Medicare: Enrollment Growth and Payment Practices for Kidney Dialysis
Services (Letter Report, 11/22/95, GAO/HEHS-96-33).

Pursuant to a congressional request, GAO reviewed Medicare's End Stage
Renal Disease (ESRD) Program, focusing on: (1) ESRD enrollment patterns;
(2) the reasons for program enrollment and cost increases; and (3)
whether there are separately billable services that should be included
in the future composite rate.

GAO found that: (1) ESRD program enrollment has increased at an average
annual rate of 11.6 percent since 1978; (2) the major reason for the
enrollment increase is due to the increase in ESRD patients age 65 years
or older and persons whose primary diagnosis is diabetes or
hypertension; (3) advances in technology and the greater availability of
dialysis machines have allowed persons that at one time were not
considered to be good candidates for dialysis to be placed on dialysis;
(4) decreased patient mortality has also contributed to increased ESRD
program enrollment; (5) program costs have increased substantially
because of increased ESRD enrollment; and (6) there is no separately
billable dialysis-related medical service or supply that is provided
frequently enough for inclusion in the new composite rate.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-96-33
     TITLE:  Medicare: Enrollment Growth and Payment Practices for 
             Kidney Dialysis Services
      DATE:  11/22/95
   SUBJECT:  Health care programs
             Urologic diseases
             Cardiovascular diseases
             Health care costs
             Medical services rates
             Medical supplies
             Elderly persons
             Demographic data
             Health care services
IDENTIFIER:  Medicare End Stage Renal Disease Program
             Medicare Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

November 1995

MEDICARE - ENROLLMENT GROWTH AND
PAYMENT PRACTICES FOR KIDNEY
DIALYSIS SERVICES

GAO/HEHS-96-33

Medicare's ESRD Program

(106416)


Abbreviations
=============================================================== ABBREV

  ESRD - end stage renal disease
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  ProPAC - Prospective Payment Assessment Commission

Letter
=============================================================== LETTER


B-256781

November 22, 1995

The Honorable William V.  Roth Jr.
Chairman, Committee on Finance
United States Senate

The Honorable Daniel Patrick Moynihan
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable William M.  Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
House of Representatives

The Honorable Fortney H.  (Pete) Stark
Ranking Minority Member
Subcommittee on Health
Committee on Ways and Means
House of Representatives

Medicare is the predominant health care payer for people who have end
stage renal disease (ESRD)--permanent and irreversible loss of kidney
function.  Since it started, both the number of people covered by
ESRD and the costs to Medicare of the ESRD program itself have risen
rapidly.  From 1974, the first full year of the program, to 1991, the
most recent year for which the Health Care Financing Administration
(HCFA) has published final enrollment and cost data, the number of
persons enrolled in the ESRD program has increased from about 16,000
to nearly 218,000, while program costs have grown from about $229
million to more than $6 billion. 

Under Medicare, facilities that furnish dialysis treatments for ESRD
patients receive a fixed payment for each dialysis session.  This
payment, known as the composite rate, includes reimbursement for
certain supplies, drugs, laboratory tests, and other services that
are routinely provided during dialysis.  Other dialysis-related
items, such as electrocardiograms and blood transfusions, are
separately billable; that is, a facility or another provider can
receive payment for them in addition to the composite rate. 

You asked us to provide an update on ESRD statistics, including
information on ESRD enrollment patterns and the reasons for program
enrollment and costs increases.  You also asked us to determine
whether any services that are currently separately billable should be
included in a future composite rate. 

To identify the reasons for the growth in ESRD program enrollment and
costs, we reviewed data from HCFA and others.  To determine if any
separately billable services should be considered for inclusion in a
future composite rate, we analyzed HCFA's database that identifies
all medical services provided to all ESRD patients in 1991, which
corresponds to the latest year for which HCFA has published final
ESRD enrollment and cost data.  Appendix I contains a more complete
description of our scope and methodology. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Medicare's costs for the ESRD program have increased, primarily
because the number of new beneficiaries being enrolled in the program
increased substantially.  The annual rate of increase averaged 11.6
percent between 1978 and 1991.  In addition to the increase in
enrollment, the mortality rate for new ESRD patients decreased.  For
example, mortality of beneficiaries during their first year in the
program decreased from 28 percent to 24 percent between 1982 and
1991. 

