Kidney Failure and the Federal Government (1991) / Chapter Skim
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Outpatient Dialysis Reimbursement Issues
Outpatient Dialysis Reimbursement Issues
Pages 236-273
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From page 236... ...
The committee was guided in its deliberations by the criteria that ESRD payment policies and the rate-setting process should · promote the appropriate level of care; · ensure access to good quality care; · encourage cost-effective delivery of care; · recognize justifiable differences in costs among facilities, types of patients, and treatment modalities in the provision of ESRD services; · facilitate the adoption of cost-effective new treatment technologies and procedures; and · promote administrative simplicity. COVERED SERVICES IN THE COMPOSITE RATE The IObI committee considered two basic approaches to defining the services that should be included under the composite rate for outpatient dialysis: · continued reliance on the current HCFA method of definition, which is basically empirical and implicit; and · a more explicit, regular redefinition using a normative method and the services of a technical advisory committee.
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From page 237... ...
Dialysis and kidney transplantation services covered by Medicare are currently specified in Chapter 27 of the Medicare Provider Reimbursement Manual, as "Reimbursement for ESRD and Transplant Services."2 Chapter 27 includes instructions and procedures regarding payment for home and in-center dialysis treatment; the ESRD items and services included under the composite rate; other ESRD items and services that are separately billable, such as laboratory tests, injectable drugs, and blood furnished to dialysis patients; the calculation and payment of bad debt; recordkeeping and submission of cost reports; the exceptions process; and the appeals process. An item or service included under the composite rate is paid for through the composite rate payment to the facility, unless specifically excluded.
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From page 238... ...
Some providers believe that a serious problem has arisen because the type and amount of services required by dialysis patients have changed over time, but that HCFA's failure to modify the composite rate to reflect such changes constitutes an implicit rate reduction. However, other providers contend that the complaints are about items or services required by only a
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From page 239... ...
The total bundle of services currently provided to dialysis patients has been determined in important ways by the expectation of providers that Medicare reimbursement in real dollars will be decreased each year. Thus, to survive economically, providers must provide care within diminishing real levels of Medicare reimbursement.
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From page 240... ...
SOURCE: Pollack and Pesce, 1990. THE RATE-SETTING PROCESS The HCFA rate-setting process has been criticized on several grounds, including the timeliness of the cost data, the representativeness of the sample of facilities used to determine costs, the adequacy of Medicare cost accounting principles, the basis for calculating the facilities' average costs per dialysis treatment on which the rate is based, and the oversight of the process.
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From page 241... ...
These methods may apply to dialysis facilities as well: shorten the 90-day intermediary processing period, reduce the time dialysis facilities are allowed for the preparation of cost reports, require facilities to submit cost reports in machine-readable form, collect cost report data from an "early returns" sample of facilities (those with accounting years closer to the federal fiscal year) , or use the unaudited costs submitted by facilities.
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From page 242... ...
The use of GAAP, proponents argue, would result in a more comprehensive presentation of independent dialysis unit operations than does reliance on the Medicare Part A Cost Principles.4 HCFA responds that requiring all dialysis facilities to report costs according to Medicare cost principles allows it to compare costs across independent and hospital-based units in a standard way. The use of GAAP, however, would make it impossible to compare the costs of independent and hospitalbased facilities, since the hospitals' statements report total operations and not individual departments.
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From page 243... ...
These include the allocation of utility costs on the basis of the square feet occupied rather than on actual use; the depreciation of capital assets over an 8-year period, whereas the Internal Revenue Service permits varying depreciation rates depending on the nature and effective life of the asset; and the reporting of pension costs, where ERISA requires that employers escrow funds for future employee pension benefits on an accrual basis, but Medicare recognizes such costs only when they are actually spent. Procedural issues include variation in the application of Medicare rules across fiscal intermediaries; the limited recourse that providers have to correct errors in reported costs or to challenge the results of audited costs;6 and the limited incentives of ESRD providers, save the large chains, to report costs accurately since payment is not contingent on such data and the likelihood of being included in an audit sample is low.
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From page 244... ...
