The Centers for Medicare & Medicaid Services stuck to their guns on Nov. 22 and released a final rule that includes a 12% cut to the IV drug portion of the bundled payment. Few are happy with the decision (go to to see the reaction), even though CMS softened the impact with offsets that mean little change in overall payments for 2014 and 2015 (officially, a 3.3% slice of the 12% cut will come out of the bundled rate in 2014 and again in 2015). After that, the inclusion of oral drugs into the bundle starting in 2016, and how much CMS pays for that, could also impact the bottom line and covering the rest of the 12% reduction.

Getting it right

No doubt, CMS had to make a decision about the imbalance in how much dialysis clinics were prescribing anemia drugs and how much CMS was reimbursing for them. It would be no different than if a clinic was running two shifts a day but asking CMS to pay for three.

As we have said in these pages before, however, the continually distorted approach to paying the dialysis industry for a fair day’s work seems to elude CMS. The bundled payment system was supposed to leave cost shifting behind, when providers used the profits from prescribing anemia drugs to help balance out an outdated composite rate payment. Charge for the drugs you use, and negotiate a fair price for dialysis treatments. Get paid more for patients with underlying and more complicated disease (the case mix adjusters aren’t working). And at the end of each year, the payer should assess the costs of doing care and make necessary adjustments to the payment.

(Future shock: Progress on kidney-related health policy issues in 2014)

It sounded pretty good when more than 95% of clinics said “yes” to starting 2011 with the bundled payment system (it may have been that overpayment for anemia drugs that provided some convincing). But not all of that $800 million cited by the Government Accountability Office has gone in the coffers. Add the cost of managing CROWNWeb (particularly for small providers); add the higher cost for Epogen a (19% increase over the last three years, says the National Renal Administrators Association); and the ongoing struggles with getting paid for sicker patients (facilities say the burdensome documentation for case mix adjusters leaves a lot of money on the table). So while CMS’ payments, based on 2007 usage, were generous, costs for running clinics has been high as well. Two years of market basket increases have helped, but the high operational cost for small providers isn’t going away.
No one expects Medicare to pay the jumbo-sized charges that commercial health plans do for their patients. Providers leverage their services in tight markets and health insurers’ ambivalence to extract treatment payments four to five times what Medicare pays. But even commercial plans are catching on, negotiating harder and bundling more services into the payment.

(QIP tracks performance, but are the measures improving patient care?)
The high cost item in the bundled rate continues to be IV drugs; providers may get a break next year when Amgen’s patent for Epogen expires and other anemia drugs, now completing late-stage clinical trials, become available (Roche’s Mircera anemia drug, already FDA approved and selling in Europe, but also make a U.S. appearance).

'Cuts are unsustainable'

Kidney Care Council chairman Tom Weinberg said the 12% cut “contradicts the unified voice of patients, clinicians, providers, facilities, and members of Congress to correct the total amount of the reduction" originally proposed in July, adding, “Phasing in a cut of this magnitude only delays the harm.” Kidney Care Partners agreed, saying, “Simply put, this model is unsustainable.”

Providers are still indicating that clinics may have to close, even with the two-year delay in a payment reduction. Costs will go up, and a flat payment for the next two years will mean still-thin margins. One physician owner of several dialysis clinics pondered the future of one of them with all Medicare patients. He wasn't optimistic about its future.

Find more articles about the ESRD bundle, including:

Latest DOPPS data shows slight dip in hemoglobins for dialysis patients

Future shock: Progress on kidney-related health policy issues in 2014

CMS responds to queries about new measures in ESRD QIP rule