Since the program began in 1973, technological improvements and a
greater availability of dialysis machines have meant that persons who
were not considered good candidates for dialysis in 1973--primarily
those 65 years old or older and those whose kidney failure was caused
by diabetes and hypertension--are now routinely placed on dialysis. 

Our review of medical services and supplies provided to all Medicare
ESRD patients in 1991 indicates that no separately billable service
or supply was provided frequently enough to make it a good candidate
to be considered part of the standard dialysis treatment and thus
included in a future composite rate. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Medicare program covers dialysis services for patients suffering
from ESRD, the stage of kidney impairment that is considered
irreversible and requires either regular dialysis treatments or a
kidney transplant to maintain life.  Kidney dialysis is the process
of cleansing excess fluid and toxins from the blood of patients whose
kidneys do not function.  Renal failure can result not only directly
from a particular kidney disease, such as glomerulonephritis, but
also indirectly from other diseases, such as diabetes and
hypertension.  Virtually all persons with ESRD are eligible for the
Medicare program and they are eligible for all Medicare covered
services, not just dialysis sessions.\1

There are two general modes of dialysis treatment:  hemodialysis and
peritoneal dialysis, both of which can be performed at a renal
facility or at home.  In hemodialysis, blood is sent from the
patient's body and through a dialysis machine that filters out body
waste before returning the blood to the patient.  In peritoneal
dialysis, the blood is filtered within the patient's abdominal cavity
without leaving the patient's body.  The vast majority of ESRD
patients receive hemodialysis treatments and they receive these
treatments at renal facilities.  Generally, an ESRD patient has three
dialysis sessions per week. 

Presently, independent renal facilities receive an average of $126
per dialysis session, while hospital-based facilities receive an
average of $130.  These rates are actually lower than those paid in
1973.  HCFA's database included information on 16,159,051 outpatient
dialysis treatments in 1991. 


--------------------
\1 A person 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. 


   SUBSTANTIAL INCREASES IN ESRD
   PROGRAM ENROLLMENT AND COSTS
------------------------------------------------------------ Letter :3

Although eligibility criteria for the ESRD program have not
substantially changed or relaxed since the program's inception, the
number of patients either on dialysis or with a kidney transplant
increased from about 16,000 in 1974 to nearly 218,000 by 1991. 
Driven by increased enrollment, total expenditures for ESRD patients
also increased significantly--from $229 million in 1974 to more than
$6 billion by 1991.\2

The growth in enrollment and expenditures in the 8-year period from
1984 through 1991 (the most recent year for which HCFA has published
final enrollment and cost data) is shown in table 1.  Enrollment
figures represent all patients who were on the ESRD rolls at some
time during the year.  The total enrollment column includes all ESRD
patients and the program costs column shows Medicare's costs for all
services provided to ESRD patients during the year.  The last 2
columns show enrollment and expenditures for dialysis patients. 



                                Table 1
                
                     Medicare's ESRD Enrollment and
                         Expenditures (1984-91)

                                                                 Costs
                                         Total                      of
                                enrollment (at    ESRD  Dialys  dialys
                                      any time  progra      is      is
                                    during the       m  patien  patien
                                         year)   costs      ts      ts
------------------------------  --------------  ------  ------  ------
1984                                   113,542  $2.381  93,695  $1.988
1985                                   125,378   2.680  101,95   2.205
                                                             1
1986                                   136,957   3.109  109,06   2.514
                                                             0
1987                                   148,771   3.442  116,85   2.797
                                                             8
1988                                   165,894   3.851  130,88   3.200
                                                             8
1989                                   181,189   4.528  143,47   3.803
                                                             8
1990                                   198,273   5.261  156,89   4.424
                                                             8
1991                                   217,771   6.070  172,42   5.186
                                                             6
----------------------------------------------------------------------
Source:  Department of Health and Human Services, Health Care
Financing Administration, Bureau of Data Management and Strategy,
Office of Research and Demonstrations, Health Care Financing Research
Report--End Stage Renal Disease, 1990, HCFA Pub.  No.  03228, p.  56;
1991, HCFA Pub.  No.  03338, p.  58; 1992, HCFA Pub.  No.  03359, p. 
60.  (Baltimore:  1992, 1993, 1994). 

