Medicare Dialysis Facilities: Beneficiary Access Stable and
Problems in Payment System Being Addressed (25-JUN-04,
GAO-04-450).
Medicare covers about 90 percent of patients with end-stage renal
disease (ESRD), the permanent loss of kidney function. Most ESRD
patients receive regular hemodialysis treatments, a process that
removes toxins from the blood, at a dialysis facility. A small
percentage dialyzes-at home. From 1991 through 2001, the ESRD
patient population more than doubled, from about 201,000 to
406,000. As the need for services grows, so do concerns about
beneficiary access to and Medicare payment for dialysis services.
The Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 directed GAO to study beneficiaries'
access to dialysis services. In this report, GAO (1) assessed the
supply of dialysis facilities and the services they provide,
overall and relative to beneficiary residence, and (2) assessed
the extent to which Medicare payments for dialysis services are
adequate and the methodology is appropriate. In order to assess
the supply of dialysis facilities, GAO used Facility Surveys
collected by the Centers for Medicare & Medicaid Services (CMS)
and outpatient claims, the bills submitted to Medicare by
providers of certain outpatient services from 1998 through 2001.
To assess the adequacy of Medicare payment and the
appropriateness of the payment methodology, GAO used 2001
Medicare cost reports and outpatient claims submitted by
freestanding dialysis facilities.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-450
ACCNO: A10617
TITLE: Medicare Dialysis Facilities: Beneficiary Access Stable
and Problems in Payment System Being Addressed
DATE: 06/25/2004
SUBJECT: Beneficiaries
Health care costs
Health care facilities
Health care programs
Health care services
Health insurance
Patient care services
Payments
Urologic diseases
Dialysis
Medicare Program
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GAO-04-450
United States General Accounting Office
GAO
Report to Congressional Committees
June 2004
MEDICARE DIALYSIS FACILITIES
Beneficiary Access Stable and Problems in Payment System Being Addressed
a
GAO-04-450
Highlights of GAO-04-450, a report to congressional committees
Medicare covers about 90 percent of patients with end-stage renal disease
(ESRD), the permanent loss of kidney function. Most ESRD patients receive
regular hemodialysis treatments, a process that removes toxins from the
blood, at a dialysis facility. A small percentage dialyzes-at home. From
1991 through 2001, the ESRD patient population more than doubled, from
about 201,000 to 406,000. As the need for services grows, so do concerns
about beneficiary access to and Medicare payment for dialysis services.
The Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 directed GAO to study beneficiaries' access to dialysis services.
In this report, GAO (1) assessed the supply of dialysis facilities and the
services they provide, overall and relative to beneficiary residence, and
(2) assessed the extent to which Medicare payments for dialysis services
are adequate and the methodology is appropriate.
In order to assess the supply of dialysis facilities, GAO used Facility
Surveys collected by the Centers for Medicare & Medicaid Services (CMS)
and outpatient claims, the bills submitted to Medicare by providers of
certain outpatient services from 1998 through 2001. To assess the adequacy
of Medicare payment and the appropriateness of the payment methodology,
GAO used 2001 Medicare cost reports and outpatient claims submitted by
freestanding dialysis facilities.
June 2004
MEDICARE DIALYSIS FACILITIES
Beneficiary Access Stable and Problems in Payment System Being Addressed
GAO found that from December 31, 1998, through December 31, 2001, the
total number of dialysis facilities nationwide increased at about the same
rate as the Medicare dialysis population, 16 and 15 percent, respectively,
and the total number of stations (that is, treatment areas and equipment,
including dialysis machines, needed to dialyze the patient) increased by
over 24 percent, a rate greater than the growth in the Medicare dialysis
population. The dialysis industry opened facilities in more counties
across the country, although facilities were more likely to be available
to beneficiaries in urban counties than in rural counties. In addition,
while almost all facilities provided in-facility hemodialysis, fewer
facilities provided home dialysis.
GAO estimates that total payments to freestanding dialysis facilities
exceeded providers' allowable costs by 3 percent in 2001. Although
payments were higher than costs overall, payments did not meet costs for
small facilities. In addition, composite rate payments, intended to cover
the costs of dialysis services associated with a treatment, including
nursing, supplies, social services, and certain laboratory tests, were 11
percent less than the costs of providing those services, while payments
for separately billed drugs, drugs not included in the composite rate,
exceeded the costs of those services by 16 percent. Because of this
imbalance, providers have an incentive to maximize the use of profitable
separately billed drugs to compensate for inadequate payments under the
composite rate.
CMS generally agreed with GAO's findings. The agency noted that it has
been working to redesign the payment system since 2000. Under the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), the
Secretary of Health and Human Services is required to develop a report by
October 1, 2005 detailing the elements and features necessary in the
design and implementation of a broader payment system that includes
separately billed drugs. MMA also requires the Secretary to conduct a
3-year demonstration project, beginning January 1, 2006, that uses a
broader payment system incorporating patient characteristics identified in
the report.
www.gao.gov/cgi-bin/getrpt?GAO-04-450.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact A. Bruce Steinwald at (202)
512-7119.
Contents
Letter
Results in Brief
Background
Dialysis Facilities Increased at Same Rate as Beneficiary
Population, but Supply Varied Geographically and by Treatment Method
Total Medicare Payments to Freestanding Dialysis Facilities Exceeded
Costs, but Current Payment Methodology Is Not Appropriate
Daily Hemodialysis Appears Promising, but Rigorous Data Are
Lacking Concluding Observations Agency and External Reviewer Comments and
Our Evaluation
1
4 5
11
20
25 27 28
Appendix I Scope and Methodology
Appendix II EURComments from the Centers for Medicare & Medicaid Services
Appendix III GAO Contact and Staff Acknowledgments 40
GAO Contact 40 Acknowledgments 40
Tables
Table 1: Freestanding Dialysis Facility Adjusted Payment-to-Cost Ratios
for Composite Rate Services and Separately Billed Drugs, Overall and by
Size, 2001 22
Table 2: Freestanding Dialysis Facility Unadjusted Payment-to-Cost Ratios
for Composite Rate Services, 1998-2001 23 Table 3: Most Frequent Items
Billed Separately in Association with Hemodialysis, 2001 24
Figures
Figure 1: Dialysis Facilities by County, 1998-2001 12
Figure 2: Percentage of Beneficiaries on Dialysis Who Reside in
Counties with at Least One Facility, 1998-2001 13
Figure 3: Average Number of Facilities Available per County, by
Location, 1998-2001 14
Figure 4: Average Number of Stations Available per County, by
Location, 1998-2001 15
Figure 5: Percentage of Beneficiaries on Dialysis Who Had a
Treatment Method Available in Their Counties, 1998-2001 17
Figure 6: Average Number of Facilities Available per County, by
Treatment Method, 1998-2001 18
Figure 7: Percentage of Beneficiaries on Dialysis in Rural Counties
Who Had a Treatment Method Available in Their
Counties, 1998-2001 19
Abbreviations ~
AAKP American Association of Kidney Patients
AWP average wholesale price
BIPA Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 CMS Centers for Medicare & Medicaid Services DCI
Dialysis Clinic, Inc. EPO epoetin ESRD end-stage renal disease FMC
Fresenius Medical Care HCFA Health Care Financing Administration HHS
Department of Health and Human Services MedPAC Medicare Payment Advisory
Commission MMA Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 NIH National Institutes of Health NRAA National
Renal Administrators Association PD peritoneal dialysis RLC Renal
Leadership Council RPA Renal Physicians Association
This is a work of the U.S. government and is not subject to copyright
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separately.
United States General Accounting Office Washington, DC 20548
June 25, 2004
Congressional Committees
Medicare covers approximately 90 percent of all individuals who have
endstage renal disease (ESRD), the permanent loss of kidney function, and
treatment of the disease results in substantial costs to the Medicare
program. In 2001, Medicare spent an average of approximately $46,600 on
services for each beneficiary with ESRD, while the average per-beneficiary
spending across the entire Medicare population was about $6,200.
ESRDrelated expenditures have increased rapidly and are expected to
continue to increase. From 1991 through 2001, the number of individuals
with ESRD more than doubled, increasing from about 201,000 to 406,000.
During the same time, while total Medicare expenditures increased by 108
percent, ESRD program expenditures increased by 166 percent, to almost
$15.4 billion in 2001. The ESRD population is projected to reach
approximately 650,000 by 2010.1
Although some receive kidney transplants, most individuals with ESRD
depend on regular treatments of dialysis, a process in which excess fluids
and wastes are removed from the blood.2 In 2001, about 90 percent of all
dialysis patients underwent hemodialysis, typically three times per week,
at one of almost 4,000 outpatient renal dialysis facilities nationwide.3
In that same year, less than 1 percent of hemodialysis patients dialyzed
at home, and nearly all peritoneal dialysis (PD) patients dialyzed at
home.4 Nationwide, about 200 hemodialysis patients dialyze five to seven
times per week, known as daily hemodialysis, which is thought by some
clinicians to improve patient outcomes.
