Orthopedic Medical Legal Advisor

Health care cost data, documentation of medical necessity affect reimbursement, legal claims

For several years, media reports alerted the U.S. public to inconsistencies in the delivery, consumption, costs and outcomes of health care. As a result, the public is increasingly aware of the uneven nature of the quality and costs associated with many medical treatments, such as total knee replacement. In recent years, the number of TKRs performed has increased, which has led to scrutiny from payers about who shoulders the costs of the operation.

B. Sonny Bal

We examine herein the implications of data-driven cost analyses of TKR and spine procedures in terms of the implications for surgeon reimbursements for such operations, as well as how cost data relate to legal claims that arise from the lack of medical necessity for treatments.

Commoditize surgery

TKR is among the most successful elective operations in terms of improved function, reduced pain and returning patients to gainful employment. With greater success rates has come increased visibility such that the operation may become a victim of its own success. Not long ago, TKR was a major ordeal with patients spending several days in the hospital, attendant demands on inpatient resources, the need for inpatient rehabilitation and a lengthy period of painful physical therapy for patients to regain independence and function.

Today, TKR has benefited from innovations in implant design, surgical techniques, robotics and anesthesia practices. Furthermore, minimizing or eliminating opioids after knee replacement has accelerated patient recovery. Billboards across the country promote same-day surgery performed with minimally invasive techniques and rapid recovery pathways, and the quick return to life, work and normal function. Subsequently, previously common modalities have been eliminated from TKR surgery, such as IV narcotics, continuous passive motion machines and, in some cases, wound drains and tourniquets, and there has been an attendant decrease in the costs and morbidity associated with the procedure.

Lawrence H. Brenner

These enhancements, however, may also lead TKR and other seemingly beneficial procedures into the so-called commodity trap. Standardization of surgical steps, data-driven patient care pathways, the absence of demonstrable differences between implant types and designs, increasing volume of surgery, robotic- and computer-assured accuracy of implant placement, and less surgeon-to-surgeon variability should be associated with a decline in the cost of TKR surgery. In reality, however, cost data have not always been readily available to determine whether increased efficiencies in knee replacement have truly reduced its costs, as well. In short, from the standpoint of payers, as the volume of knee replacement surgery has increased, so has spending on the procedure.

Public scrutiny

Recently, several articles in the lay press addressed TKR. In April 2018, the Wall Street Journal (WSJ) investigated a Wisconsin hospital system that traditionally raised its prices for TKR surgery by about 3% each year. When questioned about this practice, hospital administrators were oblivious to the actual costs to the hospital system for performing the operation. Pressured by payers, the hospital conducted an 18-month review and tracked every minute of activity and the resources needed to perform TKR. According to this activity-based cost analysis, the kind of which is commonly used in manufacturing to accurately allocate costs to individual product lines, the all-in-all cost of TKR surgery turned out to be $10,550. The list price charged by the hospital was about five times that much.

The experience of the Wisconsin hospital system highlights an uncomfortable truth: The absence of knowledge about costs thrusts U.S. health care spending into an unsustainable trend, regardless of the acronyms devised by providers who profess to understand quality and outcomes. U.S. health care spending is on target to consume 20% of the national gross domestic product, which is the largest of any nation. Despite the U.S. having the highest per capita spending on health care, Americans are no healthier than the citizens of other developed countries, at least based on commonly accepted metrics of well-being.

Ignorance about costs leads to pricing inconsistency, which reflects the fact that, in many cases, neither the hospital nor the consumer, and in some cases, not even the surgeon, may know what a treatment such as TKR truly costs. Indeed, studies have shown wide variations in the costs for TKR in different regions of the United States, even though the procedure is now virtually standardized in terms of the steps needed to execute it and the expected outcomes.

Encouraged by its successful cost-identification exercise for TKR, the Wisconsin hospital has turned its attention to other cost centers, such as laboratory services, to drive its expenditures down. Savings attained from cost-cutting efforts means more money for investment in new equipment, construction, acquisitions and subsidizing health care that loses money, at least for non-profit hospitals. Discounted hospital charges can also gain new business from large employers who may be puzzled at why it has taken health care delivery systems so long to come to grips with their underlying cost structures.