HCFA data show that the number of ESRD dialysis patients (both
Medicare and other) at the end of the calendar year has increased
from 78,483 on December 31, 1984, to 186,822 on December 31, 1994. 
Patient growth was about 9 percent per year during this period. 


--------------------
\2 Of the $6 billion, $2.68 billion was for inpatient hospital
services, $2.10 billion was for outpatient services, $1.30 billion
was for physician and supplier services, and $76 million was for
other expenditures including those for skilled nursing facility and
home health services. 


      IMPROVEMENTS IN DIALYSIS
      PROCEDURES LEAD TO MORE
      ENROLLMENT BY ELDERLY AND
      DIABETIC AND HYPERTENSIVE
      PATIENTS
---------------------------------------------------------- Letter :3.1

The major reason for the growth in ESRD enrollment has been the
increase in the number of people 65 years old and older and people
who are on dialysis and whose primary diagnosis is diabetes or
hypertension.  Physicians' clinical judgment of who is an appropriate
candidate for dialysis has changed over time.  According to the
Prospective Payment Assessment Commission (ProPAC),\3 few elderly
patients were treated for chronic kidney disease before 1973 due to
the experimental nature of the treatment at that time and because
advanced age was a contraindication to dialysis treatment. 

The enrollment pattern has changed--and enrollment has
increased--because modern dialysis techniques have become viable
options for treatment of kidney failure in the elderly.  Since 1973,
when the program began, improvements in medical technology--such as
erythropoietin for treating anemia in dialysis patients and the
introduction of faster, more efficient dialysis machines--have made
successful treatment available to a greater number of people
suffering from kidney failure. 

In addition, as shown in figure 1, a continuous increase in the
number of dialysis providers and stations (machines) has made
dialysis available to more patients.  In 1976, for example, there
were 840 independent and hospital-based providers of outpatient
dialysis services with 7,093 stations.  By 1985, the number had
increased to 1,463 providers with 17,845 stations; by 1994, it had
grown to 2,640 providers with 37,771 stations. 

   Figure 1:  Growth in the Number
   of Dialysis Providers and
   Stations (1976-94)

   (See figure in printed
   edition.)

Source:  U.S.  Department of Health and Human Services, Health Care
Financing Administration, Bureau of Data Management and Strategy,
National Listing of Medicare Providers Furnishing Kidney Dialysis and
Transplant Services, January 1995, HCFA Pub.  No.  03367 (Baltimore: 
1995), p.  5. 

HCFA's data indicate that the percentage of ESRD patients 65 years
old and older is rapidly increasing.  In 1972, persons 65 years old
and older accounted for 5 percent of the ESRD patient population; by
1982, they represented 23.9 percent; and by 1991, 33.6 percent.  The
elderly also represent an increasing percentage of newly enrolled
patients, accounting for nearly 45 percent of new ESRD patients in
1991 (see table 2). 



