Renal disease management demo launched

Medicare is using a flat-fee approach to rein in spiraling dialysis costs.

By Markian Hawryluk, amednews staff. June 23, 2003.

Washington -- In an effort to control the rampant growth of dialysis care expenditures, Medicare officials announced a demonstration project that would pay dialysis centers a lump sum rather than a payment for each procedure. But physician groups have expressed concern about the eroding role of doctors in managing these patients' care.

The four-year demonstration project announced early this month by the Centers for Medicare & Medicaid Services seeks to change the incentives for dialysis treatment. Medicare currently pays a flat rate for the dialysis services, plus additional payments for any ancillary services a dialysis center may provide.

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"Right now the incentives for dialysis centers is to use as much as they possibly can," said CMS Administrator Tom Scully. "They lose money on their base Medicare rate, and they make all their money on ancillary services. So what we're trying to do is say we'll give you all the money in one bundle, and you try to use it more efficiently."

The demonstration project is seeking bids for organizations to treat end-stage renal disease patients through two payment options. The first would pay a flat rate higher than the current rate for outpatient dialysis but would require organizations to cover all the costs of routine drugs and lab tests under that bundled payment. A second option would pay a capitated rate to health plans to provide all Medicare-covered services to enrolled patients, even care not related to dialysis.

Under both payment options, participating organizations would have to provide disease management services and collect quality-of-care measures. Scully said ESRD patients are among the few Medicare beneficiaries who see health professionals as often as three times a week. Yet there are only limited incentives for those health professionals to manage the non-dialysis conditions.

Medicare spends an average of $54,000 per dialysis patient each year.

"I've always thought it was amazing the way the incentives are set up," he said. "As soon as somebody on dialysis gets a cold or a sore throat, a venipuncture problem or anything else, they don't get paid to take care of that patient. The incentive is to stick them in an ambulance and send them up the street to the hospital."

As a result, Medicare spends an average of $54,000 per renal patient each year. Scully said a disproportionate amount of that is the cost of hospitalization that could be prevented with effective disease management.

The implications for Medicare are substantial. Over the last decade, end-stage renal disease rates have doubled to 400,000 patients and 50,000 deaths a year. Medicare will spend about $16 billion on ESRD patients this year, and the 2000 report of the United States Renal Data System projects costs will exceed $28 billion by 2010.

CMS expects the flat payment rates to encourage dialysis centers to eliminate unneeded services, but the agency will require them to collect quality data to ensure that patient needs are being met. CMS will hold back 5% of the pay rate to create an incentive to be earned by meeting certain benchmarks or by showing improvement on quality measures.

Jury is out

For the most part, physician groups have reserved comment on the project until they have a chance to analyze its details fully. Based on a preliminary review, the Renal Physician Assn. applauded the addition of disease management services in treating dialysis patients, but it also urged CMS to maintain the autonomy of nephrologists to determine the right course of treatment.

"The checks and balances for patients that are offered by the nephrologist's ability to make independent treatment decisions and advocacy based on patient needs, which are unencumbered by a fiduciary responsibility or commitment to the dialysis unit provider ... must be preserved," said RPA President William F. Owen Jr., MD.

Medicare will spend $16 billion on end-stage renal disease this year.

CMS said the bundled payment option would not include the physician fees currently billed by nephrologists under the physician fee schedule, but it would include payment for overall disease management services. Under the capitated option, health plans or dialysis units would have to contract with nephrologists just as managed care plans now do.

"The doctor still remains in charge of the patient's care," Scully said. "With the help of qualified staff and appropriate incentives for quality, we can assist organizations in producing even better care for these patients."

CMS has provided little guidance on how demonstration participants must structure their relationship with physicians under the project. Much will depend on the proposals submitted. Currently, only a handful of large for-profit dialysis companies provide the majority of dialysis services nationwide. Several of these are gearing up to bid to participate in the demonstration project, although some have expressed concern over the adequacy of the bundled payment level.

Davita Corp., a Torrance, Calif.-based, publicly traded company that provides dialysis service to 43,000 patients in 32 states and the District of Columbia, does not intend to bid. Company officials expressed concern that dialysis patients do not have predictable costs and that centers may not have enough patients to adequately mitigate the risk.

This latest effort builds on a congressionally mandated demonstration project completed in 1999. In that project, only three managed care companies began enrolling patients, and only two completed the project. A Health and Human Services report issued this year said the program attracted mostly younger and healthier patients. Because the risk-adjustment formula did not adequately compensate for their health status, Medicare spent more money on patients in the demonstration project than for comparable patients in fee-for-service Medicare, the report said.

But both demonstration sites showed higher patient satisfaction scores and clinical outcomes equal to or higher than their fee-for-service counterparts. The patients enrolled in the demonstration project also had lower out-of-pocket costs.

Scully said the new project makes use of an improved risk-adjustment process that will eliminate the chance that participants can profit by enrolling healthier-than-average patients. Applications for the demonstration are due Aug. 28.

ADDITIONAL INFORMATION:

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Centers for Medicare & Medicaid Services' announcement of its end-stage renal-disease demonstration project, Federal Register, June 4 (a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/2003/03-13829.htm)