Cost fluctuations

The WSJ followed up its April 2018 article on TKR with one in November 2018, which reported that a committee of the New York City Council was investigating wide variations in the costs of common medical treatments, including TKR, within the city. Labor union members were concerned that increasing health care costs were affecting pay raises and other benefits. They demanded transparency so their members could make informed choices. Local 32BJ of the Service Employees International Union, one of the city’s largest unions, said it would present its member claims data to the New York City Council. The union, like other employers and similar professional groups, is self-insured, and thus is exposed to health care costs. Its investigation showed marked differences in the cost of the same operation from one New York hospital to the next.

The Greater New York Hospital Association offered up the defense that the New York City region is highly competitive, and that hospitals are at an economic disadvantage in negotiating with insurers. If city council wanted New York hospitals to justify their pricing, the Association suggested the city council should also demand insurance companies justify their earnings. Cost variations, according to the association, were related to complexities of pricing that necessitated variations in negotiations, insurers and other factors, such that even different patients using the same hospital might be charged differently for the same operation.

Walmart experience

At least one major, self-insured employer that provides health care benefits that cover more than 1 million employees has taken matters into its own hands. The WSJ reported in November 2018 that Walmart had encouraged its employees to have spine surgery at selected, high-quality hospital systems. Walmart offered to pay for surgery and travel for those employees who agreed to Walmart’s choice of provider. Since 2013, Walmart had been recommending that its employees obtain care at selected destination hospitals for common operations that involve the spine, knee, hip and other areas of the body.

Some Walmart employees traveled outside their local area for spine surgery while others chose to have their spine operations done by local surgeons. With several years of data available to compare costs between the two groups, Walmart found employees who traveled to designated high-quality medical centers were costing the company about half as much as those whose spine operations were performed by local surgeons, at local hospitals. The underlying reason for the cost difference, as Walmart discovered, was that about half of the patients who traveled to high-quality health centers ended up not needing the recommended spine operation after all. They got better through nonoperative means.

To control costs resulting from unnecessary surgery, according to the WSJ report, starting in 2019 Walmart will require its employees to travel for spine operations to its designated hospitals and providers. As an additional step, Walmart will cut reimbursements to local surgeons for the same operations to half the amount that it was paying previously. The Walmart experience is likely to be copied by other large payer groups; the WSJ reported that North Carolina is negotiating with selected hospitals and physicians to lower health care costs for its state employees, and General Motors Company struck a discounted deal with a single hospital system in Detroit for its salaried employees.

Medical necessity claims

The Walmart experience shows that a major employer with a self-insured health plan now has the data to distinguish between different cost models, at least for spine operations. Since the employer could identify those spine operations that were truly indicated vs. those that were not, it used cost data as a blunt tool to discourage unnecessary surgery, such as by steering employees toward selected low-cost centers, and cutting payments to the centers and providers that were associated with higher cost surgery. Essentially, Walmart used its cost data as a proxy for the necessity of a procedure and it relied on peer physicians to determine the medical necessity of a spine operation.

Similar to Walmart’s reliance on peer determination of medical necessity, the criminal prosecution of a cardiologist in McLean v U.S., 2013, a federal appellate case, also relied on peer testimony to determine whether cardiac stents were truly necessary. Initial hospital disciplinary action began after internal peer review showed Dr. McLean was performing inappropriate stent procedures. The federal government then successfully brought criminal charges related to improper Medicare, Medicaid and private insurer billing. While the conviction was related to factors that probably inflamed the jury, such as the document shredding done by the defendant, the ruling is significant in that the government relied on peer testimony to support a criminal conviction, rather than a bright-line criminal statute. In civil cases related to medical negligence claims, the lack of medical necessity of a procedure can similarly color the claim, making it more difficult to defend the alleged medical error.

As cost pressures in the health care system continue to be addressed by targeting and examining specific high-volume and high-cost operations, physicians and medical centers can take the following steps to protect themselves:

  • Keep accurate and complete records of the necessity, ie, medical indications for a procedure. More importantly, document the medical decision-making in terms of why an operation is needed, and the alternatives that were considered and discussed with the patient;
  • Avoid the cut-and-paste functions and standard templates for operative notes. These features save time, but may also give the appearance of fraud by cloned documentation or over-documentation; and
  • ASCs and clinics should have a compliance program in place and use it to periodically audit medical services provided in terms of medical necessity and the proper documentation of such necessity.

The increased transparency and optics related to health care scrutiny, and public awareness of costs, will demand no less going forward.

Disclosures: Bal and Brenner report no relevant financial disclosures.

