This report originally appeared in the November 2010 issue of DOTmed Business News

The Centers for Medicare & Medicaid Services kept the dialysis industry on its toes this summer. After submitting 1,600 comments on the first draft of the agency’s revamped payment system - the most momentous change to the sector in decades - everyone from patient advocacy groups on Capitol Hill to nonprofit providers in rural America waited.

The final End-Stage Renal Disease Prospective Payment System rule was unveiled on July 26, and after deciphering the 923-page document, the industry let out a collective sigh of relief — for the most part.

“The final rule is a lot less draconian than the proposed rule was last year,” says Dr. Jay Wish, medical director, hemodialysis services, with the University Hospitals Case Medical Center in Cleveland. “It appears that CMS actually did listen to the comments and pulled back appropriately.”

Although the final rule is better than anticipated, changes brought on by the new PPS will require providers to overcome unprecedented administrative hurdles and take a cut in reimbursement, which for some facilities, may be a significant one.

Revenue streams might also shrink due to another rule, proposed by CMS on the same day it released the ESRD PPS – the Quality Improvement Program. The comment period for the QIP closed Sept. 24 and the program’s final rule is expected to surface later this year.

What’s in the new PPS?
For decades, CMS paid for dialysis based on a composite rate payment, which covered a bundle of services and paid separately for other aspects of treatment, such as drugs and lab tests. According to CMS, out of the approximately $9.2 billion Medicare paid for dialysis services in 2007, about $3.5 billion was paid for separately billable services.

“Over time, the number of additional services paid outside of the composite rate has grown significantly,” says Ellen Griffith, CMS spokeswoman. “Particularly, the payment for drugs related to dialysis services has grown very rapidly.”

Congress altered the payment system by mandating that CMS develop a fully bundled payment system for ESRD services in the Medicare Improvements for Patients and Providers Act of 2008. The statute requires CMS to phase in the new bundling payment system over a four-year period. However, the agency is also giving providers an option to opt in into the plan entirely beginning Jan. 1. Providers who choose to transition into the new system will receive a blended payment: in 2011, facilities will get paid 75 percent based on the payment rate under the current composite system and 25 percent based on the new ESRD bundled payment system. The ratio will change by 25 percent increments annually until 2014, when all clinics reach the payment rate of the full bundled system.

For 2011, the CMS standardized base rate of the bundle is $229.63, prior to the adjustments to case-mix and the wage index. CMS adopted four patient-level case-mix adjustors: age, body mass index, body surface area and new patients. It also includes six comorbidity categories, down from 11 in the proposed rule. The bundle encompasses 52 lab tests, listed by CMS in the final rule, which are specifically related to ESRD care.

The bundling of lab tests and drugs into a single reimbursement rate comes with a reduction in payment.

“In MIPPA of 2008, Congress basically changed a quarter of a century reimbursement policy by combining all these income streams into a single stream and then also mandating that the total reimbursement be reduced by 2 percent,” says Dolph Chianchiano, senior VP for health policy and research with the National Kidney Foundation.

Much of the concern expressed by key industry players is centered on the inclusion of Medicare Part D prescription drugs into the bundle and an unexpected CMS calculation that may deepen the 2 percent dent in revenue for dialysis providers nationwide.

Bundling of drugs
In the first draft of its rule, CMS included all renal-related oral drugs without an injectable equivalent into the bundled payment, drawing much criticism from the industry. In the final rule, CMS decided to hold off from including the oral-only drugs into the bundle until 2014.

“It was very much in response to comments and our recognition that we need a lot more data and background before actually bundling [the oral-only drugs] in,” says CMS’ Griffith. “In principle, they are included, but we’re not implementing that until the end of the transition period.”

The delay of the oral-only drugs into the bundle will enable CMS to conduct additional research on the ability of dialysis facilities to provide ESRD drugs and facilities to develop the infrastructure to offer the drugs to patients.

Providers commend CMS for holding off on the inclusion of the drugs until 2014, but also recognize the administrative challenges that lie ahead.
Marc Chow, director of government affairs with Satellite Healthcare, a 47-center nonprofit kidney dialysis service provider, says facilities will have to change their operational models — seek out pharmaceutical partners and navigate state pharmaceutical laws —unprecedented hurdles for dialysis facilities.

The transition of facilities into the role of drug providers also raises concerns about the fragmentation of care. Gary Cellini, VP of strategic planning with Satellite Healthcare, says shifting the responsibility to providers may exacerbate the already complicated medication management process among dialysis patients.

“[Dialysis patients] can be on 8 to 15 medications, depending on their comorbid conditions,” says Cellini. “They could have multiple physicians prescribing them.”

Dialysis patients are also prone to frequent hospitalizations, adding on to the difficulty of managing the complete medication profile. Cellini says physician, staff and patient education throughout the implementation of the new PPS will prove to be crucial in the coming months.

