Can You Afford A Femtosecond Laser? Stephen C. Sheppard, CPA, COE Managing Principal Medical Consulting Group, LLC Kevin J. Corcoran, COE, CPC, CPMA, FNAO President, Corcoran Consulting Group Founder, Corcoran Compliance Connection

FS Laser Guidance • January 2012 ASCRS/AAO joint guidance • Providers may not “balance bill” a Medicare patient or his or her secondary insurer for any additional fees to perform covered components of cataract surgery with an FS laser. • The patient must be informed about, and consent to, the additional out-of pocket-costs in advance. • A refractive lens exchange is not medically necessary and therefore is not covered

Financial Disclosures • Stephen C. Sheppard, CPA, COE is a Managing Principal of Medical Consulting Group, LLC. He acknowledges a financial interest in the subject matter of this presentation. • Kevin J. Corcoran is president of Corcoran Consulting Group and founder of Corcoran Compliance Connection, LLC. He acknowledges a financial interest in the subject matter of this presentation.

FS Laser Guidance • A surgeon may use the FS laser for the cataract surgery, but neither the surgeon nor the facility may obtain additional reimbursement from either Medicare or the patient over and above the Medicare-allowable amount. • Neither the surgeon nor the facility should use the differential charge allowed for implantation of a premium refractive IOL to recover all or a portion of the costs of using the FS laser for cataract surgical steps.

Source: ASCRS/AAO Guidance

FS Laser Guidance

FS Laser Guidance

• Patient-shared pricing with one cost for a premium IOL, and a higher cost for the additional use of the FS laser to perform the cataract surgical steps, should not be offered. • Medicare patients may be charged a fee for performing astigmatic keratotomy, assuming that they were informed about, and consented to, the non-covered charges in advance.

• Because astigmatic keratotomy for refractive indications is a non-covered service, a higher fee can be charged for performing it using the FS laser, instead of with a metal or diamond blade. • While most astigmatism treatment is not covered, Medicare does cover the treatment of large degrees of astigmatism that were the result of previous ocular surgery. Local coverage determinations may apply.

FS Laser Guidance

Simple Language

• Advertising: Promotional claims must be consistent with the best available clinical evidence and should not be deceptive or misleading to patients. • Transparency: Patient-shared pricing should be discussed openly with the patient. Increased charges should be explained and documented.

• • • •

Laser-Assisted Cataract Surgery and CMS Rulings 05-01 and 1536-R

Laser-Assisted Cataract Surgery and CMS Rulings (cont.)

Medicare coverage and payment for cataract surgery is the same irrespective of whether the surgery is performed using conventional surgical techniques or a bladeless, computer controlled laser. Under either method, Medicare will cover and pay for the cataract removal and insertion of a conventional intraocular lens. If the bladeless, computer controlled laser cataract surgery includes implantation of a PC-IOL or AC-IOL, only charges for those non-covered services specified above may be charged to the beneficiary.

These charges could possibly include charges for additional services, such as imaging, necessary to implant a PC-IOL or an AC-IOL but that are not performed when a conventional IOL is implanted. Performance of such additional services by a physician on a limited and non-routine basis in conventional IOL cataract surgery would not disqualify such services as non-covered services. This guidance does not apply to the use of technology for refractive keratoplasty.

Approaches to CMS Guidance • BEST: Charge patient for use of the FS laser for arcuate incisions to correct pre-existing regular astigmatism, which is not covered, for any type of IOL. • INSUFFICIENT: Charge patient for use of the imaging element of FS laser to plan for ATIOL, which is not covered (assuming it is not used routinely with conventional IOLs). • TROUBLESOME: Charge patient with a conventional IOL without astigmatism for use of the FS laser for arcuate corneal incisions “just in case” they later develop astigmatism. • AVOID: Patient charges without a rational basis that are not defensible, or may be misleading.

Laser-assisted cataract surgery Precise Refractive surgery Reduced dependence on glasses and/or CLs

Key Considerations • • • • • •

Define covered and noncovered items and services Charges are proportional to products and services Charges must be fair and reasonable Document financial responsibility Separate physician and facility Use caution with co-management

Patient Understanding Key

Charges for Non-covered Services Need To Be Defensible

• While payment for non-covered services is the beneficiary’s responsibility, Medicare Law (§1879) contains a provision that waives that liability if the beneficiary is not likely to know and did not have a reason to know that the services would not be covered.

