In October 2009, John D. Sullivan, PhD, associate professor and associate chair of Administrative Sciences at Boston University, published a paper, “End-stage renal disease economics and the balance of treatment modalities,” where he noted, “The renal community is on the edge of a monumental change in reimbursement by the federal government.” 

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) and the Patient Protection and Affordable Care Act (PPACA) of 2010, commonly called the Affordable Care Act (Act of), together with the Health Care and Education Reconciliation Act of 2010, represented the most significant regulatory overhaul of the U.S.. health care system since the passage  of Medicare and Medicaid in 1965.


MIPPA required implementation of an End-Stage Renal Disease (ESRD) bundled prospective payment system (PPS), effective Jan. 1, 2011, to replace the basic case-mix adjusted composite payment system as well as the methodologies for the reimbursement of separately billable outpatient ESRD-related items and services. The ESRD PPS provides a single payment to ESRD facilities designed to cover all the resources used in providing an outpatient dialysis treatment, including supplies and equipment used to administer dialysis in the ESRD facility or at a patient’s home, plus drugs, biological, laboratory tests, training, and support services. MIPPA also required the Centers for Medicare & Medicaid to create a Quality Incentive Program for ESRD facilities that would link payment to performance on certain quality measures for services furnished on or after Jan. 1, 2012. This would be the first pay-for-performance program instituted under Medicare and would tie payment incentives to improving dialysis quality and outcomes.

The ACA encourages the development of Accountable Care Organizations (ACO). A policy brief released Oct. 9, 2009 by the Urban Institute and the Robert Wood Johnson Foundation provided a comprehensive look at ACOs, which is a local health care organization with a related set of providers (at a minimum, primary care physicians, specialists, and hospitals) that can be held accountable for the cost and quality of care delivered to a defined population. ACOs that achieve quality and cost targets will share in the savings; under some approaches, those that fail will be subject to a financial penalty. In order to meet the requirements of this type of incentive system, an ACO needs to be able to:

  • Care for patients across the continuum of care, in different institutional settings.
  • Plan, prospectively, for its budgets and resource needs.
  • Support comprehensive, valid and reliable measurement of its performance.

ACOs make the people and organizations that actually provide the care accountable for the quality and the cost of that care. Previous health reform initiatives involved insurers and made them ultimately accountable. The concept driving ACOs is that it is providers, not insurers, who are best positioned to make the changes that will address the cost and quality problems resulting from the current system of fragmented care, variation in practice patterns, and volume-based payment systems.

Case study: Western Maryland Regional Health System

In November of 2009, Western Maryland Regional Health System (WMHS) in Cumberland, Maryland, opened a new, 275-bed comprehensive regional referral center, combining the campuses of two local hospitals into one centralized location. The new Western Maryland Regional Medical Center enabled the Western Maryland Health System to continue to provide a level of care that patients once had to travel to Baltimore, Washington, D.C., or Pittsburgh to receive. The center offered many advantages, including:

  • All inpatient and outpatient services in one centralized location
  • Easier access for patients with conveniently-located outpatient services
  • Patient care areas designed for today’s medical equipment and information technology

The new hospital facility includes a 12,722 sq. ft., 35-station outpatient dialysis facility located in the Medical Arts Center. The facility also provides home peritoneal dialysis (PD), and includes space for home hemodialysis training. There is also a five-station inpatient facility on the fifth floor of the hospital, adjacent to the High Level Care Unit. The High Level Care Unit consists of 28 rooms, five of which have water plumbed for the dialysis machines. Hospitalized patients requiring dialysis therapy are generally admitted to the high level care area, unless admitted to the Intensive Care or Cardiovascular units.  


Other providers

There is a competing 12-station outpatient dialysis facility located in Cumberland and a 12-station outpatient dialysis facility in Keyser, West Virginia approximately 30 minutes from Cumberland, offering home PD and nocturnal hemodialysis services.  

Change in payment system

In 2011, WMHS entered an agreement with the Maryland Health Services Cost Review Commission to adopt the Total Patient Revenue System, a revenue constraint system developed by the Maryland Health Services Cost Review Commission. The TPR system provides hospitals with a financial incentive to manage their resources efficiently and effectively in order to slow the rate of increasing health care costs. The TPR also is consistent with the hospital’s mission to provide the highest value of care possible to the community it serves.

TPR revenue constraint systems are available to sole community provider hospitals and hospitals operating in regions of the state characterized by an absence of densely overlapping services areas. The HSCRC staff reserves the right to exclude any hospital from eligibility for the TPR if it determines that that hospital’s service area characteristics are not conducive to successful implementation and operation of the TPR constraint system.

The basic concept embodied in the TPR constraint system is the assurance of a certain amount of revenue each year, independent of the number of patients treated and the amount of services provided to these patients. The hospital therefore has the incentive to reduce length of stay, ancillary testing, unnecessary admissions and readmissions, as well as improve efficiency in the provision of services while treating patients in the most economical manner consistent with appropriate, high quality medical care. Ten acute care Maryland hospitals participate in the TPR rate setting methodology. One hospital, Garrett County Memorial Hospital has been on this system for over 20 years. A second hospital, the Edward W. McCready Memorial Hospital, transitioned to the TPR methodology in FY 2008. The remaining eight hospitals, including Western Maryland Regional Medical Center, adopted the TPR rate setting methodology for FY 2011.

