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http://www.nephronline.com/features.asp?F_ID=445Projected impact of the proposed 'bundled' ESRD payment system on a small dialysis organization6/9/2009 9:26:17 AM
by Premila Bhat, MD, Wojciech Sokolowski, MD, and J. Ganesh Bhat, MD
Abstract
Payment for outpatient hemodialysis services is currently made by the Centers for Medicare & Medicaid Services on a per-treatment basis using a partially "bundled" composite rate adjusted for geographic and patient characteristics, plus a separately billable portion for medications and services not included in the bundle. In response to concerns over rising costs of the End-Stage Renal Disease Program, and specifically the increasing use of erythropoiesis-stimulating agents, Congress has mandated a new, more inclusive prospective payment system, in which current composite rate services, separately billable medications, and dialysis-related laboratory services will be included in a single payment. It is expected that the so-called bundle will apply a geographic wage adjuster and patient-specific case-mix factors to a base rate to calculate a per-patient, per treatment payment unit. We have modeled the proposed bundle and entered clinical and financial data for 118 Medicare patients dialyzed at a suburban dialysis center in New York State during 2006. Under the proposed bundled system, we stand to lose as much as $118,000 per year in revenue, and we find the case-mix adjusters appear to be poor predictors of our actual costs. We conclude that the proposed bundle places the small dialysis provider at significant financial risk.
Introduction
The Centers for Medicare & Medicaid Services (CMS) currently pays for outpatient hemodialysis (HD) services for patients with end-stage renal disease (ESRD) on a per-treatment basis through an adjusted composite rate system. The composite rate is a partially bundled rate covering the dialysis treatment and selected laboratory tests. The base composite rate is adjusted by geographic variables (i.e., wage adjustment and a non-labor cost-related adjustment) and a case-mix adjuster that includes patient age, body mass index (BMI), and body surface area (BSA). Payment for ESRD-related injectible drugs and laboratory services not included in the composite rate is made on a fee-for-service basis, i.e. "separately billable" items.
In 2007, 4,900 dialysis facilities treated 330,000 Medicare patients with maintenance outpatient HD, resulting in total expenditures for dialysis and dialysis-related medications of $8.6 billion, or about $26,000 per patient per year. The composite payment rate system accounted for approximately $4.8 billion of Medicare spending, or about 60%, for outpatient dialysis services, while the remaining 40% of payment was for separately billable items. Expressed in terms of payment per treatment, the average Medicare payment per dialysis treatment in 2005 was $237.02, of which $155 was for composite rate services, and $75 was for separately billable services.
In recent years, the composite rate combined with the separately billable payment system has been subject to scrutiny as the Medicare program looks for ways to limit overall ESRD expenditures. Specifically, concern has been directed at the rising use of erythropoiesis stimulating agents (ESAs). Since ESAs are sometimes obtained by dialysis centers at costs less than Medicare's payment for the medications, ESAs have become a source of profit for some centers, possibly leading to non-clinical incentives for ESA use. Furthermore, recent clinical trials such as CHOIR and CREATE (New England Journal of Medicine, 2006) highlight potential dangers of excess doses of ESAs.
The Medicare Prescription Drug Improvement and Modernization Act (MMA) of November 2003 required that the Secretary of Health and Human Services develop a case-mix adjusted prospective payment system (PPS) for dialysis which bundles the treatment payment with separately billable injectible medications and separately billable laboratory services drawn in the dialysis center. The preliminary research necessary to devise the bundle was contracted by CMS to the University of Michigan Kidney Epidemiology and Cost Center (UM-KECC). Based on UM-KECC's findings, the Secretary of Health and Human Services submitted to Congress a report outlining a proposal for a prospective payment system in February 2008. Subsequently, Congress enacted legislation-the Medicare Improvements for Patients and Providers Act (MIPPA)-in July 2008, which required implementation of a bundled payment system by 2011.
