Permanente, (pp109 – 112) and other comments of Kaiser Permanente.

Source and Validity of Data

Authors use a hodgepodge of data from two non-validated sources "managed care vendors" and private outpatient facilities" and from CWCI’s ICIS database. The study does not provide a breakdown of number of procedures taken from each of the four possible sources to build the sample data group.


The make-up of the sample data was described in detail in the report.

Kaiser was led to believe that data was hard to pull out for the outpatient surgeries from ICIS database, because the payers contributing the data to ICIS did not sufficiently identify bill of this type. She says this is evidenced in the report’s data since from the top ten outpatient surgical procedures depicted in the report, many of the procedures are minor surgeries which are typically performed at the providers office. These procedures are not the primary concern when someone looks to control costs.


The data are a broad mixture of bill review, managed care and outpatient facility data.

The study calculates the percent difference between billed and paid dollars attributable to the top 100 procedure codes as 53.8% although it ranged as low as zero. The study is unclear about whether the percent difference refers to the dollars billed and paid for the surgical professional fees alone or for the facility and other charges associated with the performance of these procedures alone or for a combination of both.


The report states clearly that the data consisted of facility fees.

The incidence of codes reimbursed as zero leads Kaiser to question whether charges disallowed as either duplicates (those procedures reviewed and paid previously) or those disallowed pending further information were included in the data set.


Is SCIF Data included in the analysis of billed vs. paid costs? If it is included, it could skew the study downward. (SCIF has been using the ASC schedule plus 75% as their basis for payment ).

—She would prefer that the PPO contract data be broken out separately from SCIF data.


As a member of CWCI and data contributor, SCIF data naturally are represented in the ICIS database. The data overall derived from multiple sources, including the other data-contributing members, affiliate organizations with essential data elements and providers who were willing to contribute data.

Why are recommendations for the high, low, medium schedules based on one WCAB case? Why were not other cases considered?


The one WCAB case was cited merely as an example of the levels suggested in the scenario. It was meant to serve as an illustration, not as the sole justification.

The "low" end recommendations should not start below what Medicare would pay for the same surgery. If researchers were pressed for time, they should have recommended setting a schedule based on percentage of charges.


The "low" end recommendations are what Medicare is paying freestanding facilities currently.

Concern that access and quality of care could deteriorate with a different payment system.


A standardized payment mechanism should decrease variability, simplify the administrative costs of patient care and improve access by promoting a fair and predictable payment system.

Lisa Middleton, State Compensation Insurance Fund

1.     Kaiser claimed that SCIF’s reimbursement methodology is neither a preferred provider discount nor a contracted payment rate. Kaiser suggested at the Commission meeting that they would prefer State Fund’s data to be broken out separately from the contract data. SCIF commented that their data should be in the study because the data contributes to the picture of what is being charged and paid within the industry. Also, sizeable majority of State Fund’s outpatient facility bills are paid via contracted rates.

2. SCIF provided a table that shows examples where Kaiser Permanente outpatient facility charges exceed the maximum reasonable fees by two or three times that which would have been allowed under the Inpatient Hospital Fee Schedule, were the same procedures performed on an inpatient basis in those facilities.

3. SCIF substantiates that there is a lot of variability in charges encountered by bill reviewers for outpatient facility fees.

4. If an outpatient facility fee schedule is not implemented, the courts would be forced to resolve disputes on what is "reasonable" and "unreasonable" in cases. The case cited in the Commission’s study where the court decided that the State Fund payment at 175% of Medicare’s national ASC rate was reasonable is one illustration of this.

5.     There is neither a medical nor a business necessity to reimburse outpatient facilities more than inpatient facilities. It is time for parties to reach a consensus on an appropriate reimbursement schedule.



A well designed Fee Schedule for outpatient surgery will serve the needs of all participants in the system

Tom Wilson, Federated Ambulatory Surgery Association, (pp 112 – 116).

Implementation of the Fee Schedule would result in workers’ compensation beneficiaries not having access to high tech joint repair surgeries.


See previous responses to the access issue.

The APC system is one that the Federal Government on three occasions has withdrawn since 1998. HCFA has delayed implementation of the APC schedule for ambulatory centers according to Mr. Wilson due to:

(1) Concerns that in excess of 40 percent of the code rates incorporated into the APCs' methodologies are lower than the providers' cost to perform the procedure.

(2) The system rights are based upon 1993 data, and HCFA was required by Congress to update the data in 1999 to a cost survey. This has not yet been done. The cost data that is at least eight years old in this field is unreliable.

HCFA concluded that many of its groupings were determined by severely limited cost data probably generating insufficient payment rates.

And finally, HCFA has concluded that some of their data was not reliable.


According to HCFA, the delay in implementation of the APCs for ambulatory centers was a result of: a timing issue in the organization rather than comments which HCFA received in opposition to the fee schedule.

HCFA proposed implementing the APC schedule for Ambulatory Surgery Centers 6/12/98. However, in the same year the APC schedule was also proposed for the Hospital Outpatient Services. Since there was a statutory deadline for the Hospital Outpatient Services implementation, HCFA decided to concentrate most of its resources on developing the APC schedule for the hospital outpatient services.

The Center for Medicare and Medicaid Services is currently working with the provider community to develop a schedule for ambulatory centers. It is not certain whether this schedule will be based on APCs or a percentage of APC payment groupings or if it will be based on APCs at all. One of the issues that will be examined is if the survey of ambulatory surgery centers (ASCs) on which the payment rates were based should be updated. However, one of the primary goals of the schedule will be to "level the playing field" between the payments for the hospital outpatient services and the current payments to ambulatory surgery centers.