Patient advocacy groups also expressed concern about the inclusion of Part D drugs into the bundled payment. Dialysis Patient Citizens, a Washington D.C.-based nonprofit advocacy group with more than 22,000 members, is glad CMS delayed the inclusion of the drugs until 2014 but some worries persist.

“How will the system actually work?” asks Chad Lennox, the organization’s executive director. “Many dialysis patients are lower-income and some have mobility issues. Some of the smaller providers will have to contract with local pharmacies and there’s been some concern that patients won’t be able to get the medications as easily as they could before. Would they be dealing with multiple pharmacists?”

There are also some qualms about pharmaceutical innovation. If there is a set price on the drugs, there’s less of an incentive for pharmaceutical companies to invest in the research and development that’s necessary to produce the next generation of drugs, says Lennox.

Oral drugs with injectable equivalents are a different story. Those will be included in the bundle starting Jan.1 of next year. CMS classified the products into five different ESRD drug categories, with the intention of offering flexibility to incorporate new drugs into the bundle as they become available.

A pricey transition
Providers already knew that they were going to get hit with a 2 percent cut in reimbursement as mandated by Congress in MIPPA of 2008, but an additional reduction as a result of a CMS calculation came as a surprise. In an effort to maintain budget neutrality, the agency is shaving off 3.1 percent from payments to all clinics in the first year of the transition to the new bundled system, affecting even those facilities that decide to fully opt-in starting next year.

In the final rule, CMS estimates 57 percent of facilities will choose to transition to the new PPS over a four-year period, and thus receive a blended payment rate during the transition. The agency projects the remaining 43 percent of providers will choose the more immediate opt-in option. To compensate for the agency’s assumption that less than 50 percent of providers will opt-in, CMS is reducing payments by the previously mentioned 3.1 percent.

Leanne Zumwalt, VP of investor relations with DaVita, Inc., a major provider, says industry leaders’ disagreement doesn’t rest with the necessity of the budget neutrality factor, but with CMS’ calculation. The “2 percent haircut” was expected but the projection that calls for a 3.1 percent reduction in payments is off, she says.

In the final rule, CMS stated that it’s considering making an adjustment if its projection is over or underestimated, but not until 2012.

“More facilities are going to opt-in than CMS anticipated and that will unfortunately remove a lot of money from the system that can be used during this transition period,” says DPC’s Lennox.

Facilities are required to decide if they are going to opt-in or transition over four years to the new PPS by Nov. 1. Providers are urging CMS to wait until all of the facilities make their decisions to then recalculate its transition adjustor.

“We believe that CMS should be using real data and they will have real data starting Nov. 1,” says Satellite’s Chow.

In addition to the anticipated payment reduction, providers who choose to take the four-year route to the new PPS will also face some administrative challenges.

“The claims are a nightmare. For the phase-in period, when you have the potential for the blended rate, what they’re going to require from facilities in terms of claims data is extremely onerous,” says UH Case Medical Center’s Wish. “They’re not only going to have to include the claims data from the old system, which includes all the separate billables, but they’ll also have to include all the claims data for the new system, which are all the case-mix adjustors. It’s basically twice as much data, collection and reporting.”

A win for home dialysis
Perionetal home dialysis accounts for about 8 percent of the U.S. patient population, but some industry experts hope to see that percentage grow. Advocates of home dialysis were satisfied with CMS’ decision to create a home or self-care dialysis training payment adjustment for facilities certified to provide home dialysis training.

Originally, CMS limited payments for home training to the first 120 days of care with an add-on for providers. Advocates responded that this mechanism discourages providers from training patients beyond that time period, prompting CMS to adopt a separate adjustment for both hemodialysis and peritoneal dialysis modalities.

“The reimbursement rate for home dialysis training has been increased so that it’s more economically feasible for dialysis providers to do that training. The final rule allows facilities that do provide only home dialysis training to be calculated as a small provider. That means they can get an additional level of reimbursement,” says National Kidney Foundation’s Chianchiano. “All in all, I think everyone assumes with good reason that there will be an increase in the number of patients who are on home dialysis. We believe that more patients are suited for home dialysis than are currently receiving their treatments at home.”

CMS only pays for three days’ worth of dialysis, which some say has been a disincentive to more frequent and home-based treatments. Industry professionals are anticipating the results of a major study undertaken by the National Institute of Diabetes and Digestive and Kidney Disease, which examines the efficacy of more frequent dialysis. The results of the study will be made public at the American Society of Nephrology annual meeting in mid-November.

Race adjustor
In its proposed rule, CMS included 18 case-mix adjustors that would enable clinics to justify higher treatment costs for different patient groups. Industry feedback to this portion of the rule reduced the number to eight new adjustors and increased the base rate.