UM-KECC's report, based on Medicare Claims Data (e.g. Medicare Form 2728 and hospitalization data) and Medicare cost reports, proposes a bundled payment system that includes composite rate services plus ESRD-related separately billed injectible drugs, laboratory tests used in providing dialysis services that are not currently included in the composite rate, and other dialysis-related services and supplies (e.g., syringes). This composite rate is modified by a facility-level adjustment for the wage index, and patient-level adjustments for age, gender (female), body surface area, low body mass index, duration of renal replacement therapy, and 12 comorbidities. The case-mix adjustment weights are shown in Table 1.
According to the UM-KECC report, the base rate of bundled payments for services furnished by dialysis facilities would be $234.66 (in 2006 dollars), with adjustments made for wages and patient case-mix factors. UM-KECC discusses a provision for outlier patients whose separately billable costs are in excess of $240 per treatment; according to the UM-KECC model, the difference between the patient's separately billable costs and $240 is reimbursed at a rate of 80%. To clarify the methodology, a clinical example taken directly from the KECC report is outlined in the text box above.
The UM-KECC model is broad and ambitious in its scope, and addresses the critical needs to reduce use of ESAs and increase efficiency. However, there has been no prospective analysis of the impact of the model on the finances of actual dialysis centers. How well do current Medicare payments predict payment under the proposed model? What will be the impact of large or small numbers of outlier patients on the finances of an individual center? How do patient and facility-level variables affect payment?
In order to examine these questions in further detail, a quantitative model was built and patient and facility data from a mid-sized dialysis center affiliated with a regional chain of dialysis centers in New York State was entered. Data was collected retrospectively for patients who received dialysis treatments at this center during 2006 and for whom Medicare was the primary payer for dialysis services. Data regarding clinical parameters and payment was retrieved from 1) patient charts, 2) billing and cost reports, and 3) Medicare Form 2728.
Payment data elements were extrapolated from the number of dialysis sessions paid for during each month and total Medicare payments made during each month, excluding patient co-payments and secondary insurance coverage.
Cost data elements, relevant to determining the outlier payment adjuster, were obtained from cost reports. The following data were collected: cost of separately billable drugs, which are the injectible drug costs for each month not included in the composite rate payment; separately billable dialysis services and supplies; and separately billable laboratory services. Since laboratory bills were submitted to CMS and collected by an independent laboratory, we did not have access to the actual laboratory cost data. Hence laboratory services not included in the current composite-rate were estimated to cost $81.50 per month.
Bundled payments represent 80% of the total payment to allow for comparison to current payments, which represent 80% of Medicare payment.
Patient variables were entered into the spreadsheet, which functioned to apply the appropriate adjuster. These adjusters were then multiplied (per methodology described in the UM-KECC report) to derive the patient-specific case-mix adjuster. The geographic wage adjuster was then applied to 39.278% of the base rate per current CMS methodology and the resulting wage-adjusted base-rate was multiplied by the patient-specific case-adjuster to derive estimated bundled payment. Note that this wage adjuster proportion reflects the updated labor share for the expanded bundle ESRD market basket. The labor-related share of costs is lower in the bundled-rate market basket than in the composite-rate market basket since the bundled-rate market basket includes non-labor related cost categories, such as prescription drugs.
Results
This dialysis center treated 118 unique patients in 2006 for which Medicare was the primary payer. Characteristics of the facility and the surrounding community, obtained from
www.census.gov, are described in Table 2. Our dialysis population had, on the whole, a slightly higher percentage of white patients than the general ESRD population (as per the USRDS 2006 Annual Data Report). Medicare was the primary payer for the vast majority of patients (118/133). The area wage adjuster is 1.3%; this adjustment was applied to 39.278% of the base rate, per CMS current methodology, using our payment modeling tool. The month-by-month occurrence of case-mix relevant factors, expressed as a percentage of total number of patient treated during the month, is shown in Table 3. Total number of dialysis sessions; current Medicare payments; and projected bundled payments are shown in Table 4.