“…(for non-covered services) the physician’s charge to the patient is not limited to the Medicare physician fee schedule. Nevertheless, the physician must be able to justify the charge to the patient. If the patient is charged for a series of diagnostic tests, the charge for those tests must be defensible. One way to assess the propriety of the charge is whether they are consistent with what the physician would otherwise charge a self-pay patient for the same services.” Source: Arnold & Porter Legal Opinion

Logic of Professional Fee 1. 2. 3. 4. 5. 6.

List of tasks appropriate for the patient’s needs Include contingency for enhancements Frequency of task(s) based on protocol, experience Assign usual and customary charge Calculate weighted average for each task Sum for global fee

Where do you start determining a price? • • •

Analyze your internal costs (equipment, patient interface, etc.) Consider non-covered, additional diagnostic tests involved in refractive treatment = FMR Goal = package service

Surgical Correction of Astigmatism • Non-covered professional services • • • • • • • •

Refraction to determine refractive error Corneal topography for regular astigmatism Contact lens trial fitting to assess refractive error Intraoperative wavefront aberrometry (ORA) Corneal pachymetry associated with refractive surgery Marking the eye for axis of toric IOL Femtosecond laser to make arcuate corneal incisions Enhancement (i.e., AK, LRI, CRI, PRK, LASIK)

Why Acquire an FS Laser? 1. Our practice embraces new technology 2. It’s a good story for our referral base 3. We could lose market share without it

For every complex problem, there is a solution that is simple, clear and….wrong!

Where do we start this discussion? • • • •

Identify key assumptions Do the math Qualitative considerations Make a decision…or not

Key Assumptions • How many laser procedures will you perform? • How many laser procedures will generate revenue? • What is your penetration rate for: • Astigmatism-correcting IOLs? • Presbyopia-correcting IOLs? • LRIs? • Will the FS laser increase your penetration rate?

Key Assumptions • What are the total costs of the laser? • Purchase of the laser • Patient interface • Annual maintenance costs • Other operating and financing expenses • Which entity will pay these costs? ASC? Practice? Other? • Are there potential partners to mitigate some of the risk?

Qualitative Considerations • Is the FS laser a marketing tool? • Can we market competently? • Are we good at integrating new technologies? • Are we assuming new professional liabilities? • What if the manufacturer offers to bundle the FS laser with other products? • What is our exposure to the changing CMS landscape and/or the PPACA? • Is RORO a better option for our practice?

Excel Worksheets • See appendix

Can We Afford A FS Laser? • Is this the right time to commit? • Should we wait for new lasers or business models? • What is the rush?

More help… For additional assistance or confidential consultation, please contact us at:

Stephen C. Sheppard – (417) 889-2040 [email protected] Kevin J. Corcoran – (800) 399-6565 www.CorcoranCCG.com

APPENDIX

Analysis of cash flow - Owners: Income before taxes Add depreciation Less- prinicipal (equipment) Cash flow from operations

Technician Labor (per hour) Minutes per Case Interface - Lens Case Interface - LRI Supplies Total variable costs Total operating expenses EBITDA Depreciation and amortization (in years) Interest Expense Income before income taxes

Expenses: Maintenance Fee Insurance on Equipment Total fixed costs

Revenues: Revenues:- Facility Fee for Laser Refractive Lens Procedures Fee for Limbal Relaxing Incisions

Limbal Relaxing Incisions - Facility Conversion Rate to Laser

Procedures: Refractive Lens Procedures- Facility Conversion Rate to Laser Total laser procedures: Facility

