Article - April 3, 2008 - Atlantic Information Services, Inc.

Will CMS's Bundled End-Stage Renal Disease Payment System Result in Efficiencies or Less Access to Care for Medicare Patients?

Reprinted from SPECIALTY PHARMACY NEWS, a monthly newsletter designed to help health plans, PBMs, providers and employers manage costs more aggressively and deliver biotechs and injectables more effectively.

By Angela Maas

A comprehensive new reimbursement model for patients with end-stage renal disease (ESRD) that CMS outlined in a recent report may inadvertently result in less access to care for Medicare patients and more pressure on commercial health plans to increase their payments, say some industry experts.

On Feb. 20, CMS presented a report mandated by the 2003 Medicare reform law to Congress on the design and implementation of a fully bundled ESRD prospective payment system (PPS). President Bush's 2009 proposed budget has a legislative proposal to begin such a system on Jan. 1, 2011.

Atheer Kaddis, vice president of managed markets at Diplomat Specialty Pharmacy, however, describes the chances of Bush's legislative proposal passing this year as "very low to impossible, given that this is a presidential election year and having a Democrat-controlled Congress. The budget aims to cut about $200 billion over five years in Medicare payments primarily focused on fee-for-service reimbursement, which would impact physicians and hospitals."

Medicare claims data for 2006 indicate there are about 4,700 facilities that provide outpatient maintenance dialysis to about 315,000 Medicare patients. Expenditures for dialysis and dialysis-related drugs totaled $8.1 billion for that year.

The current payment methodology for outpatient maintenance dialysis services provided to ESRD patients is the composite payment rate, which is a partially bundled prospective rate. But facilities bill separately for some of the services, including drugs and lab services, and payment is made under fee-for-service rules. In 2005, about $4.8 billion of the $7.9 billion of the Medicare spending for outpatient dialysis services was covered by the composite payment rate system.

Medicare spends about $2 billion annually — more than for any other drug in Medicare Part B — on Epogen (epoetin alfa), the most commonly prescribed drug for patients on dialysis. In a December 2006 House Ways and Means Committee hearing, lawmakers questioned whether the current payment system creates perverse incentives that lead to overuse of Epogen and other drugs. During that hearing, a representative from the Government Accountability Office said that a payment system that bundled the drugs in with other services would reduce those incentives.

The CMS report, which includes two bundled payment options, examines a bundled ESRD PPS with a base treatment payment rate that includes the combined composite rate and separately billed services. The base rate would be adjusted for case-mix factors such as patient age, gender, weight and length of time on dialysis. Factors such as income differences across geographic areas and comorbidities could also affect adjustments.

One major advantage of the system is its "more consistent payment level for dialysis services," says Kaddis. "It will also reduce the dialysis payment trend of CMS year over year. Finally, it is meant to spur advances in technology by dialysis providers (including home hemodialysis and newer forms of peritoneal dialysis)."

"The case-mix system suggested by the report seems to be a reasonable approach to implementing a bundled PPS for dialysis in comparison to the existing PPS," says Todd Barrett, owner and manager of Covenant Pharmacy, a long-term care pharmacy. "The problem, as is often the case with PPS approaches, is bundling all medications into the payment system.…Medication costs must be carefully considered for incorporation in any PPS system because of the volatility of prices beyond the control of other indices."

The "inclusion of injectables in the rate could consume most of the reimbursement," he asserts.

"The bundled payment must adequately reflect the payments for medications and the services based on patient mix," contends Barrett. "In other PPS approaches, the medication costs often quickly gobble up the entire reimbursement rate. This, of course, would force dialysis centers to reduce services even for patients whose other factors such as age, weight and comorbidities increase the overall reimbursement."

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