March 15, 2005 - The Medicare Payment Advisory Commission has released the transcript from its March 11 meeting. 429-page pdf file.

As a service to our readers, RenalWEB has extracted the 28 pages that apply to the March 11 topic, "Improving Outpatient Dialysis Payment Policy". It appears below.

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MS. RAY: I will try to be brief. This session on outpatient dialysis payment policy is a follow up on issues that we raised about the MMA and the new regulations in the December and January meeting.

You've seen this table before. This shows how outpatient dialysis services are being paid in 2005. We're going to focus on the bottom row, how Medicare is separately paying for injectable drugs, and then we will focus in on how Medicare is paying for the composite rate services, including the add-on adjustment.

First, let's talk about issues with the changes to drug payment policies. The MMA mandated that providers be paid acquisition cost. As implemented, there are now multiple ways to pay for separately billable drugs. Average acquisition payment is used to pay for most separately billable dialysis drugs. AAP is derived from average acquisition cost data gathered by the IG last year. And average acquisition payment is used to pay for the top 10 drugs in freestanding facilities -- that includes EPO � and for EPO in hospital-based facilities.

However, average acquisition payment is not the only way Medicare pays for drugs. For drugs other than the top 10 in freestanding facilities, Medicare pays ASP plus 6 percent. And for drugs other than erythropoietin in hospital-based facilities Medicare pays reasonable cost. So this means that payment for drugs, other than erythropoietin, differs between freestanding and hospital- based facilities.

There may also be concern about the long term sustainability of the average acquisition payment data. Like I said, the IG collected this data. This data represents 2003 acquisition cost for the top 10 dialysis drugs. The IG is not mandated to go back and update this data over time. So what that means is that over time the average acquisition payment may not accurately reflect acquisition costs if negotiating strategies between providers and manufacturers change.

By contrast, ASP might be a better source of data in contrast to average acquisition payment data. It is updated by the agency quarterly. It contains information on all drugs, and it would better reflect providers' acquisition cost in the future if negotiating practices change between manufacturers and providers. It's also consistent with how Medicare pays other Part B providers. And it would certainly reduce the complexity in paying for dialysis drugs because it would be just one way to pay for the drugs; one payment rate.

This leads to the issue then, at what level should ASP be set? In CMS's proposed Part B reg they initially proposed paying for dialysis drugs and ASP minus 3 percent. They arrived at ASP minus 3 percent based on the data from the IG report that found that the four national dialysis chains, which represented roughly 70 percent of all freestanding facilities, paid ASP minus 6, and the all other facilities, which represent 30 percent of facilities, pay 4 percent over ASP.

In our comment letter to the agency we raised the concern that not all providers might be able to purchase drugs at ASP minus 3 percent and suggested that CMS consider setting the payment rate at or above ASP to maintain beneficiaries' access to care. In the final rule, as the first table showed, the agency retreated and used the IG acquisition cost data to set payment for the top 10 dialysis drugs in freestanding and EPO in hospital-based. And they took the 2003 data and they updated it to 2005 payments rates using the producer price index.

This leads us to our first draft recommendation, that CMS should eliminate differences in paying for separately billable dialysis drugs between hospital-based and freestanding facilities, and use average sales price data to base payment for all separately billable dialysis drugs.

This recommendation is consistent with MedPAC policy that providers' decisions about site of care should be on based on clinical, not functional, status.

As you can see from the recommendation, we didn't specify a particular level of ASP however. We conducted an impact analysis to better understand how aggregate payments might change if you use different levels of ASP. In our impact analysis we tried our best to replicate CMS's approach, and I'd be happy to answer any questions you might have about the methods we used.

One point I do want to raise here, however, is that our impact analysis includes all drugs provided by freestanding facilities and EPO by hospitals. Our impact analysis that I'm presenting today does not include non-EPO drugs provided by hospitals. To replicate CMS's impact analysis it's necessary to use the payment rate per drug per unit data, and that data is available for the top 10 drugs. For non-EPO hospital-based we had to turn to the claims data to try to derive payment per unit, and we're still doing this, and we will report back to you in April. But right now we are looking at the accuracy of that data to derive payment per unit.