The mean number of treatments per patient per month was 11.7. Current Medicare composite rate-based payments average $213.71 per treatment while bundled payments are projected to be $207.40 per treatment. Based on our projections, we stand to lose $71,175 per year under the bundled system. If a 2% decrease in ESRD payment occurs in 2011 (as has been mandated by Congress), we stand to lose $118,028 per year. Figure 1 visually represents the difference between "projected bundled payment" according to the model and "current actual payment" in dollars per patient per year. The per-patient differences between bundled and current payments range from +$11,607 to -$18,302 over 2006.
When we considered the subgroup of patients for whom bundled and current payments differed by more than $5,000 per year, we found that elderly white male patients were more likely to have a reduction in Medicare payments (see Table 5). "Winners," for whom we were paid >$5,000 more per year under the bundle, had a substantially higher mean case-mix adjuster (1.193, n=11) than "losers," for whom bundled payments were >$5,000 less per year (mean case-mix adjuster 0.981, n=15). Yet mean separately billable costs were substantially higher for losers than winners ($17,309 vs. $5,997 per year). Along these lines, we found that when costs per dialysis session were plotted as a function of calculated case-mix adjusters, there was very little relationship between actual costs and the UM-KECC modeled adjuster (correlation coefficient 0.26).
Conclusions
Congress mandates implementation of a fully bundled PPS for ESRD services by 2011. In order to characterize the impact of the bundle on our center's finances, we have created a model that simulates the planned PPS, as outlined in the UM-KECC report, and applied to it historic data from a mid-sized suburban dialysis center. Over the course of one year, we expect a decrease in revenue of $71,175. Congress has legislated a 2% decrease in payment effective 2011 as seen in Table 4. If this decrease takes effect, we may lose as much as $118,028.
As shown in Figure 1, the projected differences between current and bundled pay range from +$11,607 to -$18,302 per patient per year, and for 23% of patients at this center (26/117) the absolute value of the difference in payments is >$5,000/year. The biggest losers are Caucasian male patients (see Table 5), as would be anticipated from the increased weight given for females in the case mix adjuster. While there are roughly equal numbers of patients for whom we see significant increases and decreases in annual payment (11 vs.15), the magnitude of loss (average loss is $11,040) is much greater than any gains (average gain is $6,746).
Our analysis suggests a significant increase in financial risk to the small or mid-sized dialysis provider, with small numbers of patients driving substantial losses. Clearly, if data for a large dialysis organization, such as Fresenius Medical Care NA or DaVita Inc. were modeled, risk would be distributed over a much wider group.
There is a very weak relationship between the calculated case-mix adjuster and costs of ESRD care, as seen in Figure 2. In fact, the UM-KECC report states that their model only explains 34% of the variance in costs of providing ESRD treatment, with clinical case-mix adjusters only adding 3% of explanatory power to the model.
The PPS as currently proposed will likely result in wide skews in reimbursement, particularly in smaller facilities. The presence of outlier patients and predictable case-mix adjusters (such as duration of RRT) can also have an impact on dialysis center finances and can potentially lead to cherry-picking or dumping of patients, and other as-yet unspecified adverse incentives. In addition, we have some concerns about the impact of hospitalizations on the costs of care in a bundled payment system. Dialysis staff often must "rescue" patients returning from a hospital stay by restoring hematocrit levels and addressing nutritional issues that were neglected during the hospitalization. Our group will begin studying the financial impact of these efforts on the payment model in the near future.
Practically speaking, obtaining the clinical data regarding case-mix adjusters and cost data took an average of 45 minutes per patient. The personnel costs that will be incurred by dialysis providers in the prospective implementation have not been addressed or otherwise accounted for in the bundle. Furthermore, we found some charts to be incomplete or otherwise lacking in the relevant information to determine case-mix adjusters. Miscoding of comorbidities is likely to be a significant problem. For instance, diseases such as alcohol/drug dependence and gastrointestinal bleeding have a wide spectrum of clinical severity and significance. Potential upcoding would be accounted for by reducing the base payment in the bundled PPS as conceived by the UM-KECC report. On the other hand, diagnoses such as HIV or myelodysplastic syndrome may be missed, due to a lack of relevant communication from other health care providers and health care settings or from delayed diagnosis. Of note, laboratory screening for these conditions are not routine for ESRD patients and the costs of this testing are not currently included in composite rate services.
