Healthcare Business News

Savings drainer

Bundled dialysis payments targeted in latest deal

By Beth Kutscher
Posted: January 5, 2013 - 12:01 am ET

“Bundling gives you every incentive to basically minimize costs. Bundling frankly will only work if there are basic thresholds on what you can and cannot do.”

—Shailender Swaminathan,
Brown University professor

Less than one month after the Government Accountability Office called on the CMS to recalculate payments to dialysis providers, the fiscal cliff compromise sets in motion cuts that would squeeze out $4.9 billion in savings.

The Dec. 7 GAO report argued that Medicare has been overpaying for end-stage renal disease treatment by relying on 5-year-old drug use trends that are no longer accurate.

Yet the cuts run even deeper than the GAO's calculations, which estimated that the CMS could have saved between $650 million and $880 million in 2011 if the payments were more in line with current prescribing trends.

The debate over bundled payments dovetails with an ongoing controversy about the safety of a key group of drugs known as erythropoietin-stimulating agents. The blockbuster products—including Amgen's Epogen and Aranesp well as Johnson & Johnson's Procrit—represent Medicare's single-largest drug expenditure.

ESAs treat anemia that often results from kidney disease. But after they were linked to blood clots, stroke and heart attacks, the Food and Drug Administration in June 2011 changed its prescribing guidelines to recommend more conservative dosing.

By the end of 2011, ESA use had plunged 31% compared with 2007, the year that served as the basis for the CMS' current bundled payment rates, according to the GAO.

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Health researchers note that the safety controversy only accelerated a built-in financial incentive for providers to use lower doses of ESAs to reap the most profit. The CMS added oral and injectable drugs to the bundle on Jan. 1, 2011.

Shailender Swaminathan, a Brown University professor who authored a study on the history of bundling, noted that even though the CMS initially allowed providers to phase in the new payment model, 95% chose to adopt it from Day One.

“Clearly that 95% realized that they could make more money with the bundled rate,” Swaminathan said.

The CMS' own research has shown that the bundle has had a positive effect on provider profitability. A CMS-supported study from the University of Michigan's Kidney Epidemiology and Cost Center that was presented at the 2012 American Society of Nephrology meeting, found that dialysis providers “rapidly and substantially” altered their medication mix in response to the payment model.

Yet Dr. Thomas Hostetter, chairman of the public policy board at the American Society of Nephrology, noted there's still limited clinical data on whether declining ESA use has been good or bad for patients—including whether blood transfusions have increased. “I think the biggest concern is that this is such a widely fluctuating area right now,” he said.

Swaminathan noted that blood transfusions aren't part of the bundled rate—so there's less incentive to avoid them.

Dennis Cotter, president of the research organization Medical Technology and Practice Patterns, said that while the DRG system encourages providers to “upcode” patients, bundling encourages more outsourcing, such as referring more complex patients to specialists.

Mae Thamer, the group's senior research associate, noted that when safety concerns first prompted a “black box” warning on the drugs in 2007, ESA use dropped only 7%. “In that case (under fee-for-service), the FDA findings were widely ignored,” she said. The 31% decline after bundling was introduced “speaks volumes in itself,” Cotter added. “That tells us that prior to the bundle, there was a lot of [ESA] overuse.”

The potential for financial incentives to influence treatment has created resistance to introducing bundled payments for other conditions, Swaminathan noted. “Bundling gives you every incentive to basically minimize costs,” he said. “Bundling frankly will only work if there are basic thresholds on what you can and cannot do.”

Yet dialysis providers have stressed that the GAO analysis, and the subsequent focus on rebasing the bundled payment, ignores the cost of delivering care.

“If implemented inappropriately, rebasing can have a devastating impact on vulnerable patients,” Kidney Care Partners, an industry and advocacy group, said in a statement after the fiscal deal was reached. “Access to high-quality care for individuals with kidney failure also will be threatened if the fragile economics of dialysis facilities are further undermined by any additional cuts, whether through sequestration or other action.”

Robert Sepucha, senior vice president of government affairs at Fresenius, the country's largest dialysis provider, said the GAO report provided an “incomplete and ultimately inaccurate view of the bundle” by failing to account for rising ESA costs and new oral drugs that will be folded into the payment next year.

A statement from DaVita, the second-largest dialysis provider, similarly pointed out that as recently as last month, MedPAC commissioners said it would be premature to rebase the payment.

In 2011, the CMS spent $10.1 billion on 365,000 beneficiaries with end-stage renal disease, according to the GAO.

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