FACILITY PAYMENT POLICY ISSUES This section examines the following issues of outpatient dialysis payment policy: the level of payment, the dual rate for hospital-based and independent facilities, rebasing and updating the rate, and the labor portion of the rate. _ _ A A A ~ _ ~ ~ ~ _ ~ ~ ~ 4~~ ~ Level of Payment Although the outpatient dialysis reimbursement rate has fallen steadily over time (in real dollars)
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From page 245... ...
An analysis of these data for 1985 goes far to explain the HCFA point of view. The HCFA data for 1985 audited costs, reported costs, and facility-specific composite rates for the 124 treatment units in the audit sample (62 hospital-based and 62 independent facilities)
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From page 246... ...
246 Cal ._ C)
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From page 247... ...
On the basis that audited costs reflect true costs, HCFA claims that the majority of outpatient dialysis treatment units are doing well financially, i.e., their facility-specific composite rates exceed their audited costs. HCFA argues that independent units are doing quite well and that hospital-based units reflect inefficiencies.
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From page 248... ...
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From page 249... ...
Audited costs were $112 at the 10th percentile and $185 at the 90th percentile for hospital-based facilities, compared to $71 and $124 for the same percentiles for independent units. On average, hospital-based facilities provided dialysis at an audited cost $17 above the Medicare payment (composite rate)
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From page 250... ...
250 ._ ¢ Cal ._ Ct o sol an 3 a' m Cal ._ o o Cal ._ lo Ct o v .
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From page 251... ...
Rebasing and Updating The implications of rebasing or updating the composite rate need to be clarified. Rebasing means revising or recalculating the existing reimbursement rate using more recent cost data.
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From page 252... ...
Absent empirical data to support the view that the cost of an adequate "bundle of dialysis services" can be expected to decrease each year enough to compensate for annual, real-dollar decreases in payment rates, failure to update can only be regarded as arbitrary. Patient Complexity (Case MixJ No adjustment is made in the dialysis payment rate for patient complexity.
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From page 253... ...
For example, the IOM project staff used the 1985 cost data to develop a base rate for 1988, with varying assumptions about bases and updating factors (Table 11-51. The hypothetical 1988 average composite rate for all dialysis facilities varied from a low of $101.19 to a high of $148.06, a spread of $47 depending on the base rate and update factor used.
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From page 254... ...
SOURCE: Data on current rate are from Health Care Financing Administration, Bureau of Policy Development. Labor Portion of the Composite Rate The labor portion of the base composite rate has remained unchanged since the 1983 composite rate was introduced and is calculated as approximately 40 percent of the rated The labor share of treatment costs, however, has been increasing relative to the costs of equipment and supplies.
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From page 255... ...
Nor has this study addressed these issues at any length. Many physician payment issues mirror those of outpatient dialysis units: the definition of the bundle of covered services included under the monthly capitation payment (MCP)
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From page 256... ...
Rates are set by determining what providers actually spend to deliver dialysis to patients. These reported costs, adjusted in accordance with Medicare Part A Cost Principles as to what costs are allowable (audited costs)
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From page 257... ...
Hospitals may operate dialysis units even at a loss because it is part of a full-service program or because they can subsidize losses from other income, including income from admissions of dialysis patients. Obviously, these mechanisms for survival despite financial loss, perhaps adequate for some units in the past, cannot be expected to suffice if real rates are reduced progressively Finally, the most troublesome explanation of survival and growth of dialysis units is that they have been achieved to an important degree by progressive reduction in quality.
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From page 258... ...
On the other hand, the committee felt strongly that some mechanism for continuing review of rate setting was appropriate. It recommends, therefore, that ProPAC, which has been mandated to review ambulatory care, also review rate setting in the ESRD program.~° In addition, the committee recommends that HCFA establish an expert committee to advise it on potential additions to the "bundle of services" needed for dialysis patients as innovations arise and clinical practice changes.
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From page 259... ...
Ultimately, predicate rebasing of outpatient dialysis reimbursement on efficacy and quality studies that determine the components needed for appropriate dialysis care. Because these components will change as clinical and technical knowledge advance, HCFA should establish an expert advisory body to review periodically the services that Medicare should reimburse.