So here you see the payment per unit for the top three drugs. We focused on ASP plus two and ASP plus three for this month because we thought these were both best approximations of the average acquisition payment data, the payment rate already in place, and that would stick to the spirit of the law in paying average acquisition cost.

So you see here the impact and the change of payment per unit for dialysis drugs. We're comparing this to pre-MMA payments. So overall, you'll see that under the current policy of paying average acquisition payment, payment for drugs went down 13 percent. Again, this is all drugs provided by freestanding and EPO by hospital-based. You'll see for ASP plus two and ASP plus 3 percent, that difference is pretty close to the 13 percent.

Here is the aggregate change in payments. Again, this data is preliminary and we'll come back to you next month with more data analysis. I think what I want to point out here is, you'll see on the bottom row that the payment for drugs will vary depending on how you pay for them. But the story doesn't end here. Remember, I told you we have this add-on adjustment, so the difference in the pre versus post-MMA payments is shifted to the add-on adjustment that's associated with the composite rate. So we haven't lost any dollars here. These are all designed to be budget neutral and I will show you that in a couple slides from now.

Let's move on to the composite rate. The MMA did not �

DR. MILLER: Just to be clear, so in other words, even though you see negative signs on these drugs, these differences get built into the composite right side, and we're about to move into that discussion. Is that fair?

MS. RAY: That's correct. Thank you.

Quickly moving on to the composite rate then. The MMA did not change the difference in the base payment rate between hospital-based and freestanding facilities. The base rate differs. There is a four-dollar difference that was mandated when the composite rate was initially put in place in 1981.

We also have concerns about the design of the add-on adjustment. It's complex. If the intent is for the add-on to address the cross-subsidy between the profits for separately billable drugs and the composite rate, then the two payment rates should be combined. In reality, both the composite rate and the add-on are added together before payment will be case mix adjusted beginning on April 1st of this year.

So this leads to our second draft recommendation, that the Congress should direct the Secretary to eliminate differences in paying for composite rate services between hospital-based and freestanding facilities, and that the composite rate and the add-on adjustment be combined.

This recommendation, again, is consistent with the MedPAC principle of payment not varying across different sites of care.

I just want to point out here that although this recommendation combines the payment, we don't want to lose sight that we ultimately want to figure out what services should be in the bundle, particularly the broader bundle, snd that's addressed by our third recommendation that's coming up.

So if you were just to look at the composite rate by eliminating the four-dollar difference and spreading that four-dollar difference, the dollars associated with those treatments across all treatments, just the composite rate by itself would change by 0.4 percent for freestanding and decline by 2.7 percent for hospital-based.

I want to raise some concerns here about eliminating the four-dollar difference that have been raised by some stakeholders. They contend that hospitals are fallback facilities, and that hospitals treat patients who were more complex and might be more disruptive than freestanding facilities. Some stakeholders also contend that hospitals provide higher staffing of RN's, social workers, and dietitians, than freestanding facilities.

Just to briefly address those points, and I think commissioners could discuss them if they'd like. First is concerning that hospitals are fallback facilities. Payment, beginning in 2005 in April is now adjusted for case mix, and I think that this case-mix adjustment will only get better over time, particularly as we expand the bundle and case mix adjust for a broader bundle.

Concerning whether or not hospitals provide more care, I think here, again, Medicare needs to think carefully about what services need to be included in the bundle, and that those services are available for patients in both freestanding and hospital-based facilities.

So then if you were to take the recommendation to the next step and you would combine the composite rate and the add-on adjustment and you would eliminate the four-dollar difference you see the three different payment level. Again, the payment levels differ depending upon how you pay for a drug because of that add-on adjustment. The add-on adjustment, one more time, is the excess dollars that were associated with the drug margin. So the more you pay for drugs, the smaller the add-on adjustment. That's why under this scenario, the ASP plus 3 percent is slightly lower than the ASP plus 2 percent payment rate.

So here we are back putting the change in the drug payment policy, combining the add-on adjustment and the composite rate, and eliminating the four-dollar difference. Again, you will see that payment slightly differ depending upon how you pay for the drugs, but that in total this is done budget neutral so total payments don't differ.

Now I'd like to just take you briefly towards modernizing the payment system. The MMA does not bundle the composite rate, injectable drugs, and other services commonly provided to patients. The separate payment, as we pointed out many times, does not give the right incentive for the efficient use of services. The MMA, however, does mandate a three-year demonstration on a broader payment bundle, and that this demo is slated to begin next year.