For several years, media reports alerted the U.S. public to inconsistencies in the delivery, consumption, costs and outcomes of health care. As a result, the public is increasingly aware of the uneven nature of the quality and costs associated with many medical treatments, such as total knee replacement. In recent years, the number of TKRs performed has increased, which has led to scrutiny from payers about who shoulders the costs of the operation.

B. Sonny Bal

We examine herein the implications of data-driven cost analyses of TKR and spine procedures in terms of the implications for surgeon reimbursements for such operations, as well as how cost data relate to legal claims that arise from the lack of medical necessity for treatments.

Commoditize surgery

TKR is among the most successful elective operations in terms of improved function, reduced pain and returning patients to gainful employment. With greater success rates has come increased visibility such that the operation may become a victim of its own success. Not long ago, TKR was a major ordeal with patients spending several days in the hospital, attendant demands on inpatient resources, the need for inpatient rehabilitation and a lengthy period of painful physical therapy for patients to regain independence and function.

Today, TKR has benefited from innovations in implant design, surgical techniques, robotics and anesthesia practices. Furthermore, minimizing or eliminating opioids after knee replacement has accelerated patient recovery. Billboards across the country promote same-day surgery performed with minimally invasive techniques and rapid recovery pathways, and the quick return to life, work and normal function. Subsequently, previously common modalities have been eliminated from TKR surgery, such as IV narcotics, continuous passive motion machines and, in some cases, wound drains and tourniquets, and there has been an attendant decrease in the costs and morbidity associated with the procedure.

Lawrence H. Brenner

These enhancements, however, may also lead TKR and other seemingly beneficial procedures into the so-called commodity trap. Standardization of surgical steps, data-driven patient care pathways, the absence of demonstrable differences between implant types and designs, increasing volume of surgery, robotic- and computer-assured accuracy of implant placement, and less surgeon-to-surgeon variability should be associated with a decline in the cost of TKR surgery. In reality, however, cost data have not always been readily available to determine whether increased efficiencies in knee replacement have truly reduced its costs, as well. In short, from the standpoint of payers, as the volume of knee replacement surgery has increased, so has spending on the procedure.

PAGE BREAK

Public scrutiny

Recently, several articles in the lay press addressed TKR. In April 2018, the Wall Street Journal (WSJ) investigated a Wisconsin hospital system that traditionally raised its prices for TKR surgery by about 3% each year. When questioned about this practice, hospital administrators were oblivious to the actual costs to the hospital system for performing the operation. Pressured by payers, the hospital conducted an 18-month review and tracked every minute of activity and the resources needed to perform TKR. According to this activity-based cost analysis, the kind of which is commonly used in manufacturing to accurately allocate costs to individual product lines, the all-in-all cost of TKR surgery turned out to be $10,550. The list price charged by the hospital was about five times that much.

The experience of the Wisconsin hospital system highlights an uncomfortable truth: The absence of knowledge about costs thrusts U.S. health care spending into an unsustainable trend, regardless of the acronyms devised by providers who profess to understand quality and outcomes. U.S. health care spending is on target to consume 20% of the national gross domestic product, which is the largest of any nation. Despite the U.S. having the highest per capita spending on health care, Americans are no healthier than the citizens of other developed countries, at least based on commonly accepted metrics of well-being.

Ignorance about costs leads to pricing inconsistency, which reflects the fact that, in many cases, neither the hospital nor the consumer, and in some cases, not even the surgeon, may know what a treatment such as TKR truly costs. Indeed, studies have shown wide variations in the costs for TKR in different regions of the United States, even though the procedure is now virtually standardized in terms of the steps needed to execute it and the expected outcomes.

Encouraged by its successful cost-identification exercise for TKR, the Wisconsin hospital has turned its attention to other cost centers, such as laboratory services, to drive its expenditures down. Savings attained from cost-cutting efforts means more money for investment in new equipment, construction, acquisitions and subsidizing health care that loses money, at least for non-profit hospitals. Discounted hospital charges can also gain new business from large employers who may be puzzled at why it has taken health care delivery systems so long to come to grips with their underlying cost structures.