$ $ $

$

$ $

30 30 325 125 25

620 620

2,000

Current

$

$

$

$

92,775 70,000 (111,182) 51,593

81,250 31,250 12,500 132,500 133,000 177,000 (70,000) (14,225) 92,775

7,500

500 500

155,000 155,000 310,000

12.5% 250

2,000 12.5% 250

2014

26.2% 10.1% 4.0% 42.7% 42.9% 57.1% -22.6% -4.6% 29.9%

2.4%

0.0% 0.2% 0.2%

0.0%

17,449 112,000 (116,579) 12,869

84,175 32,344 12,944 137,229 182,729 138,276 (112,000) (8,828) 17,449

7,766

45,000 500 45,500

160,580 160,425 321,005

12.5% 259

2,070 12.5% 259

2015

26.2% 10.1% 4.0% 42.7% 56.9% 43.1% -34.9% -2.7% 5.4%

2.4%

14.0% 0.2% 14.2%

3.5%

77,492 67,200 (122,239) 22,453

87,100 33,476 13,395 142,008 187,508 144,692 (67,200) 77,492

8,037

45,000 500 45,500

166,160 166,040 332,200

12.5% 268

2,142 12.5% 268

2016

26.2% 10.1% 4.0% 42.7% 56.4% 43.6% -20.2% 0.0% 23.3%

2.4%

13.5% 0.2% 13.7%

3.5%

OPHTHALMIC ASC, LLC Femtosecond Laser Economic Proforma and Sensitivity Analysis Years One Through Five Of Operations

110,932 40,320 151,252

90,025 34,647 13,854 146,840 192,340 151,252 (40,320) 110,932

8,313

45,000 500 45,500

171,740 171,851 343,591

12.5% 277

2,217 12.5% 277

2017

26.2% 10.1% 4.0% 42.7% 56.0% 44.0% -11.7% 0.0% 32.3%

2.4%

13.1% 0.1% 13.2%

3.5%

117,896 40,320 158,216

93,275 35,860 14,347 152,090 197,590 158,216 (40,320) 117,896

8,608

45,000 500 45,500

177,940 177,866 355,806

12.5% 287

2,295 12.5% 287

2018

26.2% 10.1% 4.0% 42.7% 55.5% 44.5% -11.3% 0.0% 33.1%

2.4%

12.6% 0.1% 12.8%

3.5%

EQUIPMENT LOAN AMORTIZATION Years One through Five of Operations

Equipment Purchased Less: Partners' Capital Equipment Loan Amount

$ 0.00% $

Equipment Loan Rate Loan Term In Years Additional Principal Monthly Payment

$

AMORTIZATION TABLE

1 1 1 1 1 1 1 1 1 1 1 1

Month 1 2 3 4 5 6 7 8 9 10 11 12

2 2 2 2 2 2 2 2 2 2 2 2

1 2 3 4 5 6 7 8 9 10 11 12

Year

Year One Totals

Year Two Totals

350,000 350,000 4.75% 3 Quarterly $10,451

Beginning Balance $ 350,000 340,935 331,834 322,697 313,524 304,314 295,068 285,785 276,466 267,110 257,717 248,286 $ 350,000 $

$

238,818 229,313 219,770 210,190 200,571 190,914 181,219 171,486 161,714 151,904 142,055 132,166 238,818

Principal 9,065 9,101 9,137 9,173 9,210 9,246 9,283 9,319 9,356 9,393 9,430 9,468 111,182

Interest 1,385 1,350 1,314 1,277 1,241 1,205 1,168 1,131 1,094 1,057 1,020 983 14,225

9,505 9,543 9,581 9,619 9,657 9,695 9,733 9,772 9,810 9,849 9,888 9,927 116,579

945 908 870 832 794 756 717 679 640 601 562 523 8,828

Additional Principal -

Ending Balance 340,935 331,834 322,697 313,524 304,314 295,068 285,785 276,466 267,110 257,717 248,286 238,818 238,818 229,313 219,770 210,190 200,571 190,914 181,219 171,486 161,714 151,904 142,055 132,166 122,239 122,239

Years One through Five of Operations

3 3 3 3 3 3 3 3 3 3 3 3

1 2 3 4 5 6 7 8 9 10 11 12

Year Three Totals

$ 4 4 4 4 4 4 4 4 4 4 4 4

1 2 3 4 5 6 7 8 9 10 11 12

Year Four Totals

$

$ 5 5 5 5 5 5 5 5 5 5 5 5

Year Five Totals

$

1 2 3 4 5 6 7 8 9 10 11 12

$

$

122,239 112,272 102,266 92,220 82,135 72,009 61,844 51,638 41,392 31,105 20,778 10,409 122,239

9,967 10,006 10,046 10,086 10,125 10,166 10,206 10,246 10,287 10,327 10,368 10,409 122,239

484 444 405 365 325 285 245 204 164 123 82 41 3,168

-

112,272 102,266 92,220 82,135 72,009 61,844 51,638 41,392 31,105 20,778 10,409 -

-

-

-

-

-

-

-

-

-

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Medical Consulting Group, LLC 4/9/2014