Small dialysis facilities could face financial hardship when the new federal bundling rule for end-stage renal disease (ESRD) care takes effect on January 1.
“The smaller facilities do not have the number of patients that the larger ones do to spread their costs across, so the potential impact of any reimbursement that doesn’t cover costs would be greater on them than on larger organizations,” explains Jerry Klepner, managing director of government-relations firm Prime Policy Group in Washington, D.C., and the government-relations consultant for the National Renal Administrators Association (www.NRAA.org). NRAA membership is heavily weighted toward small and medium dialysis organizations.
Klepner accompanied NRAA representatives to numerous meetings with officials of the Centers for Medicare & Medicaid Services (CMS) and Department of Health and Human Services (HHS) as well as with members of Congress to discuss overall policy issues and concerns the proposed bundling regulations. “The whole basis of the regulation is reimbursement and, in effect, how much the dialysis organizations will receive on a per-treatment basis for servicing patients,” he says.
This focus leaves nephrologists not only largely unaffected but even comfortable with the new regulations, according to nephrologist Robert J. Rubin, MD, Clinical Professor of Medicine at Georgetown University in Washington D.C. He served as a co-chair of the HHS secretary’s advisory committee on ESRD bundling.
“I think that to the degree you put a fair price on the table and then let practitioners do what’s best for patients without micromanagement on the part of the government, that’s a good thing, and that’s really the premise of bundling,” Dr. Rubin observes.
Whether “fair price” is an accurate description of the new financials remains to be seen. Today, payment for composite-rate services is about $130 to $160, plus separately-billables (drugs and the labs). On January 1, the base payment rate will be $229.63 per treatment (based on 13 dialysis sessions per month)—an increase of $30 over what CMS recommended in the proposed regulation.
“That includes all services, all labs, and all drugs except for oral drugs that do not have an IV equivalent. Those [agents] will be brought into the bundled rate by 2014,” Klepner affirms. “So whether or not the base payment rate reflects the costs for the facilities for all of those items is what has yet to be determined.”
Based on the math, however, “It is very, very possible that the base payment rate will not adequately cover costs in many facilities,” Klepner cautions. In addition to the question of whether the $229.63 itself is fair, “You also have some reductions that are reflected in the base rate: a 1% reduction to accommodate for the case-mix adjusters, the outliers; a 2% reduction for budget neutrality; a 3.1% adjustment to account for the projection of the number of facilities that would choose to move into the bundle in the first year [see “Bundling Phase-In”]. Then, when the quality program comes into place, a potential 2% reduction based upon quality.”
“I think that where the rubber hits the road in bundling is going to be for small dialysis providers,” Dr. Rubin agrees. “The statistics suggest that if these facilities have one or two patients that they’re not adequately compensated for, it could jeopardize their financial viability, and I think that’s really going to be the challenge for the non-chain-affiliated units. That’s where there may need to be some corrections in the system, to ensure that those providers can continue to operate, especially when they operate as critical providers in an area that isn’t chockablock full of dialysis units.”
Klepner said he believes that if the base payment rate proves to be substantially less than the cost of providing treatment—“and obviously, ‘substantially’ is a difficult word to define”—and many dialysis facilities close, thereby limiting patient access, it is entirely possible that CMS will indeed raise the base payment rate. “The likelihood for this within the dialysis world is potentially much greater than the likelihood in other segments of health care simply because you do not have the same extent of commercial reimbursement,” he points out. “You have less ability to cost-shift from Medicare and Medicaid to the commercial side than, say, in the hospital industry.”
Dialysis patients can qualify for Medicare coverage regardless of age. “Therefore, the percentage of revenue that most dialysis facilities receive is heavily, heavily dependent on Medicare,” Klepner notes. “Medicare and Medicaid are estimated to account for somewhere between 70% and 80% of revenue for the smaller dialysis organizations, and I’d say the overwhelming majority of that amount is Medicare reimbursement.”
This means reimbursement from outside insurance policies comprises only a small percentage of overall revenue for these centers. “Whether or not the commercial insurance companies will follow the Medicare lead with regard to the base payment rate and other factors is something that is yet to be determined,” Klepner says, “but that is a concern.”