                                Table 2
                
                  New ESRD Patients and Percentage 65
                      Years Old Or Older (1984-91)

                                                                Percen
                                                                  tage
                                                                of new
                                                           New  patien
                                                      patients   ts 65
                                                      65 years   years
                                               New      old or  old or
                                          patients       older   older
--------------------------------------  ----------  ----------  ------
1984                                        26,668       9,244    34.7
1985                                        29,718      10,796    36.3
1986                                        32,061      12,135    37.8
1987                                        35,081      13,785    39.3
1988                                        38,151      15,207    39.9
1989                                        42,885      18,036    42.1
1990                                        46,658      20,306    43.5
1991                                        50,831      22,809    44.9
----------------------------------------------------------------------
Source:  Department of Health and Human Services, Health Care
Financing Administration, Bureau of Data Management and Strategy,
Office of Research and Demonstrations, Health Care Financing Research
Report--End Stage Renal Disease, 1990, HCFA Pub.  No.  03228; 1991,
HCFA Pub.  No.  03338; 1992, HCFA Pub.  No.  03359 (Baltimore:  1992,
1993, 1994), p.  5. 

The percentage of ESRD patients with a primary diagnosis of diabetes
or hypertension has also increased.  In 1986, these patients
accounted for 29.4 percent and 25.1 percent, respectively, of new
ESRD patients.  By 1991, these percentages had increased to 35.9
percent and 28.8 percent (see table 3). 



                                     Table 3
                     
                      New ESRD Program Enrollees by Age and
                           Primary Diagnosis (1986-91)

                                                                          Percen
                                                                               t
                                                                          change
                                                                          (1990-
                            1986    1987    1988    1989    1990    1991     91)
------------------------  ------  ------  ------  ------  ------  ------  ------
Age
--------------------------------------------------------------------------------
Under 15 years old           420     430     403     405     461     454    -1.5
15-24 years old            1,188   1,247   1,268   1,315   1,271   1,242    -2.3
25-34 years old            2,992   2,852   3,087   3,413   3,438   3,485     1.4
35-44 years old            3,659   3,989   4,340   4,704   5,133   5,501     7.2
45-54 years old            4,450   4,893   5,390   5,904   6,230   6,753     8.4
55-64 years old            7,217   7,885   8,456   9,108   9,819  10,587     7.8
65-74 years old            7,937   8,972   9,669  11,302  12,682  14,097    11.2
75 years old or older      4,198   4,813   5,538   6,734   7,624   8,712    14.3
================================================================================
Total                     32,061  35,081  38,151  42,885  46,658  50,831     8.9

Primary diagnosis
--------------------------------------------------------------------------------
Diabetes                   9,434  10,488  11,717  14,214  15,939  18,249    14.5
Glomerulonephritis         4,717   4,958   5,228   5,643   5,779   5,810     0.5
Hypertension               8,049   9,221  10,325  12,161  13,278  14,633    10.2
Polycystic kidney          1,225   1,248   1,250   1,275   1,402   1,474     5.1
 disease
Interstitial nephritis     1,355   1,240   1,233   1,378   1,371   1,497     9.2
Obstructive nephropathy      846     839     872     954     916     985     7.5
Other                      1,879   2,016   2,182   2,596   2,788   3,456    24.0
Unknown                    2,349   2,804   2,657   2,443   2,408   2,693    11.8
Missing                    2,207   2,267   2,687   2,221   2,777   2,034   -26.8
--------------------------------------------------------------------------------
Source:  Department of Health and Human Services, Health Care
Financing Administration, Bureau of Data Management and Strategy,
Office of Research and Demonstrations, Health Care Financing Research
Report--End Stage Renal Disease, 1992, HCFA Pub.  No.  03359
(Baltimore:  1994), p.  5. 


--------------------
\3 End-Stage Renal Disease Payment Policy, ProPAC, Congressional
Report C-92-04 (Washington, D.C.:  1992), p.  53. 


      MORTALITY RATES FOR ESRD
      PATIENTS HAVE DECREASED
---------------------------------------------------------- Letter :3.2

In addition to increased enrollment of the elderly, a second, less
significant factor contributing to increased enrollment in the ESRD
program is the decrease in aggregate mortality rates.  The percentage
of patients alive at 1 and 2 years after ESRD onset increased
slightly between 1982 and 1991.  Mortality rates for both transplant
and dialysis patients have improved, with the rate for transplants
decreasing the most. 

