The renal community has argued for the last two decades that the Medicare dollar for dialysis services doesn’t go far enough. Last month, the state of Oregon told the two providers who control 90% of the patient population that it could no longer afford to pay $300,000 a year for dialysis care. Are we taking ‘cost shifting’ to excess?
In November 2010, an overwhelming majority of dialysis clinics told the Centers for Medicare & Medicaid Services that it would opt in 100% to the agency’s new Prospective Payment System rather then take a four-year phase in option. That decision shocked the agency, but the industry had a heavy role in shaping the payment plan.
While some concerns still linger about the ability for small providers to survive, the PPS was embraced by the country’s two largest providers – Fresenius Medical Care and DaVita Inc. – as a better approach to managing costs and improving outcomes. And, make money. Third quarter reports published by NN&I in our December issue showed Fresenius had an 8% growth in profit and DaVita showed an 11% increase in profit over the previous year. Fresenius has been on a buying spree this past year, acquiring providers in the U.S. and overseas and bringing in more companies to add to its integrated approach to dialysis care. With a year of bundling under their belt, it looks like providers see the payment system as workable – and profitable.
It’s not enough
But providers insist that Medicare, which covers over 90% of the patient population, still doesn’t pay enough. So it “cost shifts” and charges commercial health plans much higher rates for dialysis care. The insurers tend to pay it because their dialysis patient population is a thin slice of their beneficiary pie, and they may have little choice because of the dominance of one or two providers in that area. These may also be out-of-network patients who pay a higher premium to go the dialysis clinic near their home; the health plan is obligated to pay whatever price the clinic charges.
Health plans with large ESRD patient populations have caught on and negotiate for bundled rates (some get lower-than-Medicare pricing). And some fight back. A federal court in Georgia in 2009 upheld the right of Blue Cross Blue Shield to cut its payment rates to dialysis provider National Renal Alliance by 88% to treat out-of-network non-Medicare patients after claiming the $2,000-per-treatment charges were ‘excessive.’ The court said “commercial insurers are not obligated to pay more for treatments to help dialysis providers make up for lower Medicare payments” the provider was getting for rural and underserved areas. Even with the revised rates, the court noted, the Blue Cross payments were higher than Medicare rates.
Cost-shifting doesn’t just occur in the dialysis industry – we all pay more for a hospital visit to help subsidize the cost of free care provided to the uninsured (federal law says hospitals cannot turn someone away if they need care, even if they do not have the ability to pay).
How much is reasonable?
Last month, Oregon told Fresenius Medical Care and DaVita Inc. that their price was equally ‘excessive,’ saying it was breaking the bank of the state’s high-risk insurance pool. The providers’ control of the market gave them the ability to charge the state upwards of $300,000 a year for dialysis patients – close to 15 times the Medicare rate, state officials said. As a result, the state has racked up bills in the last three years that have increased from $7 million to more than $20 million for dialysis care and payments have already exhausted the $2 million coverage limit for some patients, leaving them without health insurance. "That rate structure needs to be reexamined as to what the community reasonably can be expected to bear," said Robert Gluckman, a Portland physician who sits on the board of the Oregon Medical Insurance Pool, at a meeting with dialysis providers on Jan. 4.
The role of the AKF
Individuals who are in the Oregon risk pool because of kidney failure are lucky. Their premiums are paid for by the American Kidney Fund. Since dialysis providers can’t legally pay the premiums directly, the AKF takes in donations – the majority of which come from Fresenius and DaVita -- and then pays the premiums to health plans for patients who don’t quality for Medicare or Medicaid and can’t get insurance because of their pre-existing condition. Federal regulators have approved the arrangement, and both the providers and the AKF say the practice is a way to help cover patients who might otherwise not get insurance (read AKF CEO LaVarne Burton’s view of the program's value to the renal community).
The tipping point
Ultimately, DaVita’s and Fresenius’ approach will hurt their bottom line; when the risk pool exhausts its funds, the AKF premiums will have little value. Patients will lose access to care. With the ProPublica series of investigative stories on the profits and high mortality rate of the dialysis industry still lingering, a story about Big Dialysis overcharging for care of vulnerable patients is the last thing the renal community needs. And it tarnishes the reputation of the American Kidney Fund, which has created a program blessed by federal regulators that gets insurance coverage for dialysis patients who need it.
Dialysis providers, in essence, cover the premiums with their donations; both patients and other health care providers benefit. But exploiting the system does little for the industry’s image. Both Fresenius and DaVita have agreed to sit down with Oregon officials and look at what they charge. That's a positive step. Make a profit, but make it a reasonable one.