In 2010, WMHS began preparing for the implementation of the ESRD PPS and its participation in the TPR. An internal analysis of the WMHS dialysis program revealed two significant areas of concern:

  1. Higher-than-industry average utilization of previously billable drugs, an average of $98.07 per treatment, most specifically the cost associated with the use of erythropoiesis-stimulating agent (ESA) in its outpatient dialysis program, and
  2. A high incidence of readmissions––27%––to WMHS within the 30 days of discharge with the same medical diagnosis code among its ESRD patients.


To address the first area of concern, administration made the decision in 2010 to transition to the ESRD PPS bundled payment. In year one of the ESRD PPS implementation, WMHS averaged $262 per treatment under the “blended” option (25% bundle and 75% fee-for-service) versus approximately $236 per treatment if the dialysis program had elected to go into the bundle at 100%. However, as the transition into the full bundle continued over the next three years, WMHS realized reimbursement under the ESRD PPS would decrease towards the national average of $236. Appropriate processes were needed to address the costs associated with the pharmacy component while maintaining quality outcomes that met or exceeded the CMS performance standards.

In May 2011, WMHS had an in-depth financial and clinical analysis done (Healthcare Design Specialists, of its renal service line (outpatient and inpatient dialysis), leading to a long-term strategic business plan. Given the unique payment rules in the state of Maryland, a critical focus was on the management of the global cost of ESRD patients under a fixed reimbursement methodology.

Emphasis on the application of an ESRD care management program was presented, defining a focused approach to patient care that coordinated resources across the entire health care delivery system and throughout the life cycle of the disease.

In May 2012, WMHS established two committees: 1) a Dialysis Administrative Team to meet monthly, comprised of the nurse manager and medical director of the outpatient dialysis program; the director of nursing; the director of registration and billing, and the director of financial operations/patient care services; and 2) the Nephrology Executive Committee (NEC), to meet quarterly, comprised of representatives from senior management (chief operating officer/chief nursing executive, vice president, revenue cycle and physician enterprise for WMHS, and the director of nursing), the three independent nephrologists with privileges in the outpatient dialysis unit, and the nurse manager of the outpatient dialysis unit.

The purpose of the Dialysis Administrative Team is to monitor and trend the financial performance (revenue and cost management) as well as monitor regulatory compliance. The role of administrative assistant in the outpatient dialysis unit was expanded to include the monthly collection, tracking, trending, and reporting of expected net revenue and cost per treatment data to the Dialysis Administrative Team. Shared information among the team members would enable problems with billing and/or collections to be identified and a plan of action would be developed and tracked monthly. Cost improvement strategies would be identified, tracked, and trended monthly to enable the outpatient dialysis program to monitor both financial and clinical targets for the outpatient dialysis program and respond accordingly. The medical director of the outpatient dialysis program was an important contributor to this committee.

The purpose of the NEC is to establish the foundation upon which key providers of renal-related services work together in defining the future structure of the Western Maryland Renal Service Management Program. The NEC provides a centralized focus in the management of the WMHS Renal Service Line necessary to identify, integrate, and manage clinical outcomes, cost efficiencies and customer satisfaction under a disease management model. Two key initiatives were identified for implementation in FY 2013 (7/1/12-6/30/13):

1.     Establish an anemia management workgroup to address the high utilization and cost of ESAs

2.     Establish an ESRD Care Coordinator position to address the high incidence of readmissions within 30 days of discharge among the ESRD population and seek opportunities to significantly reduce the incidence of “avoidable” admissions

Anemia management initiative

In August 2012 an anemia management workgroup was established as part of the Renal Care Management Program. The purpose of this initiative was to reduce overall usage of Aranesp at the Western Maryland Regional Dialysis Center. The workgroup was chaired by the medical director of the outpatient dialysis program and included a pharmacist, the nurse manager of the outpatient dialysis unit, and a staff RN who would serve as the anemia “champion.” The workgroup was responsible for developing revisions to the anemia management protocol that was implemented in October 2012. The anemia champion was responsible for the weekly review and adjustment of medication usage according to the newly adopted protocol.

The following targets were established by the workgroup to be achieved by the end of the fiscal year (June 30, 2013):

Financial targets – reduction in medication usage:

  • Minimum goal– 10% usage reduction, yielding a savings of $55,939.53
  • Target goal– 15% usage reduction. yielding a savings of $83,909.29
  • Stretch goal-  20% usage reduction, yielding a savings of $111,879.06

Clinical target:

  • 72% of patients will meet a Hgb range of 9.5-12% g/dl.



The financial impact of the anemia management workgroup was significant. There was a decrease in the cost per treatment for medication usage for FY 2011 through FY 2013, and the group exceeded the stretch goal of a 20% reduction in usage. The cost savings was $111,879, based on:

  • FY 2011: cost ($1,263,883) / treatment (12,887) = $98.07 / treatment
  • FY 2012: cost ($1,067,135) / treatment (12,886) = $  82.81 / treatment
  • FY 2013: cost ($912,541) / treatment (12,545) =  $ 72.74 / treatment

Hemoglobin outcomes for FY 2013 are depicted in Table 1. So the achievement for the workgroup was creating stability in the hemoglobin range while still succeeding in reducing ESA costs by over $100,000.

Next month in Part II: The second initiative will be presented: High incidence of readmissions to WMHS within 30 days of discharge with the same medical diagnosis code.


The authors want to recognize the following members of the WMHS renal service line whose dedication to this program ensured the successful outcomes defined in this article: Ernie Santmyire RN, BSN – Anemia Manager / Charge RN, and Denise Murray, Administrative Assistant.