Bundled payment system has hindered innovation in kidney care
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In the movie Steel Magnolias, actor Julia Roberts plays Shelby, a young patient with diabetic kidney disease torn between her desire to be a mother and the reality of pregnancy pushing her into a life on dialysis.
Since the introduction of dialysis in the 1960s and the extension of universal disease-specific coverage of end-stage kidney disease under Medicare in 1972, most Americans know someone who has been on this life-saving treatment. Yet, many are not aware of the inequities that exist that preclude patients on dialysis from benefiting from innovations that would meaningfully prolong and improve their quality of life.
Beginning Jan. 1, 2011, CMS implemented a case-mix adjusted bundled payment system (“the bundle”) for Medicare outpatient dialysis facilities that replaced the basic case-mix adjusted composite rate payment system and the methodologies for reimbursing certain medications and services separately. Congress mandated this change because, by 2006, Medicare payments for separately billable drugs and biologicals had risen to nearly 40% of the total expenditure for ESKD care. As required by statute, CMS used the lowest per-patient utilization and cost data from 2007, 2008 or 2009 to establish the bundled base rate.
In addition, Congress mandated that CMS reduce that amount by an additional 2%. This methodology has been “locked” since 2011, with very few updates.
Few updates
CMS has applied a flawed market-basket update annually for ESKD, resulting in consistently smaller updates than annual updates to other Medicare bundled payment systems. Moreover, CMS has locked the items and services to be included in the base rate to what was provided to patients in 2008. CMS decided not to adjust the base bundle rate to accommodate the addition of new, innovative treatment options if the options fit within one of 11 “functional categories.” The only exception was when CMS added oral-only drugs into the bundle.
CMS adopted the “functional categories” concept for drugs and biologics administered during dialysis treatments that were part of the original composite rate or separately billed before 2011. Any drug or class of drugs or biologics that CMS concluded “fits” into one of these functional categories is not eligible for an adjustment to the bundled payment rate.
TDAPA, TPNIES
As applied in the recent case of one breakthrough therapy, these categories are so broad that even genuinely innovative products are deemed to be within these categories. Moreover, given that CMS can redefine the existing categories, it is theoretically possible that every new drug will fit into one, eliminating the incentive for innovation.
However, CMS recognized the need for an additional transition policy to encourage the use of new products. As a result, CMS adopted the Transitional Drug Add-on Payment Adjustment (TDAPA) for drugs and biologics and the Transitional Add-on Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) for devices. However, neither policy requires CMS to adjust the base rate permanently once the transitional payment period ends. As a result, these policies have yet to incentivize the adoption of innovative products that CMS deems to be within functional categories, as CMS and the community had hoped.
While we appreciate CMS encouraging new therapies and technologies through TDAPA and TPNIES for devices, some products deemed to be in TDAPA functional categories can only be supported with an increase in the bundled rate. Transitional policy alone, without a base rate adjustment, will prevent dialysis patients from having access to innovation.
Most recently, CMS sought a “band-aid” on this problem by adopting a policy that utilizes cost data for new medicines during the TDAPA period to calculate a per-patient adjustment to be added to the base rate for 3 years and then eliminated. The amount is reduced by 35% and applied to all, irrespective of whether the drug is used.
This policy fails to assess whether the cut to the calculated rate is appropriate and creates a substantial disincentive for physicians to prescribe a drug needed by a small fraction of dialysis patients during TDAPA. A case in point is Korsuva (difelikephalin, Cara Therapeutics), a drug that the FDA awarded breakthrough status and an expedited review because it addresses a significant gap in treatment for patients with CKD-associated pruritus (CKD-aP).
Because there has been no effective treatment option, physicians traditionally administered antihistamines, a class of drugs included in one functional category that does not relieve the itch but does induce sleep. Even though CKD-aP is not histamine mediated, most physicians have used these drugs for lack of a better alternative. Because moderate to severe CKD-aP affects a small percentage of patients on dialysis (about 16%), the dialysis community had recommended that the “money should follow the patient.” This policy would mean that a facility must administer the drug to be reimbursed at a higher payment amount. Without such a provision, a facility would receive an additional $.025 for each claim, which is insufficient for a dialysis clinic to cover the cost of administering the drug to a single patient. Unfortunately, CMS disagreed with the dialysis community. As a result, less than 1% of patients on dialysis – a far cry from the 16% who medically need it – have had access to the drug.
Innovation and the bundle
Has the bundle stifled innovation in dialysis? Under current Medicare guidelines, innovations in other medical specialties, such as cancer and heart disease, are subject to facility reimbursement policies that support innovation and include transitional payment policies for 3 years and then permanent adjustments to the base rates to accommodate the cost of providing these drugs. Drugs and devices provided in physician offices are not bundled, nor are medications obtained through Part D. Unfortunately, patients with ESRD cannot access innovations in renal care because the financial burden to make these treatments available falls on the shoulders of dialysis providers without adequate reimbursement. If CMS does not fund the new and innovative drugs and technologies beyond the TDAPA and TPNIES period, access to these services for those who need them is unlikely to be sustainable.
Currently, clinicaltrials.gov only lists two phase 3 registrational trials underway in the ESKD space, while there is robust research and development activity in cancer and heart disease. We do not doubt that this disparity is linked to the reimbursement system. Patients, dialysis providers and manufacturers deserve the clarity of a stable and predictable reimbursement system before the new drug or technology is available. The new drugs, devices and products currently in development to address significant issues with ESKD were not contemplated 15 years ago when the current system was designed. Therefore, now is the appropriate time to redesign the reimbursement system to incentivize continued investment in innovation.
One step that could be taken is creating a short-term and a separate long-term reimbursement mechanism for all drugs eligible for TDAPA regardless of functional category in the bundle. While TDAPA was a unique concept, it alone cannot incentivize dialysis providers to utilize novel products. They are reluctant to change treatment patterns and use a therapy whose reimbursement will expire after only 2 years. The add-on payment should follow the patient if the patient needs a particular drug instead of spreading the cost across the dialysis population, many of whom do not require the medication. Such a policy should ensure that patients who need the drug or technology receive it.
Innovation has saved and prolonged the lives of millions of patients with kidney disease. CMS must work to fix a reimbursement methodology that stifles innovation and replace it with one that encourages innovation.
There have been many advances in dialysis techniques, delivery of services and drug therapies to treat the complications secondary to kidney failure. However, a need remains for policies to ensure those on dialysis have access to newer medications, technologies and services that improve their quality and length of life. A policy that ensures separate reimbursement for the life of the product would provide patients sustained access to innovative products when needed and dialysis providers would not be discouraged from using them.
- References:
- End-stage renal disease: Bundling Medicare’s payment for drugs with payment for all promotes ESRD services would promote efficiency and clinical flexibility. 2006. Government Accountability Office. http://www.gao.gov/cgi-bin/getrpt?GAO-07-77.
- End-stage renal disease prospective payment system. https://www.cms.gov/medicare/medicare-fee-for-service-payment/esrdpayment?redirect=/esrdpayment/pay/list.asp.
- For more information:
- J. Ganesh Bhat, MD, FASN, is a principal in Atlantic Dialysis Management Services LLC. He can be reached at jbhat@atlanticdialysis.com.
- Mahesh Krishnan, MD, MPH, MBA, FASN, is group vice president at DaVita Inc. and chairperson of Kidney Care Partners. He can be reached at maheshkrishnan@davita.com.
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