Renal administrators debate options on payment cut

SEATTLE––Some of the managers who operate the more than 5,000 dialysis clinics in the United States gathered here over the weekend at the annual meeting of the National Renal Administrators Association to debate the impact of the proposed bundled payment cut and possible options for the Centers for Medicare & Medicaid Services, which is mulling over its proposed rule. The agency, mandated by Congress to make a cut in payments to dialysis facilities after two government reports criticized the formula it uses to pay for renal drugs, is going through hundreds of comments from the industry and patients, as well as facing Congressional pressure to ease up on the cut (including from some legislators who order CMS to make the cut in the first place).

If the cut—actually a 12% reduction in payment that is buffered by a 2.6% increased in the base rate offered by CMS—goes through, Medicare would save $970 million a year from reduced payments to dialysis facilities. The base rate per treatment would be reduced by $23.41, from $240.36 to $216.95.

CMS does have a number of options:

Delay the cut, with Congressional approval, to get a clearer assessment of the impact on dialysis clinic operations. Dialysis providers said the industry’s thin operating margins—around 3–4% among for-profit dialysis providers and around 1–2% for non-profits—along with the ongoing 2% across-the-board sequester payment cut means they cannot absorb the size of the proposed cut without closing down money-losing clinics. Those clinics tend to be in rural areas where patients already have limited access to health care services.
Reduce the amount of the payment cut. In its mandate from Congress as part of the American Taxpayer Relief Act of 2012, Congress did not specify how much the agency needed to cut payments to adjust for lower usage for injectable drugs and other biologics (most oral drugs are still separately billable outside the bundled rate).
Put the 9.4% cut, or a reduced cut, into effect, but distribute the reduction over several years (the NRAA suggests no more than 2% per year if CMS moves ahead with the reduction). The agency has acknowledged the potential impact of the payment cut in its proposed rule, and asked for comments on spreading the reduction over a longer period of time.
Consider a lower or no payment cut for small- and medium-sized providers, who don’t have the buying power of large dialysis organizations like DaVita and Fresenius Medical Care for expensive drugs like Epogen. In its comments to CMS on the proposed rule, the NRAA said the agency could use the Regulatory Flexibility Act for providers who fit the definition of small businesses. Using that act, the NRAA is asking for no payment reduction for drug utilization.
Proceed with the cut but boost the base rate for dialysis providers to recognize higher costs for meeting government requirement for Medicare eligibility. The NRAA said in its comments to CMS that this could include adjustment to the wage index and an add-on payment to help defray the cost of new reporting requirements, such as CROWNWeb and the ESRD Quality Incentive Program. The agency should also fix the payment system’s outlier payment policy, make an adjustment to the wage index, and develop more realistic case mix adjusters.

CMS also needs to consider the higher cost for injectable drugs over the last five years. Small dialysis providers say while the industry as a whole has cut back on the use of Epogen, they have had to absorb cost increases up to 12% imposed by Amgen. Some of that additional cost has not been felt by large providers, who have extended, multi-year contracts with Amgen based on the larger volume of the drug that they use in their clinics. Likewise, CMS has combined the average sale pricing for Epogen with Procrit, the anemia drug sold by Johnson and Johnson’s Ortho Biotech division. Procrit has always been cheaper to buy, but is only available to hospitals-based dialysis clinics and pre-dialysis patients based on a marketing agreement between J&J and Amgen. By combining the ASP on both drugs, CMS established a lower ASP for Epogen.

CMS will make a decision by early November on the payment cut, along with other changes proposed in the rule. -by Mark Neumann