Medicaid/Medicare Supply of Medical Services

Timeline: Medicare Payment for Dialysis

Medicare spending for outpatient dialysis and injectable drugs administered during dialysis was about $9.2 billion in 2009 and is a predominant share of revenues for dialysis facilities.

According to MedPAC, “Medicare covers two methods of dialysis—hemodialysis and peritoneal dialysis. In hemodialysis, a patient’s blood is cycled through a dialysis machine, which filters out body waste. About 90 percent of all dialysis patients undergo hemodialysis three times per week in dialysis facilities. Peritoneal dialysis uses the lining of the peritoneal cavity to filter excess waste products, which are then drained from the abdomen. Patients undergo peritoneal dialysis five to seven times per week in their homes.

How has Medicare payment for dialysis changed over time?  The following timeline draws on an article from Swaminathan et al. (2012) to provide an overview.

ESRD Timeline

  • 1972: The Social Security Act extended all Medicare Part A and Part B benefits to individuals with ESRD.
  • 1973-1982: Medicare reimbursed independent dialysis facilities on the so-called reasonable charge basis, which is an amount determined by the insurance carriers that process Medicare claims for the federal government and is based on the customary charge for that service in that part of the country. At the same time, Medicare reimbursed hospital-based dialysis facilities on the so-called reasonable cost basis,which is the cost actually incurred by the hospital minus any cost found to be unnecessary in the delivery of dialysis services. Dialysis providers receive fee-for-service cost-based reimbursement.
  • 1983-1989. Medicare introduced a composite rate per dialysis treatment, fixed at $131 per treatment in hospital-based facilities and $127 per treatment in freestanding facilities. This composite rate included the labor and capital costs of dialysis; the cost of the dialysis machine; and the cost of tubings, the permeable membranes that filter blood.  Further, the nominal composite rate remained fixed throughout the decade.
  • 1989.  Erythropoietin stimulating agent (ESA) approved for use in dialysis patients in June.
  • 1989-1990. Medicare pays for ESA at $40 per dose for every dose less than 10,000 units and an additional $30 per dose for every dose greater than 10,000 units.
  • 1991-2006. Medicare adopts the fee-for-service system to reimburse ESAs—a policy that was to remain in place over the next two decades. Fee-for-service reimbursement for the use of the agents, coupled with the decline in real value of the composite rate for dialysis, motivated providers to increase their use of the agents.
  • 2003.  MedPAC recommends that Medicare build financial incentives for quality into its provider payments
  • 2007.  FDA issues a warning that urged prudence in use of ESA for patients with mild anemia.
  • 2011.  Medicare launches bundled dialysis payment system in January 2011.  Pay for performance measure include: (i) the percentage of Medicare patients with average hemoglobin levels of less than 10 grams per deciliter; (ii) average hemoglobin levels of greater than 12 grams per deciliter; and (iii) average urea reduction ratios of greater than 65 percent.


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