1See J.L. Xue, et al., "Forecast of the Number of Patients with End-Stage
Renal Disease in the United States to the Year 2010," Journal of the
American Society of Nephrology, vol. 12 (2001): 2753-2758.
2Dialysis is administered either by a machine that filters blood through
an artificial kidney (hemodialysis) or by filtering the blood through the
lining of the patient's abdominal area, called the peritoneal membrane
(peritoneal dialysis).
3In this report, we refer to outpatient renal dialysis facilities as
"dialysis facilities."
4In this report, we use the term "hemodialysis" to refer to in-facility
hemodialysis, and we use the term "home dialysis" to include both PD and
home hemodialysis.
Dialysis facilities furnish services to patients through one of two
methods: they provide hemodialysis and supplies and other support services
in the facility, or they provide equipment, supplies, and support services
to beneficiaries who dialyze at home. Regardless of whether a beneficiary
dialyzes at home or in a facility, Medicare pays the facility a fixed,
prospectively determined amount per treatment, known as the composite
rate, generally for up to three dialysis treatments per week. The
composite rate covers many commonly used services and items; certain other
items, including some drugs and supplies, are paid for separately.
Medicare adjusts the composite rate to account for variation in area
wages; however, there is no adjustment for length of treatment, treatment
method, or beneficiary condition. By paying facilities a fixed amount,
Medicare seeks to encourage them to operate efficiently, as facilities
retain the difference if their payments exceed their costs of providing
necessary services.
The composite rate has not been regularly updated, and is less than $4
higher today than when it was implemented in 1983. Despite the lack of a
regular update, the dialysis industry has remained profitable over the
years by increasing productivity and efficiency. In recent reports, the
Medicare Payment Advisory Commission (MedPAC)5 has found that overall
facility profits have steadily declined even though Medicare payments for
separately billed drugs have exceeded facility costs. MedPAC has also
found that the composite rate is covering progressively less of the costs
of composite rate services.6 Representatives of the dialysis industry have
stated that Medicare payments are inadequate overall, and that these low
payments are resulting in facility closures in certain geographic areas
and may eventually lead to decreased access for beneficiaries nationwide.
In 2000, the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA) required the Secretary of the Department of
Health and Human Services (HHS) to develop a payment system that includes
clinical laboratory tests and drugs that are routinely used but billed
separately.7 With the enactment of the Medicare Prescription Drug,
5MedPAC is an independent federal body, established by the Balanced Budget
Act of 1997, that advises the Congress on issues affecting the Medicare
program. See Pub. L. No. 105-33, S: 4022, 111 Stat. 251, 350.
6Medicare Payment Advisory Commission, Report to the Congress: Medicare
Payment Policy (Washington D.C.: March 2001, March 2002, and March 2003).
7Pub. L. No. 106-554, App. F, S: 422(c)(1), 114 Stat. 2763, 2763A-517.
Improvement, and Modernization Act of 2003 (MMA), the Secretary of HHS was
required to continue development of a broader payment system.8
BIPA directed us to examine Medicare beneficiaries' access to dialysis
services.9 As agreed with the committees of jurisdiction, we (1) assessed
the supply of dialysis facilities and the services they provide, both
overall and relative to beneficiary residence; (2) assessed the extent to
which Medicare payments for dialysis services are adequate and the payment
methodology is appropriate; and (3) reviewed whether increased use of
daily hemodialysis can improve patient care.
In order to measure the supply of dialysis facilities, we used the 1998
through 2002 Facility Survey files, which include information on the
number of hemodialysis stations and the services provided at each
facility.10 These surveys are administered to all dialysis facilities,
hospitalbased and freestanding, by the Centers for Medicare & Medicaid
Services (CMS), the agency responsible for managing Medicare.11 To
identify beneficiaries on dialysis and their residence, we analyzed the
1998 through 2001 Medicare outpatient claims, the bills submitted by
providers of certain outpatient services to receive Medicare payment.
These claims were the most recent data available at the time of our
analysis. We assessed the reliability of the facility survey and claims
data and found them suitable for our purposes.
To assess the adequacy of Medicare payment and the appropriateness of the
payment methodology, we analyzed Medicare freestanding dialysis facility
cost reports from 1998 through 2001 and Medicare outpatient claims data
from 2000 and 2001. We performed this analysis in aggregate for all
freestanding facilities and for different sizes of facilities, with size
defined using the total number of treatments provided at a facility. The
Medicare payment methodology is the same for freestanding and
hospitalbased dialysis facilities, but we did not analyze cost reports or
claims for
8See Pub. L. No. 108-173, S: 623, 117 Stat. 2066, 2312-17.
9Pub. L. No. 106-554, App. F, S: 422(d), 114 Stat. 2763, 2763A-517.
10A station is typically defined as the treatment area and equipment,
including the dialysis machine, needed to dialyze the patient.
11In July 2001, the agency's name was changed from the Health Care
Financing Administration (HCFA) to CMS. In this report, we refer to the
agency as HCFA when discussing actions it took or was required to take
under that name.
Results in Brief
hospital-based facilities because their reported costs are affected by
decisions in allocating costs between the hospital and the dialysis
facility. In 2001, about 84 percent of all dialysis facilities nationwide
were freestanding. We assessed the reliability of the cost report and
claims data. We excluded cost reports that had questionable data or that
did not cover at least 300 days. We found the remaining cost reports and
the claims data suitable for our purposes. We interviewed patient advocate
organizations, clinicians, manufacturers of dialysis equipment, and
representatives of the dialysis industry, and made site visits to three
dialysis facilities.
In order to review daily hemodialysis, we surveyed the relevant scientific
literature, interviewed physicians who provide daily hemodialysis, and
visited a dialysis facility providing daily hemodialysis. Appendix I
contains a more complete description of our methodology. We conducted our
work from July 2002 through June 2004 in accordance with generally
accepted government auditing standards.
From December 31, 1998, through December 31, 2001, the total number of
dialysis facilities nationwide increased at about the same rate as the
Medicare dialysis population, 16 and 15 percent, respectively. Over the
same period, the total number of stations increased by over 24 percent, a
rate greater than the growth in the Medicare dialysis population. The
dialysis industry opened facilities in more counties across the country,
although a greater number of facilities were available to beneficiaries in
urban counties than in rural counties. 12 In addition, while almost all
facilities provided hemodialysis, fewer facilities provided home dialysis.
In 2001, we estimate that overall Medicare payments to freestanding
dialysis facilities exceeded their Medicare-allowable costs, that is,
their reasonable costs for services directly related to medical care for
beneficiaries, by 3 percent. However, payments were less than costs for
small facilities. While we estimate that composite rate payments were 11
percent lower than the costs of providing composite rate services,
payments for separately billed drugs were 16 percent higher than the costs
of those drugs. Because of this imbalance, providers have an incentive to
12We defined a county as urban if it was in a metropolitan statistical
area and as rural if it was outside a metropolitan statistical area, as
determined by the Office of Management and Budget.
maximize the use of profitable separately billed drugs to compensate for
inadequate payments under the composite rate.
Daily hemodialysis appears promising for improving patient outcomes.
However, studies on the subject are limited in size and scope. Definitive
conclusions on the extent to which daily hemodialysis improves patient
care cannot be determined from the existing data.
In commenting on a draft of this report, CMS generally agreed with our
findings and our conclusion that all outpatient dialysis services should
be bundled into a single prospective payment amount based on facilities'
allowable costs. Although in the draft report we had also recommended that
CMS redesign the prospective payment system for dialysis facilities to
bundle the costs of services, including separately billed drugs, into one
payment amount, in its comments CMS noted that it would not have the
statutory authority to implement such a system. CMS also noted that MMA
requires the Secretary of HHS to report to the Congress by October 1,
2005, on the elements and features necessary in the design and
implementation of a broader prospective payment system. The Secretary is
also required to conduct a 3-year demonstration project, beginning January
1, 2006, that uses a payment system incorporating patient characteristics
identified in the report. As a result, we deleted the recommendation in
the draft report.
Background Individuals with ESRD are eligible for Medicare benefits
regardless of their age.13 In 2001, Medicare covered about 90 percent of
the 406,000 individuals with the disease. ESRD occurs when an individual's
kidneys have regressed to less than 10 percent of normal baseline
function. Without functioning kidneys, excess wastes and fluids in the
body rise to dangerous levels, and certain hormones are no longer
produced. The lack of one such hormone, erythropoietin, results in anemia,
a condition in which an insufficient number of red blood cells are
available to carry oxygen throughout the body. Diabetes and hypertension
are the two principal causes of ESRD.
