The 2009 Proposed Rule for Prospective ESRD Payment: Historical Perspectives and Public Policies—Bundle Up!

Medicare and the ESRD Program 

Maintenance hemodialysis therapy was introduced in the United States in 1960. Since this time, the nation has labored with how to pay for it. The major political development in financing dialysis therapy came in 1972 when, in a late compromise, a bill that expanded Medicare coverage to the disabled identified individuals with chronic kidney failure as “disabled for the purposes of coverage under parts A and B of Medicare.”9, 10 Medicare struggled with reimbursing dialysis even at the outset, as hemodialysis costs far exceeded informally stated expectations of $75 million in the first year and a total of $250 million in the initial 4 years of the program.10 In 1983, Medicare implemented a new mechanism for payment that eventually had 2 components: a composite rate and a separately billable rate. The composite rate set a fixed price for reimbursement of routine dialysis services into a single payment of approximately $130 per session.11 The equivalent reimbursement rate in today's dollars, adjusted for inflation, would be over $1,310 per treatment. The current average per session composite rate reimbursement remains near 1983 levels and is 11% lower than average facility costs.12 The separately billable rate covers items that became available after 1983, including certain drugs, laboratory measures, and supplies; by 2005, separately billable items accounted for 40% of facility payments. This cost pressure has led to both increased efficiencies in deliveries as well as development of other revenue sources; most notable among these alternative revenue sources are the separately billable injectable medications.

Economics of Erythropoiesis-Stimulating Agents and Other Injectable Medications 

An early challenge confronting ESRD reimbursement was the development of recombinant human erythropoietin (EPO). In 1989, following the US Food and Drug Administration approval of epoetin alfa for use in hemodialysis patients to reduce the need for blood transfusions, Medicare began reimbursing dialysis providers for EPO administered in dialysis facilities. EPO had an immediate effect, reducing transfusions and improving quality of life for ESRD patients.13, 14, 15 Medicare's initial policy reimbursed EPO outside of the composite rate at $40 per dose (equivalent to the wholesale price for 4,000 units) with a $30 additional payment for any dose of greater than or equal to 10,000 units.16 This initial policy resulted in lower than anticipated EPO utilization, particularly by the for-profit providers.17 Accordingly, the policy was updated effective January 1, 1991 to set the reimbursement rate for EPO at $11 per 1,000 units and revised again in 1994 to $10 per 1,000 units.12

Over the next decade, the use of EPO by US dialysis providers changed dramatically, with the average dose per administration more than doubling from 1991 to 2004 (Fig 2).18 By 2004, the pattern had reversed, with for-profit providers using substantially more EPO than not-for-profit providers.19, 20 In 2004, consistent with rising utilization, erythropoiesis-stimulating agents were Medicare's largest single pharmaceutical expense, at approximately $2 billion.21 For most dialysis providers, this reimbursement level exceeded acquisition costs. In 2003, EPO acquisition costs were on average 12% lower than Medicare reimbursement at the 4 largest dialysis providers (Fresenius, DaVita, Gambro [now part of DaVita], and Renal Care Group [now part of Fresenius]), while costs were 5% lower than the Medicare reimbursement at a random sample of smaller providers.22 This margin was attributed to utilization of overfill (whereby there is often slightly more EPO in a vial than stated) and rebates and discounts for high-volume purchasing (most notable at the LDOs).22

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Figure 2. Mean erythropoietin dose per administration during the initial 6 months of each year, 1991-2006. Source: General Accounting Office.18

Since 1983, other injectable medications have also been reimbursed outside the composite rate and, to a varying degree, may represent opportunities for profit to dialysis providers. The most commonly utilized injectable medications are included in Box 1. In 2005, EPO, paricalcitol, and iron sucrose accounted for 70.0%, 11.4%, and 5.3%, respectively, of charges for separately billable medications to Medicare.18

The Federal Mandate to Bundle ESRD Payments 

Recognizing that the reimbursement system for EPO and other injectable medications provided an incentive to overprescribe, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 directed the Department of Health and Human Services to investigate a more inclusive dialysis bundle.23 In February 2008, the Secretary of Health and Human Services released a report to Congress on a design for a bundled ESRD prospective payment system (PPS), as required in the MMA.24 This report formed the basis of the legislation regarding bundled payment that was contained in MIPPA, the Medicare Improvements for Patients and Providers Act of 2008.2 MIPPA mandated substantial changes to the payment method for outpatient dialysis through expanding the payment bundle for renal dialysis services to include drugs, laboratory services, and other commonly furnished items for which providers currently receive separate payment under Medicare Part B; additionally, MIPPA stated that payment will be linked to quality measures.2