An adjustor for a patient’s race or ethnicity did not make it into the final rule; an element providers believe should be a part of the PPS. DaVita’s Zumwalt says dialysis patients who are black are more expensive to treat and make up about 35 percent of the dialysis population.

“It’s well documented that African-American patients require 14 percent more pharmaceuticals, Vitamin D and Epogen to obtain the same outcome as a Caucasian individual,” she says.

Zumwalt says that in its own analysis, CMS writes that facilities in the Southeast will see the biggest drop in revenue, a region where the patient dialysis population is more than 60 percent black.

“We have a lot of heartburn over that because we know what’s driving it,” says Zumwalt. “The system doesn’t have a mechanism now to correct it.”

Some industry experts speculate that CMS left out the race adjustor because it was a touchy and politically charged decision to make. In the final rule, the agency does state that it plans to invest resources into studying clinical or biological factors that increase the cost of care for certain groups, such as women and blacks.

QIP: A penalty system?
In addition to changing how facilities are paid for dialysis, MIPPA of 2008 also calls for a program aimed at improving the quality of care among dialysis providers. Set to begin on Jan. 1, 2012, the Quality Improvement Program is significant in itself – it’s the pioneering Medicare pay-for-performance program.

The proposed rule outlines three dialysis quality measures, which will be measured on a facility-wide basis of the patient population and compared to the national average. The three measures are hemoglobin above 12 grams per decileter (g/dL), hemoglobin below 10 g/dL and urea reduction ratio equal or greater than 65 percent. Under the QIP, facilities that fail to meet or surpass these measures will see as much as a 2 percent reduction in payment rates.

Industry experts criticize the QIP because of its structure – it withholds payments, rather than reward facilities for quality of care.

“It should provide an incentive for the people in the bottom quartile to move up and it really doesn’t if it’s just a penalty system,” says Zumwalt.

Providers believe that CMS shouldn’t just hold back the money but rather reinvest it into the program.

“If you have facilities that don’t achieve the right outcomes and money is held back from them, we believe that money should stay within the ESRD program and in turn, should be potentially given to those facilities that do meet the outcomes,” says Satellite’s Cellini.

Patient advocates side with providers, agreeing that QIP should reward those who improve the quality of their care.

“We’d have hoped that there’d be more carrot than stick,” says DPC’s Lennox.
Another concern raised by industry experts is the potential for the alienation of high-risk patients from treatment.

“Patients who do not fit the ideal profile for an in-center dialysis patient might find that there is cherry-picking and also that they might be discharged from a dialysis facility,” says National Kidney Foundation’s Chianchiano, “because dialysis facilities reimbursement under the quality improvement program will be at least partially determined by patient outcomes, which are partially determined by patient adherence to the treatment regiments, such as showing up for dialysis treatments.”

As the proposed rule stands now, payments for quality won’t be impacted until 2012, but CMS plans to use this year’s performance measures, a decision that elicits criticism from the industry. In a letter recently sent to the agency, DaVita argues using 2010 performance measures is a violation of the statute.

MIPPA of 2008 states that CMS must finalize the performance measures before the performance year begins, explains Zumwalt. However, with most of 2010 elapsed, CMS is still finalizing the performance measures it plans to take into consideration in the QIP.
Providers and patient advocates alike are calling for more performance measures beyond hemoglobin levels and anemia management, so that facilities have an incentive to improve “the whole spectrum of ESRD care,” says Chianchiano.

Industry stakeholders also say they are still waiting for the complete implementation of CrownWeb, CMS’ Web-based data collection system that enables dialysis providers to submit patient data to the agency.

Industry players hope to see their feedback to the proposed QIP taken into account in the final rule.

Tracking progress
The PPS changes the status quo for dialysis providers nationwide and brings a set of administrative and bureaucratic adjustments to the delivery of treatment. Between a 2 percent reduction in reimbursement, a 3.1 percent transition adjustor and the potential of as much as a 2 percent reduction in the proposed QIP, providers have a lot to worry about.

“Conceivably, we’re talking about a potential 7 percent cut in reimbursement and the profit margins in dialysis facilities are so small that it’s a significant reduction in resources,” says Chianchiano.

With the final ESRD payment system set to kick-off in January, industry professionals are adamant about setting up a monitoring or tracking system, which would provide information on the effects of the fundamental changes to the payment system.

The Dialysis Outcomes and Practice Patterns Study, a prospective study that investigates practices related to best outcomes for hemodialysis patients, is stepping up to the plate. To help CMS assess the impact of the new rules, it’s launching the DOPPS Practice Monitor, a Web-based system that will analyze practice patterns among providers and share the data with the renal community every four months. The DOPPS DPM will provide extensive data throughout the implementation of both the PPS and the QIP. It’s set to begin later this year.

“We want to make sure that patient care and quality of care and patient outcomes are not unintentionally affected by the new bundling system,” says Chianchiano.