In fact, the status of the APC/OPPS fee schedule for ASC's was included as an attachment to an omnibus Labor-HHS appropriations measure that was passed by the legislature at the end of December 2000. STATEMENT OF MANAGERS FOR THE MEDICARE, MEDICAID, AND SCHIP BENEFITS IMPROVEMENT AND PROTECTION ACT OF 2000 Section 424. Ambulatory Surgical Centers. The provision would delay implementation of proposed regulatory changes to the ambulatory payment classification system, which are based on 1994 cost data, until January 1, 2002. At that time, such changes would be phased in over 4 years: in the first year the payment amounts would be 25 percent of the revised rates and 75 percent of the prior system rates; in the second year payments would be 50 percent of the revised rates and 50 percent of the prior system rates, etc. The provision also requires that a revised system, based on 1999 (or later) cost data, be implemented January 1, 2003.

Arthur Casey, Regional Vice President of Operations for HealthSouth and Representative of the Board of Directors of the California Ambulatory Surgery Association, (pp 116 – 119).

Data is incomplete, one-sided and does not provide a large enough basis from which to draw conclusions.


The point of the data analysis for the ambulatory section of the study was to see what kind of variability in facility fee charges there was in the data. For this purpose there was no need to have a randomly selected data sample.

Prior to implementing schedule, there’s a need to review the cost and impact to the provider community and the impact on the injured worker.


Show us the data that would permit us to do this type of evaluation and we would be happy to do it.

APCs for ambulatory centers have not been adopted on a national basis because of public comments that HCFA received (comments such as those of Tom Wilson’s - #2).


Same Response as Tom Wilson #2.

Resource intensity proxies used in the report do not capture certain factors. Cost and complexity of procedures are not based on length of stay but on the types of technology utilized in performing these procedures.


See response re: acuity on p. 3.


Peggy Wellman, Vice President of Operations for HealthSouth.

There was not a public call for data based on provider cost, the cost of staff salaries and the cost of supplies in performing these surgeries.


The researchers asked and tried to obtain the data from payers and providers. It took months to acquire the data that the researchers did acquire. The majority of the data that the researcher did obtain came from CWCI-ICIS database. There was only one outpatient surgical facility that provided data directly. The researchers were unable to get any other data from providers or payers.

Research needed to identify provider cost.

Response: Partly the same as Randlett #1.

It is a flawed approach to implement a non-tested APC system in California.


The APC system has been in use by hospital outpatient departments since August 2000.

Carl Brakensiek, California Society of Industrial Medicine and Surgery, (pp 121 – 127).

Report did not assess the impact of an ASC schedule on injured workers’ access to care and economic impact of any fee schedule on the ambulatory centers.


The report is not recommending the ASC schedule.

The comparisons made of epidural injections on page 73 are incorrect. The procedures performed by Southern California Surgery Center were more complex and are not comparable to the simple procedures performed at the other centers. Multi level procedures of the Southern California Center should not have been categorized as simple epidural injections.


Current CPT-4 and ICD-9 coding systems are the best tools we have for comparisons among providers.

Using the 1.75 multiplier deemed reasonable by the WCAB is not appropriate because it is only one case.


See response earlier in this document.

There was supposed to be a project review team to work on the preparation of the report that was to consist of: Christine Baker, Suzanne Maria, Dick Gannon , Glenn Shor, Anne Searcy, and Allan Mackenzie. This group of people never met as a team.


Members of the team met several times to review the progress and preparation of the report.

The report is supposed to be peer reviewed by the RAND Corporation. However, as of August 24, 2001 the review was still under consideration.


The report was peer reviewed by Jay Bhattacharya in August. His comments and concerns were subsequently responded to by e-mail by Dr. Gardner and he was satisfied with the responses.

The report was supposed to "evaluate the effect of expanding the outpatient fee schedule to include new patient surgical codes currently in use as well as the payment structure for outpatient surgical facility fees". This is not in the report.


That portion of the study was contingent on feasibility and unfortunately it was not feasible.

The fact that many surgery center procedures involved multiple procedures which are placed under one CPT Code distorts the data.


The coding system is the same for every facility yet the variability among facilities was tremendous. It is this variability that is the issue.


Rod Blonien, Nations Surgery Centers, (pp 127 – 130).

Same as Arthur Casey’s comment #3.



Since OSHPD is beginning to collect data next year on outpatient surgery centers, it would be good to do another analysis after 2 years.

Response: We would be happy to reevaluate these findings in 2 years.



Suggest to separate out the issues of whether there should be a fee schedule and whether or not it should be based on the APC schedule.

Response: Done.

California Workers’ Compensation Institute

1. High variability of facility fees suggests predatory pricing. There is a need to control this via the fee schedule

2. Authors’ calculations of system savings with an outpatient surgery facility fee schedule understates the potential value of this schedule by only modeling carrier based expenses


John Latimer, Lobbyist with a group of outpatient surgery centers, (pp 133 – 135).

Concerned that access will deteriorate if the recommendations are implemented.

Response: See previous responses to access issue.


The delay in timely treatment of injured workers (occurring after providers are not adequately reimbursed and will start to turn away patients) will increase the cost to the system through a rise in temporary disability benefits.

Response: See previous responses to access issue.


Further study needs to be done. Need to wait for some OSHPD data that refers case by case in both inpatient and outpatient settings.


We’d be delighted to do a follow-up study when additional data become available.