So our draft recommendation reiterates our recommendation that we made in 2001, that Medicare should broaden the payment bundle. And I think some thought needs to be given here as to whether it should reflect dialysis care or the care of the dialysis patient. That payment should account for factors that affect efficient providers' cost, including case mix, dialysis method, and dialysis dose. It is very important for Medicare to monitor and report on the quality of care. And for holding providers accountable for the quality of care, payment should be linked to quality.

Next month I'm hoping to bring you back some additional information about purchasing strategies of dialysis facilities, looking at the impact of using more current wage indices, and different ways to case mix adjust a broader payment bundle.

MR. HACKBARTH: Nancy, could you talk a bit more about the relative impact of the series of changes on freestanding versus hospital-based? There's some pluses and minuses in terms of eliminating the four-dollar differential on the other hand, but then on the other hand spreading the add-on for the drug overpayments across both as opposed to just the freestanding from whence it came. How does all of this net out in terms of the relative impact on the two types of facilities? Did that come out clearly? Do you know what I'm asking?

MS. RAY: Right. I don't have those numbers here in a table for you. I can get those for you in April. It does change it slightly. But again, because we picked the drug payment levels that closely approximated average acquisition payment, what I can say is the impact of going from pre-MMA to the current law, that that impact is pretty similar if you go from pre-MMA to either ASP plus two or ASP plus 3.

DR. MILLER: But if you took that in isolation, I think part of the reason -- to try to talk about this comprehensively, the thing not to miss in this is -- and Nancy, make sure I don't miss anything here -- we're fundamentally rejecting the MMA's approach to this add-on, where you keep this piece that continues to look at drugs, estimate the profit, and pour it into the composite rate. So we're fundamentally saying, for a lot of reasons that we went through in previous meetings, very complicated, probably not a great policy, et cetera, so step one.

Step two, at the same time we're messing around with how to pay the drugs. Wrong word. We're saying rationalizing -- a better word -- rationalizing how we pay for drugs across the three categories, which also, depending on the distribution of drugs in the different -- will have an effect, and also affects what we end up putting in the composite rate for our one-time fix, if you will.

The third thing that's gone on that also changes the distribution is we're taking the four dollars from the hospital-based and taking that out and saying that should be equal, which will send money in the other direction, as it were.

Then finally, a little piece that we don't have, if I understand all of this, is the non-EPO drugs in the hospital. We are definitely trolling through the data trying to figure out how to get unit estimates to estimate that. So giving you a net-net by the types of facilities is still little bit escaping. But I think your last point is pretty dominant here. To the extent that the ASP plus two, plus three is close to acquisition cost, in isolation, that effect remains the same, and then the offsetting effects of the four dollars moves the money in the other direction from hospital-based to freestanding.

MR. HACKBARTH: Just to be clear, I think moving towards a single payment system, regardless of the two types, I think is a very important goal, but I think we need to understand the impact as best we can on the different types.

MS. BURKE: Nancy, in anticipating a more detailed discussion of this in April, following on Glenn's point, there are a couple of things that I'm not sure I fully understand and would appreciate understanding as we go forward. One is the fundamental move from the acquisition price to the sales price and why. What is it inherently about the acquisition price that makes us -- given that they are so close, what is it that would have us go from one to the other? And does that create any strange incentives on the sales price where this will suddenly encourage certain kind of behaviors on the pharmaceutical side? I just want to make sure I fully understand what the impact is of moving from one to the other.

The second question that I would appreciate understanding as we go into this is the issue around the removal of the difference in payment between the hospital- based and the freestanding. We, as I recall -- and I don't recall the details of it -- have looked at the differences in quality indicators as we've gone forward in terms of dialysis patients, and your point that there's an argument made that on average there has been a higher rate of nurses, other staffing on the hospital side, I just want to have us come back to and again relook at what is it that that information told us? What do we know about whether there are any differences in quality indicators between hospital-based and freestanding?

To what extent any of that, if there is a difference, and that's what I can't frankly recall from our earlier discussion -- if there is a difference, to what extent can we in fact attribute that to a higher ratio of staffing, things that at least historically was suggest that there is a direct impact? If you have more nursing hours there to be a higher quality result. What do we know particularly about this issue, and how would we apply that knowledge going forward if we're about to get rid of that difference?