13Generally, to be eligible for benefits under Medicare, a person with
ESRD must be (1) entitled to a monthly insurance benefit under Title II of
the Social Security Act (or an annuity under the Railroad Retirement Act),
(2) fully or currently insured under Social Security, or (3) the spouse or
dependent child of a person who meets at least one of the first two
requirements. 42 U.S.C. S: 426-1(2000).
ESRD Population Growth
The ESRD population has grown steadily over the years and is expected to
continue to increase. From 1991 through 2001, the total number of
individuals with ESRD increased from about 201,000 to 406,000, with an
average annual growth rate of 7 percent. While the growth rate declined to
about 5 percent in the late 1990s as a result of better preventive
treatments, experts believe this decline to be temporary. Increases in the
African-American and Hispanic populations, which have particularly high
rates of diabetes, are expected to overwhelm this trend and lead to even
greater growth rates in the future.14
Renal Dialysis Treatment
In order to survive, individuals with ESRD require kidney transplantation
or dialysis, a process in which excess fluids and wastes are removed from
the blood. In 2001, about 292,000, or 72 percent, of all individuals with
ESRD underwent dialysis, while the remaining 28 percent, or about 114,000
individuals, were transplant recipients. Transplantation is not a
practical option for most individuals with ESRD because suitable donated
organs are scarce. Also, many individuals are older and less healthy by
the time they develop irreversible kidney failure, making them medically
unsuitable for transplant. From 1991 through 2001, the total number of
dialysis patients increased at an average annual growth rate of about 7
percent, the same as the ESRD population overall.
In 2001, most dialysis patients received services from one of almost 4,000
hospital-based or freestanding dialysis facilities located in the 50
states and the District of Columbia. These facilities provide
hemodialysis, as well as drugs and related clinical and support services
for patients who dialyze at home or in a facility. In addition, some
facilities provide training for home dialysis and may furnish the
equipment and supplies necessary for home dialysis treatment.15 In 1973,
when Medicare benefits were extended to individuals with ESRD, the
majority of dialysis facilities were owned and operated by hospitals. By
2001, however, almost 84 percent of all dialysis facilities nationwide
were freestanding. In addition, for-profit dialysis facility chains have
represented an increasing share of the market. By 2001, the four largest
for-profit chains accounted for about two-thirds
14See Xue, et al., "Forecast of the Number of Patients with End-Stage
Renal Disease in the United States to the Year 2010."
15Instead of receiving equipment and supplies from a facility,
beneficiaries may choose to order them through a supplier. Beneficiaries
choosing this option still receive the ancillary clinical and social
services from a facility.
of all freestanding facilities, and they provided treatment to about
twothirds of all dialysis patients.
Dialysis can be administered using two methods: hemodialysis and PD.
During hemodialysis, a dialysis machine pumps blood through an artificial
kidney, called a hemodialyzer, and returns the cleansed blood to the body.
Hemodialysis is usually administered three times a week at a dialysis
facility, although patients may choose to undergo hemodialysis at home
with the assistance of a caregiver. In-facility hemodialysis has become
the dominant treatment method since the introduction of dialysis in the
1960s. In 2001, about 90 percent of all dialysis patients underwent
in-facility hemodialysis, and less than 1 percent underwent hemodialysis
at home.
In PD, the peritoneal membrane, which surrounds a patient's abdomen, acts
as a natural blood filter, thus eliminating the need for blood to leave
the body and filter through a machine. Patients remove the wastes and
excess fluids from their abdomen manually throughout the day, or a machine
automates the process while they sleep at night. Unlike hemodialysis,
these patients generally dialyze at home. PD became an alternative to
hemodialysis in the 1970s, and utilization peaked in the early 1990s, when
more than 15 percent of all dialysis patients used this treatment method.
By 2001, however, utilization had declined to about 8 percent of the
dialysis population.
Hemodialysis performed five to seven times per week, referred to as "daily
hemodialysis," more closely approximates the body's continuous cleansing
of the blood than the conventional regimen of three hemodialysis
treatments per week. Between dialysis treatments, excess wastes and fluids
build up in the patient's blood, and many dialysis patients experience
side effects such as hypertension, anemia, and low energy levels, which
may adversely affect their clinical outcomes and quality of life. Because
of these side effects, dialysis patients have high rates of
hospitalization and often take several medications. Daily hemodialysis can
take place either at home or in a facility, and proponents have asserted
that it leads to improved quality of life, fewer hospitalizations, reduced
use of medications, and overall cost savings to Medicare.
Medicare Payment Since 1983, Medicare has paid dialysis facilities a
composite rate for each dialysis treatment it administers, generally up to
a maximum of three treatments per beneficiary per week. The composite rate
is a prospectively determined payment amount designed to cover the cost of
services associated with a single dialysis treatment, including nursing
and other
clinical services, social services, supplies, equipment, and certain
laboratory tests and drugs.16 Because the composite rate is prospectively
determined, providers receive a fixed payment regardless of how much the
services actually cost them to deliver. The initial fixed payment amount
was derived from the median costs of providing medical services to
beneficiaries across a sample of dialysis facilities. A prospective
payment methodology encourages providers to control the costs and
utilization of the services they provide, as they retain any difference
between the payment and their costs.
In 1972, 40 percent of all dialysis patients underwent hemodialysis at
home. In 1981, the Congress passed legislation establishing a new system
for the payment of outpatient dialysis services for Medicare
beneficiaries. The changes were designed to reduce program costs by
encouraging home dialysis rather than in-facility dialysis. Under the
system, a single prospectively determined rate was implemented for home
and in-facility dialysis.17 However, the percentage of patients who
undergo dialysis at home has declined since 1983, the year the composite
rate was implemented. In 1983, the proportion of dialysis patients
dialyzing at home, whether with hemodialysis or PD, was 12 percent. By
December 31, 2001, less than 9 percent of dialysis patients dialyzed at
home.
The composite rate has changed minimally since 1983, when the rate
averaged about $131 for hospital-based facilities and $127 for
freestanding facilities. The Congress passed legislation that decreased
the rate by $2 in 1986 and increased it in 1991, 2000, and 200118 to about
$135 for hospitalbased facilities and $131 for freestanding facilities.
From its implementation in 1983 through the end of 2003, the real dollar
value of the composite rate declined by about 65 percent. The dialysis
industry remained profitable under this relatively flat payment by
increasing efficiency and productivity. However, industry representatives
state that efficiency or productivity improvements can no longer make up
for the
16Facilities receive a supplemental payment for training beneficiaries on
home hemodialysis or PD. The facility receives a composite rate payment
for the dialysis services and an additional amount for costs associated
with training, such as the instruction beneficiaries receive from facility
staff while dialyzing.
17Pub. L. No. 97-35, S: 2145, 95 Stat. 357, 799-800. See H. Conf. Rep. No.
97-208, at 948-9 (1981).
18MMA increases the composite rate by 1.6 percent for services furnished
on or after January 1, 2005. See Pub. L. No. 108-173, S: 623(a), 117 Stat.
2066, 2315.
lack of payment increases. They also state that although the number of
dialysis facilities has been increasing throughout the last decade,
declining profits may reverse that trend and eventually lead to decreased
access for Medicare beneficiaries.
While the composite rate was intended to pay for all services associated
with dialysis treatment, Medicare pays separately for certain drugs and
laboratory tests that have become routine treatments since 1983. These
drugs include, but are not limited to, epoetin (EPO), vitamin D, and iron.
Medicare's payment for EPO, a bioengineered protein that substitutes for
erythropoietin and is used to treat anemia, is statutorily set at $10 for
every 1,000 units administered;19 all other separately billed drugs are
paid at 95 percent of their average wholesale price (AWP).20 The Medicare
composite rate includes payment for 16 laboratory tests deemed to be
routine for dialysis patients. For any of the approximately 1,350 other
laboratory tests that beneficiaries may receive, payment is made under a
fee schedule to the clinical laboratory that performs the test.
Although facilities are paid under a prospective payment system, CMS
requires them to complete annual cost reports that are consistent with
Medicare cost principles. These reports include cost information for
separately billed drugs as well as items paid through the composite rate.
Medicare cost principles were designed to ensure that Medicare pays for
the expenses related to medical care for beneficiaries, and that those
costs are reasonable and allowable.21 The agency periodically audits cost
reports to remove unreasonable and nonallowable costs and, in the past,
has calculated the difference between facility costs as reported on the
cost reports and their allowable costs, referred to as an audit
adjustment. The
1942 U.S.C. S: 1395rr (b)(11)(B)(ii)(2000). While the Secretary of HHS is
authorized to adjust this payment, it has remained the same since 1994.
20MMA changed Medicare's payment formula for drugs. In general, payments
for outpatient drugs furnished in 2004 will equal 85 percent of AWP.
