• Congress Overrides President to Adopt Major End Stage Renal Disease Payment Reform
  • August 28, 2008 | Authors: W. Kenneth Marlow; Kevin P. Kimery
  • Law Firm: Waller Lansden Dortch & Davis, LLP - Nashville Office
  • On July 15, 2008, Congress overwhelmingly overrode President Bush's veto of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, H.R. 6331). The legislation thwarts a 10.6 percent decrease in payments to physicians that took effect July 1, 2008 and provides for long awaited, fundamental reforms to the End Stage Renal Disease (ESRD) payment system. With an affirmative vote to override the presidential veto in the House of Representatives of 383 to 41 and in the Senate of 70 to 26, Congress sent a clear message that it was committed to protecting physician payments and implementing ESRD payment reform.

    With respect to payments to physicians, the legislation rescinds a 10.6 percent payment reduction that became law on July 1, 2008, which means that funding levels will be maintained at the same rate for the entire calendar year. As a result, CMS will resume paying Medicare claims at the rate before the 10.6 percent reduction went into effect. According to CMS, local contractors are hard at work updating their payment systems with the new rate. Once the payment systems are updated, the contractors will work to reprocess the claims that were previously processed at the lower rate.

    Perhaps even more important to providers in the dialysis industry are the significant changes with respect to ESRD payments. First, Congress has provided some much needed economic relief to the provider community by enacting increases to the composite rate. The legislation provides for a 1 percent increase in the composite rate for the calendar year 2009, and, similarly an additional 1 percent increase in the composite rate for the calendar year 2010. Second, recognizing that there should be no distinction in the costs arising from the provision of dialysis services in a hospital-based setting versus a freestanding outpatient setting, Congress eliminated separate composite rates. Hospital-based dialysis clinics historically have had a higher composite rate as compared to freestanding outpatient dialysis clinics. Now, however, there is one composite rate for both. It is anticipated that this change in reimbursement will mean greater pressure on the hospital-based providers of dialysis services to outsource these services to public and private companies that exclusively provide dialysis services.

    The most sweeping change to the ESRD payment system is the long awaited bundled payment system. Currently, CMS reimburses dialysis providers for most items related to dialysis services, such as labor costs, related supplies and equipment and certain medications and laboratory tests based on a composite rate. The providers receive separate reimbursement for ESRD drugs, based upon the manufacturers' average sales price plus 6 percent for all separately billable ESRD drugs and biologicals, with certain exceptions. One of the problems seen with the current system is that the composite rate has not kept pace with inflation, and, accordingly, the reimbursement received by providers is generally less than the cost of providing dialysis treatments. At the same time, the payments received for separately billable drugs generally exceed the costs to obtain the drugs. It has been widely reported that some providers, whether intentionally or unintentionally, rely upon reimbursement for the separately billable drugs to subsidize the composite rate payment. The government believes that moving to a bundled payment system, where such reimbursement is consolidated into one payment, will encourage providers to operate more efficiently and focus on outcomes more directly than the current system. In addition, the government thinks that this will remove any existing incentives to overprescribe separately billable ESRD drugs.

    The MIPPA requires the implementation of a bundled payment system for dialysis treatments by Jan. 1, 2011. The bundled payment will include reimbursement for all of the following: (i) items and services included in the composite rate for renal dialysis services as of Dec. 31, 2010; (ii) erythropoiesis stimulating agents, including oral forms of such agents for the treatment of ESRD; (iii) other drugs and biologicals furnished to individuals for the treatment of ESRD; and (iv) diagnostic laboratory tests and other services for the treatment of ESRD. The system also will take into account certain case mix adjustments, including patient weight, body mass index, comorbidities, length of time on dialysis, age, race, ethnicity and high cost outliers. There is a minimum 10 percent case mix adjustment for low-volume facilities that incur significantly higher costs than their competitors.

    The bundled payment system will be phased in over a four-year period (in equal increments), with the payment being fully implemented for dialysis services furnished on or after Jan. 1, 2014. The estimated total amount of payments under the bundled payment system will be equal to 98 percent of the estimated total amount of payments for dialysis services that would have been made with respect to services furnished in 2011, using the lowest per patient utilization data from 2007, 2008 and 2009 for estimation purposes. Providers may make a one-time election to be excluded from the phase-in and be paid based on the new bundled payment system, provided that such election is made prior to

    Jan. 1, 2011. Commencing in 2012, there will be an increase in bundled payment amounts by an ESRD market basket percentage increase factor that reflects changes over time in prices of an appropriate mix of goods and services included in the delivery of renal dialysis services minus 1 percent.

    In order to ensure that patients receive quality care for services reimbursed pursuant to the bundled payment system, providers will be required to meet certain quality measures, including anemia management, patient satisfaction, iron management, bone mineral metabolism and vascular access. Commencing Jan. 1, 2012, providers that fail to satisfy such measures will receive a reduction in the bundled payment rate up to 2 percent. In an effort to provide transparency to the public regarding quality performance, the total performance score achieved by the provider and appropriate comparisons will be made available to the public along with the provider's performance on individual measures.

    There is no question that the dialysis payment landscape is changing dramatically with the implementation of the bundled payment system. It remains to be seen, however, whether the new system will be financially beneficial or detrimental to any single provider. One thing is certain - the costs of providing dialysis services and medications are increasing drastically, and providers will need to use their collective efforts to ensure that the bundled payments are adjusted annually to account for significant inflation. This economic pressure is further intensified by the fact that failure to comply with the quality measures may result in both decreased reimbursement and loss of patients as a result of the publication of poor quality performance.