Medicare payments for outpatient dialysis

Today I will review how Medicare treats patients with end-stage renal disease (ESRD), relying largely on data from MedPAC’s 2011 Report to Congress.

In 2009, about 340,000 dialysis beneficiaries were covered by fee-for-service (FFS) Medicare. Compared with all Medicare beneficiaries, dialysis FFS beneficiaries are disproportionately younger and African American. Ninety two percent of there beneficiaries receive dialysis in freestanding facilities.  The two largest dialysis organizations provide the majority of care to Medicare beneficiaries.

Although most dialysis patients are Medicare covered, (95%) Medicare is the secondary payer for about one-quarter of new dialysis patients who are insured by an employer group health plan (EGHP) at the time they are diagnosed with ESRD. If an EGHP covers a beneficiary at the time of ESRD diagnosis, it is the primary payer for the first 33 months of care (as long as the individual maintains the EGHP coverage).

In 2009, Medicare spending for dialysis services, including dialysis drugs, totaled about $9.2 billion, an increase of 7 percent compared with 2008. These expenditures averaged about $27,000 per beneficiary.

Medicare reimbursement

Since 1983, Medicare pays dialysis facilities a predetermined payment for each dialysis treatment they furnish. Under the prospective payment—the composite rate—Medicare covers the cost of some (but not all) services associated with a single dialysis treatment, including nursing, dietary counseling and other clinical services, dialysis equipment and supplies, social services, and certain laboratory tests and drugs. In addition, Medicare pays separately for certain drugs and laboratory tests that have become a routine part of care since 1983.

Since 2005, Medicare has paid providers an add-on payment to the composite rate. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) created this add-on payment by shifting some of the payments previously associated with separately billable dialysis drugs to the composite rate (through the add-on payment) and mandated that these changes occur in a budget-neutral manner.

Pursuant to the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), CMS will phase in a modernized prospective payment system (PPS) that broadens the dialysis payment bundle beginning in 2011 and implements a quality incentive program (QIP) in 2012. The QIP includes two quality measures for anemia management and one for hemodialysis adequacy.

Beginning in 2011, the dialysis payment bundle is expanded to include:

  • composite rate services,
  • Part B injectable dialysis drugs furnished by the facility and their oral equivalents paid for under Part D,
  • 53 ESRD-related laboratory services,
  • Part B separately billable equipment and supplies furnished by the facility,
  • selected ESRD-related oral-only Part D drugs, and
  • self-dialysis training services.

The new PPS augments the current beneficiary-level adjusters used for adults—age and body mass—by including the presence of three acute and three chronic comorbidities and onset of dialysis for the first four months of dialysis treatment.  There are also facility level adjustments for low-volume facilities and regional variation in labor costs (i.e., the wage index used in the hospital IPPS setting).

Dialysis Facility Ownership and Relationships with Physicians

Some dialysis facilities are physician-owned.  Other dialysis organizations have structured financial relationships with providers.  For instance, one of the large dialysis chains reported in its public annual filing with the U.S. Securities and Exchange Commission include the following:

  • The chain enters into compensation arrangements with physicians, including medical director agreements.
  • Some of the chain’s facilities are leased from entities in which referring physicians hold interests.
  • Some facilities sublease space to referring physicians.
  • Some of the chain’s referring physicians own equity interests in companies that operate their dialysis facilities (DaVita Inc. 2010a).

1 Comment

  1. Hi

    Your article is interesting and particularly informative on the complex reimbursement scenario for dialysis. I am currently doing a research study on the dialysis services market and I shall be obliged if you could schedule a telephonic conversation with me and clarify my understanding of the market on several grounds.

    Thank you

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