Separately billed drugs furnished in connection with dialysis services
will continue to be paid at 95 percent of AWP in 2004. See Pub. L. No.
108-173, S: 303(b), 117 Stat. 2066, 2238.
21An example of a nonallowable Medicare cost is the cost of transporting
beneficiaries to and from a dialysis facility, because transportation is
not directly related to medical care. The salary of a facility
administrator is an example of a cost that is allowable but, depending
upon the salary amount, may not be reasonable. For example, in most
instances, the Medicare compensation for a facility administrator may not
exceed $90,000. If a facility claims $100,000 as compensation, Medicare
would consider $10,000 of the amount as an unreasonable cost, unless the
facility can justify a compensation rate over the $90,000 limit.
Balanced Budget Act of 1997 required the agency to audit dialysis facility
cost reports, beginning in 1996, at least once every 3 years.22
In recent years, the Congress has moved toward a broader payment bundle
for dialysis services. In 2000, BIPA required the Secretary of HHS to
develop a payment system that includes clinical laboratory tests and drugs
that are routinely used, but are currently billed separately from dialysis
treatment.23 BIPA also required the Secretary to submit a report and
recommendations on this system to the Congress. CMS issued the report in
2003, concluding that currently available data appear sufficient to expand
the payment bundle to include those services.24 In December 2003, MMA
mandated that effective January 1, 2005, a payment system be implemented
combining the composite rate payment with the amount by which payments for
separately billed drugs exceed their acquisition costs. Drugs that are
currently paid separately will continue to be paid outside this system.
This system must adjust for certain beneficiary characteristics and
geographic differences in cost.25 In addition, the Secretary is required
to submit a report to the Congress by October 1, 2005, that details the
elements and features for the design and implementation of a bundled
payment system including certain drugs that are currently billed
separately. The Secretary is then required to establish a 3-year
demonstration project, beginning January 1, 2006, using a payment system
that accounts for patient characteristics identified in the report.
22Pub. L. No. 105-33, S: 4558(a), 111 Stat. 251, 463.
23Pub. L. No. 106-554, App. F, S: 422(c)(1), 114 Stat. 2763A-517.
24U.S. Department of Health and Human Services, Toward a Bundled
Outpatient Medicare End-Stage Renal Disease Prospective Payment System
(Baltimore, Md.: 2003).
25Pub. L. No. 108-173, S: 623(d), 117 Stat. 2066, 2313-14.
Dialysis Facilities Increased at Same Rate as Beneficiary Population, but
Supply Varied Geographically and by Treatment Method
From 1998 through 2001, the total number of hospital-based and
freestanding dialysis facilities increased at about the same rate as the
Medicare dialysis population, and the total number of dialysis stations,
or treatment areas devoted to providing dialysis to patients, increased at
a greater rate than the Medicare dialysis population. The dialysis
industry opened facilities in more counties across the country, although
the number of facilities available to beneficiaries living in urban
counties was greater than in rural counties. In addition, while almost all
facilities provided hemodialysis, fewer facilities provided home dialysis.
Growth in Number of Dialysis Facilities Kept Pace with Growth in Beneficiary
Population
Based on our analysis of the CMS Facility Survey files, the total number
of hospital-based and freestanding dialysis facilities increased from
3,415 to 3,960, or about 16 percent, from December 31, 1998, through
December 31, 2001. Over the same period, the number of ESRD beneficiaries
on dialysis increased about 15 percent. While the annual growth in
facilities slowed each year, this occurred primarily because of a decrease
in new facilities, not because of an increase in closures. From 1998
through 2001, the number of facilities closing each year amounted to less
than 1 percent of those that were operating at the end of that year.
Because facilities vary in size, a more specific indicator of their
capacity to provide hemodialysis is the number of dialysis stations in use
at dialysis facilities. From December 31, 1998, through December 31, 2001,
we estimate that the number of stations increased by over 24 percent, from
about 53,100 to about 66,100, exceeding the growth rate of the dialysis
population. The annual growth rate of stations was over 10 percent in
2001, much higher than the 5 percent growth rate of the Medicare dialysis
population in that year.
In addition, the dialysis industry expanded services to a larger portion
of the country. The percentage of counties that had at least one dialysis
facility increased from 41 to 47 percent, so that a total of 1,466
counties26 had at least one dialysis facility in 2001 (see fig. 1). While
another 1,599 counties had at least one beneficiary on dialysis but no
facility in 2001, most of these counties were adjacent to at least one
other county that had a dialysis facility. Of the counties that were not
adjacent to another county
26In 2001, there were a total of 3,140 counties in the 50 states. In
addition, we include the District of Columbia as a county.
with a facility, many were concentrated in areas of the West and Midwest.
Beneficiaries living in these counties either traveled to another facility
or dialyzed at home.
Figure 1: Dialysis Facilities by County, 1998-2001
Source: GAO analysis of CMS data.
The supply of facilities in counties with beneficiaries on dialysis has
remained stable. The percentage of beneficiaries on dialysis who resided
in counties with at least one facility increased from 89 to 91 percent
from 1998 through 2001. In addition, the average number of facilities per
county, weighted by the number of beneficiaries in each county, increased
from 11 to 12 from 1998 through 2001, as did the weighted average number
of stations, which rose from 201 to 234.
More Dialysis Facilities While overall beneficiary access to dialysis
facilities remained stable, more Available in Urban facilities are
available to beneficiaries on dialysis who reside in urban Counties Than
in Rural counties than to beneficiaries on dialysis in rural counties.
From 1998 Counties through 2001, the percentage of urban beneficiaries
with at least one
facility in their counties increased slightly from 97 to 98 percent, while
the
percentage of rural beneficiaries with at least one facility in their
counties
increased, but remained much lower, from 61 to 67 percent (see fig. 2).
Figure 2: Percentage of Beneficiaries on Dialysis Who Reside in Counties
with at Least One Facility, 1998-2001
Percentage
100 9797 97 98
80
60
40
20
0
1998 1999 2000 2001
Urban
Rural
Source: GAO analysis of CMS data.
Furthermore, beneficiaries on dialysis residing in urban counties had more
dialysis facilities available in their counties. From 1998 through 2001,
the average number of facilities per urban county, weighted by the number
of beneficiaries in each county, increased from 14 to 15 (see fig. 3), and
the weighted average number of stations increased from 252 to 296 (see
fig. 4). From 1998 through 2001, the weighted average number of facilities
per rural county remained at 1, although the weighted average number of
stations increased from 10 to 13.
Figure 3: Average Number of Facilities Available per County, by Location,
19982001
Number of facilities 20
15 15
15
10
5
0 1998 1999 2000 2001
Urban
Rural Source: GAO analysis of CMS data. Note: Averages are weighted by the
number of beneficiaries in each county.
Figure 4: Average Number of Stations Available per County, by Location,
1998-2001
Number of stations 350
296
300
250
200
150
100
50
0 1998 1999 2000 2001
Urban
Rural
Source: GAO analysis of CMS data.
Note: Averages are weighted by the number of beneficiaries in each county.
Across rural areas, substantial variation may exist in the supply of
dialysis facilities. For example, 73 percent of beneficiaries on dialysis
in Florida's 33 rural counties had at least one facility in their counties
in 2001, while only 39 percent of beneficiaries on dialysis in Michigan's
58 rural counties had at least one facility in their counties. Although
such differences could potentially be explained by differences in the
geographic size of rural counties, rural counties in both Michigan and
Florida average roughly 695 square miles.
The number of dialysis facilities may be lower or nonexistent in certain
geographic locations for certain reasons. The population of beneficiaries
on dialysis is relatively small, and it may not be financially feasible to
operate facilities in areas that do not have a sufficient number of
beneficiaries needing dialysis. For example, while nearly 73 percent of
counties were designated as rural in 2001, only 22 percent of
beneficiaries on dialysis lived in those counties; about half of all rural
counties were home to 15 or fewer beneficiaries on dialysis. Also, many
industry representatives we interviewed stated that it was difficult to
recruit and retain nurses to staff facilities. Shortages of nurses can
hamper the
industry's ability to open facilities or keep facilities sufficiently
staffed in certain geographic areas.
Number of Facilities Providing Home Dialysis Much Lower Than Number of
Facilities Providing Hemodialysis
Dialysis facilities provided in-facility hemodialysis almost universally,
but the number of facilities providing home dialysis (PD and home
hemodialysis) was much lower and declining. According to our analysis of
the CMS Facility Survey files, 98 percent of dialysis facilities provided
hemodialysis each year from 1998 through 2001. Over the same period, the
percentage of dialysis facilities providing PD decreased from 46 to 40
percent, and the percentage of dialysis facilities providing home
hemodialysis decreased from 10 to 8 percent.
