June 14, 2013

California lawmakers tussled over payments for spinal implants

Lifting boxes. Pushing machinery. Falls from ladders and scaffolding.

Lifting boxes. Pushing machinery. Falls from ladders and scaffolding.

Each year, thousands of Californians hurt themselves on the job and end up with back surgery – a small but expensive piece of the state's workers' compensation system.

The vast majority of California workers with injured backbones wind up with spinal implants – some 71 percent of them in 2010, research shows.

Political controversy has brewed in the Capitol for more than a decade over the procedure:

Are implants the best treatment for all those injured construction workers, factory workers and farm workers?

Or did California create an unjust incentive when it agreed 10 years ago to pay hospitals extra for putting medical hardware in workers' spines?

The questions have taken on new interest following federal authorities' raid on a Southern California hospital that specializes in spinal surgery for workers' comp patients.

Pacific Hospital of Long Beach was searched by the FBI in April. The hospital has had ties to former Assemblyman Tom Calderon, who the FBI sought to contact last week – on the same day they raided the Capitol offices of his brother, Sen. Ron Calderon.

Authorities have not said whether there is any connection between their searches at the hospital and the Capitol. Lawyers for Tom Calderon and Ron Calderon have not returned calls from The Bee this week.

But this much is certain: California lawmakers have been wrestling for more than 10 years with the question of how much money medical businesses can make for performing spinal implant surgery on workers' comp patients.

Most of the workers' compensation claims for spine disorders come from those who toil in construction, manufacturing, mercantile and clerical services, according to research by the California Workers' Compensation Institute. People who work at farms, restaurants and hospitals also make up a big portion of workers' comp spine patients.

John Wilson, 53, said he has endured two spinal injuries on the job. The first one happened in 1989, he said, when he was hit by a forklift inside a Los Angeles warehouse.

Fourteen years later, while working for a boat dealership in San Bernardino, Wilson said he hurt his back again as he was moving a boat off the back of a truck.

"That incident right then put me to the ground," he said. "I could barely get up."

Doctors told Wilson he would need surgery, he said, and implanted titanium hardware in his back in 2004.

Today, Wilson's back still hurts; sometimes his leg goes numb.

He wonders whether he would have been better off with another procedure. Still, he's back at work driving a truck.

Just the year before his surgery, lawmakers in Sacramento had passed a bill that made sweeping reforms to the state's workers' compensation system.

Tucked into the 56-page law carried by then-Sen. Richard Alarcón, was a paragraph allowing hospitals performing spinal surgery on workers' comp patients to bill insurance plans an additional fee for "implantable medical devices, hardware, and instrumentation." Wilson said he doesn't know if the hospital that did his surgery billed insurance an extra fee for implanting the hardware. The treatment was free to him.

Hospitals had argued that the reimbursement for performing surgery wasn't enough to cover the cost of buying spinal implants necessary to repair some back injuries.

"We had a number of hospitals cancel surgeries because they were losing money on them," said Jan Emerson-Shea, a vice president for the California Hospital Association.

Hospitals lobbied lawmakers to allow them to bill insurance plans the extra amount for implanting hardware in the spines of injured workers. Over the next two years, legislative analyses say, the incidence of spinal surgery involving implants went up.

The same year the Alarcón bill passed, Tom Calderon was working for a group of surgery centers that specialize in treating workers' compensation patients. As an assemblyman from 1998-2002, he had carried legislation that would have allowed them to charge unlimited fees. When he left the Legislature, the surgery centers hired him as a government relations consultant.

Libby Sanchez was a Senate staff member in 2003 who worked on drafting Alarcón's SB 228. One goal of the bill, she said, was to rein in the profits that hospitals like Calderon's clients could reap by subjecting them to a fee schedule.

"The whole purpose of that round of reforms to the workers' comp system was to reduce costs to the system and abuse to the system by providers and scofflaw entities trying to figure out how to make a lot of money gaming the system," said Sanchez, who is now a lobbyist representing labor unions.

