This article is the first in a series to examine the potential effects of the federal government’s proposal to reimburse dialysis providers using bundled payments.

The Centers for Medicare and Medicaid Services (CMS), the Government Accountability Office (GAO), and the Medicare Payment Advisory Commission (MedPAC) agree that expanding the scope of services included in dialysis payments would improve efficiency and clinical flexibility.

When Congress passed the Medical Modernization Act of 2003 (MMA), it required CMS to design a system to eliminate separate payments for injectable drugs and bundle these with dialysis services under a single rate.

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The impact of this change is huge because the majority of dialysis patients have Medicare or Medicaid as their primary insurance. With bundling, everyone involved in nephrology care will witness the largest single change in the basic structure of dialysis payment since 1972 when Congress first enacted legislation to finance end-stage renal disease (ESRD) care 

Critics maintain that the CMS dialysis payment system is outdated and needs to be modernized. The system initially was developed using Medicare cost reporting data from 1977-1979 and payment rates have never been rebased or recalibrated to reflect more recent cost data. Updates for inflation have literally required Congressional action.

Currently, payment represents a mix of prospective payment and fee-for-service rules. The prospective payment component is for the routine costs of supplies, equipment, personnel, some laboratory tests, and drugs necessary for conducting the dialysis procedure. This is referred to as the “composite rate.”

The fee-for-service component is for injectable medications, and is referred to as “separately billable services.” The most common of these injectables include Vitamin D analogs, erythropoietin, and iron. 

It is understandable why the federal government wants to move to a bundled payment for dialysis as early as 2011. There has not yet been a dollar amount proposed for the bundle, but the revised payment system will need to be budget neutral.

In 2006, the base combined per-treatment reimbursement rate (both the composite rate and separately billable services) was $234.66. It is unclear what the bundled amount will be. The proposed rate as well as the case-mix adjustment and additional details are scheduled for release this summer.

Congress’ interest in establishing a bundled payment for all outpatient ESRD services is best explained by overall costs. In 2005, the composite payment rate accounted for 60% of the $7.9 billion in CMS spending for outpatient ESRD services; the remaining 40% ($3.1 billion) represents payment for separately billable services.

Congress has twice required the Secretary of Health and Human Services to submit studies on bundling additional services into dialysis composite rates. Aside from creating a single comprehensive payment for all services included in the bundle, an expanded bundle for ESRD would  have several objectives that  the involved federal agencies believe need to be “corrected.”

These objectives include eliminating what are believed to be incentives to overuse profitable, separately billable drugs, providing larger payments to ESRD facilities with more costly patients by using case-mix adjustments, and creating incentives for efficiency. Some government officials argue this new approach could increase desirable clinical outcomes. 

Outpatient ESRD services are furnished by a variety of providers. A bundle that includes the dialysis procedure, routine labs, separately billable injectable drugs, and non-routine laboratory tests managed by the facility would capture a significant portion of outpatient ESRD care.

This does not include the full range of care required by ESRD patients that extends far beyond the scope of care provided in a dialysis facility. Physician services, vascular access clinics, inpatient care, and non-dialysis outpatient facilities are excluded from the proposed bundled services for now. The items being considered for inclusion in the bundle include the following

  • Composite rate services
  • ESRD-related, separately billable injectable drugs
  • Laboratory tests used in furnishing dialysis services that are currently not included in the composite rate
  • Other dialysis-related services such as supplies and blood product
  • Certain oral medications that substitute for injectable drugs commonly used in ESRD patients

Bundled payments would be made to the dialysis facility. In cases where non-composite laboratory tests are ordered by the physician, obtained by the dialysis facility, and performed by an independent laboratory, the dialysis facility would need to pay the independent laboratory.

In the government’s view, this would reduce administrative costs by eliminating the need for a separate submission process for fee-for-service drug and laboratory claims. It is also clear that the facility assumes the risk. If the total cost is lower that the payment, the facility makes a profit, but if the cost exceeds the amount of payment, the facility bears the loss.

This represents a major change in the existing business model of dialysis facilities. Even though most of the details are not available for review, many fundamental questions can be posed about bundled payments that require planning and discussion.

Over the nest few months, Renal and Urology News will explore some of the possible effects. Contributors will discuss how the bundle will impact large and small dialysis operations as well as hospital-based facilities, with a focus on the possible new importance of home-based dialysis treatments.

Dr. Pulliam is Vice President of Medical Affairs for Home Therapies at Fresenius Medical Care.