Beneficiaries on dialysis also had more facilities available in their
counties that provided hemodialysis than home dialysis.27 The percentage
of beneficiaries on dialysis who had a facility providing hemodialysis in
their counties increased from 89 to 91 percent from 1998 through 2001 (see
fig. 5). In contrast, the percentage of beneficiaries on dialysis who had
a facility providing PD in their counties slightly decreased, from 76 to
75 percent, and the percentage of beneficiaries on dialysis who had a
facility providing home hemodialysis in their counties declined from 47 to
45 percent. From 1998 through 2001, the average number of facilities
providing hemodialysis per county, weighted by the number of beneficiaries
in each county, increased slightly from 10 to 12 (see fig. 6). Over the
same period, the weighted average number of facilities providing PD per
county fell from 6 to 5, and on average, only 1 facility per county
provided home hemodialysis.
27Proximity to a facility is somewhat less critical for beneficiaries who
perform home dialysis because they are not required to regularly visit a
facility for dialysis treatments.
Figure 5: Percentage of Beneficiaries on Dialysis Who Had a Treatment
Method Available in Their Counties, 1998-2001
Percentage 100 90 80 70 60 50 40 30 20 10 0
90 91
1998 1999 2000 2001
Hemodialysis PD
Home hemodialysis
Source: GAO analysis of CMS data.
Figure 6: Average Number of Facilities Available per County, by Treatment
Method, 1998-2001
Number of facilities
14
12
12
10
8
6
4
2
0 1998 1999 2000 2001
Providing hemodialysis
Providing PD
Providing home hemodialysis
Source: GAO analysis of CMS data.
Note: Averages are weighted by the number of beneficiaries in each county.
In rural counties, the number of facilities offering home dialysis
remained low. From 1998 through 2001, the percentage of rural
beneficiaries on dialysis with a facility providing hemodialysis in their
counties increased from 61 to 67 percent (see fig. 7). In contrast, the
percentage of rural beneficiaries on dialysis with a facility providing PD
increased slightly from 27 to 28 percent, and the percentage of rural
beneficiaries with a facility providing home hemodialysis increased from 3
to 4 percent. Beneficiaries on dialysis in rural counties had a weighted
average of one facility providing hemodialysis per county and no facility
providing PD or home hemodialysis. In addition, there were rural counties
with beneficiaries on dialysis but no facilities. These beneficiaries
dialyzed either in a neighboring county or at home.
Figure 7: Percentage of Beneficiaries on Dialysis in Rural Counties Who
Had a Treatment Method Available in Their Counties, 1998-2001
Percentage
100
80
67
60
40
20
0 1998 1999 2000 2001
Hemodialysis
PD
Home hemodialysis
Source: GAO analysis of CMS data.
The number of facilities providing home dialysis may have been low for
several reasons. Some providers and nephrologists we interviewed stated
that many physicians are either unfamiliar with home dialysis or believe
that patients have better outcomes with in-facility hemodialysis. They
also reported that home programs are often not financially feasible for
facilities unless there is a substantial number of patients receiving the
treatment method, because facilities must hire staff to train and manage
the care of these patients. Some providers and nephrologists also stated
that facilities have a financial disincentive to provide home dialysis,
because greater utilization of PD may result in unused hemodialysis
stations and may reduce the need for certain profitable drugs like EPO.
They also reported that PD may be favorable for beneficiaries in rural
areas, where facilities can be more distantly located.
Total Medicare Payments to Freestanding Dialysis Facilities Exceeded Costs,
but Current Payment Methodology Is Not Appropriate
We estimate that after adjusting to exclude nonallowable costs, total
payments to freestanding dialysis facilities exceeded providers' costs in
2001. Although payments were higher than costs overall, payments to small
facilities were lower than costs. In addition, while composite rate
payments were well below the costs of those services, separately billed
drug payments far exceeded the costs of those services. Because of this
imbalance in the payment structure, providers have an incentive to
maximize the use of profitable separately billed drugs to compensate for
inadequate payments under the composite rate.
Payments to Freestanding Facilities Generally Exceeded Allowable Costs, but
Small Facilities Were an Exception
We estimate that Medicare payments to freestanding dialysis facilities
exceeded their Medicare-allowable costs by 3 percent, on average. In order
to calculate this percentage, we used costs as reported on dialysis
facilities' cost reports and used an adjustment to exclude nonallowable
costs. Before the adjustment, we estimate that on average, payments were 1
percent below costs, a payment-to-cost ratio of 0.99,28 for composite rate
services and separately billed drugs in 2001. Past agency audits have
demonstrated that dialysis facilities have included nonallowable costs in
their cost reports. The Health Care Financing Administration (HCFA)
conducted audits of a random sample of 1988 and 1991 dialysis facility
cost reports and found that providers' allowable costs were about 90
percent and 89 percent, respectively, of reported costs. HCFA also audited
the 1996 reports but did not calculate a similar percentage of reported
costs that were allowable.29 When MedPAC compared the 1996 cost reports
before and after auditing, it found that the allowable cost per treatment
for composite rate services and separately billed drugs for freestanding
facilities was about 96 percent of the reported cost per treatment.30
Because providers have historically included nonallowable costs on their
cost reports, we applied MedPAC's adjustment, which is the most
conservative and most recent adjustment, to our payment-to-cost ratio of
0.99 and derived an adjusted payment-to-cost ratio of 1.03 for 2001.
28A payment-to-cost ratio of 1.00 indicates that payments equal costs. A
ratio above 1.00 indicates that payments are greater than costs and below
1.00 indicates that payments are lower than costs.
29CMS is currently auditing the 2001 cost reports and expects to complete
this task in 2005.
30Medicare Payment Advisory Commission, March 2003.
Although we calculated an overall payment-to-cost ratio for 2001 only,31
MedPAC has reported a decrease in these ratios from 1.14 in 1996 to 1.0432
in 2001.33
Although payments exceeded costs overall in 2001, they did not exceed
costs for all sizes of facilities. For example, payments were well below
allowable costs for small facilities,34 with an adjusted payment-to-cost
ratio of 0.91 (see table 1).35 Given the fixed costs a facility incurs in
terms of staffing, equipment, supplies, and rent, revenue from the small
patient base in these facilities may not be sufficient to meet costs.
31We were unable to determine a payment-to-cost ratio for the composite
rate and separately billed drugs before 2001 because, prior to July 1,
2000, the Medicare outpatient claims data contained payment information
for all services included on the claim but not for each individual
service.
32Our 2001 payment-to-cost ratio differs from MedPAC's ratio because we
used a more recent version of the 2001 cost report file.
33Medicare Payment Advisory Commission, March 2003.
34We defined the size of the facility based on the 25th and 75th
percentiles of total dialysis treatments. Small facilities are those
reporting a number of dialysis treatments less than the 25th percentile,
medium facilities are those reporting a number of dialysis treatments
greater than or equal to the 25th percentile and less than or equal to the
75th percentile, and large facilities are those reporting a number of
treatments greater than the 75th percentile.
35From the 1996 cost reports, MedPAC also calculated that the allowable
cost per treatment for composite rate services and separately billed drugs
for small and large freestanding facilities was 97 percent of the reported
cost per treatment and for medium freestanding facilities was 96 percent
of the reported cost per treatment. Our definition of size and MedPAC's
definition of size are the same. (Medicare Payment Advisory Commission,
March 2003.)
Table 1: Freestanding Dialysis Facility Adjusted Payment-to-Cost Ratios
for Composite Rate Services and Separately Billed Drugs, Overall and by
Size, 2001
Facilities Overall payment-to-cost ratio
All
Small
Medium
Large
Source: GAO analysis of CMS data.
Notes: Payment-to-cost ratios among facilities in the 50 states and the
District of Columbia. Ratios are weighted by total Medicare payments
received by each facility. A payment-to-cost ratio of 1.00 indicates that
payments equal costs. A ratio above 1.00 indicates that payments are
greater than costs and below 1.00 indicates that payments are lower than
costs. We defined the size of the facility based on the 25th and 75th
percentiles of total dialysis treatments. Small facilities are those
reporting a number of dialysis treatments less than the 25th percentile,
medium facilities are those reporting a number of dialysis treatments
greater than or equal to the 25th percentile and less than or equal to the
75th percentile, and large facilities are those reporting a number of
treatments greater than the 75th percentile.
Current Payment Methodology Is Not Appropriate
The Medicare payment methodology for dialysis services is not appropriate.
In 2001, composite rate payments to freestanding facilities, intended to
cover the costs of a variety of services associated with a dialysis
treatment, such as nursing, supplies, social services, and certain
laboratory tests, were well below the costs of those services. In
addition, the composite rate does not include all the services
beneficiaries on dialysis typically receive, and does not account for
variation in service utilization and costs among beneficiaries. Separately
billed drug payments, however, far exceeded the costs of those items.