Surgery centers opposed the fee schedule. But they benefited from a part of the bill that allowed them to increase billing for spinal implants, an extra payment bureaucrats call a "pass-through."

Over the next few years, a series of reports to state government criticized the new payment, saying it was too generous to hospitals and too costly to the insurance system for injured workers, which is paid for by employers.

"The pass-through for the cost of hardware used during complex spinal surgery is problematic and should be re-evaluated," says a 2009 report the Rand Corp. wrote for the state's Commission on Health, Safety and Workers' Compensation.

In another report later that year, Rand continued arguing against the extra payments, saying the rate hospitals bill for doing spinal surgery was sufficient to cover the cost of medical implants and provide a reasonable profit.

"Passing through (workers' compensation) device costs on top of 120 percent of the Medicare payment results in paying for the spinal hardware twice, creates incentives for unnecessary device usage and imposes unnecessary administrative burden," Rand wrote.

In 2011, state Sen. Kevin de León, D-Los Angeles, introduced a bill that would do away with the extra payment for spinal hardware, but in a way that was friendly to hospitals treating workers' comp patients. It would have replaced the extra payment for hardware with an even higher reimbursement rate for performing surgery, allowing hospitals to receive up to two times the Medicare rate – instead of the previous 120 percent.

The bill didn't get far.

The following year, research by the California Workers' Compensation Institute continued to hammer on problems with the extra payment for spinal hardware. It argued that hospitals were being overpaid for spinal hardware – to the tune of $67.5 million in 2010.

The research was done in concert with a new bill by state Sen. Ted Lieu, D-Torrance. His SB 959 sought to take away the extra payment for spinal hardware without changing other aspects of the workers' comp billing system.

Hospitals lobbied heavily against it, arguing that spinal implants can cost them $15,000 to $20,000 apiece.

"We fully understand the need for cost containment but completely eliminating the pass-through doesn't work either," said Emerson-Shea, of the hospital association. "These are very expensive, complex devices."

The hospital group's lobbyist said basing workers' comp reimbursements on Medicare rates is misleading, because the surgery doctors do on people who are still working is generally more aggressive than that provided to retirees.

"They're going to use a lot more hardware on a young active person they're trying to get back to work than they would with an elderly person on Medicare," said Amber Ott, a lobbyist and vice president of the California Hospital Association.

The hospitals lost that battle when the approach in Lieu's bill was absorbed into a larger workers' compensation bill that Gov. Jerry Brown signed last year. SB 863, authored by De León, set out to increase payments for injured workers while reducing costs for employers. It achieved the savings by limiting the profits of lawyers, doctors and other workers' comp service providers.

"We thought that doctors getting paid twice for this piece of equipment was ridiculous," said Sean McNally, who sits on the state's Commission on Health and Safety and Workers' Compensation, and represented employers' interests on the bill.

De León's measure represented a turnaround for the lawmaker, whose bill the year before would have been more beneficial to hospitals that treat injured workers. He has been subpoenaed by the U.S. attorney's office, but has not disclosed why authorities want to question him. Lieu has declined to say whether he has received a subpoena.

Pacific Hospital of Long Beach was the subject of a Wall Street Journal investigation last year that raised questions about how much it was billing California's workers' compensation system for performing spinal surgeries with implants. The newspaper said the hospital was one of the most prolific spine-fusion facilities in California, between 2001 and 2010 billing $533 million – three times as much as any other hospital.

The hospital has declined several interview requests from The Bee and will not answer questions about its relationship with Tom Calderon, who said in campaign material from his unsuccessful run for Assembly last year that he sits on its board of directors. Tom Calderon also listed the hospital as a client of his consulting business last year on a disclosure statement filed with the state.

In a brief statement, the hospital said it "has no direct knowledge of the recent scrutiny of Ron Calderon and his immediate family members."

The statement says the hospital will not answer any questions from the press, "as it remains focused – as always – on providing the highest quality medical care to its patients."

Call Laurel Rosenhall, Bee Capitol Bureau, (916) 321-1083. Follow her on Twitter @laurelrosenhall.

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