As shown in figure 2, in 1982, roughly 72 percent of new dialysis
patients were alive after 1 year of dialysis.  By 1991, that number
had increased to more than 76 percent.  Although not shown in this
figure, the 2-year survival rate had increased from 55 percent in
1982 to about 60 percent by 1990.  The 1-year survival rate for
transplant patients increased from roughly 85 percent to almost 92
percent, while the 2-year rate increased from nearly 80 percent to
nearly 87 percent.\4

   Figure 2:  Adjusted 1-Year
   Patient Survival, by Treatment
   Modality and Year of Incidence
   (1982-91)

   (See figure in printed
   edition.)

Source:  The National Institutes of Health, National Institute of
Diabetes and Digestive and Kidney Diseases, U.S.  Renal Data Systems,
USRDS 1994 Annual Data Report (Bethesda, Maryland:  1994).  (1991
data are preliminary.)

Survival rates also differ sharply by diagnosis (see fig.  3). 
Dialysis patients with a primary diagnosis of glomerulonephritis (a
form of kidney disease) have the highest survival rate, while
diabetic patients have the lowest.  However, diabetic patients have
had the most dramatic and consistent increase in survival rates--from
62.7 percent in 1982 to 73 percent in 1991. 

   Figure 3:  Adjusted 1-Year
   Dialysis Patient Survival, by
   Diagnosis and Year of Incidence
   (1982-91)

   (See figure in printed
   edition.)

Source:  The National Institutes of Health, National Institute of
Diabetes and Digestive and Kidney Diseases, U.S.  Renal Data Systems,
USRDS 1994 Annual Data Report (Bethesda, Maryland:  1994).  (1991
data are preliminary.)


--------------------
\4 The aggregate pattern plays out quite differently for different
age groups.  For patients 20 through 44 years old, 77.4 percent were
alive after 1 year in 1982 and by 1991 this percentage had increased
to 88.5 percent.  For those 65 through 74 years old, the rate
increased from 70 percent to 71 percent and for those over 74 years
old, it increased from 58 to 61.4 percent. 


   NO SEPARATELY BILLABLE SERVICES
   ARE GOOD CANDIDATES FOR
   INCLUSION IN HCFA'S COMPOSITE
   PAYMENT RATE
------------------------------------------------------------ Letter :4

HCFA has always used a prospective type of payment method for
dialysis.  When the ESRD program began, supplies, drugs, laboratory
tests, and other services that were frequently or routinely provided
to dialysis patients were included as part of the payment rate for
dialysis. 

Currently, the composite rate includes payment for a variety of
laboratory tests that are covered at specified frequencies.  For
instance, for patients receiving hemodialysis in a facility, all
blood clotting tests furnished during a dialysis session are
included, as are one prothrombin time test per week and one total
protein test per month.\5 If a patient requires a test included under
the composite rate more frequently than stated in HCFA's guidelines,
Medicare will pay separately for it as long as it is medically
necessary. 

HCFA identifies separately billable medical services provided to ESRD
patients by physicians and a variety of suppliers, including
laboratories, durable medical equipment companies, ambulance
companies, and others.  In 1991, HCFA paid these providers $1.3
billion for over 49 million services and supplies covering
approximately 9,300 different procedures or services.  Our analysis
of these procedures and services found that no dialysis-related
service or supply was provided frequently enough to make it a good
candidate for inclusion in the composite rate for renal facilities.\6

To determine if a service might be a candidate for inclusion in the
composite rate, we compared the number of services provided in each
category to the number of dialysis months in 1991.\7 The resulting
ratio indicates how often a service or supply was provided, on
average, per patient month.  A 13-to-1 ratio, for example, would mean
that, on average, the service was provided once for each dialysis
session and that--based on its frequency--it may be a candidate for
inclusion in the composite rate.  A lower ratio indicates that the
service was provided less frequently and is, therefore, less likely
to be part of the typical bundle of dialysis services.  A ratio of
1-to-1 would indicate that the service was provided an average of
once a month or every 13 dialysis sessions. 