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From page 260... ...
. Subsequent to the IOM ESRD study committee's February 15, 1990 hearing on ratesetting, Dialysis Clinic, Inc., Nashville, Tennessee, compared the average cost per dialysis treatment calculated according to GAAP and Medicare cost reporting principles for the year ending September 30, 1989.
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From page 261... ...
1990. Testimony before the IOM ESRD Study Committee public hearing on dialysis reimbursement rate setting.
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From page 262... ...
20418 Dear Richard: This is in response to your letter concerning the procedures the Health Care Financing Administration (HCFA) used and is currently using to compute base composite rates for dialysis treatments under the End Stage Renal Disease (ESRD)
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From page 263... ...
In addition, if a facility did not report equipment costs for home hemodialysis treatments, we added $12.00 per treatment to its audited costs. This was particularly true where a facility had purchased equipment under the 100% agreement and no equipment costs were reported.
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From page 264... ...
The universe consisted of all certified renal facilities providing outpatient dialysis treatments. The frame contained 1147 facilities.
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From page 265... ...
THIRD AUDITS -- 1984 & 1985 COST DATA In 1986 we audited 63 hospital cost reports with fiscal years ending in 1984 and 1985 ant' f`:' independent cost reports with fiscal years ending in 1985. As in previous years, the ORD designed the sample.
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From page 266... ...
In addition, we adjusted CARD home supply costs for 6 independent facilities. FOURTH AUDITS -- 1988 & 1989 COST DATA For the most part, this sample design was the same as the third set of audits.
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From page 267... ...
The payment rates currently in effect were based on the original audited data and have never been rebased. A facility receives its composite payment rate for each completed dialysis treatment furnished to a Medicare beneficiary.
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From page 268... ...
care" and to "review periodically the 'bundle of services, that Medicare should reimburse." The majority further recommends that HCFA base its rate-setting methods "on efficacy and quality studies that determine the components needed for appropriate dialysis care." In my view, these recommendations come close to constituting a call for a detailed, official description of "appropriate" dialysis care and for setting Medicare reimbursement rates by "pricing out" this officially sanctioned "bundle of services." I believe that this approach to dialysis rate setting would be unwise for four reasons: First, it would be contrary to the long-established policies of the Medicare program that reject the idea that the government should tell health care providers how to provide care. I recognize that Medicare is slowly being dragged away from absolute adherence to this principle, but I do not believe that it is in the interests of patients, the provider community, or society at large to hasten this process.
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From page 269... ...
How then could such a panel balance between standards and costs Finally, I argue that the best mechanism for determining the costs of adequate dialysis care will be to observe the care that is actually being provided by the dialysis provider community at large and what this care is costing. These providers, by definition, deal with the full range of dialysis patients and work every day to balance the conflicting demands of quality of care and cost containment.
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From page 270... ...
The DRG weights for Medicare-covered hospital services are "recalibrated" every year on the basis of the most recent cost data available. Dialysis providers are already required to file annual cost reports with HCFA,~ and I see no reason that an annual recalculation of costs for a much smaller number of ESRD cases would not be feasible.
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From page 271... ...
In the scheme that I am proposing for updating payment rates, worthwhile but cost-increasing changes in practice patterns will come about only if most dialysis providers are people of good will with the interests of their patients at heart and have the financial means to incur some extra costs for a couple of years until reimbursement rates are adjusted. Based on my discussions with other committee members and the testimony presented in public hearings, I believe that we need not worry too much about the motivations of the provider community.
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From page 272... ...
They suggest that future recalculations should reflect the costs of some officially specified "bundle of services" that may be rather different from current care patterns. Because I see dangers in this approach and because I see no evidence that current care patterns are inadequate, I argue that the correct course is to recalculate the true costs of providing dialysis care today and to set reimbursement rates to cover these costs.
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From page 273... ...
Certainly this issue should be reexamined, but it is naive, I believe, to think that different standards for allowable costs could be applied to dialysis providers than are applied to other Medicare providers.
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