The Current System and the Proposed Expanded Bundle 

Currently, Medicare payment to ESRD facilities for outpatient maintenance dialysis services furnished to Medicare beneficiaries with ESRD is based on the basic case-mix adjusted composite payment system with additional reimbursement for separately billable items. Dialysis units bill Medicare Part B for the composite rate and separately billable items, while individual patients are responsible for obtaining oral medications and managing their Medicare Part D benefits. The base composite rate covers the costs of the dialysis treatment as well as certain routine drugs like heparin, standard laboratory tests, and supplies furnished at home or in a facility. The primary modifiers of the basic composite payment include a limited case-mix adjustment that accounts for age and body size as well as a special adjustment for children.

MIPPA mandated replacement of the current basic case-mix adjusted composite payment system with an expanded ESRD bundle, the ESRD PPS. The expanded bundle will be phased in over a 4-year period, beginning on January 1, 2011, and amends existing federal regulation of dialysis services and the ESRD program as delineated in section 1881 of the Social Security Act.25 This update to the Social Security Act mandates that “renal dialysis services” are reimbursed using a single payment system to the dialysis provider/facility and additionally mandates a 2% overall cut to payment beginning in 2011. In 2009, the Social Security Act defined “renal dialysis services” as25:

(i) Items and services included in the composite rate for renal dialysis services as of December 31, 2010; (ii) Erythropoiesis stimulating agents and any oral form of such agents that are furnished to individuals for the treatment of end stage renal disease; (iii) Other drugs and biologicals that are furnished to individuals for the treatment of end stage renal disease and for which payment was (previously) made separately under this title, and any oral equivalent form of such drug or biological; and (iv) Diagnostic laboratory tests and other items and services (not described in clause (i) above) that are furnished to individuals for the treatment of end stage renal disease.

For the currently proposed bundle, this legislative code was broadly interpreted by CMS to include all drugs and biological agents furnished to ESRD patients either in the dialysis unit or for treatment of sequelae of ESRD. These agents include not only the erythropoiesis-stimulating agents, but also both intravenous and oral preparations currently used to treat the common sequelae of chronic kidney disease (Box 1). In its current form, the PPS does not discriminate between use of a medication for treatment of ESRD versus use of a medication in the dialysis unit for other purposes. In addition, all laboratory testing either performed in the dialysis unit or performed outside of the dialysis facility but ordered by a dialysis physician was classified as being “for the treatment of end stage renal disease.”3

Potential Advantages and Disadvantages of the Proposed PPS 

Some issues of concern with the PPS include the ordering of laboratory tests, the inclusion of certain drugs, and the change in home dialysis payments. Others include the changes to the beneficiary deductible and coinsurance, the impact of patient-level and facility-level adjusters, payment for pediatric dialysis, and the need for implementation of new administrative mechanisms. Potential advantages and disadvantages associated with each of these changes are discussed at length in many of the editorials in this series. In the remainder of this introductory editorial, we will summarize several of these issues.

Conclusions 

Establishment of a new model for health care reimbursement is a massive undertaking, and the forthcoming dialysis experience may provide the lessons necessary to implement a more widespread, federally-funded capitated payment policy throughout the US health care system. However, dialysis is also a unique segment within US health care, where the absence of availability of care is associated with certain death, while provision of care is often associated with reasonable quality of life. As with any system that has remained largely unchanged in its reimbursement structure for 37 years, technological advances will eventually demand administrative changes, and these changes are associated with both inherent opportunities and risks. This introductory editorial, along with the following 5 editorials from the dialysis community, explores the potential effects of the proposed changes in CMS policy on provision of dialysis care. Every party recognizes that there are challenges associated with the system that exists today but that there are also opportunities for improvement. While each perspective in this series is unique, each also shares the trepidation associated with change and uncertainty, and a concern that we will no longer be able to provide the best possible care.

Responses to the PPS have been submitted, and CMS will consider many of these advantages and disadvantages as they craft their final version of the proposed rule. The points made above and in the accompanying editorials only touch on some of the remarkable issues that have arisen from the proposed payment system for ESRD care, all of which will require both hard work and innovation to practically implement. We hope that the commentary contained within this series assists with the upcoming debate and helps to create the best possible system to provide dialysis care.