Klepner praises CMS for making significant requested changes in the proposed rule, but also tells Renal & Urology News, “There’s a great deal of anxiety because of the unknown. What the exact impact is going to be is something that for many facilities has yet to be determined.”
According to Dr. Rubin, the basic premise of bundling is a good one, and the final rule is “definitely improved” over the proposal upon which it was based. One of the most important changes, he says, was excluding oral medications with no IV equivalent from the bundling rate until January 1, 2014, to allow time for benchmarking the appropriate utilization and financial information. “Nobody seriously believed that $14 [the CMS-proposed adjustment] was the correct price.”
One such medication is Genzyme’s Renvela (sevelamer carbonate). “We’ve always been in favor of bundling; we think that it’s ultimately is a good way to deliver health care to patients,” states Dan Regan, a senior vice president at Genzyme and the general manager of its renal business.
But he and his colleagues were concerned that the proposed rule included in the bundle oral medications with no IV equivalent. (Genzyme also manufactures products that will be subject to bundling in January.) The worries stem from the fact that oral medications currently are not dispensed in dialysis units.
“The dialysis providers are going to have to contract with prescription-delivery services or have pharmacists themselves dispense medications,” Regan explains. “All of that is possible, but will take a period of time to get right. So ultimately we were worried that the quality of care of the patient could be affected.”
Physician and patient groups had similar concerns, and joined Genzyme and other manufacturers in expressing their opposition to CMS after the proposed rule was published. “Everybody saw the inclusion of orals going into the bundle at day one as a bad idea, and the community really did a phenomenal job at having their opinion heard on this issue,” Regan recounts.
The three-year postponement appears to provide sufficient time for evaluating how best to incorporate oral medications into the bundling rate. But Regan predicts, “If we get to 2014 and the correct mechanisms are not yet in place, based on what I’ve seen so far from CMS, I think [agency officials] will stand up and say, ‘We’re not there yet,’ and maybe push it out a little further.”
Peritoneal, home dialysis
Another notable change in the final regulation was the restoration of payment for home-dialysis training. “This makes sense in that it is consistent with the incentives [CMS] wanted to put forward in the regulation to encourage people to do peritoneal and at-home dialysis,” Dr. Rubin says.
He anticipates that these financial incentives, combined with technology-based improvements, will help increase the number of patients who are dialyzed at home or peritoneally. “In appropriate patients, home dialysis can be a real boon, and peritoneal dialysis is a methodology that should grow. The problem is that trainees are just not seeing a lot of—or are just not comfortable with—peritoneal dialysis, and therefore when they go into practice they don’t use it.”
Dr. Rubin said he is hopeful that the new financial incentives of the bundling rule will reverse these tendencies.
Impact on drug development
Like Klepner and Regan, Dr. Rubin credits CMS with being highly responsive to the concerns of commenters in formulating the final rule. Nevertheless, he contends that bundling incentives in the Medicare model may be somewhat misaligned.
“Virtually any savings that bundling yields in the dialysis arena—a Medicare Part B expense—will probably be realized in the Part A sector of hospitalization,” Dr. Rubin explains. “For example, it’s well known that if you monitor fistulas carefully, you’ll reduce hospitalization. The dialysis provider and physicians really don’t get any rewards from decreasing Part A expenditures. That just accrues to the government. A situation in which the government shares that savings with a provider seems to be the way in which they can set all of the incentives appropriately. Something that ultimately allows people to get the rewards of the upside and that’s truly comprehensive would be the best way to go.”
The bundling system may also leave pharmaceutical and biotech companies incentive-challenged. “Let’s say I develop a new, revolutionary once-a-week pill that will mean patients won’t have to use as much as iron as they currently do,” Regan says. “There’s no mechanism that allows for the size of the bundle to expand so that I can bring this more expensive medication to the marketplace.”
Regan is adamant that despite this roadblock, Genzyme will continue to look for innovation. “And then we’ll look to be part of the solution. We’ll work with CMS and the community to ensure that we can bring the best medications to patients.”