We are troubled by the lack of a clear clinical relationship between some of the case-mix adjusters and ESRD care. While myelodysplastic syndrome and hemolytic anemias may be markers for erythropoietin resistance, neither condition fundamentally modifies hemodialytic therapies or need for personnel. On the other hand, many clinically important factors are not included in the bundle. For instance, patients with severe congestive heart failure, cirrhosis, and major psychiatric co-morbidities (independent of substance use) may require increased clinical care, more complex clinical judgment, and in some cases may require additional hemodialysis resources (e.g., increased number of treatments, increased nursing staff supervision). Catheter use and severe secondary hyperparathyroidism are also markers of increased ESA resistance that are not included in the case-mix adjustment. We emphasize that the primary source of case-mix data came from Medicare claims, which is collected for administrative rather than clinical use and therefore may not represent the true clinical and financial impact of ESRD comorbidities. Furthermore, cost data was derived from Medicare cost reports, which are not systematically audited. Many important factors are overlooked in the case-mix adjustment, as evidenced by the lack of relationship between the high costs of care in our center, and the case mix-adjuster.
A limitation of our model is a lack of cost data for all aspects of ESRD care. Specifically, we did not have access to laboratory cost data since we contract laboratory services to an independent laboratory. Furthermore, our discussion is limited to the experience of a single privately owned for-profit dialysis center in an urban area. Differences in geographic factors, patient mix, and clinical practice patterns will surely result in differing experiences with the bundle. It should be noted that our model follows the UM-KECC report as written, without added assumptions or interpretation. There is considerable ongoing debate in the industry and on Capitol Hill regarding the details of the bundle, including what should and should not be included, and which case-mix adjusters should be incorporated. Therefore, the actual PPS is likely to differ considerably from the UM-KECC's report.
We believe that use of the UM-KECC PPS as currently formulated will increase financial risk for independent and smaller chain dialysis providers who account for approximately 40% of the current ESRD provider market. In the bundled system, larger providers will be protected due to economies of scale, and the ability to spread financial risk, e.g., unprofitable units can be balanced by profitable ones.
The intent of bundling is to clearly increase efficiency while maintaining quality measures (e.g., pay for performance). Consequences of bundling will likely include adherence to protocols for use of ESAs, more effective use of iron therapy, and switching to subcutaneous use of ESAs; increased AVF use; and adherence to standardized bone-disease management protocols. Unintended consequences of this bundled PPS may include closure of smaller facilities, further limiting the access to care and competition in the area of ESRD care; shifting of costs towards private insurers and hospitals; decreases in the level of services provided by medical practitioners; and cherry picking of patients, both in regards to case-mix and insurance considerations. The MIPPA legislation represents an unprecedented opportunity for improved quality and efficiency of ESRD care, but without careful prospective implementation, the ESRD program itself may be at substantial risk.
Acknowledgements
We would like to thank Drs. Tracy J. Mayne and Matthew Gitlin of Amgen Inc. for their support and input, as well as Gloria Luis, RN, Jugal Agarwal, and Jeff Gurkin for their time and effort in collecting clinical and payment data.
Bibliography
University of Michigan Kidney Epidemiology and Cost Center. Guide to the 2003 End Stage Renal Disease Payment System: Results of Research On Case-Mix Adjustment for An Expanded Bundle. Ann Arbor, Mich., University of Michigan Kidney Epidemiology and Cost Center, February 2008
Medicare Payment Advisory Commission. Report to the Congress: Medicare Payment Policy. Washington, D.C., March 2009
Michael O. Leavitt, Secretary of Health and Human Services. Report to Congress: A design for a bundled end-stage renal disease prospective payment system, 2007
www.census.gov
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