From: California Dialysis Council [mailto:mail@caldialysis.org] Sent: Tuesday, September 07, 2004 8:30 AM To: California Dialysis Council Subject: Inside Health Policy/Dialysis Facilities Criticize CMS Implementation Of MMA Reforms California Dialysis Council - News Update (c) Inside Washington Publishers
Subject: Inside Health Policy/Dialysis Facilities Criticize CMS Implementation Of MMA Reforms
CMS' proposal to revamp payments to dialysis facilities is coming under fire from providers and beneficiary advocates struggling to come to terms with the agency's implementation of Medicare Modernization Act (MMA) reforms that shift excess drug reimbursements towards dialysis treatment and redistribute funds among small, large and hospital-based facilities.
The agency plan, included in the physician rule proposed this month, slashes reimbursement for drugs, especially the anti-anemia drug Epogen, to an average rate below the acquisition costs of small, independent facilities while still allowing large chains a payment spread over their purchase price.
The savings from those cuts are dispersed in add-on payments to the composite rate for dialysis. CMS decided to distribute the add-on payments to hospital-based facilities, leading industry representatives to charge that the agency is diluting the MMA's goal of compensating independent facilities for the cuts in drug reimbursement. CMS' decision results in an overall 7 percent payment boost to hospitals, while stand-alone facilities see combined payments for dialysis and drugs rise by only 0.4 percent, according to the CMS impact analysis. That undercuts the MMA's 1.6 percent boost for dialysis treatments.
These differential impacts from CMS' proposal could result in a difference of views and emphasis from various segments of the industry although representatives continue to work together on how to respond to the proposal, an industry source said. Once it gauges CMS' response to its criticisms of the proposed rule, industry will weigh whether it needs to seek a legislative remedy next year, the source said. Under the MMA, there is no judicial review of the payment changes.
CMS also decided not to use the authority granted by the MMA to update the wage index, which is still based on 1986 data, to adjust for variations in regional wages. That decision likely impacts facilities in high wage areas, although the industry is generally in favor of using up-to-date data available for wage-rate adjustments, according to an industry source.
However, the industry is leaning toward recommending that CMS delay implementation of a case-mix adjustment mandated by the MMA to compensate facilities for treating costlier patients, the source said. Industry representatives argue the limited criteria CMS selected to adjust payments do not reflect key factors that impact the cost of treatment, such as the body mass of the patient. In its proposed rule, the agency cited the difficulty in obtaining data on body mass, but said it was exploring the feasibility of a new data collection mechanism.
Industry is also concerned that CMS overestimated the prevalence of the two disease indications it proposed to use to adjust payments--AIDS/HIV and peripheral vascular disease. Since the case-mix adjustment is budget neutral, over-emphasizing the prevalence of these diseases boosts the downward adjustment to the overall composite rate, potentially below the costs of treatment. Finally, CMS did not include pediatric cases in the case-mix adjustment, relying instead on an exceptions process revived by the MMA that allows facilities treating these patients to negotiate higher reimbursement. But to qualify for an exception facilities must have over 50 percent of their patients under 18, excluding facilities with a caseload that includes a substantial minority of pediatric cases, industry sources say.
The MMA cuts to drug reimbursement, coupled with the commensurate increase in the composite rate, were designed to correct for long-standing underpayments for dialysis and eliminate the incentives for over utilization of drugs caused by inflated reimbursement. The MMA called for drug payments to be set at the cost of acquisition by facilities based on a May 2004 report from the Office of Inspector General (OIG). That report found that the acquisition costs of the four large dialysis chains were six percent lower that the average sales price (ASP) of the top 10 drugs accounting for 98 percent of Medicare payments. By contrast, the smaller, independent facilities paid an average of 4 percent above ASP.
Using an average weighted to account for the market share of the large chains -- some 60 percent of dialysis patients -- CMS has proposed a 2005 drug reimbursement rate of ASP minus three percent. That leaves the large chains with an average margin of 3 percent on drug costs, while the smaller facilities will pay an average of 7 percent more than their Medicare reimbursement rate. For Epogen, which accounts for two-thirds of Medicare drug costs for end stage renal disease (ESRD) patients, the projected rate starting in 2005 will be $9.04 per thousand units, roughly 10 percent below the expiring statutory rate of $10 per thousand. Based on the OIG's 2003 data, that rate gives large chains a small margin of about 20 cents per thousand units, while the smaller facilities are underpaid by almost 50 cents. Patients can receive monthly dosages of as much as 40,000 units.
At a recent open door forum, a representative of the National Kidney Foundation, a patient advocacy group, questioned whether the drug payment rates could impact access, particularly at smaller facilities. In response, CMS' point man on ESRD issues, Brady Augustine, said the agency encouraged smaller facilities to enter group purchasing arrangements that could lower their costs. But industry representatives argue that the average rate of ASP minus 3 percent does not reflect the actual acquisition costs of smaller facilities. Instead of setting a uniform, ASP-based rate, the agency could set differential rates for smaller facilities, large chains and hospital-based dialysis centers, said an industry source, but acknowledged that would be more logistically difficult than the current proposal. The add-on payments to the composite rates, since they are parceled out equally among all facilities, do not compensate smaller facilities for the shortfall in drug reimbursement. It is unclear whether this proposal could win favor with the large chains that retain a margin on drug reimbursement while reaping the reward of the add-on payment.
However, the independent facilities are expected to argue against CMS' proposal to parcel out the add-on payment equally to stand-alone and hospital based facilities, a plan that Augustine acknowledged was controversial. The independent facilities argue that the intent of the statute was to readjust payments to independent facilities in a budget neutral way, eliminating overpayments for drugs, while ending the shortfall for dialysis. Hospitals did not rely as much on the margins from drug overpayments, since, for drugs other than Epogen they were reimbursed on a reasonable cost basis, industry sources argue.
But CMS says that "it could be argued that the statute was intended to address ESRD industry concerns about the inadequacy of the composite rate" and that these concerns apply equally to hospital-based and independent facilities. In addition, CMS says that the OIG report does not differentiate between the two types of facilities and so is inappropriate as a basis for a differential add-on. The agency also argues that a single add-on keeps in place the payment differential between independent and hospital-based facilities, which already receive $4 more for their dialysis treatments. A separate add-on puts payments for independent facilities over $8 higher than payments for hospital-based dialysis.
