Bundled payment cut: Time to get to work

When you learn in advance that something bad is going to happen, you have time to prepare and perhaps mitigate the impact. When it is worst than you think, it’s natural to go on the defense and throw everything you can at the target, hoping it will lessen the blow.

The renal community did just that when the Centers for Medicare and Medicaid Services started July off with a bang: a proposed 12% cut in the payment rate for dialysis treatments as part of the proposed rule for updating the Prospective Payment System and the Quality Incentive Program for next year.

The composite rate cut was expected. The renal community read reports from the Office of Inspector General and the General Accountability Office charging that Medicare was paying clinics too much for anemia drugs. When the bundle was first assembled, CMS relied on 2007 dosing data––a time when providers still saw erythropoiesis-stimulating agents (ESAs) as a profit center. The investigative reports said the agency should update the bundled payment to reflect 2012 usage of ESAs, which has dropped by 23% from 2007 to 2011, according to the GAO report. Congress, which has been in many a dogfight over paying for ESAs, ordered CMS to cut the payment for anemia drugs.

CMS told the GAO in its report that it had no immediate plans to adjust the composite rate, even with the change in drug use. But the agency had little choice but to move ahead. It met with providers and associations to let them plea their case as to why the cut should be minimized. The renal community implored kidney-friendly Congressional leaders to write CMS and tell them to go easy–– ironic, since Congress ordered CMS to make the cut in the first place. In their letter to CMS, 17 Senators emphasized statutory obligations that require the agency to ensure that Medicare funding for dialysis “should not reduce payments to a level less than the cost of providing care.”

Vague enough.

Dialysis providers, backed by the Medicare Payment Advisory Commission, say profit margins are thin in this business – around 3%-4% for large providers, less for smaller companies. And all of health care is dealing now with a 2% cut due to sequestration.

Whatever the cut will be, it clearly would have a greater impact on the small- and mid-sized dialysis organizations – those that don’t have multi-year contracts with Amgen that locked in pricing (Amgen also increased the price of Epogen in May; CMS said it accounted for that in the payment cut). A reduced payment could lead to more consolidation, limiting patient choice.

Easing the pain

The OIG and GAO reports said CMS should consider cutting up to $800 million out of the composite rate – that would make up for the drop in ESA use. While CMS has proposed a 12% cut to the composite rate, it softened the blow with a 2.6% increase first, based on its annual market basket review of the cost of providing care. That brought the proposed cut down to 9.4%, amounting roughly to about $24 per treatment.

CMS acknowledged in the proposed rule that the cut would be dramatic, and offered to spread the reduction over several years. “While we propose to implement the full reduction in CY 2014, we note that we are also concerned that this one-time reduction to the ESRD [Prospective Payment System] base rate could be a significant reduction to ESRD facilities for the year and potentially impact beneficiary access to care,” CMS wrote in the proposed rule. “Therefore, we are soliciting comments on a potential transition or phase-in period of the 12% reduction and the number of years for such transition or phase-in period.”

What’s next?

We have yet to see whether those legislators who wrote letters to CMS asking them to tread carefully on the bundled payment system will come to the rescue; they are also under intense pressure to find ways to pay for other health care costs, like the Medicare payment reform measures for physicians. That plan, still in the House, would call for payment increases to physician over the next four years.

CMS did what it was ordered to do. The cries of cuts that are “alarming” and “two deep” need to be replaced now with rational discussion on how this 9.4% reduction will truly impact services.

• Will dialysis clinics have to cut back on evening shifts or programs like in-center nocturnal dialysis because of cuts in staff?
• Will they have to increase patient-to-staff ratios that could jeopardize safety?
• Is the methodology used by CMS to determine the 9.4% cut accurate and fair?
• Can the cut be spread over 3-4 years to mitigate the impact (similar to what CMS offered for clinics choosing the bundle)?

What are other sources of revenue for clinics (CMS acknowledges that clinics have underutilized its outlier adjuster for more complicated patients; dialysis providers say the process is complex. Clinics have also complained about the limited value of the case mix adjusters set by CMS; a report is due on this as part of the Taxpayer Relief Act passed last year).

CMS has usually had an open door to the renal community. Considering the work they put into creating the bundled payment model, it doesn’t seem likely they want to gut it. There should be some opportunity here for negotiation. But smoke and mirrors won’t cut it. It’s time for a legitimate plan backed by data that shows how this cut will hurt patient services.-by Mark Neumann