Because utilization of separately billed drugs is largely unconstrained,36
providers have an incentive to overutilize them to compensate for lower
payments under the composite rate. In addition, composite rate payments
for home dialysis treatments far exceeded the costs of those services, but
payments for home dialysis training were well below the costs of those
services.
We estimate that from 1998 through 2001, composite rate payments were well
below the costs of composite rate services. During these years, the
36While facilities must report specific clinical indicators in order to
provide EPO to beneficiaries, other separately billed drugs are
administered when they are deemed medically necessary by the physician.
unadjusted37 payment-to-cost ratio for composite rate services was below
1.00 and steadily decreased every year, falling from 0.94 to 0.89 (see
table 2).
Table 2: Freestanding Dialysis Facility Unadjusted Payment-to-Cost Ratios
for Composite Rate Services, 1998-2001
1998 1999 2000 2001
Payment-to-cost ratio 0.94 0.93 0.91 0.89
Source: GAO analysis of CMS data.
Notes: Payment-to-cost ratios among facilities in the 50 states and the
District of Columbia. Ratios are weighted by total Medicare payments
received by each facility. A payment-to-cost ratio of 1.00 indicates that
payments equal costs. A ratio above 1.00 indicates that payments are
greater than costs and below 1.00 indicates that payments are lower than
costs.
Furthermore, the composite rate does not pay for all services routinely
provided during a dialysis session. While the composite rate was designed
to pay for services associated with a single dialysis session, certain
items or services introduced since the creation of the rate are paid
separately. We determined that three separately billed drugs, EPO, vitamin
D, and iron, and drug-related supplies were provided to most dialysis
beneficiaries and frequently accompanied hemodialysis treatments (see
table 3). For example, 98 percent of beneficiaries received EPO in 2001
and, on average, at every dialysis treatment.
37MedPAC's adjustment to exclude nonallowable costs specifically applies
to the combined costs of composite rate services and separately billed
drugs. Therefore, we did not apply this adjustment to the payment-to-cost
ratios for either the composite rate or separately billed drugs
individually, and refer to those ratios as unadjusted.
Table 3: Most Frequent Items Billed Separately in Association with
Hemodialysis, 2001
Percentage of Frequency of billing
beneficiariesa among beneficiaries
Item receiving item receiving itemb, c
EPO 98 Every treatment
Drug-related 84 Every 9th treatment
supplies
Iron 79 Every 17th treatment
Vitamin D 70 Every 9th treatment
Hepatitis B 25 Every 60th treatment
vaccine
Vancomycin 24 Every 50th treatment
Levocarnitine 5 Every 12th treatment
Source: GAO analysis of CMS data.
aBeneficiaries receiving in-facility hemodialysis.
bMedicare instructs providers to record each drug administration on the
claim separately, and accordingly, we defined one administration of a drug
as one record on the claim. Some providers may aggregate the units of
several administrations as one record. To the extent this is the case, the
billing frequencies for these specific drugs likely underestimate the
actual administration frequencies.
cPer in-facility hemodialysis treatment. Beneficiaries typically receive 3
treatments per week, or about 13 per month.
The composite rate also does not adjust for factors that may affect the
cost of providing dialysis services.38 Providers we interviewed told us
that certain beneficiaries require more services than others because of
the presence of conditions including diabetes, hypertension, vascular
access problems,39 and other physical impairments. They stated that care
for these beneficiaries may be more costly due to additional staff time,
additional resources, or more frequent dialysis. There is currently no
adjustment to the composite rate to account for variation in the costs of
providing services to beneficiaries who consume more resources than
average.
While composite rate payments were well below costs, we estimate that
payments for separately billed drugs far exceeded the costs of those drugs
38The only adjustment to the composite rate accounts for variation in area
wages.
39In order to filter a patient's blood during hemodialysis, the vascular
system, or bloodstream, must be accessed through a fistula, graft, or
catheter. The access site must be continually maintained to help prevent
complications, such as narrowing of the blood vessel or infection of the
site.
in 2001, with an unadjusted payment-to-cost ratio of 1.16. Because
utilization of separately billed drugs is largely unconstrained and
because payments for these items exceeded costs, providers have an
incentive to overutilize them. Representatives from one of the largest
chain providers and several nephrologists we interviewed reported that
this incentive to overutilize exists because separately billed drug
payments compensate for losses on composite rate services. However,
several nephrologists and researchers we interviewed also reported that
beneficiaries who undergo PD, or who otherwise dialyze more frequently
than three times per week, have a reduced need for separately billed
drugs.
In addition to the imbalance in payment between composite rate services
and separately billed drugs, an imbalance exists between payments for home
dialysis treatments and home dialysis training. Two industry
representatives and representatives of a patient advocacy organization we
interviewed stated that Medicare payments for home dialysis training do
not cover the costs of the service. We found that in 2001, the unadjusted
payment-to-cost ratio for composite rate payments for home dialysis
treatments was 1.11 and for home dialysis treatments and training combined
was 1.04.40 The unadjusted payment-to-cost ratio for composite rate
payments for home dialysis training alone was 0.38, indicating that
payments were well below costs. A perception that facilities are losing
money on the initial home dialysis training, even though payments are
above costs for the training and treatment combined, may serve as a
disincentive to offering the home dialysis treatment method.
Daily hemodialysis, which is performed five to seven times per week, may
improve patients' clinical outcomes and quality of life because it more
closely approximates the body's continuous cleansing of the blood. The
literature indicates that daily hemodialysis patients have a greater
amount of toxin removed from their bodies, or a more adequate dialysis
dosage, than conventional hemodialysis patients.41 Dialysis dosage is
important because research suggests that inadequate dosage correlates with
increased mortality. In addition, studies report that anemia and
40Providers' separately billed drug costs are not reported by treatment
method on the cost report, and therefore, we cannot calculate
payment-to-cost ratios for the composite rate and separately billed drugs
together by treatment method.
41For example, see J. Traeger, et al., "Daily Versus Standard
Hemodialysis: One Year Experience," Artificial Organs, vol. 22, no. 7
(1998): 558-563.
Daily Hemodialysis Appears Promising, but Rigorous Data Are Lacking
malnutrition, two serious conditions associated with increased morbidity
and mortality, improve with daily hemodialysis,42 as does patient quality
of life.43 For example, patients on daily hemodialysis experience less
fatigue and enjoy a wider range of dietary choices. Studies also report
that patients on daily hemodialysis have a reduced need for medication,
including EPO44 and drugs to control blood pressure,45 and a reduced
number of hospitalizations.46
Although studies on daily hemodialysis report improvements in patient
outcomes, these studies are limited in size and scope. The daily
hemodialysis patient base is extremely small, given that few dialysis
facilities provide the treatment, and those that do have few patients
using it. Although no national data exist on the utilization of daily
hemodialysis, nephrologists we spoke with who provide daily hemodialysis
estimate that approximately 200 patients are undergoing the treatment
nationwide. Published studies are principally nonrandomized and have small
sample sizes, typically fewer than 25 patients, and therefore do not
provide definitive evidence supporting the treatment. Specifically,
studies do not evaluate whether observed improvements in mortality can be
attributed to the treatment itself or to some other factor. To
definitively assess the treatment, more rigorous data are needed.
Dialyzing more frequently has drawbacks. Although patients may experience
better outcomes, daily hemodialysis increases the number of times a
patient connects to the hemodialysis machine, and may increase
transportation costs if a patient chooses to dialyze at a facility rather
than at home. Such increased burdens may outweigh the benefits for a
42For an example of improvements in anemia, see J.D. Woods, et al.,
"Clinical and Biochemical Correlates of Starting `Daily' Hemodialysis,"
Kidney International, vol. 55, no. 6 (1999): 2467-2476. For an example of
improvements in malnutrition, see R. Galland, et al., "Short Daily
Hemodialysis Rapidly Improves Nutritional Status in Hemodialysis
Patients," Kidney International, vol. 60, no. 4 (2001): 1555-1560.
43For example, see P.F. Vos, et al., "Clinical Outcome of Daily Dialysis,"
American Journal of Kidney Diseases, vol. 37, no. 1, suppl. 2 (2001):
S99-S102.
44For example, see Vos, et al.
45For example, see A. Pierratos, et al., "Nocturnal Hemodialysis:
Three-Year Experience," Journal of the American Society of Nephrology,"
vol. 9, no. 5 (1998): 859-868.
46For example, see R.S. Lockridge, Jr., et al., "Nightly Home
Hemodialysis: Fifteen Months of Experience in Lynchburg, Virginia," Home
Hemodialysis International, vol. 3 (1999): 23-28.
significant number of patients. Even so, providers and nephrologists we
interviewed estimated that anywhere from 10 to 50 percent of the dialysis
population would choose to undergo daily hemodialysis.