MS. RAY: Let me just clarify. Some stakeholders contend that hospital-based provide more RN's. I have not validated that.

MS. BURKE: I understand. That's my question is what do we know from the data, whether that's true or not.

MS. RAY: I think to answer your second question, CMS's clinical performance measures, to the best of my knowledge, don't differentiate between freestanding at hospital-based facilities, and that is the information that we have presented in the past about monitoring the quality of dialysis care.

MS. BURKE: So we have generic, not specific?

MS. RAY: That's correct, because that is based on a sample of patients. I will see what is out there that looks at hospital-based and freestanding and will report back to you in April.

MS. BURKE: That would be great. Thanks. And I would also appreciate understanding more fully what the difference is moving from acquisition price to sales price.

MS. RAY: Sure. I think the issue with the average acquisition payment data is that the IG collected it in 2003, so it represents the negotiating patterns as of 2003, so I would presume it's pretty accurate even now in 2005. The concern here is as you go out over time -- the IG doesn't have to go out and collect it again for these top 10 drugs, so what probably will happen is, if the Secretary continues to use it, I would guess that the Secretary would probably just keep increasing it by the producer price index or some other update proxy. So if negotiating patterns do change then that 2004 data won't reflect �

MS. BURKE: Let me tell you my fairly simplistic concern, and there may be no basis for this concern, is when I hear sales price I hear the opportunity for sales, the price that is essentially charged, to increase, if there's every incentive to do so. So I'm trying to understand -- I understand your point about some data is going to be updated and some data is not. What I'm trying to anticipate is to what extent is there going to be an impact in either direction for a price increase because we will pay it? And whether this leads towards a behavior on the part of the negotiation where there is suddenly no inhibition on -- the price was 10, now it's going to be 20, because in fact what Medicare is saying is they're going to pay for the sales price.

I just want to understand whether there's an incentive in either direction, depending non the term that we use or the data that we use, that will suddenly provide an opportunity for price hikes solely as a result of the way we calculate what those numbers are going to be, if there's no inhibition. That's what I want to make sure I understand. I understand your desire for absolutely more current data. That goes without a doubt. I just want to understand what the difference is in this impact.

DR. MILLER: Joan, you may need to help us out here. Your fundamental concern, most attached very much to the average wholesale price in which that was a sticker place, nobody paid it. What the average sales is supposed to represent -- and there is where I want Joan here -- is the transaction price net of discounts.

DR. SOKOLOVSKY: Let me start by saying your concern about Medicare paying the price, whatever the price might be, is well taken, but well taken on both sides. Average sale price is not the price. It is the data that manufacturers must report to CMS every quarter on their returns for each drug that they sell, net of discounts.

DR. MILLER: So it's supposed to be a transaction price, and it's supposed to be kind of like an acquisition cost, but the source of the data and the frequency of the data is what drives us more in �

MS. BURKE: What is the difference? Where we get it or who gives it to us?

DR. MILLER: That is certainly �

MR. HACKBARTH: So the sales price comes from the manufacturer. The acquisition cost comes for the provider of the services; is that right?

MS. RAY: That's correct.

MR. HACKBARTH: So what I hear being said, and correct me if I'm wrong, is that there's an existing mechanism for collecting the data from the manufacturer. Right now there's just an every once in awhile survey to be collected from the provider. So if we were to use -- they seem logically to produce similar results, and in one case we have got an easy mechanism and the other case it's a harder mechanism.

MS. BURKE: So the assumption is -- I mean, we collect information from hospitals on a variety of things all the time, so if we wanted to we could say, we want your acquisition price. But our presumption is because there's so little difference between them that we can assume going forward that having done one you'll get the other; that there is no difference?

DR. SOKOLOVSKY: There are limitations in both sets of data. They should return very similar numbers. The limitations are different for each set of data, but I think the most important thing is that there is a mechanism in place to regularly, each quarter, collect data.

DR. REISCHAUER: But the real issue is that under both there is an incentive of the sort that Sheila is referring to, and the question is what we do about that. It would be one thing if this were a drug that was widely used by other people, but they're pretty specialized and not sold in other settings.