The majority of nephrologists are independent contractors who receive monthly capitation payments, which are independent of the bundling process. “Those physicians will not find their compensation affected by the implementation of bundling,” Dr. Rubin says.
“But what I believe nephrologists will find going forward is that the dialysis unit will have fairly robust, evidence-based protocols for the way in which the patient is treated, and when the doctor wants to do something that falls outside of those protocols, I think the hurdles are going to be much higher than they are currently.”
The reason, he explains, is that services that are profit centers now will become cost centers, “So people will be much more diligent in making sure that physicians are practicing evidence-based medicine or can rationalize what they’re doing as better patient care.”
The fact that a number of nephrologists basically serve as the primary-care physician for many of their patients may present difficulties. “Lab tests that are ordered by the MCP [monthly capitation payment] physician will be paid out of the bundle if they are on a list published in the rule, but some tests don’t have much to do with dialysis,” Dr. Rubin explains. “So it’s unclear what behavioral effects that will have on the MCP and how efficiently the dialysis provider will get paid for them.”
Although some of these issues will be addressed in CMS’s subregulatory guidance, “We don’t really have answers to all of that yet,” Dr. Rubin says.
Klepner adds that physician groups that own dialysis facilities may choose to sell their centers rather than deal with any financial snags, with the most likely buyer being one of the large dialysis organizations. “You could see a greater consolidation within the dialysis industry as a result, and less access to care,” he warns.
As the new ESRD bundling rates take effect, nephrologists should continue to do what is best for their patients on dialysis. “I think that with any prospective-payment system there’s an incentive to undertreat, just as within any fee-for-service system there’s an incentive to overtreat,” Dr. Rubin says. “But if physicians make decisions based on evidence in the literature and longstanding practice, they’ll be just fine, and the bundling system per se won’t really affect them one way or the other.”
Small dialysis organizations, however, are likely in for a rockier ride. “This system, simply by the variability in patients and mathematical certainty, suggests that if you are a small unit, you’re going to have variability,” Dr. Rubin says. “How do you appropriately account for that variability to ensure that these smaller units remain viable when they’re important to the overall health-care system? I think that’s the true challenge of bundling.”
Highlights of Bundling Rule
- Creates a home or self-care dialysis training payment adjustment specifically directed to patients trained by facilities certified to provide home dialysis training.
- Finalizes payment adjustments for dialysis treatments furnished to adults for patient age, body surface area, and body mass index, onset of dialysis, and certain co-morbidities, but does not finalize adjustments for the patient’s sex or the patient’s race or ethnicity.
- Finalizes a payment adjustment for dialysis treatments furnished to pediatric patients, based on patient age and dialysis modality, but not co-morbidities.
- Finalizes a definition for renal dialysis services that includes ESRD-related oral-only drugs, but postpones payment for such drugs under the ESRD PPS until Jan. 1, 2014.
Source: Centers for Medicare & Medicaid Services
Although the CMS final rule on the bundling of ESRD services doesn’t take effect until January 1, 2011, dialysis operators had to decide by November 1 whether to opt into the full bundled payment system or go into transition.
“For some facilities immediately going into the bundle, the financial impact would be potentially severe and the impact on patients could be detrimental,” explains Jerry Klepner, government-relations consultant for the National Renal Administrators Association (See main story). “So the thought was to allow a transition period, which would enable the facilities to adjust to the extent that they can.”
Rather than “facing a cliff on January 1,” Klepner says, a dialysis center that determines that its reimbursement is higher under the current system than under bundling, can transition into bundling under a combined payment plan, as follows:
- Year 1: The facility will receive 25% of its payment according to the bundled rates and 75% based on current payment figures.
- Year 2: 50% bundled/50% current.
- Year 3: 75% bundled/25% current.
- Beginning January 1, 2014: 100% bundled.
NRAA has developed a “Bundling Tool” that dialysis organizations can use to determine the impact the new payment system will have on them. The computer program is available, free of charge, at https://secure.fernleyhosting.com/NRAA/NRAA-Bundling-Tool.php.