Several studies, each of which evaluated the costs of one to two
facilities, have found that facility costs increase upon implementation of
daily hemodialysis.47 Industry representatives reported that despite the
possible benefits of daily hemodialysis, it is not currently financially
feasible to offer it to a large number of Medicare beneficiaries because
Medicare does not routinely pay for more than three dialysis treatments
per week. However, if beneficiaries who undergo daily hemodialysis have a
reduced need for other Medicare services, such as drugs and inpatient
stays, the Medicare program may realize overall cost savings.
Research currently being conducted by the National Institutes of Health
(NIH) may provide more rigorous data on daily hemodialysis, although it
will not determine whether there is an overall cost savings to Medicare.
With partial funding from CMS, NIH has funded four centers to test whether
it is feasible to randomize a representative sample of patients into
either conventional or daily hemodialysis. The trials will track a number
of patient outcomes for at least 6 months, including anemia, nutritional
status, blood pressure, medication use, and hospitalizations, but they are
not designed to enroll enough patients to conclusively determine whether
differences in mortality or hospitalizations are significant. Trial
results, which will not be available until 2007, will determine whether
NIH should continue with a large-scale trial that would measure the impact
of more frequent dialysis on mortality or cardiovascular outcomes or both.
From December 31, 1998, through December 31, 2001, beneficiary access to
dialysis facilities and services appeared stable. The total number of
dialysis facilities nationwide increased at about the same rate as the
Medicare dialysis population, and the total number of stations nationwide
increased at a faster rate than the Medicare dialysis population. Over the
same period of time, the number of counties with at least one facility
increased.
47For example, see P.E. Mohr, et al., "The Case for Daily Dialysis: Its
Impact on Costs and Quality of Life," American Journal of Kidney Diseases,
vol. 37, no. 4 (2001): 777-789.
Concluding Observations
On average, Medicare payments to freestanding dialysis facilities for
composite rate and separately billed services combined exceeded providers'
estimated allowable costs by 3 percent in 2001. However, composite rate
payments were well below the costs of composite rate services, and
separately billed drug payments far exceeded the costs of separately
billed drugs. The current payment methodology gives providers an incentive
to overutilize separately billed drugs in order to compensate for losses
on composite rate services and does not account for possible cost
differences in treating beneficiaries. A payment methodology that bundled
the services a facility provides into a prospective payment amount would
encourage providers to control the costs and utilization of these items,
as they retain the difference if their payments exceed their costs of
providing necessary services. A system that is based on allowable costs
and accounts for possible cost differences in treating beneficiaries would
ensure that Medicare pays appropriately for the efficient delivery of
services.
As required by law, CMS is currently designing a bundled prospective
payment system. In 2003, CMS reported to the Congress that currently
available data appear sufficient to expand the payment bundle to include
drugs and other services currently paid separately. MMA requires the
Secretary of HHS to issue a second report by October 1, 2005, that details
the elements and features for the design and implementation of a bundled
system, and then implement a 3-year demonstration project beginning
January 1, 2006, that is based on that system.
Agency and External Reviewer Comments and Our Evaluation
We received written comments on a draft of this report from CMS (see app.
II). We also received technical comments from NIH, which we incorporated
where appropriate, and oral comments from seven external reviewers. The
external reviewers represented industry and patient organizations. They
included the American Association of Kidney Patients (AAKP); the Renal
Physicians Association (RPA); Dialysis Clinic, Inc. (DCI), the largest
nonprofit dialysis chain; Fresenius Medical Care (FMC), the largest
for-profit dialysis chain; the National Kidney Foundation, a foundation
for the prevention and treatment of kidney disease; the National Renal
Administrators Association (NRAA), which represents employees at dialysis
facilities; and the Renal Leadership Council (RLC), an association
representing the four largest for-profit dialysis facility chains.
CMS Comments and Our Evaluation
In commenting on a draft of this report, CMS generally agreed with our
findings and our conclusion that all outpatient dialysis services should
be bundled into a single prospective payment amount based on facilities'
allowable costs. Although in the draft report we had also recommended that
CMS redesign the prospective payment system for dialysis facilities to
bundle the costs of services, including separately billed drugs, into one
payment amount, in its comments CMS noted that it would not have the
statutory authority to implement such a system. CMS also noted that MMA
requires the Secretary of HHS to report to the Congress by October 1,
2005, on the elements and features necessary in the design and
implementation of a broader payment system. The Secretary is also required
to conduct a 3-year demonstration project, beginning January 1, 2006,
using a payment system incorporating patient characteristics identified in
the report. CMS also asked that we recognize its research on a bundled
payment system that has been under way since October 2000. As a result of
these comments, we deleted the recommendation in the draft report. In
addition, although MMA was discussed in our draft report, we more
prominently highlighted it and CMS's research in the report.
CMS also stated that while our findings on beneficiary access were
reassuring, it is concerned that we did not specifically address access
issues at the regional level. According to CMS, its staff has been told
that hospitals in certain regions, such as New England and New York, are
having difficulty discharging and placing ESRD patients in dialysis
facilities in those areas. We acknowledged in the draft report that supply
varied geographically and by treatment method. We based our findings on
aggregate indicators, such as trends in numbers of stations and facilities
relative to the beneficiary population, which all suggested that access
had been stable from 1998 through 2001. We would not have been able to
identify the extent to which supply has changed since 2001, as 2001 data
were the most recent available at the time of our analysis.
Industry and Patient Organization Comments
Comments from the industry representatives and patient organizations
centered on three different areas: beneficiary access to dialysis, the
data used in our analysis of Medicare payment adequacy, and the
appropriateness of the current payment methodology.
Many comments addressed our finding that beneficiary access to dialysis is
stable. Five external reviewers stated that Medicare payments are
currently inadequate, and due to inadequate payments, facilities are
closing in areas where Medicare beneficiaries constitute a high percentage
of dialysis patients. RPA specifically was concerned that facilities may
try
to maximize their numbers of private-pay patients and minimize their
numbers of Medicare beneficiaries in the future. Three external reviewers
asserted that access is currently decreasing due to staffing shortages at
available facilities, particularly with respect to nurses. These reviewers
also stated that certain minority populations, such as Native Americans,
and certain areas of the country, such as rural and inner city areas, are
currently experiencing access problems.
Several external reviewers commented on access issues specifically related
to home dialysis. NRAA agreed with our finding that payment for home
training is inadequate and therefore serves as a barrier to home dialysis.
RPA agreed that one reason for low utilization of PD is that PD patients
use less of the profitable separately billed drugs. AAKP provided the same
assertion and added that the lack of training for nephrologists serves as
a barrier to home dialysis.
Industry representatives expressed concerns regarding our payment
analysis, specifically the use of data from 2000 and 2001 and our
application of an audit adjustment to facility cost data. DCI stated that
facility costs have risen since 2001; therefore, our analysis does not
reflect current conditions. FMC, RLC, and NRAA stated that using an audit
adjustment based on 1996 cost reports does not result in an accurate
assessment of costs; they asserted that the amount of nonallowable costs
that facilities include on their cost reports has decreased since 1996.
Several groups commented on the appropriateness of the current payment
methodology. Two industry representatives, DCI and RLC, acknowledged that
an incentive exists to overutilize separately billed drugs in order to
compensate for losses on composite rate services, and the physician
association, RPA, acknowledged that there is excessive use of these drugs.
However, another industry group, NRAA, stated that our assertion that an
incentive to overutilize exists was extreme. In addition, four external
reviewers were concerned that bundling costs would create an incentive for
facilities to either underserve beneficiaries or to accept only those
beneficiaries who use relatively few resources. Four external reviewers
were concerned that there would be no regular update to the payment rate
if a bundled rate was established, which could limit access to new
technology.
Our Evaluation of Industry and Patient Organization Comments
Concerning the comments that access is decreasing overall, for certain
regions and certain populations and for home dialysis, we acknowledged in
the draft report that supply may vary geographically and by treatment
method. However, also as noted in the draft report, we based our finding
that beneficiary access to dialysis is stable on aggregate indicators,
such as trends in numbers of stations and facilities relative to the
beneficiary population. In particular, we noted that few facilities closed
from 1998 through 2001, with the number of facilities closing each year
amounting to less than 1 percent of those operating at the end of the
year. We were not able to analyze the adequacy of facility staffing due to
a lack of adequate data.
With respect to our adjustment of facility cost data, BIPA required that
we use audited cost data when analyzing the adequacy of Medicare payment.
Although CMS is currently auditing the 2001 cost reports, the agency's
last completed audit was of the 1996 cost reports. Given the increase in
health care costs over time, we did not believe it was appropriate to
assess the adequacy of Medicare payment using only 1996 cost reports. In
order to satisfy the requirements of our mandate, we estimated the
percentage of costs on the unaudited 2001 cost reports that were Medicare
allowable. To do so, we relied on an audit adjustment calculated by
MedPAC. MedPAC's adjustment was based on the 1996 cost reports and was
lower than the previous two audit adjustments calculated by HCFA in 1988
and 1991. We believe it is appropriate to apply MedPAC's 1996 audit
adjustment to 2001 costs because it is the most recent of the last three
audit adjustments. We also noted in the draft report that it is the most
conservative of the three adjustments.