Cost fluctuations

The WSJ followed up its April 2018 article on TKR with one in November 2018, which reported that a committee of the New York City Council was investigating wide variations in the costs of common medical treatments, including TKR, within the city. Labor union members were concerned that increasing health care costs were affecting pay raises and other benefits. They demanded transparency so their members could make informed choices. Local 32BJ of the Service Employees International Union, one of the city’s largest unions, said it would present its member claims data to the New York City Council. The union, like other employers and similar professional groups, is self-insured, and thus is exposed to health care costs. Its investigation showed marked differences in the cost of the same operation from one New York hospital to the next.

PAGE BREAK

The Greater New York Hospital Association offered up the defense that the New York City region is highly competitive, and that hospitals are at an economic disadvantage in negotiating with insurers. If city council wanted New York hospitals to justify their pricing, the Association suggested the city council should also demand insurance companies justify their earnings. Cost variations, according to the association, were related to complexities of pricing that necessitated variations in negotiations, insurers and other factors, such that even different patients using the same hospital might be charged differently for the same operation.

Walmart experience

At least one major, self-insured employer that provides health care benefits that cover more than 1 million employees has taken matters into its own hands. The WSJ reported in November 2018 that Walmart had encouraged its employees to have spine surgery at selected, high-quality hospital systems. Walmart offered to pay for surgery and travel for those employees who agreed to Walmart’s choice of provider. Since 2013, Walmart had been recommending that its employees obtain care at selected destination hospitals for common operations that involve the spine, knee, hip and other areas of the body.

Some Walmart employees traveled outside their local area for spine surgery while others chose to have their spine operations done by local surgeons. With several years of data available to compare costs between the two groups, Walmart found employees who traveled to designated high-quality medical centers were costing the company about half as much as those whose spine operations were performed by local surgeons, at local hospitals. The underlying reason for the cost difference, as Walmart discovered, was that about half of the patients who traveled to high-quality health centers ended up not needing the recommended spine operation after all. They got better through nonoperative means.

To control costs resulting from unnecessary surgery, according to the WSJ report, starting in 2019 Walmart will require its employees to travel for spine operations to its designated hospitals and providers. As an additional step, Walmart will cut reimbursements to local surgeons for the same operations to half the amount that it was paying previously. The Walmart experience is likely to be copied by other large payer groups; the WSJ reported that North Carolina is negotiating with selected hospitals and physicians to lower health care costs for its state employees, and General Motors Company struck a discounted deal with a single hospital system in Detroit for its salaried employees.

PAGE BREAK

Medical necessity claims

The Walmart experience shows that a major employer with a self-insured health plan now has the data to distinguish between different cost models, at least for spine operations. Since the employer could identify those spine operations that were truly indicated vs. those that were not, it used cost data as a blunt tool to discourage unnecessary surgery, such as by steering employees toward selected low-cost centers, and cutting payments to the centers and providers that were associated with higher cost surgery. Essentially, Walmart used its cost data as a proxy for the necessity of a procedure and it relied on peer physicians to determine the medical necessity of a spine operation.

Similar to Walmart’s reliance on peer determination of medical necessity, the criminal prosecution of a cardiologist in McLean v U.S., 2013, a federal appellate case, also relied on peer testimony to determine whether cardiac stents were truly necessary. Initial hospital disciplinary action began after internal peer review showed Dr. McLean was performing inappropriate stent procedures. The federal government then successfully brought criminal charges related to improper Medicare, Medicaid and private insurer billing. While the conviction was related to factors that probably inflamed the jury, such as the document shredding done by the defendant, the ruling is significant in that the government relied on peer testimony to support a criminal conviction, rather than a bright-line criminal statute. In civil cases related to medical negligence claims, the lack of medical necessity of a procedure can similarly color the claim, making it more difficult to defend the alleged medical error.

As cost pressures in the health care system continue to be addressed by targeting and examining specific high-volume and high-cost operations, physicians and medical centers can take the following steps to protect themselves:

  • Keep accurate and complete records of the necessity, ie, medical indications for a procedure. More importantly, document the medical decision-making in terms of why an operation is needed, and the alternatives that were considered and discussed with the patient;
  • Avoid the cut-and-paste functions and standard templates for operative notes. These features save time, but may also give the appearance of fraud by cloned documentation or over-documentation; and
  • ASCs and clinics should have a compliance program in place and use it to periodically audit medical services provided in terms of medical necessity and the proper documentation of such necessity.

The increased transparency and optics related to health care scrutiny, and public awareness of costs, will demand no less going forward.

Disclosures: Bal and Brenner report no relevant financial disclosures.