MS. DePARLE: You mean an incentive to not be truthful about the transaction.

DR. REISCHAUER: No, but why should the center care? You double the price, I get 3 percent on top of whatever double the price is, so I'm indifferent.

MS. DePARLE: That's why we've recommended bundling.

DR. SOKOLOVSKY: I think part of the incentive driving ASP -- to go to ASP was the very fact that these are not drugs with huge markets, and that if the price went way beyond what Medicare will pay, the providers would have reason to balk. We're paying based on the previous quarter's ASP, so if they buy it that quarter �

MR. HACKBARTH: You're saying the lag effect holds down �

DR. REISCHAUER: As long as it doesn't rise by 3 percent, or whatever the margin is, over the course of the period.

DR. SOKOLOVSKY: Nancy can tell you about dialysis facilities, but I can certainly tell you that in the oncology market the providers are very worried and concerned about when a drug goes -- when they can't get a drug for below that ASP plus six -- and it happens upon occasion -- that is a problem for them. They don't say, we'll make it up next quarter.

MS. BURKE: I can appreciate that and I think that's exactly right, but I'm not sure it's exactly an analogous situation because in this case we're paying a composite rate, plus we're paying for the drug plus 3 percent. The oncology guys are in a slightly different scenario, where I suspect they are a little more price sensitive. This is a more captured environment where you're essentially paying for everything that surrounds it, and the composite presumably pays for whatever the costs are that are incurred in providing the service. The oncology guys I think are in a slightly different scenario, but I certainly understand your point.

But it is what it is. We're going to pay the price plus 3 percent.

MR. HACKBARTH: Let me ask this. So we're paying a price based on ASP, which is an average. If an individual provider of dialysis services actually acquires it for less than that, they benefit directly; is that right?

MS. RAY: Even now under the average acquisition payment that is the case, yes.

MR. HACKBARTH: So there is a PPS-like incentive to negotiate hard, try to acquire for less, which then would flow into the calculation of the average. So it's not a straight cost reimbursement system. There is a reason to bargain.

MS. BURKE: Good to know. I guess what would be helpful to understand is what does that -- in reality, do we know what those boundaries look like? If it is an average � - I didn't understand that essentially what you're getting is you're getting an average. You're getting a reported amount from a pharmaceutical company, correct, on what their average price?

DR. SOKOLOVSKY: Weighted average.

MS. BURKE: Do we know what those -- this is a fairly select group of drugs from a fairly select group of manufacturers. How big are those margins when they're talking to a fairly limited number of dialysis? Are there huge variations in how much they negotiate depending on volume?

MS. RAY: We're going to try to report back to you in April about the purchasing strategies by different types of facilities.

MS. BURKE: Because it's not like they've got a lot of other choices.

MS. RAY: But I want to say what the IG found. Again, I'll repeat this, is that the average acquisition cost of the four national chains was ASP minus 6 percent. For a sample representing all other freestanding facilities they, on average, paid ASP plus 4 percent. So the payment rates that are in effect in 2005 is the weighted average acquisition payment, weighting it basically 70/30.

MR. HACKBARTH: We have time for maybe one more quick �

MS. DePARLE: You may have answered this in the exchange you had with Glenn and Mark at the beginning, but on the add-on payments does our recommendation contemplate going back to the policy that CMS articulated last summer and reconfiguring it so that -- remember that the hospitals which get paid on a cost basis for those drugs also got the add-on spread to them? So would we contemplate fixing that are not? I wasn't clear.

DR. MILLER: Not dollar for dollar. We're trying to look across a set of payments here, the $4, how we're paying on drugs, how we're making those changes. We'll come back to you with a net effect. But we're not trying to -- and if this is an objective we need to talk about it. We're not trying to take all of those dollars and put them back into the freestanding environment.

MS. DePARLE: Others may not agree but when you presented last year the proposed regulations about the MMA, that was something I thought -- and we discussed it in here. I don't know how people feel, but I didn't think that was appropriate that they spread it across both the hospital facilities and the freestanding.

MR. HACKBARTH: There is a trade-off, isn't there? If you value a single rate without regard to type of provider I think you, by definition, have to spread it. If you say that we're going to keep all these dollars on the freestanding side you've basically said we're never going to a single rate. I think that's the trade-off.