With respect to our conclusion that the current payment methodology is not
appropriate, we acknowledge that a prospective payment could create an
incentive to underserve beneficiaries, because providers retain the
difference if their payments exceed their costs. However, this incentive
exists under all prospective payment systems. If the bundled payment
amount is based on facilities' allowable costs of delivering services, and
takes into account possible cost differences in treating beneficiaries,
facilities will be financially better equipped to deliver the appropriate
level of service to each beneficiary.
Industry representatives and patient organizations also raised several
issues that went beyond the scope of our report. These issues included
whether Medicaid and physician payments are adequate and the Medicare
definition of allowable costs.
Reviewers also made technical comments, which we incorporated where
appropriate.
We are sending copies of this report to the Administrator of CMS and
appropriate congressional committees. The report is available at no charge
on GAO's Web site at http://www.gao.gov. We will also make copies
available to others on request.
If you or your staffs have any questions, please call me at (202)
512-7119. Another contact and key contributors to this report are listed
in appendix
III.
A. Bruce Steinwald Director, Health Care-Economic and Payment Issues
List of Committees
The Honorable Charles E. Grassley
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Finance
United States Senate
The Honorable William M. Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives
The Honorable Joe L. Barton
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives
Appendix I: Scope and Methodology
In conducting this study, we analyzed the Centers for Medicare & Medicaid
Services (CMS) Facility Survey files, Medicare cost reports, and Medicare
outpatient claims. We interviewed officials from CMS and the National
Institute of Diabetes & Digestive & Kidney Diseases. We also interviewed
representatives from the American Association of Kidney Patients, American
Nephrology Nurses' Association, Forum of End Stage Renal Disease (ESRD)
Networks, National Kidney Foundation, National Renal Administrators
Association, and Renal Physicians Association; representatives from five
national dialysis facility chains, a national manufacturer of dialysis
equipment, and several private health insurance companies; and
nephrologists who provide daily hemodialysis. We conducted site visits at
three dialysis facilities, one of which provides daily hemodialysis, and
interviewed officials at these facilities.
To analyze the supply of freestanding and hospital-based dialysis
facilities, we used the Facility Survey files from 1998 through 2002, and
to identify ESRD beneficiaries on dialysis, we used Medicare outpatient
claims from 1998 through 2001, the most recent years for which data were
available at the time of our analysis. From the Facility Survey files, we
identified all dialysis facilities operating the entire year, opening
during the year, and closing during the year, and the number of stations
at each facility.1 We identified a facility as offering a treatment method
if it provided at least one treatment or had at least one patient using
that method. From the Medicare outpatient claims, we identified Medicare
ESRD beneficiaries receiving dialysis each year, and their residence by
ZIP code. We then calculated the number of dialysis facilities operating
the entire year and the number of beneficiaries receiving dialysis for
each county in the 50 states and in the District of Columbia, which we
considered a county. We determined the average number of facilities and
stations in each county, weighted by the number of beneficiaries in each
county. We defined a county as urban if it was in a metropolitan
statistical area and as rural if it was outside a metropolitan statistical
area, as determined by the Office of Management and Budget.2 We assessed
the reliability of the Facility Survey
1Facilities indicate on their annual surveys whether they closed during
the survey year. However, we found that many facilities that indicated
they closed during the year then continued to operate in the next year.
This discrepancy may occur for a variety of reasons, including when
facilities indicate they are closing when they are actually changing
ownership. We used the 2002 file to adjust the number of closings in 2001.
2For 1998 and 1999 analyses, we used metropolitan statistical area
definitions as of June 30, 1996, and for 2000 and 2001 analyses, we used
metropolitan statistical area definitions as of June 30, 1999.
Appendix I: Scope and Methodology
file and claims data by analyzing trends in the number of beneficiaries on
dialysis and dialysis facilities over time and comparing these to trends
reported by CMS. We determined that the data were reliable for our
purposes.
To calculate payment-to-cost ratios for composite rate services only, we
used cost reports for freestanding renal dialysis facilities from 1998
through 2001, the most recent data available. The Medicare payment
methodology is the same for freestanding and hospital-based dialysis
facilities, but we did not analyze cost reports or claims for
hospital-based facilities because their reported costs are affected by
decisions in allocating costs between the hospital and the dialysis
facility. In 2001, about 84 percent of all dialysis facilities nationwide
were freestanding. We first edited the cost reports to exclude those
facilities located outside the 50 states or the District of Columbia,
those with cost reporting periods less than 300 days, and those that
reported composite rates outside the range of possible rates from the
Medicare program. We excluded 577 of the 2,983 cost reports, or about 19
percent. From the remaining cost reports, we calculated each provider's
total Medicare payments and total reported costs. We calculated the
proportion of total cost attributable to Medicare beneficiaries using the
proportion of each facility's treatments that was furnished to Medicare
beneficiaries. We summed payments and costs across all providers to obtain
payment-to-cost ratios from 1998 through 2001 weighted by total Medicare
payments received by each facility. Additionally, we stratified ratios by
dialysis treatment method, as reported in the cost reports. We assessed
the reliability of the cost report data by comparing our payment-to-cost
ratios to those published by the Medicare Payment Advisory Commission. We
determined that the data were reliable for our purposes.
In order to calculate 2001 payment-to-cost ratios for overall costs, that
is, composite rate services and separately billed drugs, we used 2001 cost
reports for freestanding renal dialysis facilities and 2000 and 2001
Medicare outpatient claims data.3 We first edited the cost reports to
exclude those facilities located outside the 50 states or the District of
Columbia, those with cost reporting periods fewer than 300 days, and those
that reported composite rates outside the range of possible rates
3We did not include separately billed laboratory services in our
payment-to-cost ratios because they are billed by the laboratory that
performed the test, rather than by the dialysis facility.
Appendix I: Scope and Methodology
from the Medicare program. Payment information for individual drugs is not
available on Medicare outpatient claims prior to July 1, 2000, and
therefore we did not calculate these ratios for years prior to 2001.4 We
used the claims data to obtain payments for separately billed drugs, as
they are not available in the cost reports. We obtained the total costs of
separately billed drugs from the cost reports and calculated the
proportion attributable to Medicare beneficiaries using the proportion of
each facility's treatments that was furnished to Medicare beneficiaries.
We then added our previously calculated composite rate payments and costs
and summed total payments and total costs for all providers to obtain an
overall payment-to-cost ratio for 2001 weighted by total Medicare payments
received by each facility. We stratified the ratios by size. We defined
the size of the facility based on the 25th and 75th percentiles of total
dialysis treatments each facility reported in its cost report. Small
facilities are those reporting a number of dialysis treatments less than
the 25th percentile, medium facilities are those reporting a number of
dialysis treatments greater than or equal to the 25th percentile and less
than or equal to the 75th percentile, and large facilities are those
reporting a number of treatments greater than the 75th percentile. We
could not calculate these ratios by treatment method, as separately billed
drug costs are not reported by treatment method on the cost report.
In order to identify separately billed items or services frequently billed
in association with in-facility hemodialysis, we used 2001 Medicare
outpatient claims data. We limited our claims population to those that
reported only in-facility hemodialysis and no other treatment method. We
defined "frequently billed" as those separately billed services that were
billed over 100,000 times annually. We excluded laboratory services
because these are typically billed directly to Medicare by the laboratory,
not by the dialysis facility. Medicare instructs providers to record each
drug administration on the claim separately, and accordingly, we defined
one administration of a drug as one record on the claim. It is possible,
however, that some providers aggregate the units of several
administrations. To the extent this is the case, the billing frequencies
for these specific drugs likely underestimate the actual administration
frequencies.
4Prior to July 1, 2000, Medicare outpatient claim files provide the total
payment for all services that a provider records on each claim, but not
the individual payments for each service.
Appendix I: Scope and Methodology
To review cost and clinical data on daily hemodialysis, we examined 25
articles obtained through a MEDLINE literature search for studies on daily
hemodialysis published from 1998 through 2002. We examined an additional
11 articles referred to us during our interviews.
We conducted our work from July 2002 through June 2004 in accordance with
generally accepted government auditing standards.
Appendix II: Comments from the Centers for Medicare & Medicaid Services
Appendix II: Comments from the Centers for Medicare & Medicaid Services
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact Nancy A. Edwards, (202) 512-3340
Acknowledgments Kevin J. Dietz, Joanna L. Hiatt, Maria Martino, and
Yorick F. Uzes made major contributions to this report.
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