We found that the most frequently occurring service relating directly
to dialysis treatment was a hepatitis test and that it was provided
roughly once every 2 dialysis months or every 25 dialysis treatments. 
The second most frequently provided service (a test to measure blood
iron levels) was provided once every 2.7 dialysis months or every 34
dialysis sessions. 

In our opinion, the relatively low frequency with which separately
billable ESRD services occurred in 1991 does not make them good
candidates for inclusion in the composite rate. 


--------------------
\5 Reimbursement for certain separately billable laboratory tests is
also restricted to specific frequencies.  For example, for
hemodialysis patients, reimbursement is authorized for one platelet
test per month, one aluminum test every 3 months, one chest X ray
every 6 months, and one bone survey per year.  If a test is needed
more often, it is reimbursed as long as medical necessity is
established. 

\6 We excluded any service or supply not having a direct relationship
to dialysis.  For example, we eliminated items such as the
physician's monthly capitation payment (which is a fixed monthly fee
paid to a physician for continuing medical management of an ESRD
patient) and ambulance transportation. 

\7 Dialysis months are the number of dialysis sessions in a
year--16,159,051 in 1991--divided by 13, which is the average number
of dialysis sessions a patient receives in a month. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :5

The Department of Health and Human Services (HHS) agrees that the
increasing number of beneficiaries has been the main reason that
Medicare ESRD expenditures continue to grow.  HHS also points out
that with the aging of the American population, the number of
beneficiaries on dialysis is likely to continue to increase. 

HHS said that it understands our conclusion that under our
methodology we did not identify any good candidates for inclusion in
the composite rate.  HHS added that other methodologies exist that
might identify candidates for inclusion.  HHS gave as an example the
reviewing of data to determine whether the overall ESRD patient
population receives a particular item or service regardless of how
frequently individual patients receive it.  We agree that this is a
plausible methodology and that others probably exist. 

HHS also made several technical comments, which we considered in
finalizing this report. 


---------------------------------------------------------- Letter :5.1

We are sending copies of this report to the Secretary of Health and
Human Services and other congressional committees.  Copies also will
be made available to others upon request.  If your or your staff have
any questions about this report, please call me at (202) 512-7119 or
Tom Dowdal at (202) 512-6588.  Other contributors to this report
include Jack Brennan, Dick Neuman, Anita Roth, and Vanessa Taylor. 

Sarah F.  Jaggar
Director, Health Financing
 and Public Health Issues


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

Our objectives were to determine (1) why costs and enrollment in
Medicare's ESRD program are increasing and (2) which, if any, medical
services and supplies that are presently separately billable under
Medicare's ESRD program should be considered potential candidates for
inclusion in a future composite rate. 

To determine why ESRD enrollment and costs have increased, we
reviewed relevant research reports about ESRD enrollment, including
the Institute of Medicine's 1991 report Kidney Failure and the
Federal Government, ProPAC's 1992 report End-Stage Renal Disease
Payment Policy, the 1994 Annual Data Report--United States Renal Data
System, HCFA's Health Care Financing Research Reports--End Stage
Renal Disease, and HCFA's Medicare End Stage Renal Disease Population
1982-1987. 

To determine if any separately billable services are good candidates
to be included in the composite rate, we analyzed the 1991
physician/supplier ESRD database from HCFA to determine the type and
volume of medical services and supplies provided to ESRD patients. 
This database shows, by procedure code, all services and supplies for
ESRD patients paid by Medicare in 1991, the year corresponding to the
latest year for which HCFA has published final ESRD enrollment and
cost data.  From this database, we developed a frequency distribution
of each individual service and supply.  Using the frequency
distribution and the HCFA Common Procedure Coding System, we
determined the frequency of services and supplies that are related to
dialysis treatments. 

We also interviewed officials from HCFA, ProPAC, the Institute of
Medicine, and the RAND Corporation who are familiar with the ESRD
program. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)


*** End of document. ***