MS. DePARLE: We can talk about this later. I don't see why you couldn't go from where they were last summer, where CMS was, only give it to the facilities from whom it came, the add-on, and then take the next step towards a level playing field without going back there.

MR. HACKBARTH: I guess the other logical option is to level up and say, we're going to allow the freestanding to keep these additional dollars and to the extent that the hospital-based would end up with a lower rate we will add an increment on to theirs so we get to a level playing field. But if you have a budget neutrality constraint, the only way to get to a level playing field is to spread the add-on dollars across both types.

As Mark points out, in other cases there are pluses and minuses. That's why I asked earlier it would be good to know what the net impact is.

MS. DePARLE: I think we'll see that. I need to think about this some more but I at least felt that that policy last summer wasn't fair, and I hear you about where we're trying to get to.

On broadening the payment bundle, are we saying -- I know this was the recommendation in 2001, but are we saying that we think CMS should broaden the bundle in the demo, or that -- are we just reiterating what we said before?

MS. RAY: We are reiterating what we said before. And I think this would take congressional action, not just - - I don't think CMS would have the authority to do this by themselves, but just reiterating that, for it to be done.

MS. DePARLE: Although one thing you would assume we might learn from the demo is whether this works or not and what the bundle should be and should not be. At least on those lines one thing that you talked about last year at some point that I thought was very compelling was about some of the things that aren't covered now, or maybe not as much as we think they should be, such as the nutritional products. I don't know what you're thinking of as far as how it should be broadened, but I thought some of those things you said were compelling and that we should, if we're going to do this other report in June that we should reiterate some of them.

Also the vascular access point. I don't know the extent to which that is encouraged in the way that we pay right now, but it should be, I think we all agreed, so I would like to see that in there as well.

DR. MILLER: It isn't encouraged, and I think the contemplation here when we say this again is that we are saying all those things again. I think probably the one pause -- it's not that we're against the demonstration at all. I think there's some sense of a need to move faster on this; is that �

MS. RAY: Yes, I think that's it. If it gets into place and going in 2006 it goes for three years, but then it has to be evaluated and so forth. I think like other payment systems, this one I think might be ready to just have the payment bundle broadened. I think that there needs to be a lot of careful thought about what services go into a broader bundle. Again, I think, is it just dialysis services or is it services to treat a dialysis patient? That would get into the nutritional care which is related todialysis, as well as vascular access, as well as perhaps some care related to diabetes. Cardiac reasons is the biggest cause of death among dialysis patients, and can we think about the broader bundle and perhaps ways to include other services that a dialysis patient needs into it? That would potentially have the long range implication of improving quality.

DR. NELSON: I was just going to say, next month if you could dilate a little more on the case-mix adjustment that would help us understand better the rationale for a broader bundle and also for standardizing payments across sites.

MR. HACKBARTH: Thanks.

We will have a brief public comment period. Youall heard my commitment to the commissioners so please make your comments very brief. Thanks.

MS. SMITH: I will make them brief. I just wanted to make one comment. I'm Kathleen Smith from Fresenius Medical Care and I can talk as fast as Dr. Wakefield so I'll be quick and brief.

I just wanted to address the question of impact that you asked, Glenn. I'm not clear exactly whether you're talking about the going forward impact or not, but the starting point impact I think would be the impact that the final rule had on payment for both provider settings. In the final rule, the impact on freestanding providers was a negative 0.4 percent, and the impact on hospital-based providers was positive 6.6 percent, so we're starting from that.

Also, when you talk about eliminating the four- dollar differential in the hospital-based, hospital-based outpatient dialysis treatments are apparently 15 percent of the total treatments done each year, so you're taking $4 from 15 percent and talking about spreading that out over the other 85 percent, so that certainly dilutes the impact in that shift.

The other comment is, what's a little bit confusing here is, because the legislation went part way to a broader bundle, not quite but this intermediate stage, which has called a great deal of confusion, such that we have the composite rate and add-on payment for the previous AWP margin protection that was intended for the freestanding, but we also have a separate stream of revenue from the separately billables going forward still. So we're talking about both the payment for the drugs going forward as well as what's in that add-back piece. I just wanted to say that it seemed we were talking sometimes about one and sometimes about the other here this afternoon.

Thank you very much. Safe trip home, everyone.