Q&A: Dialysis providers charge Medicare Advantage plans more than Medicare
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Due to a highly consolidated market, large dialysis providers charge Medicare Advantage plans 27% more for dialysis services than what is charged for Medicare.
Further, the markups, also imposed by other providers, could impact the out-of-pocket spending of patients on dialysis.
Researchers from the University of Southern California (USC) examined 1.06 million claims in 2016 and 2017 for which Medicare Advantage was the primary payer to compare Medicare Advantage outpatient dialysis spending to what fee-for-service Medicare would have paid under the ESRD Prospective Payment System.
For each Medicare Advantage treatment, researchers estimated the equivalent fee-for-service Medicare prices. Facility ownership was defined as large dialysis organizations, regional chain, independent or hospital. To measure patients’ out-of-pocket spending, researchers measured the annual cost sharing among patients enrolled in Medicare Advantage who received dialysis for a full year.
Among 39,718 patients enrolled in Medicare Advantage, 33,810 received dialysis treatments in network. Analyses revealed the median Medicare Advantage price for a hemodialysis treatment was $296, or 127% of the fee-for-service Medicare price. Similarly, the median Medicare Advantage price for a in-network hemodialysis treatment was $300, or 128% of the fee-for-service Medicare price.
Overall, researchers observed that large dialysis chains charge Medicare Advantage plans 27% more than what is charged for the fee-for-service Medicare program. Markups charged by providers were 31% higher than traditional Medicare, markups to regional chairs were 20% higher, markups to independently owned facilities were 12% higher and prices charged at hospital-based facilities were similar to Medicare rates.
Healio spoke with the study’s lead author Eugene Lin, MD, MS, an assistant professor of nephrology at the Keck School of Medicine of the USC and a clinical fellow at the USC Schaeffer Center, about this research.
Healio: What prompted your team to conduct this study?
Lin: Two things — one being how the 21st Century Cures Act makes this population policy relevant because before 2021, the patients who required dialysis on Medicare Advantage were a small segment of the population. When we started doing this research, which was right before 2021, we felt that it was likely there would be a big influx of patients into Medicare Advantage from fee-for-service Medicare. The second is that we heard anecdotally from plans that Medicare Advantage was paying more for dialysis than it was for other services compared to a fee-for-service Medicare. A combination of those two things prompted us to think about this.
Healio: Why are more patients on dialysis switching to a Medicare Advantage plan?
Lin: Our paper cannot pinpoint why they might switch, but it does shed light on potential mechanisms. One could be if dialysis facilities help patients obtain insurance. If dialysis facilities are getting paid more for Medicare Advantage, they might be able to influence patients’ decisions on whether they should obtain regular Medicare vs. Medicare Advantage. We cannot say if this happens, but our research establishes that there is an incentive to steer patients toward Medicare Advantage. Another thing to consider is that many patients are probably better off financially in Medicare Advantage, so steering patients to Medicare Advantage might not necessarily be a bad thing. For example, the out-of-pocket cost is capped with Medicare Advantage. Medicare Advantage does come with some downsides, like network limitations, so this is not a benefit for everyone.
Healio: Can you explain how dialysis providers are able to secure higher prices from commercial payers?
Lin: The way private insurance works is the private insurance company negotiates a rate with providers. That price negotiation typically goes through a channel where if you are a stubborn provider and you want to charge a high rate, you get kicked out of the plan’s network. Normally, there is price competition between providers, so the providers that are cheapest end up in network and the ones that are expensive end up out of network. But if there is no competition with dialysis, then the providers might feel like they have more license to negotiate higher prices.
In our specific case, there are several additional things that make it difficult for plans to negotiate. During the time of our study, there were network adequacy requirements, and so Medicare required plans to assert that they had enough dialysis facilities within a certain market area. If there was no competition in a market area, then plans are forced to keep the few available providers in network, and providers can then charge higher prices. We also showed evidence that the large dialysis organizations are using all-or-nothing contracting techniques. Our research is consistent with the large dialysis organizations using the non-competitive areas in the United States as leverage to negotiate high rates in competitive areas. So even in highly competitive areas, large dialysis companies are getting larger markups than they otherwise would if they did not have the ability to contract at an all-or-nothing level. Overall, it is the combination of network adequacy requirements, the fact that dialysis is not a highly competitive industry and all-or-nothing contracting that probably lets dialysis providers drive prices up.
Healio: What can policymakers do to address market consolidation among dialysis providers?
Lin: A first step could be creating a policy to keep providers from negotiating at an all-or-nothing level. There is some precedent for doing that. For example, the state of California has sued providers (for example, Sutter Health) for an all-or-nothing type of contracting.
Healio: What is the take-home message for practicing nephrologists?
Lin: Typically, providers do not want to get into the weeds of a patient's finances. On the other hand, providers probably should be cognizant of what a patient's out-of-pocket expense is going to be, how expensive dialysis is and what the policy environment is like. The profitability of Medicare Advantage plans has downstream effects on plan premiums and the services that plans can offer in the future. Nephrologists should ask themselves, “Are my patients on Medicare Advantage going to have benefits in the future that are covered? What are the societal impacts of this?”
Reference:
Largest Medicare Advantage plans pay big markups for dialysis. Largest Medicare Advantage plans pay big mark | EurekAlert!https://www.eurekalert.org/news-releases/960661. Published Aug. 2, 2022. Accessed Aug. 2, 2022.
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